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For the second quarter 2019, Hilltop reported net income of $57.8 million or $0.62 per diluted share, which represents a 77% increase compared with the $0.35 reported during the same quarter last year.
Additionally, Hilltop delivered a return on average assets of 1.74% and a return on average equity of 11.6%.
Average loans held for investment excluding broker-dealer loans grew by $740 million or 13% compared to the prior second quarter.
The large drivers were our Bank of River Oaks acquisition in Q3 2018 and our national warehouse lending business, which increases average balance by $225 million or 81% from second quarter 2018.
Also, the structured finance business at HilltopSecurities yielded a net revenue increase of $31 million compared to prior year from optimal market conditions and the strategic alignment with the capital market business.
Through the first six months of 2019, we have returned $40 million to our stockholders in dividends and share repurchases.
Under our Board-authorized share repurchase program, $25 million remains available through January 2020.
For the second quarter, nonperforming assets were $53 million, down slightly linked quarter and down $32 million compared to the second quarter 2018.
The bank had a healthy quarter with pre-tax income increasing by $13.5 million or 41% from prior year.
This increase was partially driven by a reduction in noninterest expense of $7.3 million attributed to a wire fraud and indemnification asset amortization in Q2 2018 as well as operational efficiency within the business.
Additionally, higher yields on higher loans balances delivered net interest income growth of $5.5 million despite lower accretion during the period.
In the second quarter, the bank closed two underperforming branches resulting in 62 full service branches.
Mortgage pre-tax income of $21.8 million for the quarter, an improvement of $8.4 million from Q2 2018, was the result of disciplined pricing and expense management despite a 4% decline in origination volume.
Multiple initiatives implemented during the second half of 2018 resulted in $6 million lower fixed cost and $4.3 million higher origination and closing costs fees.
Gain-on-sale margins increased by 15 basis points from Q2 2018, though remained stable over the trailing 12 months.
The broker-dealer reported a very strong quarter with a pre-tax margin of 18.9% on increased net revenues of 35% versus prior year.
Results were relatively stable compared to prior year in our insurance business as we reported a pre-tax loss of $2.8 million for the quarter with a combined ratio of 113%.
As Jeremy discussed, for the second quarter of 2019, Hilltop reported $57.8 million of income attributable to common stockholders equating to $0.62 per diluted share.
During the second quarter, Hilltop reported a $700,000 recovery and provision for loan losses.
In the quarter, the bank recaptured $6.2 million of allowance for loan loss, principally related to ongoing improvement in the oil and gas portfolio and a significant recovery from a previously classified oil and gas loan.
The second quarter provision includes approximately $3 million of net charge-offs or 18 basis points of average bank loans on an annualized basis.
During the second quarter, revenue-related purchase accounting accretion was $6.4 million and expenses were $2 million, resulting in a net purchase accounting pre-tax impact of $4.4 million for the quarter.
Related to the purchase loan accretion, as the purchase portfolio balances continued to decline, we expect scheduled interest income related to purchase loan accretion to average between $4 million and $6 million per quarter for the remainder of 2019.
Hilltop's capital position remains strong with a period in Common Equity Tier 1 ratio of 16.32% and a Tier 1 leverage ratio of 13%.
Net interest income in the second quarter equated to $108 million, including $6.4 million of purchased loan accretion.
Net interest income increased $3 million or 3% versus the same quarter in the prior year.
Net interest margin equated to 3.49% in the second quarter and included 23 basis points of purchase accounting accretion.
The prepurchase accounting taxable equivalent net interest margin equated to 3.26%, which improved by eight basis points versus the same period in the prior year.
On a linked-quarter basis, taxable equivalent prepurchase accounting net interest margin declined by 12 basis points, resulting from lower yields on loans held for sale and the six basis point increase in the interest-bearing deposit costs.
Year-to-date, the 10-year treasury yield has declined by approximately 65 basis points, which has a direct impact on Hilltop's loans held-for-sale yields, albeit on a lag basis.
Overall, the average yield on loans held for sale during the second quarter dropped by 32 basis points to 460 basis points, putting pressure on net interest margin during the quarter.
Hilltop's cumulative beta for interest-bearing deposits in December of 2015 has been approximately 46%, remaining below our through-the-cycle model ranges of 50% to 60%.
Therefore, we are maintaining our full year average prepurchase accounting net interest margin outlook of 3.25% plus or minus three basis points.
Quarterly average gross earning assets increased by $268 million versus the same period in the prior year.
Growth was impacted by lower average loans held for sale, which declined by $282 million versus the prior year period.
Total noninterest income for the second quarter of 2019 equated to $313 million.
Second quarter mortgage-related income and fees increased by $2.8 million versus the second quarter 2018.
During the second quarter of 2019, the competitive environment in mortgage banking remained intense as Hilltop's mortgage origination volumes declined by $147 million or 4% versus the same period in the prior year.
While mortgage volumes were challenged, gain-on-sale margins remained relatively stable during the second quarter at 333 basis points.
With the recent decline in the primary mortgage rate, the business experienced improvement in the refinance market as refinance volumes grew by 28% versus the prior year.
Other income increased by $35 million, driven primarily by improvements in sales and trading activities in both capital markets and structured finance services at HilltopSecurities.
Favorable market conditions resulted in a 25% increase in structured finance mortgage-backed security volumes and improved secondary spreads.
Noninterest expenses increased in the same period in the prior year by $5 million to $344 million.
The growth in expenses versus the prior year were driven by an increase in variable compensation of $18 million at HilltopSecurities and PrimeLending.
During the second quarter, Hilltop incurred $2 million in costs related to the ongoing core system enhancements, and we do expect that these related expenses will increase for the remainder of 2019.
Total average HFI loans grew by 11% versus the second quarter of 2018.
Based on current production trends, seasonal and scheduled paydowns, the current competitive environment and our focus on high-quality conservative underwriting, we continue to expect the full year average HFI loans will grow between 4% and 6% in 2019.
Turning to page 10.
As previously noted and as shown on this chart on the top right of the slide, Hilltop's businesses have maintained solid credit quality as nonperforming assets have declined $32.5 million from the same period in the prior year.
The allowance for loan loss to HFI loans ratio equates to 83 basis points at the end of the second quarter of 2019 and the decline from the first quarter of 2019 reflects the aforementioned allowance recapture.
It is important to note that we maintain approximately $90 million of remaining discounts across the purchase loan pools, and these discounts provide additional coverage against future losses.
Moving to page 11.
Average total deposits are approximately $8.3 billion and have increased by $483 million versus the second quarter of 2018.
Moving to page 12.
During the second quarter of 2019, PlainsCapital Bank continued to demonstrate solid improvement in profitability, generating approximately $47 million of pre-tax income during the quarter.
The quarter's results reflect the benefits of the growth in the Houston market, the affirmation allowance recaptured, which equated to $6.2 million and improvement in the efficiency ratio versus the prior year period of 10.6%.
Of note, the second quarter of 2018 included $4 million of expense related to the previously reported wire fraud and $2 million loss share related expenses.
I'm turning to page 13.
PrimeLending generated a pre-tax profit of $22 million in the second quarter of 2019 driven by the efficiency efforts that the leadership team at PrimeLending executed during the third and fourth quarters of 2018 and has continued in the 2019.
While origination volumes declined by 4% versus the same period in the prior year, the combination of back-office efficiencies and branch performance management have yielded significant reduction in operating expenses, which declined by approximately $6 million versus the same period in the prior year.
Mortgage origination fees have increased from the same period in the prior year by 12 basis points, which yielded a small increase in fees versus the prior year even as origination volumes declined.
Turning to page 14.
HilltopSecurities delivered a pre-tax profit of $22 million for the second quarter of 2019, driven by solid execution in the structured finance and capital markets businesses, which have benefited from both our ongoing investments in structuring, sales and distribution and improved market conditions.
Moving to page 15.
National Lloyds recorded a $3 million pre-tax loss for the quarter, which reflects seasonal increases in storm activity and client-related losses.
I'm moving to page 16.
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For the second quarter 2019, Hilltop reported net income of $57.8 million or $0.62 per diluted share, which represents a 77% increase compared with the $0.35 reported during the same quarter last year.
As Jeremy discussed, for the second quarter of 2019, Hilltop reported $57.8 million of income attributable to common stockholders equating to $0.62 per diluted share.
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Today's remarks are governed by the safe harbor provisions of the 1995 Private Securities Litigation Reform Act.
For a discussion of the risks associated with VPG's operations, we encourage you to refer to our SEC filings, especially the Form 10-K for the year ended December 31, 2019, and our other recent SEC filings.
We have ended the quarter with a positive book-to-bill of 1.08 and grew our total orders 4.4% from the same quarter a year ago.
While the majority of VPG's facilities were able to continue operations due to the essential nature of our products, our two facilities in India and in China were more significantly impacted.
While this order has been extended to May 17, we received approval to resume partial operations on our India facility.
Financially, we have implemented a companywide salary freeze and have reduced our planned capital spending for 2020 by 30%.
For Foil Technology Products segment, first-quarter sales of $30.5 million grew 2.8% sequentially, reflecting growth in precision foil resistors and shrinkages in test and measurement and consumer markets, which offset weaker sales in the general industrial market.
Order for FTP in the first quarter grew from the fourth quarter of 2019 and included significant order for advanced sensors, which resulted in our book-to-bill of 1.25 as compared to 1.18.
First-quarter sales of Force Sensors of 14.7% -- $14.7 million declined 2.4% and from the fourth quarter of 2019, reflecting slower demand in the industrial weighing markets as well as modest impact from a temporary government-mandated shutdown of our China facility.
While a book-to-bill for Force Sensors in Q1 was 1.02, we expect our second quarter sales for these products to be impacted by the essential shutdown of our manufacturing facility in Chennai, India that I mentioned earlier.
Assuming the full reopening of this facility on May 17, we expect that our Force Sensors revenues in the second quarter to be reduced by approximately $5 million to $7 million, which is reflected in our guidance.
We also expect our operating profit to be impacted by approximately $3.5 million, reflecting the lower revenues, the required payments to employees during the shutdown period and of some partial operations and higher logistics costs.
Sales of Weighing and Control Systems in the first quarter of $22.5 million declined 7.9% sequentially.
Book-to-bill for WCS was 0.9 in the first quarter of 2020.
We believe we have ample liquidity with a net cash of $42 million on our balance sheet and a new revolving credit facility we put in place in March 2020 that not only gives us expanded borrowing capacity should we need it, but also offers us lower borrowing rates and more favorable terms.
Given the high degree of uncertainty in the macro environment, we are focused on what we can control, which are our key strategic initiatives, to both grow our business and to reduce our operating cost.
Referring to Page 7 of the slide deck.
In the first quarter of 2020, we achieved revenues of $67.7 million, operating income of $4.6 million or 6.9% of revenues, and net earnings per diluted share of $0.24.
On an adjusted basis, which excludes $515,000 of acquisition purchase accounting adjustments related to the DSI acquisition in November 2019 and $130,000 of restructuring costs, our adjusted operating income was $5.3 million or 7.8% of sales and our adjusted net earnings per diluted share was $0.29.
Our first-quarter 2020 revenue declined 2.1%, compared to 69.1% -- $69.1 million in fourth quarter and were down 11.5% as compared to $76.5 million in the first quarter a year ago, which was also a historical high quarter for VPG.
Foreign exchange negatively affected revenues by $600,000 for the first quarter of 2020 compared to a year ago and had no impact as compared to the Q4 of 2019.
Our gross margin in the first quarter was 37%.
Our gross margin on an adjusted basis was 37.8%, which improved from 36.8% in the fourth quarter of 2019.
Our operating margin was 6.9% for the first quarter of 2020.
Excluding the above-mentioned purchase accounting adjustments and restructuring charges, our first-quarter adjusted operating margin was 7.8%, which increased from 7.5% we reported in the fourth quarter of 2019.
Selling, general and administrative expenses for the first-quarter 2020 were $20.3 million or 30% of revenues.
This compares to $20.4 million or 26.7% for the first quarter of last year and $20.2 million or 29.2% in the fourth quarter of 2019.
The adjusted net earnings for the first quarter of 2020 were $3.9 million or $0.29 per diluted share, improved from $3.7 million or $0.27 per diluted share in the fourth quarter of 2019.
The impact of foreign exchange rates for the first quarter of 2020 was positive compared to the first quarter of 2019 by approximately $400,000 or $0.03 per diluted share.
We generated adjusted free cash flow of $3 million for the first quarter of 2020 as compared to $4.8 million for the first quarter in 2019.
The GAAP tax rate in the first quarter was 32.3%.
We are assuming an operational tax rate in the range of 27% to 29% for 2020 planning purposes.
We ended the first quarter with $82.7 million of cash and cash equivalents and total long-term debt of $40.6 million.
Turning to our outlook, given the expected impacts resulting from the COVID-19 pandemic, we now currently expect net revenues in the range of $56 million to $62 million for the second quarter of 2020, which assumes constant first-quarter 2020 exchange rates.
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For a discussion of the risks associated with VPG's operations, we encourage you to refer to our SEC filings, especially the Form 10-K for the year ended December 31, 2019, and our other recent SEC filings.
While the majority of VPG's facilities were able to continue operations due to the essential nature of our products, our two facilities in India and in China were more significantly impacted.
While this order has been extended to May 17, we received approval to resume partial operations on our India facility.
Assuming the full reopening of this facility on May 17, we expect that our Force Sensors revenues in the second quarter to be reduced by approximately $5 million to $7 million, which is reflected in our guidance.
Given the high degree of uncertainty in the macro environment, we are focused on what we can control, which are our key strategic initiatives, to both grow our business and to reduce our operating cost.
In the first quarter of 2020, we achieved revenues of $67.7 million, operating income of $4.6 million or 6.9% of revenues, and net earnings per diluted share of $0.24.
On an adjusted basis, which excludes $515,000 of acquisition purchase accounting adjustments related to the DSI acquisition in November 2019 and $130,000 of restructuring costs, our adjusted operating income was $5.3 million or 7.8% of sales and our adjusted net earnings per diluted share was $0.29.
Our first-quarter 2020 revenue declined 2.1%, compared to 69.1% -- $69.1 million in fourth quarter and were down 11.5% as compared to $76.5 million in the first quarter a year ago, which was also a historical high quarter for VPG.
The adjusted net earnings for the first quarter of 2020 were $3.9 million or $0.29 per diluted share, improved from $3.7 million or $0.27 per diluted share in the fourth quarter of 2019.
Turning to our outlook, given the expected impacts resulting from the COVID-19 pandemic, we now currently expect net revenues in the range of $56 million to $62 million for the second quarter of 2020, which assumes constant first-quarter 2020 exchange rates.
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1 industry ranking on its World's Most Admired Companies list.
NSR increased by 5% with strong growth in both our Americas and international segments.
Wins totaled $3.6 billion with a 1.4 book-to-burn ratio in our Americas design business, and a 1.2 book-to-burn ratio across our global design business.
The segment adjusted operating margin increased by 60 basis points to 13.7%, reflecting continued investments in organic growth and innovation, the benefits of our highly efficient global delivery capabilities and the high value our teams are delivering for our clients.
Our focus on deploying innovation and digital tools to transform how we deliver for clients against a backdrop of increasing demand for advisory and program management services supports our guidance for this year and our 17% longer-term margin target.
Adjusted EBITDA increased by 10% and adjusted earnings per share increased by 44%.
Including $213 million of stock repurchases in the first quarter, we have now repurchased $1.2 billion of stock since September 2020, when we launched our repurchase program, or 14% of our outstanding shares.
Our federal, state and local clients are gearing up for several years of sustained increases in infrastructure investment, which includes the expected benefits of the $1.2 trillion Bipartisan Infrastructure Law.
However, our state and local clients, which account for nearly 25% of our NSR, are reporting record revenues and budget surpluses, which is resulting in a very favorable backdrop.
For example, our leadership team identified 10 global pursuits that we deem to be a top priority for strategic positioning and for delivering on our accelerating growth expectations.
I'm very pleased to report that we've already won eight of these 10 projects, and two are still pending decisions.
Tax was a $0.04 benefit to earnings per share compared to our plan due to the timing and quantum of discrete items.
We also delivered on our capital allocation commitments, including ongoing investments in our teams and digital AECOM, more than $200 million of share repurchases and the initiation of a quarterly dividend program.
In the Americas, NSR increased by 3%, highlighted by growth in both the design and construction management businesses.
Our book-to-burn in the Americas design business was 1.4, and total backlog in design business increased by 5%, which continues to include a near-record level of contracted backlog, which provides for strong revenue visibility.
First quarter adjusted operating margin was 17.7%, a 30-basis-point increase from the prior year.
NSR increased by 7%, with growth across all of our largest regions.
Our wins were strong and backlog increased by 6%.
Our adjusted operating margin in the first quarter was 8.2%, a 110-basis-point improvement from the prior year.
First quarter operating cash flow was $195 million and free cash flow was $163 million.
As we look ahead, we continue to expect to convert our earnings to cash flow at a high rate, and we continue to expect free cash flow of between $450 million and $650 million in fiscal 2022.
We are increasing our fiscal 2022 adjusted earnings per share guidance to between $3.30 and $3.50, which would reflect 21% growth at the midpoint.
We also continue to expect to deliver adjusted EBITDA of between $880 million and $920 million, which would reflect 8% growth at the midpoint of the range.
Based on our strong start to the year, we are also reaffirming our expectation for organic NSR growth of 6%, a segment adjusted operating margin of 14.1% and our long-term 2024 financial targets, including adjusted earnings per share of greater than $4.75 and approximately $700 million in free cash flow.
We expect our full year tax rate to be 25%, which incorporates the impact of our first quarter tax rate and the expectations for approximately 28% for the rest of the year.
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1 industry ranking on its World's Most Admired Companies list.
We are increasing our fiscal 2022 adjusted earnings per share guidance to between $3.30 and $3.50, which would reflect 21% growth at the midpoint.
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Our domestic same-store sales were an impressive 4.3% this quarter on top of last year's historic 21.8% growth.
Our growth rates for retail and commercial were both strong with domestic commercial growth north of 21%.
Our commercial business set a record this quarter with $1.2 billion in sales for the quarter, an incredible accomplishment.
Additionally, we reached a new milestone in commercial sales surpassing $3 billion for the year, finishing with over $3.3 billion in annual sales versus $2.7 billion in sales a year ago, an impressive 23% increase.
We set new records in annual sales volumes per store reaching $12,600 for the year, up from $10,600 just last year.
We ran a roughly flat comp this quarter after increasing well over 20% in last year's fourth quarter.
The first eight weeks of the quarter, our comp was 3.1%.
In the last eight weeks, our comp averaged 5.5%.
Given the dynamics of the past 18 months, we like others who benefited from the lumpiness of the pandemic sales, believe it is more insightful to look at a two-year stack comp.
For Q4, our two year comp was 26%.
On a two-year basis, our cadence for each four week period of the quarter was 26.8%, 28.2%, 25.5% and 24%.
Regarding the quarter's traffic versus ticket growth, our retail traffic was down roughly 4%, while our retail ticket was up 3%.
Across both our retail and commercial customer basis, we saw the Midwest, Mid-Atlantic and Northeastern markets underperform, roughly 400 basis points in comp versus the remainder of the country.
We have been very pleased that we have retained the roughly 10% market share we gained in our retail sales floor business last year.
On Q2's call, we shared that we would provide every AutoZoner with a $100 incentive once they completed their vaccination for COVID-19, that's every AutoZoner including part-timers.
We spent another $2.7 million in the fourth quarter reimbursing our AutoZoners for the vaccine.
We are strongly encouraging our AutoZoners to get the vaccine as our culture and values of taking care of one another have been on display for the past 18 months.
Our same-store sales were up 4.3% versus last year's fourth quarter.
Our net income was $786 million and our earnings per share was $35.72 a share, 15.5% above last year's fourth quarter.
Commercial total sales grew approximately 21%.
We averaged $74 million in weekly sales, which was approximately $14,400 in sales per program per week, which was easily an all-time record for us.
I'll remind you that this is a highly fragmented $75 billion market and we believe our product and service offerings provide us a tremendous opportunity to significantly grow sales and market share over time.
This quarter we saw our retail sales impacted positively by about 2% year-over-year from inflation, while our cost of goods was basically flat.
For the quarter, total auto parts sales, which includes our Domestic, Mexico and Brazil stores were $4.8 [Phonetic] billion, up 8%.
And for the total year, our total auto parts sales were $14.4 billion, up 15.9%.
Starting with our commercial business, for the fourth quarter our domestic DIFM sales increased 21% to $1.2 billion and were up 31% on a two year stack basis.
Sales to our DIFM customers represented 24% of our total sales and our weekly sales per program were $14,400, up 18% as we averaged $74 million in total weekly commercial sales.
Once again, our growth was broad-based as national and local accounts all grew over 20% in the quarter.
For the full-year, our commercial sales grew 22.6% and 29% on a two-year stack basis.
We now have our commercial program in over 86% of our domestic stores and we're focused on building our business with national, regional and local accounts.
This quarter, we opened 72 net new programs, finishing with 5,179 total programs.
We now have 58 mega hub locations and we expect to open approximately 20 more over the next 12 months.
As a reminder, our mega hubs typically carry roughly 100,000 SKUs and drive tremendous sales lift inside the store box, as well as serve as the fulfillment source for other stores.
I will remind you that our current mega hub strategy envisions our expansion to a total of 100 to 110 mega hubs.
On the retail side of our business, our domestic retail business was down just 40 basis points, but up 23.4% on a two year stack.
For the full-year, the retail business was up 11.2% and 18.7% on a two year stack basis.
The business has been remarkably resilient as we have gained and maintained nearly 300 points of market share since the start of the pandemic.
During the quarter, we opened 29 new stores in Mexico to finish with 664 stores and five new stores in Brazil to finish with 52.
For the quarter, our gross margin was down 82 basis points, driven primarily by the accelerated growth in our commercial business, where the shift in mix coupled with the investment in our initiatives drove margin pressure, but increased our gross profit dollars by 6.4%.
I mentioned on last quarter's call that we expected to have our gross margin down in a similar range to our third quarter, where we were down 118 basis points.
Our expenses were, up 9.2% versus last year's Q4 as SG&A as a percentage of sales deleveraged 33 basis points.
Moving to the rest of the P&L, EBIT for the quarter was just over $1 billion, up 2.6% versus prior year's quarter, driven by strong topline growth.
EBIT for fiscal year '21 was just over $2.9 billion, up 21.8% versus fiscal year '20.
Interest expense for the quarter was just over $58 million, down 11.5% from Q4 a year ago as our debt outstanding at the end of the quarter was just under $5.3 billion versus just over $5.5 billion last year.
We're planning interest in the $46 million to $48 million range for the first quarter of fiscal 2022 versus $46 million in last year's first quarter.
For the quarter, our tax rate was 20.3% versus 22.3% in last year's fourth quarter.
This quarter's rate benefited 215 basis points from stock options exercised, while last year it benefited 35 basis points.
For the first quarter of 2022, we suggest investors model us at approximately 23.6% before any exemptions on credits due to stock option exercises.
Net income for the quarter was $786 million, up 6.1% versus last year's fourth quarter.
Our diluted share count of 22 million was lower by 8.1% from last year's fourth quarter.
The combination of higher earnings and lower share count drove earnings per share for the quarter to $35.72, up 15.5% over the prior year's fourth quarter.
Net income per share for fiscal year '21 was $95.19, up a remarkable 32.3%, reflecting our outstanding topline performance and lower share count.
For the fourth quarter, we generated $1.3 billion of operating cash.
Regarding our balance sheet, we now have nearly $1.2 billion in cash on the balance sheet and our liquidity position remains strong.
Total inventory increased 3.7% over the same period last year, driven by new stores.
Net inventory defined as merchandise inventories less accounts payable on a per store basis was a negative $203,000 versus negative $104,000 last year and negative $167,000 last quarter.
As a result, accounts payable as a percent of gross inventory finished the quarter at 129.6% versus last year's Q4 of 115.3%.
We repurchased $900 million of AutoZone stock in the quarter.
As of the end of the fiscal quarter, we had approximately 21.1 million shares outstanding.
At quarter end, we had just over $418 million remaining under our share buyback authorization and over $900 million of excess cash.
For the full-year, we bought back $3.4 billion of stock or approximately 2.6 million shares.
The powerful free cash flow we have generated this year combined with excess cash carried over from last year has enabled us to buyback over 11% of our shares outstanding at the beginning of the year.
We have bought back nearly 90% of the shares outstanding of our stock since our buyback inception in 1998, while investing in our existing assets and growing our business.
So, to wrap up, we had another very strong quarter highlighted by strong comp sales, which drove a 6.1% increase in net income and a 15.5% increase in EPS.
We are also targeting to open 20 new domestic mega hubs in the US that will enhance our ability and support growth in our retail and commercial businesses.
We will open approximately 200 new stores throughout the Americas with notable acceleration in our Brazil business.
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Our domestic same-store sales were an impressive 4.3% this quarter on top of last year's historic 21.8% growth.
Our same-store sales were up 4.3% versus last year's fourth quarter.
Our net income was $786 million and our earnings per share was $35.72 a share, 15.5% above last year's fourth quarter.
The combination of higher earnings and lower share count drove earnings per share for the quarter to $35.72, up 15.5% over the prior year's fourth quarter.
Total inventory increased 3.7% over the same period last year, driven by new stores.
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Our new business production totaled $389 million of direct PVP exceeded by $75 million -- the direct PVP we produced in every year but once since 2010.
The sole exception was the $553 million of direct PVP we produced in 2019 making the last two years direct production our best in this decade.
In our core business, U.S. municipal bond insurance we guaranteed more than $21 billion of foreign primary and secondary markets, generated $292 million of PVP, both 10-year records for direct production.
We again set new per share records for shareholders' equity and adjusted operating shareholder's equity with totals at year-end of $85.66, $78.49 respectively.
During the year, our adjusted book value per share exceeded $100 for the first time.
At $114.87 year end of adjusted book value per share reflected the greatest single year increase since our IPO $17.88 and the second highest growth rate of 18%.
We retired a total of 16.2 million common shares mainly through highly accretive share repurchases at an average price of $28.23.
We spent 11% less in 2022 repurchase.
We repurchased 31% more shares than in 2019.
We returned a total of $515 million to shareholders through repurchases and dividends.
We also repurchased $23 million of outstanding debt.
2020 was a profitable year where we earned $256 million in adjusted operating income or $2.97 per share.
The benchmark 30 year AAA municipal market data interest rate began the year at 2.07%, jumped in March as high as 3.37%, bottomed down in August at a historic low of 1.27%.
At that time for PO analysts of any were predicting that 2020 will see $452 billion of municipal bonds issued the greatest annual par value on our volume on record.
These included $500 billion municipal liquid facility which reassured the bond market by providing a backup source of liquidity for states and municipal.
As a result bond insurance penetration rose to 7.6% of par volume sold in the primary market, almost a full percentage point above the past decade's previous high.
Assured Guaranty led this growth with a 58% share of insured new issue par sold.
$21 billion of U.S. public finance par we insured in 2020 was 30% more than in 2019 and included taxable and tax exempt transactions in both primary and secondary markets.
2020 PVP was up 45% year-over-year.
We insured $6.8 billion of forum taxable municipal new issues in 2020, up from $3 billion in 2019, $1.5 billion in 2018.
We also guaranteed $2.5 billion of par the new issues that had underlying ratings in the AA category from S&P or Moody's, which was $1 billion more than in 2019.
The increase in institutional demand for our guarantee was evident in 39 new issues, up from 22 in 2019 where we provided insurance in $100 million or more of par.
These include one of our largest U.S. public finance transactions in many years, $726 million of insured refunding bonds issued by Yankee Stadium, LLC.
Our production in Healthcare Finance made a strong contribution during 2020 as we guaranteed $2.7 billion of primary market par on 25 transactions.
As the only provider of bond insurance in the healthcare sector Assured Guaranty had 9.7% of all healthcare revenue bond par issued in 2020.
Additionally we guaranteed for $164 million of healthcare par across 39 different secondary market policies.
Another highlight was our reentry after seven years into the private higher education bond market where we insured a total of $690 million of par for Howard, Drexel and Seton Hall Universities.
For Howard University we insure two issues totaling $320 million in par in insured par.
Our International Public Finance business produced $82 million of PVP during 2020 even though a number of opportunities were delayed due to pandemic conditions.
In our Worldwide Structured Finance business, we executed a diverse group of transactions in the asset-backed securities, insurance capital management and other structured finance sectors and generated $16 million of PVP during 2020.
Our par exposure to credit review below investment declined by $531 million, a 6% decrease and ended the year at less than 3.5% of net par outstanding.
We have conditionally supported this agreement with the express understanding that the affected parties will work with us in good faith to make this agreement part of a more comprehensive solution one that respects our legal rights and ultimately achieves the goal of bringing the Title 3 process to adjust an expeditious conclusion.
This effort is taking place amid occurred during economic news, significant federal assistance has been unlocked, Commonwealth revenues continue to exceed the expectations underlying the Oversight Board's fiscal plans resulting in aggregate Commonwealth balances tripling over the last three years to more than $20 billion at year-end 2020 and reaching as high as almost $25 billion mid-year.
Our total net par exposure to Puerto Rico decreased in 2020 by $545 million including $372 million of water and sewer bonds that were redeemed without any claims having been made on our policy.
Even though AssuredIM assets under management in the wind down funds were reduced by $2.4 billion its total AUM changed very little declining by less than 3% to $17.3 billion.
Assured Guaranty's insurance companies have allocated $1.1 billion of investments from AssuredIM to manage, of which, almost $600 million was funded as of year-end.
As of October 1, 2020, we were pleased to learn that Assured Guaranty would become a competitor of the Standard & Poor's Small Cap 600 Index.
These investors' appetite for our shares was reflected in a 31% increase in our share price the week following the announcement.
Our share price continue to grow and in the year 44% higher than on October 1 almost doubling through February 25 of 2021.
Inclusion in the Index changed the composition of our shareholder base to be somewhat more heavily weighted toward the index focused asset managers including our second- and fourth-largest shareholders which together hold approximately 20% of our shares at year-end.
We also retired 16.2 million shares, mainly through share repurchases which helped to boost adjusted book value per share to a new record of over $114 per share.
In our Asset Management business, we increased fee earning AUM from $8 billion to $12.9 billion or 62% across CLO opportunity and liquidity strategies.
As of yearend 2020 Assured Guaranty insurance companies had $1.1 billion of invested assets that is managed by Assured Investment Management of which $562 million is through an investment management agreement and $522 million is committed to Assured Investment Management funds, which had a total return of 15.6% on the invested balances.
Turning to our fourth quarter 2020 results, adjusted operating income was $56 million or $0.69 per share compared with $87 million or $0.90 per share in the fourth quarter of 2019.
The contribution from our insurance segment for fourth quarter 2020 was $109 million compared with $133 million in fourth quarter 2019.
Net earned premiums and credit derivative revenues increased $30 million to $159 million in fourth quarter 2020 compared with the $129 million in fourth quarter 2019.
These amounts include premium accelerations of $65 million and $39 million respectively.
Total income from the insurance segment investment portfolio consists of net investment income and equity earnings of investees totaling $94 million in fourth quarter 2020 and $84 million in fourth quarter of 2019.
Net investment income represents interest income when fixed maturity and short-term investment portfolio and with $70 million in fourth quarter 2020 compared with $85 million in the fourth quarter of 2019.
In the fourth quarter 2020 equity earnings was $24 million compared to a negligible amount in fourth quarter 2019.
As of December 31, 2020 the insurance subsidiaries investment in Assured Investment Management funds was $345 million, compared with only $77 million as of December 31, 2019.
The insurance companies have authorization to invest up to $750 million in Assured Investment Management funds of which over $43 million has been committed including $177 million that has yet to be funded.
In addition, the company has a commitment to invest an additional $125 million in unrelated alternative investments as of December 31, 2020.
However, the long-term we expect the enhanced returns on the alternative investment portfolio to be approximately 10% to 12%, which exceeds the returns on the fixed maturities portfolio.
In the Asset Management segment adjusted operating income was a loss of $20 million compared with a loss of $10 million in fourth quarter 2019.
The additional net loss was mainly attributable to $5 million in placement fees associated with the launch of new healthcare strategy and an impairment of a right of lease -- right of use asset of $13 million related to the relocation of Assured Investment Management offices to 1633 Broadway, Assured Guaranty's primary New York City location.
Our long-term view of the Asset Management segment remains positive based on our recent success in increasing fee earning AUM by 62% and launching a $900 million healthcare strategy with significant third-party investment.
Adjusted operating loss for the corporate division was $28 million in the fourth quarter of 2020 compared with $32 million in the fourth quarter of 2019.
In fourth quarter 2020 the effective tax rate was a provision of 12.7% compared with a benefit of 3.5% in fourth quarter 2019.
Moving on to the full-year results, adjusted operating income was $256 million in 2020 compared with $391 million in 2019.
The variance was mainly driven by the Insurance segment and Asset Management segment adjusted operating income, which declined $83 million and $40 million respectively on a year-over-year basis.
The insurance segment had adjusted operating income of $429 million in 2020 compared with $512 million in 2019.
Net earned premiums and credit derivative revenues were $504 million in 2020 compared with $511 million in 2019 including premium accelerations of $130 million -- and a $130 million respectively.
Also, noteworthy is that public finance scheduled earned premiums increased 5% in 2020 compared with 2019.
The corporate division had adjusted operating loss of $111 million in both 2020 and 2019.
Turning to our capital management strategy, in the fourth quarter of 2020 we repurchased 4.3 million shares for $126 million at an average price of dollars and $28.87 per share.
This brings our full-year 2020 repurchases to 15.8 million shares or $446 million at an average price of $28.23.
So far in 2021 we have purchased an additional 1.4 million shares for $50 million.
Since January 2013, our successful repurchase program has returned $3.7 billion to shareholders, resulting in a 63% reduction in total shares outstanding.
The cumulative effect of these repurchases was a benefit of approximately $29.32 per share in adjusted operating shareholder's equity and $51.48 in adjusted book value per share, which helped drive these metrics to new record highs of $78.49 in adjusted operating shareholder's equity per share and $114.87 of adjusted book value per share.
From a liquidity standpoint, the holding company currently has cash and investments of approximately $204 million of which $133 million resides in AGL.
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Turning to our fourth quarter 2020 results, adjusted operating income was $56 million or $0.69 per share compared with $87 million or $0.90 per share in the fourth quarter of 2019.
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These comments are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Sales were up 43% year-over-year, and this is the strongest growth Myers has obtained in over a decade.
As I mentioned, sales were up 43% year-over-year, driven by strong growth in both the Material Handling and Distribution Segments and a meaningful contribution from the Elkhart acquisition.
Wholesale RV shipments were up 79% in March and are projected to reach a record high in 2021.
On an organic basis, sales were up 21%.
In response to the significant increases in raw material costs, partly due to Winter Storm Uri, we announced an 8% price increase across a broad portfolio of our products effective March 1.
Then in response to continued raw material pressure and a tight supply chain, we announced a second price increase of 9% to 12% effective April 1.
Net sales were up $52 million, an increase of 43%.
Excluding the impact of the Elkhart acquisition, organic net sales increased 21% due to volume mix.
Price and FX accounted for 1% of the net sales growth.
Adjusted gross profit was up $7.9 million, while gross margin decreased from 34.8% in the prior year to 28.9% in the quarter.
As a reminder, we are targeting $4 million to $6 million in annual cost synergies over the course of the upcoming two years.
Adjusted operating income increased slightly to $11.9 million.
Adjusted EBITDA was $17 million, a decline of $400,000 compared to the prior year.
Adjusted EBITDA margin was 9.8%.
And lastly, adjusted earnings per share was $0.22, flat compared to the prior year.
Beginning with Material Handling, net sales increased $46 million or 55%, including the Elkhart acquisition.
On an organic basis, sales were up 22%, driven by strong volume mix.
Price and FX accounted for 1% of the growth.
Material Handling adjusted operating income increased 12% to $16.9 million, driven by higher sales volume and the addition of Elkhart, which were mostly offset by an unfavorable price-to-cost relationship, unfavorable sales mix and higher manufacturing expenses, incentive compensation costs and legal and professional fees.
In the Distribution Segment, sales increased $6 million or 17%, driven by both equipment and consumable sales.
Distribution's adjusted operating income increased 5% to $2 million, primarily as a result of higher sales volume, partially offset by an unfavorable sales mix and unfavorable price-to-cost relationship and higher incentive compensation costs.
Cash provided by operating activities was $6.6 million, an increase of $1.6 million over the prior year, reflecting the benefit of working capital.
Free cash flow decreased $1.1 million to $1.4 million, reflecting an increase in capital expenditures year-over-year.
Cash on hand at quarter end was $16.6 million.
Based on our trailing 12-month adjusted EBITDA of $66 million, leverage was 1.2 times.
In mid-March, we amended and extended our credit facility, upsizing our borrowing capacity from $200 million to $250 million and extending the maturity date to March 2024, ultimately providing greater flexibility in our capital structure.
Reported net sales are anticipated to increase in the high 30% range, including an incremental 10.5 months of sales related to the Elkhart acquisition.
As a reminder, Elkhart's net sales at the time of acquisition were approximately $100 million.
The increase in net sales from our previous guidance, which was mid- to high 20% sales growth, incorporates the strength experienced in the first quarter, along with continued sales momentum expected throughout the year.
SG&A expenses are now expected to approximate 23% of net sales benefiting from larger scale and the increase in our sales outlook.
Below operating income, we are projecting approximately $4 million of interest expense and an effective tax rate of 26%.
Our guidance reflects a weighted average share count of 36.5 million shares.
Taking all of these assumptions into account, we are reaffirming our 2021 outlook for adjusted earnings per share of $0.90 to $1.05 per share with growing confidence of achieving the higher end of the range.
Other key assumptions impacting EBITDA and cash flow include depreciation and amortization expenses of approximately $23 million and capex of approximately $15 million.
On our long-term road map, we're currently in Horizon 1, which is based on three elements: self-help, organic growth and bolt-on M&A.
I've used this approach many times over the past 20 years to kick-start and deliver business transformations.
Once the key elements of Horizon one are in place, we'll move to Horizon 2, where we will execute larger enterprise-level acquisitions.
We continue to expect that when we are ready for Horizon 2, several ideal targets will be coming to market so the timing should work well.
Our long-term vision culminates with Horizon 3, which is focused on growing the company globally.
During Horizon one or 2, we will consider global acquisitions if they have the right strategic fit and are executable, though it will likely be Horizon three before we acquire internationally at scale.
As a reminder, our goal for this channel is to be approximately 10% of sales by the end of 2023, and you can expect to hear more about our progress as we proceed through the year.
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And lastly, adjusted earnings per share was $0.22, flat compared to the prior year.
Reported net sales are anticipated to increase in the high 30% range, including an incremental 10.5 months of sales related to the Elkhart acquisition.
Taking all of these assumptions into account, we are reaffirming our 2021 outlook for adjusted earnings per share of $0.90 to $1.05 per share with growing confidence of achieving the higher end of the range.
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Our second quarter results reflected a combination of record market demand across all of our segments, with Q2 '22 orders 36% higher than the same period pre-COVID fiscal year '20, but accompanied by continued inflation and supply chain challenges.
We reported second quarter adjusted earnings of $1.01 per diluted share, which was a slight increase over the second quarter of last year.
Strong demand led to our quarter end backlog reaching an all-time record exceeding $1 billion, which is more than double normalized levels.
The trend we saw in Q1 has continued with nearly $20 million of sequential cost increases in freight, wages, lead, non-lead commodities and semiconductors.
Let's start with our largest segment, Energy Systems, which continues to see robust demand with Q2 '22 order rates increasing over 50% compared to pre-COVID Q2 '20.
Freight costs for Energy Systems alone rose sequentially an additional $6 million in the quarter, doubling the prior year level.
Revenue decreased $15 million from Q1 due to the traditional European summer holidays.
Margins improved as a result of price and mix improvements as well as ongoing opex efficiencies with Motive Power enjoying nearly 20% higher operating earnings than the same pre-COVID period in F '20.
Our Thin Plate Pure Lead production capacity continues to grow and we will exit the fiscal year at our planned run rate of $1.2 billion per year.
We have fully launched 11 lithium variants for Motive Power Group and continue to expand our product portfolio.
Our second quarter net sales increased 12% over the prior year to $791 million due to an 11% increase from volume and 1% from price, net of mix.
On a line of business basis, our second quarter net sales in Energy Systems were up 9% to $370 million, Specialty was down 3% to $101 million and Motive Power revenues were up 22% to $321 million.
Motive Power's improvement was mostly from 20% growth in organic volume and 2% improvement from pricing.
The prior year Motive Power second quarter revenues were significantly impacted by the pandemic, resulting in a 21% decrease in organic volume.
Energy Systems had a 9% increase from volume as well as 1% improvement from FX, but had a 1% decrease in price after including negative mix.
Specialty had a 5% pricing improvement that was offset by an 8% erosion in volume due largely to delayed shipments.
On a geographical basis, net sales for the Americas were up 14% year-over-year to $550 million, with 14% more volume.
EMEA was up 5% to $180 million from a 3% increase in volume and 2% in pricing.
Asia was up 10% at $661 million on 7% more volume and 3% currency improvements.
On a sequential basis, moving to Slide 11, our second quarter net sales were down 3% from the first quarter, largely due to the normal vacation holidays in Europe and supply chain shortages.
On a line of business basis, Specialty decreased 6% with supply constraints pushing out order fulfillments into Q3.
Motive Power was down 5% due to the European holiday season previously mentioned and EMEA was flat -- excuse me, Energy Systems was flat.
On a geographical basis, Americas was also relatively flat and Asia revenues were up 8%, while EMEA was down 11% mostly from lower volumes.
On a year-over-year basis, adjusted consolidated operating earnings in the second quarter decreased approximately $5 million to $61 million with the operating margin down 160 basis points.
On a sequential basis, our second quarter operating earnings dollars eroded $14 million from $75 million, while the OE margin decreased 150 basis points to 7.8%, primarily due to the persistent supply chain headwinds and inflation in Energy Systems, which Dave has addressed.
Operating expenses, when excluding highlighted items, were at 14% of sales for the second quarter compared to 15.7% in the prior year and 16.1% from two years ago as our revenue growth exceeded our spending growth and we have maintained a more efficient operating leverage.
Excluded from operating expenses recorded on a GAAP basis in Q2 are pre-tax charges of approximately $12 million related to $6 million in Alpha and NorthStar amortizations and $4 million in restructuring charges from the previously announced closure of our flooded Motive Power manufacturing site in Hagen, Germany.
Excluding those charges, our Motive Power business generated operating earnings of $41 million or 12.8%, which was 370 basis points higher than the 9.2% in the second quarter of last year due to strong demand and easing of pandemic-related restrictions, favorable mix from maintenance-free growth and ongoing opex constraint or restraint.
Operating earnings dollars for Motive Power increased over $17 million from the prior year and $6 million from two years ago.
On a sequential basis, Motive Power's second quarter OE decreased 220 basis points from the 15.1% margin posted in the first quarter due to the vacation season volume decline noted earlier, along with higher lead and other input costs.
Energy Systems operating earnings percentage of 2.3% was down from last year's 8.8% and the prior quarter's 3.5%.
OE dollars of $9 million were $5 million below last quarter and $22 million below prior year.
Specialty operating earnings percentage of 11.8% was up from last quarter's 10.6% and last year's 11.4%.
As previously reflected on Slide 12, our second quarter adjusted consolidated operating earnings of $61 million was a decrease of $5 million or 7% from the prior year.
Our adjusted consolidated net earnings of $44 million was in line with prior year but $11 million lower than the prior quarter.
Our adjusted effective income tax rate of 16% for the second quarter was slightly below the prior year's rate of 17% and lower than the prior quarter's rate of 18%.
Second quarter earnings per share rose slightly year-over-year to $1.01, although it was slightly below the bottom of our guidance range.
We expect our weighted average shares in the third fiscal quarter of 2022 to be approximately 42.5 million versus the 43.3 million in the second quarter.
Our Board of Directors also recently renewed the $100 million share buyback authorization we had in place over the last two years that was completed with these recent October purchases.
Slides 14 and 15 reflect the year-to-date results and are provided for your reference, but I don't intend to cover these at this time.
We have $408 million of cash on hand and our credit agreement leverage ratio is now at 2.0 times, which allows nearly $550 million in additional borrowing capacity.
We expect our leverage ratio to remain between 2.0 and 2.5 times in fiscal 2022.
Our year-to-date cash flow from operations was a negative $66 million.
Included in that amount was $28 million in spending on the previously announced restructuring of our Hagen, Germany Motive Power Plant, which is in the second quarters -- which in the second quarter started delivering on cost savings that should exceed $20 million annually.
The negative operating cash flow was also due to our inventory expanding $123 million to meet rising revenues as well as from higher input costs and transit times, along with the other inefficiencies induced by supply chain disruptions.
Capital expenditures of $35 million were in line with our prior guidance.
Our capex expectation for fiscal 2022 remains approximately $100 million and reflects major investment programs in lithium battery development and our continued expansion of our TPPL capacity.
We anticipate our gross profit rate to remain near 22% in Q3 of fiscal 2022.
As a result, our guidance range of $0.96 to $1.06 in our third fiscal quarter of 2022 reflects the impact of these supply chain challenges, which we continue to see as temporary.
After more than 25 years with the company and 12 years as Chief Financial Officer, Mike has announced his intention to retire at the end of this fiscal year.
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We reported second quarter adjusted earnings of $1.01 per diluted share, which was a slight increase over the second quarter of last year.
Second quarter earnings per share rose slightly year-over-year to $1.01, although it was slightly below the bottom of our guidance range.
As a result, our guidance range of $0.96 to $1.06 in our third fiscal quarter of 2022 reflects the impact of these supply chain challenges, which we continue to see as temporary.
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We increased our head count in that business 12.4% year over year.
Revenue grew 12.9% with every segment reporting growth.
And we continued making investments in headcount, adding 346 total billable professionals year over year, including 36 senior managing directors.
Earnings per share were also boosted by FX remeasurement gains and lower weighted average shares outstanding, or WASO, resulting in a 45% increase in GAAP earnings per share and a 31% increase in adjusted earnings per share compared to the prior-year quarter.
Revenues of $702.2 million increased $80 million, compared to revenues of $622.2 million in the prior-year quarter.
GAAP earnings per share of $1.96 in 3Q '21 compared to $1.35 in 3Q '20.
Adjusted earnings per share for the quarter were $2.02, which compared to $1.54 in the prior-year quarter.
The difference between our GAAP and adjusted earnings per share in 3Q '21 reflects $2.4 million of noncash interest expense related to our convertible notes, which reduced GAAP earnings per share by $0.06 per share.
In 3Q of '20, we had a special charge of $7.1 million as well as noncash interest expense of $2.3 million, which reduced GAAP earnings per share by $0.14 per share and $0.05 per share, respectively.
Net income of $69.5 million, compared to $50.2 million in the prior-year quarter.
The increase in net income was primarily due to higher revenues, which was partially offset by an increase in compensation, including the impact of a 6.9% increase in billable headcount and higher SG&A expenses.
SG&A of $138.6 million or 19.7% of revenues.
This compares to SG&A of $122 million or 19.6% of revenues in the third quarter of 2020.
Third quarter 2021 adjusted EBITDA of $100.3 million or 14.3% of revenues, compared to $90.9 million or 14.6% of revenues in the prior-year quarter.
Our third quarter effective tax rate of 21.6% compared to 22.3% in the prior-year quarter.
Fully diluted WASO of 35.4 million shares in 3Q '21 compared to 37.1 million shares in 3Q '20.
Our convertible notes had a dilutive impact on earnings per share of approximately 842,000 shares, included in WASO, as our average share price of $138.83 this past quarter was above the $101.38 conversion threshold price.
As I mentioned, billable headcount increased by 346 professionals or 6.9% compared to the prior-year quarter.
In Corporate Finance & Restructuring, revenues of $250.3 million increased 5.8% compared to the prior-year quarter.
Adjusted segment EBITDA of $55.6 million or 22.2% of segment revenues compared to $56.2 million or 28 -- or 23.8% of segment revenues in the prior-year quarter.
The year-over-year decrease in adjusted segment EBITDA was due to increased compensation, including the impact of a 6% increase in billable headcount and higher SG&A expenses.
On a sequential basis, revenues increased $19.4 million or 8.4% as the segment benefited from continued growth in our business transformation and transactions businesses and recognition of prior deferred revenue.
Adjusted segment EBITDA for the third quarter increased $15.5 million.
Revenues of $145.3 million increased 22% relative to a weak quarter in the prior year.
Adjusted segment EBITDA of $16.6 million or 11.4% of segment revenues compared to $13.6 million or 11.4% of segment revenues in the prior-year quarter.
The increase in adjusted segment EBITDA was due to higher revenues, which was partially offset by higher compensation, which includes 7.7% growth in billable headcount as well as higher SG&A expenses compared to the prior-year quarter.
Sequentially, revenues decreased $5.5 million, primarily due to lower demand for investigations and health solutions services.
Adjusted segment EBITDA decreased $1.4 million.
Our Economic Consulting segment's revenues of $172.5 million increased 11.3% compared to the prior-year quarter.
Adjusted segment EBITDA of $29.9 million or 17.3% of segment revenues compared to $25.7 million or 16.6% of segment revenues in the prior-year quarter.
The increase in adjusted segment EBITDA was due to higher revenues, which was partially offset by higher compensation, which includes the impact of 5.1% growth in billable headcount.
Sequentially, revenues decreased $10.8 million or 5.9%, which was driven by decreased demand for M&A-related antitrust services, primarily due to the conclusion of a large matter in the quarter.
In Technology, revenues of $64.7 million increased 10.4% compared to the prior-year quarter.
Adjusted segment EBITDA of $7.8 million or 12.1% of segment revenues compared to $11.9 million or 20.4% of segment revenues in the prior-year quarter.
The decrease in adjusted segment EBITDA was due to higher compensation, which includes the impact of a 12.4% increase in billable headcount, as our Technology segment continues to make investments in talent, particularly at the senior levels to bolster our capacity and expertise globally across data risk, compliance, privacy and information governance, as well as higher SG&A expenses.
Sequentially, revenues decreased $14 million or 17.8%, primarily due to decreased demand for M&A-related second request services.
Adjusted segment EBITDA declined $10.7 million sequentially.
Record revenues in the Strategic Communications segment of $69.4 million increased 31.1% compared to the prior-year quarter.
Adjusted segment EBITDA of $15.5 million or 22.3% of segment revenues compared to $8.4 million or 15.9% of segment revenues in the prior-year quarter.
Sequentially, revenues increased $1.6 million, primarily due to higher demand for financial communications and corporate reputation services.
Adjusted segment EBITDA increased $2 million sequentially.
We generated net cash from operating activities of $196.9 million, which increased by $85.3 million compared to $111.6 million in the third quarter of 2020.
We generated free cash flow of $172.2 million in the quarter.
Total debt net of cash decreased $160.7 million sequentially from $159.4 million on June 30, 2021 to a negative net debt position of $1.3 million on September 30, 2021.
In light of our record financial performance during the first nine months of 2021, we are raising the low end of our previous full year 2021 guidance range for revenues of between $2.7 billion and $2.8 billion to expected revenues of between $2.75 billion and $2.8 billion.
We are raising our full year 2021 guidance ranges for GAAP earnings per share of between $5.89 and $6.39 and adjusted earnings per share of between $6 and $6.50 to GAAP earnings per share of between $6.39 and $6.64 and adjusted earnings per share of between $6.50 and $6.75.
The $0.11 per share variance between earnings per share and adjusted earnings per share guidance for full year 2021 includes the estimated impact of noncash interest expense of $0.20 per share related to our 2023 convertible notes and the second quarter 2021 $0.09 per share gain related to the fair value remeasurement of acquisition-related contingent consideration, which are not included in adjusted EPS.
As credit markets remain in an accommodative mode and the number of stressed and distressed issuances remains low, Standard & Poor's is now forecasting that the trailing 12-month U.S. speculative rate -- default rate -- corporate default rate will fall further in the first half of 2022, reaching 2.5% by June 2022, which compares to 3.8% in June 2021 and 6.6% in January 2021.
Business transformation and transaction services, which represented 36% of total segment revenues in Corporate Finance in Q3 of last year, contributed 59% this quarter.
Non-M&A-related antitrust services have steadily grown to represent 32% of our Economic Consulting revenues this quarter, which compares to 23% in Q3 of last year.
Our Australian business has grown to 31 senior managing directors from 19 two years back.
And our Middle East business has grown to 16 senior managing directors from five two years back.
And EMEA represented 30% of revenues this quarter with us only recently ramping up in Germany and Spain.
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Revenues of $702.2 million increased $80 million, compared to revenues of $622.2 million in the prior-year quarter.
GAAP earnings per share of $1.96 in 3Q '21 compared to $1.35 in 3Q '20.
Adjusted earnings per share for the quarter were $2.02, which compared to $1.54 in the prior-year quarter.
We are raising our full year 2021 guidance ranges for GAAP earnings per share of between $5.89 and $6.39 and adjusted earnings per share of between $6 and $6.50 to GAAP earnings per share of between $6.39 and $6.64 and adjusted earnings per share of between $6.50 and $6.75.
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Earnings for the quarter was $0.79 per share compared to $1.59 in the prior year quarter.
Adjusted earnings per share increased to $2.03 in the quarter compared to $1.96 in 2020.
Net sales in the quarter were up 17% from the prior year, primarily due to the pass through of higher material costs and increased beverage can and transit packaging volumes.
Segment income improved to $379 million in the quarter compared to $367 million in the prior year, primarily due to higher sales unit volumes.
As outlined in the release, we currently estimate fourth quarter 2021 adjusted earnings of between $1.50 and $1.55 per share, and full-year adjusted earnings of $7.50 to $7.55 per share.
Our expected adjusted tax rate for the year is between 23% and 24% consistent with our nine months rate.
Reported revenues increased 17% during the quarter as higher beverage and transit volumes coupled with the pass through of raw material cost increases offset supply chain challenges.
And in July, we discussed with you the step change in earnings that we have experienced beginning with last year's third quarter in which EBITDA over the last five quarters averages approximately $100 million more than the previous six quarters.
Also during the quarter, the Company joined the Climate Pledge, where we have committed to be net zero carbon by the year 2040.
Before reviewing the operating segments, we remind you that delivered aluminum here in North America is approximately 75%, 80% higher today than at this time last year.
In Americas beverage, overall unit volumes advanced 4% in the quarter as continued strong demand in North America and Mexico offset a difficult third quarter comparison in Brazil.
Our third quarter 2021 volumes in Brazil were more than 10% higher than the third quarter of 2019.
However, third quarter 2020 volumes were up 30% over the third quarter of '19, as that country rebounded sharply from the second quarter 2020 pandemic lockdowns.
Unit volumes in European beverage advanced 5% over the prior year with strong volumes across most operations in this segment.
In Asia Pacific, unit volumes declined 8% in the quarter owing entirely to a 55% contraction in Vietnam.
Excluding Vietnam, unit volumes grew 20% in the quarter.
So in summary, a very strong first nine months of 2021 with EBITDA up 26%.
As described earlier, we have several capacity projects recently completed and are underway and are pleased to reconfirm the 2025 EBITDA estimate of $2.5 billion first provided during the May virtual Investor Day.
And near-term, while we may experience inflation and supply chain related headwinds over the next few quarters, we currently expect 2022 will be another strong year of earnings growth with EBITDA estimated to be approximately $2 billion.
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Earnings for the quarter was $0.79 per share compared to $1.59 in the prior year quarter.
Adjusted earnings per share increased to $2.03 in the quarter compared to $1.96 in 2020.
As outlined in the release, we currently estimate fourth quarter 2021 adjusted earnings of between $1.50 and $1.55 per share, and full-year adjusted earnings of $7.50 to $7.55 per share.
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Recurring revenues, which comprised 75% of our first quarter revenues, were strong, led by a 25% growth in subscription revenues.
A favorable revenue mix with strong subscription growth, coupled with cost efficiencies, drove a 270 basis point expansion of our non-GAAP operating margin to 26.8%.
Cash flow continued to be very robust as cash from operations grew 26% and free cash flow grew almost 34%.
Bookings in the first quarter were solid at approximately $247 million, but were down 22.8% against a very challenging comparison with the first quarter of 2020.
Our largest deal in the quarter was a SaaS arrangement for our Munis ERP solution with the City of Fresno, California valued at approximately $10 million.
On March 31, we completed two tuck-in acquisitions, DataSpec and ReadySub, for a total purchase price of $12 million in cash.
ReadySub is a cloud-based platform that delivers comprehensive absence and substitute teacher management solutions, serving approximately 1,000 school districts across the United States, with only approximately 20 of which overlapping with Tyler's 2,000 school district clients.
Most importantly, last week, we completed the $2.3 billion cash acquisition of NIC, a leading digital government solutions and payments company that serves more than 7,100 federal, state and local government agencies across the nation.
In addition, NIC has extensive experience and expertise and scale in the government payments area, processing more than $24 billion in payments on behalf of citizens and governments last year, which will accelerate Tyler's strategic payments initiative.
NIC had revenues of $460.5 million and net income of $68.6 million in 2020.
NIC's core first quarter revenues, excluding the TourHealth and COVID initiatives that are expected to wind down after the second quarter, grew more than 10% over last year.
In addition, NIC's operating income, again excluding the TourHealth and COVID initiatives as well as acquisition costs, rose more than 20%.
Both GAAP and non-GAAP revenues for the quarter were $294.8 million, up 6.6% on a GAAP basis and 6.5% on a non-GAAP basis.
Software license revenues declined 20.3%, reflecting both extended sales cycles and a high mix of subscription deals at 66% of new software contract value.
Software services revenue declined 8.6% as a result of the continued impact of the COVID-19 pandemic, and our shift to remote delivery of most services resulted in a decline in billable travel revenue.
On the positive side, subscription revenues rose 25.4%.
We added 84 new subscription-based arrangements and converted 39 existing on-premises clients, representing approximately $52 million in total contract value.
In Q1 of last year, we added 131 new subscription-based arrangements and had 19 on-premises conversions, representing approximately $98 million in total contract value.
Subscription contract value comprised approximately 66% of total new software contract value signed this quarter, compared to 73% in Q1 of last year.
The value weighted average term of new SaaS contracts this quarter was 4.0 years, compared to 5.9 years last year.
Revenues from e-filing and online payments, which are included in subscriptions, were $26.9 million, up 22.4%.
That amount includes e-filing revenue of $15.6 million, up 4.8%, and e-payments revenue of $11.3 million, up 59.3%.
For the first quarter, our annualized non-GAAP total recurring revenue, or ARR, was approximately $886 million, up 12.9%.
Non-GAAP ARR for SaaS arrangements for Q1 was approximately $302 million, up 26.3%.
Transaction-based ARR was approximately $108 million, up 22.4%, and non-GAAP maintenance ARR was approximately $476 million, up 4.1%.
Our backlog at the end of the quarter was $1.55 billion, up 3%.
As Lynn noted, our bookings in the quarter were solid at $247 million.
However, this was down 22.8% compared to a difficult comparison to Q1 of last year.
Last year's first quarter bookings included several large contracts, including two significant follow-on SaaS deals with the North Carolina courts, with a combined contract value of approximately $38 million.
For the trailing 12 months, bookings were approximately $1.2 billion, down 13.3%, although they do not include the majority of the $98 million extension of our Texas e-filing contract signed in Q4 of 2020 because of certain termination provisions in that contract.
If the Texas e-filing renewal was fully included, trailing 12-month bookings would have been down only 6.4%.
The prior trailing 12-month bookings also included four significant SaaS deals with the North Carolina courts, with a combined contract value of approximately $123 million.
Our subscription -- software subscription booking in the first quarter added $10.2 million in new annual recurring revenue.
Cash flow was once again very strong in the first quarter as cash from operations increased 26.4% to $71.7 million and free cash flow grew 33.9% to $61.7 million, representing an all-time high for first quarter free cash flow.
In March, we completed a $600 million offering of 0.25% convertible senior notes due 2026.
The notes are convertible into Tyler common stock at a conversion price of $493.44, which represents a 30% premium over our closing price on March 4.
On April 21, concurrent with the closing of the NIC acquisition, we entered into a new $1.4 billion senior unsecured credit facility with a group of eight banks.
The facility includes a $300 million term note due in 2024 and a $600 million term note due in 2026, both of which can be prepaid without penalty.
The facility also includes a new five-year $500 million revolving credit agreement that replaces our prior $400 million revolver.
Our balance sheet remains very strong and its pro forma net leverage at the NIC closing was approximately 3.2 times trailing 12-month adjusted EBITDA.
And we expect to end the year with net leverage under 2.5 times.
The current blended interest rate on the $1.75 billion of debt we have outstanding today is 1.1%.
Exiting 2020, our financial position was stronger than ever, allowing us to continue to pursue strategic acquisitions, including NIC, the largest acquisition in our history with a purchase price of $2.3 billion in cash.
We also expect that the $350 billion of aid to state and local governments under the American Rescue Plan Act will provide a significant measure of relief to budget pressures faced by many of our clients and prospects and have a positive impact on recovery of our markets.
More than 3,500 of the world's largest publicly listed companies provide detailed data and background to this global survey for evaluation by its independent sustainability ranking body.
Finally, this week, we are virtually hosting more than 5,000 clients at Connect 2021, our annual user conference with a theme called Virtually Possible.
Team members from across Tyler are providing nearly 700 hours of valuable content for our clients using our advanced virtual event platform.
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Both GAAP and non-GAAP revenues for the quarter were $294.8 million, up 6.6% on a GAAP basis and 6.5% on a non-GAAP basis.
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Our consolidated revenue in the third quarter increased 33.3% over the prior year.
Excluding FX, consolidated revenue was $590 million, up 31.8% over the prior year.
America's revenue was $319 million, up 42.6%, in line with our guidance and 97% to 2019 revenue.
Europe revenue was $256 million, up 18.2%, which was slightly ahead of our guidance and 97% of 2019 revenue, both excluding FX.
And it is with that confidence in our business and liquidity position that we've repaid the $130 million outstanding balance of the revolving credit facility.
Based on the information we have for the fourth quarter, we expect Americas revenue to be in the range of $360 million and $370 million, which is above the $345 million we reported in the 2019 comparable period, reflecting the strong momentum in our business as we close out the year.
We deployed 17 new digital billboards in the third quarter, giving us a total of more than 1,500 digital billboards across the United States.
Turning to our business in Europe, based on the information we have today, we expect fourth quarter segment revenue to be between $335 million and $350 million, which is in line with Europe's top-line performance in the fourth quarter of 2019 of $349 million.
We added 314 digital screens in the third quarter for a total of over 16,900 screens now live, including digital screens in the UK, Italy and Ireland.
In Sweden, we won a seven-year contract to operate the advertising related to a public buy program in the center of Stockholm, consisting of 350 static and digital panels in prime locations, further strengthening our footprint across the city.
In the third quarter, consolidated revenue increased 33.3% to $596 million.
Excluding FX, revenue was up 31.8%.
Consolidated net loss in the third quarter was $41 million compared to a consolidated net loss of $136 million in the prior year.
Adjusted EBITDA was $136 million in the third quarter, representing a substantial improvement over the prior year, which was $31 million.
Excluding FX, adjusted EBITDA was $135 million in the third quarter.
The Americas segment revenue was $319 million in the third quarter, up 42.6% compared to the prior year and in line with the guidance we previously provided in July.
Digital revenue rebounded strongly and was up 68.4% to $115 million.
National local continue to improve with both up 43%.
Direct operating and SG&A expenses were up 15.8%.
The increase is due in part to a 15.3% increase in site lease expense, driven by higher revenue combined with higher compensation cost driven by improvements in our operating performance.
Segment-adjusted EBITDA was $139 million in the third quarter, up 96.7% compared to the prior year with segment-adjusted EBITDA margin of 43.6%, above our guidance in Q3 2019 results due to temporary savings, including site lease savings primarily related to airports as well as lower spending and a reduction in the credit loss expense.
Billboard and other, which primarily includes revenue from billboards, street furniture, spectaculars and wallscapes, was up 37.6%.
Transit was up 82.7%, with airport display revenue up 88.7% to $43 million in the third quarter.
Digital revenue rebounded strongly in Q3 and was up 59.5% to $91 million and now accounts for 33.4% of total billboard and other revenue.
Non-digital revenue was up 28.7%.
Europe revenue was $263 million in the third quarter.
Excluding movements in foreign exchange, revenue was $256 million, up 18.2% compared to the prior year, ahead of the guidance we provided in our second quarter earnings call.
Digital revenue was up 39.3% to $89 million, excluding FX, a strong performance driven in large part by the rebound in the UK.
Direct operating and SG&A expenses were up 6.4% compared to the third quarter of last year.
The increase was largely driven by a $13 million increase in cost related to our restructuring plan to reduce headcount.
Site lease expense declined 3.7% to $99 million, excluding FX, driven by negotiated rent abatements.
Segment adjusted EBITDA was $30 million excluding movements in foreign exchange in the third quarter as compared to negative $8 million in the prior year.
CCIBV revenue increased $46 million during the third quarter of 2021 compared to the same period of 2020 to $263 million.
After adjusting for a $6 million impact from movements in foreign exchange rates, CCIBV revenue increased $39 million.
CCIBV operating loss was $26 million in the third quarter of 2021 compared to $38 million in the same period of 2020.
Latin America revenue was $15 million.
4 million in the third quarter, up $7 million compared to the same period last year.
Direct operating expense and SG&A from our Latin American business were $14 million, up $1 million compared to the third quarter in the prior year.
Capital expenditures totaled $33 million in the third quarter, an increase of approximately $6 million compared to the prior year period as we ramped up our investment in our Americas business.
Clear Channel Outdoors' consolidated cash and cash equivalents totaled $600 million as of September 30, 2021.
Our debt was $5.7 billion, up $166 million, due in large part to the refinancing of the CCWH senior notes in February and in June.
Cash paid for interest on debt was $52 million during the third quarter and $264 million year-to-date.
Our weighted average cost of debt was 5.5% as of September 30, 2021, 60 basis points lower than the prior year.
Additionally, as William mentioned, given our improved outlook for both our business and liquidity position, we repaid the $130 million outstanding balance under the company's revolving credit facility with cash on hand on October 26, resulting in a corresponding increase in excess availability under such revolving credit facility.
Again, as William noted, for the fourth quarter of 2021, Americas segment revenue is expected to be in the range of between $360 million and $370 million, which is above the $345 million reported in Q4 2019.
Segment-adjusted EBITDA margin is expected to return to close to Q4 2019 levels of $42.3%.
Our Europe segment revenue is expected to be in the range of between $335 million and $350 million, which is in line with Europe's revenue in Q4 2019 of $349 million.
Our consolidated Q4 revenue guidance is $715 million to $740 million, which is in line with or better than our Q4 2019 consolidated revenue of $717 million.
Additionally, we expect cash interest payments of $123 million in the fourth quarter of 2021 and $319 million in 2022.
We expect consolidated capital expenditures to be in the $150 million to $160 million range in 2021.
We expect liquidity of approximately $525 million to $575 million, a $50 million increase from the guidance provided in July.
The guidance also includes a near-term acquisition pipeline of approximately $20 million to $25 million that we could potentially close by year end that represents small selective tuck-in billboard acquisitions in the Americas.
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In the third quarter, consolidated revenue increased 33.3% to $596 million.
Our consolidated Q4 revenue guidance is $715 million to $740 million, which is in line with or better than our Q4 2019 consolidated revenue of $717 million.
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Jim has been our Corporate Controller since 2009 and was recently announced as my successor.
I've worked with him for more than 10 years and look forward to Jim further enhancing our business strategies and results in his new role.
We had a very strong first[Phonetic] quarter and delivered record sales of $2.6 billion, an increase of 9% as reported, with adjusted operating earnings and earnings per share of $305 million and $3.54.
Our free cash flow for the fourth quarter was about $248 million after capital investments of $160 million.
For the year, we generated a record cash flow of more than $1.3 billion.
Through the fourth quarter, we achieved about $50 million of the projected $100 million to $110 million in anticipated savings from our restructuring initiatives.
Since the third quarter, we've acquired approximately 1 million shares of our stock for $130 million as part of our share repurchase plan.
Sales exceeded $2.6 billion for the quarter, a 9% increase as reported or 5.5% on a constant basis, with our Flooring Rest of World segment outperforming.
Across most of our businesses, Q1 has three additional days or approximately 5% more, and Q4 has four fewer days or approximately 6% less compared to prior year.
Gross margin was 27.9% as reported or 28.8% excluding charges, increasing 120 basis points from 27.6% in the prior year.
The year-over-year increase was driven primarily by higher volume of $51 million, productivity of $50 million, and lower inflation of $21 million, partially offset by price/mix of $30 million.
SG&A as reported was 17.2% or 17.3% versus 19.1% in the prior year, both excluding charges.
The lower SG&A percent was driven by improved leverage on increased volume and stronger productivity of $21 million.
Operating income as reported was 10.7%.
Restructuring charges for the quarter were $22 million and our restructuring initiatives are on track with year-to-date savings accounting for approximately $50 million of our announced $100 million to $110 million plan.
Operating margin, excluding charges, $305 million or 11.6%, improving from 8.4% last year or 320 basis points.
This increase was driven by productivity of $71 million, stronger volume of $42 million, and reduced inflation of $12 million, partially offset by the previously noted unfavorable price/mix of $30 million.
Interest expense of $16 million, including the impact of our new 2020 bond offerings, and we expect Q1 to be approximately $16 million to $16.5 million.
Other income of $7 million driven by favorable transactional FX and short-term investment returns.
Our Q4 non-tax -- non-GAAP tax rate at 14.8% versus 18.9% in the prior year, benefiting in part from the U.S. CARES Act.
We expect Q1 2021 to be approximately 21%.
Earnings per share as reported of $3.49 or excluding charges of $3.54, growing 57% year-over-year.
Global Ceramic had sales of $920 million, a 7% increase as reported with the business up 6% on a constant basis, with growth across all geographies, the largest increase being in Brazil and Russia.
Operating income, excluding charges, of $88 million, a 9.5% return.
That's up 65% or 330 basis points versus prior year.
The increase was from productivity of $28 million, volume of $16 million, and lower shutdown expense of $4 million, partially offset by unfavorable price/mix of $12 million and unfavorable FX of $4 million.
Flooring North American sales of $963 million or 3% increase as reported were flat on a constant basis, led by strength in our residential-focused products, offset by the weakness in the commercial channel.
Operating income, excluding charges, of $91 million or 9.5%.
That's an increase of 27% or 180 basis points compared to prior year.
This increase was driven by higher productivity of $26 million, lower inflation of $7 million, and increased volume of $3 million, partially offset by price/mix of $18 million.
And Flooring Rest of the World with sales of $759 million, a 20% increase as reported or 13% on a constant basis, driven by our resilient, laminate and panels businesses in Europe and our carpet business in Australia and New Zealand.
Operating income, excluding charges, of $138 million or 18.2%, up 420 basis points or 57% versus prior year.
The main drivers were the higher volume of $23 million, improved productivity of $16 million, and lower inflation of $8 million, partially offset by unfavorable FX of approximately $4 million.
Corporate and eliminations came in at $12 million and you would expect 2021 to be approximately $40 million.
Cash and short-term investments increased over $1.3 billion, driven by the Q4 free cash flow of $248 million, bringing the full-year 2020 -- full-year cash flow -- free cash flow to approximately $1.3 billion.
Receivables were just over $1.7 billion with DSO improving to 59 days versus the prior year 62 days.
Inventories just over $1.9 billion, dropped almost $400 million or 16% from prior year with a marginal sequential increase of approximately $30 million adjusting for FX from Q3.
Inventory days are at 103 days versus 134 days in the prior year.
Property, plant and equipment just under $4.6 billion with capex of $116 million for the quarter, in line with our D&A.
And full-year capex was $426 million with D&A of just over $600 million.
We estimate that 2021 annual capex to be in line with our D&A of approximately $590 million.
And lastly, the balance sheet and cash flow remained very strong with gross debt of just over $2.7 billion, total cash and short-term investments, as previously noted, over $1.3 billion, leading us to a leverage of 1 time adjusted EBITDA.
Sales for our Flooring Rest of World segment increased 20% in the period as reported or 13% on a constant basis, significantly exceeding our forecast.
Margins expanded over last year to 17.5% as reported or 18.2% excluding restructuring charges, due to higher volume and positive leverage on SG&A and operations, partially offset by currency headwinds.
For the quarter, our Global Ceramic segment sales rose 7% as reported with improved results across the world, led by growth in the residential channel from heightened remodeling and home sales.
Operating margins for the segment expanded to 8.7% as reported or 9.5% excluding restructuring costs, due to higher volume and improved productivity somewhat reduced by commercial product mix and currency.
Our customers have opened 30 exclusive Dal-Tile stores in the country, which will enhance our sales and strengthen our brand.
For the period, our Flooring North America sales increased 3% as reported, and our adjusted margins expanded 8.6% as reported or 9.5% excluding restructuring costs.
Assuming current conditions continue, we anticipate our first quarter adjusted earnings per share to be between $2.69 and $2.79, excluding restructuring charges.
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We had a very strong first[Phonetic] quarter and delivered record sales of $2.6 billion, an increase of 9% as reported, with adjusted operating earnings and earnings per share of $305 million and $3.54.
Sales exceeded $2.6 billion for the quarter, a 9% increase as reported or 5.5% on a constant basis, with our Flooring Rest of World segment outperforming.
Earnings per share as reported of $3.49 or excluding charges of $3.54, growing 57% year-over-year.
Assuming current conditions continue, we anticipate our first quarter adjusted earnings per share to be between $2.69 and $2.79, excluding restructuring charges.
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Our results once again beat expectations this quarter, with comparable sales up 5% for the total company and 5.1% for the U.S. on top of over 28% growth last year.
These results capped of outstanding financial results for fiscal 2021 with sales of $96.3 billion, up 6.9% on a comparable basis and earnings per share of $12.04, up 36% on an adjusted basis.
With these outstanding results, 100% of our stores earned a quarterly Winning Together profit-sharing bonus.
This $94 million payout is $24 million above the target payment level.
And in recognition for their hard work throughout the pandemic in 2021, we are awarding an incremental discretionary bonus of $265 million to our frontline associates.
Altogether, we rewarded our frontline associates with bonuses of over $350 million in the fourth quarter.
In Pro, we delivered growth of 23% and 54% on a two-year basis.
Our data shows that Pros who leverage our loyalty and credit offering spend 300% more than Pros not engaged in these programs.
On Lowes.com, sales grew 11.5% on top of 121% growth in the fourth quarter of 2020, which represents a two-year comp of 147% and nearly 11% sales penetration.
As we continue to expand our market-based delivery model, we're freeing up space in our 10,000 square foot store back rooms, which on average are considerably larger than our competition.
During the quarter, operating margin expanded approximately 115 basis points, leading to diluted earnings per share of $1.78, which is a 34% increase as compared to adjusted diluted earnings per share in the prior year.
are over 40 years old and will continue to require investments for upkeep and approximately two-thirds of Lowe's annual sales are generated from repair and maintenance activity.
As we close the year, we continue to give back to the communities where we operate, with total donations of $100 million in 2021 well over our pre-pandemic levels.
1 most admired specialty retailer for the second year in a row.
In the fourth quarter, U.S. comparable sales increased 5.1% and 35.2% on a two-year basis.
Growth was well balanced with 12 of 15 merchandising departments comping positive and was broad-based on a two-year basis with all 15 departments up more than 18% in that time frame.
As we continue to extend our private brand offering, we recently launched Origin 21 across several product categories in home decor.
1 position in outdoor power equipment with further share gains in battery outdoor power equipment, as we drove over 37% growth in this area for the quarter and over 118% on a two-year basis.
Also new for EGO is the industry's most powerful handheld battery-powered blower with power that will outperform the leading gas blower with 765 cubic feet per minute of blowing capacity.
This spring, we will launch our new Origin 21 patio collections, as well as our new style selection replacement cushions.
These cushions are made with 100% recycled plastic bottles and they are fade-resistant, UV-protected as well as easy to clean.
As Marvin mentioned, we delivered sales growth of 11.5% in the quarter and 147% on a two-year basis in the fourth quarter.
In recognition of their outstanding efforts, we awarded the discretionary year-end bonus of $6,000 for assistant store managers, $1,000 for department supervisors, $800 for full-time hourly associates and $400 for part-time hourly associates.
As Marvin mentioned, the combination of Winning Together and this discretionary year-end bonus will result in a payout of over $350 million for our frontline associates this quarter.
Over the last three years, we have created valuable career opportunities for our associates with the incremental 10,000 department supervisor roles and 1,600 ASM positions that we have added.
Since 2018, we have also invested well over $2 billion in incremental wage and equity programs for our frontline associates to ensure that we continue to offer a strong competitive wage and benefit package to our associates.
In fact, we are working on over 20 different PPI initiatives in our store operations this year.
While these two initiatives are just a few of the PPI deliverables planned for this year, we expect that these two initiatives alone will drive $100 million in productivity this year.
Home equity has increased due to rising home prices and consumer savings are about $2.5 trillion higher than pre-pandemic levels, positioning consumers for continued residential investments.
In 2021, we generated $8 billion in free cash flow driven by outstanding operating results, and we returned $15.1 billion to our shareholders through both share repurchases and dividends.
During the fourth quarter, we paid $551 million in dividends and repurchased approximately 16 million shares for $4 billion.
This brought the total to $13.1 billion in share repurchases for the year, ahead of our expectations of $12 billion.
Capital expenditures were $597 million in the quarter and nearly $1.9 billion for the full year as we continue to invest in strategic initiatives to both drive growth and enhance returns across the business.
Adjusted debt-to-EBITDAR stands at 1.98 times, well below our long-term leverage target of 2.75 times.
In the fourth quarter, we reported diluted earnings per share of $1.78, an increase of 34% compared to adjusted diluted earnings per share last year.
In the quarter, sales were $21.3 billion, reflecting a comparable sales increase of 5%.
Comparable average ticket increased 9.4% and with higher ticket sales in appliances, flooring and seasonal and outdoor living and 90 basis points of commodity inflation in both lumber and copper.
In the quarter, comp transaction count decreased 4.4%, but on a two-year basis, comp transactions increased 8.9%.
We continue to gain traction with our Total Home strategy as reflected in Pro growth of 23% and positive DIY comps on top of extremely strong DIY growth last year.
On Lowes.com, sales increased 11.5% in the quarter.
U.S. comp sales increased 5.1% in the fourth quarter and 35.2% on a two-year basis.
By month, our U.S. comparable sales were up 8.1% in November, up 7.4% in December and down 1.3% in January.
comp growth on a two-year basis from 2019 to 2021, November sales increased 33.8%, December increased 37.4% and January increased 33.9%.
Gross margin was 32.9% of sales in the fourth quarter, up 115 basis points from last year.
Product margin rate increased 65 basis points, driven by our disciplined pricing and cost management strategies.
Improvements in both shrink and credit revenue benefited gross margin by 50 basis points and 25 basis points, respectively.
These benefits were partially offset by roughly 30 basis points of pressure related to higher transportation and importation costs, as well as the expansion of our supply chain network.
We levered 15 basis points versus LY, driven by higher sales and our relentless focus on productivity.
This quarter, we incurred $50 million of COVID-related expenses as compared to $165 million of COVID-related expenses last year.
This reduction in these expenses generated 60 basis points of SG&A leverage.
Additionally, we incurred $150 million of expenses related to the U.S. stores reset in the fourth quarter of last year.
As we did not incur any material expenses related to this project in '21, this generated approximately 75 basis points of SG&A leverage versus LY.
These benefits were pressured by 100 basis points related to the discretionary year-end bonus of $215 million for our store-based frontline associates.
Operating profit was over $1.8 billion in the quarter, an increase of 21% versus LY.
Operating margin of 8.7% for the quarter increased 115 basis points over last year, largely driven by higher gross margin rate, as well as favorable SG&A leverage.
The effective tax rate was 25.3% in the quarter, which is in line with prior year.
At year-end, inventory was $17.6 billion, up $920 million from Q3 and in line with seasonal trends and consistent with our effort to land spring products earlier.
Driven by both improved operating performance and a disciplined capital allocation strategy, we delivered return on invested capital of 35% for the year, up 760 basis points from 2020.
Now, turning to our 2022 financial outlook.
And based on the continued momentum that we are seeing in Pro sales, as well as higher expectations for commodity inflation, we are raising our sales outlook for 2022 to a range of between $97 billion to $99 billion for the year, representing comparable sales of down 1% to up 1%.
Keep in mind that we are cycling over an estimated 300 basis points of stimulus in the first quarter.
Also, as a reminder, our 2022 sales outlook includes a 53rd week, which equates to approximately $1 billion to $1.5 billion in sales.
With higher projected sales, improving gross margin outlook and continued execution of our PPI initiatives, we are raising our outlook for operating margin to a range of 12.8% to 13% from a prior range of 12.5% to 12.8% for the full year.
We are also raising our outlook for diluted earnings per share to a range of $13.10 to $13.60 from a prior range of $12.25 to $13.
In 2022, we continue to expect capital expenditures of approximately $2 billion and share repurchases of approximately $12 billion.
Finally, we are raising our outlook for return on invested capital to above 36% from our original outlook of approximately 35%.
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During the quarter, operating margin expanded approximately 115 basis points, leading to diluted earnings per share of $1.78, which is a 34% increase as compared to adjusted diluted earnings per share in the prior year.
1 most admired specialty retailer for the second year in a row.
1 position in outdoor power equipment with further share gains in battery outdoor power equipment, as we drove over 37% growth in this area for the quarter and over 118% on a two-year basis.
Since 2018, we have also invested well over $2 billion in incremental wage and equity programs for our frontline associates to ensure that we continue to offer a strong competitive wage and benefit package to our associates.
In the fourth quarter, we reported diluted earnings per share of $1.78, an increase of 34% compared to adjusted diluted earnings per share last year.
In the quarter, sales were $21.3 billion, reflecting a comparable sales increase of 5%.
Now, turning to our 2022 financial outlook.
And based on the continued momentum that we are seeing in Pro sales, as well as higher expectations for commodity inflation, we are raising our sales outlook for 2022 to a range of between $97 billion to $99 billion for the year, representing comparable sales of down 1% to up 1%.
Also, as a reminder, our 2022 sales outlook includes a 53rd week, which equates to approximately $1 billion to $1.5 billion in sales.
We are also raising our outlook for diluted earnings per share to a range of $13.10 to $13.60 from a prior range of $12.25 to $13.
In 2022, we continue to expect capital expenditures of approximately $2 billion and share repurchases of approximately $12 billion.
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We shifted our financial forecast for prioritizing cash and liquidity given the uncertainties and we delivered another year of outstanding cash flow, our fourth consecutive year of cash flow greater than $1 billion.
In addition, in our 2020 Sustainability Report, we committed to the ambitious goals of reducing our Scope 1 and 2 greenhouse gas emissions by one-third by 2030 and achieving carbon neutrality by 2050.
As a result, EBIT declined by about $100 million just related to this additional inventory actions we took.
If volume is flat in '21 compared with '20, we would have about a $100 million tailwind from this improved utilization as we go into this year or about $0.60 a share.
Looking at our cost structure, you'll recall that we reduced costs by approximately $150 million in 2020 versus '19, and we estimate about $100 million of this was temporary.
When we put this together, we expect our '21 adjusted earnings per share will increase between 20% and 30% compared to 2020.
You recall in the first quarter of 2020, our earnings per share was up 15% year-over-year, a very strong performance for our industry at that time.
Finally, on cash, a high priority for Eastman, we expect '21 to be our fifth consecutive year of free cash flow above $1 billion.
Over the next two years, Eastman will invest approximately $250 million in the facility, which will support Eastman's commitment to addressing the global waste crisis and mitigating challenges created by climate change, while also creating value for shareholders.
Using the company's polyester renewal technology, this new facility will use 110 kmt [Phonetic] of plastic waste to produce premium high-quality specialty plastics made with recycled content.
This will not only reduce the company's use of fossil fuels feedstocks, but it will also reduce our greenhouse gas emissions by 20% to 30%.
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We shifted our financial forecast for prioritizing cash and liquidity given the uncertainties and we delivered another year of outstanding cash flow, our fourth consecutive year of cash flow greater than $1 billion.
In addition, in our 2020 Sustainability Report, we committed to the ambitious goals of reducing our Scope 1 and 2 greenhouse gas emissions by one-third by 2030 and achieving carbon neutrality by 2050.
When we put this together, we expect our '21 adjusted earnings per share will increase between 20% and 30% compared to 2020.
Finally, on cash, a high priority for Eastman, we expect '21 to be our fifth consecutive year of free cash flow above $1 billion.
This will not only reduce the company's use of fossil fuels feedstocks, but it will also reduce our greenhouse gas emissions by 20% to 30%.
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You have big shoes to fill and hope you are with us, at least 15 years like Brent.
As we have previously announced, effective January 1, Phillippe Lord will transition to the CEO role and I will retire after 35 years and become Executive Chairman of Meritage's Board.
Phillippe and I have worked closely together for 12 years.
We delivered our highest quarterly orders, our strongest absorption since 2005, record quarterly closing revenue and our best quarterly closing gross margins since 2014 despite record high lumber prices, while also achieving our lowest net debt to capital in our company's history.
We sold 3,851 homes this quarter, which was 71% more than the third quarter of 2019 and surpassed the quarterly record we had just set in the previous quarter this year.
In Q3 of 2020 we accelerated our land investments by spending nearly $300 million and put a record 9,000 new lots under control.
While the accelerated sales trend resulted in some early community closeouts this quarter we are still on pace to achieving 300 active communities by early to mid-2022.
Our absorption pace for the quarter was up 94% year-over-year.
Five out of nine states had absorption increases over 100% year-over-year this quarter.
Entry-level represents 60% of our average active communities during this quarter compared to 42% a year ago, which puts us near our target ratio of 65% to 35% between entry-level and first move-up.
Absorption in our entry-level communities were 75% higher than last year and nearly 1.5 times the pace of first move-up communities.
Entry-level comprised almost 70% of total orders for the third quarter, up from 54% in the third quarter last year.
Our first move-up communities also experienced improved demand year-over-year with absorptions 86% higher than a year ago.
Slide 7, the outsized demand in Q2 and Q3 of 2020 led to 23 early community closeouts this quarter.
During 2019 we put 17,000 new lots under control which translates to 134 new communities.
We put approximately 16,000 new lots under control in just the first nine months of 2020 almost as much as all of 2019 and nearly 80% more than 2018's 9,000 new lots.
This translates into about 123 new communities put under control during the first nine months of this year with dozens more to come in the fourth quarter.
At September 30, 2020 with nearly 48,000 total lots outstanding representing 4.4 years of lots supplied based on a trailing 12-month closings, we've increased our land book by almost 30% from September 30, 2019.
Year-to-date September 30, 2020 our new lots under control were 81% entry-level with an average community size of 130 new lots.
We are scheduled to open up more than 150 communities in 2021 compared to opening 75 communities in all of 2019 and approximately 100 communities projected for full year 2020 after being shut down for six weeks due to COVID-19.
At a pace of 50 sales per year and an average of 300 communities could reasonably produce 15,000 sales in 2022.
Our central region comprising Texas led in terms of order growth this quarter with an 82% increase in orders over the third quarter of 2019 despite a 14% decline in average community count.
Entry-level communities representing 63% of central region's average active communities during the third quarter of 2020.
Our orders in the West region were up 68% over the third quarter of 2019, driven by an 88% increase in absorption with 10% fewer average communities.
Entry-level communities represent 63% of the West region's average active communities during the quarter.
California produced the largest year-over-year growth in orders at 158% for the quarter and the highest absorptions of all nine states we operate in, selling an average of seven per month during the quarter of 2020, which was an increase of 137% in absorptions year-over-year.
Average community count in California also increased 9% year-over-year for the third quarter of 2020.
Our each region experienced order growth of 63% on an 87% increase in absorptions year-over-year for the quarter, offsetting a 30% decline in average community count.
50% of our average active communities in the East region were entry-level during the quarter.
We generated 56% earnings growth year-over-year in the third quarter of 2020 compared to the same period in 2019 as we had significant growth across all key metrics with 21% closing revenue growth, 170 bps increase in home closing gross margin and a 70 bps improvement in SG&A as a percentage of home closing revenue.
This quarter's closings were up 24% year-over-year, with 71% of closings coming from previously started spec inventory.
At September 30, 2020 approximately 14% of total specs were completed, less than the last couple of quarters understandably as we're selling more specs in earlier stages of production.
Although this dynamic is also driving a decrease in our backlog conversion rate over the last several quarters, our backlog conversion rate for the third quarter was 68%, which is slightly up year-over-year evidence that our construction pace is keeping up with sales.
We generated over $1.1 billion of revenue in Q3 2020 as the year-over-year increases in closing volume reflecting our record high sales more than offset the decline in ASP home closings resulting from the shift in product mix toward entry-level.
Our closing gross margin improved 170 bps to 21.5% for the third quarter of 2020 from 19.8% a year ago.
The additional closing volume and the efficiencies achieved from our streamlined operations and national purchasing savings contributed to a 31% year-over-year increase in total closing profit.
SG&A as a percentage of home closing revenue was 10.1% for the current quarter which was a 70 bps improvement over 10.8% in 2019 due to greater leverage of fixed expenses and efficiencies and higher closing volume as well as cost savings from technology enhancements particularly as related to sales and marketing efforts.
We also benefited from a lower tax rate with the extension of the energy tax credits into 2020 under the Taxpayer Certainty and Disaster Tax Relief Act enacted in December 2019, our effective tax rate was 19.5% for the third quarter this year versus 24.4% last year.
Our third quarter diluted earnings per share of $2.84 also benefited from our repurchase of 1 million shares in the first quarter of 2020.
To highlight just a few items for year-to-date results September 30, 2020, on a year-over-year basis we generated an 86% increase in net earnings, orders were up 40%, closings were up 26%.
We had a 250 bps increase in home closing gross margin and a 90 bps improvement in SG&A as a percentage of home closing revenue.
Moving on to slide 10, our balance sheet continues to be very strong even as we step up investments in land acquisition and development, we have plenty of liquidity including $610 million of cash, nothing drawn on our credit facility and a lower net-debt-to-cap -- in the lowest net-debt-to-cap in our company's history at 15.7%.
We grew our spec inventory back to an average of 11.2 specs per communities this quarter after dipping in the second quarter to about 9.3.
We spent nearly $300 million on land and development this quarter our highest spend in a single quarter in our history.
For the first nine months of 2020 we spent nearly $760 million on land acquisition and development, which was more than 28% higher in the same period of last year.
About 58% of our total lot inventory at September 30, 2020 was owned and 42% was optioned which improved compared to September 30, 2019 with 66% owned and 34% optioned.
Turning to slide 13, to summarize, Meritage Homes today is a different company than when I co-founded it in 1985.
We are focused on growth by accelerating land investments to get to our goal of 300 community count by early to mid-2022.
After 91 quarters of your thoughtful and brilliant questions, I'm not sure how we'll close without the anxiety of the quarterly full body scan.
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We sold 3,851 homes this quarter, which was 71% more than the third quarter of 2019 and surpassed the quarterly record we had just set in the previous quarter this year.
We generated 56% earnings growth year-over-year in the third quarter of 2020 compared to the same period in 2019 as we had significant growth across all key metrics with 21% closing revenue growth, 170 bps increase in home closing gross margin and a 70 bps improvement in SG&A as a percentage of home closing revenue.
Our closing gross margin improved 170 bps to 21.5% for the third quarter of 2020 from 19.8% a year ago.
Our third quarter diluted earnings per share of $2.84 also benefited from our repurchase of 1 million shares in the first quarter of 2020.
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We evolved these initiatives and increased our savings target to $500 million through 2021.
In 2021, we will continue to enhance our productivity and anticipate delivering approximately $160 million of incremental savings.
And with the DN Now transformation set to conclude by year-end, our restructuring payments will also come to end, with cash restructuring payments expected to be no more than $50 million this year.
The net result of our efforts will drive a strong sequential step up in free cash flow, which is anticipated to be in the range of $140 million to $170 million for the year.
Early deployments with legacy ATMs suggest that ACDE can reduce call rates by approximately 20%.
2020 was a very strong year for Diebold Nixdorf from a self-checkout shipments perspective as we delivered growth of approximately 90% in the fourth quarter and just over 2% for the full year.
The high service attach rates of approximately 90% is another reason to like this business.
We are currently deploying our Vynamic Payments platform at our first client, a top 10 global financial institution.
Despite the continued complexities of the COVID-19 pandemic, product orders increased 17% in the fourth quarter, with banking growth of 34%.
At the same time, we enhanced our execution of the DN Now transformation initiatives and delivered approximately $165 million against our savings targets during the year.
With respect to free cash flow, our fourth quarter results of $186 million was the strongest we've experienced in eight quarters, fueled by solid profitability and strong collections.
For the full year, the company generated $57 million in free cash flow, which exceeded our outlook by $27 million.
Against this backdrop, our 2021 outlook is for revenue of approximately $4 billion to $4.1 billion or 3% to 5% growth, adjusted EBITDA of $480 million to $500 million which translates to 6% to 10% growth, and significant free cash flow growth to a range of $140 million to $170 million.
Strength in product orders during the quarter drove our product backlog 23% higher versus the prior year.
In Poland, we procured a $7 million contract for self-checkout products and Vynamic iScan software licenses with another large grocery store.
In Saudi Arabia, we booked an order with a top three bank to refresh 1,800 ATMs with DN Series.
We also booked a new logo in Egypt for 500 DN Series in support of this bank's expansion initiatives.
In the Netherlands, we secured two new contracts valued at approximately $11 million to provide DN Series ATMs and indoor Lobby cash recyclers.
In the Americas, we expanded our existing partnership with Citibank for additional DN Series ATMs, a full Vynamic software suite and maintenance services across 15 countries, which will help standardize the customer experience, while reducing complexity, cost and security risk.
We also won a new contract to install 1,000 new DN Series cash recycling modules and our IoT-enabled All Connect Data Engine with the largest private bank in Brazil.
During the first quarter of 2021, we are seeing continued success with an initial order for cash recycling DN Series units and maintenance services at a top 10 financial institution in the United States.
We reported sequential growth in the third and fourth quarter of more than 10%.
Our fourth quarter revenue was about 5% better than our recent outlook.
Full-year revenue of $3.9 billion declined by 11% as reported and 8% when one removes the effect of divestitures and currency fluctuations, with most of that decline attributed to COVID delays.
Adjusted EBITDA increased 13% to $453 million for the full year.
Our adjusted EBITDA margin of 11.6% increased by 250 basis points versus the prior year.
And I previously mentioned our strong fourth quarter free cash flow performance and now total $57 million for the year.
These incremental projects will yield longer-term benefits, so there is no change to our cumulative DN Now savings target of $500 million through 2021.
For the quarter, we had spent $72 million of restructuring and transformation expenditures and paid approximately $60 million in cash.
We are targeting a maximum of $50 million for these cash payments for 2021.
During the fourth quarter, non-routine expenses were approximately $8 million and we expect these adjustments have largely concluded, with the exception of divestiture-related costs.
Fourth quarter revenue of $1.1 billion declined 2.5% after adjusting for foreign currency and divestitures.
Foreign currency was favorable by approximately $18 million and divestitures were unfavorable by $36 million.
Our revenue variance was primarily due to unplanned delays of approximately $40 million, largely driven by the pandemic.
We delivered product revenue growth of 1% versus the prior quarter, showing a strong rebound from COVID-19, and we are encouraged by robust order entry growth during the second half of 2020, supporting a stronger rebound ahead.
Continued strong gross margin results in the quarter were offset by the revenue decline, resulting in a $7 million decline in gross profit versus the prior-year period.
Progress on our services, modernization and software excellence initiatives drove a 50 basis point increase to total gross margin versus the prior quarter.
Software margins expanded 850 basis points, services expanded 120 basis points and products declined 230 basis points due to a less favorable geographic customer mix in our banking segments.
Operating profit increased $4 million or 4% versus the prior quarter, while operating margins increased 80 basis points to 9.5% for the quarter.
We delivered adjusted EBITDA of $128 million, which exceeded our prior outlook by $13 million.
Adjusted EBITDA margin expanded 20 basis points year-over-year to 11.6%.
Fourth quarter free cash long was $186 million.
The upside to free cash flow versus our model was higher profitability and significantly stronger cash collections, which dropped our days sales outstanding by 8 days sequentially.
On slide 10, Eurasia Banking revenue for the quarter increased 1% to $419 million after adjusting for $36 million from divestitures, net of a $20 million benefit from foreign currency.
Total gross profit was down $4 million year-over-year, reflecting a stable margin on lower revenue.
Moving to slide 11, Americas Banking revenue of $375 million declined 7% versus the prior quarter, excluding a $13 million foreign currency headwind, primarily reflecting non-recurring projects in North America as well as COVID-19 related project delays.
Segment gross profit of $100 million was down $8 million year-over-year due to the revenue decline, partially offset by gross margin expansion of 90 basis points due to our DN Now transformation initiatives and a more favorable product mix.
On slide 12, retail revenue of $312 million was 1% lower year-over-year after adjusting for a $12 million foreign currency benefit.
Gross profit increased to $73 million during the quarter as our mix of products was more favorable due to the rising self-checkout shipments and our DN Now initiatives positively impacting services and software margins.
Retail gross margin expanded by 80 basis points during the quarter.
At the end of 2020, the company's net leverage ratio of 4.4 times was unchanged from the end of 2019 as the increase in EBITDA and our positive free cash flow was offset by payments associated with our debt refinancing, M&A activities and an unfavorable exchange rate on foreign net debt balances.
We expect to use free cash flow to pay down debt and we're targeting a reduction in leverage ratio to less than 3 times net debt to adjusted EBITDA by 2023.
The tax principals provide products and related support to distribution subsidiaries in approximately 60 countries.
Due to high restructuring, transformation and interest payments, the combined tax principals reported a pre-tax loss, but paid approximately $7 million of income taxes due primarily to tax loss pertaining to the US foreign source income alignment, or in tax jargon, if you prefer that, the Global Intangible Low Tax Income, GILTI provisions and Subpart F provisions of the US tax code.
On a collected basis, distribution subsidiaries paid approximately $30 million in cash income taxes during 2020, bringing total company cash income taxes to approximately $37 million.
Taking into account all the factors listed on this slide, we expect cash tax payments in 2021 will be approximately $35 million, while targeting an effective tax rate of 25% to 30%.
We are expecting revenue in the range of $4 billion to $4.1 billion, which translates to a 3% to 5% growth.
Divestitures, which have already been completed, are expected to result in a headwind of approximately $50 million to services revenue, with the majority impacting our first half results.
Our adjusted EBITDA range is $480 million to $500 million or 6% to 10% growth.
Key contributions are expected from top line growth and $160 million of DN Now savings, primarily from higher mix of DN Series, software excellence and greater efficiencies from our service organization and All Connect Data Engine.
Offsetting these benefits are approximately $40 million of incremental growth investments in growth areas, which Gerrard discussed today, a $40 million reversal of one-time savings and services gross margin benefits, which occurred in 2020, and investments we are making in people, which primarily relate to the timing and magnitude of merit increases, and also inflation.
For operating expenses, the net effect will be approximately $20 million of higher expenses in 2021 versus 2020.
In terms of seasonality, we expect our first half will account for approximately 45% of annual revenue and approximately 40% of annual adjusted EBITDA.
We expect to generate $140 million to $170 million in 2021, representing an EBITDA to free cash flow conversion rate of approximately 30%, up from 12% in 2020.
We expect net working capital to be a $50 million source of funds in 2021 as accounts receivable DSOs and inventory investments normalize from COVID-19 impact.
$170 million in interest payments; $50 million of restructuring payments; $85 million of capex and software development payments; and 75 million from cash taxes, pension and other items.
Starting with revenue, we are targeting annual organic revenue growth of 2% to 4% through 2023, supported by the areas which I discussed earlier.
We also expect to deliver ongoing operational efficiencies and gross margin expansion in our services business through widespread deployment of our All Collect Data Engine, which underpins our gross service margin target range of 32% to 33%.
Collectively, these factors contribute to an adjusted EBITDA target for 2023 in excess of 13%.
Our plans call for increasing this ratio from 12% in 2020 to approximately 30% in 2021 and approximately 50% in 2023.
We expect cumulative three-year levered free cash flow to exceed $600 million.
Furthermore, we believe the company can generate a return on invested capital of greater than 20%.
As we increase our profitability and use excess cash to pay down debt, we expect to reduce our leverage ratio to less than 3 times net debt to trailing 12 months adjusted EBITDA.
Since 2015, we have systematically reduced our carbon emissions by 16,500 metric tons, and we report our results in the Carbon Disclosure Project.
As a global company, operating with customers in over 100 countries and employees in more than 60 countries, we also take our role as a global citizen seriously.
As part of our global citizenship actions, the Diebold Nixdorf Foundation has committed to $0.5 million to expand financial literacy in underserved populations through an organization called Operation HOPE.
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Against this backdrop, our 2021 outlook is for revenue of approximately $4 billion to $4.1 billion or 3% to 5% growth, adjusted EBITDA of $480 million to $500 million which translates to 6% to 10% growth, and significant free cash flow growth to a range of $140 million to $170 million.
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Another exciting initiative is our $100 million commitment to corporate venture capital, Emerson Ventures, designed to accelerate innovation by providing insight into cutting-edge technologies that have the potential to solve real customer challenges.
The automation KOB three mix for 2021 was up two points to 59%.
And Emerson's September three-month trailing orders were plus 16%.
We grew 5.3% underlying and leverage at 38% operationally, inclusive of a $140 million swing in our price/cost assumptions from November through to the end of the fiscal year.
The earnings quality of this company continues to be excellent with free cash flow conversion of 129%.
In the quarter, we missed sales by $175 million.
And alongside a challenging price/cost environment in our climate business, it resulted in a negative $0.14 impact to earnings per share for the quarter and a $0.19 impact to 2021 EPS.
Having said that, the company grew 7% in the fourth quarter and had 19% operating leverage.
The price/cost assumption in the year will be a positive $100 million for 2022.
I have confidence that we will deliver 30% incrementals on our underlying sales in 2022.
Secondly, we identified four large, profitable, high-growth end markets, each with at least $20 billion of size and projected to grow higher than 4% a year into the future supported by macros.
One of the four markets is industrial software, a $60 billion segment that we identified growing at 9%.
I'm optimistic of the synergy opportunities that exist and believe the new AspenTech, which will be 55% owned by Emerson shareholders, will be a differentiated platform for future industrial software M&A.
This was achieved in the face of an unexpected increase in key raw materials, mainly steel and copper, that resulted in an unfavorable price/cost swing of $140 million during the year versus the expectation and the guidance that we gave you a year ago.
The continued recovery in our end markets drove strong full year underlying growth of more than 5%.
Net sales were up 9% year-over-year, including a one point impact from acquisitions, mainly OSI, which closed at the beginning of the fiscal year.
Adjusted segment EBIT benefited from strong leverage in operations, 38%, as Lal just mentioned, and adjusted EBIT from underlying volume and the benefit of cost reset actions that were begun two years ago.
These cost reductions more than offset price/cost headwinds, which, as I said, were $140 million versus our expectation at the beginning of the year, and the supplies chain challenges that raised costs and reduced availability.
Cash flow was robust, up 18% year-over-year attributable to the strong earnings growth and working capital efficiency.
Free cash flow conversion of net earnings was 129%.
Adjusted earnings per share was $4.10, exceeding our guide by $0.03 at the midpoint and up 19% for the year.
Adjusted EBIT increased 230 basis points due to the strong leverage driven by cost reset benefits.
Commercial & Residential saw exceptional growth, up 6% underlying year-over-year due to broad strength across the residential and commercial markets with mid-teens growth in all world areas.
Adjusted EBIT increased 20 basis points versus prior year.
Operational performance was strong throughout the year, adding $0.59 to adjusted EPS, overcoming a $0.19 headwind from supply chain and $90 million of unfavorable price/cost.
Operations leveraged at more than 35% on volume and cost actions.
Nonoperating items contributed $0.02 in that, overcoming a significant headwind from the stock comp mark-to-market accounting.
Share repurchase totaled $500 million, as we guided, and added about $0.03.
In total, adjusted earnings per share was $4.10, as I said, an increase of 19%.
Regarding the fourth quarter, strong end market demand drove underlying growth of 7% with net sales up 9%.
This growth was achieved despite a $175 million impact from supply chain, logistics and labor constraints that affected both platforms in somewhat different ways.
Adjusted segment EBIT dropped 10 basis points, reflecting a 200 basis point impact from supply chain volume constraints across the company and from the increasingly negative price/cost headwind in commercial/residential.
Free cash flow declined 39% mainly due to higher working capital to support the growth versus the prior year.
Adjusted earnings per share was $1.21, exceeding the guidance midpoint by $0.03 and up 10% and versus the prior year.
Automation Solutions underlying sales were up 3% with strong recovery in the Americas, particularly in the power generation and chemical markets, partially offset by declines in other world areas.
Sales were reduced by about $125 million or four points due to supply chain constraints.
Our backlog was up 16% year-to-date and now sits at $5.4 billion, $100 million less than at the end of the third quarter.
Strong leverage and cost reductions drove a 170 basis point improvement in adjusted EBIT.
Commercial & Residential underlying sales increased 13% and driven by continued strength in North America residential HVAC and home products as well as heat pump demand in Europe.
Sales were reduced by about $50 million or three points due to supply chain constraints, which, together with sharply increasing material cost headwinds, which were expected, perhaps a little worse than we expected in August but are expected, drove a 340 basis points decline in adjusted EBIT.
North American cold-rolled steel pricing increased once again in October, extending the streak of monthly price increases to 14 months.
However, the magnitude of the increases have declined in recent months, and more importantly, hot-rolled steel prices dropped around $20 a ton in October, a positive sign for us.
Our current plans indicate that price/cost will be approximately a $100 million tailwind for the fiscal year.
The trailing three-month orders for Automation Solutions were up 20% versus the prior year driven, as I said prior, by continued automation investments in discrete and hybrid markets, and we believe that will continue into 2022, and, of course, the strengthening of the process automation spend.
To give you perspective, 2021 walkdowns were up 50% year-over-year with more than 5,000 globally, with each walkdown driving substantial KOB three pull-through.
Shutdown turnaround bookings were up -- for -- in 2021 10% year-over-year driven by strong spring season that extended into the early summer.
Overall, the trailing three-month orders were 9% in September.
Based on this macro landscape, we believe -- we continue to expect demand to be strong in 2022.
Emerson's 2021 adjusted EBITDA of 23.1% surpassed our previous record.
Over 90% of our restructuring spend communicated in our investor conference is complete, and over 70% of the savings have been realized with remaining longer-term facility projects left to be completed.
So given this landscape, we expect underlying sales growth of 6% to 8% in 2022 and net sales growth of 4% to 6%.
Underlying sales growth for Automation Solutions will be 6% to 8%, while Commercial & Residential Solutions will be 6% to 9%.
As Ram discussed, we expect price/cost to turn into tailwind for the year of approximately $100 million.
$150 million of restructuring activities includes the minimal remaining spend on our cost reset program and additional programs, including footprint activities, that have been identified and are planned in the fiscal year.
Looking at the 2021 column of the bridge to the right, our prior adjusted earnings per share of $4.10 increases to $4.51 when removing the impact of intangibles amortization expense of $0.41.
For 2022, the amortization expense is expected to be approximately $0.42 driven by -- driving, excuse me, our adjusted earnings per share to between $4.82 and $4.97.
We expect a first quarter 2022 underlying sales growth of 7% to 9% with broad underlying strength across Automation Solutions and Commercial & Residential Solutions.
Adjusted earnings per share is expected to be between $0.98 and $1.02.
Amortization for the quarter is expected to be roughly $0.10.
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Having said that, the company grew 7% in the fourth quarter and had 19% operating leverage.
Net sales were up 9% year-over-year, including a one point impact from acquisitions, mainly OSI, which closed at the beginning of the fiscal year.
Adjusted earnings per share was $1.21, exceeding the guidance midpoint by $0.03 and up 10% and versus the prior year.
Based on this macro landscape, we believe -- we continue to expect demand to be strong in 2022.
For 2022, the amortization expense is expected to be approximately $0.42 driven by -- driving, excuse me, our adjusted earnings per share to between $4.82 and $4.97.
Adjusted earnings per share is expected to be between $0.98 and $1.02.
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We implemented changes resulting in an estimated full-year run rate efficiencies of about $100 million a year.
Finally, we are returning value to shareholders with the year-over-year dividend increase to $1.08 annualized, providing an increased but well-covered dividend, strong balance sheet, capital and cost discipline, returning value to shareholders.
Second, we completed the two important acquisitions, the larger one, Stagecoach, showing our confidence in the long-term value of our natural gas business and taking our total operated storage capacity to 700 Bcf.
As things stand today, 69% of our backlog is in support of low-carbon infrastructure.
That includes natural gas, of course, but it also includes $250 million of organic projects supporting renewable diesel in our products and terminals business units and our renewable natural gas projects.
Importantly, too, that 69% is projected to come in at a weighted average 3.6 times EBITDA multiple of the expansion capital spend.
We'll soon be publishing our ESG report, including both Scope 1 and Scope 2 emissions, we have incorporated ESG reporting and risk management into our existing management processes, and the report will explain how.
1 in our sector for how we manage ESG risk, and two other rating services have us in the top 10.
Transport volumes were up about 3% or approximately 1.1 million dekatherms per day versus the third quarter of '20.
Physical deliveries to LNG facilities off of our pipeline averaged 5.1 million dekatherms per day.
That's a 3.3 million dekatherm per day increase versus the third quarter of '20 when there were a lot of canceled cargoes.
Our market share of deliveries to LNG facilities is approximately 50%.
Our natural gas gathering volumes were down about 4% in the quarter compared to the third quarter of '20.
So compared to the second quarter of this year, volumes were up 5%, with nice increases in the Eagle Ford and the Haynesville volumes, which were up 12% and 8%, respectively.
In our products pipeline segment, refined product volumes were up 12% for the quarter versus the third quarter of 2020.
And compared to the pre-pandemic levels, which we used the third quarter of 2019 as a reference point, road fuels were down about 3% and jet fuel was down about 21%.
Crude and condensate volumes were down about 7% in the quarter versus the third quarter of 2020.
And sequentially, they were down about 4%.
In our terminals business segment, our liquids utilization percentage remains high at 94%.
If you exclude tanks out of service for required inspection, utilization is approximately 97%.
Our rack business, which serves consumer domestic demand, are up nicely versus the third quarter of '20, but they're down about 5% versus pre-pandemic levels.
On the bulk side, volumes were up 19%, so very nicely, driven by coal, steel, and petcoke.
Bulk volumes overall are still down about 3% versus 2019 on an apples-to-apples comparison.
In our CO2 segment, crude volumes were down about 6%.
CO2 volumes were down about 5%.
But NGL volumes were up 7%.
However, road fuels were down about 3% versus pre-pandemic levels versus flat with pre-pandemic levels last quarter as we likely saw an impact from the Delta variant.
So for the third quarter of 2021, we're declaring a dividend of $0.27 per share, which is $1.08 annualized and 3% up from the third quarter of last year.
This quarter, we generated revenues of $3.8 billion, up $905 million from the third quarter of 2020.
We had an associated increase in cost of sales with an increase of $904 million, both of those increases driven by higher commodity prices versus last year.
Our net income for the quarter was $495 million, up 9% from the third quarter of '20.
And our adjusted earnings per share was $0.22, up $0.01 from last year.
Our natural gas segment was up $8 million for the quarter.
The product segment was up $11 million, driven by continued refined product volume recovery, partially offset by some lower crude volumes in the Bakken.
Terminal segment was down $13 million, driven by weakness in our Jones Act tanker business, partially offset by the continued refined product recovery volume -- or excuse me, volume recovery we've seen there.
Our G&A and corporate charges were higher by $28 million due to lower capital spend, resulting in less capitalized G&A this quarter versus a year ago, as well as cost savings we experienced in 2020 as a result of the pandemic.
Our JV DD&A was lower by $30 million, primarily due to lower contributions from Ruby Pipeline.
Interest expense was favorable $15 million, driven mostly by lower debt balance this year versus last.
Our cash taxes were favorable $37 million, and that was due -- mostly due to 2020 payments of taxes that were deferred into -- in the second quarter into the third quarter.
Sustaining capital was unfavorable this quarter, $64 million, driven by spending in our natural gas segment.
And that's only slightly more than we budgeted for the quarter, though for the full year, we expect to be about $65 million higher than in budget with most of that variance coming in the fourth quarter.
Total DCF of $1.013 billion or $0.44 per share is down $0.04 from last year.
Our full-year guidance is consistent with what we provided last quarter, with DCF at $5.4 billion and EBITDA at $7.9 billion.
We ended the quarter at 4.0 times net debt to adjusted EBITDA, and we expect to end the year at 4.0 times as well.
And our long-term leverage target of around 4.5 times has not changed.
Our net debt ended the quarter at $31.6 billion, down $424 million from year-end and up $1.423 billion from the end of the second quarter.
To reconcile that change in net debt for the quarter, we generated $1.013 billion of Bcf.
We paid out dividends of $600 million.
We closed the Stagecoach and Kinetrex acquisitions which collectively were $1.5 billion.
We spent $150 million on growth capex and JV contributions.
And we had a working capital use of $175 million, mostly interest expense payments in the quarter.
For the change from year-end, we've generated $4.367 billion of DCF.
We paid out $1.8 billion of dividends.
We spent $450 million in growth capex and JV contributions.
We had the $1.5 billion Stagecoach and Kinetrex acquisitions.
We have $413 million come in on the NGPL sale.
And we've had a working capital use of $600 million, mostly interest expense payments.
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In our products pipeline segment, refined product volumes were up 12% for the quarter versus the third quarter of 2020.
Crude and condensate volumes were down about 7% in the quarter versus the third quarter of 2020.
And our adjusted earnings per share was $0.22, up $0.01 from last year.
Our full-year guidance is consistent with what we provided last quarter, with DCF at $5.4 billion and EBITDA at $7.9 billion.
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In December, the Federal Reserve raised interest rates for the fourth time in 2018 responding to strong US growth, low unemployment and core inflation readings above 2%.
Higher interest rates brought about weaker financial market conditions with 10 year US treasuries over 3% and LIBOR reaching its highest level in the last 10 years; equity markets started showing signs of stress.
Today we know that the Fed is taking deep developments into account with a more dovish outlook on the potential for future rate increases and a slowdown in the unwinding of its $4 trillion balance sheet.
Positive investment and portfolio fund flows ratcheted up growth expectations to close to 3%, growth rates Brazil hasn't seen in more than four years.
Although still subpar, growth rates of 2% or slightly higher are now possible for Latin America.
Recent developments such as the cancellation of the new airport project, uncertainty over the fate of energy reform threatening to curtail bank fees and potential government intervention in the writing of its independent entity, or a stark departure of what investors have come to expect from Mexico over the last 20 years.
Our Tier 1 capital ratio remains strong, our book value remains solid above $25 per share, and that is why our Board of Directors approved to maintain a $0.358 per share dividend.
First, let me highlight on page 4 the banks return to profitability, recording a fourth-quarter 2018 profit of $20.7 million or $0.52 per share in the improvement of quarter on quarter top line revenue by 13%, mainly on account of increased loan average portfolio balances and higher fees as well as the normalization of credit provisioning.
For the year 2018, profits of $11.1 million reflect impairment losses on financial instruments and nonfinancial assets for a total of $68 million.
Net interest income for the fourth quarter of 2018 increase by 2% quarter on quarter to $28 million, mainly driven by 4% increase in average loan balances in the absence of NPL's interest reversal, partly affected by higher low yielding liquid assets.
Although average deposits declined by 12% quarter on quarter, this trend was reverted by the end of the year resulting in a 7% quarter on quarter increase.
Consequently, liquid balances represented 22% of total assets at December 31, 2018.
Our estimation is that this temporary excess liquidity had a negative impact of approximately 17 basis points in net interest margin for the quarter.
Hence, the 13 basis points quarter on quarter declined in net interest margin to 1.61% is mostly attributable to these effects.
As a result of this overall decline and an average lending spreads throughout the year 2018, net interest income of $110 million represented a year on year decrease of 8%, and annual net interest margin of 1.71% declined by 14 basis points.
During the quarter, the bank originated $3.1 billion in loans, exceeding maturities by $54 million.
Loan disbursements for the year 2018 total $14.3 billion as we continue to perform well on our short-term origination capacity and we are also able to deploy longer tenor transactions with our traditional client base of top-quality financial institutions, exporting corporations, and multilatina.
As a result, our loan portfolio increased by 1% on ¼ on quarter basis and by 5% year on year to $5.8 billion as of December 31, 2018.
Now moving on to page 7, fees and commissions were relatively stable year on year at $17.2 million for 2018.
Fee income from letters of credit and contingencies performed well with quarter on quarter increase of 25% to $3.5 million.
On an annual basis, fees from this line of business increased by 12% to $12.3 million.
Quarterly fees from syndication, the other main component of degeneration for the bank, increased to $1.9 million in the fourth quarter and totaled $4.9 million for the year 2018, a 26% decrease from the previous year denoting that transaction based on even nature of this business.
The bank has positioned itself as a relevant player in originating syndicated transactions across the region and was able to close seven transactions during 2018 for a total of $847 million.
Overall exposure to financial institutions, sovereign and quasi-sovereign, represented 67% of the total commercial portfolio at year-end 2018 from 45% in 2015, denoting a continued improvement in portfolio quality over the last four years.
Financial institutions alone, the bank's traditional client base accounted for predominant 52% of total exposure in 2018.
Integrated oil and gas sector exposure accounted for 10% of the total portfolio as of December 31, 2018 and is mainly concentrated in quasi-sovereign entities which constitutes long-standing business relationships of the bank.
The remaining overall exposure is well diversified among several industry sectors, none of which exceeded 5% of total exposure as of December 31, 2018.
In terms of country exposure, Brazil represented 19% conmetric with the size and prospect of its economy and its relevance in international trade flows.
86% of Brazil's exposure is with banks, sovereign, and quasi-sovereign.
The average remaining tenor of the country's portfolio is approximately 14 ½ months with 67% maturing in 2019.
We are closely monitoring our exposures in Mexico, which constitutes 40% of total exposure, Argentina with 10%, and Costa Rica with 6%; countries in which the bank has identified very good business opportunities cognizant of relative and certainly that should start to unveil throughout 2019 such as possible adverse economic policies and outcomes of the newly established government in the case of Mexico and presidential elections in Argentina, which are critical to the continuity of recently implemented economic reform and adherence to the IMF accord.
Total commercial portfolio continued to be mostly short-term with an average remaining tenor of close to 11 months and with 74% maturing in 2019.
Trade-related loans represented 59% of the short-term bank portfolio at year-end.
On to page 10, we present the evolution of NPL and allowances for credit losses.
During the fourth quarter of 2018, the bank was able to reduce its NPL levels by $54 million as a result of the sale of an NPL and the restructuring of another.
Of the $54 million reduction during the quarter, the bank collected sales proceeds of $12 million, wrote up principal balances for $33 million against individually allocated credit allowances and recognized the new financial instrument at fair value for $9 million after restructuring terms.
NPL's then total $65 million in represented 1.12% of the loan portfolio at December 31, 2018, with ample reserve coverage of 1.6 times.
96% of banks NPL constitutes a single $62 million loan in the sugar sector in Brazil which significantly deteriorated during the third quarter of 2018 and was then classified as NPL.
This loan, individually provisioned at 75%, accounted for most of the increase in the allocated reserve for loan losses categorized as stage III under accounting standard IFRS-9.
At December 31, 2018, stage II exposure totaled $389 million of which $58 million corresponded to seven individual credits on the watchlist category which are performing but in runoff mode.
On page 11, quarterly operating expenses of $12.4 million showed ¼ on quarter seasonally high level.
Annual expenses totaling $48.9 million for 2018, increased by 4% year on year, mainly on nonrecurring expenses related to personnel restructuring and compensation of infrastructure platform.
Run rate base of annual operating expenses are estimated at approximately $46 million for 2018.
Efficiency ratio of 38% for the year 2018 reflects these nonrecurring expenses as well as lower topline revenues alluded to this board.
Now on page 12, I would like to summarize the main aspects for fourth-quarter and full-year 2018 results.
In the fourth quarter, the bank got back on a profitable track with a $20.7 million net income on the backdrop of quarter on quarter increase in topline revenue and portfolio average balances coupled with the normalization of credit provisioning.
Annual profits up $11.1 million were mostly impacted by credit impairments and to a lesser extent operational charges, all of which totaled $68 million.
Annual revenue decreased by 8%, mostly on account of lower average annual lending spread reflecting improved quality of the commercial portfolio although we saw a stabilization of credit spread in the last month of the year.
Capitalization remains solid at 18.1% Tier 1 ratio, while our Board of Directors capped our quarterly dividend unchanged at $0.385 per share.
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First, let me highlight on page 4 the banks return to profitability, recording a fourth-quarter 2018 profit of $20.7 million or $0.52 per share in the improvement of quarter on quarter top line revenue by 13%, mainly on account of increased loan average portfolio balances and higher fees as well as the normalization of credit provisioning.
For the year 2018, profits of $11.1 million reflect impairment losses on financial instruments and nonfinancial assets for a total of $68 million.
Net interest income for the fourth quarter of 2018 increase by 2% quarter on quarter to $28 million, mainly driven by 4% increase in average loan balances in the absence of NPL's interest reversal, partly affected by higher low yielding liquid assets.
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Prior to reviewing our progress against our 2021 financial objectives, I wanted to take a moment to express my deep gratitude to our employees around the world, specifically for their continued dedication and support for all of Assurant stakeholders during my tenure as CEO and especially over the last 18 months of the pandemic.
We recently completed our 2021 CDP Climate Survey, our sixth annual scoring submission expanding this year to include Scope 3 greenhouse gas emissions across several categories.
During the quarter, Assurant was recognized as a 2021 honoree of The Civic 50 by Points of Light, thus claiming [Phonetic] Assurant as one of 50 most community-minded companies in the U.S.
Year-to-date, excluding reportable catastrophes, net operating income per share was $6.02, up 14% from the first half of last year and net operating income was $366 million, an increase of 30%.
Adjusted EBITDA increased 12% to $600 million.
These results support our full-year outlook of 10% to 14% growth in net operating income per share excluding affordable catastrophes.
From 2019 through June of this year, we've returned to shareholders over 88% or almost $1.2 billion of our three-year $1.35 billion objective.
In July, we repurchased an additional 737,000 shares for $150 million and declared our quarterly common stock dividend for the third quarter, essentially completing our objective when paid.
In addition to completing this objective, we expect to return $900 million in net proceeds from the sale of Global Preneed within the next 12 months and therefore expect buybacks to continue at a higher-than-usual level throughout the remainder of the year and into 2022.
Through his strategic vision and intense focus on the evolving needs of our clients and end consumers, Alan and our team have solidified market-leading positions in our Connected World and Specialty P&C businesses, help Assurant establish a strong growth capital-light service-oriented business model where our Connected World offering is now comprised approximately two-thirds of our segment earnings and ultimately work together to unlock the power of our Fortune 300 organization -- prioritizing resources against initiatives with the highest growth potential and standing of key enterprise capabilities and functions, which we can now leverage across our growing client and customer base.
As we look to continue our culture of innovation.
Over the last few months, we have delivered several new partnerships and renewals throughout the enterprise including the renewal of two key European mobile clients representing 7,000 subscribers; renewal of eight global automotive partnerships representing over 10 million policies across our distribution channels; renewal of three Multifamily housing property management companies including two of the largest in the U.S. as we continue to grow the rollout of our Cover360 product; renewal of three clients and two new partnerships in lender-place as we provide critical support for the U.S. mortgage market.
In summary, I'm very excited to lead our 14,000 employees into the future and build on the tremendous momentum created under Alan's leadership.
For the quarter, we reported net operating income per share excluding reportable catastrophes of $2.99, up 12% from the prior year period.
Excluding cats, net operating income for the quarter totaled $184 million and adjusted EBITDA amounted to $298 million, a year-over-year increase of 12% and 10% respectively.
The segment reported net operating income of $124 million in the second quarter, a year-over-year increase of 2%.
In Global Automotive, earnings increased $7 million or 16% from continued strong year-over-year growth related to our U.S. clients across various distribution channels.
Results within auto also included a $4 million increase from the sale of the real estate joint venture partnership.
Connected Living earnings decreased by $9 million compared to a strong prior-year period.
For the quarter, Lifestyle's adjusted EBITDA increased 6% to $186 million.
As we look at revenues, Lifestyle increased by $169 million or 10%.
Within Global Automotive, revenue increased 13% reflecting strong prior period sales of vehicle service contracts.
This was reflected in our net written premiums of roughly $1.3 billion in the quarter, the highest quarter ever recorded.
Connected Living revenues were up 7% for the quarter.
For the full year, Lifestyle revenues are expected to increase modestly, compared to last year's $7.3 billion, mainly driven by year-to-date Global Auto and Connected Living growth.
This also reflects the reduction of 750,000 mobile subscribers related to a European banking program that moved to another provider in the second quarter.
For 2021, we still expect Global Lifestyle's net operating income to grow in the high-single digits compared to the $437 million reported in 2020.
Net operating income for the quarter totaled $94 million, compared to $85 million in the second quarter of 2020 due to $10 million of lower reportable catastrophes.
Investment income included a $4 million increase from the sale of a real estate joint venture referenced earlier.
Looking at loans track, the $1.5 million sequential loan decline was mainly attributable to a client portfolio that rolled off in the second quarter.
However, the decline in loans track should be partially offset by two new client partnerships in the quarter, which should enable us to onboard approximately 700,000 loans by year-end.
To mitigate multi-event risk, we added a flexible limit that can be used to reduce our retention from $80 million to $55 million in certain second and third events, or increase the top-of-the-tower $50 million in excess of $950 million in the rare case of a 1 in 174-year event.
We also increased our multi-year coverage to over 50% of our U.S. tower.
In terms of revenue, Global Housing's revenue increased 5%, primarily due to double-digit growth in Multifamily housing, as well as higher revenue in lender-placed including higher premium rates and average-insured values.
As a result of the strong first half, we now expect Global Housing's net operating income excluding cats to be flat compared to the $371 million in 2020.
At corporate, the net operating loss was $12 million, compared to $29 million in the second quarter of 2020.
This were driven by two items: first, lower employee-related expenses and third party fees, which we expect to increase in the second half of the year; and second, we had $6 million of favorable one-time items including a tax benefit and income from the sale of the real estate joint venture partnership.
For the full year of 2021, we now expect the Corporate net operating loss to be approximately $85 million.
This compares to our previous estimate of $90 million.
We ended the second quarter with $353 million, which is $128 million above our current minimum target level.
This excludes both the $1.2 billion in net proceeds from the sale of Preneed and the net proceeds from the second quarter debt offering, which were used for the July redemption of senior notes due in 2023.
In the second quarter, dividends from our operating segments totaled $243 million.
In addition to our quarterly corporate and interest expenses, we also had outflows from three main items: $191 million of share repurchases, $42 million in common stock dividends and $17 million mainly related to mobile acquisitions including Olivar and Assurant venture investments.
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These results support our full-year outlook of 10% to 14% growth in net operating income per share excluding affordable catastrophes.
As we look to continue our culture of innovation.
For the quarter, we reported net operating income per share excluding reportable catastrophes of $2.99, up 12% from the prior year period.
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From a market perspective, commercial air traffic continued to recover, despite some regional impacts from the COVID variants, with global ASMs or available seat miles, estimated to have grown about 30% sequentially in Q3.
And here in the U.S., passenger traffic through TSA checkpoints averaged about 1.9 million travelers per day in Q3.
That's up from about 1.6 million per day in Q2.
Based on our strong performance year-to-date, we're again increasing and tightening our adjusted earnings per share outlook for the year to $4.10 to $4.20 a share.
That's up from our prior outlook of $3.85 to $4.
On the capital allocation front, we repurchased about $1 billion of RTX shares during the quarter, bringing our total for the year to $2 billion, which was our commitment that we talked about back in Q2.
Utilizing our core operating system tools, the team in Columbus reduced the lead time of forgings by up to 35 days and reduced both cost and inventory.
Sales of $16.2 billion were up 10% organically versus prior year on an adjusted basis.
That was partially offset by some supply chain pressures and lower 787 OE volume.
Adjusted earnings per share of $1.26 was ahead of our expectations, primarily driven by Collins, Pratt and some corporate items.
On a GAAP basis, earnings per share from continuing operations was $0.93 per share and included $0.33 of acquisition accounting adjustments and net significant and/or nonrecurring items.
It's worth noting that both GAAP and adjusted earnings per share benefited from about $0.16 of lower tax expense related to previously disclosed actions we took to optimize the company's legal entity and operating structure in the quarter as well as pension-related benefit that was worth about $0.05.
Free cash flow of $1.5 billion was in line with our expectations, keeping us on track for the full year.
During the quarter, we achieved about $165 million of incremental merger gross cost synergies.
And given our strong performance, we are again increasing our 2021 target and now expect to achieve over $700 million of cost synergies this year.
This will bring us to nearly $1 billion in cumulative gross cost synergies since the merger, and we're well on our way to meeting our $1.5 billion commitment.
Sales were $4.6 billion in the quarter, up 7% on an adjusted basis and up 9% on an organic basis, driven primarily by the continued recovery in the commercial aerospace end markets.
By channel, commercial aftermarket sales were up 38%, driven by a 44% increase in parts and repair, a 43% increase in provisioning and a 22% increase in modifications and upgrades.
Sequentially, commercial aftermarket sales were up 4%, roughly in line with our expectations.
Commercial OE sales were down 3%, with strength in narrow-body more than offset by lower wide-body deliveries, primarily 787.
And military sales were down 5% on an adjusted basis and down 1% organically on a tough compare.
Recall, Collins' military sales were up 8% in the same period last year.
Adjusted operating profit of $480 million was up $407 million from the prior year.
Looking ahead, due to expected supply chain pressures and 787 OE delivery headwinds, we now expect Collins full year sales to be down mid-single digit.
However, given the continued recovery in the commercial aftermarket and the benefit of cost-containment measures, we are increasing Collins full year operating profit outlook to a new range of up $250 million to $300 million versus 2020.
Sales of $4.7 billion were up 25% on an adjusted basis and up 35% on an organic basis, primarily driven by the continued recovery of the commercial aerospace industry.
Commercial aftermarket sales were up 56% in the quarter, with legacy large commercial engine shop visits up 49% and Pratt Canada shop visits up 18%.
Sequentially, commercial aftermarket sales were up 17%.
Commercial OE sales were up 22%, driven by higher GTF deliveries within Pratt's large commercial engine business.
The military business sales were up 2% on another tough compare.
Recall, Pratt military sales were up 11% in the same period last year.
Growth in the quarter was driven by a continued ramp in F-135 sustainment, which was particularly offset -- input on production and classified development programs.
Adjusted operating profit of $189 million was better than expected and was up $232 million from the prior year.
In addition, we are increasing Pratt's full year operating profit outlook to a new range of flat to up $50 million versus 2020.
RIS sales of $3.7 billion were in line with prior year results on an adjusted basis and down 1% on an organic basis, driven primarily by the timing of material input from suppliers.
Adjusted operating profit in the quarter of $391 million was in line with expectations and was up $41 million year-over-year on an adjusted basis, driven primarily by higher program efficiencies.
RIS had $2.9 billion of bookings in the quarter, resulting in a book-to-bill of 0.84, as expected, and a backlog of $18.7 billion.
Significant bookings included approximately $1 billion on classified programs.
It's worth noting that we expect RIS full year book-to-bill to be greater than 1.
However, as a result of improved productivity, we continue to expect RIS' operational -- operating profit to grow $150 million to $175 million versus adjusted pro forma 2020.
RMD sales were $3.9 billion, up 7% on an adjusted basis and up 5% on an organic basis, driven by liquidations of precontract costs on an AMRAAM award received in the quarter and the expected ramp in our NASAMS franchise.
Adjusted operating profit of $490 million was in line with our expectations and was up $59 million versus the prior year, primarily on higher sales volume.
RMD's bookings in the quarter were approximately $3.9 billion, resulting in a book-to-bill of 1.02 and a backlog of $29.6 billion.
Significant bookings in the quarter included AMRAAM Lot 35 for $570 million, a Patriot GEM-T order for $432 million as well as several other notable awards.
We also expect RMD's full year book-to-bill to be greater than 1.
We remain confident in our full year outlook for RMD, with sales growing low to mid-single digit and operating profit growing $50 million to $75 million versus adjusted pro forma 2020.
And on the OE side, 787 build rates have come down more than we had expected, resulting in a significant impact to our top line outlook for the year.
So with that backdrop, we're adjusting our sales outlook and now see full year sales of about $65 billion, slightly higher than the low end of our prior outlook.
However, given the strong performance on cost control, synergy capture and program execution, we are raising and tightening our adjusted earnings per share range to $4.10 to $4.20 per share or up about $0.22 from the midpoint of our prior outlook.
About $0.07 of the increase comes from the segments, Collins and Pratt, and the remainder comes from improvements in corporate items.
And on the cash side, we are also raising the low end of our free cash flow outlook and now see free cash flow of approximately $5 billion for the full year.
On the positive side, obviously, we expect the commercial aerospace recovery to continue, and we feel good about our ability to grow our defense franchises with our robust $65 billion backlog and the bipartisan support for the fiscal '22 -- fiscal year '22 budget, and of course, the international demand for our products and technologies continues to be strong.
We anticipate the global supply chain pressure will continue and that lower 787 build rates will carry into next year.
And finally, the strength of our balance sheet, along with the cash-generating capabilities of our business, will continue to provide us with financial flexibility to support investments in our business while still returning capital to shareowners, including our commitment to return at least $20 billion to shareowners in the first four years following the merger.
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Based on our strong performance year-to-date, we're again increasing and tightening our adjusted earnings per share outlook for the year to $4.10 to $4.20 a share.
Sales of $16.2 billion were up 10% organically versus prior year on an adjusted basis.
Adjusted earnings per share of $1.26 was ahead of our expectations, primarily driven by Collins, Pratt and some corporate items.
On a GAAP basis, earnings per share from continuing operations was $0.93 per share and included $0.33 of acquisition accounting adjustments and net significant and/or nonrecurring items.
However, given the strong performance on cost control, synergy capture and program execution, we are raising and tightening our adjusted earnings per share range to $4.10 to $4.20 per share or up about $0.22 from the midpoint of our prior outlook.
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This earnings call does not constitute an offer to buy or sell or the solicitation of an offer to buy or sell any securities, also with depletion of any vote or approval in connection with the proposed acquisition of New Senior Ventas filed with the SEC a registration statement on Form S-4 that includes a preliminary prospectus for the Ventas common stock that will be issued in the proposed acquisition and that also constitutes the preliminary proxy statement for a special meeting of New Senior stockholders to approve the proposed acquisition.
We posted $0.73 of normalized FFO per share, which is above the high end of our previously provided guidance.
I'm delighted that our same-store property portfolio grew 3.6%, sequentially.
Our outperformance was driven by SHOP, which produced a $111 million in quarterly NOI, a recovery of $50 million of annualized NOI, representing industry-leading growth in same-store cash NOI and occupancy.
In addition to strong cash flow coverage on our $1.3 billion leasehold position, our 10% equity stake in the Ardent enterprise is benefiting from excellent Ardent results and our prior purchase of $200 million of Ardent senior notes recently paid off with a $15 million prepayment fees, providing us with a 13% unlevered return on our investment in the Ardent notes.
In total, in 2021, we have over $3.5 billion in investments completed, pending or underway with another $1 billion life science research and innovation pipeline with our exclusive development partner Wexford, right behind that.
Our $2.3 billion pending investment in New Senior, announced in the second quarter is a great example.
In this deal, we are acquiring over a 100 high-quality independent living communities that are well invested and located in advantaged market, at compelling pricing.
The per unit cost is estimated to be 20% to 30% below replacement cost.
The 5% cash going in cap rate is expected to grow to a 6% cap rate on expected 2022 NOI with upside as the senior housing recovery continues, and the FFO multiple of less than 12 times post synergize 2022 estimated FFO are all attractive valuation metrics.
The Ventas life science portfolio now exceeds 9 million square feet.
It's located in three of the top five cluster market, includes three ongoing development projects and is affiliated with over 16 of the nation's top research universities.
We also have an incremental $1 billion in potential projects we are working on with Wexford.
The first and largest new life science project in the pipeline totaling about $0.5 billion in costs is gaining steam.
Expected to be 60% pre-leased to a major public research university that rank in the top 5% of NIH funding, this project will be located on the West Coast and should break ground in the first half of 2022.
The sharp recovery has begun and we've started capturing the significant upside embedded in our existing senior housing portfolio from both pandemic recovery and the 17.5% growth in the senior population projected over the next few years.
We are investing nearly $4 billion and announced deals and development projects and our access to and pricing up capital are positive.
In SHOP, leading indicators continue to trend favorably and accelerated during the quarter, as leads and move-ins each surpassed 100% of 2019 levels, while move-outs remain steady.
In the second quarter approximate spot occupancy from March 31 to June 30 increased 229 basis points, led by the US with growth of 313 basis points and accelerating leads and move-ins.
In Canada, the transfer more muted due to a slower vaccine rollout, for the approximate spot occupancy still increased during the second quarter, driven by 33 basis points of growth in June.
Same-store revenue in the second quarter increased sequentially by $3.5 million as strong occupancy growth was partially offset by the impact of a new resident move-in incentives on pricing, specifically at Atria.
Operating expenses declined sequentially by $9.2 million or 2.3% excluding the impact of HHS grants received in the first quarter, driven by a better than expected reduction of COVID-19 operating costs, partially offset by a modest increase in routine operating expenses.
For the sequential same-store pool, SHOP generated approximately $111 million of NOI received in the first quarter, which represents a sequential increase of $12.4 million or 12.6% when excluding the impact of HHS grants.
This marks the first quarter of sequential underlying NOI growth since the onset of COVID-19 and approximates a nearly $15 million NOI improvement on an annualized basis.
During the quarter, we saw solid contribution to sequential NOI growth in both revenue and operating expenses as average occupancy increased 110 basis points and COVID-19 costs declined substantially and ahead of expectations.
Sequential same-store cash NOI was largely stable in the second quarter and 98% of all contractual triple net rent was received from the Company's tenants.
Our trailing 12 month cash flow coverage for senior housing, which is reported one quarter in arrears is 1.2 times and down versus the prior quarter, reflecting the timing associated with coverage reporting which now includes effectively four full quarters of operations impacted by COVID.
Sunrise led the way with 627 basis points of spot occupancy growth in the low point in mid-March to the end of July, benefiting from a rejuvenated management team, significantly well invested communities and a balanced approach demonstrating very strong occupancy gains and pricing power.
Atria which benefits from a higher absolute occupancy of 81.8% at July end continues to deliver solid volume growth.
Spot occupancy in July increased 529 basis points since the low point in mid-March, resulting from the combination of their industry-leading vaccine mandate and strategic price incentives to capture movements.
Supporting all of this is Atria's industry leading vaccination rates, which are impressively high at nearly a 100% of both residents and employees.
Looking ahead, as Debbie mentioned, the third quarter is off to a strong start with July spot occupancy increasing 74 basis points versus June and lease continuing to stand strong at 105% of pre-pandemic levels.
Approximately 30% of our SHOP portfolio on a stabilized basis is located in Canada.
The senior housing sector in Canada has performed exceptionally well, with occupancy exceeding 90% every year from 2010 to 2020 and demand outpacing new supply in eight of that last 11 years.
As a foundation to these attractive fundamentals, the 75-plus population in Canada is projected to grow more than 20% over the next five years about twice the pace of the US.
Its margin has remained resilient in the 35% plus range during the COVID-19 and occupancy has weathered the pandemic, headwinds of approximately 80 basis points better than the NIC industry average.
Most recently, New Senior has seen strong sales trends as we progress through the early stages of the senior housing recovery with powerful upside as the portfolio occupancy grew 100 basis points in June.
Geographically, New Senior has a diverse presence across 36 states, which includes exposure to markets with high home values and high household income levels, ideal proximity to premium retail in high visibility locations and favorable supply outlooks versus industry averages.
We see New Senior's independent living assets is complementary to our existing high end major market portfolio as it provides a lower average resident age and longer length of stay at an accessible price point, with RevPOR of approximately $2700.
The purpose-built nature of these communities, which include consistent layout with 120 units per building also will strengthen our ability to effectively and efficiently redevelopment -- redevelop and invest in these assets over time.
We continue to drive value from our development pipeline through our relationship with Le Groupe Maurice, where we have opened three communities, with more than 1,000 units over the past year.
Both projects had substantial pre-leasing activity and have already stabilized at approximately 95% occupancy.
The third project, a 287 unit expansion of an existing Le Groupe Maurice community in Montreal, was delivered in June of this year.
Together these segments represent over 50% of Ventas' NOI.
He is now 18 months in.
He is also 18 months in.
Office, which includes our medical office and research and innovation segments performed well, delivering 10.5% sequential same-store growth.
Office quarterly same-store growth was 12.6% year-on-year.
The R&I portfolio benefited from a $12 million termination fee from a large tenant in the Winston-Salem innovation center anchored by Wake Forest.
Adjusted for the termination fee, office sequential same-store growth was 90 basis points and 2.8% per year-on-year same-store quarterly growth, a strong quarter.
Medical office same-store sequential growth was 80 basis points and year-on-year quarterly same store growth was 2.4%.
For the quarter, we executed 230,000 square feet in Office new leasing and 460,000 square feet year-to-date, a 78% improvement from prior year.
Medical office had strong same-store retention of 94% for the quarter and 85% for the trailing 12 months.
The result is the total MOB occupancy increased 20 basis points sequentially.
Total office leasing was 750,000 square feet for the quarter and 1.8 million square feet year-to-date.
We are also pleased that our annual escalators for the new MOB leases, averaged 2.9% for the quarter, which caused MOB same-store portfolio, annual rent escalators to increase from 2.4% to 2.6%.
Same-store sequential growth was 38.9%.
Adjusted for the termination fee, same store sequential growth was 1.1%.
Year-on-year quarterly same-store growth was 42.6%.
Adjusted for the termination fee, year-on-year quarterly same store growth was a strong 3.9%.
Quarterly same-store occupancy was now standing 94% with sequential occupancy increasing by 10 basis points.
Looking forward, we have three R&I buildings comprising of 1.2 million square feet of space under construction.
Collectively, they are 78% leased or committed.
Of the two buildings in our uCity complex, Philadelphia, the Drexel building is 100% leased, while one uCity Square is over 55% leased or committed.
We are oversubscribed for the remaining space with 11 above pro forma proposals currently outstanding.
In Pittsburgh, our new building is 70% pre-leased, University of Pittsburgh and UPMC was significant activity on the remaining space.
At our recently opened project with Arizona State University in Phoenix, we are 86% leased or committed and expect to be 100% leased shortly.
During the second quarter, our healthcare triple net assets showed continued strength and reliability with 100% rent collections.
Second quarter same store cash NOI growth was 2.5% year-on-year.
Trailing 12 month EBITDARM cash flow coverage through June 30 was strong across the portfolio.
Health systems trailing 12 month coverage was an excellent 3.6 times in the first quarter, a 10 basis point sequential improvement.
IRF and LTAC coverage improved 20 basis points to 1.9 times in the first quarter, buoyed by strong business results.
Although skilled nursing declined 10 basis points to 1.8 times as the pandemic continued to impact centers, total post-acute coverage increased sequentially by 20 basis points to 1.9 times in the first quarter of '21.
Ventas recorded strong second quarter net income of $0.23 per share, normalized funds from operations of $0.73 per share.
Normalized FFO per share with $0.02 pennies above the high end of our initial guidance range of $0.67 to $0.71 for the quarter and is consistent with our June update to be at the high end or better than that original range.
First, following the announcement of the New Senior agreement, we raised $300 million of equity at an average gross price of approximately $58.60 per share under our ATM program.
The $300 million equity raise together with the $100 million of new equity to be issued New Senior shareholders for the fixed exchange ratio, and $1.2 billion of New Senior debt to be assumed or refinance constitutes the overall $2.3 billion funding of the New Senior transaction.
Second, through August 5th, we received $450 million of disposition proceeds through receipt of loan receivable.
Included in the $450 million received today, this repayment of two well structured loans in July, part of the investment of $200 million of 9.75% Senior Notes due 2026 and Holiday's repayment of $66 million or 9.4% notes due in 2025.
Medical office fully sold in the second quarter also resulted in proceeds to approximately $107 million.
Using proceeds from this division, in the third quarter, Ventas will improve its near-term debt maturity profile further by fully repaying as little as $664 million and 3.25% Senior Notes due August 2022, and 3.13% notes due June of 2023.
Reported Q2 net EBITDA was better than expectations improving 10 basis points sequentially to 7 times.
Within SMB point improvement underlying SHOP annualized EBITDA improved nearly $50 million or 25 basis point beneficial impact of the ratio in just one quarter.
Pro forma for announced ATM issuance of capital activities since of Q2 net debt to EBITDA on lower from 7 times to 6.8 times.
I would highlight that the New Senior transaction is expected to be 30 basis point level, are projected here 2020 NOI supported by the forecasted growth in cash flows from the New Senior portfolio.
Since assets liquidity totaling $3.3 billion as of our finished the Company at $2.7 billion of undrawn revolver capacity $600 million cash and no commercial paper outstanding.
Third quarter net income was estimate range from flat to $0.05 per fully diluted share.
Our guidance range for normalized FFO for Q3 is $0.70 to $0.74 per share.
Q3 FFO $0.72 can be bridged from Q2 of $0.73 by $0.02 benefit from the loan prepayment fee in Q3.
[indecipherable] in Q2, offset by $0.02 from lost interest income on the loan repayments and the July equity raise.
SHOP Q3 spot occupancy from June 30 to September 30 is forecast to increase between 150 to 250 basis points with the midpoint roughly continuation of occupancy growth trends there in July.
Now we can test for interesting to you're seeing in the third quarter sales performance is expected in the office and triple-net segments we continue to expect $1 billion in asset sales and move-in payments for the full year 2021 with line of sight for the remaining balance in the second half of this year.
Fully diluted share count is now 383 million shares reflecting in anticipation of New Senior.
New Senior transaction is expected to close in the second half of 2021 and the close is forecast to be between $0.09 to $0.11 accretive to normalized FFO per share in 2022.
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We posted $0.73 of normalized FFO per share, which is above the high end of our previously provided guidance.
Ventas recorded strong second quarter net income of $0.23 per share, normalized funds from operations of $0.73 per share.
Our guidance range for normalized FFO for Q3 is $0.70 to $0.74 per share.
Q3 FFO $0.72 can be bridged from Q2 of $0.73 by $0.02 benefit from the loan prepayment fee in Q3.
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We had a very strong start to the year with first quarter consolidated net income of $64.4 million and earnings per share of $0.59.
These results were 93% and 90%, respectively, above the same quarter last year and were driven by stronger earnings at both the utility and the bank.
Unemployment declined to 9% in March.
While still above the national average, it's headed in the right direction, having declined from a peak of nearly 24% a year ago.
Year-to-date March, Oahu's sales volumes are up 19% for single-family homes and 53% for condos.
Median prices are also up 17% to $950,000 for single-family homes and 4% to $450,000 for condos.
In its March outlook, the University of Hawaii Economic Research Organization accelerated its forecast for the state's economic recovery by 18 months with the GDP now expected to rise 3.7% in 2021 and 3.1% in 2020.
The seven-day rolling average was 94 for the state and is the fifth lowest per capita among U.S. states as of May six.
40% of our residents are now fully vaccinated and more than half have had at least one dose.
In the first quarter, we continued to have strong mortgage production and deployed an additional $150 million of ASB CARES or Paycheck Protection Program loans to support small businesses in round two of that program.
Year-to-date, that amount has increased to over $170 million.
Today, 44% of deposits are made through self-service channels such as ATMs and mobile, more than double prepandemic levels.
Consolidated earnings per share were $0.59 versus $0.31 in the same quarter last year.
While the holding company loss is well in line with plan, we increased charitable giving during the quarter, including a $2 million contribution to support our community through challenging times.
Compared to the same time last year, consolidated trailing 12-month ROE improved 80 basis points to 10%.
Utility ROE increased 160 basis points to 9%; and bank ROE, which we look at on an annualized basis, was 16%.
Regarding the utility's results, net income for the quarter was $43.4 million compared to $23.9 million in the first quarter of 2020.
The most significant variance drivers were $10 million lower O&M expenses compared to the first quarter last year.
In addition to lower O&M, we benefited from a $5 million revenue increase from higher rate adjustment mechanism revenues; a $4 million revenue increase related to timing of the recognition of target revenues during the year, which we -- will have no net impact on 2021 and which is due to a change in methodology that eliminates seasonality for recognizing target revenues within the year; a $1 million lower enterprise resource planning system implementation benefits to be passed on to customers; and $1 million lower nonservice pension costs due to a reset of pension costs included in rates as part of a final rate case decision.
These items were partially offset by $1 million higher depreciation.
We currently have approximately $22 million of COVID-related cost, primarily bad debt expense accrued in a deferred regulatory asset account.
The utility is on track to achieve the savings necessary to meet the annual $6.6 million commitment, which will be returned to customers starting June one.
Utility capital investments for the quarter of approximately $60 million were lower than planned due to unexpected delays.
And we are maintaining the capex and rate base growth guidance we issued during our previous earnings call and still expect 2021 capex of approximately $335 million to $355 million, reflecting rate base growth of 4% to 5%.
ASB's net income for the quarter was $29.6 million compared to $15.7 million last quarter and $15.8 million in the first quarter of 2020.
ASB's net interest margin compressed 17 basis points during the quarter.
NIM was 2.95% compared to 3.12% in the fourth quarter of 2020.
$3.1 million in fees from PPP lending and a record low cost of funds helped soften the pressure on asset yields.
The average cost of funds was 0.08%, down one basis point from the linked quarter and 16 basis points from the prior year.
Consequently, we're updating our NIM guidance range to 2.80% to 3%.
In the first quarter, the bank released $8.4 million in provision for credit losses compared to provisions of $11.3 million in the fourth quarter and $10.4 million in the first quarter last year.
ASB's net charge-off ratio for the quarter was 0.18% compared to 0.36% in the fourth quarter and 0.44% in the first quarter 2020.
Nonaccrual loans were up slightly to 1% compared to 0.89% in the fourth quarter and 0.90% in the prior year.
And at 1.73% as of quarter end, our allowance for credit losses was the highest among Hawaii peers.
Active deferrals are just 0.2% of the total loan portfolio.
The bank has approximately $4 billion in available liquidity from a combination of reliable resources.
ASB's Tier one leverage ratio of 8.33% was comfortably above well-capitalized levels.
Prospectively, given the lower risk profile of our portfolio, we're anticipating managing closer to an 8%-or-above Tier one leverage ratio and drive competitive profitability metrics, growth of the ASB dividend while maintaining a strong capital position.
We now expect dividends of approximately $50 million to $60 million versus the previously estimated $40 million.
For the quarter, the ASB Board has declared a $23 million dividend to HEI.
Our revised guidance is $0.67 to $0.74 per share, up from our prior guidance of $0.52 to $0.62.
We're revising our NIM expectations at the bank to 2.8% to 3%, down from 2.90% to 3.15%.
Given strengthening credit dynamics and outlook for the Hawaii economy, we now expect provision to range from $0 to $10 million, which we believe remains appropriately conservative given continued uncertainty for the economy until we see increased vaccination levels and the eventual return of international travel.
And we're increasing HEI guidance -- earnings per share guidance to $1.90 to $2.05 per share.
We're considering the implications for our companies of the Biden administration's goal to cut carbon emissions 50% from a 2005 baseline by 2030.
Rich accomplished a great deal during his more than 10 years at the helm of American.
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We had a very strong start to the year with first quarter consolidated net income of $64.4 million and earnings per share of $0.59.
Consolidated earnings per share were $0.59 versus $0.31 in the same quarter last year.
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And our Bangalore, India plant, which was closed on March 26, is reopening this week.
This quarter, we decreased our operating expenses by 18% year-over-year in dollar terms, maintaining our operating expense at a target of 20% despite substantially reduced sales.
This was achieved by early and aggressive cost control actions, such as furloughs in the U.S. and similar actions around the world, reduced discretionary spending and extensive travel restrictions.
Organic sales declined by 17% in the quarter versus 3% growth in the third quarter last year.
General engineering and aerospace also saw year-over-year percentage declines in the high teens this quarter as well and sequential declines from Q2, with the 737 MAX production challenges continuing and lower demand expectations worldwide due to COVID-19.
Adjusted EBITDA margin decreased 80 basis points year-over-year to 18.6% on revenues that were down almost 20%.
And sequentially, the margin improved by 720 basis points on lower sales.
This was partially offset by positive raw materials, which contributed 280 basis points year-over-year as well as increased simplification/modernization benefits, lower variable compensation and the previously discussed cost control actions.
Adjusted earnings per share decreased year-over-year to $0.46 versus $0.77 in the prior year quarter, but increased sequentially by $0.31.
Preliminary April sales were down approximately 35% year-over-year, which speaks to the severity of the market headwinds.
Overall, we are pleased, having achieved an incremental $34 million savings fiscal year-to-date, and we still expect full year savings this fiscal year to be modestly higher than the $40 million achieved last year despite lower volumes.
On our last earnings call, we indicated that our expectation was that approximately 90% of the incremental capital spend associated with simplification/modernization will be complete by this fiscal year-end, and the remaining 10%, as we previously discussed, will be reserved for future volume needs.
So really, not much change in our schedule, and we remain confident in delivering our adjusted EBITDA targets once markets recover such that we can achieve sales in the range of $2.5 billion to $2.6 billion.
Sales declined 19% year-over-year or negative 17% on an organic basis to $483 million.
Foreign currency had a negative effect of 1% and our divestiture contributed another negative 1%.
Adjusted gross profit margin of 33.3% was down 170 basis points year-over-year, though up sequentially from 26.8% in the second quarter.
The year-over-year performance was largely the result of the effect of lower volumes, partially offset by the positive effect of raw materials in the amount of approximately 280 basis points and increasing benefits from simplification/modernization.
As Chris mentioned, adjusted operating expenses of $99 million were down 18% year-over-year and increased only 30 basis points to 20.4% on significantly lower sales.
Taken together, adjusted operating margin of 12.2% was down 210 basis points year-over-year, though improved 740 basis points sequentially.
Reported earnings per share was $0.03 versus $0.82 in the prior period.
On an adjusted basis, earnings per share was $0.46 per share versus $0.77 per share in the previous year.
The effect of operations this quarter amounted to negative $0.39.
This compares to negative $0.02 in the prior year period and negative $0.62 in the second quarter.
The largest factors contributing to the $0.39 was the effect of significantly lower volumes and associated under absorption.
This was partially offset by positive raw materials of $0.16 and lower variable compensation.
Simplification/modernization contributed $0.15 in the quarter, on top of the $0.11 in the prior year quarter and up from the $0.10 last quarter.
This brings our year-to-date simplification/modernization savings of $0.32.
As Chris mentioned, our expectation for this fiscal year is that these simplification/modernization benefits will be modestly higher than the $0.40 we achieved last year.
The savings from our FY 2020 restructuring actions are now expected to deliver $30 million to $35 million in run rate annualized savings by the end of FY 2020.
The slight decrease of $5 million is due to the significantly lower volume assumption in the fourth quarter.
We remain on track with our FY 2021 restructuring actions that are expected to contribute an additional $25 million to $30 million of annualized run rate savings by the end of FY 2021.
Industrial sales in Q3 declined 17% organically compared to 1% growth in the prior year.
All regions posted year-over-year sales decreases with the largest decline in EMEA at negative 19%, followed by the Americas at 16% and Asia Pacific at 12%.
The decline in Asia Pacific was partially affected by the lower demand associated with the early onset of COVID-19 in China and continued lower end market demand in India.
From an end market perspective, the weakness in demand remains broad-based, with the biggest declines in transportation and general engineering, down 17% and 18%, respectively.
Sales in aerospace experienced a significant decline, both year-over-year and sequentially, driven by the 737 MAX production halt and corresponding effect on the supply chain as well as demand declines associated with COVID-19.
Adjusted operating margin came in at 13.1% compared to 18.3% in the prior year.
This decrease was primarily driven by the decline in volume, partially offset by increased simplification/modernization benefits and a 90 basis point benefit from raw materials.
On a sequential basis, the adjusted operating margin increased approximately 240 basis points despite lower sales.
Sales declined 16% organically against positive 3% in the prior year period.
Regionally, the largest decline this quarter was in Asia Pacific, down 25%, EMEA down 14% and the Americas down 10%.
Adjusted operating margin for the quarter was 4.9%, and an increase year-over-year due to increased simplification/modernization benefits, a raw material benefit of 240 basis points and lower variable compensation, partially offset by volume declines.
Organic sales declined 17% versus positive 6% in the prior year period.
Regionally, the largest decline was in the Americas at 21%, then Asia Pacific at 16% and EMEA at 6%.
By end market, these results were primarily driven by energy, which was down 29% year-over-year, given the extreme drop in oil prices and the corresponding significant decline in the U.S. land-only rig count.
General engineering and earthworks were down 17% and 6%, respectively.
Adjusted operating margin of 13% improved 130 basis points from the prior year margin of 11.7%.
This improvement was mainly driven by favorable raw materials that contribute 550 basis points, coupled with simplification/modernization benefits and aggressive cost actions, partially offset by significantly lower volumes.
Our current debt maturity profile is made up of two $300 million notes maturing in February 2022 and June 2028 as well as a USD700 million revolver that matures in June of 2023.
As of March 31, we had combined cash and revolver availability of approximately $750 million.
As Chris mentioned, in April, in an abundance of caution, we pre-emptively drew $500 million on our revolver.
We have two financial covenants in our revolver, which is our net debt-to-EBITDA ratio of 3.5 times and an EBITDA to interest ratio of 3.5 times.
Primary working capital decreased both sequentially and year-over-year to $656 million.
On a percentage of sales basis, it increased to 33.4%, a reflection of the decline in sales in the quarter.
Net capital expenditures were $57 million, the same level as the prior year.
We now expect capital expenditures for the fiscal year to be approximately $240 million, which is at the low end of our original outlook.
Our third quarter free operating cash flow was $2 million and represents a year-over-year decline of $37 million, reflecting lower income due to volume and increased cash restructuring costs.
We expect to deliver increased free operating cash flow in the fourth quarter compared to the third quarter, but given the current market environment, we expect free operating cash flow for the full year to be slightly negative given the $240 million of capital expenditures and cash restructuring charges.
Overall, I remain confident in the strength of our balance sheet even in the face of the current macro uncertainty.
Dividends were approximately flat year-over-year at $17 million.
Should demand trends deteriorate more significantly than we currently anticipate, we know our dividend program, like other cash flow and cost control actions, is a lever that could be used to preserve cash and liquidity.
Furthermore, we are approaching the end of the incremental capex for the program, significantly lowering the overall capital spend in FY 2021.
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And our Bangalore, India plant, which was closed on March 26, is reopening this week.
This was achieved by early and aggressive cost control actions, such as furloughs in the U.S. and similar actions around the world, reduced discretionary spending and extensive travel restrictions.
Sales declined 19% year-over-year or negative 17% on an organic basis to $483 million.
Reported earnings per share was $0.03 versus $0.82 in the prior period.
The decline in Asia Pacific was partially affected by the lower demand associated with the early onset of COVID-19 in China and continued lower end market demand in India.
Overall, I remain confident in the strength of our balance sheet even in the face of the current macro uncertainty.
Should demand trends deteriorate more significantly than we currently anticipate, we know our dividend program, like other cash flow and cost control actions, is a lever that could be used to preserve cash and liquidity.
Furthermore, we are approaching the end of the incremental capex for the program, significantly lowering the overall capital spend in FY 2021.
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As I'm sure many of you have by now have already seen, 2021 was another terrific year in the face of the global pandemic, and as we'll talk about, the worst restructuring market in probably the last 15 years, we delivered another record year.
We've now had 7 years in a row of adjusted earnings per share growth.
7 years in a row in the face of COVID, fluctuating restructuring markets, turning around core strategies, expanding geographies, entering new adjacencies, lumpiness from big jobs coming or going, heightened competition, and attracting talent among lots of other challenges.
7 years in a row of growth in adjusted EPS, which is the easiest thing to measure, but also, to me, far more important in the underlying drivers of those financial results.
And if you want to underscore some of the negatives, we're making those bets at a time when our most profitable business, our restructuring business, is facing market demand that is lower than it's been in 15 years according to one measure and 20 years according to another measure.
Revenues of $2.78 billion increased $314.9 million from $2.46 billion in 2020.
GAAP earnings per share of $6.65 increased $0.98 from $5.67 in 2020.
Adjusted earnings per share of $6.76 increased $0.77 from $5.99 in 2020 and adjusted EBITDA of $354 million was up $21.7 million from $332.3 million in 2020.
Our record performance this year is primarily because of 12.8% revenue growth, once again demonstrating how beneficial it is to have the breadth of our service offerings.
Our total headcount increased 7.3% year over year on top of the 13.5% increase in total headcount in 2020.
For the quarter, revenue of $676.2 million increased $49.7 million or 7.9%, with revenues increasing across all business segments compared to the fourth quarter of 2020.
GAAP earnings per share of $1.07, compared to $1.57 in the prior-year quarter.
Adjusted earnings per share of $1.13, which excludes $0.06 of noncash interest expense related to our 2023 convertible notes, compared to adjusted earnings per share of $1.61 in the prior-year quarter.
Of note, the fourth quarter of 2020 included a significant tax benefit resulting from the use of foreign tax credits in the U.S. and a deferred tax benefit arising from an intellectual property license agreement between our U.S. and U.K. subsidiaries, which boosted both fourth quarter of 2020 GAAP and adjusted earnings per share by $0.32.
Net income of $38.2 million, compared to $55.6 million in the fourth quarter of 2020.
Adjusted EBITDA of $62 million, compared to $82.3 million in the prior-year quarter.
In corporate finance and restructuring, revenues of $231.5 million increased 5.3% compared to Q4 of 2020.
Business transformation and transactions represented 62%, while restructuring represented 38% of segment revenues this quarter.
This compares to business transformation and transactions representing 44% and restructuring representing 56% of segment revenues in the prior-year quarter.
As business transformation and transactions grew 50%, while restructuring revenues declined 27%.
Adjusted segment EBITDA of $22.2 million or 9.6% of segment revenues, compared to $35.4 million or 16.1% of segment revenues in the prior-year quarter.
In FLC, revenues of $138 million increased 8.5% compared to the prior-year quarter.
Adjusted segment EBITDA of $8.5 million or 6.2% of segment revenues, compared to $7.6 million or 6% of segment revenues in the prior-year quarter.
Economic consulting's revenues of $172.3 million increased 7.4% compared to Q4 of 2020.
Non-M&A-related antitrust services represented 33% and M&A-related antitrust services represented 20% of total segment revenues for the fourth quarter.
Adjusted segment EBITDA of $30 million or 17.4% of segment revenues, compared to $31.3 million or 19.5% of segment revenues in the prior year quarter.
In technology, revenues of $64.6 million increased 10.2% compared to Q4 of 2020.
Adjusted segment EBITDA of $7.8 million or 12.1% of segment revenues, compared to $10.2 million or 17.3% of segment revenues in the prior-year quarter.
This decrease was primarily due to higher compensation, which includes an increase in variable compensation and the impact of a 14.7% increase in billable headcount, as well as higher SG&A expenses.
Lastly, in strategic communications, revenues of $69.9 million increased 15.5% compared to Q4 of 2020.
Adjusted segment EBITDA of $14.9 million or 21.4% of segment revenues, compared to $11.7 million or 19.4% of segment revenues in the prior-year quarter.
Net cash provided by operating activities of $355.5 million, compared to $327.1 million in the prior year.
Free cash flow of $286.9 million in 2021, compared to $292.2 million in 2020, primarily due to an increase in net cash used for purchases of property and equipment, which includes capital expenditures related to our new office in New York City.
For the full year 2021, we repurchased 422,000 shares at an average price of $109.37, for a total cost of $46.1 million.
Cash and cash equivalents at the end of the year were $494 million -- $494.5 million.
Total debt net of cash of negative $178.2 million on December 31, 2021, decreased $199.5 million compared to December 31, 2020.
We estimate that revenues for 2022 will be between $2.92 billion and $3.045 billion.
We expect our earnings per share to range between $6.40 and $7.20.
Moody's trailing 12-month global default rate for speculative-grade corporate issuers was 1.7% as of the end of 2021, down from 6.9% in December of 2020.
Moody's is currently forecasting that this rate will fall to a bottom of 1.5% in Q2 of 2022 and will gradually rise to 2.4% by the end of 2022.
We currently expect our full year 2022 tax rate to range between 22% and 25%, which compares to 21.1% in 2021.
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For the quarter, revenue of $676.2 million increased $49.7 million or 7.9%, with revenues increasing across all business segments compared to the fourth quarter of 2020.
GAAP earnings per share of $1.07, compared to $1.57 in the prior-year quarter.
Adjusted earnings per share of $1.13, which excludes $0.06 of noncash interest expense related to our 2023 convertible notes, compared to adjusted earnings per share of $1.61 in the prior-year quarter.
We estimate that revenues for 2022 will be between $2.92 billion and $3.045 billion.
We expect our earnings per share to range between $6.40 and $7.20.
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First quarter was marked by a meaningful sell-off in interest rates as the 10-year note rose over 80 basis points, signifying one of the largest quarterly sell-offs in the past 5 years.
While FOMC members had forecasted a strong 0.2% growth this year at the December meeting, they revised their projections up to 6.5% by the March meeting.
annual growth would be the strongest in nearly 40 years as the significant progress made on vaccinations appears to be paving the path out of the pandemic.
Inflation is likely to temporarily rise above the Fed's 2% target in the near term, but it remains uncertain as to whether persist and higher inflation will take hold until we see meaningfully higher wages for consumers.
Our capital allocation to credit rose from 22% to 27% this past quarter primarily driven by $1.4 billion of gross residential credit investments.
We announced the sale of our commercial real estate business to Slate Asset Management for a purchase price of $2.33 billion.
Moreover, we were still in the somewhat early stages of the economic cycle and could therefore pick up 200, 300 basis points of excess spread and senior transitional light loans with strong visibility of business plan in top markets.
Given the customary closing conditions and regulatory approvals, we're still multiple months away from receiving the capital back from the sale, which will be approximately $650 million.
However, as we have said in the past, in the absence of a severe pricing dislocation, we do not see capital allocated to the sector much above 10% on a run-rate basis given the implied structural leverage and liquidity of the asset.
Now additionally, we continue to add to our third-party and in-house sourcing capabilities on the residential credit front, which drove the over $450 million of whole loan purchases we saw in the quarter, and our pipeline continues to grow.
And we'll also retain a $500 million commercial mortgage-backed securities portfolio, which we expect to grow over time depending on pricing and our outlook.
While the sell-off brought mortgage rates above 3%, we remain in high prepayment environment due to technological latencies and increased capacity in the originator community.
consumers have been able to successfully navigate the COVID pandemic with household net worth at all-time highs personal savings rates in excess of 10%, household debt to income at historical lows, and year-over-year declines in credit card and auto delinquencies.
The health and resurgence of the consumer has also benefited the residential credit market with outstanding forbearance plans declining to 4.4% of the total market as of mid-April, down from 5.2% as of year end and first-lien delinquencies down over a hundred basis points on the quarter coming in at five spot zero two percent.
National home prices were up 12% on a year-over-year basis in most recent release, and will most likely continue to see outsized depreciation as the supply/demand imbalance is a long-term structural issue that will not be resolved at the current pace of housing completions.
Regarding our rental credit portfolio, consistent with our comments on our last earnings call surrounding attractive residential credit spreads and net interest margin, we were active in deploying capital by purchasing approximately $910 million of residential credit securities and settling $467 million of predominantly expanded credit residential whole loans.
The residential credit portfolio ended the quarter at $3.4 billion of economic risk, excluding our committed loan pipeline.
Leverage across the residential credit portfolio has remained conservative with financial recourse leverage at one spot zero debt equity, with resi ending the quarter comprising $1.8 billion of the firm's capital.
Within securities, greater than 95% of our purchases were concentrated in the unrated MPL, RPL, and seasoned CRT subsectors.
We continue to be proactive in sourcing accretive assets and had a robust pipeline of $410 million that we anticipate will settle over the next few months.
In March, we securitized $257 million of expanded credit hold loans in a non-QM transaction, generating $15 million of term-funded subordinate securities with an expected low mid-double-digit ROE with minimal recourse leverage.
We also priced our inaugural prime jumbo securitization earlier this week, a $354 million transaction where we retained all of the subordinate securities, approximately $14 million in market value.
Q1 of the middle market lending group was influenced by a combination of our portfolio success through the pandemic as exhibited by the year-end watch list decreasing by 41% versus the prior year, followed by a very intense refi driven market in the absence of any meaningful new issue M&A throughout Q1.
This resulted in the portfolio modestly declining from $2.39 billion at year end to $2.07 billion at quarter end $331 million.
As in 2020, we are very pleased with underlying portfolio performance with continuation of zero nonaccrual credits versus the Water Direct Lending index average of 2.9% and and a watch list presenting less than 4% of the Annaly middle market total portfolio size.
In addition, the portfolio continues to migrate toward a first lien -- moving three full percentage points from 66% at year end to 69% at 331.
As we have reiterated over the past 10 years, Annaly middle-market significant outputs during periods of intense turbulence is a function of staying true to the industries in which we want to invest, the forecastability of underlying credits to survive tumult, and partnering with private equity owners that exhibit like-mindedness and track records consistent with our own inside the very industries in which we want to be active.
We continue to generate strong core results from the portfolio for the first quarter of 2021, benefiting from the continued low interest rates in the funding market and sustained specialness in dollar to set the stage with some summary information, our book value per share was $8.95 for Q1, a slight increase from Q4 2020.
Book value increased on GAAP net income of $1.75 billion or $1.25 per share, partially offset by the common and preferred dividends of $335 million or $0.24 per share and lower other comprehensive income of $1.7 billion or $0.98 per share.
A significant impact to GAAP net income and therefore, book value for the quarter was the held-for-sale accounting entries recorded in association with the announcement of the sale of our commercial real estate platform, particularly the impairment of goodwill of $71.8 million or $0.05 per share.
We generated core earnings per share, excluding PAA, of $0.29, a decrease of 3% or $0.01 per share from the prior quarter.
Combining our book value performance with the $0.22 common dividend we declared during Q1, our quarterly economic return was 2.8%.
As I noted earlier, our book value increase reflected a $0.05 impairment of goodwill.
Excluding this impairment, our tangible economic return for the quarter was 3.6%.
Economic return and tangible economic return for Q4 were 5.1% and 5.2%, respectively.
Taking a closer look at the GAAP we generated GAAP net income of $1.8 billion or $1.23 per common share, up from $879 million or $0.60 per common share in the quarter.
Specifically, GAAP net income benefited from rising interest rates reflected in unrealized gains on interest rate swaps of $772 million, which was $258 million in the prior quarter; other derivatives led by futures of $517 million, which was $12 million of unrealized losses in the prior quarter, and swaptions of $306 million, which was $4 million of unrealized losses in the prior quarter.
GAAP net income also benefited from lower interest expense on lower average repo rates and slightly lower average repo balances at roughly $65 billion.
This evaluation resulted in recognition of valuation allowances and impairments of approximately $157.4 million on loans, real estate, and securities offset by annualized gains on CMBS available for sale of $16.8 million.
And in Q1, we reversed the previously recorded reserves of $135 million through earnings.
In aggregate, the divestitures of our commercial real estate platform through the sale to Slate Asset Management and our opportunistic sale of a portion of our skilled nursing facilities in the fourth quarter of 2020 will result in a $0.02 portfolio benefit to tangible book value at closing, which will be fully recognized over time due to GAAP accounting.
In conjunction with the acquisition of CreXus in 2013, we recognized an intangible asset of Given our intention to exit the commercial real estate business, we have impaired the carrying value of the goodwill, again, $71.8 million or $0.05 per share in Q1.
We recorded a decrease in reserves of $6.2 million on funded commitments during Q1, driven by a reduction in the portfolio and improved macroeconomic assumptions.
Total reserves net of charge-offs comprised 1.58% of our MML loan portfolio as of March 31, 2021.
First, consistent with my commentary around GAAP drivers, interest expense of $76 million was lower than $94 million in the prior quarter due to lower average repo rates and balances.
We had increased expenses related to the net interest component of interest rate swaps of $80 million relative to $67 million in the prior quarter as the swap portfolio position increased by $5.5 billion.
And while the amount is consistent with Q4 at $97 million, dollar roll income contributed meaningfully to core for the quarter, given continued record levels.
Today, we see overnight rates in the low single digits and term market north of six months at 12 to 14 basis points in the bilateral market.
As a result, we successfully executed our strategy to add duration to our repo book, with our weighted average days to maturity up compared to prior quarter at 88 days versus 64.
Providing further color regarding our reduced interest expense for the quarter, while overall cost of funds is consistent with the prior quarter at 87 basis points, the composition differs from Q4, with repo interest expense lower, the cost of funds associated with hedges increasing due to the increase in added.
Our average REPO rate for the quarter was 26 basis points compared to 35 basis points in the prior quarter.
And we ended March with a repo rate of 20 basis points, down from 32 basis points at the end of December 2020.
And considering our liquidity profile, we selected to fund the most liquid credit assets and utilize capital to The portfolio generated 191 bps of NIM, down from 198 bps as of Q4, driven primarily by the decrease in asset yields.
Previously, we've provided a range of OPEX targets associated with potential cost savings from our internalization of 1.6% to 1.75%.
And in the prior year, we incurred G&A costs for an annual OPEX ratio in this range of 1.62%.
We expect to realize cost savings due to the disposition of our commercial real estate business, and began to see these in Q1 with an OPEX to equity ratio of 1.4%.
Giving consideration to the pivot in our strategy in commercial real estate to resi credit MSR and our MML business, we believe that a revised estimated range For OPEX to equity for 2021 would be 1.45% to 1.6%.
And to wrap things up, Annaly ended the quarter with an excellent liquidity profile with $8.9 billion of unencumbered assets, slightly up from prior quarters of $8.7 billion, including cash and unencumbered Agency MBS of $6.2 billion.
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We continue to generate strong core results from the portfolio for the first quarter of 2021, benefiting from the continued low interest rates in the funding market and sustained specialness in dollar to set the stage with some summary information, our book value per share was $8.95 for Q1, a slight increase from Q4 2020.
Taking a closer look at the GAAP we generated GAAP net income of $1.8 billion or $1.23 per common share, up from $879 million or $0.60 per common share in the quarter.
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Our third quarter results were highlighted by 32% growth in adjusted earnings per share.
We continue to generate significant revenue momentum throughout the quarter, realizing 9.1% core revenue growth and order growth of just over 20% against the backdrop of strong broad-based demand.
Strong execution and application of FBS helped to generate 325 basis points of core operating margin expansion, along with very strong free cash flow despite widespread supply chain disruption.
In total, we now have almost $750 million of annualized software revenue across the portfolio with double-digit organic growth profile as well as a high share of recurring revenue and high operating margins.
We generated year-over-year total revenue growth of 12%, core growth of 9.1% and orders growth of just over 20% with backlog increasing by 40% year-over-year.
Adjusted operating margin was 22.8%, while adjusted earnings per share with $0.66, representing a year over year increase of 32%.
The strong adjusted operating margin performance helped us to deliver $252 million of free cash flow, which represented 105% conversion of adjusted net earnings.
iOS posted total revenue growth of 16.6% in the third quarter with core growth of 13.1%.
Fluke's performance was highlighted by high teen's revenue growth at Fluke industrial, which also generated order growth of greater than 20%.
Accruent grew by low single digits in the third quarter while seeing strong bookings greater than 20%.
Specifically service channel continues to demonstrate strong momentum in its large enterprise retail business, with several large customer wins in Q3, including Walgreens, which will roll out automation software across their more than 10,000 locations, and the third largest mobile carrier in North America as they transform their facility management program.
The Precision Technology segment posted a total revenue increase of 8.9% in the third quarter, with core growth of 7.7%.
Growth was led by the performance of its mainstream oscilloscope, with a greater than 30% increase supported by new extensions to the six series MSO product line.
Even with the strong execution, given the continued robust pace of demand from its customers, Tektronix increased its backlog by more than 70% versus a year ago.
Moving to Advanced Healthcare Solutions on slide eight, total revenue increased 9.3%, while core revenue increased 4.7%.
In the U.S., the spike in COVID-related hospitalizations, led to a notable decline in elective procedure volumes toward the end of the quarter, resulting in global electric procedures at approximately 88%, of pre-COVID levels for the period.
Census increased in the low 40% range, highlighted by very strong growth in professional services and related hardware.
The company continues to see good early traction from software innovation efforts with 30% growth year-over-year in Q3.
This FBS execution and the continued strength of our software businesses helped deliver adjusted gross margins of 57.3%, in Q3.
This reflects 90 basis points of expansion on a year-over-year basis, as we accelerated to 220 basis points of total price realization.
Q3 adjusted operating profit was 22.8%, reflecting solid execution across the portfolio, including counter measures enacted in the face of ongoing supply chain challenges.
We had strong margin performance across all of our segments, resulting in 325 basis points of core operating margin expansion.
On slide nine, you can see that in the third quarter, we generated $252 million of free cash flow, representing a 105% conversion of adjusted net income.
Free cash flow over the trailing 12 months increased 22% to $991 million.
Our current net leverage is approximately 1.6 times and we expect net leverage to be around 1.3 times at year-end, excluding any additional M&A.
Turning now to the guide on slide 10, we are raising the low end of our full year 2021 adjusted diluted net earnings per share guidance to $2.70, resulting in a range of $2.70 to $2.75 for the year.
This represents a year-over-year growth of 29% to 32% on a continuing operation basis.
This assumes that total revenue growth of 14% to 14.5%, adjusted operating profit margins of 23% to 23.5%.
And an effective tax rate of approximately 14%.
We continue to expect free cash flow conversion to be approximately 105% of adjusted net income for the full year.
We are also initiating fourth quarter adjusted diluted net earnings per share guidance of $0.74 to $0.79, representing year-over-year growth of 6% to 13%.
This assumes total revenue growth of 6.5% to 8.5%, adjusted operating profit margin of 23.5% to 24.5% and an effective tax rate of approximately 15%.
The adjusted diluted net earnings per share guidance also excludes, approximately $12 million of anticipated investments in strategic productivity initiatives that we expect to execute before the end of the year.
For the fourth quarter, we expect free cash flow conversion to be approximately 125% of adjusted net income.
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Adjusted operating margin was 22.8%, while adjusted earnings per share with $0.66, representing a year over year increase of 32%.
Free cash flow over the trailing 12 months increased 22% to $991 million.
Turning now to the guide on slide 10, we are raising the low end of our full year 2021 adjusted diluted net earnings per share guidance to $2.70, resulting in a range of $2.70 to $2.75 for the year.
We are also initiating fourth quarter adjusted diluted net earnings per share guidance of $0.74 to $0.79, representing year-over-year growth of 6% to 13%.
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Our business delivered another strong performance in the third quarter of 2021 coming ahead of our expectation to achieve a record high quarterly adjusted diluted earnings per share of $1.58.
Most notable was the continued excellent growth of IQOS, driving plus 33% Q3 organic growth in RRP net revenue and plus 7.6% for total PMI.
HTU shipment volumes grew plus 24% compared to the same quarter last year to reach 23.5 billion units, with broad-based growth for both our volumes and the category across key geographies.
In combustibles, further sequential share gains supported total PMI volume growth of 2.1% in Q3 and we continue to expect total cigarette and HTU volume growth for the year.
Our smoke-free transformation is now also reflected in our financing with the launch of an industry-first Business Transformation-Linked Financing Framework, and we continue to prioritize returns to shareholders through a 4.2% increase in the dividend and ongoing share repurchases.
Turning to the headline numbers, our Q3 net revenues grew by plus 7.6% on an organic basis or plus 9.1% in dollar terms.
We witnessed good organic growth of plus 5.4% in our net revenue per unit, driven by the increasing weight of IQOS in our sales mix and pricing on both HTUs and combustibles.
Our adjusted operating income margin decreased by 10 basis points on an organic basis.
Our resulting adjusted diluted earnings per share of $1.58 represents plus 8.5% organic growth, and plus 11.3% in dollar terms, a very good performance.
Looking at year-to-date performance, our adjusted net revenues grew by almost plus 11% in dollar terms and by plus 7.3% organically.
We delivered strong organic growth of nearly plus 6% in our net revenue per unit, again reflecting our shifting business mix and pricing, with pricing on combustibles at just over 3% or around 5% excluding Indonesia.
Our year-to-date adjusted operating income margin increased by 280 basis points on an organic basis, an excellent performance driven by our top-line growth engines of IQOS and pricing combined with operating leverage and productivity savings.
Our adjusted diluted earnings per share grew plus 15.8% organically and plus 20.4% in dollar terms, also obviously a very strong result.
We are revising our organic growth outlook for net revenues to plus 6.5 to plus 7%, representing the upper half of the previous range, and reaffirming the strong outlook for organic OI margin expansion of around 200 basis points.
We also confirm our currency-neutral adjusted diluted earnings per share growth forecast at the upper end of our previous range, reflecting plus 13% to plus 14% growth, or plus 16% to plus 17% in dollar terms.
This translate into an adjusted diluted earnings per share range of $6.01 to $6.06, including an estimated favorable currency impact of $0.17 at prevailing rates.
Following on from our most recent public comments, as the tightness in device supply persists, we now expect our HTU shipment volumes to be around 95 billion units, as we prioritize devices for user retention.
Share repurchases through October 15th amount to around $170 million, after some limitations during Q3 from blackout restrictions.
We continue to assume full year combustible pricing of plus 2% to plus 3%, with a softer expected Q4 reflecting continued pandemic-related challenges in certain markets, notably in South & Southeast Asia, as well as tough comparisons in Germany and Australia.
Lastly, in 2021, we continue to expect around $11 billion of operating cash flow at prevailing exchange rates, subject to year-end working capital requirements.
We also update our expectation for full-year capital expenditures to around $0.6 billion, reflecting latest launch plans and pandemic-related timing factors.
Turning back now to our quarterly results, Q3 total shipment volumes increased by plus 2.1%, and by plus 1.5% year-to-date.
This reflects continued strong growth from HTUs of plus 24%, driven by the EU Region, Japan, Russia, Ukraine and encouraging progress from recently launched markets in the Middle East.
HTU shipments were around 1 billion units below IMS volumes for the third quarter, primarily reflecting timing around the August ILUMA launch and the October tax-driven price increase in Japan.
The minus 0.4% decline in our Q3 cigarette volumes reflects the continued sequential recovery of total industry volumes and of our market share.
Due to the impressive performance of IQOS, heated tobacco units comprised 13% of our total shipment volume year-to-date, as compared to 11% in full year 2020, 8% in 2019, and 5% in 2018.
Smoke-free products made up almost 30% of our adjusted net revenue year-to-date, compared to 23% for the same period in 2020.
IQOS devices accounted for over 6% of the $6.7 billion of RRP net revenue, with a step-up in Q3 reflecting the IQOS ILUMA launch, which outweighed the effect of supply constraints on other IQOS versions.
The plus 7.3% organic growth in year-to-date net revenues on shipment volume growth of plus 1.5% reflects the twin engines driving our top line.
Let me now go into the driver of our year-to-date margin expansion, starting with gross margin, which expanded by 240 basis points on an organic basis.
Our significant efforts on manufacturing and supply chain efficiencies are also bearing fruits, with around $450 million of gross productivity savings delivered.
This was accompanied by robust SG&A efficiencies, with our adjusted year-to-date marketing, administration and research costs 40 basis points lower as a percentage of adjusted net revenue on an organic basis.
With SG&A saving of more than $200 million, before inflation and reinvestment, this means we have generated over $650 million in overall gross efficiencies year-to-date.
This is strong progress toward the combined target of $2 billion for 2021, 2023.
Moving to market share, sequential gains for both our IQOS and combustible portfolios give us strong momentum going into Q4 and next year despite an approximate 0.3 points year-over-year drag in Q3 from market mix.
Device shipments outside Japan were limited to a 7% year-over-year increase, significantly below the growth in HTUs.
This resulted in slower user growth of several hundred thousand in the quarter, notably in Russia given limitations on the IQOS 2.4 Plus device, as flagged in recent communications.
Including the investments already made in Q3, we anticipate around $300 million of incremental H2 spending compared to the first half.
We estimate there were 20.4 million IQOS users as of September 30th, excluding the impact of international sanction in Belarus, this reflects growth of around 0.4 million users in the quarter, with the rate of growth subdued by the tightness of device supply and the time needed to adjust our commercial programs.
The reduced user growth for the second half should therefore be broadly consistent with the potential 2 to 3 billion HTU impact flagged in recent communication.
We estimate that 73% of total users or 14.9 million adult smokers have switched to IQOS and stopped smoking, with the balance in various stages of conversion.
In the EU Region, third-quarter share for HEETS reached 5.3% of total cigarette and HTU industry volume, plus 1.4 points higher than Q3 last year.
Robust performance continued in Russia, with our Q3 HTU share up by plus 1.1 points to reach 6.9%.
In Japan, the adjusted total tobacco share for our HTU brands increased by plus 2.0 points versus the prior year quarter to 20.8% and adjusted IMS grew sequentially to reach a record high of 8.2 billion units, reflecting the strength of our portfolio and the launch of IQOS ILUMA.
Adjusted sequential share fell by 0.2 points sequentially, reflecting volatility in the total market ahead of the October 1st excise increase in addition to normal seasonality.
The overall heated tobacco category continues to grow, making up almost 30% of the adjusted total Japanese tobacco market in Q3, with IQOS maintaining a high share of segment and capturing the majority of the category's growth.
In addition to strong growth in existing markets, we continue to drive the geographic expansion of our smoke-free product as we aim to be in 100 markets by 2025.
During the quarter, we launched IQOS in Egypt, the first market in North Africa, and reached an offtake exit share of 2% in Urban Cairo.
This takes the total number of markets where PMI smoke-free products are available for sale to 70, of which 28 are in low and middle income market, which we are introducing as a more robust measure of making smoke-free products available to adult smokers in emerging countries.
Building on the success of IQOS 3 DUO, we believe this simple and intuitive device will support easier switching and higher conversion for legal-age smoker, using Smartcore internal induction-heating technology.
While still early days with the national roll-out taking place at the start of September, initial results were outstanding, with device sales well ahead of all comparable past launches at the same stage, despite some limitation on device availability, and the proportion of new users growing to 18%.
TEREA purchases are growing rapidly, exiting the quarter at over 10% of total PMI HTU offtake volume.
We see encouraging early success in Italy where VEEV reached an estimated 7% national exit volume offtake share of closed system pods, despite not yet being available nationally.
And in the Czech Republic with an estimated 8% national volume offtake exit share.
We see significant opportunity in adjacent area, with our two focus corridors of selfcare wellness including botanicals and inhaled therapeutics expected to have an addressable market of around $65 billion by 2025.
The acquisitions of Fertin Pharma, Otitopic and Vectura enable us to more rapidly expand our development capabilities with over 250 scientists, infrastructure, technology and expertise in innovative inhaled and oral product formulations, while continuing to grow CDMO activities.
Last, we remain on track to achieve carbon neutrality of our direct operation by 2025, five years ahead of our 2030 target.
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Our business delivered another strong performance in the third quarter of 2021 coming ahead of our expectation to achieve a record high quarterly adjusted diluted earnings per share of $1.58.
In combustibles, further sequential share gains supported total PMI volume growth of 2.1% in Q3 and we continue to expect total cigarette and HTU volume growth for the year.
Our resulting adjusted diluted earnings per share of $1.58 represents plus 8.5% organic growth, and plus 11.3% in dollar terms, a very good performance.
This translate into an adjusted diluted earnings per share range of $6.01 to $6.06, including an estimated favorable currency impact of $0.17 at prevailing rates.
Turning back now to our quarterly results, Q3 total shipment volumes increased by plus 2.1%, and by plus 1.5% year-to-date.
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For fiscal 2020, Professional segment net sales were up 3% year over year and earnings were up 12%.
Residential sales were up 24%, and earnings were up 75%.
For the fourth quarter, Professional segment net sales were up 10% versus the same prior year period, and earnings were up 70%.
Residential net sales were up 39% and earnings were up 90%.
We grew fourth quarter net sales by 14.5% to $841 million.
Reported earnings per share was $0.66 and adjusted earnings per share was $0.64 per diluted share.
This compares with reported earnings per share of $0.35 and adjusted earnings per share of $0.48 per diluted share for the comparable quarter of last year.
For the full year, net sales increased 7.7% to $3.38 billion.
Reported earnings per share was $3.03 per diluted share, up from $2.53 last year.
Full year adjusted earnings per share was $3.02 per diluted share, up from $3 a year ago.
Residential segment net sales for the fourth quarter were up 38.5% to $187.9 million, mainly driven by strong retail demand for walk power and zero-turn riding mowers.
Full year fiscal 2020 net sales for the Residential segment increased 24.1% to $820.7 million.
Residential segment earnings for the quarter were up 90.2% to a record $26.4 million.
This reflects a 390-basis point year-over-year increase to 14.1% when expressed as a percentage of net sales.
For the year, Residential segment earnings increased 74.5% to a record $113.7 million.
On a percent of net sales basis, segment earnings increased 390 basis points to 13.8%.
Professional segment net sales for the fourth quarter were up 9.5% to $644 million.
For the full year, Professional segment net sales increased 3.3% to $2.52 billion.
Professional segment earnings for the fourth quarter were up 70.2% to $104.2 million, and when expressed as a percent of net sales, increased 580 basis points to 15.2%.
For the full year, Professional segment earnings increased 12% compared to fiscal 2019.
When expressed as a percent of net sales, segment earnings increased 130 basis points to 15.9% from last year.
We reported gross margin for the fourth quarter of 35.7%, an increase of 230 basis points over the prior year period.
Adjusted gross margin was 35.7%, up 120 basis points over the prior year.
For the full year, reported gross margin was 35.2%, up 180 basis points compared with 33.4% in fiscal 2019.
Adjusted gross margin was 35.4%, up from 35.1% in fiscal 2019.
SG&A expense as a percent of net sales decreased 290 basis points to 24.6% for the quarter.
For the full year, SG&A expense as a percent of net sales was 22.6%, down 40 basis points from fiscal 2019.
Operating earnings as a percent of net sales for the fourth quarter increased 520 basis point to 11.1%.
Adjusted operating earnings as a percent of net sales increased 270 basis points to 11.1%.
For fiscal 2020, operating earnings as a percent of net sales were 12.6%, up 220 basis points compared with 10.4% last year.
Adjusted operating earnings as a percent of net sales for the full year were 12.8% compared with 12.9% a year ago.
Interest expense of $8 million for the fourth quarter was flat compared with a year ago.
Interest expense for the full year was $33.2 million, up $4.3 million over last year, driven by increased borrowings as a result of our Professional segment acquisitions.
The reported effective tax rate was 18.5% for the fourth quarter, and the adjusted effective tax rate was 21.9%.
For the full year, the reported effective tax rate was 19% and the adjusted effective tax rate was 20.9%.
At the end of the year, our liquidity was $1.1 billion.
This included cash and cash equivalents of $480 million and full availability under our $600 million revolving credit facility.
Accounts receivable totaled $261.1 million, down 2.8% from a year ago.
Inventory was flat with a year ago at $652.4 million.
Accounts payable increased 14% to $364 million from a year ago.
Full year free cash flow was $461.3 million with a reported net earnings conversion ratio of 140%.
Given our strong cash generation in fiscal 2020, we have already paid down $50 million of debt in November.
In addition to the $50 million debt pay down in November, we also recently increased our quarterly cash dividend by 5%.
For fiscal 2021, we expect net sales growth in the range of 6% to 8%.
We expect full year adjusted earnings per share in the range of $3.35 to $3.45 per diluted share.
We expect depreciation and amortization for fiscal 2021 of about $95 million.
We anticipate capital expenditures of about $115 million, as we continue to invest in projects that support our enterprise strategic priorities.
We anticipate fiscal 2021 free cash flow conversion in the range of 90% to 100% of reported net earnings.
Some recently introduced products that will continue to drive our business, include TITAN, Z Master, and TimeCutter zero-turn riding mowers for homeowners and contractors; the Flex-Force 60-volt lithium-ion suite of products, including our walk power mower, snow thrower, hedge trimmer, chainsaw and power shovel; the BOSS Snowrator and Ventrac Sidewalk Snow Vehicle; the Greensmaster eTriFlex all electric and hybrid riding Greensmowers; the Ditch Witch JT24 Horizontal Directional Drill; the Toro e-Dingo electric and Dingo TXL 2000 stand-on skid steers, and the Ditch Witch SK3000 stand-on skid steer.
Our stretch enterprisewide performance goals include net sales of $3.7 billion and adjusted operating earnings of at least $485 million.
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We grew fourth quarter net sales by 14.5% to $841 million.
Reported earnings per share was $0.66 and adjusted earnings per share was $0.64 per diluted share.
For fiscal 2021, we expect net sales growth in the range of 6% to 8%.
We expect full year adjusted earnings per share in the range of $3.35 to $3.45 per diluted share.
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We reported adjusted earnings of $0.54 per share.
Shipments improved 18% and production rebounded 27% compared to the prior year, which was impacted by the onset of the pandemic.
We expect third quarter adjusted earnings will approximate $0.47 to $0.52, which is a significant improvement from the prior year.
We now anticipate full year earnings of between $1.65 and $1.75 per share and $260 million of cash flow.
Total shipments increased 18% this year compared to a 15% decline last year.
In the Americas, second quarter shipments were up 17%, with all geographies improving from the prior year.
In Europe, shipments were up 22% and all geographies improved double digits from last year.
The chart on the right illustrates how food and beverage consumption patterns should evolve across channels over the next 18 to 24 months.
While markets had already rebounded well in the third quarter of last year, we expect our shipments to be flat to up 1% in the third quarter of this year.
While our prior guidance called for 3% to 4% growth, we now expect growth of between 4% and 5% in 2021.
We have targeted $50 million of initiative benefits as well as continued performance improvement in North America.
Benefits totaled $40 million during the first half, and we now expect to exceed our original $50 million target for the full year.
Our digital marketing campaign is well underway with over 660 million impressions program to date and the campaign has reached over 80 million people across the U.S.
Regarding our divestiture program, we have completed or entered into agreements for $930 million of assets sales to date.
So we are over 80% of our way toward our targeted divestitures by the end of 2022.
O-I reported adjusted earnings of $0.54 per share.
Results exceeded our guidance of $0.45 to $0.50, given stronger-than-anticipated shipments and favorable cost performance.
In particular, sales volume was up more than 18% from last year compared to our expectation of 15% or higher.
Segment profit was $232 million and significantly exceeded prior year results, which were impacted by the onset of the pandemic.
Likewise, favorable cost performance was driven by a 27% improvement in production levels as the prior year was impacted by forced curtailment due to lockdown measures.
In the Americas, segment profit was $124 million, which is a significant increase compared to $52 million last year.
Higher earnings reflected 17% higher sales volume as the prior year was impacted by the onset of the pandemic.
In Europe, segment profit was $108 million compared to $42 million last year.
The significant earnings improvement reflected a 22% increase in sales volume, while the benefit of higher selling prices partially offset cost inflation.
In the case of both regions, very good operating performance, mostly reflected higher production, which increased 28% in each segment, while supply chains remain very tight across the globe.
Adjusted primarily for the divestiture of ANZ, segment profit was up $7 million in the second quarter of 2021 compared to the same period in 2019.
I'm now on page 10.
As illustrated on the chart, our second quarter cash flow was $117 million and was comparable to the prior year, which benefited from significant inventory reduction due to forced production curtailment.
Second, we preserved our strong liquidity and finished the second quarter with approximately $2.2 billion committed liquidity well above the established floor.
We expect net debt will end the year below $4.4 billion, and our BCA leverage ratio should end the year in the high 3s compared to 4.4 times at the end of 2020.
At the end of the second quarter, net debt was down almost $1 billion from the same period last year, reflecting improved free cash flow and proceeds from divestitures.
Furthermore, our bank credit agreement leverage ratio was around 3.8 times as of midyear, which is well below our covenant limit.
Finally, we intend to derisk legacy liabilities as we advance the Paddock Chapter 11 process.
As previously announced, we have an agreement-in-principle for a consensual plan of reorganization, whereby O-I will support Paddock's funding of a 524(g) trust.
Total consideration is $610 million to be funded at the effective date of the plan.
I'm now on page 11.
We expect third quarter adjusted earnings will approximate $0.47 to $0.52 per share.
Overall, we expect shipments will be flat to up 1% from the prior year.
Production should be up about 8% to 10% from last year, which was still impacted by lockdown measures in some markets.
We now expect adjusted earnings of $1.65 to $1.75 per share and free cash flow of approximately $260 million.
This adjustment reflects higher expected shipment levels, which we now anticipate will increase 4% to 5% compared to 2020.
Likewise, we expect the benefit of our margin expansion initiatives will also exceed our original goal of $50 million.
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We reported adjusted earnings of $0.54 per share.
We expect third quarter adjusted earnings will approximate $0.47 to $0.52, which is a significant improvement from the prior year.
O-I reported adjusted earnings of $0.54 per share.
We expect third quarter adjusted earnings will approximate $0.47 to $0.52 per share.
This adjustment reflects higher expected shipment levels, which we now anticipate will increase 4% to 5% compared to 2020.
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Aimco reduces leverage by a $1 billion.
Patti Fielding sold a minority joint venture stake at a portfolio of 12 California properties to a passive institutional investor.
The $2.4 billion joint venture was priced in September at 4.2% cap rate equal to 97% of Aimco's pre-COVID estimated value, validating Aimco's published net asset value and taking an important step to rebalance the Aimco portfolio.
The same JV was also the source of funds to reduce leverage by a $1 billion, significantly improving Aimco's strong and flexible balance sheet.
The board plan is to simplify the business and reduce execution risk, allocate to a second entity roughly 10% of total capital for development, redevelopment and nontraditional assets, and hold 90% of Aimco capital in the high-quality diversified portfolio of stabilized apartment communities, to reduce financial risk, by lowering leverage by $2 billion sourced from the joint venture and from the separation, to increase FFO and dividends per share by substantial reductions in vacancy loss and G&A costs related to redevelopment, and to replenish the tax bases to reduce the need for future stock dividends and enhance our flexibility in capital allocation.
Full SEC descriptions of these plans are expected in Form 10 filings expected to be published in the next few days.
New leasing pace rebounded and was up 20% year-over-year.
As a result, lease percentage, our best forward indicator of occupancy increased by more 6% from July 1 to today.
Our customer service remains world-class with residents giving its 4.3 stars on 19,000 service.
And at the same time, we achieved 2.6% rate growth on renewals, this all despite an environment with constant changes in employment, schools, courts, and regulations.
Simply put, this is our occupancy in average rate of apartment homes, which was down 2.5% in the third quarter.
Average daily occupancy was 93.9%, down 280 basis points from last year, blended lease rates were down 3% with new lease rates down 7.6% and renewals up 2.6%.
Bad debt expense was 190 basis points, including 130 basis points attributable to court closures in recent Los Angeles regulations.
Same-store revenues declined 4.9% in the third quarter, while expenses were down 1.3% due to increased efficiencies from our team and lower net utility costs as our energy initiatives drive value.
As a result, same-store third quarter net operating income decreased 6.3% year-over-year.
These communities distributed across the country totaled 19,100 units.
Our occupancy was 95.7%.
And residential net rental income was up 60 basis points.
In our 8,500 units located in urban areas, demand was down and lease rates were more frequent, leading to turnover of 47%.
Occupancy of 89.5% and blended lease rates were negative 6.7% and residential net rental income was down 7.1%.
While rate remains pressured and losses were compounded by local laws allowing residents to live rent free, we see blue skies coming with leasing up 44% year-over-year in the third quarter and up 150% in October.
In October, business continues to improve, leasing pace is still running ahead of last year, average daily occupancy for the month is 94.2% and we expect further increases through the end of the year and into 2021.
Pricing remains challenged with new lease rates down 10%, renewals up 1.4% and blended lease rates down 6.7%.
For some context on new lease rates, we've signed 95% of our leases for the year and in our suburban market rates are healthier and improving.
In August, Aimco acquired Hamilton on the Bay located in Miami's Edgewater neighborhood for a price of $90 million.
The acquisition included a waterfront apartment building containing 271 units averaging over 1,400 square feet plus an adjacent development site.
Combining the parcels will allow for more than 380 additional residential units under the current zoning.
We are planning to invest as much as $50 million and a substantial redevelopment of the existing building and the second phase focused on unlocking the value of the available development rights is being explored.
Also during the quarter, Aimco made a $50 million commitment to invest in IQHQ, a premier life sciences real estate development company.
At Parc Mosaic in Boulder, Colorado, where construction was completed earlier in the year, Keith and his team have leased 97% of the apartment homes.
Our townhouse project in Elmhurst, Illinois is now substantially complete, with all 58 homes delivered and 57 of those being leased.
At 707 Leahy in Redwood City, we've delivered 60 homes, over 80% of them leased, and the remaining 50 are scheduled to complete before year-end.
At The Fremont on the Anschutz Medical Campus, just over 100 homes have been delivered, here too, 80% have been leased and the remainder will be completed in the coming months.
Initial rental rate performance on those projects currently in lease-up has averaged 98% of our original expectations.
As Terry mentioned, in 2020, we expect to reduce leverage by $2 billion, $1 billion from the September closing of the California joint venture and a $1 billion from the separation transaction.
The $1 billion leverage reduction reduced third quarter leverage-to-EBITDA on a trailing 12-month basis to 7.0 times.
Now, on the Aimco financial results; third quarter pro forma FFO of $0.61 per share was down $0.03 or 5% year-over-year.
We estimate lower occupancy and other COVID-related impacts reduced third quarter FFO by $0.09 year-over-year.
Offsetting the COVID-related impacts was $0.04 of increased interest income associated with the Parkmerced mezzanine loan and $0.03 of lower offsite costs.
The remaining $0.01 decline is attributable to the net impact of property sales and lower interest expense.
In the third quarter, Aimco recognized 98.1% of all residential revenue.
Of the 98.1%, 96.7% was paid in cash, 30 basis points better than the second quarter's collection percentage as of the same date.
60 basis points is subject to recovery by offset against security deposits and $1.6 million or 80 basis points is considered collectible based on Aimco review of individual customers' credit.
Aimco does not expect to collect, and therefore did not recognize revenue on 190 basis points of third quarter billings.
The majority of this amount, approximately 130 basis points, is attributed to residents who have not paid April and subsequent rents.
The remaining amount, approximately 60 basis points, reflects residents, whose initial delinquency occurred during the third quarter.
We expect the decline to continue until reaching a more normal 30 basis points in 2021.
$8.20 per share dividend consists of 10% cash or $0.82 per share, which covers Aimco's regular scheduled quarterly dividend and the acceleration of the next dividend typically paid in February.
The remaining 90% will be paid in common stock.
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Now, on the Aimco financial results; third quarter pro forma FFO of $0.61 per share was down $0.03 or 5% year-over-year.
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The headline in this quarter is a record underwriting profit with premium growth of more than 11% and solid net investment income in gains, which resulted in a return on beginning of year equity of 14.5%.
The company reported net income of $230 million or $1.23 per share.
The breakdown is operating income of $202 million, or $1.08 per share, and after-tax net investment gains of $28 million or $0.15 per share.
Beginning with underwriting income and the components thereof, gross premiums written grew by more than $250 million, or 11.4% to almost $2.5 billion.
Net premiums written grew 11.1% to more than $2 billion, reflecting an increase in both segments.
The insurance segment grew approximately 10% on this $1.75 billion in the quarter, with an increase in all lines of business with the exception of workers’ compensation.
Professional liability led this growth with 37.6%, followed by commercial auto with 21%.
Other liability of 13.1% in short tail lines of 5.6%.
All lines of business grew in the reinsurance and monoline access segment, increasing net premiums written by 18.2% to more than $300 million.
Casualty reinsurance led this growth with 21.9% followed by 13.8% in property reinsurance, and 13.6% in monoline access.
Underwriting income increased approximately 250% to $183 million.
Our current accident year catastrophe losses were approximately $36 million or 1.9 loss ratio points, including 0.8 loss ratio points for COVID-19 related losses.
This compares with the prior year cat losses of $79 million or 4.7 loss ratio points, which included three loss ratio points for COVID-19 related losses.
The reported loss ratio was 60.6% in the current quarter, compared with 65.5% in 2020.
Prior year loss reserves developed favorably by $3 million or 0.2 loss ratio points in the current quarter.
Accordingly, our current accident year loss ratio excluding catastrophes was 58.9% compared with 61% a year ago.
The expense ratio was 29.5%, reflecting an improvement of 1.9 points over the prior year quarter.
The growth in net premiums earned continues to outpace underwriting expenses by a margin of almost 7%, significantly benefiting the expense ratio.
Summing this up, our accident year combined ratio excluding catastrophes was 88.4%, representing an improvement of four points over the prior year quarter.
Net investment income for the quarter was approximately $159 million.
We did begin to reinvest cash as interest rates rose in the quarter, however, continue to maintain a defensive position with more than $2 billion in cash and cash equivalents.
Our duration remains relatively short at 2.4 years, enabling us to further benefit from future increases in interest rates and at the same time, our credit quality remains strong at AA minus.
Pre-tax net investment gains in the quarter of $35 million is primarily made up of realized gains on investments of $76 million, partially offset by a reduction in unrealized gains on equity securities of $24 million, and an increase in the allowance for expected credit losses of $17 million.
Corporate expense partially increased due to debt extinguishment costs of $3.6 million relating to the redemption of hybrid securities on March 1.
To this end, you will have seen that we announced the redemption of our hybrid securities for June 1, which will result in debt extinguishment costs in the second quarter of approximately $8 million pre-tax.
Stockholders' equity increased more than $100 million to approximately $6.4 billion, after share repurchases and dividends of $51 million in the quarter.
The company repurchased approximately half a million shares for $30 million in 2021 at an average price per share of $63.82.
Our net unrealized gain position in stockholders equity declined by $90 million due to the rise in interest rates in the quarter.
Book value per share grew 2.4% before share repurchases and dividends.
And finally, cash flow from operations, more than doubled quarter-over-quarter to over $300 million.
You may have noticed that we got approached in 13 points of rate in the quarter, excluding workers’ compensation.
I did have a little bit of a discussion internally and we dug into it as to how do you compare this approaching 13 points of rate with what we saw on the fourth quarter.
And all of the other underwriting actions that we are taking, is still hanging in there at approximately 80%.
And our new business relativity metric, which is another data point we've shared with many of you in the past came in at 1.024%, which effectively what that means is on as much of an apples to apples basis as we are able to create in comparing a new account versus a renewal account, we are effectively surcharging a new account by 2.4% more.
As we've mentioned in the past, COVID is offering effectively a benefit of about 50 basis points, the expense ratio.
As Rich mentioned, we continue to maintain the duration on the shorter end at 2.4 years.
We have 6543 people that work together as a team in the interest of all stakeholders.
And we were able to achieve this quarter because of their efforts in spite of the challenges that exists in the world, particularly over the past 12 years.
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The company reported net income of $230 million or $1.23 per share.
The breakdown is operating income of $202 million, or $1.08 per share, and after-tax net investment gains of $28 million or $0.15 per share.
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Sales in the second quarter were $129.6 million, up 54% compared to the same period in 2020.
Second quarter gross margin was 36.8%, up 525 basis points from 31.6% in the second quarter of 2020.
EBITDA margin of 21.5% was up 480 basis points from 16.7% in the same period last year.
Second quarter adjusted earnings per share of $0.52 were up 225% from $0.16 in the second quarter of 2020.
Operating cash flow of $19 million was up from $12 million in the second quarter of 2020.
New business awards of $174 million were solid and up from $105 million in the same period last year.
In the second quarter, our sales were $129.6 million, up 54% from the second quarter of 2020.
Excluding sales from the acquisition of Sensor Scientific, sales were up 52% organically.
Transportation sales while up 88% from the same period last year would have been stronger by a few million dollars if we did not have these supply challenges.
New business awards were $174 million for the quarter, up from $105 million in the same period last year.
With passive safety sensors, we had wins with existing Tier 1 customers across all three regions with one of the wins for an EV application.
This past quarter we announced the $50 million stock buyback program.
For the second quarter, transportation sales represented 55% of our total company revenues as we made progress in Industrial, Medical, and Defense sales.
The previously announced restructuring savings of $0.22 to $0.26 by the second half of 2022 are tracking close to the target range.
Transitioning to end markets, the semiconductor shortage is expected to reduce vehicle builds by 6 million units this year.
We still expect approximately a 15 million to 16 million unit range this year, up double digits year-over-year.
On-hand days of supply are between 25 and 30 days, the lowest in recent history, and down 50% since January of this year.
European production is forecasted in the 16 million to 18 million unit range with some uncertainty persisting due to the extended COVID lockdowns.
China volumes are expected in the range of 23 million to 25 million unit range for this year.
Our previous guidance was for sales in the range of $445 million to $500 million, and adjusted earnings in the range of $1.35 to $1.70.
We are now updating our guidance for sales to be in the range of $480 million to $500 million, and adjusted earnings are expected to be in the range of $1.70 to $1.90.
Phase 2 of our journey and our biggest priority as we advance toward our 2025 goals is layering on a more robust sales growth profile.
Second quarter sales were $129.6 million, up 54% compared to the second quarter of 2020 and up 1% sequentially from the first quarter.
Sales to transportation customers bounced back 88% compared with the pandemic-driven lows in the second quarter of 2020.
However, we were down 6% sequentially as we saw the impact of supply challenges on global production volumes.
Sales to other end markets increased 26% year-over-year and were up 10% sequentially.
Sales to the transportation end market represented 55% of our total revenue.
Changes in foreign exchange rates impacted our revenue favorably by approximately $2.7 million.
Our gross margin was 36.8% in the second quarter, up 525 basis points compared to the second quarter of 2020 and up 360 basis points sequentially from the first quarter of 2021.
These improvements reflect the progress in operational efficiency in our foundry operations over the last 12 months, as well as improvements in other parts of our business.
In the last quarter, we generated $0.03 of earnings per share in savings from our restructuring program announced in the third quarter of 2020, bringing the total savings to $0.12 of earnings per share so far.
We are still on track to achieve the targeted annualized savings of $0.22 to $0.26 by the end of 2022.
SG&A and R&D expenses were $27 million or 21% for the second quarter.
In the second quarter, we recorded a non-cash charge of $20.1 million related to the termination of the U.S. pension plan.
We are expecting the remaining non-cash charge of approximately $101 million to be booked in the third quarter when we complete the settlement process.
Second quarter tax rate was 246% as a result of the impact of the pension settlement charge on our income statement.
We anticipate our 2021 tax rate to be in the range of 19% to 21% excluding the impact of the pension settlement and other discrete items.
Second quarter 2021 earnings were $0.03 per diluted share.
Adjusted earnings per diluted share were $0.52 compared to $0.16 for the same period last year and $0.46 last quarter.
Our operating cash flow was $19 million for the second quarter which is an improvement from $12 million in the second quarter of 2020.
We generated $16 million in free cash flow.
In 2021, we expect capex to be in the range of 4% to 4.5% of sales.
Our cash balance on June 30, 2021 was $117 million, up from $92 million on December 31, 2020.
Our long-term debt balance was $50 million, down from $55 million on December 31, 2020.
Our debt to capitalization ratio was at 9.9% at the end of the second quarter compared to 11.4% at the end of 2020.
The combination of a strong balance sheet with a net cash position and access to approximately $250 million through our credit facility gives us the liquidity to make progress on the right M&A transactions.
As we had previously mentioned, more than 90% of our revenue now comes from sites that are running on SAP.
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Second quarter adjusted earnings per share of $0.52 were up 225% from $0.16 in the second quarter of 2020.
We are now updating our guidance for sales to be in the range of $480 million to $500 million, and adjusted earnings are expected to be in the range of $1.70 to $1.90.
Second quarter sales were $129.6 million, up 54% compared to the second quarter of 2020 and up 1% sequentially from the first quarter.
In the last quarter, we generated $0.03 of earnings per share in savings from our restructuring program announced in the third quarter of 2020, bringing the total savings to $0.12 of earnings per share so far.
Second quarter 2021 earnings were $0.03 per diluted share.
Adjusted earnings per diluted share were $0.52 compared to $0.16 for the same period last year and $0.46 last quarter.
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This is the tenth time we have received that honor in the past 12 years, and it is a testament to community awareness of the value of the quality care and experience patients receive at GNP member pharmacies.
Our philanthropic efforts have been recognized by DiversityInc, ranking us 8th in their annual 50 [list] in philanthropy rankings.
We finished the quarter with adjusted diluted earnings per share of $2.16, an increase of 17%, which was driven by the continued strong performance across AmerisourceBergen's businesses and also benefited from the one month contribution from the Alliance Healthcare acquisition.
Our consolidated revenue was $53.4 billion, up 18%, driven by revenue growth in both the Pharmaceutical Distribution Services segment and Other, which includes Alliance Healthcare and our Global Commercialization Services and Animal Health businesses.
Consolidated gross profit increased 32% to $1.6 billion, driven by increases in gross profit in each operating segment.
In the quarter, gross profit margin increased 33 basis points from the prior year quarter to 3.05%.
Regarding consolidated operating expenses, operating expenses were $996 million, up 38% year-over-year due to the addition of the Alliance Healthcare business and also includes the internal investments we are making across our business with a focus on continuing to offer innovative services and solutions to our partners.
Our operating income was $631 million, up 24% compared to the prior year quarter.
Operating income margin grew six basis points to 1.18% as a result of the contribution from the Alliance Healthcare acquisition and growth in higher-margin businesses.
The net interest expense was $51 million, up 36% due to debt related to the Alliance Healthcare acquisition.
Our effective income tax rate was 21%, up from 18.8% in the third quarter of fiscal 2020, which benefited from a discrete tax item.
Our diluted share count was 208.9 million shares, a 1.6% increase due to the dilution related to employee stock comp and the weighted average saving impact of the June issuance of two million shares delivered to Walgreens as a part of the Alliance Healthcare acquisition.
Our adjusted free cash flow was strong in our fiscal third quarter, bringing our year-to-date free cash flow number to $1.2 billion, while our cash balance was $2.6 billion.
Pharmaceutical Distribution Services segment revenue was $49.3 billion, up 13% for the quarter driven by increased sales of specialty products and solid performance broadly across our Pharmaceutical Distribution businesses.
Pharmaceutical Distribution Services segment's operating income increased about 13% to $484 million.
In the quarter, Other segment's revenue was $4.1 billion, up 128%, driven by the Alliance Healthcare acquisition and growth across the remaining operating segments.
Excluding the impact of Alliance Healthcare, Global Commercialization Services and Animal Health revenue was up 22%.
Other segment's operating income was $147 million, up 77% primarily due to the Alliance Healthcare acquisition and strong performance at both MWI and World Courier.
Excluding the impact of Alliance Healthcare, Global Commercialization Services and Animal Health operating income was up 21%, reflecting the solid fundamentals of the businesses.
Over 12 million families in the U.S. have gained pets since the pandemic began, and since pet owners view their pets as family members, the focus on health and wellbeing is a positive market trend for our MWI companion business.
Given the continued strong performance of AmerisourceBergen's businesses, we are again raising our earnings per share guidance from a range of $8.90 to $9.10, up to a range of $9.15 to $9.30, reflecting growth of 16% to 18% from the previous fiscal year.
Operating expenses are now expected to be approximately $3.9 billion due to the Alliance Healthcare acquisition.
We now expect operating income to be approximately $2.6 billion.
This rate also reflects our expectation for operating income in Other of approximately $610 million to $620 million.
Finally, turning to free cash flow, we have raised our free cash flow guidance to be approximately $1.7 billion, up from approximately $1.5 billion.
COVID therapy distribution contributes roughly $0.25 to our fiscal 2021 adjusted earnings per share guidance, and the benefit from that exclusivity is not expected to repeat in fiscal 2022.
Third, for the fourth quarter of fiscal 2021, we expect our weighted average shares to be almost 211 million shares due primarily to the fully planned impact of the two million shares of our stock delivered to Walgreens at the close of the Alliance Healthcare acquisition.
Our share count will continue to tick higher in 2022 due to normal employee stock comp-related solution and the fact that we have committed to prioritize paying down $2 billion in total debt over the next two years and [lower] shareholder purchases.
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We finished the quarter with adjusted diluted earnings per share of $2.16, an increase of 17%, which was driven by the continued strong performance across AmerisourceBergen's businesses and also benefited from the one month contribution from the Alliance Healthcare acquisition.
Our consolidated revenue was $53.4 billion, up 18%, driven by revenue growth in both the Pharmaceutical Distribution Services segment and Other, which includes Alliance Healthcare and our Global Commercialization Services and Animal Health businesses.
Given the continued strong performance of AmerisourceBergen's businesses, we are again raising our earnings per share guidance from a range of $8.90 to $9.10, up to a range of $9.15 to $9.30, reflecting growth of 16% to 18% from the previous fiscal year.
Finally, turning to free cash flow, we have raised our free cash flow guidance to be approximately $1.7 billion, up from approximately $1.5 billion.
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Record quarterly net revenues of $2.47 billion, grew 35% year-over-year and 4% sequentially.
Record asset management fees grew 8% sequentially, commensurate with a sequential increase of fee-based assets in the preceding quarter.
Private Client Group assets and fee-based accounts were up 9% during the fiscal third quarter, providing a tailwind for this line item for the fourth quarter.
Consolidated brokerage revenue is $552 million, grew 14% over the prior year, but declined 7% from the record set and the preceding quarter.
Brokerage revenues and PCG were up 22% on a year-over-year basis, but down 6% sequentially due to lower trading volumes, as well as the large placement fee in the preceding quarter.
Account and service fees of $161 million increased 20% year-over-year and 1% sequentially, largely due to higher average mutual fund balances.
Record consolidated investment banking revenues of $276 million, grew 99% year-over-year and 14% sequentially, driven by record M&A revenues, and strong debt and equity underwriting results.
So we would be pleased if fourth quarter revenues came in around the average of the quarterly revenues generated over the first three quarters of the fiscal year, that would have been about $260 million on average.
Other revenues of $55 million were up 25% sequentially, primarily due to $24 million of private equity valuation gains during the quarter, of which approximately $10 million were attributable to non-controlling interest, which are reflected in the other expenses.
Clients domestic cash sweep balances ended the quarter at $62.9 billion, essentially flat compared to the preceding quarter and representing 6.1% of domestic PCG client assets.
As we continue to experience growing cash balances and less demand from third-party banks during fiscal 2021, $8.6 billion of the client cash is being held in the client interest program at the broker dealer.
The combined net interest income and BDPs from third-party banks of $183 million were up slightly compared to the preceding quarter, as modest NIM compression was offset by growth in client cash balances and higher asset balances in Raymond James Bank.
However, it s still down significantly from the peak of $329 million in the second quarter of fiscal 2019, really highlighting the remarkable results we have been able to generate despite near zero short-term interest rates.
We continue to expect the bank s NIM to decline to just around or just below 1.9% over the next quarter or two.
The average yield on RJBDP balances with third-party banks declined 1 basis point to 29 basis points in the quarter.
First, our largest expense compensation; the compensation ratio decreased sequentially from 69.5% to 67.2% largely due to record revenues in the capital markets segment, which had a 57% comp ratio during the quarter.
Given our current revenue mix and disciplined manage of expenses, we remain confident, we can maintain a compensation ratio lower than 70% in this near zero short-term interest rate environment.
Non-compensation expenses of $425 million, increased 18% compared to last year s third quarter and 53% sequentially, primarily driven by the $98 million loss on extinguishment of debt, acquisition-related expenses, the non-controlling interest of $10 million and other expenses related to our private equity valuation gains and higher business development expenses.
We raised $750 million of 30-year senior note at 3.75% and utilize the proceeds and cash on hand to early redeem our next two senior notes that we re maturing in 2024 and 2026, effectively, resulting in the same amount of senior notes outstanding.
This resulted in $98 million in losses associated with the early extinguishment of those nodes, but in doing so locked in very low rates for 30 years, while significantly extending the duration and stability of our funding profile.
Pretax margin was 15.6% in fiscal third quarter of 2021 and adjusted pre-tax margin was 19.8%, which was boosted by record revenues, the loan loss reserve release and still relatively subdued business development expenses.
At our Analyst and Investor Day in June, we outlined a pre-tax margin target of 15% to 16% in this near zero interest rate environment.
On slide 14, at the end of the quarter, total assets were approximately $57.2 billion, a 2% sequential increasing increase, reflecting solid growth of securities-based loans at Raymond James Bank.
Liquidity and capital levels are very strong, with cash at the parent of approximately $1.56 billion, a total capital ratio of 25.5% and a Tier 1 leverage ratio of 12.6%.
The third quarter effective tax rate of 20.3% benefited from non-taxable gains in the corporate life insurance portfolio, we would expect that tax rate to be around 21% in the fiscal fourth quarter, assuming a flat equity market.
In the third quarter, we repurchased 375,000 shares for $48 million.
As of July 28, $632 million remains available under the current share repurchase authorization.
Non-performing assets remained low at just 12 basis points of total assets and criticized loans declined sequentially.
The bank loan loss benefit of $19 million reflects an improved outlook for economic conditions and higher credit ratings on average within the corporate loan portfolio.
Due to reserve releases and loan growth during the quarter, the bank loan allowance for credit losses as a percent of total loans declined from 1.5% to 1.34% of the quarter end.
For the corporate portfolio, these allowances are higher at around 2.4%.
In the Private Client Group results will benefit by starting the fourth quarter with 9% increase of assets and fee-based accounts.
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Record quarterly net revenues of $2.47 billion, grew 35% year-over-year and 4% sequentially.
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In the third quarter, comparable sales expanded 12.7%, on top of a nearly 21% increase one year ago.
Since the third quarter of 2019, prior to the pandemic, Q3 store sales have expanded by $3.8 billion, while digital sales have increased another $3.1 billion.
Third quarter sales through these services have expanded by nearly 400% or $2 billion over the last two years.
Through the first three quarters of the year, sales through these services have grown by more than $6 billion since 2019, a number larger than the total sales of many prominent retailers.
We continue to invest in key partnerships that enhance our assortment and experience, including the opening of more than 100 Ulta Beauty shop-in-shops and our recent announcement that we're doubling the number of enhanced Apple experiences in electronics.
On top of the investments in inventory, in-stocks, and value I outlined earlier, we've announced that we're hiring 30,000 new year-round supply chain team members to support our current and expected growth.
In our stores, we're providing our team members with more pay, flexibility, and reliable hours this holiday season, offering more than 5 million additional hours to our existing team, an investment of more than $75 million over the holiday season.
To supplement the additional hours from our existing team, we're hiring another 100,000 seasonal team members throughout the country, many of whom have an opportunity to stay on with Target after the holidays.
As you heard from Brian, third quarter comparable sales grew 12.7%, reflecting double-digit growth in every one of our core merchandising categories.
Hardlines, which comped in the mid-teens on top of mid-30% comps last year, was fueled by incredible momentum in our toys and sporting goods businesses, which both saw a comp growth north of 20%.
Electronics delivered low single-digit comp growth on top of last year's comp of nearly 60%.
Whether it's preparing a delicious meal, throwing a festive family party, or hosting a game night with friends, from Good & Gather cheese board starter kits and favorite day-baked goods, to Threshold fall collections, including festive baking dishes, serving platters in the color of the season, and an array of plates, linens, and other table-toppers, all $15 and under.
We'll highlight Black-owned businesses and beauty, hardlines, food and beverage, and home, including McBride Sisters wine pairings, BIPOC Authors in our $10 book assortment, and a limited-time Black artist partnership in wrapping paper.
So, it's no surprise we're building on this momentum in time for the holiday season.
And on the subject of Ulta Beauty at Target, our guests are telling us it's clearly hitting the bullseye, with makeup, skincare, bath and body, hair care, and fragrance for more than 50 top brands now available at Ulta Beauty at Target, both in-stores and online.
With nearly 300 must-haves for the family, pets, and home, and most of the colorful brick-inspired items under $30, our guests are sure to find something everyone would love on any budget.
In our stores, which fulfill more than 95% of our total sales, the team focuses on delivering a great guest experience across hundreds of millions of guest transactions every quarter.
Specifically, at the end of the third quarter, inventory on the balance sheet was more than $2 billion higher than last year, representing growth of about 18% from a year ago.
Looking back to the pre-COVID period, our Q3 ending inventory has grown more than $3.5 billion since the end of Q3 2019, representing 31% growth over a two-year period.
Also, new this year, we've rolled out a new point-of-sale system across more than 90% of our stores, providing more speed, efficiency, and enhanced experience at both the checkout and our service counter.
These efforts include capital projects to add permanent storage capacity in more than 200 high-volume stores, investing in flexible fixtures to provide temporary storage areas to support seasonal peak, adding thousands of new items to the list available for pickup and Drive Up, doubling the number of Drive Up parking stalls compared with last year, and designating stall numbers to help our teams deliver Drive Up orders more efficiently.
Turning to the work of the properties team, we expect to finish about 145 remodels in 2021, having completed more than 40 remodels prior to the end of Q3 with more than 100 additional projects slated to wrap up before the holiday.
The team also opened another 15 new stores in the third quarter, bringing the year-to-date total up to 30.
Among those projects, we've opened new stores ranging from 11,000 to 160,000 square feet, which demonstrates the flexibility we've developed to design the optimal store size for an individual neighborhood based on their local needs and available real estate in the market.
In support of those growing needs, we recently announced that we're adding more than 30,000 permanent positions across our supply chain network to support the growth we expect to continue delivering in the fourth quarter and beyond.
For the entire fiscal year in 2018, our business generates $74 billion in sales.
Less than three years later, our business had already delivered $74 billion in sales through the third quarter, with the biggest quarter of the year still ahead of us.
When I first started working here in 1996, Target delivered just under $18 billion in revenue for what was then called Dayton Hudson Corporation.
While many things have changed since then, both in retail and at this company, we successfully maintain what's made Target's successful and unique for nearly 60 years.
As Brian mentioned, our 12.7% comp in the third quarter came on top of a nearly 21% increase a year ago.
As a result, our August comp was our strongest of the quarter, our September comp dipped down to about 10%, and we accelerated back into the low-teens in October.
Among the component drivers of our sales, growth continues to be driven by traffic, even as we retain nearly all of the basket growth that happened a year ago.
Specifically, third quarter traffic increased 12.9% on top of a 4.5% increase last year.
While average ticket declined only slightly, about 20 basis points, after growing more than 15% a year ago.
Among our sales channels, stores comparable sales grew 9.7% in the quarter on top of 9.9% last year, while digital comp sales grew 29% on top of 155% growth a year ago.
Within our digital fulfillment, sales on orders shipped to home increased slightly over last year, while same-day services grew about 60% on top of a more than 200% increase a year ago.
Among those same-day options, both in-store pickup and Shipt grew more than 30% in the quarter, while Drive Up grew more than 80% on top of more than 500% a year ago.
Put another way, since 2019, sales through Drive Up have expanded more than 10 times for about $1.4 billion in the third quarter alone.
Moving down the P&L, our third quarter gross margin rate of 28% was 2.6 percentage points lower than a year ago.
Among the drivers, core merchandising accounted for 2 percentage points, or more than three quarters of the rate decline, driven primarily by incremental freight and other inventory costs.
Among the other gross margin drivers, payroll growth in our supply chain accounted for about 70 basis points of pressure, while category sales mix contributed about 10 basis points of benefit.
On the SG&A expense line, we saw about 160 basis points of improvement in the third quarter, reflecting disciplined cost management combined with the leverage benefit of unexpectedly strong sales.
On the D&A line, we saw about 20 basis points of rate improvement as sales growth more than offset the impact of higher accelerated depreciation, which reflects the continued ramp-up in our remodel program.
Altogether, our third quarter operating margin rate of 7.8% was about 70 basis points lower than a year ago but more than 2 percentage points higher than two years ago.
On a dollar basis, operating income was 3.9% higher than a year ago and double the number recorded in the third quarter of 2019.
Moving to the bottom of the P&L, our third quarter GAAP earnings per share of $3.04 was 52% higher than last year when we recorded more than $500 million of interest expense on early debt retirement.
On the adjusted earnings per share line, where we excluded early debt retirement expense, we earned $3.03 in the quarter, representing an 8.7% increase from a year ago.
Compared with two years ago, both GAAP and adjusted earnings per share have increased more than 120%.
Next, we support the dividend and look to build on our long history of annual increases, which we've maintained every year since 1971.
On the capex line, we'd invested $2.5 billion through the first three quarters of 2021 and expect to reach about $3.3 billion for the full year.
As of today, we continue to believe these investments will amount to capex in the $4 billion to $5 billion range in 2022, and we'll continue to refine our view in the months ahead.
Turning now to dividends, we paid $440 million in dividends in the third quarter, up $100 million from last year.
This increase reflects a 32% increase in the per-share dividend, partially offset by a decline in share count.
In the third quarter, we deployed $2.2 billion to repurchase 8.8 million of our shares, bringing our year-to-date total up to $4.9 billion.
For the trailing 12 months through the end of Q3, our business generated an after-tax ROIC of 31.3% compared with 19.9% a year ago.
In terms of profitability, we continue to expect that our business will deliver a full year operating margin rate of 8% or higher, up significantly from 7% in 2020.
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In the third quarter, comparable sales expanded 12.7%, on top of a nearly 21% increase one year ago.
So, it's no surprise we're building on this momentum in time for the holiday season.
Among the component drivers of our sales, growth continues to be driven by traffic, even as we retain nearly all of the basket growth that happened a year ago.
Among our sales channels, stores comparable sales grew 9.7% in the quarter on top of 9.9% last year, while digital comp sales grew 29% on top of 155% growth a year ago.
On a dollar basis, operating income was 3.9% higher than a year ago and double the number recorded in the third quarter of 2019.
On the adjusted earnings per share line, where we excluded early debt retirement expense, we earned $3.03 in the quarter, representing an 8.7% increase from a year ago.
In terms of profitability, we continue to expect that our business will deliver a full year operating margin rate of 8% or higher, up significantly from 7% in 2020.
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Our team delivered another solid quarter with growth in revenue and earning assets while maintaining an expense discipline that resulted in year over year quarterly expenses declining 5%.
Finally, we continue to successfully deliver on our Synovus Forward initiatives and investments with the $75 million in pre-tax run rate benefit achieved through the second quarter and an additional $100 million in pre-tax run rate benefits to come by year-end 2022.
We also have migrated approximately 25,000 business clients to Synovus Gateway, our new digital platform for business and commercial banking.
Total adjusted revenue of $489 million, adjusted expenses of $268 million and a $25 million reversal of provision for credit losses resulted in adjusted net income of $179 million or $1.20 diluted earnings per share.
Without adjustments, net income was $178 million or $1.19 diluted earnings per share.
Pretax run rate benefits from Synovus Forward of $75 million have increased by $25 million from the first-quarter results.
Our work on completed and future initiatives continues to give us confidence in our ability to achieve an aggregate pre-tax run rate benefit of $100 million by year-end 2021 and $175 million by the end of '22.
Total loans, excluding P3 loans, were up $194 million in the second quarter.
Core transaction deposits increased $702 million or 2%, led by core noninterest-bearing deposits growth of $601 million or 4%.
Key credit metrics were stable with the NPA ratio declining by 4 basis points to 46 basis points, and the ACL coverage remains strong.
A more favorable economic outlook and a 14% reduction in criticized and classified loans supported further allowance releases.
The ACL ratio, excluding P3 loans, declined 15 basis points to 1.54%.
We remain well capitalized with the CET1 ratio increasing to 9.8%, while completing nearly half of our $200 million share authorization in the quarter.
As shown on Slide 4, we ended the quarter with earning assets of $51 billion.
Total loans declined $569 million, led by P3 balance declines of $763 million.
The annualized growth rate and total commitments over the past two years is more than 3% compared to an annualized increase in funded loan balances of approximately 1%.
A material portion of that growth will translate into funded balances once C&I line utilization begins to normalize closer to the long-term average of 46 to 47%.
In June, total loans, excluding changes in P3 balances grew by approximately $200 million.
In the second quarter, further declines in consumer mortgage and HELOC portfolios of $98 million and $74 million, respectively, continued to be impacted by accelerated prepayment activity and excess liquidity.
CRE loan declines of $173 million this quarter largely resulted from accelerated payoffs as many owners are selling with the expectation that capital gains taxes will increase in 2022.
C&I balances, excluding changes in P3, increased $220 million with $469 million in commitment growth while C&I line utilization remained near historic lows.
As a reminder, a normalization in C&I line utilization would result in more than $700 million in funded balances.
We had approximately $150 million in fundings of round two P3 loans, net of unearned fees, which partially offset forgiveness of $927 million.
Total P3 balances ended the quarter at $1.6 billion.
Lastly, as a function of this liquidity environment, we increased the securities portfolio about $616 million and third-party consumer portfolio about $273 million.
Investment securities accounted for 17% of total assets at the end of the quarter and could increase further as we look for opportunistic deployments of liquidity in the second half of 2021.
As shown on Slide 5, we continue to grow core transaction deposits, which increased $702 million, or 2% from the prior quarter.
This was led by core noninterest-bearing deposit growth of $601 million or 4%, which offset strategic declines in higher cost deposits.
We continue to have success reducing our total deposit costs in the second quarter with a reduction of 6 basis points from 22 basis points to 16 basis points.
For the month of June, total deposit costs were 15 basis points, and we expect further reductions in total deposit costs this year.
Slide 6 shows net interest income of $382 million, an increase of $8 million from the prior quarter.
The net interest margin of 3.02%, a decline of 2 basis points was primarily impacted by P3 forgiveness as P3 fee accretion decreased $5 million from the prior quarter.
Deceleration of prepayment activity resulted in a $3 million reduction of premium amortization in the second quarter, down from $20 million in the first quarter.
As of June 30th, our loan portfolio is 54% variable and approximately 30% of those variable rate loans have floors at or above short-term index rates of 25 basis points.
Using the quarter-end forward curve and absent rate hikes, we expect a NIM of approximately 3%, excluding the impact of P3, with headwinds from the lapse of P3 fee accretion being offset by the continued deployment of excess liquidity and with notable upside coming from increases in either short-term or long-term interest rates.
As we've shared previously, we estimate NIM dilution of approximately 6 basis points per $1 billion of excess cash on deposit at the Federal Reserve.
Slide 7 shows a total adjusted noninterest revenue of $106 million, down $6 million from the previous quarter.
Core banking fees were $41 million, up $3 million.
Increases were broad-based, led by $1 million increases in account analysis fees that benefit from our treasury and payment solutions team and our recently in-sourced merchant business.
NSF, or overdraft fees, which have received a lot of attention throughout the industry, were flat at $6 million, accounting for less than 6% of noninterest revenue and 1.3% of total revenues.
Net mortgage revenue declined $8 million in the second quarter to $14 million due to reductions in secondary production and gain on sale.
Increases in fiduciary revenues of $3 million helped offset decreases in other areas, including capital markets income.
Assets under management grew 3% in the quarter and 28% from the previous year.
Total noninterest expense of $271 million is highlighted on Slide 8.
Adjusted noninterest expense was $268 million up $2 million from the prior quarter and down $6 million from the prior year.
Employment expense of $159 million was down $1 million from the prior quarter as seasonal decreases in payroll taxes was partially offset by an increase in pay days, as well as commissions and other variable compensation.
Expenses of $42 million associated with occupancy, equipment and software increased $1 million from the previous quarter, largely due to an increase in the repairs and maintenance.
Other expenses of $67 million were up $3 million primarily due to the $4 million increase in third-party processing fees associated with the expenses from additional P3 forgiveness and third-party consumer loans.
We have reduced our head count 6% year over year, approximately 85% of which was on the support side.
We continue to see improvement in the overall economic outlook, which is reflected in the reversal of provision for credit losses of $25 million and a 14% reduction in criticized and classified loans.
As shown in the appendix, cash inflows from March to May are each up more than 10% compared to the same period from 2019, which we use as a pre-pandemic baseline.
The annualized net charge-off ratio for the quarter was 0.28%.
During the second quarter, the NPA ratio declined 4 basis points to 46 basis points.
Criticized and classified loans fell 14%, and we expect further reductions as we progress through the rest of the year.
The ACL ratio of 1.54%, excluding P3 loans, was down 15 basis points from the prior quarter and 27 basis points from the end of the year.
We continue to use a multi-scenario framework in our CECL modeling and a sign of 40% weighting to adverse scenarios, 55% weighting to the base scenario and 5% weighting to an upside scenario.
As noted on Slide 10, the CET1 ratio increased 1 basis point to 9.75% as a result of strong performance.
In the second quarter, we repurchased $92 million of the $200 million share repurchase authorization in place for 2021, which resulted in a 1.3% reduction of average diluted outstanding shares.
We have completed approximately $15 million of additional repurchase activity in July.
We will continue to opportunistically deploy capital on our balance sheet and to our shareholders as we remain above our 9.5% operating target for CET1.
As I highlighted earlier, throughout the second quarter, we have continued to add to our Synovus Forward pre-tax run rate benefits, now totaling approximately $75 million.
Based upon our progress to date, as well as the ongoing plan and execution, we remain confident in achieving the 2021 and 2022 milestones of $100 million and $175 million, respectively.
Approximately $50 million of the $75 million pre-tax run rate benefit we have achieved by the end of the quarter relates to these specific efficiency initiatives.
We have plans to increase the savings in each of these categories, but also are adding new initiatives and areas of focus to achieve an incremental 30 to $40 million in pre-tax benefits by the end of 2022.
We have also had success to date on the revenue side of Synovus Forward with $25 million in pre-tax run rate benefits.
The Treasury and Payment Solutions pricing-for-value initiative has resulted in annualized pre-tax run rate benefits of approximately $12 million in the second quarter.
As we turn to future plans and initiatives, the 60 to $70 million in expected pre-tax revenue benefits will largely be accomplished through analytics, new products and solutions, balance sheet management strategies, as well as ongoing talent and specialty team expansion.
We still expect to be within our 2 to 4% loan growth guidance excluding P3 loans, and third-party consumer loans.
This asset class represents $1.5 billion in period-end balances, up $776 million in 2021.
Pre-pandemic, this portfolio was approximately $2 billion in held for investment outstandings.
Our capital management target now includes a CET1 ratio greater or equal to 9.5% target.
A continuation of strong operating performance and a stable economic outlook is likely to result in a CET1 ratio above 9.5%, even after completing the entire $200 million share repurchase authorization for the current year.
Additional focus and execution related to various tax strategies are expected to result in an effective tax rate of 22 to 24%.
Year-to-date, the ETR is 22% or 23% before discrete items.
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Total adjusted revenue of $489 million, adjusted expenses of $268 million and a $25 million reversal of provision for credit losses resulted in adjusted net income of $179 million or $1.20 diluted earnings per share.
Without adjustments, net income was $178 million or $1.19 diluted earnings per share.
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I'll then outline our plans for 2022 and the key investments we're making to deliver significant shareholder value in the next 12 to 24 months.
The right-hand chart shows the company's production is forecast to grow by around 50% between 2022 and 2024 as we bring our planned developments on stream.
On a 1P basis, oil makes up around 60% of our reserve base, whereas on a 2P basis, gas is over 55% of the portfolio, reflecting the longer-term direction of the company, a bias for oil in the near term and gas longer term.
Ghana, Mauritania, and Senegal each make up around 40% of the portfolio with Equatorial Guinea in the Gulf of Mexico, making up about 20% between them.
In 2021, our 1P reserves more than doubled to approximately 300 million barrels of oil equivalent with the booking of Tortue phase one and the Oxy Ghana acquisition.
Our 2P reserves are approximately 580 million barrels of oil equivalent, which gives us a 2P reserve to production ratio of over 20 years.
Even excluding the Oxy Ghana acquisition, our reserves replacement ratio was strong with 114% of the total of our 2P reserves demonstrate the underlying quality of our asset base.
As you're well aware, for the last 18 months, we've been focused on deleveraging and have made good progress.
We also plan to reduce absolute debt by up to $500 million this year, which will further drive the leverage multiple lower.
I talked about the embedded growth we expect to see over the next two years which is driven by Tortue phase one, Jubilee Southeast, and Winterfell, delivering an expected production increase of around 50%.
As these developments start up, our capital commitments are expected to fall by more than 30%.
With production up and capex down, we expect free cash flow to more than triple from the levels we expect in 2022 at $75 Brent.
On environment, two years ago, Kosmos set out a policy to achieve carbon neutrality for our scope one and two operated emissions by 2030, and we're working to accelerate that time line.
We worked in this manner for nearly 20 years going back to when the company was founded.
On production, we hit our year-end production target of 75,000 barrels of oil equivalent per day, boosting fourth-quarter cash flow and reducing leverage at year end to approximately two and a half times.
Our LNG development made significant progress during the year with Tortue phase one around 70% complete at year end.
We enhanced our reserve base and now have a 2P reserve life of over 20 years with a growing gas weighting.
Kosmos had net production of around 39,000 barrels of oil per day across Jubilee and TEN in the fourth quarter.
And you can see production rising from around 70,000 barrels of oil per day in July to over 90,000 barrels a day by year end, which is where the field is producing today.
In October, we announced and completed the acquisition of additional interest in Jubilee and TEN from Oxy for a total cash consideration of around $460 million.
At the time, we talked about the attractive economics of the deal in a $65 world, which is highly accretive on all metrics and an expected payback of around three years.
The impact of pre-emption on Kosmos is a small reduction in our Jubilee state from around 42% to around 38%.
In TEN, the reduction is more meaningful with our stake reducing from around 28% to around 20%.
Assuming pre-emption is completed, we would expect to receive a bit more than $100 million of closing which we used to pay down debt.
The impact on Kosmos production will be about 5,000 barrels of oil per day.
In Equatorial Guinea, 4Q gross production was in line with the full year at around 30,000 barrels of oil per day.
We've been pleased with initial performance and the combined impact on gross production can be seen on the chart with Ceiba and Okume collectively producing at levels not seen for over 18 months.
In the Gulf of Mexico, turning to Slide 12, 4Q production was 21,000 barrels of oil equivalent per day, slightly above full-year production of 20,000 barrels of oil equivalent per day.
With around 100 million barrels of gross resource potential in the Central Winterfell area and proximity to several nearby host platforms with OH, we're excited about the future potential of this asset.
At year end, phase one of the project was around 70% complete.
First, we successfully refinanced the reserve-based lending facility, which now has a total facility size of $1.25 billion, with $1 billion drawn at year end.
In August, we announced the completion of the Tortue FPSO sale and leaseback transaction, which funds around $375 million of our capex on the project and with key parts of the financing path we laid out in November 2020.
Our producing assets generated strong free cash flow of around $175 million during the year, excluding working capital, in line with our guidance.
The combination of these, along with the bond transactions we executed have deferred all of our near-term debt maturities and helped increase our liquidity to over $750 million available at year end.
Around 55% of our production is hedged with an average ceiling of around $80 per barrel with the rest exposed to current prices.
Net production of approximately 70,000 barrels of oil equivalent in the quarter was in line with our expectations.
Sales volumes of 82,000 barrels of oil equivalent were higher than guidance as a result of an additional Jubilee cargo in Ghana, loading in late December.
The realized price of around $65 per barrel, which includes the impact of hedging, was materially higher than the previous quarter, a trend we expect to continue in 2022.
In the first quarter of this year, we anticipate a realized price net of hedging of over $80 per barrel.
With these new wells, combined with the benefits of the wells we drilled last year, we expect to deliver year-on-year growth at Jubilee of around 10%, which includes the impact of the two-week shutdown planned for the second quarter.
Once online, in mid-2023, these wells should post gross production in Jubilee to around 100,000 barrels of oil per day.
First oil is expected around 18 months from sanction.
For the second phase of Tortue, we're working with BP in the NOCs to optimize the upstream facilities to deliver another 2.5 million tonnes of capacity at an upstream cost less than $1 billion of gross capex we have previously communicated.
We expect company production for the year to be in the range of 67,000 to 71,000 barrels of oil equivalent per day, which is at the midpoint, would be a year-on-year increase of over 20%.
capex of around $700 million is broken out in the chart on the bottom right.
We plan to spend between $250 million to $300 million of maintenance capex on the producing assets which is development drilling and integrity spend in Ghana, Equatorial Guinea and the Gulf of Mexico.
We also plan to spend between $100 million to $150 million of growth capex on the base business for production growth in 2023 and beyond.
On Tortue phase one, we expect to spend around $250 million during the year, which reflects the timing of accrued capex based on the approved budget from the operator.
We also expect to spend a further $50 million in Mauritania and Senegal on Tortue phase two and increase the activity on BirAllah, Yakaar-Teranga support progress on those developments.
At $75 Brent, we would expect to generate around $200 million of free cash flow, which we plan to use to reduce debt.
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And you can see production rising from around 70,000 barrels of oil per day in July to over 90,000 barrels a day by year end, which is where the field is producing today.
Net production of approximately 70,000 barrels of oil equivalent in the quarter was in line with our expectations.
capex of around $700 million is broken out in the chart on the bottom right.
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Revenue of $1.025 billion was up 11% from last year.
The strengthening in our markets that began mid last year accelerated in the quarter, and despite a wide variety of supply chain challenges, we responded to the increase and delivered revenue that was up 15% from the fourth quarter.
Geographically Asia, at plus 30%, drove much of the year-on-year growth.
Despite the inefficiencies and cost pressures, we were able to ramp up to meet the increased demand, and in the process of doing so, deliver record earnings per share of $1.38 and EBITDA margins just shy of 20%.
We delivered strong year-on-year growth in renewable energy of over 30%, while continuing to advance our announced $75 million investment plan.
We are now estimating full year revenue to be up 18% over last year, to a record $4.1 billion.
On the bottom line, we are guiding to a record $5.30 of earnings per share at the midpoint, which would be almost 30% higher than last year and 15% higher than 2019's record of $4.60.
And we remain committed to our long-term target of 20%.
Revenue for the first quarter was a record $1.03 billion, up 11% from last year and up 15% sequentially from the fourth quarter.
We delivered an adjusted EBITDA margin of 19.9%, up 70 basis points from last year's strong first quarter.
We also delivered record adjusted earnings per share of $1.38, up 24% from last year.
Organically, sales were up 7.5%.
Currency added 2.7% to the top line in the quarter, while the Aurora Bearing acquisition contributed just under 1%.
In Asia, we delivered strong growth again in the quarter, up 30%.
In Latin America, we were up 25%, led by higher revenue in distribution in the on-highway auto and truck sectors.
In Europe, we were up 6% as growth returned in several sectors, led by off-highway and distribution.
Adjusted EBITDA was $204 million or 19.9% of sales in the first quarter, compared to $177 million or 19.2% of sales last year.
This represents an incremental margin of roughly 26% all in, or 33% on an organic basis.
Currency had a slight positive impact on EBITDA in the quarter, and Aurora Bearing contributed about $1 million, with margins running ahead of our expectations.
On slide 13, you'll see that we posted net income of $113 million, or $1.47 per diluted share for the quarter on a GAAP basis.
This includes $0.09 of net income from special items, driven by discrete tax benefits in the period.
On an adjusted basis, we earned $1.38 per share, up 24% from last year and a new quarterly record for the company.
Our first quarter adjusted tax rate was 25.5%, in line with our expectations and slightly lower than last year.
For the first quarter, Process Industries sales were $521 million, up 14% from last year.
Organically, sales were up nearly 10%, driven by strong growth in renewable energy, distribution and general industrial sectors, offset partially by lower marine revenue.
The favorable impact of currency translation added roughly 3.5% to the top line in the quarter, while the impact of the Aurora Bearing acquisition added nearly 1%.
Process Industries' adjusted EBITDA in the first quarter was $136 million or 26% of sales, compared to $112 million or 24.4% of sales last year, with margins up 160 basis points.
In the first quarter, Mobile Industries sales were $505 million, up about 8% from last year.
Organically, sales increased 5.2%, reflecting higher revenue in the off-highway, heavy-truck and automotive sectors, offset partially by lower shipments in rail and aerospace.
Currency translation added 2% to the top line in the quarter, while Aurora Bearing contributed nearly 1%.
Mobile Industries' adjusted EBITDA for the first quarter was $80 million or 15.9% of sales compared to $76 million or 16.3% of sales last year.
You'll see we generated operating cash flow of $32 million in the first quarter.
After capex spending of $29 million, free cash flow was $2 million in the period, which was in line with our expectations.
From a capital allocation standpoint, in the first quarter, we returned $50 million to shareholders, with the payment of our 395th consecutive quarterly dividend and the repurchase of 350,000 shares of company stock.
Our leverage, as measured by net debt to adjusted EBITDA, was 1.9 times at March 31, unchanged from the end of 2020.
We now expect sales to be up around 18% in total at the midpoint of our guidance versus 2020, which is up from our prior outlook of 12% growth.
Organically, we're now planning for sales to be up around 15% at the midpoint, up from the previous outlook of 9% growth.
Currency is still expected to contribute about 2% to the top line, while Aurora Bearing is expected to contribute close to 1%.
On the bottom line, we now expect adjusted earnings per share in the range of $5.15 to $5.45 per share, which is also up from our prior outlook.
At the midpoint, our current outlook represents nearly 30% earnings growth versus last year.
For 2021, we now estimate that we'll generate free cash flow in the range of $325 million to $350 million, which represents just over 80% conversion on adjusted net income at the midpoint.
This assumes capex spending at around $150 million, or just over 3.5% of sales, which includes ongoing growth investments in areas like renewable energy.
For the full year, we anticipate net interest expense of around $60 million, and estimate that our adjusted tax rate will be about 25.5%, consistent with the first quarter, and both of which are unchanged from our prior outlook.
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Despite the inefficiencies and cost pressures, we were able to ramp up to meet the increased demand, and in the process of doing so, deliver record earnings per share of $1.38 and EBITDA margins just shy of 20%.
We are now estimating full year revenue to be up 18% over last year, to a record $4.1 billion.
On the bottom line, we are guiding to a record $5.30 of earnings per share at the midpoint, which would be almost 30% higher than last year and 15% higher than 2019's record of $4.60.
Revenue for the first quarter was a record $1.03 billion, up 11% from last year and up 15% sequentially from the fourth quarter.
We also delivered record adjusted earnings per share of $1.38, up 24% from last year.
On slide 13, you'll see that we posted net income of $113 million, or $1.47 per diluted share for the quarter on a GAAP basis.
On an adjusted basis, we earned $1.38 per share, up 24% from last year and a new quarterly record for the company.
We now expect sales to be up around 18% in total at the midpoint of our guidance versus 2020, which is up from our prior outlook of 12% growth.
On the bottom line, we now expect adjusted earnings per share in the range of $5.15 to $5.45 per share, which is also up from our prior outlook.
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We are very pleased with our fourth-quarter performance and book value of $7.63, which represents a 5.8% quarterly return on book value.
We have spent a significant amount of resources over the years building out our MSR acquisition and oversight platform, and we reaped some benefits this quarter as we added over $40 billion of unpaid principal balance of MSR through both our flow sale channel and bulk purchases.
Finally, as a reflection of all of these trends and with the confidence in our forward outlook, we also raised the common stock dividend this quarter by 21% to $0.17 per share.
Subsequent to quarter end, we issued $287 million of a new convertible note maturing in 2026 and whose proceeds were primarily used to refinance the existing convertible note that is maturing in January 2022.
As a consequence of the events of the first quarter, our ratio of preferred stock to total equity had increased from 20% to about 32%.
After the call was completed on March 15, our new ratio of preferred stock to total equity will be about 26%, which we think is appropriate for our Agency plus MSR portfolio.
Purchases in our MSR flow program grew by over 136% year over year, reflecting the strength of the platform and relationships we've built to source and manage the asset.
Results for 2020 as a whole were disappointing to be sure as book value declined to $7.63 from $14.54, a result of the market volatility and dislocation induced by the pandemic.
In many ways, we think of our newly internalized company as Two Harbors 2.0, and we are really excited for 2021 and the years ahead.
We generated comprehensive income of $113.5 million or $0.41 per common share, representing an annualized return on average common equity of 22.1%.
As Bill mentioned, our book value rose to $7.63 from $7.37 per share on September 30, resulting in a total economic return of 5.8%.
Core earnings increased to $0.30 per share from $0.28 in Q3.
Interest income decreased this quarter from $89.7 million to $72.5 million due to lower average balances and coupons as well as higher Agency amortization due to prepayments.
This decrease was partially offset by lower interest expense of $22.6 million, reflecting lower borrowing rates and average balances.
Gain on other derivatives increased from $32.9 million to $43.5 million due to higher TBA dollar roll income on higher average balances and continued roll specialness.
Roll specialness contributed $0.06 to core earnings versus $0.04 in Q3.
Expenses declined by $6.2 million, primarily due to transition to self-management and lower servicing costs.
Our portfolio yield in the quarter was 2.26%, and our net spread decreased two basis points to 1.76%.
Portfolio yield decreased by 16 basis points from 2.42% to 2.26%, primarily due to higher Agency RMBS prepayments.
Our cost of funds decreased 14 basis points from 0.64% to 0.50%, driven primarily by favorable repo rolls.
Inclusive of this impact, the annualized net spread for the aggregate portfolio was 1.96% with the benefit of 36 basis points in cost of funds.
Slide 7 highlights our strong liquidity and capital position with ample liquidity with $1.4 billion in unrestricted cash as well as $215 million in unused committed capacity on our MSR asset financing facilities.
Late in the third quarter, we also added a $200 million servicing advanced facility to provide committed capacity in the event of increased forbearances or defaults.
Our economic debt to equity at quarter end declined to 6.8 times from 7.7 times at September 30, as we decreased risk late in the quarter.
And our quarterly average economic debt to equity was 7.5 times in Q4 compared to 7.6 times in the third quarter.
With that certainty in hand and our plans to optimize the financing of our MSR asset over the coming year, we elected to redeem $275 million of preferred stock, effectively reducing our cost of capital as well as our preferred ratio to 26%.
Taken together, these actions are expected to deliver an annual net benefit to earnings of approximately $0.04 per share beginning in 2022, from the reduction in preferred dividends, offset by costs associated with the convertible debt and incremental MSR financing.
As previously noted, the fourth-quarter economic performance was primarily driven by a general spread tightening in MBS as the Federal Reserve continued its balance sheet expansion, having purchased almost 1.5 trillion MBS during Q4 so far.
As Mary noted, we did decrease risk somewhat during the quarter, reflected by lower economic debt to equity of 6.8 times.
In addition, after having increased our position size in TBA 2s to $7 billion, a significant spread tightening and resulting valuations in the quarter led us to reduce that exposure.
On net, we took our overall notional TBA exposure down by $1 billion to end the quarter at $5.2 billion.
The result has been that roll specialness in the 2% coupon has decreased significantly between mid-December and the end of January.
Additionally, we opportunistically added almost $200 million market value of interest-only securities, or IO, during the quarter.
In the lower left-hand chart, you can see that specified pool performance was mixed with a 3%, 3.5% and 4% coupon specified outperforming TBA, but flat or underperforming in both lower and higher coupons.
While we don't own any specified pools in the 2% coupon, as I mentioned earlier, we do own TBA, which outperformed by more than one point during the quarter, supported by strong Fed demand and attractive roll dynamics.
You can see that our MSR portfolio was valued at $1.6 billion as of December 31, based on $186 billion of UPB and with a gross coupon of 3.7%.
That translates into a price of about $0.86 or right around a 3.2 multiple on our existing portfolio.
The balances from the end of 2019 are also shown here, and I would highlight two things: first, our UPB is up modestly in a fast prepay environment, which is a testament to our ability to source new MSR investment; second, the weighted average coupon fell from 4.1% to 3.7%, consistent again with what you would expect in a refi environment.
We settled $23 billion UPB of new MSR through our flow program during the quarter, which represents record volume for us as we experienced our biggest three months ever.
We had some success in the bulk market and settled on $20.4 billion UPB in four separate transactions.
Primary mortgage rates have continued to grind lower with 30-year rates generally below 3% in national surveys, even with the spread between primary and secondary rates at wide levels.
The main change in our effective positioning was a decrease in the 2.5% and 4% coupons, a result of the specified pool activity I mentioned earlier.
The lower left-hand chart shows our common book value exposure to 25 basis point spread widening or tightening, and it indicates that book value would decrease by only 2.7% in an instantaneous 25 basis point spread winding.
In aggregate, this 2.7% exposure is lower than in recent quarters due to the reduction in specified pools and TBA positioning.
What we have here is 10 years of daily option adjusted spread data on the JPMorgan mortgage index with the x-axis being the OAS.
As of January 4, the OAS was 16 basis points and as highlighted by the vertical blue line.
This data shows that it's quite common for spreads to widen 20 or 30 basis points in the year that follows.
In fact, in the past 10 years, there are exactly 0 instances when spreads were unchanged, let alone tighter one year later.
You can see that at the OAS level of 16 basis points, historically, we've observed spreads move around 20 basis points wider over the next year.
And in that case, the one-year return would be expected to be negative around down 1% in the Agency-Only example.
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We are very pleased with our fourth-quarter performance and book value of $7.63, which represents a 5.8% quarterly return on book value.
Results for 2020 as a whole were disappointing to be sure as book value declined to $7.63 from $14.54, a result of the market volatility and dislocation induced by the pandemic.
As Bill mentioned, our book value rose to $7.63 from $7.37 per share on September 30, resulting in a total economic return of 5.8%.
Core earnings increased to $0.30 per share from $0.28 in Q3.
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Overall, our performance in the fourth quarter represented a strong finish to 2020, a year in which we delivered the second highest adjusted earnings per share in the company's history, surpassed only by the $1.79 per share reported in 2019.
The despite the impact of the pandemic on our top line, I was pleased with how our teams responded quickly, taking actions to control costs, which not only preserved our EBITDA margin but improved it by 40 basis points on a year-over-year basis.
Second, we continue to invest in new product development, and we are seeing the benefits from these efforts with an estimated $200 million of revenue in 2020 being generated from the sales of products introduced in the last three years.
Among those products was the 2100 I full-size tower cleaner, which we launched in 2018.
The 2100 I sewer cleaner introduced intelligent controls on the truck and was entirely designed around our customers' needs for ease of use and operability.
During 2020 and on the back of our success with the 2100 I, we launched a smaller sewer cleaner and a truck jetter machine that incorporates the same intelligent controls as the 2100 I. The initial response to these products has been very positive.
Overall, revenues from these new products accounted for nearly 10% of TBIS overall revenues during a year in which TBI delivered the highest EBITDA margin under our ownership.
Of our total R&D spend in 2020, approximately 20% was invested in electrification projects, and we are pleased to report that during the fourth quarter, we received our first orders for our hybrid electric street sleeper.
Although we expect this acquisition to be neutral to our 2021 earnings, the acquisition provides considerable opportunity for long-term value creation through the application of our 80/20 improvement principles, organic growth initiatives and additional bolt-on acquisitions.
Consolidated net sales for the year were approximately $1.13 billion, down about 7% compared to the prior year.
Operating income for the year was $131.4 million compared to $147.1 million in the prior year.
Consolidated adjusted EBITDA for the year was $182.2 million compared to $191.3 million in the prior year.
That translates to a margin of 16.1% for the year, up 40 basis points from the prior year and above the high end of our target range.
GAAP earnings for the year equated to $1.56 per share compared to $1.76 per share in 2019.
On an adjusted basis, we reported full year earnings of $1.67 per share compared to $1.79 per share in the prior year.
Consolidated net sales for the quarter were $295 million compared to $314 million in the prior year.
Consolidated operating income for the quarter was $33.8 million compared to $36.4 million in the prior year.
On an adjusted basis, consolidated operating margin was 12%, up 10 basis points from the prior year.
Consolidated adjusted EBITDA for the quarter was $47 million compared to $48.5 million in the prior year.
That translates to a margin of 15.9% for the quarter, an improvement of 50 basis points over the prior year.
Income from continuing operations for the quarter was $26 million compared to $29.7 million in the prior year.
That equates to GAAP earnings per share of $0.42 per share for the quarter compared to $0.48 per share in the prior year.
On an adjusted basis, earnings per share for the quarter was $0.44 per share, which compares to $0.48 per share in the prior year.
Orders for the quarter were $276 million, down from record levels in the prior year quarter, but up $10 million or 4% from the third quarter of 2020.
That momentum continued into 2021, with strong order intake in January, contributing to a backlog of $330 million at the end of last month.
That represents an increase from $304 million at the end of 2020.
In terms of our fourth quarter group results, ESG sales were $238 million compared to $252 million in the prior year.
ESG's adjusted EBITDA for the quarter was $44.2 million, up 1% from the prior year.
That translates to an adjusted EBITDA margin for the quarter of 18.6%, above our target range and up 120 basis points from the prior year.
Our aftermarket revenues for the quarter were up about 11% year-over-year, again contributing to the strong margin performance.
Overall, our aftermarket revenues represented roughly 25% of ESG's revenues for the quarter, which is up from 21% in the prior year period.
SSG sales for the quarter were $57 million compared to $62 million in the prior year.
SSG's adjusted EBITDA for the quarter was $11.2 million compared to $12.6 million in the prior year, and its adjusted EBITDA margin for the quarter was 19.6% compared to 20.3% in the prior year.
Corporate operating expenses for the quarter were $9.8 million compared to $8.4 million in the prior year with the increase primarily related to unfavorable fair value adjustments of certain post-retirement reserves, which represented a headwind of about $0.02 in the quarter and higher M&A expenses.
Turning now to the consolidated income statement, where the decrease in sales contributed to a $5.6 million reduction in gross profit.
Consolidated gross margin for the quarter was 25.7% compared to 25.9% in the prior year.
As a percentage of sales, our selling, engineering, general and administrative expenses for the quarter were down 40 basis points from the prior year.
Other items affecting the quarterly results include a $700,000 increase in acquisition-related expenses, a $1.1 million increase in other income and a $600,000 reduction in interest expense.
Compared to the prior year, tax expense for the quarter increased by $2.8 million, largely due to the recognition of fewer discrete tax benefits than in the prior year quarter.
Although it was up on a year-over-year basis, our effective tax rate for the quarter was lower than we expected at around 23%, primarily due to the recognition of benefits associated with stock compensation activity and other discrete items, which collectively added about $0.03 to our fourth quarter EPS.
For 2021, we currently expect a tax rate of approximately 24%.
On an overall GAAP basis, we, therefore, earned $0.42 per share in the quarter compared with $0.48 per share in the prior year.
On this basis, our adjusted earnings for the quarter were $0.44 per share compared with $0.48 per share in the prior year.
Looking now at cash flow, where we generated $57 million of cash from operations in the quarter, bringing the total amount of operating cash generation for the year to $136 million.
That represents a year-over-year improvement of $33 million or 32%.
The improved cash flow facilitated a $30 million debt reduction in the quarter as well as continued strategic investments in new machinery and equipment and other organic growth initiatives like the expansion of several of our manufacturing facilities.
In 2021, we are currently anticipating that our capex, including investments associated with ongoing plant expansions will be lower than in 2020 and in the range of between $20 million and $25 million.
We ended the year with $128 million of net debt and availability of $280 million under our credit facility.
As a reminder, we executed a new five year $500 million credit facility in July of 2019.
We also have the option to trigger an increase in our borrowing capacity by an additional $250 million for acquisitions.
On that note, we paid a dividend of $0.08 per share during the fourth quarter, amounting to $4.9 million, and we recently announced that we are increasing the dividend by 13% to $0.09 per share in the first quarter.
Our aftermarket business has grown to represent about 1/4 of ESG's revenues, and we see additional opportunities to grow that business.
We have also worked to develop strong contingency planning protocols, continue our journey of 80/20 and invest for growth.
The initial proposal under the American Rescue Plan, COVID relief package call for approximately $1.9 trillion of economic stimulus with initial projections of approximately $350 billion going to state, local and territorial governments with the goal of keeping frontline workers employed, distributing the vaccine, increasing testing, reopening schools and maintaining essential services.
An estimated 47,000 bridges and 40% of our highways are in need of replacement, whereas entire sewer systems have exceeded their useful life cycles.
On the flip side, we are anticipating that some of the cost savings that resulted from actions taken in 2020 are expected to return in 2021, representing an estimated year-over-year expense headwind of approximately $8 million.
In the first quarter of 2020, we also recognized a benefit of approximately $0.02 per share associated with fair value adjustments to certain reserves.
Yet despite this, we are expecting a strong year in 2021 with top line growth, double-digit improvement in pre-tax earnings and adjusted earnings per share of between $1.73 and $1.85.
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Consolidated net sales for the quarter were $295 million compared to $314 million in the prior year.
That equates to GAAP earnings per share of $0.42 per share for the quarter compared to $0.48 per share in the prior year.
On an adjusted basis, earnings per share for the quarter was $0.44 per share, which compares to $0.48 per share in the prior year.
On an overall GAAP basis, we, therefore, earned $0.42 per share in the quarter compared with $0.48 per share in the prior year.
On this basis, our adjusted earnings for the quarter were $0.44 per share compared with $0.48 per share in the prior year.
Yet despite this, we are expecting a strong year in 2021 with top line growth, double-digit improvement in pre-tax earnings and adjusted earnings per share of between $1.73 and $1.85.
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Our 2021 through 2024 annual utility earnings per share growth rates of 8% are top decile among our peers, and we also expect to achieve at the mid- to high end of our 6% to 8% utility earnings per share guidance range each year from 2025 to 2030.
Last year, we had a $13 billion 5-year capital plan.
We increased that to $16 billion in our 2020 Analyst Day.
In this year, we increased it yet again to $18 billion plus.
And with our newest announcement around our industry-leading ESG targets, we are on the path to executing our goals to be net 0 on direct emissions by 2035.
The storm headwinds of up to 90 miles an hour, leaving 470,000 of our Houston Electric customers without power.
Within three days, we had 95% of the power restored for those customers.
For the third time this year, we are increasing our 2021 utility earnings per share guidance this time to $1.26 to $1.28 for the full year.
And for the first nine months, we've already achieved nearly 80% of that full year goal.
More importantly, we are still targeting an 8% annual growth rate for 2022 to 2024.
So this raises our guidance for 2022 utility earnings per share to $1.36 to $1.38.
For the third quarter of 2021, we reported $0.25 of utility EPS, which compares to $0.29 in the third quarter of 2020.
In the third quarter of this year, we had a onetime impact to earnings of $0.04 per share related to our most recent Board implemented governance changes.
As I mentioned earlier, we have increased our five-year capital plans to $18 billion plus over the next five years and $40 billion plus over the next 10 years.
This is nearly a 40% increase in our five-year capital investment plan since the third quarter of 2020.
We already have an outstanding RFP for additional mobile generation, which could bring our total up to 500 megawatts and hope to have this procured in the coming months.
We believe that this will help to support continuity and crews on a long-term basis and reduce the impact of any labor disruptions in executing our $40 billion-plus capital spend over the next 10 years.
We remain committed to our continuous improvement cost management efforts and our target of 1% to 2% average annual reductions.
We stated in the second quarter that we could accelerate approximately $20 million of recurring O&M work forward from 2022 into this year if we had the available resources.
So far, we've achieved approximately 20% of this goal year-to-date and remain confident around our team's ability to continue to execute toward this goal for the balance of the year.
On a year-over-year basis, we saw about 2% customer growth for electric and 1% for natural gas through September.
As part of our long-term electric generation transition plan, we received the CPCN approval from the Indiana Utility Regulatory Commission for the first tranche of solar generation, 75% of which we expect to own and 25% due a PPA.
As outlined in our IRP, we are targeting to own approximately 50% of our total solar generation portfolio.
Our continued build-out of renewables is a key driver in achieving our net zero direct emissions goal by 2035.
We are happy to report that just this past week, we reached a settlement on the prudence proceedings supporting securitization of 100% of gas costs in Texas, including all of related carrying costs.
The full rate case requests $67.1 million per year, while the rate stabilization plan requests $39.7 million per year and an extended recovery period for winter storm costs.
Largely as a result of mechanisms in our Houston Electric in Indiana South gas jurisdictions, we have recently received approval for $40 million of increased incremental annual revenue.
As discussed in our Analyst Day, we anticipate approximately 80% of our 10-year capital plans to be recovered through interim mechanisms, which demonstrates the constructive jurisdictions in which we operate.
On a GAAP earnings per share basis, we reported $0.32 for the third quarter of 2021 compared to $0.13 for the third quarter of 2020.
Looking at slide five, we reported $0.33 of non-GAAP earnings per share for the third quarter of 2021 compared to $0.34 for the third quarter of 2020.
Our utility earnings per share was $0.25 for the third quarter of 2021, while midstream investments contributed another $0.08.
Favorable growth in rate recovery, lower interest expense and reversal of the net impacts from COVID last year, each contributed $0.01 of favorability.
Board implemented governance changes recorded this quarter and another $0.03 of unfavorable variance attributable to weather and usage.
For context, we experienced 73 fewer cooling degree day in Houston for the third quarter of 2021 compared to the third quarter of 2020.
We estimate that each cooling degree day above normal has approximately a $70,000 a day impact in our Houston Electric business.
For the first nine months, we've achieved nearly 80% of our full year 2021 utility earnings per share guidance, which we are now raising to $1.26 to $1.28.
And as Dave said, we are also raising our utility earnings per share guidance for 2022 to $1.36 to $1.38, which is an 8% increase from our new 2021 estimates.
Looking beyond that, we are focused on delivering 8% annual utility earnings per share growth through 2024 and at the mid- to high end of our 6% to 8% annual utility earnings per share range over the remainder of our 10-year plan, strong growth each year and every year, no CAGRs for earnings.
Our preferred Series B shares converted into 36 million common shares as of September 1, further reducing the number of share classes outstanding.
We've spent approximately $2.3 billion year-to-date on capital investments.
We outlined on our Analyst Day the three buckets that we are investing in, safety, reliability and growth and enabling clean investments that are included in our $40 billion plus 10-year capital investment plan.
We see those opportunities weighted nearly 60% toward investments in our electric business throughout the plan.
Our current liquidity remains strong at $1.8 billion, including available borrowings under our short-term credit facilities and unrestricted cash.
Our long-term FFO to debt objective remains between 14% and 15%, aligning with Moody's methodology and is consistent with the expectations of the rating agencies.
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Our 2021 through 2024 annual utility earnings per share growth rates of 8% are top decile among our peers, and we also expect to achieve at the mid- to high end of our 6% to 8% utility earnings per share guidance range each year from 2025 to 2030.
For the third time this year, we are increasing our 2021 utility earnings per share guidance this time to $1.26 to $1.28 for the full year.
More importantly, we are still targeting an 8% annual growth rate for 2022 to 2024.
So this raises our guidance for 2022 utility earnings per share to $1.36 to $1.38.
On a GAAP earnings per share basis, we reported $0.32 for the third quarter of 2021 compared to $0.13 for the third quarter of 2020.
Looking at slide five, we reported $0.33 of non-GAAP earnings per share for the third quarter of 2021 compared to $0.34 for the third quarter of 2020.
For the first nine months, we've achieved nearly 80% of our full year 2021 utility earnings per share guidance, which we are now raising to $1.26 to $1.28.
And as Dave said, we are also raising our utility earnings per share guidance for 2022 to $1.36 to $1.38, which is an 8% increase from our new 2021 estimates.
Looking beyond that, we are focused on delivering 8% annual utility earnings per share growth through 2024 and at the mid- to high end of our 6% to 8% annual utility earnings per share range over the remainder of our 10-year plan, strong growth each year and every year, no CAGRs for earnings.
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As we announced last quarter, we have now ceased operations of Westwood International Advisors in Toronto, and almost all of its remaining cash, over $37 million has been repatriated to the United States, adding to our financial flexibility.
While the SmallCap space remained challenged and is down for the year, the larger cap dominated S&P 500 is in positive territory year-to-date after posting its best quarter since 2010.
Despite falling behind in an up quarter, LargeCap value remains ahead of the benchmark Russell 1000 value index on a year-to-date basis and over most trailing year periods.
Our SMid cap strategy strongly outperformed the Russell 2500 value index, and our portfolio managers continue to build a terrific record with solid stock selection.
SMid cap is one of our best-performing strategies year-to-date and over 500 basis points ahead of the index, which puts it in the 29th percentile among small and mid-cap value managers in the evestment database and in the 23rd percentile over trailing three years.
Our SmallCap strategy underperformed the Russell 2000 value index by less than 100 basis points as non-earning, low-quality securities rallied, but it remains ahead year-to-date and over multiple trailing time periods.
Among its institutional peers, SmallCap is in the top half year-to-date and ranks in the top quartile over trailing five years and top decile over the last 10 years.
Our largest multi-asset strategy, income opportunity, outperformed its benchmark by 61 basis point of 40% S&P 500, 60% Bloomberg Barclays aggregate index this quarter.
Total return outperformed its benchmark, 60% S&P 500, 40% Bloomberg Barclays government corporate aggregate index by nearly 200 basis points this quarter.
High income also outperformed its benchmark, 20% S&P 500, 80% Bloomberg Barclays government corporate aggregate index by over 300 basis points.
This past quarter, our teams brought in new business of about $88 million, offset by client withdrawals to make delayed tax payments.
Our select equity strategies with over $700 million in assets posted strong returns for the quarter.
The select equity strategy posted an absolute return of nearly 9%.
Downside capture at below 80%, measured on a daily returns basis for both strategies was strong and the additional alpha gain from tax loss harvesting helped the tax sensitive version outperform the Russell 3000 index on a year-to-date basis.
We recently held an online event to discuss the upcoming election with more than 150 participants, and we are pushing that recording via YouTube to over 2,300 clients, prospects, and third party advisors.
In institutional and intermediary sales, we had inflows of approximately $326 million and about $847 million in outflows, which are mostly the result of closing our emerging markets and MLP strategies, along with client rebalancing in global converts and LargeCap.
Large-cap, while negative for the quarter, has positive inflows from selected clients and income opportunities stabilized with net outflows below $5 million for the quarter.
We have initiated many internal efficiencies in our front and middle office areas, which are expected to generate over $1 million a year in reduced expenses.
Today, we reported total revenues of $15.5 million for the third quarter of 2020 compared to $15.9 million in the second quarter of 2020 and $19.9 million in the third quarter of the prior year.
The third quarter net loss of $10.3 million or $1.31 per share exceeded the net loss of $2.6 million or $0.33 per share in the second quarter.
The loss primarily related to several onetime items, including a $4.2 million noncash reclassification of foreign currency translation adjustments from accumulated other comprehensive loss to net loss with no impact on stockholders' equity following the closure of Westwood International Advisors, as well as $1.1 million in incremental Canadian withholding taxes net of federal tax deduction, paid to repatriate more than $37 million from Westwood International Advisors to the U.S., as well as a $3.4 million noncash write-off of historical advisory goodwill to reflect lower market capitalization and advisory net outflows.
Non-GAAP economic loss was $1.7 million or $0.22 per share in the current quarter versus economic earnings of $0.2 million or $0.03 per share in the second quarter.
Third quarter net loss of $10.3 million or $1.31 per share compared unfavorably to net income of $1.1 million or $0.13 per share in the prior year's third quarter, primarily due to the onetime items previously noted, partially offset by lower operating expenses, particularly employee compensation and benefits.
Economic loss for the quarter was $1.7 million or $0.22 per share compared with economic earnings of $3.9 million or $0.46 per share in the third quarter of 2019.
Firmwide assets under management totaled $12 billion at quarter end and consisted of institutional assets of $6 billion or 51% of the total, wealth management assets of $4.1 billion or 34% of the total and mutual fund assets of $1.8 billion or 15% of the total.
Over the year, we experienced market depreciation of $0.9 billion and net outflows of $2.4 billion.
Our financial position continues to be very solid with cash and short-term investments at quarter end totaling $77.6 million and a debt-free balance sheet.
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Today, we reported total revenues of $15.5 million for the third quarter of 2020 compared to $15.9 million in the second quarter of 2020 and $19.9 million in the third quarter of the prior year.
The third quarter net loss of $10.3 million or $1.31 per share exceeded the net loss of $2.6 million or $0.33 per share in the second quarter.
Non-GAAP economic loss was $1.7 million or $0.22 per share in the current quarter versus economic earnings of $0.2 million or $0.03 per share in the second quarter.
Third quarter net loss of $10.3 million or $1.31 per share compared unfavorably to net income of $1.1 million or $0.13 per share in the prior year's third quarter, primarily due to the onetime items previously noted, partially offset by lower operating expenses, particularly employee compensation and benefits.
Economic loss for the quarter was $1.7 million or $0.22 per share compared with economic earnings of $3.9 million or $0.46 per share in the third quarter of 2019.
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Q3 sales increased 16% to last year, and our operating margin was a nine-year high of 8.4%, benefiting from our actions to structurally improve our profitability.
And we launched several new transformational brand partnerships across the business including the rollout of the first 200 Sephora at Kohl's stores.
And third, we are accelerating our share repurchase activity, reinforcing our commitment to driving shareholder value, and now expect to repurchase $1.3 billion for the year.
We see a lot of value in our company and believe repurchases are a great mechanism to return capital to shareholders, given our promising outlook and formidable cash position of $1.9 billion.
Our 16% sales increase was the result of strong performance across both stores and digital.
Digital sales remained strong in the quarter, growing 6% to last year and increasing 33% on a two-year basis.
As a percentage of total sales, digital was 29% in the quarter.
Active sales significantly outpaced the company, growing more than 25% to last year and more than 20% on a two-year basis.
Active is now one of our largest areas of business, representing 26% of our Q3 sales, and we remain confident in our ability to maintain our growth momentum.
Some of our other highlights in the quarter include men's sales increasing more than 30% to last year and footwear and accessories both up more than 20%, and children's up low double digits, driven in part by strong demand for toys.
For our private brands, these included Sonoma, SO, Apartment 9, and Jumping Beans.
We are thrilled with the early response we are seeing from our initial opening of 200 Sephora at Kohl's shops.
More than 25% of Sephora at Kohl's shoppers are new to Kohl's.
Planning is underway for the additional 400 Sephora at Kohl's openings beginning in late spring 2022.
In addition, we will open 250 in 2023.
As we rolled out this updated experience to our first 200 stores, the customer feedback has been extremely positive.
We introduced Calvin Klein basics and loungewear in 600 stores in mid-September.
And added Tommy Hilfiger men's sportswear in 600 stores in early October.
And in late October, we began offering Eddie Bauer in 500 stores, expanding our presence in the outdoor category and building on our investments and momentum with Columbia and Lands' End.
The most visible evidence of this can be seen in our inventory level at the end of Q3, down 25% on a two-year basis.
Over the past 12 to 18 months, we have executed a major transformation of the Kohl's operating model, repositioning the business for sustainable future growth and improved profitability.
For the third quarter, net sales increased 16% to last year and were slightly ahead of 2019, driven by growth in both our stores and digital businesses.
Other revenue, which is primarily credit revenue, increased 17% over last year.
Q3 gross margin was 39.9%, up 408 basis points from last year driven by our inventory management efforts and our pricing and promotion optimization strategies, offset partially by incremental transportation costs related to the constrained global supply chain.
In Q3, SG&A expenses increased 6% to $1.4 billion driven by the double-digit to top-line growth.
As a percentage of revenue, SG&A expenses leveraged by 273 basis points to last year as we continue to deliver against our efforts to drive marketing and technology efficiency.
Our strong margin and SG&A performance translated into an 8.4% operating margin.
This was a nine-year high for the third quarter and represented an increase of 734 basis points to last year and an increase of 403 basis points to 2019.
Interest expense was $12 million lower than last year due to lower average debt outstanding during the quarter.
Net income for the quarter was $243 million, and earnings per diluted share was a Q3 record of $1.65.
In late October, we made our final move to return our balance sheet to its pre-pandemic structure by migrating back to a $1 billion unsecured cash flow-based revolving credit facility.
We ended the quarter with $1.9 billion of cash and cash equivalents and no outstanding balance on our revolver.
Inventory at quarter end was 1% higher than the prior year and down 25% to 2019.
Year to date, we have generated operating cash flow of $1.8 billion and free cash flow of $1.3 billion.
Capital expenditures were $426 million year to date, driven by in-store investments related to the Sephora build-out, refreshes and other customer experience and sales-driving enhancements as well as a new e-commerce fulfillment center opened earlier this year.
Based on our current outlook, we now expect capex spend to come at the high end of our $600 million to $650 million range.
During the third quarter, we accelerated our share repurchase activity, repurchasing more than 10 million shares for $506 million.
Year to date, we have repurchased 15.6 million shares for $807 million.
We plan on continuing our accelerated share repurchase activity with an additional $500 million in Q4, bringing our total for the year to $1.3 billion.
As announced last week, our Board of Directors declared a cash dividend of $0.25 per common share.
Taken together, we have returned a total of $921 million to shareholders through share repurchases and our dividends during the first three quarters of 2021.
Turning to our guidance outlook for 2021.
Based on our strong third quarter performance, we are raising our full year outlook and are guiding as follows: net sales to increase in the mid-20s percentage range, up from our prior expectation of low 20s percentage increase.
Operating margins to be in the range of 8.4% to 8.5%, up from our prior expectation of 7.4% to 7.6%.
This positions us to exceed the high end of our 2023 operating margin goal of 7% to 8%, two years ahead of plan.
And earnings per share to be in the range of $7.10 to $7.30.
For operating margins, our full year 2021 guidance implies a fourth quarter operating margin of approximately 6.6%, which is an increase of 140 basis points, compared to 5.2% last year.
Embedded in our guidance, our incremental headwinds totaling more than 350 basis points as compared to the same period in Q4 2019.
Lastly, as a reminder, for comparison purposes, last year's fourth quarter 2020 earnings per share included $1.15 per share of incremental tax benefit driven by the tax planning strategies.
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And third, we are accelerating our share repurchase activity, reinforcing our commitment to driving shareholder value, and now expect to repurchase $1.3 billion for the year.
We see a lot of value in our company and believe repurchases are a great mechanism to return capital to shareholders, given our promising outlook and formidable cash position of $1.9 billion.
Net income for the quarter was $243 million, and earnings per diluted share was a Q3 record of $1.65.
We ended the quarter with $1.9 billion of cash and cash equivalents and no outstanding balance on our revolver.
Year to date, we have generated operating cash flow of $1.8 billion and free cash flow of $1.3 billion.
We plan on continuing our accelerated share repurchase activity with an additional $500 million in Q4, bringing our total for the year to $1.3 billion.
Turning to our guidance outlook for 2021.
Based on our strong third quarter performance, we are raising our full year outlook and are guiding as follows: net sales to increase in the mid-20s percentage range, up from our prior expectation of low 20s percentage increase.
And earnings per share to be in the range of $7.10 to $7.30.
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She has been with us since 2004, having most recently been Vice President of Finance and Investor Relations.
For those who have followed us over the years, you may recall that Orkin was acquired by Rollins in 1964 and as the original company, that first started our venture into pest control.
Today, Orkin remains our largest brand, employing over 8,000 team members and completing millions of services annually worldwide.
Revenue increased 15.3% to $63.2 million compared to $553.3 million for the second quarter of last year.
Net income grew to $98.9 million, or $0.20 per diluted share, compared to $75.4 million, or $0.15 per diluted share, for the same period in 2020.
For the quarter, we experienced solid growth in all our business lines with residential increasing 13.6% and termite, 16.3% over second quarter 2020.
Additionally, commercial, excluding fumigation, delivered an impressive 17.4% growth over second quarter last year.
This is also an improvement of 11.3% growth over two years ago when we weren't experiencing COVID-related shutdowns.
Even as we were all entering a different economic time back in Q2 of last year, our revenue grew at a steady 5.6%.
That was converted into net income growth of 17.2%.
Keys to the quarter included pricing strength, positively impacting revenue growth, continued mosquito service revenue improvement over 30% and commercial pest control revenue improving significantly.
Additionally, for the first time, our mosquito service revenue has surpassed our bedbug revenue in this quarter was over 3% of our total revenue.
The second quarter revenues of $638.2 million was an increase of 15.3% over the prior year's second quarter revenue of $553.3 million.
Our income before income taxes was $133.9 million, or 29.4% above 2020.
Our net income was $98.9 million, up 31.2% compared to 2020.
Our earnings per share were $0.20 per diluted share compared to $0.15 in 2020, or a 33.3% increase.
For the first six months of 2021, revenues were $1.174 billion, which was an increase of 12.7% over the prior year's first six months revenue of $1.014 billion.
Our GAAP income before income taxes was $253.8 million, or 59.7% above 2020.
Our GAAP net income was $191.5 million, or 61.4%, compared to 2020.
Our GAAP earnings per share or earnings per were $0.39 per diluted share compared to $0.24 per diluted share in 2020.
We maintained consistent revenue growth of 5.6% in 2020, followed by a healthy increase of 15.3% in 2021.
Our total revenue increased for the quarter, up 15.3% and included 1.7% from significant acquisitions with the remaining 13.6% from pricing and new customer growth.
Residential pest control made up 40% of our revenue; commercial pest control, 33%; and termite and other services made up approximately 21% of our revenue.
Again, total revenue less significant acquisitions, was up 13.6%.
From that, residential was up 12.3%; commercial, excluding fumigation, increased 14.8%; and termite and ancillary grew by 14.9%.
In total, our gross margin decreased to 53.3% from 53.8% in the prior year's quarter.
Improvements were made in total payroll but were negatively offset by higher overall fleet costs and a write-down of inventory of $2.7 million related to our PPE, or personal protective equipment.
Depreciation and amortization expenses for the quarter increased $1.4 million to $23.3 million, an increase of 6.3%.
Amortization of intangible assets increased $1.3 million due to several acquisitions, including McCall Service in December 2020 and Adams Pest in Australia in July of last year.
Sales, general and administrative expenses presented a 7.1% improvement for the quarter over 2020, decreasing from 30.9% of revenues to 28.7% of revenues in 2021.
As for our cash position, for the six months ending 6/30/2021, we spent $28.4 million on acquisitions compared to $56 million in the same period last year.
We paid $79.7 million on dividends and had $13.2 million of capex compared to $12.4 million in 2020.
We ended the period with $128.5 million in cash, of which $73.6 million is held by our foreign subsidiaries.
Yesterday, the Board of Directors approved a regular cash dividend of $0.08 per share that will be paid on September 10, 2021, to stockholders of record at the close of business August 10, 2021.
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Net income grew to $98.9 million, or $0.20 per diluted share, compared to $75.4 million, or $0.15 per diluted share, for the same period in 2020.
The second quarter revenues of $638.2 million was an increase of 15.3% over the prior year's second quarter revenue of $553.3 million.
Our earnings per share were $0.20 per diluted share compared to $0.15 in 2020, or a 33.3% increase.
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So starting with the top line, first quarter 2021 consolidated sales increased 12.3% to $4.66 billion.
Consolidated gross margin decreased 20 basis points to 45.4% due to greater than anticipated raw material cost inflation.
SG&A expense as a percent of sales decreased 300 basis points to 28.5%.
Consolidated profit before tax increased $116.7 million or 29.8% to $509 million.
The first quarter of 2021 included $75.6 million of acquisition related depreciation and amortization expense and one-time costs of $111.9 million related to the divestiture of the Wattyl Australian business.
The first quarter of 2020 included $75.6 million of acquisition-related depreciation and amortization expense.
Excluding these items, consolidated profit before tax increased 48.8% to $696.5 million with flow-through of 44.9%.
Diluted net income per share in the quarter increased to $1.51 per share from $1.15 per share a year ago.
The first quarter of 2021 included acquisition-related depreciation and amortization expense of $0.21 per share and one-time costs related to the Wattyl divestiture of $0.34 per share.
The first quarter of 2020 included acquisition-related depreciation and amortization expense of $0.21 per share.
Excluding these items first quarter adjusted diluted earnings per share increased 51.5% to $2.06 per share from $1.36 per share.
Adjusted EBITDA grew to $848.7 million in the quarter or 18.2% of sales.
Net operating cash grew to a $195.7 million in the quarter.
Segment margin in the Americas Group improved 240 basis points to 19.2% of sales resulting primarily from operating leverage on the high single-digit top line growth.
Adjusted segment margin in Consumer Brands Group improved 440 basis points to 21.4% of sales resulting primarily from operating leverage on the double-digit top line growth.
Flow-through was 38.9% and adjusted segment margin in Performance Coatings Group improved 60 basis points to 14.3% of sales driven by operating leverage on the double-digit sales growth, which was partially offset by higher raw material costs.
Credit goes to all of 61,000 members of our team who are serving our customers at a high level, aggressively pursuing and capturing new business and managing through transitory disruptions in the supply chain.
In The Americas Group, first quarter sales increased by 8.6% over the same period a year ago including about 1.7 percentage points of price.
Same-store sales in the U.S. and Canada were up 8.2% against a high single-digit comparison.
Our previously announced 3% to 4% price increase to U.S. and Canadian customers became effective February 1st prior to the supply chain disruption the industry began experiencing later in the quarter.
We realized approximately 1.7% from price in the first quarter, and would expect 2% or better in the following quarters.
We opened 11 new stores in the quarter in the U.S. and Canada.
Moving onto our Consumer Brands Group, sales increased 25% in the quarter, including 2.7 percentage points of positive impact related to currency translation as DIY demand remained robust.
Currency translation was a tailwind of 2% in the quarter.
We returned approximately $930 million to our shareholders in the quarter in the form of dividends and share buybacks.
We invested $735 million to purchase 3.3 million shares at an average price of $234.96.
We distributed $151.8 million in dividends, an increase of 23.5%.
We also invested $64.3 million in our business through capital expenditures.
We ended the quarter with a debt-to-EBITDA ratio of 2.5 times.
We expect Consumer Brands to be down by a low double-digit to mid-teens percentage including a negative impact of approximately 4 percentage points related to the Wattyl divestiture and we expect Performance Coatings to be up by a high 20's percentage.
We expect the Americas Group to be up by a mid to high single-digit percentage, Consumer Brands Group to be up or down by a low single-digit percentage including a negative impact of approximately 5 percentage points related to the Wattyl divestiture and Performance Coatings Group to be up by a mid single-digit percentage.
We expect diluted net income per share for 2021 to be in the range of $7.66 to $7.93 per share compared to $7.36 per share earned in 2020.
Full year 2021 earnings per share guidance includes acquisition-related amortization expense of $0.80 per share and a loss on the Wattyl divestiture of $0.34 per share.
On an adjusted basis, we expect full-year 2021 earnings per share of $8.80 to $9.07, an increase of 9% at the midpoint over the $8.19 we delivered in 2020.
We expect to return to our normal cadence with around 80 new store openings in the U.S. and Canada in 2021.
We expect our 2021 effective tax rate to be in the low 20% range.
We expect full-year depreciation to be approximately $280 million and amortization to be approximately 300 million.
We have $25 million of long-term debt due in 2021.
We expect to increase the dividend by 23.5% for the full year.
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So starting with the top line, first quarter 2021 consolidated sales increased 12.3% to $4.66 billion.
Diluted net income per share in the quarter increased to $1.51 per share from $1.15 per share a year ago.
Excluding these items first quarter adjusted diluted earnings per share increased 51.5% to $2.06 per share from $1.36 per share.
We expect diluted net income per share for 2021 to be in the range of $7.66 to $7.93 per share compared to $7.36 per share earned in 2020.
On an adjusted basis, we expect full-year 2021 earnings per share of $8.80 to $9.07, an increase of 9% at the midpoint over the $8.19 we delivered in 2020.
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As I reflect on the last 18 months, I'm inspired by the incredible transformation our teams have made in such a short time despite an ongoing pandemic-related disruption to our business and the broader economy.
While we had planned into the known supply chain constraints as we entered the quarter, including COVID-related closures in Vietnam, the shock to our business persisted longer than anticipated as weeks turned into months.
Online sales grew 48% in the quarter compared to 2019, representing 38% of total sales, and our migration to the cloud has unlocked innovation in our tech portfolio.
We will strategically shed an estimated 1 billion in sales by year-end versus 2019 by closing unproductive stores, divesting smaller brands, and partnering our European business to drive focus and profitability.
Despite the supply chain disruption, comp sales were up 5% on a two-year basis, with three of our four brands delivering positive two-year comps.
Net sales were down 1% to 2019, which includes an estimated 8%-point impact due to supply chain headwinds.
Old Navy delivered 8% sales growth versus 2019, a deceleration from the first half as the brand was disproportionately affected by inventory lateness during the quarter.
1 rank in kids market share according to NPD and sustained its kids and baby growth trend from the first half with strong back-to-school performance.
The momentum continues at Gap brand, particularly North America, with comparable sales up 13% versus 2019, and net sales nearly flat despite the almost 18 percentage points of revenue we shed through strategic store closures.
With over 70% of the Yeezy Gap customers shopping with us for the first time, this partnership is unlocking the power of a new audience for Gap, Gen Z plus Gen X men from diverse background.
Banana Republic reported a net sales decline of 18% versus 2019, and a negative 10% two-year comp.
Like Gap, we walked away from about 10 percentage points of unprofitable revenue due to strategic store closures.
And finally, Athleta delivered an outstanding quarter with 48% net sales growth versus 2019, using its unique and ownable mission to empower women and girls through the power of she.
Athleta grew brand awareness of 33% versus 27% last year, according to YouGov, by embracing celebrity partnerships, Simone Biles and Allyson Felix, who took to the world stage in Tokyo.
And customers are quickly embracing Athleta well, their new immersive digital community rooted in well-being with the active user base growing 50% every month since launch.
Our online sales grew 48% in the quarter compared to 2019, and we maintained our rank as No.
Our sizable active customer file sits at 64 million, and those customers are spending more on average than they were two years ago.
Now, with more than 45 million members, our loyalists are two times more likely to shop across brands, and three times more likely to shop across channels.
Our strong active and fleece business and our Denim business are expected to generate revenue of 4 billion and 2 billion, respectively, this year; and our kids and baby business owns 9% market share across Old Navy, Gap, and Athleta.
Earlier this month, the USAID, Gap Inc., Women + Water Alliance announced that we have empowered 1 million people to improve their access to clean water and sanitation, already halfway to our goal of reaching 2 million by 2023.
Our operating margin remains on track to hit 10% by 2023, in line with our plan, even as we navigate these near-term disruptions.
We lost approximately $300 million of revenue or eight percentage points of sales growth on a two-year basis due to longer transit times and lost weeks of production, which led to on-hand inventory shortages in the quarter.
In addition, while our production capacity is largely globally diversified, approximately 30% of our product is produced in Vietnam, where factory closures extended to over two and half months, significantly longer than initially anticipated.
Our average on-hand inventory in Q3 was 11% below fiscal year 2019.
So despite strong sell-through trends, we lost volume as a result of limited supply.
In addition to an estimated $100 million of air costs incurred in Q3, we've also invested approximately $350 million in Q4 airfreight to further expedite holiday deliveries.
While we aspire to improve our on-time deliveries for holiday by adding air capacity and utilizing alternate ports, the supply chain situation continues to be volatile.
We remain cautious in our outlook for the balance of the year and are updating 2021 earnings per share guidance range to $0.45 to $0.60 per share on a reported basis, and $1.25 to $1.40 per share on an adjusted basis.
This range now reflects the estimated lost sales from supply disruptions in the second half of 2021 to be $550 million to $650 million.
In addition, our updated guidance range reflects approximately 450 million of transitory airfreight costs we have chosen to incur as we seek to meet as much customer demand as possible.
Net sales of 3.9 billion for the quarter were down 1% to 2019 with our Q3 sales deceleration from the first half of the year due to supply chain issues.
Comp sales improved 5% on a two-year basis.
We're particularly pleased that three of our four brands delivered strong two-year comp growth with Old Navy up 6%, Gap Global up 3%, and North America up 13%, and Athleta up 41%, all while navigating acute supply issues.
And while Banana Republic's two-year comp was down 10%, the brand made progress in the quarter through its product and customer experience relaunch.
Our strong e-commerce channel continues to be an advantage as online sales were up 48% compared to 2019, contributing 38% of sales in the quarter, up from 25% of total sales in Q3 2019.
Third-quarter reported gross margin was 42.1%, an increase of 310 basis points versus 2019.
Excluding impacts related to the transition of our European business to a partnership model, adjusted gross margin of 41.9% for the quarter represent the highest Q3 gross margin rate in over 10 years, expanding 290 basis points versus 2019 gross margin.
This is primarily driven by 300 basis points in ROD leverage from higher online sales and lower rent occupancy and depreciation as a result of strategic store closures and renegotiated rents.
Merchandise margins were down just 10 basis points, despite nearly 200 basis points of higher online shipping costs and about 250 basis points in short-term headwinds related to airfreight.
Reported SG&A, which includes 26 million in charges related to the transition of our European operating model was 38.3% of sales, deleveraging 470 basis points compared to Q3 2019.
On an adjusted basis, SG&A was 37.6% of sales, 610 basis points above 2019 adjusted SG&A.
Marketing, up 360 basis points versus 2019, supported the rollout of our new initiatives, particularly loyalty, inclusive sizing at Old Navy, and the brand relaunch at Banana Republic, and is a major contributor to our low discount rates.
Regarding operating margin, operating margin for the quarter was 3.9% on a reported basis.
Excluding $17 million in charges related to our European market transition, adjusted operating margin was 4.3%, which as I noted earlier, includes the impact of an estimated 300 million in lost sales due to constrained inventory in addition to approximately 100 million in nonstructural airfreight costs.
During the quarter, we restructured our long-term debt by retiring all of our 2.25 billion senior secured notes and issuing 1.5 billion of lower coupon unsecured senior notes.
Through this debt restructuring, we were able to reduce our overall debt balance, achieve material interest savings, approximately $140 million on an annual basis beginning in 2022, and unencumber our real estate assets previously pledged as collateral.
We incurred a 325 million nonrecurring charge related to debt extinguishment in the quarter.
Q3 net interest was $43 million.
Full-year net interest is now expected to be $163 million.
Looking beyond 2021, we expect annual net interest expense of around $70 million.
The effective tax rate was 29% for the third quarter.
Excluding the impact from fees related to debt extinguishment and the charge changes to our European operating model, the adjusted effective tax rate was 20%.
We expect the full-year effective tax rate to be about 23% on a reported basis and about 26% on an adjusted basis.
Regarding earnings on the quarter, Q3 reported earnings reflect a loss of $0.40 per share.
Excluding fees associated with our long-term debt restructuring and the transition of our European markets to a partnership model, adjusted earnings per share for the quarter were $0.27.
Inventory delays worsened throughout the quarter, and our Q3 sales down 1% versus 2019 outpaced average on-hand inventory of down 11% to 2019.
Third-quarter inventory ended flat to 2019 and down 1% versus 2020, with average on-hand inventory down 7% and in-transit up 16% versus last year.
Regarding the balance sheet and cash flow, we ended Q3 with $1.1 billion in cash, cash equivalents, and short-term investments.
During the quarter, we continue to earn -- to return cash to shareholders, paying a Q3 dividend of $0.12 per share and repurchasing $73 million in shares as part of our current plan to offset dilution.
And earlier this month, we announced a Q4 dividend of $0.12 per share.
Looking at our global store fleet, we are planning to close 350 Gap and Banana Republic.
North America stores is expected to be approximately 75% complete by the end of the year.
Full-year 2021 reported earnings per share are now expected to be in the range of $0.45 to $0.60, which includes net charges of 445 million, comprised of 325 million in fees related to the restructuring of our long-term debt, and approximately 120 million related to divestitures and the transition of our European business model to a part -- European business to a partnership model.
Excluding these charges and associated tax impacts, full-year 2021 adjusted earnings per share is expected to be in the range of $1.25 to $1.40.
First, we expect 2021 full-year revenue growth of about 20% versus 2020.
This range now reflects the expected lost sales from supply disruptions in the second half of 2021 of approximately 550 million to 650 million, including an estimated 300 million from Q3 and an estimated 250 million to 350 million in Q4.
Second, we expect full-year nonstructural airfreight to be approximately $450 million.
We consciously chose to air approximately 35% of our holiday product given the two-and-a-half-month delays from Vietnam closures in Q3 and the over three-week West Coast port delays so that we can give our customers as much holiday product as we can to deliver on their expectations.
With the added air cost and the meaningful sales impact from supply constraints, we now expect full-year 2021 reported operating margin to be about 4.5%, with adjusted operating margin at about 5% for fiscal 2021.
This is inclusive of short-term air costs in the back half, impacting operating margin by about 270 basis points.
Full-year capital spend is still expected to be approximately $800 million.
The progress we've made on our Power Plan 2023 strategy in the face of these challenges highlights the strength of our core business and the health of our brands, and we remain confident in our path as we move toward a 10% operating margin in 2023.
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While we had planned into the known supply chain constraints as we entered the quarter, including COVID-related closures in Vietnam, the shock to our business persisted longer than anticipated as weeks turned into months.
Online sales grew 48% in the quarter compared to 2019, representing 38% of total sales, and our migration to the cloud has unlocked innovation in our tech portfolio.
Despite the supply chain disruption, comp sales were up 5% on a two-year basis, with three of our four brands delivering positive two-year comps.
Old Navy delivered 8% sales growth versus 2019, a deceleration from the first half as the brand was disproportionately affected by inventory lateness during the quarter.
Banana Republic reported a net sales decline of 18% versus 2019, and a negative 10% two-year comp.
So despite strong sell-through trends, we lost volume as a result of limited supply.
While we aspire to improve our on-time deliveries for holiday by adding air capacity and utilizing alternate ports, the supply chain situation continues to be volatile.
We remain cautious in our outlook for the balance of the year and are updating 2021 earnings per share guidance range to $0.45 to $0.60 per share on a reported basis, and $1.25 to $1.40 per share on an adjusted basis.
Comp sales improved 5% on a two-year basis.
Our strong e-commerce channel continues to be an advantage as online sales were up 48% compared to 2019, contributing 38% of sales in the quarter, up from 25% of total sales in Q3 2019.
Excluding the impact from fees related to debt extinguishment and the charge changes to our European operating model, the adjusted effective tax rate was 20%.
Regarding earnings on the quarter, Q3 reported earnings reflect a loss of $0.40 per share.
Full-year 2021 reported earnings per share are now expected to be in the range of $0.45 to $0.60, which includes net charges of 445 million, comprised of 325 million in fees related to the restructuring of our long-term debt, and approximately 120 million related to divestitures and the transition of our European business model to a part -- European business to a partnership model.
Excluding these charges and associated tax impacts, full-year 2021 adjusted earnings per share is expected to be in the range of $1.25 to $1.40.
First, we expect 2021 full-year revenue growth of about 20% versus 2020.
With the added air cost and the meaningful sales impact from supply constraints, we now expect full-year 2021 reported operating margin to be about 4.5%, with adjusted operating margin at about 5% for fiscal 2021.
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For the third quarter, we achieved record net sales of nearly $4.4 billion and our adjusted earnings per diluted share from continuing operations were $1.69.
Our raw material costs in the quarter inflated by about 25% year-over-year.
For context, this is about 3 times higher than any previous coatings raw material inflation peak in recent history.
We're also experiencing elevated logistics costs and are incurring increased manufacturing costs due to the sporadic nature of these outages.
In aggregate, our selling price realization is about 6%, with more than 6% price realization in our Industrial reporting segment.
Coming into the quarter, we expect that the supply chain and customer production disruptions would impact our sales by about $150 million.
However, this actual impact was more than $350 million.
And in 2021, global production in this industry is expected to be about 20% below prior peak levels.
Our PPG-Comex business achieved record third quarter sales with year-over-year organic sales growth of more than 10%.
In addition, our US Architectural Coatings business delivered about 10% same-store sales growth as we continue to expand our customer base with many new wins and increase our digital sales as a percentage of our total sales base.
We remain focused on cost management, which is evidenced by our SG&A as a percent of sales being 100 basis points lower than the third quarter 2020.
This is being supported by our ongoing execution on our structural cost savings programs as we delivered an incremental $35 million of savings in the third quarter.
We continue to target and on track for a full year 2021 savings of about $135 million.
We continue to expect them to deliver an aggregate of $25 million of synergies for the full year of 2021.
We once again delivered strong operating cash flow during the quarter and had about $1.3 billion of cash and cash equivalents at the quarter end, including sequential reduction of our net debt by about $400 million.
While we will continue to evaluate accretive deals in our M&A pipeline, we are initiating stock repurchases in the fourth quarter and will continue to focus on debt reduction.
Also during the quarter, in support of further enhancing our ESG program, we were happy to announce an agreement with Constellation Energy to power our Carrollton, Texas manufacturing facility with 100% renewable solar energy.
In addition, I'm extremely pleased to announce that yesterday, PPG earned three R&D 100 awards for 2021.
The R&D World Magazine honors the 100 most innovative technologies and services over the past year with the R&D 100 awards.
Moving to our outlook.
Our estimate is that our sales are expected to be unfavorably impacted by about $250 million to $300 million in the fourth quarter, both for the semiconductor chip shortage issue and chronic supplier operational capabilities.
Recent production curtailments in China may add incremental pressures to availability and inflation, and we expect our inflation to approach 30% compared to the fourth quarter of 2020.
Specifically, we expect continued recovery in automotive refinish, OEM and aerospace coatings, which collectively account for about 40% of our pre-pandemic sales where we have broad global businesses supported by advantaged technology.
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For the third quarter, we achieved record net sales of nearly $4.4 billion and our adjusted earnings per diluted share from continuing operations were $1.69.
We're also experiencing elevated logistics costs and are incurring increased manufacturing costs due to the sporadic nature of these outages.
And in 2021, global production in this industry is expected to be about 20% below prior peak levels.
While we will continue to evaluate accretive deals in our M&A pipeline, we are initiating stock repurchases in the fourth quarter and will continue to focus on debt reduction.
Moving to our outlook.
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The adjusted results for 2021 and 2020 remove the impact of the divestiture-related costs, the operations divested and the impact of the costs related to our operational improvement plan.
Earlier today, we released our third quarter results, reported strong consolidated adjusted local currency revenue growth of 13% and double-digit adjusted EBITDA growth for the quarter.
Flavors & Extracts group had another outstanding quarter reporting 12% adjusted local currency revenue growth and 16% adjusted local currency profit growth.
Color group had a strong quarter delivering 18% adjusted local currency revenue growth and 15% adjusted local currency profit growth, with our Food and Pharmaceutical Colors business and our Personal Care businesses both contributing to the Color Group's strong quarter.
Asia-Pacific delivered 10% adjusted local currency revenue growth and 11% adjusted local currency operating profit growth.
Flavors & Extracts group had another great quarter with 12% adjusted local currency revenue growth and 16% adjusted local currency profit growth.
The performance this quarter is on top of last year's strong third quarter performance of 13% adjusted local currency revenue growth and 24% adjusted local currency operating profit growth.
The integration of this business is proceeding as planned and the business contributed approximately $2.4 million of revenue to the Flavors & Extracts group in the third quarter.
The group's adjusted operating profit margin increased 50 basis points in the quarter and has increased 70 basis points year-to-date.
We are well on track to achieve the 50 to 100 basis point improvement that we forecasted for the year and we expect good performance in the fourth quarter and into next year.
The Color Group had a terrific quarter, delivering 18% adjusted local currency revenue growth and 15% adjusted local currency profit growth.
The Asia Pacific Group delivered 10% adjusted local currency revenue growth and 11% adjusted local currency profit growth in the quarter.
I continue to expect the Flavors & Extracts group to deliver mid-single digit revenue growth and 50 to 100 basis points of annual improvement to the operating profit margin for the foreseeable future.
I also expect the Color Group to deliver mid-single digit revenue growth along with an operating profit margin above 20%.
Our third quarter GAAP diluted earnings per share was $0.80, included in these results are approximately $0.04 per share of divestiture costs and the cost of the operational improvement plan.
In addition, our GAAP earnings per share this quarter include approximately $1.6 million of revenue and an immaterial amount of operating income related to the results of the divested operations.
Last year's third quarter GAAP results include divestiture and operational improvement plan costs, which decreased last year's third quarter results by approximately $0.03 per share.
In addition, our GAAP earnings per share in the third quarter of 2020 include approximately $23.6 million of revenue and approximately $0.04 per share of earnings related to the divested product lines.
Excluding these items, consolidated adjusted revenue was $342.7 million, an increase of 13% in local currency compared to the third quarter of 2020.
Our adjusted local currency EBITDA was up 12.9% for the quarter and our adjusted local currency earnings per share was up 9.1% for the quarter.
The acquisition of Flavor Solutions contributed $2.4 million of revenue and an immaterial amount of operating income to our third quarter results.
We still expect our capital expenditures to be around $65 million for the year.
During the third quarter, we completed the acquisition of Flavor Solutions for approximately $15 million.
We also purchased approximately $9 million of company stock for 105,600 shares in the quarter, which brings our year-to-date total purchases to $32 million or 383,000 shares.
We have 1.8 million shares remaining under our share repurchase authorization.
Our leverage ratio is now 2.0 times debt adjusted EBITDA, down from 2.6 a year ago, leaving our balance sheet in a solid position to support potential acquisition, share repurchases, as well as our dividend payout.
Yesterday, we announced a 5% increase in our dividend.
We have increased our quarterly dividend by 37% since 2016, resulting in a compound annual growth rate of 6.4%.
Based on current trends and the current tax law, we are reconfirming our previously issued GAAP earnings per share guidance, which calls for mid to high single digit growth compared to our 2020 reported GAAP earnings per share of $2.59.
Our full year guidance for 2021 includes approximately $0.25 of divestiture related costs, operational improvement plan costs and the impact of the divested businesses.
We now expect our full year 2021 adjusted local currency revenue to grow at a high single digit rate, which is up from our previous guidance of a mid single digit growth rate.
Our reported results include the impact of currency and based on current exchange rates, we expect our earnings to benefit by approximately $0.07 due to currency for the year.
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The adjusted results for 2021 and 2020 remove the impact of the divestiture-related costs, the operations divested and the impact of the costs related to our operational improvement plan.
Our third quarter GAAP diluted earnings per share was $0.80, included in these results are approximately $0.04 per share of divestiture costs and the cost of the operational improvement plan.
We now expect our full year 2021 adjusted local currency revenue to grow at a high single digit rate, which is up from our previous guidance of a mid single digit growth rate.
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In recognition of the efforts and the unique challenges posed by the pandemic, we invested over $100 million in incremental financial assistance for our frontline hourly associates in the quarter, which brought our total COVID-related support for hourly associates to over $900 million for the year.
And in the quarter, we invested $65 million in support of store safety protocols and our communities.
For the year, we invested nearly $1.3 billion in COVID-related support for our associates, store safety and our communities.
For the quarter, we delivered total company comparable sales growth of 28% over the prior year and 41% growth in adjusted diluted earnings per share to $1.33.
Those results cap off a fiscal 2020 where comp sales increased 26% and adjusted earnings per share grew 54% to $8.86.
Looking at the fourth-quarter results from a geographic perspective in the U.S., growth was broad-based, with comparable sales growth exceeding 19% across all 15 geographic regions and exceeding 25% for all U.S. divisions.
On lowes.com, sales grew 121% as customers shifted more of their shopping online, especially over the holiday season.
And Pro continues to show strong momentum, evidenced by the mid-20s comp in the quarter and nearly a 20% comp for the year.
1 Most Admired Specialty Retailer, bestowing that honor on Lowe's for the first time in 17 years.
1 priority, which is supporting the health and safety of our associates and our customers.
We delivered U.S. home improvement comparable sales growth of 28.6% in the fourth quarter.
In fact, all 15 merchandising departments generated positive comps of over 16%.
Several other categories posted comps above 30%, including building materials, which was driven by strong demand for roofing and gutters.
Our seasonal and outdoor living, lawn and garden and paint categories also delivered comps above 30% in the quarter, reflecting the consumers' continued focus on the home.
As Marvin mentioned, we delivered sales growth of 121% on lowes.com, our third consecutive quarter with over 100% comps online.
As we discussed last quarter, we have been resetting the layout of our U.S. stores with approximately 95% of our resets now complete.
In recognition of the outstanding efforts of our associates, in January, we announced a bonus of $300 for each full-time associate and $150 for each part-time associate.
This $80 million bonus brought the total COVID-related assistance to our associates to over $900 million in 2020.
And I could not be more pleased to announce today that for the fourth quarter in a row, 100% of our stores are under "Winning Together" profit-sharing bonus totaling $90 million.
And because of their efforts, once again exceeded expectations, this represents an incremental $30 million over the target payment level.
And we're supporting our communities again through hiring as we bring on more than 50,000 seasonal and full-time retail associates this spring to ensure that our customers get the exceptional service they expect from Lowe's.
This builds on the more than 90,000 associates hired into permanent roles over the past year.
Nowhere is this more evident than the 111% sales growth on Lowes.com for the year.
And with roughly 60% of these online orders fulfilled in our stores, we needed to dramatically expand our fulfillment capabilities to support this increased demand.
We now have BOPIS lockers in over 1,200 stores with the goal of rolling out lockers to all U.S. stores by April.
As a true partner to the Pro, we are now providing our Pro loyalty members with a $100 discount on TurboTax.
Our Pro loyalty members can also export up to 24 months of transaction history, expediting their year-end close process.
These perpetual productivity improvements will help us to move toward our multiyear goal of achieving $2.5 billion to $2.7 billion in store opex productivity that we set at the December investor update.
In fiscal 2020, we generated $9.3 billion in free cash flow driven by outstanding operating performance, and we returned $6.7 billion to our shareholders through both a combination of share repurchases and dividends.
During the fourth quarter alone, we paid $452 million in dividends at $0.60 per share.
We also repurchased 21.1 million shares for $3.4 billion at an average price of approximately $160 a share.
This brings the total to $5 billion in share repurchases for the year.
We have approximately $20 billion remaining on our share repurchases authorization and plan to utilize our strong cash flow to drive significant long-term shareholder value.
Capital expenditures totaled $619 million in the quarter and $1.8 billion for the full year as we invest in the business to support our strategic growth initiatives.
We ended 2020 with $4.7 billion of cash and cash equivalents on the balance sheet.
And along with $3 billion in undrawn capacity on our revolving credit facility, we have immediate access to $7.7 billion in funds.
At the end of the fiscal year, our adjusted debt-to-EBITDA ratio stands at 2.2 times.
In Q4, we generated GAAP diluted earnings per share of $1.32 compared to $0.66 last year, an increase of 100%.
In Q4, we delivered adjusted diluted earnings per share of $1.33, an increase of 41% compared to the prior year.
Q4 sales were $20.3 billion, driven by a comparable sales increase of 28.1%.
This was due to comparable store average ticket growth of 14.2% and transaction growth of 13.9%, with strong repeat rates from both new and existing customers.
Commodity inflation drove a benefit of approximately 300 basis points to comps in the quarter as lumber continues to experience rising prices.
U.S. comp sales were up 28.6% in the quarter.
Our U.S. monthly comps accelerated through the quarter, were 23.8% in November, 28% in December and 35.7% in January.
Adjusted gross margin was 31.8%, down eight basis points from last year.
Despite cycling over significant improvements last year in our process to more effectively manage product margin, product gross margin rate improved 125 basis points driven by continued execution on our pricing, cost management and promotional strategies.
These benefits to adjusted gross margin were offset by 40 basis points of pressure from inventory shrink, 40 basis points of pressure from supply chain cost, 35 basis points of pressure from lumber installation and 20 basis points of pressure from lower credit revenue.
Adjusted SG&A of 22.3% levered 42 basis points to 2019.
As we anticipated, we incurred approximately $165 million of COVID-related expenses.
These investments included approximately $100 million in financial assistance for our frontline associates and approximately $60 million related to cleaning and other safety-related programs, as well as approximately $5 million in charitable contributions.
These $165 million of COVID-related expenses negatively impacted SG&A leverage by approximately 80 basis points.
As expected, we incurred approximately $150 million in the U.S. stores reset project, which negatively impacted SG&A leverage by approximately 75 basis points.
As Bill mentioned, the resets have been completed in approximately 95% of our stores.
These incremental costs were offset by payroll leverage of approximately 105 basis points related to higher sales volume and improved store operating efficiencies, occupancy leverage of approximately 30 basis points and advertising leverage of approximately 25 basis points.
Adjusted operating income margin of 7.6% of sales for the quarter was up 41 basis points to the prior year as operational productivity improvements were offset somewhat by significant investments in our stores and supply chain to drive long-term growth.
The adjusted effective tax was 25.8%.
At year end, inventory was $16.2 billion, and lumber inflation increased inventory values by approximately $240 million.
These three market scenarios would result in total sales expectations ranging from $82 billion to $86 billion for the year.
Additionally, in each scenario, we expect our adjusted operating margin to increase year over year, ranging from 11.2% to 12%, depending upon the demand environment.
And consistent with my comments at the investor update in December, embedded in each of these scenarios are the incremental investments in frontline associate wages and equity programs that totaled $1.4 billion through 2019 and 2020.
This scenario assumes the relevant home improvement market will experience a modest contraction this year, and our sales would approach $86 billion.
And consistent with what we outlined at Investor Day, we are expecting $9 billion in share repurchases this year.
And we are planning for approximately $2 billion in capital expenditures in '21.
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For the quarter, we delivered total company comparable sales growth of 28% over the prior year and 41% growth in adjusted diluted earnings per share to $1.33.
Those results cap off a fiscal 2020 where comp sales increased 26% and adjusted earnings per share grew 54% to $8.86.
We delivered U.S. home improvement comparable sales growth of 28.6% in the fourth quarter.
In Q4, we generated GAAP diluted earnings per share of $1.32 compared to $0.66 last year, an increase of 100%.
In Q4, we delivered adjusted diluted earnings per share of $1.33, an increase of 41% compared to the prior year.
Q4 sales were $20.3 billion, driven by a comparable sales increase of 28.1%.
And consistent with what we outlined at Investor Day, we are expecting $9 billion in share repurchases this year.
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We're pleased to have delivered improved third quarter results despite continued pandemic-related economic pressures, including nearly 300 basis point improvement in adjusted EBITDA margin.
We delivered 23.3% adjusted EBITDA margins.
A 290 basis point sequential improvement from last quarter, better improvement than we expected.
We reported revenue of $439 million, improving over 600 basis points sequentially over second quarter with revenue down 11% or $54 million versus last year -- also better improvement than we expected.
We closed nearly 50 of more than 80 sites, representing nearly a 60% reduction in the number of our locations over the last 18 months, including seven additional site closures in Q3.
We continue to outperform our pre-pandemic sales plan, and of course over a thousand deals with multi-year contracts year-to-date, including six of our top-25 targets.
We expanded our relationship with RE/MAX to provide national marketing, branded print and promotional solutions to their 65,000 agents.
Combined with our enterprise efforts, we've signed more than a 175 cross-sell deals totaling $11 million in total contract value.
This continued success gives us confidence that we'll be able to deliver sales-driven revenue growth in the low- to- mid-single digits with adjusted EBITDA margins of 20% or more over the long-term.
Our Payments business continues to perform well and delivered 15.6% revenue growth over prior year.
Most importantly, given the work we've accomplished, the results we've delivered despite the ongoing challenges, I feel good about our relative position in the market and we continue to believe total company adjusted EBITDA margins will remain at our long-term target of 20% or better.
We expanded margins almost 300 basis points, paid our dividend, paid our revolver down to the pre-COVID level, have the lowest net debt in more than two years, and our sales engine is working.
Q3 total revenue declined 11% or $54.1 million to $439.5 million as compared to the same period last year.
This is a sequential improvement of 600 basis points from the Q2 decline rate.
These expense actions improved adjusted EBITDA margins by 290 basis points sequentially to 23.3%.
Some of this improvement will not repeat in Q4, but we do expect margins to remain in our long-term range of greater than 20%.
Gross profit margin for the quarter improved 160 basis points from the prior year with the loss of lower margin revenue in our promotional and cloud segments.
SG&A expense declined $14.4 million due primarily to lower commissions, personnel exits, 401(k) match suspensions and restructuring actions.
Interest expense declined $3.6 million due to lower interest rates on higher borrowing levels compared to last year.
All this together, increased operating income to $44.4 million, net income of $29.4 million, increased from a net loss of $318.5 million in Q3 2019.
Last year's net income included non-cash asset impairment charges for goodwill and certain intangibles totaling $391 million.
Our adjusted EBITDA for the period was $102.5 million, $16.8 million lower than the same period last year.
The adjusted EBITDA margin declined 90 basis points to 23.3% on a year-over-year basis, but sequentially increased by 290 basis points compared to the second quarter.
Payments revenue grew compared to last year by 15.6% to $74.7 million, with Treasury Management revenue leading the growth in the quarter.
Adjusted EBITDA margin decreased to 22.4%, primarily due to increased costs related to last year's large client win.
Cloud Solutions revenue declined 20.3% to $63.8 million from last year.
Adjusted EBITDA margin increased to 25.7% as we benefited from mix shift in cost reductions.
Promotional Solutions revenue declined 20.3% to $124.9 million from last year.
Compared to prior quarter, revenue grew about 6% and adjusted EBITDA margin expanded 260 basis points, as the mix shifted and costs were removed.
Check revenue declined 8.4% from last year to $176.1 million due to the secular decline, combined with the pandemic.
Adjusted EBITDA margin decreased to 48.3% as a result of higher commissions on referrals and technology investments in support of our One Deluxe strategy.
Year-to-date, cash from operating activities was $166.8 million and capital expenditures were $42.7 million.
Free cash flow, defined as cash provided by operating activities, less capital expenditures, was $124.1 million, a decline of $34.2 million.
We ended the quarter with strong liquidity of $413 million and our cash balance was $310.4 million.
In October, we paid down another $140 million of the revolving credit facility, repaying 100% of our COVID-related March draw.
This repayment is not reflected in our reported credit facility balance of $1.04 billion or cash balance at the quarter-end.
In addition, net debt has continued to decrease, and in the quarter at $730 million, the lowest level in more than two years for the second consecutive quarter during a pandemic.
Our year-to-date adjusted EBITDA margin is at 20.2%, within our long-term target range.
However, we do expect to maintain adjusted EBITDA margins within our long-term target of 20% or better.
As further evidence of our strength, our Board approved a regular quarterly dividend of $0.30 per share on all outstanding shares.
We increased margin sequentially, almost 300 basis points.
Our Payments business grew 16% and we're confident we'll be a double-digit grower over the long term.
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Q3 total revenue declined 11% or $54.1 million to $439.5 million as compared to the same period last year.
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For the third quarter, Hilltop reported net income of $93 million or $1.15 per diluted share.
Return on average assets for the period was 2.1% and return on average equity was 15%.
PlainsCapital Bank had another strong quarter with pre-tax income of $63 million and a return on average assets of 1.4%.
Income during the period included $4.6 million of PPP loan-related origination fees and a $5.8 million reversal of provision.
Total average bank loans declined $252 million or 4% versus Q2 2021 as PPP balances ran off.
Total average deposits remain stable linked-quarter with average deposits excluding broker deposits increasing by $200 million or 2% from Q2 2021 and $1.9 billion or 16% from prior year.
We continue to see growth in both interest bearing and non-interest-bearing accounts since Q3 2020 we have run off almost $1 billion in broker deposits.
This was another strong quarter for PrimeLending generating $62 million in pre-tax income.
PrimeLending originated $5.6 billion in volume in the quarter from its continued strength in home purchase volume.
Refinancing volume as a percent of total volume decreased to 29% from 35% during the same period in 2020.
Gain on sale margin of loans sold to third parties declined by 17 basis points linked-quarter to the 359 basis points.
PrimeLending continues to recruit productive loan officers and has hired 127 year to date bringing total loan officer headcount to 1,314.
During the quarter, HilltopSecurities generated $17.4 million of pre-tax income on net revenues of $127 million or a pre-tax margin of 13.8%.
This was a good quarter for the public finance business in particular with revenues up $12 million from prior year, predominantly from a few larger deals.
Revenues within the structured finance business decreased by $26 million from last year as the overall mortgage market has declined from the astonishing levels in 2020.
From a historical average perspective, volumes are still strong and revenues rebounded by $24 million linked quarter.
Moving to page 4, as a result of strong and diversified earnings, we continue to grow our tangible book value while returning capital to shareholders.
Our capital levels remain very strong with the common equity Tier 1 capital ratio of 21.3% at quarter end, and we have grown our tangible book value per share by 18% over the last quarter to $27.77.
During the quarter, Hilltop returned $84 million to shareholders through dividends and share repurchases.
The $74 million in shares repurchased are part of the $150 million share authorization the board granted earlier this year.
This week, the Hilltop Board of Directors authorized an additional increase to the stock repurchase program of $50 million, bringing the total authorization to $200 million.
As a result of dividends and share repurchase efforts, Hilltop has returned $153 million in capital to shareholders year-to-date.
Additionally, we paid down $67 million in trust preferred securities during the quarter, which will reduce our annual interest expense by over $2 million going forward.
I'll start on page 5.
As Jeremy discussed, for the third quarter of 2021, Hilltop recorded consolidated income attributable to common stockholders of $93 million, equating to $1.15 per diluted share.
Included in the third quarter results was a net reversal of provision for credit losses of $5.8 million.
On page 6, we have detailed the significant drivers to the change in allowance for credit losses for the period.
As said, the S7 scenario did improve from the prior period, and the impact of the improvement resulted in the release of $6 million of credit reserves during the third quarter.
Further, the portfolio of loans that are currently under active deferral plan build a $17 million from $76 million at the end of the second quarter of '21.
The result of the improvements at the client level equated to a net release of credit reserves of $5 million during the third quarter.
The net impact of these changes resulted in an allowance for credit losses for the period ending September 30 of $109.5 million or 1.45% of total loans.
Further, the coverage ratio of ACL to total loans increases from 1.74% from loans that we believe have lower loss potential, including PPP broker-dealer and mortgage warehouse loans are excluded.
I'm moving to page 7.
Net interest income in the third quarter equated to $105 million, including $8.3 million of PPP-related interest and fee income, as well as purchase accounting accretion.
Somewhat offsetting these items were higher loans held for sale yield, resulting from higher overall mortgage rates, coupled with lower interest-bearing deposit cost, which have continued to trend lower finishing the quarter down 4 basis points versus the second quarter of '21 at 28 basis points.
As it relates to asset yields, the current competitive environment for commercial loans is resulting in substantial pressure on loan yields for new originations, which were 3.8% during the third quarter and is also challenging our ability to maintain current loan flow rates.
Given overall market and competitive conditions, we expect that NIM will remain pressured into the fourth quarter of '21 moving lower to between 240 basis points and 250 basis points by year end.
Turning to page 8, total non-interest income for the third quarter of '21 equated to $368 million.
Third quarter mortgage-related income and fees decreased by $114 million versus the third quarter of 2020 driven by lower origination volumes, declining gain on sale margins, and lower locked volumes.
As it relates to gain on sale margins, we noted in our key driver table in the lower right of the page the gain on sale margins on loans fell 18 basis points versus the prior quarter.
Further, we are providing the impact of gain on sale margin related to those loans that have been retained on the balance sheet, which for the third quarter equated to 13 basis points.
During the third quarter of 2021, the environment in mortgage banking remained resilient and is expected to continue to shift to a more purchase mortgage-centric marketplace with approximately 71% of our origination volumes serving as purchase mortgages.
During the third quarter, purchase mortgage volumes declined modestly to 3.95 billion, while refinance volumes declined 12% or $235 million versus the second quarter origination levels.
We expect this trend to continue for the more purchase-centric mortgage market over the coming quarters, and we continue to expect the gain on sale margins for the third-party sales will fall within a full year average range of 360 basis points to 385 basis points.
In addition, other income declined by $36 million, driven primarily by declines in TBA locked volumes, coupled with lower volumes and market depth in the fixed-income capital markets.
Lastly, our public finance and retail brokerage businesses at the broker-dealer drove solid revenue growth as highlighted in the securities-related fee growth of $15 million versus the prior-year period.
Turning to page 9, non-interest expenses decreased from the same period in the prior year by $44 million to $355 million.
The decline in expenses versus the prior year was driven by decline in variable compensation of approximately $35 million at HilltopSecurities and PrimeLending.
The bank continues to deliver improved efficiency, as highlighted in the sub-50% efficiency ratio.
As we've noted in the past, we expect that over the longer term, the efficiency ratio at the bank will fall within a range of 50% to 55%.
Moving to page 10, in the period, HFI loans equated to $7.6 billion, relatively stable with the second quarter levels.
We continue to expect that full year 2021 average total loan growth excluding PPP loans will be within a range of zero to 3%.
During the third quarter of '21, PrimeLending locked approximately $243 million of loans to be retained by PlainsCapital over the coming months.
These loans had an average yield of 2.95% and average FICO and LTV of 776% and 64%, respectively.
Moving to page 11, third quarter credit trends continue to reflect the slow but steady recovery in the Texas economy, which is supporting improved customer cash flows and fewer borrowers on active deferral programs.
As of September 30, we have approximately $17 million of loans on active deferral programs down from $76 million at June 30.
Further, the allowance for credit losses to period end loan ratio for the active deferral loans equates to 22.8% at September 30.
As is show on the graph at the bottom right of the page, the allowance for credit loss coverage including both mortgage warehouse lending as well as PPP loans at the bank ended the third quarter at 1.58%.
Excluding mortgage warehouse and PPP loans, the bank's ACL to end-of-period loans HFI ratio equated to 1.74%.
Tuning to page 12, third quarter end-of-period total deposits were approximately $12.1 billion, increasing by $398 million versus the second quarter of 2021.
At 09/30, Hilltop maintained $243 million of broker deposits that have a blended yield of 33 basis points.
Turning to page 13, in 2021, we continue to remain nimble as the pandemic evolves to ensure the safety of our teammates and our clients.
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For the third quarter, Hilltop reported net income of $93 million or $1.15 per diluted share.
As Jeremy discussed, for the third quarter of 2021, Hilltop recorded consolidated income attributable to common stockholders of $93 million, equating to $1.15 per diluted share.
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We achieved depletions growth of 36% in the third quarter.
We believe that Truly Iced Tea Hard Seltzer, which combines the refreshment of hard seltzer with real brewed tea and fruit flavor at only 100 calories and 1 gram of sugar, will further strengthen our position in the category.
We've adjusted our expectations for 2020 full-year depletions growth and our earnings guidance to reflect our trends for the first nine months and our current view of the remainder of the year, which is primarily driven by the year-to-date performance of Truly.
We are expecting all of our brands to grow in 2021 and are targeting overall volume growth rates to be between 35% and 45%.
Based on information in hand, year-to-date depletions reported to the company through the 42 weeks ended October 17, 2020 are estimated to have increased approximately 39% from the comparable weeks in 2019.
For the third quarter, we reported net income of $80.8 million, an increase of $36 million or 80.6% from the third quarter of 2019.
Earnings per diluted share were $6.51, an increase of $2.86 per diluted share for the third quarter of 2019.
Shipment volume was approximately 2.1 million barrels, a 30.5% increase from the third quarter of 2019.
We believe distributor inventory as of September 26, 2020 average approximately 2 weeks on hand and was lower than prior year levels due to depletions outpacing supply constrained shipments.
Our third quarter 2020 gross margin of 48.8% decreased from the 49.6% margin realized in the third quarter of 2019, primarily as a result of higher processing costs due to increased production at third-party breweries, partially offset by cost saving initiatives at company-owned breweries and price increases.
Third quarter advertising, promotional and selling expenses increased by $11.5 million from the third quarter of 2019, primarily due to increased investments in media and production, increased salaries and benefits costs and increased freight to distributors because of higher volumes.
General and administrative expenses decreased by $1.1 million from the third quarter of 2019, primarily due to non-recurring Dogfish Head transaction-related expenses of $3.6 million incurred in the comparable 13-week period in 2019, partially offset by increases in salaries and benefits costs.
Based on information of which we are currently aware, we are now targeting full-year 2020 earnings per diluted share of between $14 and $15, an increase of the previously communicated estimate of between $11.70 and $12.70.
This projection excludes the impact of ASU 2016-09.
Full year 2020 depletions growth is now estimated to be between 37% and 42%, an increase and narrowing from the previously communicated estimate of between 27% and 35%.
We project increases in revenue per barrel of between 1% and 2%.
Full year 2020 gross margins are expected to be between 46% and 47% and narrowing down of the previously communicated estimate of between 46% and 48%.
We plan to increase investments in advertising, promotional and selling expenses of between $55 million and $65 million for the full year 2020, a change from the previously communicated estimate of between $70 million and $80 million primarily due to lower selling expenses.
We estimate our full-year 2020 non-GAAP effective tax rate to be approximately 26%, which excludes the impact of ASU 2016-09.
We are continuing to evaluate 2020 capital expenditures and currently estimate investments of between $160 million and $190 million, a change from the previously communicated estimate of between $180 million and $200 million.
Based on information of which we are currently aware, we are targeting depletions and shipments percentage increases of between 35% and 45%.
We project increases in revenue per barrel of between 1% and 2%.
Full year 2021 gross margins are expected to be between 46% and 48%.
We plan increased investments in advertising, promotional and selling expenses of between $130 million and $150 million for the full year 2021, not including any changes in freight costs for the shipment of products to our distributors.
We estimate our full-year 2021 non-GAAP effective tax rate to be approximately 26% excluding the impact of ASU 2016-09 line.
We are currently evaluating 2021 capital expenditures and our initial estimates of between $300 million and $400 million, which could be significantly higher if deemed necessary to meet future growth.
We expect that our cash balance of $157.1 million as of September 26, 2020 along with our future operating cash flow and unused line of credit of $150 million will be sufficient to fund future cash requirements.
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We've adjusted our expectations for 2020 full-year depletions growth and our earnings guidance to reflect our trends for the first nine months and our current view of the remainder of the year, which is primarily driven by the year-to-date performance of Truly.
We are expecting all of our brands to grow in 2021 and are targeting overall volume growth rates to be between 35% and 45%.
Earnings per diluted share were $6.51, an increase of $2.86 per diluted share for the third quarter of 2019.
Full year 2020 depletions growth is now estimated to be between 37% and 42%, an increase and narrowing from the previously communicated estimate of between 27% and 35%.
Based on information of which we are currently aware, we are targeting depletions and shipments percentage increases of between 35% and 45%.
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In terms of our upcoming IR schedule, slide three, we will be virtually attending the Raymond James SMID Cap Company Showcase virtually on November 12 and 13, and we are attending the UBS Global TMT Conference virtually on December 8.
Before turning the call over, I do want to remind everyone that due to the FCC's anti-collusion rules related to the RDOF auction and Auction 107, we will not be responding to any questions related to FCC auction.
As you can see on slide four, at September 30, TDS continued to have a strong financial position, including $2.2 billion in immediately available funding sources, consisting of cash and cash equivalents, available credit facilities, undrawn term loans and undrawn portions of our EIP securitization facility.
In the quarter, U.S. Cellular took advantage of favorable market conditions and issued $500 million of 6.25% retail senior notes due in 2069.
In October, U.S. Cellular upsized its EIP securitization agreement from $200 million to $300 million.
We also maintained significant expense discipline and drove adjusted EBITDA to increase 10% year-over-year.
We're really pleased that the new iPhone 12 series of devices support our network requirements.
That includes full support 5G 600 megahertz spectrum that we're currently deploying as well as millimeter wave in the future.
In addition, with respect to our participation in the FCC's Keep Americans Connected Pledge, 70% of customers that participated in the pledge paid on a partial payment or entered into payment arrangements.
On the 5G front, working with Qualcomm Technologies and Ericsson, we completed an extended-range 5G millimeter wave data session over a distance of more than five kilometers with speeds ranging from 100 megabits per second near the edge to 1.8 gigabits per second closer to the cell site, and this is a world record.
By year-end, we're going to deploy 5G to cell sites that handle about 50% of our overall traffic.
Total smartphone connections increased by 3,000 during the quarter and by 45,000 over the course of the past 12 months.
That helps to drive more service revenue given that smartphone ARPU is about $21 higher than feature phone ARPU.
As mentioned, we saw connected device gross additions increase by 27,000 year-over-year.
During Q3, we saw an average year-over-year decline in store traffic of 25%, related to the impacts of COVID, as well as some heavier activity in the prior year when we had service plan pricing changes and the iPhone launch.
Postpaid handset churn, depicted by the blue bars, was 0.88%, down from 1.09% a year ago.
This was due primarily to lower switching activity as customer shopping behaviors were altered due to the COVID-19 pandemic, and we also saw more customers upgrading their devices with us, resulting in a 4% increase in upgrade transactions year-over-year.
The FCC's Keep Americans Connected Pledge ended on June 30, and 70% of the customers that were on the pledge at June 30 are current or remain on payment arrangements.
Total postpaid churn, combining handsets and connected devices, was 1.06% for the third quarter of 2020, also lower than a year ago.
Total operating revenues for the third quarter were $1.027 billion, a slight decrease year-over-year.
Retail service revenues increased by $11 million to $674 million.
Inbound roaming revenue was $42 million.
That was a decrease of $12 million year-over-year, driven by lower data rates and to a lesser extent, a decrease in data volume.
Other service revenues were $59 million, an increase of $2 million year-over-year due to an increase in tower rental revenues and miscellaneous/other service revenues, partially offset by a prior year tower rental revenues accounting adjustment that increased tower rental revenues in the prior year.
Finally, equipment sales revenues decreased by $5 million year-over-year due to a decrease in new smartphone unit sales and lower accessory sales.
The average revenue per user or connection was $47.10 for the third quarter, up $0.94 or approximately 2% year-over-year.
On a per-account basis, average revenue grew by $3.40 or 3% year-over-year.
As shown at the bottom of the slide, adjusted operating income was $232 million, an increase of $24 million or 12% year-over-year.
As I commented earlier, total operating revenues were $1.027 billion, a slight decrease year-over-year.
Total cash expenses were $795 million, decreasing $28 million or 3% year-over-year.
Excluding roaming expense, system operations expense increased by 1%, mainly driven by higher cell site rent expense.
Note that total system usage grew by 54% year-over-year.
Roaming expense increased $2 million or 5% year-over-year due to a 69% increase in off-net data usage, partially offset by lower rates.
Cost of equipment sold decreased $9 million or 4% year-over-year due primarily to a reduction in the number of new smartphone unit sales and a decrease in accessory sales.
Selling, general and administrative expenses decreased $23 million or 6% year-over-year, driven by a decrease in bad debt expense.
Bad debt expense decreased $22 million due primarily to lower write-offs driven by fewer nonpaid customers and lower EIP sales in 2020 versus 2019.
Adjusted EBITDA for the quarter was $282 million, a $26 million or 10% increase year-over-year due to the improvement in adjusted operating income as well as an increase in equity and earnings of unconsolidated entities, partially offset by a decrease in interest income.
First, we have narrowed our guidance for service revenues to a range of $3.025 billion to $3.075 billion, maintaining the midpoint.
Adjusted operating income is now expected to be between $800 million and $875 million.
Adjusted EBITDA is now expected to be between $975 million and $1.05 billion.
We are maintaining our guidance for capital expenditures at the $850 million to $950 million range as we work to meet our deployment goals for the year.
We grew both revenue and adjusted EBITDA, up 7% and 8%, respectively, and we made significant progress on advancing our strategic and our operational priority.
Consolidated revenues increased 7% from the prior year.
Through September, our entry into new markets has produced $15 million of revenue and is expected to contribute over $20 million for the year.
Cash expenses increased 4%, about half of which is from the acquisition.
Revenue increases exceeded growth in expense, driving an 8% increase in adjusted EBITDA to $78 million.
Capital expenditures increased to $92 million as we continued to increase our investment in our fiber deployment and success-based spend.
Broadband residential connections grew 8% in the quarter as we continued to fortify our network with fiber and expand into new markets.
From a broadband speed perspective, we are offering up to one gig broadband speeds in our fiber market, and 12% of our wireline customers are taking this product where were offered.
Across our wireline residential base, including our out-of-territory markets, 38% of broadband customers are taking 100 megabit speeds or greater compared to 31% a year ago.
This is helping to drive a 5% increase in average residential revenue per connection in the quarter.
Wireline residential video connections grew 9%.
And at the same time, we expanded our IPTV markets to 53 up from 34 a year ago.
Approximately 40% of our broadband customers in our IPTV markets take video, which for us is a profitable product.
Our IPTV services in total cover about 39% of our wireline footprint today.
As a result of this strategy over the last several years, 280,000 or 34% of our wireline service addresses are now served by fiber, which is up from 29% a year ago.
This is driving revenue growth while also expanding the total wireline footprint 5% to 823,000 service addresses.
Our current fiber plans include roughly 320,000 service addresses that will be built over a multiyear period.
And year-to-date, we have completed construction of 40,000 fiber addresses in addition to the 40,000 addresses we turned up in 2019 related to this program.
Total revenues increased 2% to $173 million, largely driven by the strong growth in residential revenues, which increased 8% due to growth from video and broadband connections as well as growth from within the broadband product mix, partially offset by a 2% decrease in residential voice connection.
Consumer (sic) commercial revenues decreased 8% to $38 million in the quarter, primarily driven by lower CLEC connections.
Wholesale revenues increased slightly to $45 million due to certain state USF support timing.
In total, wireline adjusted EBITDA increased 3% to $53 million.
Total cable connections grew 12% to 377,000, which included 31,000 from the acquisition and a 9% organic increase in total broadband connections.
On an organic basis, broadband penetration continued to increase, up 200 basis points to 46%.
On slide 22, total cable revenues increased 19% to $74 million, driven in part by the acquisition.
Without the acquisition, cable revenues grew 10%, driven by growth in broadband connections for both residential and commercial customers.
Our focus on broadband connection growth and fast reliable service has generated a 29% increase in total residential broadband revenue, including organic growth of $5 million or 20%.
Also driving the revenue change is an 8% increase in average residential revenue per connection, driven by higher-value product mix and price increases.
Cable cash expenses increased 18% due primarily to costs related to the acquisition or 8% excluding acquisition due to increased employee expense.
As a result, cable adjusted EBITDA increased 20% to $25 million in the quarter.
On slide 23, we've provided our revised guidance for 2020, reflecting the strong performance so far this year.
We are maintaining our revenue and capital expenditure guidance and are increasing our expectations for adjusted EBITDA by increasing the midpoint and narrowing the range to $305 million to $325 million.
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On slide 23, we've provided our revised guidance for 2020, reflecting the strong performance so far this year.
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During the fourth quarter, we increased the accrual related to this matter to $8 million for a potential settlement.
I'm also pleased to note that we again realized a very strong performance in our termite service line, posting year-over-year double-digit growth of 14.3%.
To be more specific, termite damage claims received have declined from a high of 9,349 to the low of 380 new claims received this past year while, at the same time, revenue from termite has tripled.
Q4 revenues increased 11.9% to $600.3 million, compared to $536.3 million the previous year.
Net income rose to $65.3 million or $0.13 per diluted share, compared to $62.6 million or $0.13 per diluted share for the same period in 2020.
Our revenues for the full year were $2.424 billion, an increase of 12%, compared to $2.161 billion for the same period last year.
Net income for the full year increased 34.5% to $350.7 million or $0.71 per diluted share, compared to $260.8 million or $0.53 per diluted share for the comparable period last year.
All our business lines experienced solid growth, with residential pest control up 11.9% and termite realizing growth of 13.6%.
Additionally, commercial pest control delivered an impressive 11.4% growth over the fourth quarter of last year.
The sales payroll expense trend is reflective of the planned investment we made in up-staffing our residential and commercial sales teams over the last 12 months.
Last week, we held our virtual Rollins leadership meeting with over 175 of our top leaders.
Compared to Q4 of 2020, our fuel costs were up 56.5% in Q4 of 2021.
That equated to over $4.5 million in increased fuel costs for the quarter.
Due to concerns about these types of cybersecurity issues, in Q4, we fast-tracked our multiyear strategy to enhance our protection against cybersecurity threats by accelerating a $3 million expenditure.
Last year ended strong with over 70% of our trailing 12 months revenue acquired occurring in the fourth quarter.
Our fourth-quarter revenues of $600 million was an increase of 11.9% actual exchange rate growth, 8.9% organic.
For the constant exchange rate, the total revenue growth percentages calculated to 11% with an 8.1% organic.
For the full year 2021, revenues of $2.4 billion was an increase of 12.2% over full year 2020, 9.5% organic.
The constant exchange rate, total revenue growth for 2021 equaled 11.4%, 8.7% organic.
For the fourth quarter growth over last year, residential grew 11.9%, 8.4% organic; commercial grew 11.4%, 9.3% organic; lastly, we have termite, which grew 13.6% with 10.1% organic.
For the full year 2021 over 2020, residential grew 12.9%, 10% organic; commercial grew 10.2%, 7.4% organic; and we closed out with termite at a 14.3% growth, 11.9% organic.
Fourth-quarter adjusted 2021 EBITDA was $122.2 million or 11.2% over 2020.
Fourth quarter 2021 adjusted earnings per share was $0.14 per diluted share or 7.7% improvement over 2020.
For the full year 2021, our adjusted EBITDA was $546.4 million or 20.1% over last year.
Year to date, 2021 adjusted earnings per share was $0.68 per diluted share or 25.9% over 2020.
For fourth quarter 2021, gross margin increased 50.4% or 0.10 point over last year.
That was after overcoming our strong headwinds of fleet expenses, specifically fuel in the amount of $4.5 million and termite M&F for $2.7 million.
Sales, general and administrative fourth quarter 2021 margin increased 1.6% over last year.
Related to the SEC potential settlement, we recorded an accrual of $5 million in Q4.
This was in addition to the $3 million we previously accrued in the third quarter.
Our dividends full year 2021 were $208.7 million or an increase of 30% over 2020, while cash used for acquisitions declined 5.8% to $139 million for 2021.
We ended the current period with $105.3 million in cash, of which $78.1 million was held by our foreign subsidiaries.
For the fourth quarter of 2021, our free cash flow was $88.9 million, or a decrease of 0.8% over last year.
Full-year free cash flow was $395 million or a decrease of $41 million.
This decline was primarily due to the $30 million 2020 carry back taxes paid in 2021 and a $32 million gain from the sale of the Clark properties, the latter of which is an operating cash reconciling item.
Last, I'm happy to share that yesterday our board of directors approved a regular cash dividend of $0.10 per share that will be paid on March 10, 2022, to shareholders of record at the close of business, February 10, 2022.
This represents a 25% increase over the March 2021 regular cash dividend paid out.
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Q4 revenues increased 11.9% to $600.3 million, compared to $536.3 million the previous year.
Net income rose to $65.3 million or $0.13 per diluted share, compared to $62.6 million or $0.13 per diluted share for the same period in 2020.
Fourth quarter 2021 adjusted earnings per share was $0.14 per diluted share or 7.7% improvement over 2020.
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We saw evidence of this demand from our recent InFocus client event, which was heavily attended and expanded its reach virtually this year to nearly 40 countries and which drove a 25%-plus increase in demand for FIS solutions.
Our strong new sales performance has increased our backlog by 6% organically during the third quarter.
And our pipeline is exceptionally strong, up more than 30% year-over-year as we continue to grow and win new business.
As of the end of the third quarter, we are generating $150 million in annual run rate revenue synergies and we have $60 million more currently being implemented with our clients.
This puts us in great shape to exceed our $200 million revenue synergy target before the end of the year.
Adjusted EBITDA margins expanded 340 basis points sequentially and 30 basis points year-over-year during the third quarter as we continue to harness the operating leverage inherent in our business.
By investing approximately $1 billion annually in new product development and R&D, we are bringing tomorrow's innovation forward now.
They recently asked us to help them to drive data and insights as well as improved acceptance across their network of more than 900 dealerships.
Thousands of financial institutions, representing more than 7,000 card loyalty programs, are enrolled in the FIS Premium Payback ecosystem.
As it turns out, we have signed more than 15 significant new bank relationships, adding well over 1,000 branches to our partner distribution network in the first year.
We signed more than 30 partners there already and are finalizing agreements with several more.
In banking, we added another top 30 financial services firm to our growing roster of large client wins.
This quarter, we signed an agreement with a top 50 bank, who chose us because our Digital One and mobile banking solutions will enable them to rapidly innovate, further differentiate their consumer user experience and increase their speed to market for new products.
In merchant, we signed a top 100 luxury retailer, who chose to partner with us because of our end-to-end capabilities, including our debit routing, e-commerce and differentiated omni-channel technology.
In integrated payments, we signed two of the world's leading dealer management system software providers, one in the U.S. and one in the U.K. Between the 2, it will provide us with distribution to thousands of dealerships through these leading ISVs.
Our pipelines are full with more than 30% in banking and capital markets and remain the largest that I've ever seen.
And with our backlog consistently growing in the mid- to upper single digits for multiple quarters in a row, I feel really good about our ability to accelerate revenue growth next year, consistent with the 7% to 9% range we have been messaging.
On a consolidated basis, revenue increased 13% to $3.2 billion, up 1% organically, which represents a marked improvement from the 7% decline that we experienced last quarter.
Adjusted EBITDA increased to $1.4 billion with margins expanding 340 basis points sequentially and 30 basis points year-over-year to 42%.
As a result of our improving revenue growth and profitability, we achieved adjusted earnings per share of $1.42 for the third quarter.
We have achieved $150 million in revenue synergies as we continue to see really strong traction with our Premium Payback solution.
We have also achieved cost synergies of over $700 million, including $385 million in operating expense savings, contributing to our adjusted EBITDA margin expansion.
Banking Solutions revenue increased 3% organically to $1.5 billion.
Excluding these, organic revenue growth was closer to 6% for banking, which is more consistent with our strong growth in recurring revenue.
Adjusted EBITDA was $653 million for banking, representing 220 basis points of sequential margin expansion to 43%.
Revenue was flat on an organic basis at $1 billion.
This represents 14 points of improvement over 2Q when normalizing for the U.S. tax deadline shift as we continue to win market share, particularly in our e-commerce, integrated payments and merchant bank referral channels.
Adjusted EBITDA in the segment was $487 million, representing over 700 basis points of sequential margin improvement as we saw a material rebound in our higher-margin transaction processing revenue.
Capital markets revenue has increased 3% year-to-date on an organic basis, demonstrating more than one point of acceleration compared to the prior year period.
Capital markets declined 1% in organic revenue growth for the third quarter and was primarily due to quarterly differences in the timing of license renewals.
Recurring revenue continues to grow strongly and new sales for our SaaS-based recurring revenue solutions increased by nearly 50% during the third quarter, reinforcing our confidence for continued acceleration in revenue growth during 2021 and beyond.
Adjusted EBITDA was $286 million, representing a consistent 46% margin with last quarter, as capital markets teams continue to manage cost and execute at a very high level.
We continue to see improvement throughout the third quarter with volume and transaction growth exiting the quarter at 6% and 3%, respectively.
E-commerce transactions increased 30% in the quarter, excluding travel and airlines.
We ended the quarter with a total debt balance of about $20 billion and a weighted average interest rate of 1.6%.
This quarter, we generated $866 million, representing a 27% conversion of revenue.
Capital expenditures were $263 million or 8% of revenue.
As a result, liquidity increased again to $4.2 billion, up by more than $700 million quarter-over-quarter.
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As a result of our improving revenue growth and profitability, we achieved adjusted earnings per share of $1.42 for the third quarter.
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Over 20 years ago, Stride was founded on the premise that students and families should have a choice in their education.
Total support for School Choice has increased to almost 75% of the population.
We are seeing well over 1 million unique visitors to our websites each month and growing.
This fall, our Stride career programs for middle and high school students enrolled 42,000 students, a 36% increase from last year.
We recognize the particular difficulties in this age group, even prior to the pandemic and have been working on an entirely new design for our K-5 course catalog.
Revenue for the quarter was $400.2 million, an increase of almost 8% over the same period last year.
Adjusted operating income was $4.5 million, down significantly compared to the prior year, which I'll discuss in few minutes, and capital expenditures were $15.4 million, an increase of $2.6 million over last year.
Driven by strong demand in Career Learning and a recovery and revenue per K-12 enrollment, we expect to grow revenue and profitability this year compared to prior year.
Q1 revenue from our General Education business decreased $7.5 million to $306.3 million.
General Ed enrollments decreased to 147,600 from 164,600 last year, during the height of COVID.
Revenue per enrollment in General Education increased 9.7% in Q1 compared to the same quarter last year.
Career Learning revenue grew to $93.9 million, an increase of 64.4%.
Within our Career Learning business, our middle and high school Career Learning revenue was $71.4 million, up 46.4% from last year.
This was driven by 36.4% increase in enrollments, and an 8% increase in revenue per enrollment.
Like our General Education K-12 business, we expect revenue per enrollment and Stride career prep programs to improve significantly over last year.
Our adult learning business had another strong quarter, finishing with revenue of $22.5 million.
This puts us on a great trajectory for the full year and we expect adult learning to contribute almost $100 million in revenue during fiscal year 2022.
Gross margins for the quarter were 31.6%, down 340 basis points compared to the same period last year.
Selling, general and administrative expenses for the quarter were $133.4 million, up $15.6 million from the first quarter of fiscal 2021.
Stock-based comp was $8.3 million for the quarter.
We anticipate that we will finish the year with stock-based compensation in the range of $29 million to $31 million.
Adjusted operating income for the quarter was $4.5 million, adjusted EBITDA was $25.5 million.
Interest expense for the quarter was $2 million.
Our effective tax rate came in at 33%.
For FY '22, we believe we will finish the year, with a tax rate in the 28% to 30% range, mostly due to an increase in non-deductible compensation, above FY '21.
Capital expenditures in the quarter totaled $15.4 million, up $2.6 million from the prior period last year.
Free cash flow in the first quarter, defined as cash from operations less capex, was negative $146.9 million as compared to the prior year's $127.3 million.
We ended the quarter with cash and cash equivalents of $218.5 million.
Turning to our guidance; for the second quarter of fiscal year 2022, the company is forecasting revenue in the range of $390 million to $400 million, adjusted operating income between $55 million and $60 million, and capital expenditures between $14 million and $17 million.
For the full year, we are forecasting revenue in the range of $1.56 billion to $1.60 billion, adjusted operating income between $165 million and $180 million, capital expenditures between $65 million and $75 million, and lastly an effective tax rate between 28% and 30%.
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Revenue for the quarter was $400.2 million, an increase of almost 8% over the same period last year.
For the full year, we are forecasting revenue in the range of $1.56 billion to $1.60 billion, adjusted operating income between $165 million and $180 million, capital expenditures between $65 million and $75 million, and lastly an effective tax rate between 28% and 30%.
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Before we get started, let me highlight that in addition to reviewing our reported first quarter results, we will also discuss our adjusted results which exclude both a $61 million pre-tax charge associated with a debt tender completed in the quarter, and a $10 million tax insurance benefit recorded in the period.
For purposes of comparison, we will also discuss prior year Q1 earnings adjusted for a $20 million pre-tax goodwill impairment charge.
From double-digit growth in sign ups, revenues and earnings, to enhance liquidity and a $1 billion expansion of our share repurchase authorization we posted a tremendous start to 2021.
I think the first two sentences from a recent Wall Street Journal article aptly summarize the current state of housing supply in the U.S. The U.S. housing market is 3.8 million single family home short of what is needed to meet the country's demand according to a new analysis by mortgage-finance company Freddie Mac.
The estimate represents a 52% rise in the nation's home shortage compared with 2018, the first-time Freddie Mac quantified the shortfall.
In total, our net new orders were up 31% over last year, while our absorption pace was up 37%.
On a unit basis, this was the highest first quarter sign-ups we've reported in over a decade and at $4.6 billion our highest reported quarterly sales value ever.
Our pricing strategies and disciplined business practices helped us to generate a gross margin of 25.5% and an adjusted operating margin of 14.6% in the quarter.
To that end, since 2016, we have invested $14.6 billion in land acquisition and development, and have done so while building a more efficient land pipeline.
To clearly demonstrate the progress we have made, at the end of 2016, we owned 99,000 lots, while controlling an additional 44,000 lots via option.
Today, we actually own 5,000 fewer lots than five years ago and have more than doubled the lots we hold via option to 100,000.
Over the past five years, we've returned approximately $3 billion to shareholders through dividends and share repurchases, including $154 million of stock repurchased in the first quarter.
By paying $726 million of debt in the quarter, including the successful tender for $300 million of our nearest dated outstanding debt, we were able to lower our debt-to-capital ratio on a gross basis to 23.3%.
To be paying down debt and returning significant funds to shareholders, while targeting a 30% increase in our land acquisition and development in 2021, says a lot about our expectations for the earnings power, and the financial strength of this business.
With ongoing strong demand that exceeds available supply, a backlog value of $8.8 billion, and our tremendous financial strength and flexibility, I am excited about what we can accomplish this year.
Home sale revenues in the first quarter increased 17% over last year to $2.6 billion.
The higher revenues for the period reflect the 12% increase in closings to 6,044 homes, coupled with a 4% increase in average sales price to $430,000.
While home closings for the period were up more than 12% over last year, deliveries came in slightly below our guidance with the shortfall resulting primarily from the severe weather in Texas.
4% or $17,000 increase in average sales price realized in the quarter benefited from price increases across all buyer groups, and was led by a 6% increase in ASP for our active adult closings.
The buyer mix of closings in the first quarter was comparable with the prior year, and included 33% from first-time buyers, 43% for move-up buyers, and 24% from active adult buyers.
As Ryan mentioned, our net new orders in the first quarter were up 31% over last year to 9,852 homes.
In the first quarter orders among our first time buyers increased 39% to 3,303 homes, while move-up orders gained 18% to 4,040 homes, and active adult orders increased a robust 49% to 2,509 homes.
49% year-over-year increase in active adult closings reflects the impact of the slowdown in sales in the last two weeks of March last year, but I would highlight that the 2,500 active adult orders this year represent a first quarter high getting back almost 15 years.
The 31% increase in orders could have been higher, but our divisions continue to actively manage sales in the quarter to match production rates and to help maximize project specific returns.
Along with raising prices in 100% of our community to help cover cost inflation and moderate sales all of our divisions used dropped lot releases to more directly manage sales in some or all of their communities.
For the first quarter, we operated from an average of 837 communities, which is down 4% from last year's average of 873 communities.
Consistent with the overall strength of the market, our cancellation rate in the quarter declined by more than 500 basis points from last year to just 8%.
And we ended the quarter with a backlog of 18,966 homes, which is an increase of 50% over last year.
On a dollar basis, our backlog increased 58% to $8.8 billion.
On a year-over-year basis, we increased the number of homes, we started in the quarter by 25% to 8,364 homes, which helped to raise our total homes under construction by 22% to 14,728 homes.
Of these homes, 1,798 or 12% were spec units, which on a percentage basis is down slightly from the fourth quarter of last year.
Given market conditions, we have continued to work with our trade partners to further increase production and expect to increase overall start to at least 10,000 homes in the second quarter of this year.
This would be an increase of at least 20% over the first quarter of this year.
Based on the stage of construction for the 14,728 homes currently under construction, we expect deliveries in the second quarter to be in the range of 7,400 to 7,700 homes.
At the midpoint, this would be an increase of 27% in deliveries over the second quarter of last year.
Based on the ongoing strength of buyer demand and with almost 19,000 houses in backlog, we are raising our guidance for full year closings to 32,000 homes.
This is an increase of 7% from our prior guide of 30,000 homes and represents a 30% increase in deliveries for the year versus the prior year.
The strong pricing environment has helped to lift the average sales price in our backlog by 5% over last year to $465,000.
Given the backlog ASP and the anticipated mix of deliveries, we expect our average closing price in the second quarter to be in the range of $440,000 to $445,000.
For the full year, we now expect our average closing price to be between $450,000 and $450,000.
Our home sale -- our homebuilding gross margin for the first quarter was 25.5%, which is an increase of 180 basis points over the prior year and a sequential gain of 50 basis points from the fourth quarter of 2020.
In addition to the 4% increase in year-over-year ASP, our gross margins also benefited from lower sales discounts of 2.5% in the quarter, which represents a decrease of 110 basis points for the same period last year.
And a decrease of 50 basis points for the fourth quarter of last year.
While we now expect our house costs excluding land to be up 6% to 8% for the year, strong demand environment is allowing us to pass through these costs in the form of both higher base sales prices and lower discounts.
As a result, we expect to realize sequential gains of approximately 50 basis points in each of the three remaining quarters this year, which would have us in the range of 27% for the fourth quarter of 2021.
In the first quarter, our reported SG&A expense was $272 million or 10.5% of home sale revenues, excluding the $10 million pre-tax insurance benefit recorded in the period, our adjusted SG&A expense was $282 million or 10.9% of home sale revenues.
This compares with prior year SG&A expense for the quarter of $264 million or 11.9% of home sale revenues.
We are adding people to handle our higher construction volumes, but we still expect to realize sequential overhead leverage with the second quarter SG&A expense in the range of 9.9% to 10.3%.
And for the full year, we now expect adjusted SG&A as a percent of homebuilding revenue to be approximately 9.8%.
As Jim noted, we did record a $61 million pre-tax charge in the period related to the cash tender offer for $300 million of our senior notes that we completed in the first quarter.
Turning to Pulte Financial Services, they continue to report outstanding financial results with pre-tax income more than tripling to $66 million, which compares to $20 million in the first quarter of last year.
The large increase in pre-tax income reflects favorable competitive dynamics in the market as well as higher loan production volumes resulting from the growth in our closings and a 150 basis point increase in capture rate to 88%.
Tax expense for the first quarter was $90 million, which represents an effective tax rate of 22.8%.
We continue to expect our tax rate to be approximately 23.5% for the balance of the year, including the benefit of energy tax credits we expect to realize this year.
In total for the quarter, we reported net income of $304 million or $1.13 per share.
Our adjusted net income for the period was $343 million or $1.28 per share.
In the first quarter of 2020, the company reported net income of $204 million or $0.74 per share and adjusted net income of $219 million or $0.80 per share.
Turning to the balance sheet, we ended the quarter with $1.6 billion of cash.
On a gross basis, our debt-to-capital ratio at the end of the quarter was 23.3%, down from 29.5% at the end of the year, as we use available cash to pay down $726 million of senior notes in the first quarter.
Our net debt-to-capital ratio was 5.5% at the end of the quarter.
Along with paying down debt during the quarter, we repurchased 3.3 million common shares at a cost of $154 million or an average price of $46.11 per share.
As Ryan mentioned, given the strength of our business and expectations for continued strong cash flows and with our existing repurchase authorization down to approximately $200 million at the end of the quarter, Board of Directors approved an increase of $1 billion to our repurchase authorization.
In the first quarter, we invested $795 million in land acquisition and development, including the lots we've put under control through these investments, we ended the first quarter with approximately 194,000 lots under control, of which 94,000 were owned and 100,000 were controlled through options.
With 51% of our lots now controlled via option, we have surpassed our initial target of 50% owned and 50% optioned and expect that the percentage of option lot can move even higher.
Finally, I would like to give a big shout out to the entire PulteGroup family for being ranked on the Fortune 100 list of Best Companies to Work For.
The Fortune 100 list is built on an analysis conducted by the Great Place to Work organization, which is based on employee surveys from thousands of companies.
In our case they surveyed 100% of our employees.
To make the Fortune 100 list is an accomplishment, but to make it for the first time when we are operating in a global pandemic is clear and resounding statement about our people, and the culture that they have -- the culture they have built inside of our organization.
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As Ryan mentioned, our net new orders in the first quarter were up 31% over last year to 9,852 homes.
And we ended the quarter with a backlog of 18,966 homes, which is an increase of 50% over last year.
In total for the quarter, we reported net income of $304 million or $1.13 per share.
Our adjusted net income for the period was $343 million or $1.28 per share.
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We had a strong second quarter of fiscal 2021, with 10% net sales growth as demand and business activity remains favorable.
Infiltrator once again exceeded revenue expectations with 63% sales growth in the second quarter.
In the residential end market, legacy ADS sales increased 15% this quarter.
About 1/3 of the Infiltrator sales are related to repair and remodel, and at ADS, the repair and remodel exposure is covered through our retail and national accounts.
The company's exposure to the residential market has increased to 38% of domestic sales compared to 28% at this time last year.
Still, the agricultural sales team has had a great first half of fiscal 2021, with sales up 14% year-over-year.
International sales increased 3%, driven by double-digit growth in our Canadian business.
Based on this strong demand and our desire to more fully capitalize on opportunities in our core markets, we are stepping up our capital investments, which we now expect will total between $80 million and $90 million for this fiscal year.
Brian has 25 years of successful product management experience, and we're excited to have him join our team.
Adjusted EBITDA margin increased 820 basis points overall with a 640 basis point increase in the legacy ADS business.
Net sales increased 10%, with 4% growth in our legacy ADS business plus 63% growth in our Infiltrator business.
Sales growth in the legacy ADS business was led by a 15% sales growth in the residential market, which remains robust.
From a profitability standpoint, adjusted EBITDA increased $56 million or 47% compared to the prior year.
Adjusted EBITDA for the legacy ADS business increased $33 million or 35%, with strong performance from our sales, operations, procurement and distribution teams.
Infiltrator's adjusted EBITDA increased $21 million or 86%, benefiting from strong demand, favorable pricing, lower input costs, productivity improvements as well as our synergy programs.
Our free cash flow increased $112 million to $257 million as compared to $135 million in the first half of fiscal 2020.
Our working capital decreased to right around 20% of sales, down from 22% at this time last year.
Further, our trailing 12-month pro forma leverage ratio is now 1.5 times, slightly below our target range of two to 3 times leverage.
We ended the quarter in a very favorable liquidity position as well, with $204 million of cash and $339 million available under our revolving credit facility, bringing our total liquidity to $543 million.
Based on our performance to date, order activity, backlog and current market trends, we currently expect net sales to be in the range of $1,790,000,000 to $1,840,000,000, representing growth of 7% to 10% over last year; adjusted EBITDA to be in the range of $495 million to $515 million, representing growth of 37% to 42% over last year, and we expect to convert our adjusted EBITDA to free cash flow at a rate of around 60% for the full year, driven by our strong results as well as the investments we just discussed.
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Based on our performance to date, order activity, backlog and current market trends, we currently expect net sales to be in the range of $1,790,000,000 to $1,840,000,000, representing growth of 7% to 10% over last year; adjusted EBITDA to be in the range of $495 million to $515 million, representing growth of 37% to 42% over last year, and we expect to convert our adjusted EBITDA to free cash flow at a rate of around 60% for the full year, driven by our strong results as well as the investments we just discussed.
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For the third quarter, we reported combined adjusted EBITDA of approximately $290 million, of which $230 million was directly from our Global Ingredients business.
With the days of shutdown and the restart process, we lost approximately 17 days of renewable diesel production.
Also, on the great news front, the DGD Norco expansion is running well and is closing in on reaching its production capacity, putting DGD on track to sell 365 gallons or more in 2021.
We also believe DGD could sell over 700 million gallons of renewable diesel in 2022 as the engineering team continues to fine tune the performance of this expansion.
Also, during the quarter, Darling repurchased approximately $22 million of common stock.
And for year-to-date, we have purchased approximately $98 million worth of stock.
On a year-to-date basis, our Global Ingredients business has earned approximately $628 million of EBITDA, putting us at an annualized run rate of approximately $850 million for 2021.
Net income for the third quarter of 2021 totaled $146.8 million or $0.88 per diluted share compared to net income of $101.1 million or $0.61 per diluted share for the 2020 third quarter.
Net sales increased 39.4% to $1.2 billion for the third quarter of 2021 as compared to $850.6 million for the third quarter of 2020.
Operating income increased 61.4% to $205.7 million for the third quarter of 2021 compared to $127.5 million for the third quarter of 2020.
The increase in operating income was primarily due to the $114.1 million increase in gross margin which was a 53.8% increase in gross margin over the same quarter in 2020.
Our operating income improvement was impacted by the lower contribution of our 50% share of Diamond Green Diesel's net income, which was $54 million in the third quarter of 2021 as compared to $91.1 million for the same quarter of 2020.
Q3 2021 gross margin was 27.5%, which is the best result we have had in the last 10 years.
For the first nine months of this year, our gross margin percentage was 26.8% compared to 24.9% for the same period a year ago or a 7.6% improvement year-over-year.
Depreciation and amortization declined $7.9 million in the third quarter of 2021 when compared to the third quarter of 2020.
SG&A increased $7.3 million in the quarter as compared to the prior year and declined $1.9 million from the previous quarter.
Interest expense declined $3.4 million for the third quarter 2021 as compared to the 2020 third quarter.
Now turning to income taxes, the company recorded income tax expense of $42.6 million for the three months ended October 2, 2021.
Our effective tax rate is 22.3%, which differs from the federal statutory rate of 21%, due primarily to biofuel tax incentives, the relative mix of earnings among jurisdictions with different tax rates and certain taxable income inclusion items in the U.S. based on foreign earnings.
For the nine months ended October 2, 2021, the company recorded income tax expense of $126.3 million and an effective tax rate of 20.2%.
The company also has paid $36.9 million of income taxes year-to-date as of the end of the third quarter.
For 2021, we are projecting an effective tax rate of 22% and cash taxes of approximately $10 million for the remainder of the year.
Our balance sheet remains strong with our total debt outstanding as of October two at $1.38 billion and the bank covenant leverage ratio ended the third quarter at 1.6 times.
Capital expenditures were $65.6 million for Q3 2021 and totaled $191.7 million for the first nine months of 2021.
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Net sales increased 39.4% to $1.2 billion for the third quarter of 2021 as compared to $850.6 million for the third quarter of 2020.
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For our combined Brokerage and Risk Management segments, we posted 17% growth in revenue, 8.6% organic growth, but it's over 10% when adjusted for timing, which Doug will spend some time on in a few minutes.
Net earnings margin expansion of 107 basis points, adjusted EBITDAC margin expansion of 30 basis points, and we completed eight new mergers in the quarter with more than $70 million of estimated annualized revenue.
Reported revenue growth was strong at 16%.
Of that, 6.8% was organic revenue growth, a little better than our June IR Day expectation and closer to 9% adjusted for timing.
Our net earnings margin moved higher by 53 basis points, and our adjusted EBITDAC margin expanded by 23 basis points, highlighting our continued expense discipline.
First, our domestic retail operations were very strong with more than 8% organic.
Risk Placement Services, our domestic wholesale operations, grew 12%.
This includes nearly 25% organic in open Brokerage and 6% organic in our MGA programs and binding businesses.
Outside the U.S., our U.K. operations posted more than 9% organic.
Specialty was 10% and retail was excellent at 9%, bolstered by new business production.
Canada was up an outstanding 16%, fueled by rate and exposure growth on top of solid new business and retention.
And finally, Australia and New Zealand combined grew nearly 4%, benefiting from good new business and stable retention.
Second quarter organic was up about 4%, which is also ahead of our June IR Day commentary and another sequential step-up over first quarter 2021 and the second half of 2020.
As business activity improves, we're seeing more favorable growth in our core health and welfare, fee-for-service and retirement consulting businesses, which is encouraging -- it's an encouraging sign for the second half of the year.
So when I combine PC at 9-plus percent and benefits around 4%, total Brokerage segment organic was pushing 9% but with timing reported 6.8%.
U.S. retail was up about 8%, including double-digit increases in professional liability.
Canada was up 9%, driven by increases in professional liability and package.
New Zealand was flat and Australia up 6%.
Moving to the U.K., retail was up about 8%, with most classes of specialty business over 10%.
And finally, within RPS, wholesale open brokerage was up 12%, while our binding operations were up 4%.
So as I sit here today, I think second half Brokerage organic will be better than the first half and could take full year 2020 organic toward 8%.
That would be a terrific step-up from the 3.2% organic we reported in 2020.
We completed seven Brokerage and one Risk Management merger during the second quarter, representing over $70 million of estimated annualized revenues.
As I look at our tuck-in merger and acquisition pipeline, we have more than 40 term sheets signed or being prepared, representing around $300 million of annualized revenues.
Second quarter organic growth was pushing 20%, better than our June IR Day expectations of mid-teens, and our adjusted EBITDAC margin exceeded 19%.
We benefited from a revenue lift related to our 2020 new business wins, increased new arising claims within core workers' compensation and an easier pandemic-era comparison.
For the year, we expect organic to be just over 10% and our EBITDAC margin to remain above 19%.
And that's because of our 35,000-plus employees and our unique Gallagher culture.
And as we open offices around the globe yet preserving the flexibility we mastered over the last 16 months, I'm hearing the excitement about being back together.
Headline all-in organic of 6.8%, excellent on its own, but as Pat said, really running closer to 9%.
Call that 70 basis points.
Second, also recall that we took our 606 revenue accounting adjustment in the first quarter of 2020.
Call that about 150 basis points.
These two items combined for about 220 basis points of a headwind here in the second quarter.
You'll see that we expanded our EBITDAC margin by 23 basis points here in the second quarter.
Considering last year's second quarter was in the depth of the pandemic and our Brokerage segment saved $60 million in that quarter, to post any expansion at all this quarter is terrific work by the team.
So the natural question is, when you levelize for the $60 million of pandemic savings last year's second quarter and about $15 million of costs that came back this second quarter, what was the underlying margin expansion?
Answer to that is about 125 basis points, which on 6.8% organic feels about right.
That $15 million mostly relates to higher utilization of our self-insurance medical plans, a modest tick-up in T&E expenses and incentive comp.
So we held $45 million of cost savings this quarter, and that's really terrific.
As of now, we think about $20 million of cost returned in the third quarter and $30 million return in the fourth quarter.
Math would say about 7%, which is really the real story.
Recall at the beginning of the year, after expanding margins 420 basis points in 2020, we were looking at just holding margins flat.
So even with the return of the expenses and again, let's say, assuming for illustration a full year organic of 7%, math would show another full point of margin expansion in 2021.
That would mean our cumulative 2-year margin expansion would be well over 500 basis points.
Let's move on to the Risk Management segment EBITDAC table on Page 7.
Adjusted EBITDAC margin of 19.7% in the quarter is fantastic.
And we continue to expect the team to deliver margins above 19% for the full year, showing that our Risk Management segment can also hold some of the pandemic-induced cost savings, meaning that the 2020 step-up in margin can be sustained in 2021.
Accordingly, we are increasing our full year net earnings range to $75 million to $85 million on the back of the second quarter upside.
Looking ahead to the third quarter, and that's in the pinkish section, you'll see non-GAAP after-tax adjustment for $12 million to $14 million.
This charge is mostly related to redeeming $650 million of debt.
This should also lead to lower third and fourth quarter adjusted interest and banking expense, savings maybe of $2 million to $3 million after tax each quarter.
Rather, beginning in 2022, we will show substantial cash flows through our cash flow statement, call it $125 million to $150 million a year for, say, six to seven years.
So next, let's go to the balance sheet on Page 14, the top line cash.
At June 30, cash on hand was $3.2 billion, and we have no outstanding borrowings on our credit facility.
We'll use that first to redeem the $650 million of debt I just discussed.
And also today, we announced a $1.5 billion share repurchase program.
That would leave us with about $1 billion of cash.
Then add to that about $650 million of net cash generation in the second half.
And we would also have another $600 million to $700 million of borrowing capacity.
Means we have upwards of $2.5 billion for M&A.
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As business activity improves, we're seeing more favorable growth in our core health and welfare, fee-for-service and retirement consulting businesses, which is encouraging -- it's an encouraging sign for the second half of the year.
We benefited from a revenue lift related to our 2020 new business wins, increased new arising claims within core workers' compensation and an easier pandemic-era comparison.
And also today, we announced a $1.5 billion share repurchase program.
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This included strong client flows with more than $16 billion of inflows in Wealth Management and Asset Management in the quarter, and we ended with assets under management and administration of 28% to $1.2 trillion, another new high.
This further advances our mix shift to capital-light businesses and frees up approximately $700 million of excess capital.
Momentum in the business continues with revenues coming in strongly at $3.4 billion or 22% fueled by organic growth in markets.
Earnings increased 34% excluding the reversal of the NOL a year ago with earnings per share up 39% reflecting strong business growth and capital return and ROE remains exceptionally strong at 37.5%.
Total client inflows were up 54% to $9.5 billion and that continue the positive trends we are seeing over the past several quarters.
Consistent with strong client flows, wrap net inflows were $10 billion continuing a very strong run rate.
Transactional activity also grew nicely, up nearly 30% over last year with good volume across a range of product solutions.
All of this momentum along with positive markets drove nice growth in advisor productivity up 14% adjusting for interest rates to a record of 731,000 per advisor.
On the recruiting front, we had 42 experienced advisors join us in the quarter, a bit below where we've been.
Turning to the bank, total assets grew to $9.7 billion in the quarter, we continue to move additional deposits to the bank, and we have adjusted our investment strategy to extend duration a bit.
Margin increased 380 basis points year-over-year and in the quarter at 21.4% showing consistent expansion since the Fed cut short-term rates a year ago.
With regard to annuities, we had strong variable annuity sales with total sales up 88% from a year ago.
Assets under management rose to $593 billion, up 25% over last year from strong business results and positive markets.
Regarding investment performance, the team continues to generate excellent performance for clients across equity, fixed income, and asset allocation strategies with more than 80% of funds above median over the longer-term time frames on asset weighted basis.
This quarter, we had net inflows of $6.7 billion, an improvement of $4.1 billion from a year ago.
Excluding legacy insurance partner outflows, net inflows were $8.1 billion.
Global retail net inflows were $4.2 billion, driven by another quarter of strong results in North America.
Sales and flows traction is broad based with 15 of our investment capabilities generating over $100 million of net inflows in the quarter and in EMEA, retail sales have been weaker given the risk off environment.
In terms of Global Institutional, we saw a nice improvement with net inflows of $3.9 billion ex legacy partner outflows with wins across equity and fixed income strategies in both North America and EMEA.
In fact, the approximately $700 million of our reinsurance deal largely pays for the BMO acquisition giving us additional flexibility to return capital to shareholders at an attractive rate.
Ameriprise delivered very strong financial results across the firm with adjusted operating earnings per share up 39% to $5.27.
Additionally, we entered into an agreement to reinsure approximately $8 billion of fixed annuities and closed on the RiverSource Life transaction in early July.
As noted, we will free up approximately $700 million of capital, and we will have a marginal projected impact on fixed annuity profitability.
We returned 92% of adjusted op earnings to shareholders in the quarter, aligning us to our projected 90% target for the full year.
In the quarter, Ameriprise's adjusted operating net revenues grew 22% and PTI increased 35%, reflecting continued excellent business performance.
Revenue and earnings in our capital-light businesses of AWM and asset management drove nearly 80% of the total, excluding corporate and other, a significant shift from a year ago even normalizing for the unusually high earnings in RPS last year.
G&A expenses were well managed, up 6% given the strong business growth in the quarter.
Advice and Wealth Management delivered another quarter of excellent organic growth with total client assets up 28% to $807 billion.
Total client flows were $9.5 billion, the third consecutive quarter of total client flows at or above $9 billion, demonstrating the sustainability of our organic growth.
In the quarter, our pre-tax adjusted operating margin was 21.4%, an increase of 380 basis points from the prior year and an increase of 70 basis points sequentially despite continued low interest rates.
On page 8, financial results in Advice and Wealth Management were very strong with pre-tax adjusted operating earnings of $423 million, up 56%.
Adjusted operating net revenues grew 29% to 2 billion, fueled by robust client flows and a 29% increase in transactional activity in addition to strong market appreciation.
On a sequential basis, revenue increased nicely to 5%.
Ameriprise Bank continues to grow at a solid pace reaching nearly $10 billion in the quarter after adding $700 million of sweep cash to the balance sheet.
G&A expense increased 3%, reflecting increased activity and the timing of performance-based compensation expense.
Turning to page 9, Asset Management delivered another strong quarter, driven by excellent investment performance and sustained inflows, resulting in an outstanding financial results.
Net inflows were 8.1 billion, excluding legacy insurance partners, which is a continuation of an improved solid flow trends.
Adjusted operating revenues increased 32% to $879 million, a result of the cumulative benefit of net inflows and market appreciation.
On a sequential basis, revenues were up 6%.
Our fee rate remained strong at 52 basis points reflecting the strong momentum we are seeing across the board with strength in both equity and fixed income strategies.
G&A expenses grew 12%, primarily from the timing of compensation expense related to strong business performance as well as foreign exchange translation and higher volume related expenses.
Pre-tax adjusted operating earnings grew 79%, and we delivered a 45% margin.
Moving forward, we expect strong financial performance to continue and anticipate that margins will remain in the mid 40% range over the near term driven by current robust equity markets.
Let's turn to page 10, retirement and protection solutions continue to perform in line with expectation in this environment.
Pre-tax adjusted operating earnings were $182 million.
Retirement sales increased 88% during the quarter with two-thirds of the sales and products without living benefits.
This has shifted in the overall book and now only 62% of our block has living benefit riders, down over 200 basis points from a year ago.
Our balance sheet fundamentals remain extremely strong, including our liquidity position of $3 billion at the parent company and substantial excess capital of $2 billion, which does not include the capital release from the recently announced fixed annuity transaction.
Adjusted operating return on equity in the quarter remained strong at 37.5%.
We returned $585 million to shareholders in the quarter through dividends and buyback, and we are on track with our commitment to return 90% of adjusted operating earnings to shareholders for the year.
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This included strong client flows with more than $16 billion of inflows in Wealth Management and Asset Management in the quarter, and we ended with assets under management and administration of 28% to $1.2 trillion, another new high.
Ameriprise delivered very strong financial results across the firm with adjusted operating earnings per share up 39% to $5.27.
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Over the past few months, we have hosted numerous vaccination sites at our parks, and we have donated more than 140,000 tickets as an incentive for residents in areas around our parks in Texas, Illinois and California to get vaccinated.
Through July 25, year-to-date attendance and open parks was 82% of 2019 levels.
Excluding prebooked groups, year-to-date attendance at our parks during the periods they were open in 2021 was 89% compared to the same period in 2019.
For the second quarter, our guest spending per capita was up more than 20% versus the second quarter of 2019 due to progress on several of our transformation initiatives as well as a strong consumer spending backdrop.
As a result of our strong revenue trends and season pass sales, we generated $190 million of cash flow during the quarter.
Total attendance for the quarter was 8.5 million guests, a 19% decline from second quarter 2019, reflecting fewer operating days at several of our parks due to the pandemic capacity restrictions at some of the parks that were open and the loss of most of our prebooked group sales.
The net benefit of these shifts into the second quarter of 2021 was 614,000 of attendance and $32 million of revenue.
Through July 25, year-to-date attendance at open parks was 82% of 2019 levels and has accelerated since the end of the quarter.
Excluding prebooked groups, year-to-date attendance at our parks that have been open all year was 89% of 2019 levels.
Attendance from our single-day guests in the second quarter represented 36% of total attendance versus 39% for the second quarter of 2019, reflecting the impact of lower prebook sales, which are counted toward single-day attendance.
We expect this calendar shift -- the calendar change to shift approximately 500,000 of attendance out of the fourth quarter and into the third quarter.
When netted against the shift of the July four weekend out of the third quarter, we expect the changes in our fiscal calendar to negatively impact the third quarter's attendance compared to 2019 by approximately 400,000 guests.
Total guest spending per capita increased 23% in the quarter versus 2019.
Applying the pro forma allocation mentioned on last quarter's earnings call to 2019, admission spending per capita increased 24%.
And in-park spending per capita increased 22% compared to the second quarter of 2019.
Revenue in the quarter was $460 million, down $17 million or 4%.
Excluding the impact of reduced sponsorship, international agreements and accommodations revenue, revenue was down less than $1 million.
On the cost side, cash, operating and SG&A expenses versus 2019 decreased by $4 million or 2%.
Adjusted EBITDA for the second quarter was $170 million, down $9 million or 5% versus second quarter 2019.
Second quarter 2021 also included $11 million of proceeds received in connection with one of our terminated international development agreements in China.
As a reminder, second quarter 2019 included a $7.5 million settlement related to the termination of our international development agreement in Dubai.
At the end of the second quarter, we had 6.3 million pass holders, which included 2.1 million members and 4.2 million traditional season pass holders.
Deferred revenue as of July four, 2021, was $310 million, up $75 million or 32% compared to second quarter 2019.
Year-to-date capital expenditures were $42 million.
For the full year, we previously expected to spend less than $98 million spent in 2020.
However, because of our strong operating results and cash flow and our confidence that our operating performance will continue to improve, we now have capital expenditures of $130 million to $140 million in 2021.
We expect to believe 9% to 10% of revenue is an appropriate level of annual capital expenditures in a normalized environment.
Our liquidity position as of July four was $714 million.
This included $461 million of available revolver capacity net of $20 million of letters of credit and $253 million of cash.
Net cash flow for the quarter was $190 million.
In 2021, we expect to achieve $30 million to $35 million from our fixed cost reductions, and we have already realized more than $16 million through the first half of this year.
We continue to be on track to deliver $80 million to $110 million in incremental annual run rate EBITDA once our transformation plan has been fully implemented and attendance returns to 2019 levels.
This includes an incremental investment of approximately $20 million in seasonal wage rate increases annually on a go-forward basis in addition to the $20 million we called out in our previous baseline for a net increase of $40 million compared to 2019.
As part of our transformation plan, we expect to incur $70 million in charges.
We have incurred $46 million in cost so far through second quarter 2021, including the noncash write-offs of $10 million that occurred in 2020.
We expect to incur the remaining $24 million in 2021 and 2022, the majority of which is related to investments in technology, including a new CRM system.
Priority #2 is to pay down debt until we reach our targeted leverage range of three times to four times net debt to adjusted EBITDA.
To conclude, we are encouraged by the initial progress on our transformation plan and are well positioned to achieve our adjusted EBITDA baseline range of $530 million to $560 million when attendance levels return to 2019 levels including the impact from labor inflation.
And we expect to realize $30 million to $35 million of fixed cost savings in 2021.
As the operating environment returns to 2019 levels, and we implement more of our transformation program, we expect to achieve our adjusted EBITDA baseline range of $530 million to $560 million.
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Revenue in the quarter was $460 million, down $17 million or 4%.
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In addition to the solid performance in our two reporting segments, our balance sheet remains strong, with net leverage at 1.8 times and total net debt of less than $1 billion.
Our strong second quarter gives us the confidence to affirm the range of our 2021 guidance for adjusted earnings per share and of $3.75 to $4.25 and adjusted EBITDA of $450 million to $500 million as well as affirm our previously issued 2022 guidance.
We're maintaining our expectations for adjusted earnings per share in 2021 to be in a range of $3.75 to $4.25 and adjusted EBITDA in the range of $450 million to $500 million.
Starting with the top line, revenue for the second quarter was $2.5 billion, compared to $1.8 billion for the prior year.
This represents 38% growth with strong performance in both of our segments.
Gross margin in the second quarter was 16.1%, an improvement of 117 basis points over prior year due to revenue mix from higher margin sales in the Global Products segment and patient direct business, timing of the pass-through of glove costs and improved operating efficiency.
Also compared to Q1, gross margin was lower by nearly 300 basis points due to margin compression in gloves as anticipated and discussed last quarter.
Distribution, selling and administrative expense of $294 million in the current quarter was $52 million higher compared to the second quarter of 2020.
This performance coupled with the efficiency gains from enterprisewide continuous improvement led to adjusted operating income for the quarter of $116 million, which was $77 million higher or three times the same period last year.
Adjusted EBITDA for the second quarter was $128 million, which increased by $76 million or over two times year-over-year.
Interest expense of $12 million in the second quarter was down 47% or $10 million compared to last year, driven by lower debt levels and effective interest rates.
On a GAAP basis, income from continuing operations for the quarter was $66 million or $0.87 a share.
Adjusted net income for the second quarter was $80 million, which yielded an adjusted earnings per share for the quarter of $1.06, which was over five times our performance from Q2 of last year.
The year-over-year foreign currency impact in the quarter was unfavorable by $0.02.
In the second quarter, the average diluted shares outstanding were 14.7 million higher year-over-year as a result of our equity offering in the fourth quarter of prior year and the impact of restricted shares for compensation.
Global Solutions revenue of $1.98 billion was higher by $429 million or 28% year-over-year.
The segment experienced continued growth, driven by ongoing recovery in volumes associated with elective procedures of approximately $300 million along with higher sales of PPE as well as continued strong growth in our patient direct business.
Global Solutions operating income was $18.5 million, which was $29 million higher than prior year as a result of higher volumes coupled with productivity and efficiency gains in our medical distribution business.
In our Global Products segment, net revenue in the second quarter was $689 million, compared to $370 million last year, an increase of 86%, which was led by higher S&IP sales particularly PPE volume as we benefited from our previous investments to expand capacity and the previously discussed impact of passing through higher acquisition costs of approximately $200 million.
Operating income for the Global Products segment was $95 million, an increase of 84% versus $52 million in the second quarter last year.
Total net debt at the end of the second quarter was $964 million and total net leverage was 1.8 times trailing 12-months adjusted EBITDA.
Earlier today, we affirmed our guidance for 2021 and 2022.
We now expect the full year top line impact of glove cost pass-through to be in the range of $675 million to $725 million.
Guidance for adjusted earnings per share is based on 75.5 million shares outstanding.
Even with the 6% increase in shares and new inflationary headwinds, we are confirming our outlook for 2021, 2022 and targets for 2026.
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Our strong second quarter gives us the confidence to affirm the range of our 2021 guidance for adjusted earnings per share and of $3.75 to $4.25 and adjusted EBITDA of $450 million to $500 million as well as affirm our previously issued 2022 guidance.
We're maintaining our expectations for adjusted earnings per share in 2021 to be in a range of $3.75 to $4.25 and adjusted EBITDA in the range of $450 million to $500 million.
On a GAAP basis, income from continuing operations for the quarter was $66 million or $0.87 a share.
Adjusted net income for the second quarter was $80 million, which yielded an adjusted earnings per share for the quarter of $1.06, which was over five times our performance from Q2 of last year.
Earlier today, we affirmed our guidance for 2021 and 2022.
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Robust retail demand for our products has driven field inventory to the lowest level in decades at just over 10 weeks on hand.
The panel of judges praise Brunswick and Mercury for a record setting 2021, filled with multiple industry-changing product launches such as the V-12 600-horsepower Verado outboard engine and the Sea Ray 370 Sundancer among others.
Of the thousands of companies eligible for this recognition, Brunswick was one of only 750 companies selected to receive the award, ranking in the top 10 companies in the world within the engineering and manufacturing category.
Since 2019, Freedom has seen notable increases in the ethnic diversity of our members, which grew from around 10% in 2019 to 15% now and the percentage of women making up our total member base, which grew by 130 basis points to 35%.
Also, a particular note, the percentage of Hispanic Freedom members almost doubled to 8.4% in 2021 from 4.7% in 2018.
Of those surveyed, approximately 60% worked remotely at least partially, and 44% of those polled have been able to fit boating into their work week this season, with more than 20% actually working from their boat at some time.
Over the last two years, Mercury has gained an extraordinary 310 basis points of U.S. retail market share with outsized gains in higher horsepower products, where a significant amount of investment has been made in recent years.
Despite supply chain challenges, cost inflation and labor tightness at our suppliers and some of our own facilities during the quarter, we anticipate annual unit production of greater than 95% of our original production plan for the year, with shortages and delays primarily constraining additional upside.
By comparison, our Propulsion business is anticipated to produce approximately 110% of its original 2021 production schedule.
Freedom is now approaching 320 global locations and 47,000 memberships networkwide with more than 4,000 boats in its overall fleet, including an increasing percentage of Brunswick boats and engines.
Except for Asia Pacific, we saw sales normalize slightly in the third quarter but still up 26% versus the same period in 2019.
Domestic sales grew 14%, with international sales up 17% versus the prior year.
The result is a reported 8% decline in main powerboat retail unit sales year-to-date when compared with the same period in 2020 but still 3% greater than the same period in 2019.
Outboard engine unit registrations were down 6% through the first nine months of 2021 when compared with the same period in 2020, with Mercury outperforming the industry.
For example, all of our 2022 model year and 80% of our 2022 calendar year production slots are already sold out.
When compared with 2020, third quarter net sales were up 16% with adjusted operating margins of 15.5%.
Operating earnings on an as-adjusted basis increased by 9%, and adjusted earnings per share was $2.07, once again setting new all-time highs for any third quarter for which we have available records.
First nine month comparisons are also very favorable, with 2021 net sales up 39% when compared with the first nine months of 2020 and adjusted operating margins of 16.5%, a 290 basis point improvement from 2020.
This resulted in adjusted earnings per share for the first nine months of $6.82 and a very robust operating leverage of 24%.
We have generated almost $300 million of free cash flow through the first nine months of the year, which is a strong result considering the incremental working capital needed to satisfy increased needs for inventory as we elevate production levels and the $60 million increase in capital spending when compared to the same prior year period.
Revenue in the Propulsion business increased 19% versus the third quarter of 2020 and was up 58% versus Q3 of 2019.
Operating margins were flat versus 2020 but up 320 basis points versus Q3 of 2019 as pricing, favorable absorption and benefits from more favorable sales mix were able to offset higher manufacturing costs, primarily caused by material inflation.
In our Parts and Accessories segment, revenues increased 7%, and adjusted operating earnings were up 2% versus the third quarter of 2020.
Adjusted operating margins of 22.2% were down 120 basis points when compared with the prior year quarter and were negatively impacted by the closure of a key manufacturing and distribution location in New Zealand for a significant portion of the quarter due to national COVID lockdowns as well as increased spending on growth-related investments.
In our Boat segment, sales were up 22% and adjusted operating margins were down 230 basis points to 6.9% when compared with the third quarter of 2020.
When compared to the third quarter of 2019, sales were up 45%, and adjusted operating margins were up 240 basis points.
Freedom Boat Club, which is included in Business Acceleration, contributed approximately 3% of the segment's revenue at a margin profile that continues to be accretive to the segment.
As Dave mentioned earlier, we believe our boat production will reach at least 95% attainment of our original production plan for 2021, a remarkable achievement given the current supply constrained environment we are working in.
As a result, we wholesale sold approximately 8,200 boats during the third quarter, which was roughly the same number of units sold at retail and 16% greater than the number of units wholesale sold in the third quarter of 2020.
This keeps dealer inventories at an all-time low of approximately 7,400 units.
Our boat brands ended September with just over 10 weeks of boats on hand, measured on a trailing 12-month basis, with units in the field lower by 27% versus the same time last year.
We anticipate the U.S. marine industry retail unit demand for the full year to improve from reported year-to-date levels, ending at close to flat versus 2020, net sales of approximately $5.8 billion, adjusted operating margin growth between 150 and 180 basis points, operating expenses as a percent of sales to remain lower than 2020, free cash flow in excess of $425 million and adjusted diluted earnings per share of approximately $8.15, which represents a 61% increase over 2020.
Note that we believe acquisitions will contribute about 10% of the fourth quarter's revenue growth but will be neutral on earnings per share after including the impact of additional interest costs related to the financing of the Navico transaction.
The only meaningful update relates to our effective tax rate for the year due to some favorability related to foreign branch income and certain state tax law changes, we now believe our effective tax rate for 2021 will be approximately 21.5%, which is slightly lower than our estimate from the July call.
Similarly, our capital strategy assumptions have not materially changed with the execution of the financing for the Navico transaction, creating a slightly higher interest expense for the year, with approximately $25 million of additional debt retired as a result of the tendering of our 2023 and 2027 notes during the financing process.
We anticipate ending the year with debt leverage of 1.7 times on a gross basis and below 1.5 times on a net basis.
Additionally, our $43 million of share repurchases in the third quarter brings our total share repurchases for the year to just shy of $100 million, and we have adjusted our guidance to show that we anticipate reaching approximately $120 million worth of share repurchases by the end of the year.
Freedom also continues to expand its footprint with the recent acquisition of the Connecticut territory, which has seven locations and over 600 memberships.
The feedback in Cannes from our channel partners and end consumers on the new V-12 600-horsepower Verado and our new boat models was extremely positive.
Sea Ray also reported a 65% increase in its revenue versus the 2019 show, while all other Brunswick brands on display reported strong consumer interest and sales.
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Despite supply chain challenges, cost inflation and labor tightness at our suppliers and some of our own facilities during the quarter, we anticipate annual unit production of greater than 95% of our original production plan for the year, with shortages and delays primarily constraining additional upside.
Except for Asia Pacific, we saw sales normalize slightly in the third quarter but still up 26% versus the same period in 2019.
Operating earnings on an as-adjusted basis increased by 9%, and adjusted earnings per share was $2.07, once again setting new all-time highs for any third quarter for which we have available records.
In our Parts and Accessories segment, revenues increased 7%, and adjusted operating earnings were up 2% versus the third quarter of 2020.
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Our global A.O. Smith team delivered first quarter earnings per share of $0.60 on a 21% increase in sales, demonstrating solid execution, despite pandemic and weather-related challenges in our supply chain and operations, along with rapidly rising material costs.
North America water treatment grew 12%, driven by continued consumer demand for home improvement products, which provides safe drinking water in the home.
Boiler sales grew 12%, as we have seen strong demand, particularly within commercial boilers, as a result of completed projects carried over from 2020, as well as a resilient replacement demand.
In China, sales increased over 100% in local currency, driven by higher consumer demand and the easy comparison compared with the pandemic disrupted first quarter of 2020.
First quarter sales of $769 million increased 21%, compared with 2020, largely due to significantly higher China sales.
As a result of higher sales, first quarter net earnings increased 89% to $98 million or $0.60 per share compared with $52 million or $0.32 per share in 2020.
Sales in the North America segment of $553 million increased 4% compared with the first quarter of 2020.
Higher commercial boiler service parts and tankless water heater sales in the US, improved water heater sales in Canada, a 12% price -- 12% growth in water treatment sales and inflation related price increases on water heaters in the US were partially offset by lower US residential and commercial water heater volumes.
Rest of the World segment sales of $222 million increased over 100% from the first quarter of 2020 driven by stronger consumer demand in each of our major product categories in China.
Currency translation of China sales favorably impacted sales by approximately $14 million.
On slide 6, North America segment earnings of $130 million increased 3% compared with the first quarter of 2020.
Segment operating margin of 23.6% was slightly lower than the first quarter of 2020.
Rest of the World segment earnings of $12 million increased significantly compared with the first quarter of 2020, which was negatively impacted by the pandemic.
As a result, segment operating margin of 5.3% improved significantly from negative 38.3% in the first quarter of 2020.
Our corporate expenses of $15 million were similar to the first quarter of 2020.
Our effective tax rate of 22.5% was 110 basis points lower than the prior year largely due to geographical differences in pre-tax income.
Cash provided by operations of $104 million increase -- or during the first quarter was higher than the first quarter of 2020, primarily as a result of higher earnings in 2020 compared with the prior year.
Our cash balances totaled $660 million at the end of the first quarter and our net cash position was $559 million.
Our leverage ratio was 5% as measured by total debt to total capital at the end of the first quarter.
We completed refinancing our $500 million revolver credit facility on April 1st of this year.
During the first quarter, we repurchased approximately 1.1 million shares of common stock for a total of $67 million.
The midpoint of our range represents an increase of 20% compared with the 2020 adjusted results.
We expect cash flow from operations in 2021 to be between $475 million and $500 million compared with $560 million in 2020.
Our 2021 capital spending plans are between $85 million and $90 million and our depreciation and amortization expense is expected to be approximately $80 million.
Our corporate and other expenses are expected to be approximately $52 million, which is similar to 2020.
Our effective tax rate is assumed to be approximately 23% in 2021.
Average outstanding diluted shares of 160 million assumes $400 million worth of shares are repurchased in 2021.
As a result of a surge in orders approximately 30% higher than the first quarter last year, our lead-times have further extended.
We have not changed our outlook for full year US residential heater industry volumes and continue to project a full year volume will be down 2% or 200,000 units in 2021, a small retracement from the record volume shipped in 2020.
We expect commercial industry water heater volumes will decline approximately 4% as pandemic impacted business delay or defer new construction and discretionary replacement installation.
Steel has increased 25% since we announced our April 1st water heater price increase.
We announced a third price increase in late March on water heaters effective June 1 at a blended rate of 8.5%.
Our strategy continues to expand distribution to Tier 4 through 6 cities is on track.
We see improvement in consumer trends toward trading up for higher priced products across all product categories, driven by differentiated new products launched in the last 12 to 24 months.
We expect year-over-year increase and local currency sales between 18% to 20% in China.
We assume China currency rates will remain at current levels adding approximately $50 million and $3 million to sales and profits over the prior year respectively.
We have nearly doubled our growth projections and our outlook for our North America boiler sales for mid-single-digit growth to approximately 10% growth based on a strong first quarter, strong backlog, and visibility into coating activity.
In 2020, condensing boilers were 39% of the commercial boiler industry.
We continue to project 13% to 14% full year sales growth in our North America water treatment products, similar to that which we have seen in the first quarter.
We believe margins in this business could grow by 100 to 200 basis points higher than the nearly 10% margin achieved in 2020.
While India is challenged with recent COVID case resurgence, we project 2021 full year sales to increase over 20%, compared with 2020 to incur a smaller loss of $1 million to $2 million.
We project revenue will increase between 14% to 15% in 2021, as strong North America water treatment, boiler and China sales, enhanced by pricing action, more than offset expected weaker North America water heater volumes.
Our sales growth projections include approximately $50 million of benefit from China currency translation.
We expect North America segment margin to be between 23% and 23.5% and Rest of World segment margins to be between 7% and 8%.
We estimate replacement demand represents 80% to 85% of US water heater and boiler volumes.
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Our global A.O. Smith team delivered first quarter earnings per share of $0.60 on a 21% increase in sales, demonstrating solid execution, despite pandemic and weather-related challenges in our supply chain and operations, along with rapidly rising material costs.
First quarter sales of $769 million increased 21%, compared with 2020, largely due to significantly higher China sales.
As a result of higher sales, first quarter net earnings increased 89% to $98 million or $0.60 per share compared with $52 million or $0.32 per share in 2020.
We project revenue will increase between 14% to 15% in 2021, as strong North America water treatment, boiler and China sales, enhanced by pricing action, more than offset expected weaker North America water heater volumes.
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Those and other risks are described in the company's filings with the Securities and Exchange Commission over the past 12 months.
I'm pleased to report that for the quarter, Group 1 generated adjusted net income of $178 million.
This equates to adjusted earnings per share of $9.62 per diluted share, an increase of 38% over the prior year, and an increase of 219% over the pre-pandemic third quarter of 2019.
Our adjusted results exclude non-core items totaling approximately $5 million of net after-tax losses.
As of September 30, we have 2,700 U.S. new vehicle inventory units in stock, representing a 11-day supply.
Our used inventory situation is much stronger at 10,000 units and a 25-day supply.
Our U.S. markets saw 15.5% increase in after-sales revenues versus the prior year.
And we're proud to report that we generated an all-time record quarterly profit in the third quarter of 2021.
Our U.S. adjusted SG&A as a percentage of gross profit was 57.6%.
The UK was 64.6%, and Brazil came in at a record 60.9%.
As Earl mentioned, U.S. new vehicle inventory levels finished the quarter at 2,700 units and a 11-day supply.
Our September inventory receipts were the lowest of the year at approximately 6,800 units.
Our Same Store used vehicle retail unit sales improved by 15% versus the third quarter of 2020.
Our customer pay continues to ramp-up following a very strong first half of the year with 19% same-store dealership gross profit growth compared to the third quarter of 2019.
This allowed us to grow same-store dealership after sales gross profits by 9%, despite continued headwinds in warranty and collision, both of which we believe will reverse in time.
Our third quarter adjusted SG&A as a percentage of gross profit was 67.6%, down from 59% in the third quarter of 2020, and down from 70.5% in the pre-pandemic third quarter of 2019.
In the third quarter, we sold 5,200 vehicles to AcceleRide, a 68% increase over last year.
In the third quarter, 75% of AcceleRide buyers were new to Group 1.
Customers clearly value the superior omni-channel experience that AcceleRide provides which gives Group 1 another avenue to grow incrementally.
Of the customers who placed orders online last quarter nearly 50% uploaded a driver's license and 25% uploaded proof of insurance.
An additional 36% of the orders had a completed credit application as well.
During the quarter, we purchased nearly 5,000 used vehicles from customers through AcceleRide either through trades or through individual acquisitions.
That's up 30% sequentially from the second quarter.
A differentiator for us is our ability to digitally pay customers through Zelle, nearly 1,000 customers out of our 5,000 total took advantage of the digital payment feature in AcceleRide.
In September, we activated integrated delivery fees at 38 dealerships, preliminary results are encouraging.
About 13% of customers chose delivery up front, and so far 5% are confirming in the final steps.
The average delivery distance is 164 miles, further demonstrating our ability to extend our reach with AcceleRide.
Turning quickly to Brazil, despite a nearly 30% decline in industry units sold versus the third quarter of 2019.
As of September 30, we had $297 million of cash on hand, and another $335 million invested in our floorplan offset accounts, bringing total cash liquidity to $632 million.
There was also $282 million of additional borrowing capacity on our U.S. syndicated acquisition line, bringing total immediate liquidity to $914 million.
Subsequent to quarter-end, we issued $200 million of bonds as an add-on to our existing 4% notes to 2028.
We also plan on raising approximately $180 million in mortgage debt to help fund the deal and provide future liquidity flexibility.
We generated $234 million of adjusted operating cash flow in the third quarter and $210 million of free cash flow after backing out $24 million of capital expenditure.
This brings our September year-to-date free cash flow to $522 million, which is allowed us to fund the majority of our Prime acquisition with access cash on hand.
Our rent-adjusted leverage ratio, as defined by our U.S. syndicated credit facility was reduced to 1.5 times at the end of September.
Our leverage was 0.9 times at September 30.
Finally, related to interest expense, our quarterly floorplan interest of $4.8 million was a decrease of $3.3 million or 41% from prior year, due to lower vehicle inventory holdings.
Non-floorplan interest expense decreased $1.5 million or 10% from prior year, primarily due to last year's bond debt refinancing.
Once closed our 2021 Total acquired revenues will equal $2.5 billion.
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This equates to adjusted earnings per share of $9.62 per diluted share, an increase of 38% over the prior year, and an increase of 219% over the pre-pandemic third quarter of 2019.
And we're proud to report that we generated an all-time record quarterly profit in the third quarter of 2021.
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The passcode you will need for both numbers is 2968847.
On the West Coast, California wildfires have already consumed more than four million acres in 2020, which is more than double either 2017 or 2018, and has resulted in over 90 million metric tons of carbon dioxide being released into the atmosphere.
For perspective, this is 1.5 times more carbon dioxide than is released in powering the entire state for a year.
First, California's climate is hotter and drier now than at any time in the past 120 years.
Starting with our consolidated results, where we reported an annualized return on average common equity of 2.8%, benefiting from mark-to-market gains in our strategic investment portfolio.
Annualized operating return on average common equity was negative 7.7%, with the loss primarily driven by the Q3 2020 large loss events.
We grew our book value per common share by $0.86 or 0.6% and our tangible book value per common share plus accumulated dividends by $1.24 or 1%.
Year-to-date, we have grown tangible book value per common share plus change in accumulated dividends by 14.6%.
Net income for the quarter was $48 million or $0.94 per diluted common share.
We reported an operating loss of $132 million or $2.64 per diluted common share.
This excludes net realized and unrealized gains on investments, the sale of RenaissanceRe (U.K.) Limited, net foreign exchange gains and expenses related to the integration of TMR. Included in this operating loss is $322 million of net negative impact resulting from Q3 2020 large loss events.
On a consolidated basis, we reported underwriting loss of $206 million for the quarter and a combined ratio of 121%.
Gross premiums written for the quarter were $1.1 billion, up $282 million or 33% from the comparable quarter of last year.
Approximately 60% of this growth came from our Casualty segment and 40% came from Property.
Moving now to our Property segment, where gross written premiums increased by $113 million or 36% from the comparable quarter.
The overall combined ratio for the Property segment was 140%, with property catastrophe and other property reporting combined ratios of 159% and 113%, respectively.
We reported a current accident year loss ratio for the Property segment of 122%.
And as we've indicated in the past, our other property class of business is exposed to catastrophe risks with the Q3 2020 large loss events, adding 30 percentage points to its loss ratio.
Favorable development for the Property segment during the quarter was 8%, with property catastrophe experiencing favorable development of 11% and other property experiencing favorable development, up 3%.
The underwriting expense ratio for Property was 26%, which is flat to the comparable quarter.
Now moving on to our casualty segment, where our gross premiums grew $169 million or 31%.
Overall, our casualty combined ratio was 99.9%.
The current accident loss year ratio was 76%, which is seven percentage points higher than the comparable quarter.
First, $10 million of IBNR related to Hurricane Laura in our marine and energy book; second, increased reserves from our private mortgage insurer book, which did not impact the combined ratio; and third, $15 million in ceded premium for our new Lloyd's adverse development cover.
The primary mortgage insurers are required to report loans as delinquent net 60 days without payment even if the loans are in forbearance or payment holiday and otherwise expected to perform long term.
We closed this transaction in August to reinsure the casualty reserves for our Lloyd's syndicate for the 2009 through 2017 underwriting years.
During the third quarter, the casualty segment also experienced favorable development of 3%, driven by a variety of specialty lines.
Now moving to our second driver of profit fee income, where total fee income for the third quarter was $18 million.
Management fees were $30 million, up 23% from the comparable quarter, driven by increases in assets under management at DaVinci, premier and Upsilon.
This was offset by negative $12 million in performance fees due to the impact of catastrophe events on DaVinci and Upsilon.
Year-over-year, total fees are up 8%.
The net noncontrolling interest charge attributable to DaVinci, Medici and Vermeer for the quarter was $19 million.
The $19 million is passed on to our partner capital, reducing our operating earnings accordingly.
We reported total investment results for the third quarter of $308 million with realized and unrealized gains of $224 million.
Our fixed maturity and short-term investment income for the quarter was $70 million, and overall net investment income for the quarter was $84 million, of which we retained $65 million and shared the remainder with partner capital.
Our managed investment portfolio reported yield to maturity of 1% and duration of 2.9 years on assets of $18.6 billion while our retained investment portfolio reported yield to maturity of 1.3% and duration of 3.7 years on assets of $13 billion.
Direct expenses, which are the sum of our operational and corporate expenses, totaled $97 million for the quarter, which is an increase of $30 million from the third quarter of 2019.
The ratio of direct expense to net premiums earned was 10%, an increase of more than two percentage points from the comparable period last year.
This increase was driven by corporate expenses, which increased by $34 million or three percentage points on the corporate expense ratio.
Included in corporate expenses were $32 million related to the loss on sale of RenaissanceRe (U.K.) Limited and associated transaction-related expenses and $5 million of one-off items, including expense related to senior management departures.
Excluding the impact of RenaissanceRe (U.K.) Limited and the one-off items I just described, the ratio of direct expense to net premium earned was 6%.
And the operational expense ratio also declined by 1% point due to the reduction in office travel expense related to COVID-19 restrictions.
Finally, we reported a $17 million foreign exchange gain.
With GCE forbearance speaking at around 6.4% in May, and have been consistently reduced since that time.
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Net income for the quarter was $48 million or $0.94 per diluted common share.
We reported an operating loss of $132 million or $2.64 per diluted common share.
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Second-quarter funds from operations were $1.22 billion or $3.24 per share.
Our international operations continue to be affected by governmental closure orders and capacity restrictions, which cost us roughly $0.06 per share for this quarter compared to our expectations due to the equivalent of a two-and-a-half month of closures.
We generated over $1 billion in cash from operations in the quarter, which was $125 million more than the first quarter.
Domestic-international property NOI combined increased 16.6% year over year for the quarter and 2.8% for the first half of the year.
Malls and outlets occupancy at the end of the second quarter was 91.8%, an increase of 100 basis points compared to the first quarter.
Average base minimum rent was $50.03.
It would add approximately $5 per foot to our average base minimum rent.
We signed nearly 1,400 leases for approximately 5.2 million square feet and had a significant number of leases in our pipeline.
Through the first six months, we signed 2,500 leases for over 900 -- I'm sorry, 9.5 million square feet.
Our team executed leases for 3 million more square feet or over approximately 800 more deals compared to the first six months this year, as well as -- I'm sorry, compared to the first six months of 2019.
We have completed nearly 90% of our expiring leases for 2021.
Total sales for the month of June were equal to June 2019 and up 80% compared to last year and were approximately 5% higher than May sales.
If you exclude two well-known tenants, our mall sales were up 8% more than compared to June of 2019.
The end of the quarter, new development/redevelopment was underway across all our platforms for our share of $850 million.
All of our global brands within SPARC Group outperformed their budget in the quarter on sales, gross margin and EBITDA, led by Forever 21 and Aeropostale.
Their liquidity position is growing, now $1.4 billion, and they do not have any outstanding balance on their line of credit.
Year to date through June, retail sales are 13% higher than the first half of 2019.
We refinanced 13 mortgages in the first half of the year for a total of $2.2 billion in total, our share of which is $1.3 billion at an average interest rate of 2.9%.
Our liquidity is more than $8.8 billion, consisting of $6.9 billion available on our credit facility and $1.9 billion of cash, including our share of JV cash.
And again, our liquidity is net of $500 million of US commercial paper that's outstanding at quarter-end.
We paid $1.40 per share of dividend in cash on July 23 for the second quarter.
That was a 7.7% increase sequentially and year over year.
Today, we announced our third-quarter dividend of $1.50 per share in cash, which is an increase of 7.1% sequentially and 15.4%, 15.4% year over year.
Given our results for the first half of the year, as well as our view for the remainder of 2021, we are increasing our full-year 2021 FFO guidance range from $9.70 to $9.80 per share to $10.70 to $10.80 per share.
This is an increase of $1 per share at the midpoint, and the range represents approximately 17% to 19% growth compared to 2020 results.
First, we expect to generate approximately $4 billion in FFO this year.
That will be approximately 25% increase compared to last year and just 5% below our 2019 number.
To be just 5% below 2019, given all that we've endured over the last 15, 16 months, including significant restrictive governmental orders that forced us to shut down unlike many other establishments is a testament to our portfolio and a real testament to the Simon team and people.
Second, we expect to distribute more than $2 billion in dividends this year.
Our valuation continues to be well below our historical averages when it comes to multiple -- FFO multiples compared to other retail REITs, retailers and the S&P 500.
And our dividend yield is higher than the S&P 500 by more than 250 basis points, treasuries by 325 basis points and the REIT industry by 150 basis points.
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Second-quarter funds from operations were $1.22 billion or $3.24 per share.
Malls and outlets occupancy at the end of the second quarter was 91.8%, an increase of 100 basis points compared to the first quarter.
Today, we announced our third-quarter dividend of $1.50 per share in cash, which is an increase of 7.1% sequentially and 15.4%, 15.4% year over year.
Given our results for the first half of the year, as well as our view for the remainder of 2021, we are increasing our full-year 2021 FFO guidance range from $9.70 to $9.80 per share to $10.70 to $10.80 per share.
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During 2020 we have faced a myriad of new challenges.
Each of our brand, Tommy Bahama, Lilly Pulitzer and Southern Tide, positively contributed to the 52% year-over-year increase in e-commerce sales in the second quarter.
Lilly Pulitzer was the standout, up an extraordinary 142%.
To ensure excellent inventory control, an additional two-day flash sale was held in the second quarter, which generated $15 million from sales at a solid 40% margin.
Even absent flash sale, Lilly Pulitzer's e-commerce business grew 74% over last year.
In contrast to our e-commerce business, consumer traffic in bricks and mortar locations was understandably very challenged in the quarter, driving meaningful revenue decreases in our stores and restaurants.
Across all of our brands, we have only 187 full-price stores and restaurants with most located in premium, off-mall locations such as lifestyle centers, iconic resorts and resort towns and prestigious street fronts.
By the end of 2020 we will have closed approximately 10 locations, including five, which closed in the first half.
Our wholesale channel, which we have been strategically pruning prior to the pandemic and represented approximately 30% of our revenue in 2019, has been significantly impacted by current conditions in the consumer marketplace and the weakness of many retailers going into the COVID crisis.
As part of our plan to focus on only the strongest partners in this channel of distribution, we meaningfully reduced our exposure to department stores, which made up only 11% of our total revenue last year.
We ended the quarter with a strong liquidity position with over $30 million in net cash and over $250 million of availability under our credit facility.
The 36% decrease was driven by lower sales in our retail, restaurant and wholesale channels, partially offset by an increase in e-commerce.
Our gross margin was 55% in the quarter, down from 60% in the second quarter last year.
We're pleased with the cost-reduction efforts taking across Oxford as SG&A decreased 19% or $28 million.
It's important to note that in the second quarter we incurred $10 million on an adjusted basis related to credit losses, including the Tailored Brands bankruptcy, inventory markdowns and fixed asset and operating lease impairments.
Our adjusted loss for the quarter, which included these charges, was $0.38 per share.
We ended the quarter with inventory 3% lower than last year, despite the significant sales decline.
We have ample liquidity to meet our ongoing cash requirement, reflecting the strength of our balance sheet entering the pandemic, as well as the recent actions we have taken to mitigate the COVID-19 impact.
During March 2020, as a proactive measure to bolster cash, our cash position, we drew down on our $325 million asset-based revolving credit facility.
With strong cash flow, we ended the second quarter with $65 million of borrowings, $97 million of cash and unused availability of $257 million.
In our third quarter, which is typically our smallest quarter of the year, we're expecting the year-over-year decline in bricks and mortar traffic to be slightly less pronounced than it was in the second quarter.
As a result of the reduced traffic, a smaller flash sale and continued softness at wholesale, we expect year-over-year revenue to decline in the third quarter at a rate similar to that of the second quarter.
For the fourth quarter, while we don't anticipate a significant rebound in bricks and mortar traffic and wholesale, we believe we will move closer to break-even and expect to return to profitability in fiscal 2021.
Our Board has declared a quarterly dividend of $0.25 per share.
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During 2020 we have faced a myriad of new challenges.
In contrast to our e-commerce business, consumer traffic in bricks and mortar locations was understandably very challenged in the quarter, driving meaningful revenue decreases in our stores and restaurants.
Our adjusted loss for the quarter, which included these charges, was $0.38 per share.
We have ample liquidity to meet our ongoing cash requirement, reflecting the strength of our balance sheet entering the pandemic, as well as the recent actions we have taken to mitigate the COVID-19 impact.
In our third quarter, which is typically our smallest quarter of the year, we're expecting the year-over-year decline in bricks and mortar traffic to be slightly less pronounced than it was in the second quarter.
As a result of the reduced traffic, a smaller flash sale and continued softness at wholesale, we expect year-over-year revenue to decline in the third quarter at a rate similar to that of the second quarter.
For the fourth quarter, while we don't anticipate a significant rebound in bricks and mortar traffic and wholesale, we believe we will move closer to break-even and expect to return to profitability in fiscal 2021.
Our Board has declared a quarterly dividend of $0.25 per share.
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Third-quarter sales were a record $1.44 billion, up 28% over the same period in 2020, and above our expectations.
Organic sales growth was 17%, acquisitions added 11 points, and foreign currency was a modest benefit in the quarter.
Overall orders in the third quarter were $1.55 billion, an increase of 37% over the prior-year period.
While organic orders were up an impressive 30% in the quarter.
We ended the quarter with a record backlog of $2.62 billion, which is up over $800 million from the start of the year.
Third quarter operating income was a record $338 million, a 25% increase over the third quarter of 2020, and operating margins were 23.4%.
Excluding the dilutive impact of acquisitions, core operating margins were 24.7%, up 70 basis points versus the third quarter of 2020.
EBITDA in the third quarter was a record $415 million, up 25% over the prior year, with EBITDA margins of 28.8%.
This outstanding performance led to record earnings of $1.26 per diluted share.
Up 25% over the third quarter of 2020, and above our guidance range of $1.16 to $1.18.
We continue to generate strong levels of cash flow, with third-quarter operating cash flow of $307 million, and free cash flow conversion of 109% of net income.
Sales for AIG were a record $982 million, up 31% over last year's third quarter.
Organic sales were up 15%, acquisitions added 16%, and foreign currency was a modest headwind.
AIG's third-quarter operating income was a record $245 million, up 20% versus the same quarter last year, and operating margins were 25%.
Excluding acquisitions, AIG's core margins were excellent at 27.2% in line with prior year margins.
Third-quarter sales increased 21% versus the prior year to $459 million.
Organic sales were up 20%, and currency added one point to growth.
EMG's operating income in the quarter was a record $115 million, up a robust 36% compared to the prior-year period.
EMG's operating margins expanded an exceptional 270 basis points to a record 25%.
AMETEK has had an excellent year with a record level of capital deployment, leading to the acquisition of 5 highly strategic businesses.
AMETEK is supported, approximately $1.85 billion on acquisitions, thus far this year, reflecting the strength of AMETEK's acquisition strategy and our ability to identify and acquire highly strategic companies.
In the third quarter, we invested over $75 million in RD&E.
And for all of 2021, we now expect to invest approximately $300 million or approximately 5.5% of sales.
For the full year, we now expect overall sales to be up in the low 20% range, versus our previous guide up approximately 20%.
Organic sales are now expected to be up low-double digits on a percentage basis over 2020, as compared to our previous guides of approximately 10%.
Diluted earnings per share for 2021 are now expected to be in the range of $4.76 to $4.78, an increase of approximately 21% over 2020 is comparable basis, and above our prior guide of $4.62 to $4.86 per diluted share.
For the fourth quarter, we anticipate that overall sales will be up in the low 20% range versus last year's fourth quarter.
Fourth-quarter earnings per diluted share are expected to be between $1.28 to $1.30 of 19% to 20% over last year's fourth quarter.
Third-quarter general and administrative expenses were $22.1 million dollars, up $4.8 million from the prior year, largely due to higher compensation expenses.
As a percentage of total sales, G&A was 1.5% for the quarter, unchanged from the prior year.
For 2021, general and administrative expenses are expected to be up approximately $18 million, driven by higher compensation costs were approximately 1.5% of sales, also unchanged from the prior year.
Third-quarter other income and expense was better by approximately $4 million versus last year's third quarter, driven by a $6 million or approximately $0.02 per share gain on the sale of a small product line in the quarter.
This gain on the sale was more than offset by a higher effective tax rate in the quarter of 19.5%, up from 17.5% in the same quarter last year.
For 2021, we now expect our effective tax rate to be between 19.5% and 20%, actual quarterly tax rates can differ dramatically, either positively or negatively from this full-year estimated rate.
Working capital in the quarter was 14.9% of sales, down 210 basis points from the 17%, reported in the third quarter of 2020, reflecting the excellent work of our businesses, and managing working capital.
Capital expenditures in the third quarter were $26 million, and we continue to expect capital expenditures to be approximately $120 million for the full year.
Depreciation and amortization expense in the third quarter was $75 million, for all of 2021 we expect depreciation and amortization to be approximately $295 million including after-tax, acquisition-related intangible amortization of approximately $138 million or $0.60 per diluted share.
In the third quarter, operating cash flow was $307 million, and free cash flow was $281 million.
With free cash flow conversion, 109% of net income.
Total debt at quarter-end was $2.65 billion, up less than $250 million from the end of 2020, despite having deployed approximately $1.85 billion on acquisitions, thus far in 2021.
Offsetting this debt with cash and cash equivalents of $359 million?
In the quarter-end, our gross debt to EBITDA ratio was 1.6 times, and our net debt to EBITDA ratio was 1.4 times.
We continue to have excellent financial capacity and flexibility with approximately $2.25 billion of cash and existing credit facilities to support our growth initiatives.
To summarize our businesses drove outstanding results in the third quarter, and throughout the first 9 months of 2021.
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Third-quarter sales were a record $1.44 billion, up 28% over the same period in 2020, and above our expectations.
This outstanding performance led to record earnings of $1.26 per diluted share.
AIG's third-quarter operating income was a record $245 million, up 20% versus the same quarter last year, and operating margins were 25%.
Organic sales were up 20%, and currency added one point to growth.
For the full year, we now expect overall sales to be up in the low 20% range, versus our previous guide up approximately 20%.
Diluted earnings per share for 2021 are now expected to be in the range of $4.76 to $4.78, an increase of approximately 21% over 2020 is comparable basis, and above our prior guide of $4.62 to $4.86 per diluted share.
For the fourth quarter, we anticipate that overall sales will be up in the low 20% range versus last year's fourth quarter.
Fourth-quarter earnings per diluted share are expected to be between $1.28 to $1.30 of 19% to 20% over last year's fourth quarter.
For 2021, we now expect our effective tax rate to be between 19.5% and 20%, actual quarterly tax rates can differ dramatically, either positively or negatively from this full-year estimated rate.
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Companywide revenues were $1.19 billion in the third quarter of 2020, down 23% from last year's third quarter on a reported basis and down 24% on an as-adjusted basis.
Net income per share in the third quarter was $0.67 compared to $1.01 in the third quarter a year ago.
Cash flow from operations during the quarter was $139 million and capital expenditures were $7 million.
In September, we distributed a $0.34 per share cash dividend to our shareholders of record, for a total cash outlay of $38 million.
We also acquired approximately 450,000 shares during the quarter for $24 million.
We have 1 million shares available for repurchase under our Board-approved stock repurchase plan.
Return on invested capital for the company was 25.8% in the third quarter.
As Keith noted, global revenues were $1.190 billion in the third quarter.
This is a decrease of 23% from the third quarter one year ago on a reported basis and a decrease of 24% on an as-adjusted basis.
Also on an as-adjusted basis, third quarter staffing revenues were down 31% year-over-year.
U.S. Staffing revenues were $666 million, down 32% from the prior year.
Non-U.S. Staffing revenues were $203 million, down 29% year-over-year on an as-adjusted basis.
We have 326 staffing locations worldwide, including 88 locations in 17 countries outside the United States.
In the third quarter, there were 64.3 billing days compared to 64.1 billing days in the third quarter one year ago.
The current fourth quarter has 61.7 billing days equivalent to the fourth quarter of one year ago.
Currency exchange rate movements during the third quarter had the effect of increasing reported year-over-year staffing revenues by $4 million.
This increased our year-over-year reported staffing revenue growth rate by 0.3 percentage points.
Global revenues in the third quarter were $321 million.
$260 million of that is from business within the United States, and $61 million is from operations outside the United States.
On an as-adjusted basis, global third quarter Protiviti revenues were up 6% versus the year-ago period, with U.S. Protiviti revenues up 10%.
Non-U.S. revenues were down 8% on an as-adjusted basis.
Exchange rates had the effect of increasing year-over-year Protiviti revenues by $2 million and increasing its year-over-year reported growth rate by 0.7 percentage points.
Protiviti and its independently owned member firms serve clients through a network of 86 locations in 28 countries.
In our temporary and consultant staffing operations, third quarter gross margin was 37.5% of applicable revenues compared to 37.9% of applicable revenues in the third quarter one year ago.
Our permanent placement revenues in the third quarter were 10% of consolidated staffing revenues versus 10.7% of consolidated staffing revenues in the same quarter one year ago.
When combined with temporary and consultant gross margin, overall staffing gross margin decreased 80 basis points compared to the year-ago third period to 43.8%.
For Protiviti, gross margin was $87 million in the third quarter or 27.1% of Protiviti revenues.
This includes $3.4 million or 1.1% of Protiviti revenues of deferred compensation expense related to increases in the underlying trust investment accounts.
One year ago, gross margin for Protiviti was $88 million or 29.4% of Protiviti revenues, including $200,000 of deferred compensation expense related to investment trust activities.
Companywide SG&A costs were 32.8% of global revenues in the third quarter compared to 31.2% in the same quarter one year ago.
Deferred compensation expenses related to increases in underlying trust investments had the impact of increasing SG&A as a percentage of revenue by 1.9% in the current third quarter and 0.1% in the same quarter one year ago.
Staffing SG&A costs were 40.2% of staffing revenues in the third quarter versus 34.8% in third quarter of 2019.
Included in staffing SG&A costs was deferred compensation expense related to increases in the underlying trust investment assets of 2.6% and 0.1% respectively.
Third quarter SG&A costs for Protiviti were 13% of Protiviti revenues compared to 16.2% of revenues in the year-ago period.
Operating income for the quarter was $77 million.
This includes $26 million of deferred compensation expense related to increases in the underlying investment trust assets.
Combined segment income was therefore $103 million in the third quarter.
Combined segment margin was 8.6%.
Third quarter segment income from our staffing divisions was $54 million, with a segment margin of 6.2%.
Segment income for Protiviti in the third quarter was $49 million with a segment margin of 15.2%.
Our third quarter tax rate was 26% compared to 28% a year ago.
Our nine-month year-over-year tax rate of 28% is in line with what we expect for the full year.
Moving on to accounts receivable, at the end of the third quarter, accounts receivable were $690 million and implied days sales outstanding or DSO was 52.3 days.
Our temporary and consultant staffing divisions exited the third quarter with September revenues down 29.3% versus the prior year compared to a 30.7% decrease for the full quarter.
Revenues in the first two weeks of October were down 27% compared to the same period one year ago.
Permanent placement revenues in September were down 30.1% versus September of 2019.
This compares to a 35.7% decrease for the full quarter.
For the first three weeks in October, permanent placement revenues were down 31% compared to the same period in 2019.
Revenues of $1.155 billion to $1.255 billion; income per share $0.55 to $0.75.
The midpoint of our guidance implies a year-over-year revenue decline of 22% on an as-adjusted basis inclusive of Protiviti.
Revenue growth on a year on year basis, staffing down 27% to 30%; Protiviti up 5% to 7%; overall down 21% to 23%.
On the gross margin percentages, Temporary and Consultant Staffing 37% to 38%; Protiviti 27% to 29%; overall 39% to 40%.
SG&A as percentage of revenues, excluding deferred compensation investment impacts, staffing 36% to 38%; Protiviti 14% to 16%; overall 30% to 32%.
Segment income, Staffing 6% to 8%; Protiviti 12% to 15%; overall 8% to 10%.
We expect our tax rate to be between 27% and 29% and shares to be 113 million.
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Companywide revenues were $1.19 billion in the third quarter of 2020, down 23% from last year's third quarter on a reported basis and down 24% on an as-adjusted basis.
Net income per share in the third quarter was $0.67 compared to $1.01 in the third quarter a year ago.
Return on invested capital for the company was 25.8% in the third quarter.
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Our fourth quarter organic sales declined to roughly 1%, reflecting the impact of a resurgence of COVID-19 infections offset by a continuation of emergent procedures and strong performance by our large capital products.
Throughout the quarter, we maintained the financial discipline instituted at the beginning of a pandemic which combined with a favorable tax rate, led to an adjusted earnings per share of $2.81 in the quarter, up approximately 13% versus 2019.
And we delivered impressive cash flow from operations which exceeded $3 billion for the full year.
This slowdown in elective procedures had a negative impact on our more deferrable businesses, which make up approximately 40% to 50% of our total sales.
During the year, our Mako install base grew by 33% and exceeded another milestone with over 100 robots sold and installed in the fourth quarter.
In the fourth quarter, approximately 44% of our total knees will make their knee procedures, a trend that continues to increase.
The shift toward cementless knees also continued and in the fourth quarter, cementless knees made up 42% of our U.S. knee procedures.
The combination of Stryker and Wright will continue to drive innovation that enhances our customers' ability to address patient needs across to more than $3 billion extremities market.
Our organic sales decline was 1.1% in the quarter.
Pricing in the quarter was unfavorable 0.8% from the prior year, while foreign currency had a favorable 1.2% impact on sales.
For the quarter, U.S. organic sales declined 1.5%, reflecting the slowdown in elective procedures as a result of the pandemic, somewhat offset by strong demand for Mako, medical products, and neurovascular products.
Organic sales decline for the year was 4.8%, with a U.S. decline of 5.8%, and an international decline of 2.1%.
2020 had one additional selling day compared to 2019 and for the year, price had an unfavorable 0.7% impact on sales.
Our adjusted quarterly earnings per share of $2.81 increased 12.9% from the prior year, reflecting strong financial discipline, good operating expense control, and a favorable operational tax rate.
Our fourth quarter earnings per share was positively impacted by $0.03 from foreign currency.
Our full-year earnings per share was $7.43, which is a decline of 10%, reflecting the impact of lower sales, especially in Q2, as well as the impact of idling certain manufacturing facilities during the year, offset by strong expense discipline throughout the year.
Orthopaedics had constant currency sales growth of 2.8% and an organic sales decline of 5.8%, including an organic decline of 5.7% in the U.S.
This reflects a slowdown in elective procedures related to COVID-19 and a very strong prior-year comparable as Q4 2019 U.S. organic growth was 7.2%.
Other ortho grew 12.3% in the U.S., primarily reflecting strong demand for our Mako robotic platform, partially offset by declines in bone cement.
Internationally, orthopaedics declined 6% organically, which also reflects the COVID-19 related to procedural slowdown, especially in Europe.
On a comparable basis for the full year, Wright had a 10.3% decline, mainly driven by the COVID-19 related slowdown in the second quarter.
In the quarter, MedSurg had constant currency growth of 1.5% and organic growth of 1.3%, which included 2.2% growth in the U.S. Instruments had U.S. organic sales growth of 4.5%.
Endoscopy had a U.S. organic sales decline of 7% primarily impacted by the slowdown in the capital businesses offset by gains in the sports medicine business, which grew over 9% in the quarter.
The medical division had U.S. organic growth of 9.7% reflecting solid performances in patient care, emergency care, and its Sage businesses.
Internationally, MedSurg had an organic sales decline of 2.4%, reflecting a general slowdown in instruments and endoscopy businesses and strong comparables across most geographies.
Neurotechnology and Spine had constant currency and organic growth of 2.1%.
Our U.S. neurotech business posted an organic decline of 1.2% as procedural deferrals impacted sales in the quarter.
Internationally, Neurotechnology and Spine had organic growth of 13.5%.
Our adjusted gross margin of 65.1% was unfavorable approximately 120 basis points from the prior-year quarter.
Adjusted R&D spending was 5.5% of sales.
Our adjusted SG&A was 30.3% of sales, which was favorable to the prior-year quarter by 200 basis points.
In summary for the quarter, our adjusted operating margin was 29.2% of sales, which is a 90 basis points improvement over the prior-year quarter and reflects the impact of the spending discipline previously discussed.
Our fourth quarter had an adjusted effective tax rate of 8%.
Our full-year effective tax rate was 12.6%.
And we expect our full-year effective tax rate to be in the range of 15.5% to 16.5%.
Focusing on the balance sheet, we ended the year with $3 billion of cash and marketable securities, and total debt of $14 billion.
During the quarter, we executed the Wright Medical acquisition, which resulted in the disbursement of $5.6 billion, inclusive of the retirement of Wright's convertible debt.
Turning to cash flow, our year-to-date cash from operations was approximately $3.3 billion.
We will not be repurchasing any shares and we anticipate that capital expenditures will be approximately $650 million.
Anticipating a more normalized year in 2021 and a ramping of investment in our businesses, we expect the free cash flow conversion rate as a percent of adjusted net earnings, including the one -- excluding the one-time impacts from the Wright Medical integration, about 70% to 80%.
Given this variability, we expect organic sales growth to be in the range of 8% to 10% for the full year 2021 when compared to 2019.
Consistent with the pricing environment experienced in both 2019 and 2020, we would expect continued unfavorable price reductions of approximately 1%.
However, excluding the dilutive impact from Wright, we do anticipate expansion of 30 to 50 basis points of operating margin in 2021 for our legacy Stryker business compared to 2019.
Finally, for 2021, we expect adjusted net earnings per diluted share to be in the range of $8.80 to $9.20 for the full year.
This includes the previously announced $0.10 dilution, driven by the addition of the Wright Medical business for the full year.
We also reiterate our previous guidance on cost-saving synergies from the deal of approximately $100 million to $125 million over the next three years.
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Throughout the quarter, we maintained the financial discipline instituted at the beginning of a pandemic which combined with a favorable tax rate, led to an adjusted earnings per share of $2.81 in the quarter, up approximately 13% versus 2019.
Our organic sales decline was 1.1% in the quarter.
Our adjusted quarterly earnings per share of $2.81 increased 12.9% from the prior year, reflecting strong financial discipline, good operating expense control, and a favorable operational tax rate.
Given this variability, we expect organic sales growth to be in the range of 8% to 10% for the full year 2021 when compared to 2019.
Finally, for 2021, we expect adjusted net earnings per diluted share to be in the range of $8.80 to $9.20 for the full year.
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We've established the Samuel Adams Restaurant Strong Fund and donated over $2.1 million to support bar and restaurant workers that have been impacted by pandemic-related closures in 20 states.
Both funds will distribute 100% of their proceeds through grants to bar and restaurant workers.
The Company's depletions increased 36% in the first quarter, of which 30% is from Boston Beer legacy brands and 6% is from the addition of Dogfish Head brands.
Pre-COVID, our depletions growth through the nine-week period ended February 29 was approximately 32% from the comparable period in 2019, and we saw a further acceleration in demand for our brands beginning in the second half of March.
Based on information in hand, year-to-date depletions reported to the Company through the 15 weeks ended April 11, 2020 are estimated to have increased approximately 32% from the comparable weeks in 2019.
Excluding the Dogfish Head impact, depletions increased 27%.
For the first quarter, we reported net income of $18.2 million or $1.49 per diluted share, a decrease of $0.53 per diluted share from the fourth quarter of last year.
Prior to then, we were on track to maintain our full year fiscal 2020 financial guidance.
To date, the direct impact of the pandemic has primarily shown in significantly reduced keg demand from the on-premise channel and higher labor and safety related costs at our breweries.
In the first quarter of 2020, we recorded COVID-19 pre-tax related reductions in net revenue and increases in other costs totaling $10 million.
This amount consists of a $5.8 million reduction in net revenue for estimated keg returns from distributors and retailers and $4.2 million of other COVID-19 related direct costs, of which $3.6 million are recorded in cost of goods sold and $600,000 are recorded in operating expenses.
Shipment volume was approximately 1.42 million barrels, a 32.2% increase from the first quarter of 2019.
Excluding the addition of the Dogfish Head brands beginning July 3, 2019, shipments increased 27.5%.
Our first quarter 2020 gross margin of 44.8% decreased from the 49.5% margin realized in the first quarter of last year.
Excluding our current assessment of the impact of COVID-19 keg returns and other related direct costs, first quarter gross margin was 46.8%.
First quarter advertising, promotional and selling expense increased by $26.2 million in the first quarter in 2019, primarily due to increased investments in media, production and local marketing, the addition of Dogfish Head brand-related expenses beginning July 3, 2019, higher salaries and benefits costs, and increased freight to distributors due to higher volumes.
General and administrative expenses increased by $3.6 million from the first quarter in 2019, primarily due to increases in salaries and benefits costs and the addition of Dogfish Head general and administrative expenses beginning July 3, 2019.
We drew down $100 million from our existing line of credit in March 2020 to enhance our cash position and our ability to address the impact of the COVID-19 pandemic.
We expect that our March 28, 2020 cash balance of $129.5 million, together with future operating cash flows and the $50 million remaining in our line of credit, will be sufficient to fund future cash requirements.
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Pre-COVID, our depletions growth through the nine-week period ended February 29 was approximately 32% from the comparable period in 2019, and we saw a further acceleration in demand for our brands beginning in the second half of March.
Based on information in hand, year-to-date depletions reported to the Company through the 15 weeks ended April 11, 2020 are estimated to have increased approximately 32% from the comparable weeks in 2019.
For the first quarter, we reported net income of $18.2 million or $1.49 per diluted share, a decrease of $0.53 per diluted share from the fourth quarter of last year.
Prior to then, we were on track to maintain our full year fiscal 2020 financial guidance.
To date, the direct impact of the pandemic has primarily shown in significantly reduced keg demand from the on-premise channel and higher labor and safety related costs at our breweries.
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You've seen the numbers, essentially 100% of our theaters were closed for the first two months of the quarter and the 80% that we reopened for the final month of the quarter, we're only operating with a limited number of new films.
We incurred approximately $1.6 million of additional property closure and subsequent reopening expenses with the majority of the expenses in our Theater division.
We also incurred an impairment charge of nearly $800,000 this quarter related to several theater properties and an impairment charge of another $800,000 related to an investment in hotel joint venture.
Our effective income tax rate was 26.9% during the third quarter and 37.3% for the first three quarters of the year.
As we discussed last quarter, our year-to-date fiscal 2020 income tax benefit was favorably impacted by an adjustment of approximately $17.4 million resulting from several accounting method changes and the March 27, 2020 signing of the CARES Act.
One of the provisions of the CARES Act specifically designed to help otherwise healthy tax paying companies like us that were significantly impacted by the COVDI-19 pandemic, allows our 2019 and 2020 taxable losses to be carried back to prior fiscal years, during which our federal income tax rate was 35% compared to the current statutory federal income tax rate of 21%.
Excluding this favorable adjustment to income tax benefit, our effective income tax rate for the first three quarters of fiscal 2020 was 24.5%.
We anticipate that our effective income tax rate for the remaining quarter fiscal 2020 may be in the 28%, 29% range due to an expected taxable loss during fiscal 2020 that will continue to allow us to carry back a portion of the loss for years that had a 35% federal income tax rate.
Shifting gears away from the earnings statement just for a moment, our total cash capital expenditures during the first three quarters of fiscal 2020 totaled approximately $19 million compared to approximately $80 million last year, which included the cash component of the Movie Tavern acquisition.
We only spent about $2.8 million during the third quarter.
Now our overall attendance was down over 95% compared to the prior year third quarter because we were closed for two of the three months, attendance at comparable theaters, same theaters opened and same weeks opened, was down approximately 85%.
Our average admission price at our comparable theaters during the weeks we were opened increased 0.6% during the third quarter and 2% for the first three quarters of fiscal 2020 compared to the prior year period.
Our average admission price was unfavorably impacted by the fact that we continue to charge only $5 for older library film product and we only apply our regular pricing to new films.
We are very pleased to report an increase in our average concession and food and beverage revenues per person at our comparable theaters of 28% for the third quarter, and 7.2% for the first three quarters of fiscal 2020.
Shifting to our Hotels & Resorts division, our total revenue per available room or RevPAR for our seven comparable owned hotels for the third quarter and first three quarters decreased 58.2% during the third quarter and 44.3% during the first three quarters of fiscal 2020 compared to the last year's same periods.
Now according the data received from Smith Travel Research and compiled by us in order to compare our fiscal quarter results, comparable upper upscale hotels throughout the United States experienced a decrease in RevPar of 67.1% during our fiscal 2020 third quarter and were down 59.7% year-to-date.
Meanwhile, competitive hotels in our collective markets experienced a decrease in RevPar of 71.4% and 68%, respectively, during our third quarter and first three quarters.
Breaking out the numbers for all seven of our open hotels more specifically, our fiscal 2020 third quarter overall RevPAR decreased was due to an overall occupancy rate decrease of 46.4 percentage points, and a 5.3% decrease in our average daily rate or ADR. Year-to-date, our fiscal 2020 first three quarters overall RevPAR increase -- or decrease was due to an overall occupancy rate decrease of 28.6% -- 28.6 percentage points and a 10.2% decrease in our ADR. Our third quarter occupancy rate for our seven comparable hotels for the weeks that they were opened was 36.6%.
Our debt-to-capitalization ratio at the end of 2019 was a very modest 26%.
Even after reporting the two worst quarters we've ever experienced in our 85-year history, our net debt-to-capitalization ratio at the end of the third quarter was still a very low 35%.
Of course, we also own the underlying real estate for seven of our company-owned hotels in the majority of our theaters, representing over 60% of our screens and even larger percentage of our revenues and cash flow, thereby reducing our monthly fixed lease payments.
We also shared with you last quarter that we filed our income tax refunds of $37.4 million in early August, with the primary benefit derived from the accounting method changes, I referenced earlier.
I'm pleased to tell you that we've received approximately $31 million of those refunds in October after the end of the third quarter, with an additional $6 million expected soon.
We also expect to apply a significant portion of our anticipated tax loss to be incurred in fiscal 2020 to prior year income, which may also result in a refund that we expect may approximate $21 million in fiscal 2021, when our fiscal 2020 tax return is filed, with possible tax loss carry-forwards that may be used in future years as well.
You'll also note that we begun reporting assets held for sale on our balance sheet, primarily -- related primarily to the book value of surplus real estate that we believe will monetized during the next 12 months now.
Now we actually have significantly more real estate that we have the potential to monetize in the next 12 months to 18 months.
As you know, on April 29, 2020 we amended our existing credit agreement and issued a new $90.8 million, 364-day senior term loan A to further support our already strong balance sheet.
On September 22, we extended the maturity date of the term loan to September in 2021 amended our debt covenants and issued $100.05 million in convertible senior notes.
We used a portion of the proceeds from this issuance to purchase capped call transactions that effectively increase the conversion rate of the convertible senior notes from 22.5% to 100%, significantly reducing potential dilution related to the convertibles.
Thus, after deducting cost of the debt issuance, we added an additional $78.6 million in liquidity to our balance sheet.
As a result, as of September 24, 2020, we had cash and revolving credit availability of over $218 million and that's not counting the $31 million of income tax refunds received in October.
Our adjusted EBITDA during the second quarter when we were essentially completely closed was a negative $30 million and our adjusted EBITDA during the third quarter was a negative $26 million.
Even when you add interest expense to that number, with a combined nearly $250 million in cash and revolving credit availability when you add in the October income tax refunds received, plus future income tax refunds remaining in 2020 and future potential income tax refunds in 2021, you can see why we indicate that we believe the additional financing positions us to continue to sustain our operations throughout fiscal 2021, even if our properties continue to generate significantly reduced revenues or have to reclose for a period due to the effects of the COVID-19 pandemic.
As Doug shared earlier, we entered this crisis from a position of strength with a debt to capitalization ratio of 26%.
As an example, high yield debt, another long-term option many borrowers, including some of our peers have availed themselves of typically requires a minimum sizing $300 million range.
But purchasing the cap call in conjunction with our issuance, we were able to effectively increase the strike price of the convertible from 22.5% of our closing stock price to 100% of our closing stock price, significantly reducing any dilution concerns that would typically arise from a convertible issuance.
Our capped call transactions effectively increased the strike price of the convertible notes to $17.98 -- $18 almost which significantly reduces the potential dilution arising from these notes.
For example, at a $20 future stock price dilution is estimated to be only approximately 3% and a $25 future price dilution claims to a very modest 8.2% level.
And overall, 37% occupancy rate is nothing to get too excited about compared to what we are used to during our third quarter.
The expansion is currently expected to be completed in late 23 -- 2023 or early 2024.
Forecasting what future RevPAR growth or decline will be during the next 18 months to 24 months is very difficult at this time.
After past shocks to the system, such as 9/11 and the 2008 financial crisis, hotel demand took longer to recover than other components of the economy.
To get 96% of a group of people to agree on anything is virtually impossible these days.
As a result, we made the difficult decision to reclose 17 theaters in early October and reduced our operating hours and operating days at our remaining open theaters.
We've since reopened three theaters in Nebraska as well meaning that as I speak to you today, 59 theaters opened representing approximately 66% of our circuit.
And in fact, when we pulled our guests, our loyalty club 60% of them said the reason they weren't coming because there was, there were no movies to see.
It did $44 million in its first weekend that compared to give you an idea of the relative performance to Frozen 2, which did $30 million.
In other words, our math has improved and we have 66% of our theaters opened today because we think it is better to be open, better for the customer sake, better for the associates sake and better for the overall business sake.
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As a result, we made the difficult decision to reclose 17 theaters in early October and reduced our operating hours and operating days at our remaining open theaters.
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Similarly, we will refer to our 6% to 8% non-GAAP utility earnings per share target growth rate as utility earnings per share growth rate.
First, we delivered very strong results for the first quarter of 2021, including $0.47 of utility EPS.
In addition, our first quarter results are in line with recent historical trends in which the first quarter contributed close to 40% of the full year utility EPS.
We are, of course, reaffirming our full year utility earnings per share range for 2021 of $1.24 to $1.26 and our long-term 6% to 8% utility earnings per share annual growth target.
The landmark valuation was 2.5 times 2020 rate base.
We saw extraordinary interest from over 40 parties, 17 of which made bids, including strategics, infrastructure funds and PE firms.
You sell at 2.5 times rate base and invest at 1 times rate base.
Our Investor Day plan highlighted that we had the opportunity to spend an additional $1 billion over our current $16 billion five-year capital plan.
At this price, the LDC transaction will provide us with $300 million of incremental proceeds on an after-tax basis compared to the five-year plan we showed you on our Analyst Day.
We will first look to deploy this $300 million in incremental proceeds into high-value utility capital spend opportunities that are part of those additional $1 billion in capital opportunities.
On the contrary, we believe this will even more strongly support consistent 6% to 8% utility earnings annual growth rate in our industry-leading 10% rate-based CAGR targets.
And to reiterate what we said when we announced the news of a transaction back in February, completing this transaction also will not change our 6% to 8% utility earnings per share annual growth target or our 10% rate base CAGR.
First, in part by actively engaging, auditing and challenging our gas suppliers, we have reduced our incremental gas costs by over $300 million since our initial estimates, resulting in reduced customer incremental gas cost exposure of $2.2 billion.
We remain on course for a $16 billion-plus capital spending program and industry-leading 10% compounded annual rate base growth target over the next five years.
For 2021, we are on track to spend the full $3.4 billion outlined on our Investor Day.
As stated previously, we have opportunities above our current $16 billion five-year plan and the $300 million in incremental proceeds from the ultimate sale of our Arkansas and Oklahoma LDC assets transaction will provide additional capacity for us to pursue some of these, if we so choose.
Despite the impact of COVID, we again saw about 2% growth rates quarter-over-quarter, reinforcing the value of the fast-growing markets that we serve.
We are on track to reduce O&M by 2% to 3% in 2021.
On a GAAP basis, we reported $0.56 for the first quarter of 2021 compared to a loss of $2.44 for the first quarter of 2020.
We reported $0.59 of non-GAAP earnings per share for the first quarter of 2021 compared to $0.60 for the first quarter of 2020.
Our utility earnings per share was $0.47 for the first quarter of 2021, while midstream investments contributed another $0.12 of EPS.
The notable drivers when comparing the quarters are strong customer growth across all of our jurisdictions and rate recovery, which makes up $0.05 of the favorable impact.
Our disciplined O&M management contributed another $0.03 of positive variance for the quarter.
The growth drivers were partially offset by the $0.09 from share dilution due to the large equity issuance back in May 2020 and $0.03 due to the nonrecurring CARES Act benefit we received last year.
As shown on the slide, this transaction priced at $2.15 billion, inclusive of $425 million of incremental gas cost recovery.
The $1.725 billion in proceeds, after the natural gas cost recovery, represents a multiple of 2.5 times 2020 rate base and a multiple of 38 times 2020 earnings for those businesses.
This earnings multiple is based on the purchase price of $1.725 billion, reduced by approximately $340 million of implied regulatory debt compared to $36 million of 2020 full year earnings.
The net proceeds from this sale are estimated to be $1.3 billion after tax and closing costs as our Arkansas and Oklahoma assets have a relatively low tax basis of approximately $300 million.
Therefore, the headline is the competitive auction process will, at close, result in generating an additional $300 million in after-tax proceeds than what was assumed in the original five year plan.
To zero in on the use of the incremental $300 million of proceeds, we will prioritize funding an increase in our capital investment plan.
As a reminder, we will have $385 million of energy transfer preferred units that we can liquidate at any time after the merger closes.
The $200 million of Energy Transfer common units we will receive in the merger will be registered through a process that will likely take two to three months after close.
As we've noted in the past, our negative tax bases at Enable will carry over to Energy Transfer units and will result in an effective 50% tax on the sale.
As a result, I'd like to reaffirm that the sale of the Energy Transfer units will not change our utility earnings per share growth target of 6% to 8% annually.
As Dave mentioned, we have actively worked with suppliers, which has, in part, helped to reduce the overall incremental gas costs from the winter storm to $2.2 billion, down from $2.5 billion we signaled last quarter.
Between the securitization, the sale of the gas LDCs and the interim rate recovery, we now expect between $1.6 billion and $1.7 billion of the total incremental gas costs to be recovered before the one year anniversary of the storm, assuming the Texas securitization bill is signed into law.
We closed our $1.7 billion CERC senior notes offering on March 2, which included $1 billion of floating rate notes and $700 million of fixed rate notes, both due in 2023.
The proceeds for the $1.7 billion issuance were used to pay for the incremental gas costs for the winter storm and the notes have an optional redemption date at any time on or after September two of this year, giving us full flexibility to pay down this debt consistent with our regulatory recoveries.
Our current liquidity remains strong at approximately $2.1 billion after the issuance of the senior notes proceeds and the payments made for the incremental gas costs.
Our long-term FFO to debt objective is between 14% and 14.5% and is consistent with the expectations of the rating agencies.
Our growth rate target of 10% outstrips the peer average of about 7%.
Our resulting utility earnings per share growth target at 6% to 8% every year is well above the peer average of 5%.
And our customer growth at 2% is something we would celebrate at my old company, with top quartile customer satisfaction, we still seek to hold down customer price increases, reducing our O&M cost by 1% to 2% every year.
Five months ago, we showed you our five year plan to reduce costs 1% to 2% each year.
We plan for a fast start with 2021, down 2% to 3%, with results in the first quarter faster yet.
We still expect to reduce costs by about 2% to 3% for the year.
We will continue to deliver sustainable, predictable and consistent 6% to 8% earnings growth year after year.
With our industry-leading organic customer growth and our disciplined O&M management, we believe we can generate robust capex and 10% rate base growth while continuing our focus on safety.
We have executed on our capital recycling strategy through our announced gas LDC sale at 2.5 times rate base and investing at 1 times rate base, and we will continue to explore opportunities to do more of this.
While myself, our team and our employees are only 10 months into this new journey, I could not be more pleased by the momentum we have, what we've accomplished and the bright future we see for CenterPoint.
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We are, of course, reaffirming our full year utility earnings per share range for 2021 of $1.24 to $1.26 and our long-term 6% to 8% utility earnings per share annual growth target.
We remain on course for a $16 billion-plus capital spending program and industry-leading 10% compounded annual rate base growth target over the next five years.
On a GAAP basis, we reported $0.56 for the first quarter of 2021 compared to a loss of $2.44 for the first quarter of 2020.
We reported $0.59 of non-GAAP earnings per share for the first quarter of 2021 compared to $0.60 for the first quarter of 2020.
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We delivered $205.9 million of adjusted EBITDA in 2020, exceeding our revised guidance range of $190 million to $200 million.
Earlier this year, we announced the companywide cost savings initiative, which we anticipate will result in approximately $10 million of annualized savings.
The domestic coke operations contributed $217 million to adjusted EBITDA in 2020, which exceeded the revised guidance range for domestic coke.
Another significant achievement for SunCoke in 2020 is the extension of existing contracts at Jewell, Haverhill 1 and Haverhill 2.
Looking at our capital structure and deployment of free cash flow in 2020, we reduced gross debt by $110 million and net debt by approximately $61 million.
This includes the opportunistic open-market purchases of approximately $63 million face value senior notes.
Additionally, we paid a $0.24 per share annual dividend and repurchased 1.6 million shares during the first quarter.
The fourth quarter net loss attributable to SXC was $0.06 per share, down $0.04 versus the fourth quarter of 2019.
On a GAAP basis, our full year 2020 net income attributable to SXC was $0.04 per share, up $2.02 versus the full year of 2019.
As a reminder, full year 2019 results included a $2.27 per share impairment charge recorded to Logistics goodwill and long-lived asset at CMT. After adjusting for these charges, 2020 diluted earnings per share was $0.25 lower than the prior year, due primarily to lower volumes at both the domestic coke and logistics segments.
Consolidated adjusted EBITDA for the fourth quarter of 2020 was $37 million, down $13.8 million versus the fourth quarter of 2019.
On a full year basis we delivered adjusted EBITDA of $205.9 million, down $42 million versus the full year of 2019.
Coke operations were down $12.2 million due to lower volumes, which were partially offset by lower operating costs.
In exchange for the extension of several coke contracts, we agreed to reduce our coke production in 2020 by approximately 550,000 tons.
Logistics operations were $1.8 million lower quarter-over-quarter due to lower volumes as well as lower pricing, which was offset partially by lower operating costs.
Corporate and other expenses were higher by $2.9 million quarter-over-quarter, mainly due to higher non-cash legacy liability expense.
Full year 2020 adjusted EBITDA was $205.9 million down $42 million compared to the prior year.
The Domestic Coke segment delivered full-year adjusted EBITDA of approximately $217 million, which was well above our full year revised Domestic Coke guidance.
Including Brazil, our coke operations delivered adjusted EBITDA of $230.5 million.
Adjusted EBITDA of the Logistics segment decreased $25.3 million year-over-year, primarily as a result of the Chapter 11 bankruptcy of Foresight Energy and the subsequent rejection of the contract with CMT. Finally, our corporate and other segment was unfavorable by $4.5 million.
As Mike highlighted, we generated very strong operating cash flow, approximately $158 million in the year, which was above our full year revised guidance range of $116 million to $136 million.
Capex of $74 million was spent during the year, which was below our guidance and included close to $11 million for foundry related expansion work.
During the year we spent approximately $104 million of cash to reduce debt outstanding by $110 million.
This includes repurchasing $62.7 million face value SXCP notes at a discount.
As we have consistently indicated our long-term goal is to reduce our gross leverage ratio down to 3 times or lower.
We repurchased approximately 1.6 million shares for $7 million during the first quarter.
We also paid a total of $0.24 per share dividend in 2020 which was the use of cash of approximately $20 million.
In total, we ended 2020 with a cash balance of approximately $48 million and a strong liquidity position of approximately $348 million, setting the stage for continued progress against our capital allocation priorities in 2021.
Prior to the pandemic, utilization rates were stable at around 80%, reflecting good fundamental demand.
As the coronavirus took hold, capacity utilization [Indecipherable] dramatically to a low of 52% with all major integrated steel producers shutting down blast furnaces.
API2 prices increased by approximately 15% in the fourth quarter versus the prior quarter.
We expect 2021 adjusted EBITDA to be between $215 million and $230 million.
Domestic Coke will contribute an incremental $2 million to $7 million in 2021 as we run our Domestic Coke fleet at full capacity with uncontracted capacity being sold into the export and foundry markets.
Turning to Logistics segment, we expect logistics to contribute an additional $3 million to $8 million in 2021.
Lastly, we expect our Corporate and Other segment to be better by approximately $4 million to $8 million.
In 2021, we expect our Domestic Coke adjusted EBITDA will be between $219 million and $224 million with sales of approximately 4.1 million tons.
Approximately 3.85 million tons are contracted under long-term take-or-pay agreements.
For example, due to the differences in the production price -- process, a single ton of foundry coke replaces approximately 2 tons of blast furnace coke.
These differences are reflected in our sales estimates of 4.1 million tons.
The total sales volume for foundry and export coke is expected to be between 250,000 tons and 270,000 tons, which is the blast furnace equivalent of approximately 400,000 tons.
2021 Logistics adjusted EBITDA is expected to be between $20 million and $25 million, an increase of $3 million to $8 million versus 2020.
As discussed earlier, we have a new contract with Javelin, which included a 4 million ton take-or-pay volume agreement for 2021 and 3 million tons for 2022.
Given the current coal export market and looking at the API2 forward curve, we are projecting between 4 million tons and 5 million tons of coal to be exported from CMT in 2021.
Our value estimates include between 2.5 million to 3 million tons of non-coke throughput such as pet coke, aggregates and iron ore.
We expect to handle 10.5 million tons through our domestic coal terminals in 2021 versus approximately 9.5 million tons handled in 2020.
Once again, we expect adjusted EBITDA to be between $215 million and $230 million in 2021.
We anticipate our capex requirement in 2021 will be around $80 million.
Our free cash flow is expected to be between $80 million and $100 million after taking into account cash interest, cash taxes, capital expenditures and minimal working capital changes.
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The fourth quarter net loss attributable to SXC was $0.06 per share, down $0.04 versus the fourth quarter of 2019.
Prior to the pandemic, utilization rates were stable at around 80%, reflecting good fundamental demand.
We expect 2021 adjusted EBITDA to be between $215 million and $230 million.
In 2021, we expect our Domestic Coke adjusted EBITDA will be between $219 million and $224 million with sales of approximately 4.1 million tons.
These differences are reflected in our sales estimates of 4.1 million tons.
Once again, we expect adjusted EBITDA to be between $215 million and $230 million in 2021.
We anticipate our capex requirement in 2021 will be around $80 million.
Our free cash flow is expected to be between $80 million and $100 million after taking into account cash interest, cash taxes, capital expenditures and minimal working capital changes.
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The team produced another solid quarter with statistics such as funds from operations came in above guidance, up 6.3% compared to last quarter -- third quarter last year.
This marks 30 consecutive quarters of higher FFO per share as compared to the prior year quarter, truly a long-term trend.
Year-to-date FFO per share is up 7.8%.
Our quarterly occupancy, while below prior year, was high averaging 96.6% and at quarter end were ahead of projections at 97.8% leased and 96.4% occupied.
Our occupancy is benefiting from a healthy market with accelerating e-commerce and last mile delivery trends, also benefiting occupancy as a high 83% year-to-date retention rate.
Re-leasing spreads set a quarterly record at 28% GAAP and 16.1% cash.
Year-to-date leasing spreads were solid at 23.1% GAAP and 13.3% cash.
And finally, same-store NOI was up 3% for the quarter and 3.6% year-to-date.
Looking at each of our goals, I'm grateful we ended the quarter generally fall at 97.8% leased, our second highest quarter on record.
Houston, our largest market, at 13.5% of rents is 96.2% leased, with an eight-month average collection rate over 99%.
For October, thus far, we've collected 97.6% of monthly rents.
Brent will speak to our budget assumptions, but I'm pleased that in spite of the uncertainty, we're tracking toward $5.35 per share in FFO.
This represents a $0.07 per share increase to our July forecast and $0.05 per share above our pre pandemic expectations.
Other strategic transitions -- transactions we've worked on include our 162,000 square foot value-add acquisition in Rancho Cucamonga, near the Ontario airport and dispositions, which hopefully continue toward closing in Houston and on our last property in Santa Barbara.
FFO per share for the third quarter exceeded our guidance range at $1.36 per share and compared to third quarter 2019 of $1.28 represented an increase of 6.3%.
From a capital perspective, during the third quarter, we issued $32 million of equity at an average price of $133 per share and earlier this month we closed on two senior unsecured private placement notes totaling $175 million.
The $100 million note was a 10-year -- has a 10-year term with a fixed interest rate of 2.61%.
The second note is $75 million on a 12-year term with a fixed interest rate of 2.71%.
That activity, combined with our already strong and conservative balance sheet, has kept us in a position of financial strength and flexibility, including the complete availability of our $395 million revolver as of today.
Our debt to total market capitalization is 19%, debt-to-EBITDA ratio is 4.9 times, and our interest and fixed charge coverage ratios are over 7.4 times.
We have collected 99% of our third quarter revenue and entered into deferral agreements for an additional 0.5%, bringing our total collected and deferred to 99.5% for the third quarter.
Last April, we reported that 26% of our tenants have requested some form of rent deferment.
In the six subsequent months, that only rose to 28% and deferral requests have basically ceased.
The agreed-upon rent deferrals thus far totaled $1.7 million, an increase of only $200,000 since our report in July.
That represents just 0.5% of our estimated 2020 revenues.
As a result, our actual performance and revised assumptions for the fourth quarter increased our FFO earnings guidance from a midpoint of $5.28 per share to $5.35 per share or a 7.4% increase over 2019.
Among the budget changes were an increase in average occupancy from 96% to 96.5% and a decrease in reserves for uncollectible rent from $3.6 million to $2.3 million.
Note that the reserve for potential bad debt for fourth quarter of $600,000 is not attributable to specific tenants.
Our continued earnings growth directly contributed to increasing our quarterly dividend by 5.3% to $0.79 per share.
Our third quarter dividend was the 163rd consecutive quarterly distribution to EastGroup shareholders and represents an annualized dividend rate of $3.16 per share.
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FFO per share for the third quarter exceeded our guidance range at $1.36 per share and compared to third quarter 2019 of $1.28 represented an increase of 6.3%.
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We delivered net income of $7 million in the first quarter versus a loss of $150 million in the first quarter of the prior year.
As a reminder, the first quarter last year included a non-cash asset impairment charge of $152 million net effects.
I'm pleased that on an adjusted basis, we experienced growth of $9 million in both adjusted net income and adjusted EBITDA year-over-year.
In PeopleManagement, new wins on an annualized basis are $44 million this year, up from $16 million same time last year, mainly in manufacturing, logistics and retail.
We have seen similar growth at PeopleScout where annualized wins are $30 million this year, up from $3 million the same time last year.
PeopleReady is our largest segment, representing 59% of trailing 12-month revenue and 69% of segment profit.
PeopleReady's revenue was down 13% during the quarter versus down 18% in Q4.
PeopleManagement is our second largest segment, representing 33% of trailing 12-month revenue and 22% of segment profit.
PeopleManagement revenue is reaching pre-pandemic levels, by growing 7% in the first quarter versus up 5% in Q4.
Turning to our third segment, PeopleScout represents 8% of trailing 12-month revenue and 9% of segment profit.
Revenue was down 13% during the quarter, versus down 24% in Q4.
We now have digital fill rates north of 50% and more than 26,000 clients are using the app.
In Q1 2021, we sold 716,000 shifts via JobStack, representing a digital fill rate of 58%.
Our client user count ended the quarter at 26,500, up 13% versus Q1 2020.
Heavy client user has 50 or more touches on JobStack per month, whether it's entering an order, rating a worker, or approving time.
In Q1 2021, the revenue growth differential between heavy client users and non-users was over 35 percentage points on a same customer basis.
We increased our heavy client user mix from 24% of PeopleReady's business in fiscal 2020 to 31% in Q1 2021.
These efforts are already delivering results as shown by the $30 million of annualized new business wins across multiple sectors as I referenced earlier.
Total revenue for Q1 2021 was $459 million, representing a decline of 7%.
We posted net income of $7 million or $0.20 per share, compared to a net loss of $150 million in the prior year, which included a non-cash impairment charge of $152 million net of tax.
On an adjusted basis, we delivered adjusted net income of $9 million or $0.25 per share, an increase of $9 million compared to Q1 2020.
Adjusted EBITDA was $13 million, an increase of 189% compared to Q1 2020 and adjusted EBITDA margin was up 200 basis points.
Gross margin of 24.1% was down 140 basis points.
Our staffing businesses contributed 150 basis points of compression with 130 basis points due to a benefit in the prior year for a reduction in expected healthcare costs.
In our staffing businesses, higher pay rates in relation to bill rates and sales mix provided 90 basis points of drag offset by 70 basis points of benefit from workers compensation expense, largely related to favorable development in our reserves.
PeopleScout also contributed 10 basis points of expansion.
We delivered another quarter of strong results with expense down $20 million or 17%.
Our effective income tax rate was a benefit of 2% in Q1, as a result of our job tax credits exceeding the income tax associated with our pre-tax income.
PeopleReady saw revenue decline 13%, while segment profit was up 55% due to lower expense.
PeopleReady experienced encouraging intra-quarter revenue improvement with March down 3% compared to January down 18%.
Non-residential construction improved to a decline of 8% in March versus a decline of 24% in Q4 2020.
And hospitality improved to a decline of 9% from a decline of 49% for these same time periods.
California's revenue trend improved to a decline of 4% in March versus a decline of 27% in Q4 2020.
PeopleManagement saw revenue increase 7%, which in combination with lower expense drove a $3 million increase in segment profit.
PeopleManagement also experienced encouraging intra-quarter revenue improvement with March up 15% compared to 5% in January.
Of the $44 million of annualized new business wins Patrick mentioned, $2 million was recorded in Q1 and approximately $28 million is expected over the remainder of the year.
Peoplescout saw revenue declined 30% while segment profit increased 61% as a result of lower expense.
Sequentially, revenue was up 11% compared to Q4 2020.
As Patrick noted, we are encouraged by the new business wins and the results within our hardest hit industries including travel and leisure which went from a decline of over 50% in Q4 2020 to a decline of about 25% in March.
Of the $30 million of annualized new business wins Patrick mentioned, $2 million was recorded in Q1 and approximately $14 million is expected over the remainder of the year.
We finished the quarter with $88 million of cash, no outstanding debt and an unused credit facility.
In regards to the topline, the historical sequential revenue growth from the first quarter to the second quarter has averaged about 10%.
Turning to gross margin for the second quarter, we expect expansion of 180 basis points to 220 basis points.
Segment revenue mix and operating leverage from higher volumes at Peoplescout are expected to drive approximately 120 basis points of the improvement with the remainder coming from non-repeating workforce reduction costs incurred in Q2 2020.
We expect gross margin expansion of 40 basis points to 100 basis points for the full year.
For SG&A, we expect $108 million to $112 million for the second quarter and $446 million to $454 million for the full year.
For capital expenditures, we expect about $14 million for the second quarter and $37 million and $41 million for the year.
Our outlook for fully diluted weighted average shares outstanding for the second quarter of 2021 is $35.1 million.
We expect our effective income tax rate for the full year before job tax credits to be about 26% to 30%.
And we expect the benefit from job tax credits to be $8 million to $10 million.
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Total revenue for Q1 2021 was $459 million, representing a decline of 7%.
We posted net income of $7 million or $0.20 per share, compared to a net loss of $150 million in the prior year, which included a non-cash impairment charge of $152 million net of tax.
On an adjusted basis, we delivered adjusted net income of $9 million or $0.25 per share, an increase of $9 million compared to Q1 2020.
We delivered another quarter of strong results with expense down $20 million or 17%.
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The theatrical exhibition industry made huge strides in its recovery throughout 2021, culminating in an exceptional fourth quarter, during which North American box office crossed the $2 billion mark for the first time since the onset of the pandemic.
3 for the industry, Spider-Man has now become our No.
1 highest-grossing film of all time, driven by our sustained outperformance on this title.
Over 48 million guests visited our global Cinemark theaters in the fourth quarter, and that consumer enthusiasm translated into strong results.
On a worldwide basis, our fourth quarter attendance grew 57% compared to 3Q '21.
Once again, Cinemark surpassed North American industry box office recovery this past quarter, over-indexing by more than 700 basis points when comparing 4Q '21 box office results against 4Q '19.
Adjusted EBITDA in the fourth quarter was positive $140 million, and that sizable 4Q result drove positive adjusted EBITDA of $80 million for the full year.
We have provided examples of the meaningful impact these actions have had throughout the pandemic during prior calls, and their benefits clearly continued in the fourth quarter, as demonstrated by our sustained market share advances compared to 2019, guest satisfaction scores averaging 90%, and as I mentioned a moment ago, positive adjusted EBITDA and cash flow.
with regard to moviegoing, as well as consumer sentiment, which has improved to 75% of moviegoers, indicating they are comfortable returning to theaters today and over 80% within the next month.
We are now directly connected to more than 20 million addressable guests across our global circuit.
During the fourth quarter, we added 40,000 new Movie Club members, bringing our membership base to within 1% of its pre-pandemic level at approximately 940,000 members.
We continue to receive tremendous feedback about our unique transaction-based subscription program that allows members to roll over unused monthly credits, share credits with friends and family, and receive a meaningful 20% discount on concessions.
By the end of the year, more than 100,000 members achieved this heightened status, which they will enjoy throughout the entirety of 2022.
Examples include our Luxury Lounger recliner seats in over 65% of our U.S. footprint, nearly 300 premium large-format XD and IMAX auditoriums worldwide, immersive D-BOX motion seating across 250 of our theaters, the best sight and sound technology in the industry, and enhanced food and beverage offerings throughout 75% of our global circuit.
Our worldwide attendance was 48.1 million patrons for the fourth quarter.
We delivered $666.7 million of total revenue, $139.4 million of adjusted EBITDA, and $208 million of operating cash flow.
Notably, these worldwide results were driven by robust performance in both our domestic and international segments, with each segment generating positive adjusted EBITDA in the quarter and reporting adjusted EBITDA margins in excess of 20%.
Taking a closer look at our U.S. operations in the fourth quarter, our attendance rebounded to 31.2 million patrons, representing a 45% increase over the third quarter and underscoring the recovery of theatrical moviegoing.
We were able to service these guests with operating hours that were essentially flat to last quarter and approximately 20% below that of pre-COVID, which speaks volumes to the operational efficiencies and technological advances we've achieved since the onset of the pandemic.
Our domestic admissions revenue rebounded to $287.3 million in the fourth quarter on an average ticket price of $9.21.
This is 400 basis points higher compared with the fourth quarter of 2019.
concessions revenue was $207.8 million in the fourth quarter and reached 90% of fourth quarter 2019 levels, with an all-time high per cap of $6.66.
Our food and beverage per cap remained above $6 throughout 2021 due to a few factors, including heightened indulgence in food and beverage consumption, particularly within our core concession categories; a mix of moviegoers that tends to skew higher in-purchase incidents; and our operating hours, which, while reduced, remain concentrated in time frames that are more conducive to concession purchases.
Domestic other revenue also benefited from the uptick in attendance and increased more than 50% quarter over quarter to $56.6 million, driven by volume-related increases in screen ads and transaction fees.
Altogether, fourth quarter total domestic revenue was $551.7 million, with positive adjusted EBITDA of $115.9 million and an adjusted EBITDA margin of 21%.
We were able to grow our attendance 84% quarter over quarter to 16.9 million patrons, given a lineup of films that resonated extremely well with the Latin demographics, including Encanto, which is a story based in Colombia; Venom: Let There Be Carnage; Eternals; and of course, the global phenomenon, Spider-Man: No Way Home.
We delivered $115 million of total international revenue in the fourth quarter, including $57.6 million of admissions revenue, $40.4 million in concessions revenue, and $17 million of other revenue.
International adjusted EBITDA was $23.5 million for the fourth quarter, with an adjusted EBITDA margin of 20.4%.
Film rental and advertising expense was 57.5% of admissions revenue, driven primarily by a higher concentration of larger, more successful new film releases with an exclusive theatrical window.
Concession costs were 17.6% of concession revenue and were up 40 basis points from last quarter.
Fourth quarter global salaries and wages were $83.7 million and increased 24% quarter over quarter as we hired incremental employees to service the expected surge in attendance.
Facility lease expense was $79.2 million and increased 15.1% quarter over quarter.
Worldwide utilities and other expense was $90.8 million and increased 11% quarter over quarter, driven by variable costs, such as credit card fees that grew in line with volumes and higher utility expenses due to expanded operating hours, particularly for our international segment.
Finally, G&A for the quarter was $49.3 million and increased 27.7% quarter over quarter due to investments in cloud-based software and higher consulting costs, legal fees, and stock-based compensation.
Capital expenditures during the quarter were $38.3 million, including $13.9 million for new build projects that had been committed to prior to the pandemic, and $24.4 million for investments to maintain or enhance our existing theaters, such as laser projectors.
And rounding out our fourth quarter results, we generated net income attributable to Cinemark Holdings, Inc. of $5.7 million, resulting in earnings per share of $0.05, another metric that was positive for the first time since the pandemic and represents another milestone in our recovery during the quarter.
Turning to our expectations around capital expenditures, while still well below our pre-pandemic ranges, we are beginning to ramp up our investments in our theaters in 2022 and expect to spend approximately $125 million on capital expenditures.
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We delivered $666.7 million of total revenue, $139.4 million of adjusted EBITDA, and $208 million of operating cash flow.
And rounding out our fourth quarter results, we generated net income attributable to Cinemark Holdings, Inc. of $5.7 million, resulting in earnings per share of $0.05, another metric that was positive for the first time since the pandemic and represents another milestone in our recovery during the quarter.
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For the fourth quarter, we achieved record net sales of about $4.2 billion and our adjusted earnings per diluted share from continuing operations for $1.26.
Excluding the favorable impact from the tax rate, our adjusted earnings per share was about 10% below the financial guidance we've provided in October.
Our PPG-Comex business delivered yet again another excellent quarter and finished with 10% organic sales growth for the full year of 2021.
And in January, we will have 5,000 concessionaire locations in our network.
Recently, some of our manufacturing facilities have had up to 40% of their workforce out.
Overall, our sales backlog grew, and in total, was about $150 million exiting the quarter, most notably in our aerospace and automotive refinish and general industrial businesses.
Raw material cost inflation was up approximately 30% compared to prior year.
These increased operating costs impacted the quarter by $0.20 per share, and COVID-related absenteeism has continued in January.
In aggregate, our selling price realization in the fourth quarter was about 8%, with a higher price realization in our industrial reporting segment.
Reflecting back to 2021, we achieved all-time record sales of $16.8 billion led by strategic acquisitions and strong organic growth of 10% despite the various ongoing supply chain challenges we incurred.
In addition, we delivered record earnings per share growth of more than 10% even with raw material cost inflation of about 20% for the full year, the highest level of coatings industry inflation in recent memory.
We, once again, lowered our SG&A as a percentage of sales, decreasing by about 200 basis points, aided by delivering $135 million in restructuring savings in 2021.
We also advanced our digital capabilities in many businesses, most notably the architectural coatings business or sales transaction on a digital platform increased by 20% compared to 2020, as we see our customers' digital patterns become more ingrained.
We're among a small number of companies that have achieved this milestone, along with even fewer companies paying a dividend for more than 120 consecutive years.
Finally, we have lowered our net debt by about $350 million since funding Tikkurila in June and exited 2021 with a strong balance sheet and optionality for future accretive cash deployment.
Tightened supply and COVID-related disruptions evidenced in the fourth quarter are expected to continue into the first quarter of 2022 impacting our ability to manufacture and deliver product.
We plan to implement further selling price increases in all our businesses as raw materials and other cost inflation remain at elevated levels and are increasing further in certain areas.
This includes: first, continued recovery in the automotive refinish, OEM, and aerospace coatings businesses, which collectively account for about 40% of our pre-pandemic sales and where we have broad global businesses supported by advantaged technologies.
The volume for these businesses remain about 15% below pre-pandemic levels.
And we are already experiencing improving order flow that is being crimped by supply availability; second, normalization of commodity raw material costs, which should moderate over time as supply dislocations improve; third, higher operating leverage on sales volumes supported by our lower cost structure; fourth, year-over-year earnings growth in 2022 and 2023 due to further synergy capture from our recent acquisitions, including a 15% increase to our original synergy target; and finally, above market organic growth driven by our advantaged and leading brands, technology, and services.
This initiative strongly supports our asset-light strategy by adding more than 2,000 distribution locations.
Together with The Home Depot, we are positioned to outgrow the pro market in the U.S. Considering all of these catalysts, I believe we have a path to at least $9 of earnings per share in 2023.
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For the fourth quarter, we achieved record net sales of about $4.2 billion and our adjusted earnings per diluted share from continuing operations for $1.26.
Excluding the favorable impact from the tax rate, our adjusted earnings per share was about 10% below the financial guidance we've provided in October.
Overall, our sales backlog grew, and in total, was about $150 million exiting the quarter, most notably in our aerospace and automotive refinish and general industrial businesses.
Raw material cost inflation was up approximately 30% compared to prior year.
Tightened supply and COVID-related disruptions evidenced in the fourth quarter are expected to continue into the first quarter of 2022 impacting our ability to manufacture and deliver product.
We plan to implement further selling price increases in all our businesses as raw materials and other cost inflation remain at elevated levels and are increasing further in certain areas.
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Achieving exceptional value at almost $11 billion while eliminating risks associated with foreign operations.
We then took steps to strengthen PPL's balance sheets by reducing $3.5 billion of our holding company debt, which provides us with significant financial flexibility going forward.
We also returned over $2 billion to share owners through dividends as well as share repurchases, which included the completion of our targeted $1 billion in share buybacks through December 31.
And true to our mission, we delivered energy safely, reliably, and affordably for our 2.5 million customers in the United States.
For example, after December tornadoes tore through portions of our service territory in Kentucky damaging or destroying more than 500 transmission and distribution poles.
We restored power to most customers within 48 hours.
And following an independent survey of customers at 140 of the largest utilities in the US, PPL Electric and Kentucky Utilities were recognized by Escalent as two of the most trusted utility brands in the nation.
This included executing more than $2 billion in infrastructure improvements to further strengthen grid resilience, modernize our networks, incorporate advanced technology, and pave the way for increased electrification and renewable energy in our service territories.
We adopted a net-zero carbon emissions goal, accelerated our interim emissions reduction target to 70% from 2010 levels by 2035 and 80% by 2040.
Separately we announced the commitment of over $50 million in new investment to fund research and development in the clean energy space with our planned investment in EIP and EPRI's low carbon resources initiative.
We also launched a new partnership to study carbon capture at a natural gas combined cycle power plant and reached new agreements to provide an additional 125 megawatts of solar power to major Kentucky customers.
This included a scenario consistent with limiting global warming to 1.5 degrees Celsius.
More than $7 million in individual pledges and corporate matching contributions will help lift individuals, families, and the community.
Today, we announced fourth quarter reported earnings of $0.18 per share.
Special items in the fourth quarter were $0.04 per share, primarily due to integration expenses associated with the planned acquisition of Narragansett Electric and discontinued operations associated with the UK utility business.
Adjusting for special items, fourth quarter earnings from ongoing operations were $0.22 per share.
Our fourth quarter results bring our total 2021 results to a net loss of $1.93 per share.
Special items for 2021 were $2.98 per share, primarily due to discontinued operations associated with the UK utility business, a UK tax rate change prior to the sale, and a loss on the early extinguishment of debt.
Adjusting for special items, 2021 earnings from ongoing operations for $1.05 per share.
Recall that we had maintained the dividend at the prior rate despite the sale of WPD, providing $350 million of dividends to reward long-term shareowners as we work to close the transactions and deploy the cash proceeds from the WPD sale in a value-accretive manner.
Today, we've announced the first quarter 2022 dividend of $0.20 per share payable on April 1.
The updated quarterly dividend aligns with our earnings projections for PPL's current businesses and a targeted payout ratio of 60% to 65%.
Post the strategic repositioning.
In short, we slightly reduced the capacity of PPL capital funding to $1.25 billion from $1.45 billion, as we no longer need the same level of liquidity without the foreign currency risk associated with the UK.
And we continue to target 16% to 18% CFO and FFO to debt metrics, including the Narragansett Electric acquisition.
These costs totaled about $0.07 per share for the year.
Our Pennsylvania Regulated segment earned $0.61 per share, a $0.04 year-over-year decrease.
Turning to our Kentucky segment, we earned $0.61 per share in 2021, a $0.6 increase over comparable results one year ago.
Results at corporate and others were $0.03 higher compared to the prior year.
Of the $2 billion of capex that Vince noted, we invested about $1 billion in each of the segments.
This resulted in total rate base growth of nearly 6%.
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Today, we announced fourth quarter reported earnings of $0.18 per share.
Adjusting for special items, fourth quarter earnings from ongoing operations were $0.22 per share.
Post the strategic repositioning.
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Having said this, and turning to Page 6, let's now jump into our results.
According to Golf Datatech, U.S. retail sales of golf equipment were up 42% during Q3, the highest Q3 on record.
U.S. rounds were up 25% in September, and are now showing full-year growth despite the shutdowns earlier this year.
In the U.S., third-party research showed our brand to once again be the #1 club brand in overall brand rating as well as the leader in innovation and technology.
Turning to our soft goods and apparel segment, with total revenue only down 3.4% year over year, the segment also experienced a rapid recovery in demand during the quarter.
Jack Wolfskin was down year over year but only 16% on a revenue basis with improved trends continuing into October.
As a result of these investments, we were able to deliver a 108% year-over-year growth in this channel during the quarter.
And although the pandemic delayed our efforts, we still believe we'll be able to deliver $15 million of synergies in this segment over the coming years.
During the quarter, we also made good progress on key initiatives, including the transition to our new 800,000 square-foot Superhub distribution center located just outside of Fort Worth, Texas.
We feel fortunate that both our golf equipment and soft goods businesses are recovering faster than expected as both businesses support healthy, active outdoor lifestyles and activities that are compatible with social distancing.
Our available liquidity, which includes cash on hand plus availability under our credit facilities increased to $630 million on September 30, 2020, compared to $340 million on September 30, 2019.
Fourth, the $174 million non-cash impairment charge in the second quarter of 2020 is nonrecurring and did not affect 2019 results.
Today, we are reporting record consolidated third quarter 2020 net sales of $476 million, compared to $426 million in 2019, an increase of $50 million or 12%.
This increase was driven by a 27% increase in the golf equipment segment, resulting from a faster-than-expected recovery and the strength of the company's product offerings across all skill levels.
The company's soft goods segment is also recovering faster than expected, with third-quarter 2020 sales decreasing only 3.4% versus the same period in 2019.
Changes in foreign currency rates had an $8 million favorable impact on third-quarter 2020 net sales.
Gross margin was 42.2% in the third quarter of 2020, compared to 44.9% in the third quarter of 2019, a decrease of 270 basis points.
On a non-GAAP basis, gross margin was 42.7% in the third quarter, compared to 44.9% in the third quarter of 2019, a decrease of 220 basis points.
Operating expenses were $137 million in the third quarter of 2020, which is a $14 million decrease, compared to $151 million in the third quarter of 2019.
Non-GAAP operating expenses for the third quarter were $135 million, a $12 million decrease compared to the third quarter of 2019.
Other expense was $6 million in the third quarter of 2020, compared to other expense of $7 million in the same period of the prior year.
On a non-GAAP basis, other expense was $3 million in the third quarter of 2020, compared to $7 million for the comparable period in 2019.
The $4 million improvements were primarily related to a net increase in foreign currency-related gains period over period, partially offset by a $1 million increase in interest expense related to our convertible notes.
Pretax earnings were $58 million in the third quarter of 2020, compared to pre-tax earnings of $33 million for the same period in 2019.
Non-GAAP pre-tax income was $65 million in the third quarter of 2020, compared to non-GAAP pre-tax income of $37 million in the same period of 2019.
Diluted earnings per share were $0.54 on 96.6 million shares in the third quarter of 2020, compared to earnings per share of $0.32 on 96.3 million shares in the third quarter of 2019.
Non-GAAP fully diluted earnings per share were $0.60 in the third quarter of 2020, compared to fully diluted earnings per share of $0.36 for the third quarter of 2019.
Adjusted EBITDA was $87 million in the third quarter of 2020, compared to $57 million in the third quarter of 2019, a record for Callaway Golf.
The first nine months of 2020 net sales are $1.2 million, compared to $1.4 million in 2019, a decrease of $174 million or 13%.
The decrease in net sales reflects a decrease in both our golf equipment segment, which decreased 7%, and our soft goods segment, which decreased 21%.
Change in the foreign currency rates positively impacted first nine months 2020 net sales by $2 million.
Gross margin was 42.7% in the first nine months of 2010 compared to 45.8% in the first nine months of 2019, a decrease of 310 basis points.
On a non-GAAP basis, which excludes these recurring items -- excuse me, nonrecurring items, gross margin was 43.3% in the first nine months of 2020 compared to 46.6% in the first nine months of 2019, a decrease of 330 basis points.
Operating expense was $592 million in the first nine months of 2020, which is a $111 million increase compared to $481 million in the first nine months of 2019.
This increase is due to the $174 million non-cash impairment charge related to the Jack Wolfskin goodwill and trade name.
Excluding the impairment charge and other items previously mentioned, non-GAAP operating expenses for the first nine months of 2020 were $410 million, a $58 million decrease, compared to $468 million in the first nine months of 2019.
Other expense was approximately $7 million in the first nine months of 2020, compared to other expense of $28 million in the same period in the prior year.
On a non-GAAP basis, other expense was $3 million for the first nine months of 2020, compared to $24 million for the same period of 2019.
The $21 million improvements is primarily related to a $22 million increase in foreign currency-related gains period over period, including the $11 million gain related to the settlement of the cross-currency swap arrangement.
Pretax loss was $80 million in the first nine months of 2020, compared to pre-tax income of $127 million for the same period in 2019.
Excluding the impairment charge and other items previously mentioned, non-GAAP pre-tax income was $113 million in the first nine months of 2020 compared to non-GAAP pre-tax income of $155 million in the same period of 2019.
Loss per share was $0.92 on $94.2 million in the first nine months of 2020, compared to earnings per share of $1.13 on 96.2 million shares in the first nine months of 2019.
Excluding the impairment charge and the items previously mentioned, non-GAAP fully diluted earnings per share was $0.98 in the first nine months of 2020, compared to fully diluted earnings per share of $1.35 for the first nine months of 2019.
Adjusted EBITDAS was $175 million in the first nine months of 2020, compared to $216 million in the first nine months of 2019.
As of September 30, 2020, available liquidity, which represents additional availability under our credit facilities plus cash on hand was $637 million compared to $340 million at the end of the third quarter of 2019.
We had a total net debt of $498 million, including $443 million of principal outstanding under our term loan B facility that was used to purchase Jack Wolfskin.
Our net accounts receivable was $240 million, an increase of 7%, compared to $223 million at the end of the third quarter of 2019, which is attributable to record sales in the quarter.
Day sales outstanding decreased slightly to 55 days as of September 30, 2020, compared to 56 days as of September 30, 2019.
Also displayed on Slide 12, our inventory balance decreased by 5% to $325 million at the end of the third quarter of 2020.
Capital expenditures for the first nine months of 2020 were $31 million, compared to $37 million for the first nine months of 2019.
We expect our capital expenditures in 2020 to be approximately $35 million to $40 million, up slightly from the estimate we provided in May but down substantially from our $55 million of planned capital expenditures at the beginning of the year due to our cost reduction actions.
Depreciation and amortization expense was $203 million for the first nine months of 2020.
On a non-GAAP basis, depreciation and amortization expense, excluding the $174 million impairment charge, was $29 million for the first nine months of 2020 and is estimated to be $35 million for the full year of 2020.
Depreciation and amortization expense was $25 million for the first nine months of 2019 and $35 million for full-year 2019.
As we previously reported, we are no longer providing other specific financial guidance at this time due to continued uncertainty surrounding the duration and impact of COVID-19.
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We feel fortunate that both our golf equipment and soft goods businesses are recovering faster than expected as both businesses support healthy, active outdoor lifestyles and activities that are compatible with social distancing.
Today, we are reporting record consolidated third quarter 2020 net sales of $476 million, compared to $426 million in 2019, an increase of $50 million or 12%.
Diluted earnings per share were $0.54 on 96.6 million shares in the third quarter of 2020, compared to earnings per share of $0.32 on 96.3 million shares in the third quarter of 2019.
Non-GAAP fully diluted earnings per share were $0.60 in the third quarter of 2020, compared to fully diluted earnings per share of $0.36 for the third quarter of 2019.
As we previously reported, we are no longer providing other specific financial guidance at this time due to continued uncertainty surrounding the duration and impact of COVID-19.
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For the first quarter of fiscal 2021, our COVID response work contributed approximately $160 million in revenue.
Total company operating margin was 9.3% for the first quarter of fiscal 2021.
Diluted earnings per share were $1.03 per share.
First quarter revenue in the U.S. Services Segment increased 23.3% to $384.9 million.
While revenue growth was driven by an estimated $114 million of COVID response work, the operating margin was depressed by temporary program changes and lower revenue from performance based contracts as a result of the global pandemic.
Operating margin for the U.S. Services Segment was 16% for the first quarter.
Our full year expectations for the U.S. Services Segment remain unchanged with a 16.5% to 17.5% full year margin predicted.
Revenue for the first quarter of fiscal 2021 for the U.S. Federal Services Segment increased 10.6% to $405.2 million.
The Census contract contributed $60 million, which was $10 million less than the prior year.
Excluding the Census contract, organic growth for this segment was 13.5% and driven principally by an estimated $46 million of revenue from COVID response work as we continue to provide needed support to government in responding to the pandemic.
The U.S. Federal Services Segment had approximately $4 million of revenue and profit shift out of the first quarter due to a delay in executing a contract.
The operating margin was 7.5%, which was slightly short of our expectations for a strong first quarter in this segment.
Our full year expectations for the U.S. Federal Services Segment remain the same with a 6% to 7% full year margin predicted.
Looking to the second quarter, including the aforementioned $4 million of revenue and profit we will recognize, the segment's margin is expected to step down.
Revenue for the first quarter of fiscal 2021 for the Outside the U.S. Segment increased 11.5% to $155.4 million.
Organic growth, excluding the effects of currency, was at 4.8%.
Operating income for the segment in the first quarter of fiscal 2021 was positive $4.5 million for an operating margin of 2.9%.
We had no draws on our corporate credit facility at December 31, 2020, and $132.6 million of cash and cash equivalents.
Cash from operations and free cash flow of $98.1 million and $89 million, respectively, were strong and contributed to our already strong balance sheet.
DSO was 75 days at December 31, 2020, compared to 77 days at September 30, 2020.
As a result of these positive developments, we are raising our full year guidance for fiscal 2021.
For the full year, we expect revenue will now range between $3.4 billion and $3.525 billion for fiscal 2021, driven by new work in support of government's ongoing response to COVID.
Additionally, we expect diluted earnings per share will range between $3.55 and $3.75 for fiscal 2021.
Our fiscal 2021 cash from operations are projected to now be between $350 million and $400 million and free cash flow between $310 million and $360 million.
Our expectations for our effective income tax rate is between 25.75% and 26.50% and for weighted average shares to be between 62.1 million and 62.2 million.
Current second quarter consensus estimates show revenue of $773 million and diluted earnings per share of $0.73.
Consequently, fourth quarter consensus revenue of $875 million and diluted earnings per share of $1.02 are above our current expectations.
We recently added another 150 individuals as we scale up our operations yet again to answer questions regarding vaccinations.
Additionally, our U.S. Federal Services Segment scaled up to 3,200 agents from 1,500 to support the IRS with the next round of the economic incentive payments.
For the first quarter of fiscal 2021, signed awards were $594 million of total contract value at December 31.
Further, at December 31, there were another $1.14 billion worth of contracts that had been awarded but not yet signed.
Our total contract value pipeline at December 31 was $31.6 billion compared to $33.0 billion reported in the fourth quarter of fiscal 2020.
Of our total pipeline of sales opportunities, 71.1% represents new work.
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Diluted earnings per share were $1.03 per share.
As a result of these positive developments, we are raising our full year guidance for fiscal 2021.
For the full year, we expect revenue will now range between $3.4 billion and $3.525 billion for fiscal 2021, driven by new work in support of government's ongoing response to COVID.
Additionally, we expect diluted earnings per share will range between $3.55 and $3.75 for fiscal 2021.
Our fiscal 2021 cash from operations are projected to now be between $350 million and $400 million and free cash flow between $310 million and $360 million.
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Orders over the last three weeks or 12 weeks, excuse me, are 25% higher than the same period F '20 pre COVID.
We reported first quarter fiscal 2021 adjusted earnings of $1.25 per diluted share, a 36% increase over the first quarter of last year.
Let's start with our largest segment, Energy Systems, which saw a modest improvement from the prior quarter, growing revenue by more than $22 million and generating a nearly $4 million gain in operating income versus Q4.
Munitions recorded several key wins based on our industry-leading technology that provides 40% extended life in thermal batteries.
Our first quarter net sales increased 16% over the prior year to $815 million due to a 12% increase from volume and 4% from currency gains.
On a line of business basis, our first quarter net sales in Energy Systems were up 5% to $371 million; Specialty was up 21% to $108 million; and Motive Power revenues were up 28% to $336 million.
Motive Power's growth was mostly from 22% in organic volume and 5% in currency improvements.
The prior year Motive Power first quarter revenues were impacted significantly by the pandemic, with a 24% decrease in revenue.
Energy Systems at a 3% increase from volume and a 3% improvement from currency, net of a 1% decrease in pricing.
Specialty at 18% in volume improvements along with 2% positive currency and 1% in pricing.
On a geographical basis, net sales for the Americas were up 13% year-over-year to $557 million with the 12% more volume and 1% in currency; EMEA was up 27% to $201 million from 18% volume, 10% improvement in currency, less 1% in pricing; Asia was up 3% at $57 million on 9% currency improvements, less 6% volume decline.
On a line of business basis, Specialty decreased 19% from a very strong Q4 due to resin shortages, which are largely behind us; Motive Power was up 1% as it rebounds from the pandemic; and Energy Systems was up 6% from organic volume.
On a geographical basis, Americas and EMEA were relatively flat, while Asia was up 5%.
On a year-over-year basis, adjusted consolidated operating earnings in the first quarter increased approximately $14 million to $75 million, with the operating margin up 50 basis points.
On a sequential basis, our first quarter operating earnings dollars declined $3 million from $78 million, while the OE margin dropped 40 basis points to 9.2%, primarily due to Energy Systems results, which Dave has addressed.
Operating expenses, when excluding highlighted items, were at 14.5% of sales for the first quarter compared to 16.1% in the prior year, as our revenue growth exceeded our spending.
On a substantial -- excuse me, sequential basis, our operating expenses declined $1 million and 10 basis points.
Excluded from operating expenses recorded on a GAAP basis in Q1, our pre-tax charges of $14 million, primarily related to $6 million in Alpha and NorthStar amortization of intangibles and $8 million in restructuring charges for the previously announced closure of our flooded Motive Power manufacturing site in Hagen, Germany.
Excluding those charges, our Motive Power business generated operating earnings of 15.1% or 470 basis points higher than the 10.4% in the first quarter of last year due to easing of pandemic-related restrictions and demand, coupled with ongoing OpEx restraint.
The OE dollars for Motive Power decreased over 20 -- excuse me, increased over $23 million from the prior year.
On a sequential basis, Motive Power's first quarter OE decreased 50 basis points from the 15.6% margin posted in the fourth quarter due to higher lead and other input costs.
Energy Systems operating performance percentage of 3.5% was down from last year's 8%, although it improved from last quarter's 2.6%.
OE dollars decreased $15 million from the prior year, however, it increased $4 million from the prior quarter on higher volume.
Specialty operating earnings percentage of 10.6% was up from last year's 6.5% on higher volume, but down from last quarter's 13.2%.
OE dollars increased $6 million from the prior year, but declined $6 million from a strong fourth quarter on lower revenue.
As previously reflected on Slide 13, our first quarter adjusted consolidated operating earnings of $75 million was an increase of $14 million or 23% from the prior year.
Our adjusted consolidated net earnings of $54.4 million was $15 million higher than the prior year.
Our adjusted effective income tax rate of 18% for the first quarter was slightly lower than the prior year's rate of 21% and lower than the prior quarter's rate of 19%.
First quarter earnings per share increased 36% to $1.25, which was the top of our guidance range.
We expect our weighted average shares for the first quarter -- excuse me, second quarter fiscal '22 to remain relatively constant with approximately 43.5 million outstanding.
As a reminder, we now have over $55 million in share buybacks authorized, and we purchased nearly $32 million recently.
We have $406 million of cash on hand, and our credit agreement leverage ratio was 1.95 times levered, which allows over $600 million in additional borrowing capacity.
We expect our leverage to remain near 2.0 times in fiscal 2022.
We spent $26 million on our Hagen restructuring along with $46 million in inventory growth to support higher backlogs.
And as a result, our cash flow from operations was negative $48 million in the first quarter as we expected.
The balance bits [Phonetic] from the Hagen, Germany restructuring started in Q1 and we should exit the year with a $20 million annual run rate.
Capital expenditures of $16 million were in line with our prior guidance.
Our capex expectation for fiscal 2022 is $100 million and reflects major investment programs in lithium battery development and continued expansion of our TPPL capacity, including the NorthStar integration.
We anticipate our gross profit rate to remain near 24% in Q2 of fiscal 2022.
Our guidance range of $1.03 to $1.13 for our second fiscal quarter of FY '22 reflects the impact of these challenges along with the normal seasonality of Q2 and the added investments in product development and personnel.
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We reported first quarter fiscal 2021 adjusted earnings of $1.25 per diluted share, a 36% increase over the first quarter of last year.
As previously reflected on Slide 13, our first quarter adjusted consolidated operating earnings of $75 million was an increase of $14 million or 23% from the prior year.
First quarter earnings per share increased 36% to $1.25, which was the top of our guidance range.
Our guidance range of $1.03 to $1.13 for our second fiscal quarter of FY '22 reflects the impact of these challenges along with the normal seasonality of Q2 and the added investments in product development and personnel.
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These discussions will be followed by a Q&A period, and we expect the call to last about 60 minutes.
Revenue for the quarter was $1.569 billion.
Adjusted EBITDA was $166 million.
Adjusted earnings per share was $0.95.
Cash flow from operations was roughly $295 million, and year-to-date cash flow from operations was $497 million.
And backlog at quarter end was a second quarter record at $8.2 billion.
As one of the nation's leading clean energy construction companies, we have experienced significant growth over the last few years, growing revenues from $300 million in 2017 to over $1.5 billion of expected revenues this year.
Basically, if you don't have a lot of backlog today, the next 1.5 years will be tough.
First, in the midst of a pandemic, our revenue guidance for 2020 is only down about $200 million or 3% less than 2019 full year revenue.
Within that, our Oil and Gas revenue expectation is that it will be down approximately $800 million in 2020 from 2019.
That means the rest of our segment revenues will be up approximately $600 million versus last year in the middle of a challenging environment.
More importantly, margins on a year-over-year basis are expected to be relatively flat at 11.4% EBITDA margins versus 11.7% last year.
Our Communications revenue for the quarter was $654 million.
More importantly, margins came in strong, and we're up 370 basis points year-over-year and 380 basis points sequentially.
Revenue in our Electrical Transmission segment was $124 million versus $100 million in last year's second quarter.
Revenue was $426 million for the second quarter versus $250 million in the prior year, a 70% year-over-year increase.
We continue to achieve significant growth rates in this segment, and backlog at quarter end exceeded $1 billion.
Margins for this segment were strong at 7.1%, and we continue to expect margins to improve over 2019 by over 100 basis points.
Second quarter revenue was $369 million compared to revenues of $937 million in last year's second quarter.
We ended second quarter with backlog of almost $2.7 billion.
As a reminder, over the last three years, only 6% of our revenues have come from oil pipelines, with the majority of our business being tied to natural gas.
In summary, our second quarter 2020 results were better than expected, with adjusted EBITDA being the high end of our guidance expectation by $6 million, and adjusted diluted earnings per share exceeding the high end of our guidance expectation by $0.06.
These results also exceeded Street consensus, with adjusted EBITDA of $166 million beating Street consensus estimates by $14 million, and adjusted diluted earnings per share of $0.95 beating Street consensus by $0.15.
Second quarter 2020 results also continue our strong cash flow performance, generating $293 million in cash flow from operations and reducing sequential total debt levels by $177 million.
Our first half 2020 cash flow from operations of $497 million represents a record performance level for MasTec.
And we reduced total debt levels by $190 million during the first half of 2020 despite investing approximately $130 million in share repurchases and M&A.
This strong performance gives us confidence in our expectation that annual 2020 cash flow from operations will be at a new record level, approximating $600 million.
Subsequent to quarter end, we took advantage of favorable credit market conditions to refinance our four 7/8% $400 million senior unsecured notes, which we have called for redemption in mid-August.
Due to the strong demand for the new issue, our new senior unsecured notes offering was upsized by 50% to $600 million, with a lower interest rate of 4.5% and extended maturity to 2028 and overall better terms.
Second quarter 2020 Communications segment revenue of $654 million was basically flat with the same period last year.
Second quarter 2020 Communications segment adjusted EBITDA margin rate was 11.7% of revenue, representing a sequential increase of 380 basis points when compared to the first quarter of 2020 and a 370 basis point improvement when compared to last year's second quarter.
We are also increasing our annual 2020 Communications segment adjusted EBITDA margin rate expectation by approximately 100 basis points and now expect that Communications segment annual 2020 adjusted EBITDA margin rate will approximate 10% of revenue, which equates to a 200 basis point improvement over last year.
While we are pleased with the expected 200 basis point improvement in 2020 Communications segment adjusted EBITDA margin rate, especially in light of challenging conditions in 2020, it is important to note that this performance level still leaves ample room for future improvement in 2021 and beyond as pandemic conditions normalize and telecommunications market trends continue to develop.
As expected and previously communicated, second quarter 2020 Oil and Gas segment revenue of $369 million decreased 61% compared to the same period last year based on project start time.
Second quarter 2020 Oil and Gas segment adjusted EBITDA margin rate was 21.7% of revenue, continuing our strong performance trend with this performance, including the benefit of project mix comprised of reduced levels of lower-margin, cost-plus activity and continued strong project productivity on numerous smaller pipeline projects.
During the second quarter, we were awarded approximately $450 million in new Oil and Gas project awards, bringing the total of new backlog additions during the first half of 2020 to approximately $1.5 billion.
Second quarter 2020 Oil and Gas segment backlog of $2.66 billion represented a new all-time segment backlog record.
First half 2020 Oil and Gas segment award activity gives us strong visibility for solid project activity over the next 12 to 18 months.
Given the size of our large projects, a 30-day delay in project activity could impact monthly revenue by as much as $100 million to $150 million.
This results in annual 2020 Oil and Gas segment revenue now expected to approximate $2.3 billion, with solid backlog activity shifting into 2021.
Given that the majority of project activity shifting to 2021 is related to lower-margin, cost-plus activity, we are increasing our annual 2020 Oil and Gas segment adjusted EBITDA margin rate expectation from the high teens to the low 20% range.
Second quarter 2020 Electrical Transmission segment revenue increased approximately 24% compared to the same period last year to approximately $124 million, and segment adjusted EBITDA was a slight loss of approximately $3 million.
The project is approximately 90% complete as of the end of the second quarter, and we expect to recover a portion of these inefficiencies from our customer during the back half of 2020.
Our second quarter 2020 electrical distribution segment backlog of $551 million increased sequentially 27% or $117 million when compared to the first quarter, and this supports our continued belief that end-market conditions for this segment are supportive for strong 2021 revenue and adjusted EBITDA growth in this segment.
Second quarter 2020 Clean Energy and Infrastructure segment revenue of $426 million increased approximately 70% compared to the same period last year.
Second quarter 2020 adjusted EBITDA margin rate was 7.1% of revenue, a sequential increase of 540 basis points relative to the prior quarter and 360 basis points compared to the same period last year.
Now I will discuss a summary of our top 10 largest customers for the 2020 second quarter period as a percentage of revenue.
AT&T revenue, derived from wireless and wireline fiber services, was approximately 16% and install-to-the-home services was approximately 3%.
On a combined basis, these three separate service offerings totaled approximately 19% of our total revenue.
Permian Highway Pipeline was 10% of revenue.
Verizon, comprised of both wireline fiber and wireless services, was 6%.
Iberdrola, Comcast and Xcel Energy were each 5%.
And NextEra Energy, NG, Duke Energy and Enterprise Products were each at 4%.
Individual construction projects comprised 64% of our revenue, with master service agreements comprising 36%, once again highlighting that we have a substantial portion of our revenue derived on a recurring basis.
Lastly, it is worth noting, as we operate in a COVID-19-induced period of macroeconomic uncertainty, that all of our top 10 customers, which represented over 66% of our second quarter revenue, have investment-grade credit profiles.
During the second quarter, we generated $293 million in cash flow from operations and ended the quarter with net debt, defined as total debt less cash of $1.19 billion, which equates to a very comfortable book leverage ratio of 1.6 times.
We ended the quarter with DSOs at 90 days compared to 102 days last quarter.
During the first half of 2020, we generated a record-level $497 million in cash flow from operations, which allowed us to reduce our total debt levels by approximately $190 million, while investing in approximately $130 million in share repurchases and M&A.
During the first half of 2020, we repurchased approximately 3.6 million shares, or approximately 5% of our outstanding share base, with the vast majority of this activity occurring in the first quarter.
We currently have $158 million in open repurchase authorizations.
Based on our strong first half 2020 cash flow performance, we are increasing our expectation for annual 2020 cash flow from operations to approximate $600 million, a new record level.
As previously indicated, we opportunistically took advantage of market conditions after the end of the second quarter to further strengthen our capital structure through a successful offering of $600 million in new senior unsecured notes, maturing in 2028 with a favorable 4.5% coupon.
This offering is expected to close in early August and will allow us to redeem our existing $400 million four 7/8% senior notes at a lower interest rate, extend our maturity profile and will increase our overall liquidity by approximately $200 million, which should approximate $1.3 billion post closing.
Regarding capital spending, during the second quarter, we incurred net cash capex, defined as cash capex net of equipment disposals, of approximately $63 million, and we incurred an additional $80 million in equipment purchases under finance leases.
We currently anticipate incurring approximately $175 million in net cash capex in 2020, with an additional $115 million to $135 million to be incurred under finance leases.
Our third quarter 2020 revenue expectation is approximately $1.9 billion, with adjusted EBITDA guidance approximately $254 million or 13.4% of revenue and adjusted earnings per share guidance at $1.67.
We are projecting annual 2020 revenue to approximate $7 billion, with adjusted EBITDA expected to approximate $800 million or 11.4% of revenue and adjusted diluted earnings per share to approximate $4.93.
These guidance expectations incorporate the impact of projected lower second half 2020 Oil and Gas segment revenue as regulatory delays on two large projects are expected to lower 2020 project activity and shift awarded work into 2021, as well as improved 2020 EBITDA margin rate expectations in our Oil and Gas and Communications segments.
Based on our expected strong cash flow, lower nominal interest rates and our recent senior notes offering, we expect annual 2020 interest expense levels to approximate $63 million, with this level only including currently executed share repurchase activity.
Our estimate for full year 2020 share count is now 73.6 million shares.
It should be noted that, for valuation modeling purposes that based on the timing of repurchases, our year-end 2020 share count will approximate 73 million shares, and that's inclusive of the full impact of the repurchases made to date.
We expect annual 2020 depreciation expense to approximate 3.7% of revenue due to the combination of lower expected 2020 revenue levels and timing impact of capital additions and acquisition activity.
Lastly, we continue to expect that our annual 2020 adjusted income tax rate will approximate 24%.
This expectation includes our existing first half 2020 adjusted tax rate as well as the expectation that quarterly adjusted income tax rates for the balance of 2020 will approximate 26%, and this blend leads to an annual 2020 adjusted tax rate that approximates 24%.
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Our third quarter 2020 revenue expectation is approximately $1.9 billion, with adjusted EBITDA guidance approximately $254 million or 13.4% of revenue and adjusted earnings per share guidance at $1.67.
We are projecting annual 2020 revenue to approximate $7 billion, with adjusted EBITDA expected to approximate $800 million or 11.4% of revenue and adjusted diluted earnings per share to approximate $4.93.
These guidance expectations incorporate the impact of projected lower second half 2020 Oil and Gas segment revenue as regulatory delays on two large projects are expected to lower 2020 project activity and shift awarded work into 2021, as well as improved 2020 EBITDA margin rate expectations in our Oil and Gas and Communications segments.
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Sales grew 20% year-over-year, driven by 21% residential sales growth and 11% non-residential sales growth as we continued to execute at both ADS and Infiltrator in a favorable demand environment.
Both ADS and Infiltrator residential market sales grew over 20% in the fourth quarter, driven by favorable dynamics in new home construction, repair/remodel and on-site septic, accelerated by our material conversion strategies at both businesses.
Residential market sales have increased to 39% of our domestic sales as compared to 23% prior to the Infiltrator acquisition.
ADS participates in the repair/remodel segment of the residential market through retail, which is about 40% of the legacy business' residential sales.
About two-thirds of our domestic allied product sales are in the non-residential markets, where sales increased 13% further, giving us confidence in the underlying market strength.
Sales in the agriculture market increased 50% this quarter, driven by strong demand as the spring selling season got off to a good start.
International sales also increased 49%, primarily driven by sales growth in our Canadian business which nearly doubled compared to last year.
Finally, Infiltrator continues to exceed expectations with 23% sales growth in the fourth quarter against a very tough comparison to the prior year and broad-based growth across the Infiltrator product portfolio.
Adjusted EBITDA margin increased 190 basis points.
The ADS legacy business grew sales at 7.7% CAGR, driven by the sales programs we laid out in November 2018.
And the plan laid out in November 2018 restated our intention to grow adjusted EBITDA margin to between 18% and 19%.
The legacy ADS business finished fiscal 2021 with a margin of 24.3%, significantly outperforming our plan.
The improvement in profitability as well as execution of our working capital initiatives and the acquisition of Infiltrator drove the improvement in free cash flow conversion to 66% of adjusted EBITDA, significantly better than the 45% in fiscal 2018 and above our target of at least 50%.
And since the acquisition of Infiltrator, we are more exposed to the residential construction market, which now represents nearly 40% of sales.
Our strong topline revenue growth of 20% was driven by both volume and pricing, with strong growth across our ADS and Infiltrator businesses as well as in each of our segments, markets and product applications.
The 31% growth in consolidated adjusted EBITDA was driven by strong topline growth in addition to favorable pricing, operational efficiency initiatives, as well as our synergy programs.
In addition, due to the strong results for fiscal 2021 and to reward the incredible service and dedication of our employees this past year, we decided to pay a one-time bonus to employees who were not part of our annual incentive compensation plans, resulting in approximately $4 million of additional compensation expense in the quarter.
Revenue this year increased 19% to $1.983 billion, coming in above the high end of our guidance range.
Our adjusted EBITDA increased $205 million to $567 million, driven by strong volume growth in both pipe and allied products, favorable pricing and material costs, and operational efficiency initiatives that offset inflationary cost pressures.
Infiltrator contributed an additional $88 million, driven by strong volume growth, favorable price/cost performance as well as continued benefits from our synergy programs.
Finally, our adjusted EBITDA margin increased 700 basis points to 28.6%, a Company record.
Our year-to-date free cash flow increased $134 million to $373 million as compared to $239 million in the prior year.
Our working capital decreased to approximately 18% of sales, down from 21% of sales last year.
Further, our trailing 12-month leverage ratio is now 1.1 times.
We ended the quarter in a favorable -- very favorable liquidity position with $195 million of cash and $339 million available under our revolving credit facility, bringing our total liquidity to $534 million.
Based on our performance to date, order activity, backlog and current market trends, we currently expect net sales to be in the range of $2.220 billion to $2.300 billion, representing growth of 12% to 16% over this past year, and adjusted EBITDA to be in the range of $635 million to $665 million, representing growth of 12% to 17% over this past year.
In fiscal 2022, we plan to spend between $130 million and $150 million on capital expenditures to support growth, recycling, innovation, productivity, and safety initiatives at both ADS and Infiltrator, basically doubling our commitment to capex year-over-year.
In addition to investing in the business through deploying capital organically and through M&A, we, today, announced a 22% increase in our quarterly dividend as well as a $250 million increase in our share repurchase program.
We previously had $42 million available under this program, and the increase announced today brings the total authorization to $292 million.
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Based on our performance to date, order activity, backlog and current market trends, we currently expect net sales to be in the range of $2.220 billion to $2.300 billion, representing growth of 12% to 16% over this past year, and adjusted EBITDA to be in the range of $635 million to $665 million, representing growth of 12% to 17% over this past year.
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While Glenn will provide more detail, our portfolio has remained resilient during the pandemic, with occupancy currently at 94.6%.
Over the past five years, we have upgraded Kimco's portfolio from 64% to 77% grocery-anchored and have outlined the strategic plan to reach 85% to 90% grocery-anchored over the next five years, with over 10 new grocery opportunities currently in negotiation.
Our ability to monetize a portion of our investment in Albertsons, which currently sits as a marketable security worth over $550 million, is a clear differentiator and gives us tremendous optionality in the future.
We believe our five-year goal of securing 10,000 apartment units is certainly achievable and that these entitlements can provide future opportunities to unlock embedded value.
Open air centers in our well located areas of concentration continue to trade at a cap rate range of 5% to 6%, which is clearly at odds with our current valuation.
Multiple trades occurred in the third quarter throughout the country at sub minus 6% cap rates in Pennsylvania, Northern California and Florida, with another high-quality asset trading in Los Angeles at a sub-5% cap rate.
If the downside scenario occurs, we ensure that we have conservatively underwritten the properties so that we're very confident stepping in and owning or operating the asset at a comfortable basis of less than 85% current loan-to-value.
For the third quarter 2020, NAREIT FFO was $106.7 million or $0.25 per diluted share, meeting first call consensus, as compared to $146.9 million or $0.35 per diluted share for the third quarter 2019.
The change was mainly due to abatements and increased credit loss of $28.3 million as compared to the third quarter last year.
Credit loss recognized in the third quarter 2020 was a significant improvement from the second quarter 2020 credit loss of $51.7 million.
Our third quarter FFO also includes a onetime severance charge of $8.6 million or $0.02 per share, related to a voluntary early retirement program offered and the organizational efficiencies from merging our southern and mid-Atlantic regions.
We also incurred a charge of $7.5 million or $0.02 per share from the early redemption of $485 million of 3.2% unsecured bonds, which was scheduled to mature in 2021.
A year earlier, in the third quarter 2019, we had a preferred stock redemption charge of $11.4 million or $0.03 per share.
Although not included in NAREIT FFO, we did record a $77.1 million unrealized loss on the mark-to-market of our marketable securities, which was primarily driven by the change in our Albertson stock.
We also sold a significant portion of our preferred equity investments, which generated proceeds of over $70 million and net gains of $8.4 million, which were also not included in NAREIT FFO.
With regard to the operating portfolio, all our shopping centers remain open and over 98% of our tenants are open and operating.
We collected 89% of base rents for the third quarter, including 91% collected for the month of September.
This compares to second quarter collections, which improved to 74%.
In addition, we collected 90% for October so far.
Furloughs granted during the third quarter were 5%, down from 20% from the second quarter.
Thus far, we have collected 87% of the deferrals that were billed in October.
We recorded $25.9 million of credit loss against accrued revenues during the third quarter, which included $17.1 million related to tenants on a cash basis of accounting.
There was also an additional $4 million reserve against noncash straight-line rent receivables.
As of September 30, 2020, our total uncollectible reserves stood at $74.8 million or 39% of our total pro rata share of outstanding accounts receivable.
Total uncollectible reserve of $45.8 million is attributable to tenants on a cash basis.
At the end of third quarter 2020, 8.4% of our annual base rents were from cash basis tenants.
During the third quarter, 51% of rent due from cash basis tenants was collected.
In addition, we also have a reserve of $25.8 million or 15% against the straight-line rent receivables.
Our liquidity position is very strong, with over $300 million of cash and $2 billion available on our revolving credit facility, which has a final maturity in 2025.
We also own 39.8 million shares of Albertsons, which has a market value of over $550 million based on the closing price of $13.85 per share at the end of September.
Subsequent to quarter end, Albertsons declared a dividend of $0.10 per common share, and we expect to receive $4 million during the fourth quarter.
We finished the third quarter with consolidated net debt-to-EBITDA of 7.6 times.
And on a look-through basis, including pro rata share of JV debt and preferred stock outstanding, the level is 8.5 times.
This represents essentially a full turn improvement from the 8.6 times and 9.4 times levels reported last quarter, with the improvement attributable to lower credit loss.
We were active in the capital markets during the quarter as we issued a 2.7% $500 million 10-year unsecured green bond and a 1.9% $400 million 7.5 year unsecured bond.
Proceeds were used to repay the remaining $325 million on the term loan obtained in April 2020, fund the early redemption of the 3.2% $485 million bonds due in May of '21 and fund the repayment of two consolidated mortgages totaling over $70 million.
It is worth noting that our credit spreads have continued to tighten since the issuance of these bonds, with the 10-year bond trading more than 40 basis points tighter.
As of September 30, 2020, we had no consolidated debt maturing for the balance of the year and only $141 million of consolidated mortgage debt maturing in 2021.
Our consolidated weighted average maturity profile stood at 11.1 year, one of the longest in the REIT industry.
Regarding our common dividend during 2020, so far, we have paid $0.66 per common share, including a reinstated common dividend of $0.10 per common share during the third quarter 2020.
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Over the past five years, we have upgraded Kimco's portfolio from 64% to 77% grocery-anchored and have outlined the strategic plan to reach 85% to 90% grocery-anchored over the next five years, with over 10 new grocery opportunities currently in negotiation.
For the third quarter 2020, NAREIT FFO was $106.7 million or $0.25 per diluted share, meeting first call consensus, as compared to $146.9 million or $0.35 per diluted share for the third quarter 2019.
We collected 89% of base rents for the third quarter, including 91% collected for the month of September.
In addition, we collected 90% for October so far.
Subsequent to quarter end, Albertsons declared a dividend of $0.10 per common share, and we expect to receive $4 million during the fourth quarter.
Regarding our common dividend during 2020, so far, we have paid $0.66 per common share, including a reinstated common dividend of $0.10 per common share during the third quarter 2020.
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Adjusted segment operating profit was $1.4 billion, 23% higher than the fourth quarter of 2020.
Our trailing four-quarter adjusted EBITDA was $4.9 billion, $1.25 billion more than a year ago.
And our trailing four-quarter average adjusted ROIC was 10%, meeting our objectives.
For the full year, our adjusted earnings per share was $5.19, also a record.
And full year adjusted segment operating profit was $4.8 billion.
AS&O delivered full year 2021 OP of $2.8 billion, with each subsegment performing at or near historic highs.
Carbohydrate solutions executed phenomenally well to deliver full year operating profits of $1.3 billion.
And the team is continuing the evolution of carbohydrate solutions from the sale of our Peoria dry mill and the announcement of the sustainable aviation fuel MOU; to our agreement with LG Chem and the continued growth of our exciting biosolutions platform, which delivered new revenue wins with an annualized run rate of almost $100 million; to the project we announced earlier this month to further decarbonize our operations by connecting two other major processing facilities; to our vacate of carbon capture and storage capabilities.
The nutrition team once again delivered industry-leading revenue and OP growth, with full year revenues up 16% and full year OP of $691 million, representing a 20% year-over-year increase.
We are confident in our plan [Audio gap] which is why we are pleased to announce an 8% increase in our quarterly dividend to $0.40 per share.
We are proud of our record of 90 uninterrupted years of dividends and more than 40 years of consecutive annual dividend increases, and we are pleased to continue to follow through on our commitment to shareholder value creation.
Lower results in EMEA versus a very strong fourth quarter of 2020 and approximately $250 million in net negative timing impacts versus negative $125 million in the prior-year quarter drove overall results lower year over year.
The nutrition business closed out a year of consistent and strong growth, with fourth quarter revenues 19% higher year over year, 21% on a constant currency basis, with 26% higher profits year over year, and sustained strong EBITDA margins.
Human Nutrition had a great fourth quarter, with revenue growth of 21% on a constant currency basis and substantially higher profits.
Animal nutrition revenue was up 21% on a constant currency basis, and operating profit was much higher year over year, driven primarily by continued strength in amino acids.
Now looking ahead, we expect nutrition to continue to grow operating profits at a 15%-plus rate for calendar year 2022, with the first quarter similar to the first quarter of 2021 with continued revenue growth offset by some higher costs upfront in the year and the absence of the onetime benefits we saw in the first quarter of the prior year.
Although for the first quarter, we expect a loss of about $25 million due to insurance settlements currently planned.
In the corporate lines, unallocated corporate costs of $276 million were lower year over year due primarily to increased variable performance-related compensation expense accruals in the prior year, partially offset by higher IT offering in project-related costs and transfers of costs from business segments into centralized centers of excellence in supply chain and operations.
We anticipate calendar year 2022 total corporate costs, including net interest, corporate unallocated, and other corporate, to be in line with the $1.2 billion area, consistent with what I discussed at Global Investor Day with net interest roughly similar, corporate unallocated a bit higher, and corporate other a bit lower.
The effective tax rate for the fourth quarter of 2021 was approximately 21%, compared to 8% in the prior year.
The calendar year 2021 effective tax rate was approximately 17%, up from 5% in 2020.
Looking ahead, we're expecting full year 2022 effective tax rate to be in the range of 16 to 19%.
Our balance sheet remains solid, with a net debt-to-total capital ratio of about 28% and available liquidity of about $9 billion.
And as we discussed at Global Investor Day, we believe that increasing demand for meal as well as vegetable oil as a feedstock for renewable green diesel should continue to support the positive environment this year, with our soy crush margins in the range of 45 to $55 per metric ton.
With this in mind, we're assuming higher ADM ethanol volumes and EBITDA margins to average $0.15 to $0.25 for the calendar year.
With these dynamics, we expect 15-plus percent OP growth in 2022, revenue growth above 10%, and EBITDA margins above 20% in human nutrition and high single digits in animal nutrition, consistent with targets we set out at our Global Investor Day.
Put it all together, and we're optimistic for another very strong performance in 2022 as we progress toward our strategic plans next earnings milestones of six to $7 per share.
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For the full year, our adjusted earnings per share was $5.19, also a record.
We are confident in our plan [Audio gap] which is why we are pleased to announce an 8% increase in our quarterly dividend to $0.40 per share.
The effective tax rate for the fourth quarter of 2021 was approximately 21%, compared to 8% in the prior year.
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We are proud to be able to offer our expertise, capabilities and infrastructure as part of the solution on facilitating the national distribution of COVID-19 therapies, to supporting the distribution of more than 75 million vaccines to patients in over 30 countries through our expanded global footprint.
In July, for the fifth year in a row and for the tenth year of the past 12 years, Good Neighbor Pharmacy network was ranked highest among brick-and-mortar chain drug store pharmacies by JD Colin.
Earlier, I mentioned the distribution of tens of millions of doses of the COVID-19 vaccines to patients in more than 30 countries.
Now powered by 42,000 team members globally, we remain confident in our pharmaceutical-centric strategy and capabilities as a leader in pharmaceutical distribution services and differentiated manufacturer solutions.
Beginning with our fourth quarter results, we finished the quarter with adjusted diluted earnings per share of $2.39, an increase of 26.5%, which was driven by both a full quarter's worth of contribution from Alliance Healthcare and the strong performance in our Pharmaceutical Distribution Services segment.
Our consolidated revenue was $58.9 million, up approximately 20%, reflecting growth in Pharmaceutical Distribution and Other.
Excluding Alliance Healthcare, our consolidated revenue would have been up 9% from the prior year quarter.
Consolidated gross profit was $2 billion, up 51%, driven by increases in gross profit in both Pharmaceutical Distribution and other, which benefited from the inclusion of Alliance Healthcare.
This quarter's gross profit margin of 3.4% is 71 basis points higher than the prior year quarter as we had a full quarter of Alliance Healthcare in our consolidated results.
Consolidated operating expenses were $1.3 billion versus $795 million in the prior year period, primarily due to the addition of Alliance Healthcare as well as investments in our talent and initiatives to support the company's current and future growth.
This quarter's operating expense margin of 2.23% is 61 basis points higher than the prior year quarter, primarily reflecting the full quarter impact of Alliance Healthcare in our consolidated results.
Also as a reminder, in the fourth quarter of fiscal 2020, we had a bad debt reversal of $13 million that impacts the year-over-year comparison of operating expenses.
Our operating income was $694 million, up 31% compared to the prior year quarter.
Operating income margin was 1.18%, an increase of 10 basis points as a result of the contribution from Alliance Healthcare and the continued benefit from some of our higher-margin businesses.
Net interest expense was $55 million, up 57% due to debt related to Alliance Healthcare.
Our effective income tax rate was 20.3% compared to 21.7% in the prior year quarter.
Our diluted share count was 210.8 million shares, a 2.2% increase due to the impact of the issuance accumulated shares delivered to Walgreens as part of the Alliance Healthcare acquisition and dilution related to employee stock compensation.
Pharmaceutical Distribution Services segment revenue was $51.2 billion, up 8% in the quarter, driven by increased sales of specialty products, strong execution across our Pharmaceutical Distribution businesses and overall positive prescription utilization trends.
Pharmaceutical Distribution Services segment operating income increased by 11% to $472 million.
Operating income margin expanded by two basis points to 0.92% in the quarter.
In the quarter, Other revenue was $7.7 billion, up from $2 billion in the fourth quarter of fiscal 2020, driven by a full quarter's worth of contribution from Alliance Healthcare as well as growth in the global commercialization services and Animal Health businesses.
Other operating income was $223 million, up from $105 million in the fourth quarter of fiscal 2020 due to the inclusion of Alliance Healthcare.
Our consolidated revenue was $214 million, up 13%, driven by growth in Pharmaceutical Distribution and Other, which includes four months of contribution from Alliance Healthcare.
Excluding Alliance Healthcare, our consolidated revenue was up 9% from the prior year.
Consolidated operating income grew 20% for the year to $2.6 billion, driven by strong performance across our businesses and the four-month contribution of Alliance Healthcare.
Excluding Alliance Healthcare, our consolidated operating income increased by an exceptional 12% from the prior year, driven by growth in our higher-margin businesses, strong fundamentals across our business and the important work our team has done to support the COVID therapy distribution for hospitalized patients.
From a segment perspective, Pharmaceutical Distribution Services had operating income growth of 13% due to strong performance across our portfolio of businesses and customers.
In Other, operating income grew 54% year-over-year to $615 million.
Our adjusted effective tax rate for fiscal 2021 was 21.3% compared to 20.8% in the prior fiscal year, which has benefited from discrete tax items.
Our full year adjusted diluted earnings per share grew 17% and $9.26, primarily due to strong growth and execution across our business, including continued leadership and outperformance in specialty and the four-month contribution from Alliance Healthcare.
Adjusted free cash flow for the year was $2.1 billion, which was better than our expectations due primarily to the timing of certain customer payments in September, a benefit that will reverse in the December quarter due to the higher supplier payables.
If you normalize for the timing-related benefit, our adjusted free cash flow for the year would have been roughly $1.7 million.
We ended the year with a cash balance of $2.5 billion, excluding restricted cash of approximately $500 million.
On a segment level, we expect U.S. Healthcare Solutions revenue to be approximately $207 billion to $212 billion, representing growth of 2% to 5% year-over-year.
In International Healthcare Solutions, we expect revenue of approximately $26 billion to $27 billion.
On a segment level, we expect U.S. Healthcare Solutions operating income to be between $2.325 billion and $2.4 billion, representing growth of 3% to 6% on a year-over-year basis.
The only business that was included in Pharmaceutical Distribution services that is not going into U.S. Health Care Solutions is Profarma Distribution, which contributed less than 1% of revenues for Pharmaceutical Distribution Services in fiscal 2021 and roughly 1% of segment operating income.
The final earnings per share benefit from COVID therapy sales for full year fiscal 2021 was $0.30, $0.14 of which was in the first quarter.
If you estimate the first quarter of fiscal 2022 based on even lower October trends, the contribution from COVID therapy sales would be $0.03, which means the first quarter would have an $0.11 headwind for U.S. Healthcare Solutions segment.
While this reduces the segment's growth rate in the first fiscal quarter, we expect full year operating income growth of 3% to 6% in U.S. Health Care Solutions.
We expect International Healthcare Solutions have operating income between $685 million and $715 million.
Alliance Healthcare represents a little over 2/3 of operating income in the segment, with World Courier making up the majority of the remainder of segment operating income.
As you think about your first quarter models, we expect about 25% of the International segment's operating income to occur in the first quarter.
Successful completion of the divestiture is factored into our guidance and represents a 2% headwind to our International Healthcare Solutions segment's operating income.
We expect our tax rate to be approximately 21% to 22% for fiscal 2022, based on current tax rates in effect for fiscal 2022.
Without the tax rate benefit from Alliance Healthcare's operations, our range would have been 1% higher on both the top and bottom end of the range.
Finally, we expect that our share count will increase to approximately 212 million shares as a result of the full year impact of the two million shares delivered to Walgreens as part of the closing of the Alliance Healthcare acquisition and normal dilution from stock compensation expense.
As a reminder, as part of our commitment to maintain our strong investment grade credit rating, we are committed to paying down $2 billion in total debt over the next two years in lieu of share repurchases.
As a result of these expectations, reflecting the strength of our business, we are guiding for adjusted diluted earnings per share to be in the range of $10.50 to $10.80, reflecting year-over-year growth of 13% to 17%.
capex is expected to be in the range of $500 million as we continue to invest to further advance our business or to buy Alliance Healthcare's IT infrastructure and support additional growth opportunities.
For adjusted free cash flow, we expect adjusted free cash flow to be in the range of $2 billion to $2.5 billion, which includes the benefit of Alliance Healthcare in our results for the entire fiscal year.
I am proud of our 42,000 team members, who worked tirelessly to support our customers, partners and patients and drove our strong financial results.
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Beginning with our fourth quarter results, we finished the quarter with adjusted diluted earnings per share of $2.39, an increase of 26.5%, which was driven by both a full quarter's worth of contribution from Alliance Healthcare and the strong performance in our Pharmaceutical Distribution Services segment.
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Our revenue and earnings for the quarter were solid, and we are on track to deliver annual revenue growth of over 10% and year-over-year earnings growth at an even higher rate.
iQIYI recently announced they will be making Dolby Vision and Dolby Atmos content available on their international app that is available in over 190 countries and will be enabling Dolby experiences in new original local content on their platform.
We now have about 95% of our Dolby Cinemas open globally, and our partners remain deeply engaged.
Revenue in the third quarter was $287 million, which was at the higher end of our guidance range and included a true-up of about $14 million for Q2 shipments reported that were above the original estimates, and that item is not uncommon.
On a year-over-year basis, third quarter revenue was about $40 million above last year's Q3 as we benefited from higher market TAMs, along with greater adoption of our Dolby technologies.
So Q3 revenue was comprised of $272 million in licensing and $15 million in products and services.
Broadcast represented about 46% of total licensing in the third quarter.
Broadcast revenues increased by about 40% year-over-year, and that was driven by higher market volume, higher recoveries and higher adoption of our Dolby technologies.
And then on a sequential basis, broadcast increased by about 18%, and that was due mostly to higher recoveries.
In the mobile space, mobile represented about 18% of total licensing in Q3.
Mobile declined by about 36% year-over-year, mainly due to lower recoveries, and that was offset partially by higher market volume.
And then on a sequential basis, mobile was down by about 24%, due mostly to timing of revenue under contracts, and we did anticipate that.
Consumer electronics represented about 14% of total licensing in Q3.
And on a year-over-year basis, CE licensing increased by about 86%, driven by higher market volume, higher adoption of Dolby and higher recoveries.
On a sequential basis, CE went down by about 22%, and that was due mainly to timing of revenue under contracts.
PC represented about 9% of total licensing in the third quarter.
PC was higher than last year by about 6%, due to higher market volume, along with increased adoption of Dolby Vision and Dolby Atmos, offset partially by lower recoveries.
And sequentially, PC was down by about 51%, due mostly to timing of revenue, and that lines up with some of the comments I made last quarter about its increase that quarter because of timing.
Other markets represented about 13% of total licensing in the third quarter.
They were up about 42% year-over-year, and that was driven by higher revenue from Dolby Cinema, via admin fees and gaming.
And on a sequential basis, other markets increased by about 4% due mostly to Dolby Cinema and to gaming.
So if I go beyond licensing, our products and services revenue was about $15.2 million in Q3 compared to $16 million in Q2 and $11.8 million in last year of Q3.
Total gross margin in the third quarter was 89% on a GAAP basis and 89.7% on a non-GAAP basis.
Products and services gross margin on a GAAP basis was minus $3.9 million in Q3 compared to minus $345,000 in the second quarter, and products and services gross margin on a non-GAAP basis was minus $2.6 million in Q3 compared to a positive $1.1 million in the second quarter.
Operating expenses in the third quarter on a GAAP basis were $199.1 million compared to $204 million in Q2, and our operating expenses in the third quarter on a non-GAAP basis were $173.6 million compared to $178.4 million in the second quarter.
And then our operating income in the third quarter was $56.1 million on a GAAP basis or 19.6% of revenue compared to $34.1 million or 13.8% of revenue in Q3 of last year.
Operating income in the third quarter on a non-GAAP basis was $83.6 million or 29.1% of revenue compared to $60.5 million or 24.5% of revenue in Q3 of last year.
Income tax in Q3 was 7.7% on a GAAP basis and 13.7% on a non-GAAP basis.
Net income on a GAAP basis in the third quarter was $54.6 million or $0.52 per diluted share compared to $67.3 million or $0.66 per diluted share in last year's Q3.
Now I'd like to point out as a reminder, last year's Q3 net income, and that's both GAAP and non-GAAP, included $36 million of discrete tax benefits, which does affect the year-over-year comparisons.
So our net income on a non-GAAP basis in the third quarter was $74.8 million or $0.71 per diluted share compared to $87.5 million or $0.86 per diluted share in Q3 of last year.
During the third quarter, we generated $172 million in cash from operations compared to $134 million generated in last year's third quarter.
We ended the third quarter with about $1.3 billion in cash and investments.
During the third quarter, we bought back about 400,000 shares of our common stock and ended the quarter with about $37 million of stock repurchase authorization available.
Today, we announced that the Board of Directors has approved an additional $350 million of stock repurchase authorization.
So if I combine that new approval with the remaining balance that was at the end of June, means that as of today, we have $387 million of stock repurchase authorization available going forward.
We also announced today a cash dividend of $0.22 per share.
The dividend will be payable on August 19, 2021, to shareholders of record on August 11, 2021.
Last quarter, when I discussed guidance for Q3, I laid out a scenario that said our second half revenue could range from $560 million to $600 million.
Now with Q3 under our belt and having landed in the range, we are updating the second half revenue range to $570 million to $600 million, in other words, bumping up the lower end by $10 million, which means we are anticipating Q4 revenue to range from $280 million to $310 million.
Within that, licensing could range from $265 million to $290 million, while products and services could range from $15 million to $20 million.
Q4 gross margin on a GAAP basis is estimated to range from 88% to 89%, and the non-GAAP gross margin is estimated to range from 89% to 90%.
Within that, products and services gross margin is estimated to range from about breakeven to $1 million on a GAAP basis and from about $1 million to $2 million on a non-GAAP basis.
Operating expenses in Q4 on a GAAP basis are estimated to range from $216 million to $226 million, and operating expenses in Q4 on a non-GAAP basis are estimated to range from $190 million to $200 million.
Other income is projected to range from $1 million to $2 million for the fourth quarter, and our effective tax rate for Q4 is projected to range from 19% to 20% on both a GAAP and non-GAAP basis.
Based on a combination of the factors I just covered, we estimate that Q4 diluted earnings per share could range from $0.25 to $0.40 on a GAAP basis and from $0.47 to $0.62 on a non-GAAP basis.
FY '21 revenue is anticipated to range from $1.28 billion to $1.31 billion, with gross margin ranging from 89% to 90% on a GAAP basis and 90% to 91% on a non-GAAP basis.
Total operating expenses for the year are estimated to range from $810 million to $820 million on a GAAP basis and from $710 million to $720 million on a non-GAAP basis.
And full year diluted earnings per share are estimated to range from $2.79 to $2.94 on a GAAP basis and from $3.57 to $3.72 on a non-GAAP basis.
Q4 gross margin on a GAAP basis is estimated to range from 88% to 89%, and the non-GAAP gross margin is estimated to range from 89% to 90%.
Within that, products and services gross margin is estimated to range from about breakeven to $1 million on a GAAP basis and from about $1 million to $2 million on a non-GAAP basis.
Operating expenses in Q4 on a GAAP basis are estimated to range from $216 million to $226 million, and operating expenses in Q4 on a non-GAAP basis are estimated to range from $190 million to $200 million.
Other income is projected to range from $1 million to $2 million for the fourth quarter, and our effective tax rate for Q4 is projected to range from 19% to 20% on both a GAAP and non-GAAP basis.
Based on a combination of the factors I just covered, we estimate that Q4 diluted earnings per share could range from $0.25 to $0.40 on a GAAP basis and from $0.47 to $0.62 on a non-GAAP basis.
FY '21 revenue is anticipated to range from $1.28 billion to $1.31 billion, with gross margin ranging from 89% to 90% on a GAAP basis and 90% to 91% on a non-GAAP basis.
Total operating expenses for the year are estimated to range from $810 million to $820 million on a GAAP basis and from $710 million to $720 million on a non-GAAP basis.
And full year diluted earnings per share are estimated to range from $2.79 to $2.94 on a GAAP basis and from $3.57 to $3.72 on a non-GAAP basis.
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Net income on a GAAP basis in the third quarter was $54.6 million or $0.52 per diluted share compared to $67.3 million or $0.66 per diluted share in last year's Q3.
So our net income on a non-GAAP basis in the third quarter was $74.8 million or $0.71 per diluted share compared to $87.5 million or $0.86 per diluted share in Q3 of last year.
Today, we announced that the Board of Directors has approved an additional $350 million of stock repurchase authorization.
Now with Q3 under our belt and having landed in the range, we are updating the second half revenue range to $570 million to $600 million, in other words, bumping up the lower end by $10 million, which means we are anticipating Q4 revenue to range from $280 million to $310 million.
FY '21 revenue is anticipated to range from $1.28 billion to $1.31 billion, with gross margin ranging from 89% to 90% on a GAAP basis and 90% to 91% on a non-GAAP basis.
And full year diluted earnings per share are estimated to range from $2.79 to $2.94 on a GAAP basis and from $3.57 to $3.72 on a non-GAAP basis.
FY '21 revenue is anticipated to range from $1.28 billion to $1.31 billion, with gross margin ranging from 89% to 90% on a GAAP basis and 90% to 91% on a non-GAAP basis.
And full year diluted earnings per share are estimated to range from $2.79 to $2.94 on a GAAP basis and from $3.57 to $3.72 on a non-GAAP basis.
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At the Electronics segment, nearly half of the 35% year-on-year revenue increase in the third quarter reflected organic growth with solid demand for relays in solar and electric vehicle applications and reed switches for transportation end markets.
We continue to expect that revenue from COVID-related storage demand in fiscal 2021 will be at the higher end of our originally indicated $10 million to $20 million range.
At the Specialty Solutions segment, revenue and operating income sequentially increased 18.3% and 32.4%, respectively, as we see the early stages of recovery in our end markets.
Electronics segment backlog realizable in under one year increased approximately 26% sequentially as the demand in end markets, including electric vehicle and renewable energy, continues to trend positively.
For instance, at the Specialty Solutions segment, Hydraulics aftermarket revenue increased 23% year-on-year in the third quarter.
However, the consolidated revenue increase sequentially will be partially offset by the absence of Enginetics, which contributed approximately $4 million in revenue in the third quarter and was divested at the end of the quarter.
Revenue grew approximately $17 million or 35.4% year-on-year with nearly half of the increase due to organic growth.
The recent Renco acquisition contributed revenue of $6.4 million and is proving to be a highly complementary fit with our magnetics portfolio.
Operating income increased approximately $4.3 million or 54.2% year-on-year, reflecting operating leverage associated with revenue growth, profit contribution from Renco and productivity initiatives, partially offset by increased raw material costs.
In this case, we highlighted a magnetic motion system for a defense elevator application, which will contribute more than $11 million over the next three years.
Currently, our new business opportunity funnel has increased to $59 million across a broad range of markets and is expected to deliver $12.4 million of incremental sales in fiscal 2021.
Our outlook reflects a continued broad-based end market recovery, including further growth for relays in solar and electronic vehicle applications, supported by a healthy order flow with backlog realizable under a year increasing approximately $20 million or 26% sequentially in our third fiscal quarter.
Revenue increased approximately $600,000 or 1.7% year-on-year, and operating income was similar year-on-year, as expected, at $4.5 million.
Laneway sales of $13.6 million were an approximate 5% sequential increase, reflecting growth in soft trim tools, laser engraving and tool finishing.
The picture on slide five highlights a recent customer win on the Ford F-150 platform for soft trim interiors.
Revenue increased approximately $9.6 million or 65% year-on-year, reflecting continued positive trends in retail pharmacies, clinical laboratories and academic institutions, mainly attributable to demand for COVID-19 vaccine storage.
Operating income increased $2.6 million or approximately 81% year-on-year, due primarily to the volume increase balanced with investments to support future growth opportunities.
In fiscal fourth quarter 2021, we expect a moderate sequential decrease in revenue due to lower demand for COVID-19 vaccine storage combined with higher freight costs, which we expect to result in a sequential decrease in operating margin, although we still expect an operating margin above 20% in the quarter.
Revenue decreased approximately $6.7 million, and operating income was about $1.9 million lower year-on-year, a 25.4% and 59.8% decrease, respectively.
Specialty Solutions revenue decreased approximately $3.7 million or 11.9% year-on-year with an operating income decline of about $600,000 or 12.9%.
Sequentially, Specialty Solutions revenue and operating income increased 18.3% and 32.4%.
We reported a free cash flow of $12.4 million and have generated 92% free cash flow to net income conversion to the first nine months of fiscal 2021.
We expect our fiscal fourth quarter 2021 results will be stronger both sequentially and year-on-year.
On a consolidated basis, total revenue increased 10.8% year-on-year from $155.5 to $172.2 million.
Renco contributed approximately 4.1%, and FX contributed 2.8% increase to the revenue growth.
On a year-on-year basis, our adjusted operating margin increased 90 basis points to 12.2%, reflecting operating leverage associated with revenue growth, profit contribution from Renco and readout of our productivity actions, partially offset by increased raw material costs.
Interest expense decreased approximately 28% or $0.5 million year-on-year, primarily due to lower level of borrowings and a decrease in overall interest rate as a result of our previously implemented variable to fixed rate swaps.
In addition, our tax rate was 24.9% in the third quarter of 2021.
For fiscal 2021, we continue to expect approximately 22% tax rate with a rate in the low 20% range for the fourth quarter.
Adjusted earnings per share was $1.19 in the third quarter of 2021 compared to $0.96 a year ago.
We generated free cash flow of $12.4 million in the fiscal third quarter of '21 compared to free cash flow of $7.3 million a year ago, supported by improvements in our working capital metrics.
For the first nine months of fiscal 2021, we have generated 92% free cash flow to net income conversion, inclusive of approximately $8 million in pension payments, with $3 million of that amount paid in the fiscal third quarter of '21.
Standex had net debt of $82.1 million at the end of March compared to $90.9 million at the end of December, reflecting free cash flow of approximately $12.4 million, an additional $11.7 million in proceeds from the Enginetics divestiture.
This was partially offset by $8.6 million of stock repurchases, along with dividends and changes in foreign exchange.
Net debt for the third quarter of 2021 consisted primarily of long-term debt of $200 million and cash and equivalents of $180 million with approximately $82 million held by foreign subs.
Standex's net debt to adjusted EBITDA leverage was approximately 0.8 at the end of the third quarter with a net debt to total capital ratio of 14.5%.
We had approximately $209 million of available liquidity at the end of the third quarter and continued to repatriate cash with approximately $6 million repatriated during the quarter.
To date, we have repatriated approximately $31 million and remain on plan to repatriate at least $35 million in fiscal 2021.
From a capital allocation perspective, we repurchased approximately 94,000 shares for $8.6 million.
There is approximately $27 million remaining on our current repurchase authorization.
We also declared our 227th consecutive quarterly cash dividend on April 28 of $0.24 per share.
Finally, we have reduced our fiscal 2021 capital expenditures range to between $22 million to $25 million from between approximately $25 million to $28 million.
Underpinning this outlook is expected sequential revenue increases at Electronics, Engraving and Specialty Solutions, partially offset by the divestiture of Enginetics, which contributed approximately $4 million in revenue in the third quarter.
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We expect our fiscal fourth quarter 2021 results will be stronger both sequentially and year-on-year.
On a consolidated basis, total revenue increased 10.8% year-on-year from $155.5 to $172.2 million.
Adjusted earnings per share was $1.19 in the third quarter of 2021 compared to $0.96 a year ago.
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We reported funds from operations or FFO of $17.5 million or $0.16 per share for the fourth quarter of 2020 and $79.4 million or $0.74 for the year ended December 31, 2020.
During the fourth quarter, we worked with tenants that were impacted by the pandemic and had a significant write-off of one large tenant that filed for bankruptcy in late December that resulted in a $3.1 million charge against our revenue.
During Q4, we had write-offs and lost rent of about $3.1 million which is primarily from a tenant bankruptcy that I noted and on a year-to-date basis, the total write-offs were about $3.8 million or about 1.5% of our annual rental income.
The total of rents deferred by us during Q4 were about $300,000 and for the year totaled about $1.75.
These agreements generally result in us being repaid or made whole -- with the whole -- as part of the $1.75 million we did occur about $200,000 of GAAP and FFO impact from them this year.
Turning to our balance sheet at December 31, '20, we had $923.5 million of unsecured debt, excluding [Phonetic] $3.5 million drawn on our line of credit.
In December, we sold a property in North Carolina for $89.7 million and applied $87.3 million of the proceeds against debt.
With the proceeds from the sale, we applied $50 million against $150 million term loan that matures in November and the remainder one against the drawn balance of our line of credit.
At year-end, between cash on hand and availability on our line, we had total liquidity of about $601 million.
We disclosed some ratios in our supplemental filing that were impacted by the $3.1 million write-off we incurred in late December.
Excluding this charge, our net debt-to-EBITDA ratio would have been 7.8 times compared to 8.5 times at September 30 and that decrease would be primarily a result of the debt reduction.
Our interest and debt service coverage ratios were also impacted and would have been 3.26 times.
We disclose our calculations of ratios in our supplemental filing and the calculations I'm referring to are in the footnotes on Pages 4 and 10 in case you're interested in looking at them.
As a reminder, all of our debt is unsecured and we have no debt maturities until November when $155 million of term loans will be due.
Our debt is at fixed rates other than the $3.5 million on the line which is at a floating rate.
We believe that users of office space are now reconsidering the office densification trends of the past approximately 20 years.
Accordingly, we have introduced full-year 2021 disposition guidance in the range of approximately $350 million to $450 million in aggregate gross proceeds.
At the end of the fourth quarter, the FSP portfolio including redevelopment properties was approximately 83.8% leased which is a decrease from 84.3% leased at the end of the third quarter.
The average leased occupancy of the portfolio for calendar 2020 was approximately 83.6%.
FSP leased approximately 1.130 million square feet during calendar 2020, which included 368,000 square feet of new leases and approximately 150,000 square feet of expansions with existing tenants.
During the fourth quarter, we finalized over 500,000 square feet of renewals and expansions with existing tenants.
FSP is currently tracking approximately 700,000 square feet of potential new leases and renewals.
There are approximately 300,000 square feet of new tenant prospects that have shortlisted FSP properties.
In addition, we are engaged with existing tenants for approximately 400,000 square feet of renewals.
Barring any surprises, the potential for total net absorption over the next three months to six months is approximately 200,000 square feet.
The third will be to build upon our December 23 sale of Emperor Boulevard with additional but select dispositions, estimated to be in the range of $350 million to $450 million for full-year 2021 and then to utilize such proceeds primarily for the repayment of debt in order to gain greater financial flexibility and to position FSP for stronger shareholder returns.
Proceeds from potential dispositions under review are currently estimated to be in the range of $350 million to $450 million for full-year 2021, which again would be intended primarily to be used for the repayment of debt.
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We reported funds from operations or FFO of $17.5 million or $0.16 per share for the fourth quarter of 2020 and $79.4 million or $0.74 for the year ended December 31, 2020.
Accordingly, we have introduced full-year 2021 disposition guidance in the range of approximately $350 million to $450 million in aggregate gross proceeds.
The third will be to build upon our December 23 sale of Emperor Boulevard with additional but select dispositions, estimated to be in the range of $350 million to $450 million for full-year 2021 and then to utilize such proceeds primarily for the repayment of debt in order to gain greater financial flexibility and to position FSP for stronger shareholder returns.
Proceeds from potential dispositions under review are currently estimated to be in the range of $350 million to $450 million for full-year 2021, which again would be intended primarily to be used for the repayment of debt.
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During the quarter, customer closures peaked in mid-April, causing the weekly revenues of our core laundry operations to be down about 18% at that time, from the weekly revenue run rate in the weeks of February and March immediately preceding the disruption.
From that point in April until last week, revenues have been steadily -- have steadily recovered to the point where last week's revenues were down about 8% from pre-pandemic run rates.
As a result of the evolving nature of the pandemic and its impact on our communities, our ability to assess the financial impact on our -- the ability to assess the financial impact on our business continues to be limited.
As a result, we are not providing guidance for the remainder of fiscal 2020.
Consolidated third quarter revenues were $445.5 million, a decrease of 1.8% over the same quarter a year ago.
The overall shortfall in revenue was mitigated by a large direct sale of $20.1 million to a large healthcare customer as well as strong revenues from our First Aid segment.
Our consolidated operating margin was 6.2%, and was impacted by the revenue shortfall in our US and Canadian laundry operations as well as numerous costs related to our COVID-19 response efforts.
Despite all of the events of the quarter, we continue to generate positive free cash flows and ended the quarter with $421.3 million in cash and cash equivalents on hand and no debt on our books.
As Steve mentioned, consolidated revenues in our third quarter of 2020 were $445.5 million, down 1.8% from $453.7 million a year ago.
And consolidated operating income decreased to $27.7 million from $60.2 million or 54%.
Net income for the quarter decreased to $21.3 million or $1.12 per diluted share from $47.2 million or $2.46 per diluted share.
Our Core Laundry Operations revenues for the quarter were $388.4 million, down 2.8% from the third quarter of 2019.
Core Laundry organic growth, which adjusts for the estimated effective acquisitions as well as fluctuations in the Canadian dollar was negative 3.2%.
The company was able to partially offset these declines with a $20.1 million direct sale to a large healthcare customer as well as increased safety and PPE sales.
Core Laundry operating margin decreased to 5.1% for the quarter or $19.7 million from 13.4% in prior year or $53.4 million.
The segment's profitability was affected by many items, including the impact of the decline in rental revenues on our cost structure, a higher cost of revenues related to the large $20.1 million direct sale and additional costs the company incurred related to the pandemic.
This is because our merchandise in service is amortized on a straight-line basis over the estimated service lives of the related merchandise, which average approximately 18 months.
As of last week, our weekly revenues were down about 8% from pre-pandemic run rates, primarily related to customer locations that remained closed.
Energy costs decreased to 3.4% of revenues in the third quarter of 2020 from 4.2% in prior year.
Revenues from our Specialty Garments segment, which delivers specialized nuclear decontamination and cleanroom products and services, decreased to $36.2 million from $37.3 million in prior year or 3.1%.
The segment's operating margin increased to 17.6% or $6.4 million from 14.4% or $5.4 million in the year ago period.
Our First Aid segments revenues increased to $20.9 million from $16.6 million in prior year or 26%.
Operating margin decreased to 7.8% from 8.4%, primarily due to higher merchandise costs as a percentage of revenues.
We continue to maintain a solid balance sheet and financial position, with no long-term debt and cash, cash equivalents and short-term investments totaling $421.3 million at the end of our third quarter of fiscal 2020.
Cash provided by operating activities for the first three quarters of the fiscal year was $205.4 million, an increase of $6.0 million from the comparable period in prior year.
For the first three quarters of fiscal 2020, capital expenditures totaled $91.2 million.
During the quarter, we capitalized $3.3 million related to our ongoing CRM project, which consisted of license fees, third-party consulting costs, and capitalized internal labor costs.
In the first three quarters of our fiscal year, we have capitalized a total of $9.9 million related to this project.
During the third quarter of fiscal 2020, we repurchased 46,667 shares of common stock for a total of $7.5 million under our previously announced stock repurchase program.
As of May 30, 2020, we had repurchased a total of 314,917 shares of common stock for a total of $52.3 million under the program.
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As a result of the evolving nature of the pandemic and its impact on our communities, our ability to assess the financial impact on our -- the ability to assess the financial impact on our business continues to be limited.
As a result, we are not providing guidance for the remainder of fiscal 2020.
Consolidated third quarter revenues were $445.5 million, a decrease of 1.8% over the same quarter a year ago.
Net income for the quarter decreased to $21.3 million or $1.12 per diluted share from $47.2 million or $2.46 per diluted share.
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Since the nationwide rollout in June, we have facilitated over 60,000 commercial transactions.
A digital start-up that we've launched in Seattle in 2019 to reimagine the closing experience has captured a 2% market share in that area.
Encouraged by our success, we've recently entered six new markets, and we plan on growing to 20 markets by the end of the year.
In 2020, our data business exceeded $100 million of pre-tax earnings, a significant milestone.
We currently hold 11 patents covering OCR and data extraction, which has facilitated us to caption over 60% of our data in a fully automated manner.
We are currently capturing virtually every data point on 5 million documents per month.
Today, we have 500 title plants, which is the largest data repository in the industry to support title underwriting decisions.
Because of our patent extraction process, we have started the journey to add an additional 1,000 title plants on a go-forward basis.
Today, 96% of our Company's refinance transactions run through our automated underwriting engine.
Based on our own risk profile, we've achieved a fully automated underwriting decision on 50% of those orders, and we are semi-automated on additional 40%.
Since 2019, we've invested $225 million in venture-backed companies in the proptech ecosystem.
Additionally, I'm pleased to announce that we were recently named a Fortune 100 Best Company to Work For, for the sixth consecutive year.
We earned $2.10 per diluted share.
Included in this quarter's results were $0.46 of net realized investment gains.
Excluding these gains, we earned $1.64 per diluted share.
Revenue in our Title segment was $1.9 billion, up 45% compared with the same quarter of 2020.
Purchase revenue was up 27%, driven by a 15% increase in the number of closed orders, coupled with an 11% increase in the average revenue per order.
Refinance revenue climbed at 79% relative to last year and was flat relative to the fourth quarter, as refinance closings continued to be elevated as a result of low mortgage rates.
Commercial revenue was $163 million, a 2% increase over last year.
On the agency side, revenue was a record $845 million, up 41% from last year.
Our information and other revenues were $275 million, up 32% relative to last year.
The largest component of information and other is revenue from our data and analytics business, which totaled $89 million, a 17% increase from last year.
Investment income within the Title Insurance and Services segment was $43 million, down 29%, primarily due to the impact of the decline in short-term interest rates on the investment portfolio and cash balances, partially offset by higher interest income from the Company's warehouse lending business.
In our Title segment, pre-tax margin was 17.1%.
Excluding the impact of net realized investment gains, pre-tax margin was 14.1%, a record for the first quarter.
I'll note that we've lowered the loss rate 100 basis points to 4% this quarter.
By booking at 5% in 2020, we added $52 million to our IBNR.
Pretax earnings totaled $6 million, down from $13 million in 2020.
Our home warranty business, which accounts for 75% of the revenue for the segment, continued to see growth in the top line.
Revenue was up 11% over last year.
Importantly, revenue in our direct-to-consumer channel increased 18%.
Our property and casualty business posted a loss of $7 million this quarter.
Based on our current plan, we expect at least 50% reduction in our policies in-force by the end of the year.
The effective tax rate for the quarter was 23.4%, in line with our normalized tax rate of 23% to 24%.
Turning to capital management, we repurchased $65 million of stock at an average price of $52.86 during the quarter.
Since March of 2020, we've repurchased $203 million of stock, which is close to the amount of our annual dividend to stockholders.
As Dennis mentioned in his remarks, we've invested a total of $225 million in venture-backed companies.
Our largest investment was in OfferPad, an iBuyer that is now party to a merger with Supernova Partners Acquisition Company, who last month announced that the value of the aggregate equity consideration to be paid to OfferPad's stockholders and option holders will be equal to $2.25 billion.
If the transaction is consummated at that valuation, we would expect to book a gain later this year of approximately $237 million on our $85 million investment.
Additionally, this quarter, we recorded $42 million of gains related to other venture investments, including in Side [Phonetic] a real estate SaaS company that serves high-performing agents, teams and brokers.
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We earned $2.10 per diluted share.
Investment income within the Title Insurance and Services segment was $43 million, down 29%, primarily due to the impact of the decline in short-term interest rates on the investment portfolio and cash balances, partially offset by higher interest income from the Company's warehouse lending business.
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In 1967, when I was 13 years old and a rock band name The Doors released the song titled Strange days.
And indeed, the next few years after 1967 would bring an extended period of strange days and civil unrest that were orders of magnitude stranger than we've seen thus far during the COVID storm.
Apartment demand is stronger in the market than we expected given the nearly 40 million Americans that have filed for unemployment benefits with an official employment unemployment rate of 11.1%.
We undertook various initiatives, including a frontline bonus paid to our 1,400 on-site team members, and we provided grants to almost 400 Camden associates from our long-established Camden employee emergency relief fund.
We also established a Camden resident relief fund from which we were able to provide grants to 8,200 residents at a time of maximum financial uncertainty in their lives.
At that time, based on the confidence level that we had from our operations and finance teams regarding our projected May and June results, on a scale of one to 10, it was probably a two, not good.
For the second quarter of 2020, effective new leases were down 2.1% and effective renewals were up 2.3% for a blended growth rate of 0.3%.
Our July effective lease results indicate a 2% decline for new leases and a 0.2% growth for renewals for a blended decrease of 0.9%.
Occupancy averaged 95.2% during the second quarter of 2020 compared to 96.1% in the second quarter of 2019.
Today, our occupancy has improved to 95.5%.
In the second quarter, we averaged 3,855 signed leases monthly in our same property portfolio as compared to the second quarter of 2019 when we averaged 4,016 signed leases.
For the second quarter of 2020, we collected 97.7% of our scheduled rents, with 1.1% of our rents in a current deferred rent arrangement and 1.2% delinquent.
This compares to the second quarter of 2019 when we collected 98.6% of our scheduled rents, but with a slightly higher 1.4% delinquency.
The third quarter is off to a strong start with 98.7% of our July 2020 scheduled rents collected, ahead of our collections of 98.4% in July of 2019.
Last night, we reported funds from operations for the second quarter of 2020 of $110.4 million or $1.09 per share, representing a $0.26 per share sequential decrease in FFO from the first quarter of 2020.
As outlined in last night's release, included in this $0.26 sequential quarterly decrease is $0.142 of direct COVID-19-related charges included incurred during the quarter.
After excluding the impact of this aggregate $0.142 per share, sequential FFO decreased $0.12 in the second quarter, resulting primarily from: approximately $0.05 per share in lower same-store net operating income, resulting from a $0.02 per share decrease in revenue from our 90 basis point sequential occupancy decline; a $0.025 per share decrease in revenue, resulting from an increase in bad debt reserves from approximately 45 basis points in the first quarter to approximately 180 basis points in the second quarter; and an approximate $0.005 per share sequential increase in expenses; approximately $0.025 in lower non-same-store development and retail NOI, also resulting from a combination of lower occupancy and higher bad debt reserves; and approximately $0.04 per share in higher interest expense resulting from our April 20 $750 million bond issuance.
As previously mentioned, for same-store, our bad debt as a percentage of rental income increased from approximately 45 basis points in the first quarter to approximately 180 basis points in the second quarter.
During the second quarter, we reserved effectively all of the 1.2% of delinquent rents as bad debt.
Also in the second quarter, we reserved effectively half of the 1.1% of deferred rent arrangements as bad debt.
When a resident moves out owing us money, we have already reserved 100% of the amounts owned as bad debt and there will be no future impact to the income statement.
In the second quarter, for retail, which is not part of same-store, we reserved 100% of all amounts uncollected and not deferred, which totaled approximately $800,000.
For the third quarter of 2020 as compared to the third quarter of 2019, at the midpoint, we expect same-store revenues to decline by 1.6%, driven primarily by lower occupancy, higher bad debt and lower miscellaneous fee income.
We expect expenses to increase by 4.5%, driven primarily by higher property insurance, higher property tax assessments and large property tax refunds received in Atlanta and Houston in the third quarter of 2019.
As a result, we expect NOI at the midpoint to decline by 5%.
We expect FFO per share for the third quarter to be within the range of $1.14 to $1.20.
The midpoint of $1.17 is $0.08 per share better than the $1.09 we reported in the second quarter.
However, after adjusting our second quarter results for the previously discussed $0.14 of COVID-related charges, our $1.17 midpoint for the third quarter is a $0.06 per share sequential decrease, resulting primarily from: a $0.045 per share sequential decline in same-store NOI as a result of a $0.005 per share decrease in revenue, resulting primarily from lower net market rents; and a $0.04 per share increase in sequential expenses, resulting primarily from the typical seasonality of our operating expenses, the timing of certain R&M costs and the timing of certain property tax refunds and assessments; an approximate $0.005 per share decline in non same-store NOI, resulting primarily from the same reasons; and an approximate $0.005 per share increase in sequential interest expense, resulting from our April 20 bond issuance.
As of today, we have approximately $1.4 billion of liquidity comprised of just over $500 million in cash and cash equivalents and no amounts outstanding on our $900 million unsecured credit facility.
At quarter end, we had $185 million left to spend over the next two and half years under our existing development pipeline, and we have no scheduled debt maturities until 2022.
Our current excess cash is invested with various banks, earning approximately 30 basis points.
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Last night, we reported funds from operations for the second quarter of 2020 of $110.4 million or $1.09 per share, representing a $0.26 per share sequential decrease in FFO from the first quarter of 2020.
We expect FFO per share for the third quarter to be within the range of $1.14 to $1.20.
The midpoint of $1.17 is $0.08 per share better than the $1.09 we reported in the second quarter.
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Property level cash flow sequentially improved from $3.8 million in April to $7.7 million in June.
In June, our 33 hotels generated 59% occupancy at an average daily rate of $220 and comparable GOP margins for the month came in at above 45%.
We began the second quarter on strong footing as our portfolio RevPAR in April exceeded $100 and was 10% higher than March, which had been elevated due to spring break travel and stimulus spending.
Absolute RevPAR ticked sequentially higher during the balance of the second quarter, growing to $116 in May and exceeding $130 in June, resulting in second quarter RevPAR of $116, more than 50% higher than the first quarter 2021.
Last quarter, our comparable portfolio ADR grew from $193 in April to $220 in June.
That's just 13% below June 2019 without the core business traveler in the marketplace.
Back in 2018, we reinvested approximately $74 million in major upgrades of these resorts, and they are now firmly on target to achieve our expected post-renovation ROIs.
At prior peak in 2015, the Cadillac and Parrot Key generated $9.5 million and $7.8 million in EBITDA, respectively.
This past quarter, the Parrot Key and Cadillac generated $3.8 million and $3.2 million in EBITDA, respectively, for the quarter.
And based on current projections, both hotels are expected to surpass prior peak and combine to exceed $20 million in EBITDA generation for the full year 2021.
The Parrot Key was our best-performing asset during the second quarter, generating 92% occupancy on a $454 average daily rate, resulting in a $416 RevPAR, which surpassed second quarter 2019's RevPAR by more than 80%.
Performance on Miami Beach was similarly encouraging as the Cadillac surpassed 80% occupancy for the quarter on a $235 ADR, which drove 39% RevPAR growth versus the second quarter of 2019.
Demand trends for the third quarter remain robust at our three beach hotels as well as our more business-oriented Ritz-Carlton Coconut Grove, which is beginning to capture corporate business this summer across a variety of industries: financial services, defense, technology, healthcare and advertising, and broke through 2019 levels with 8.7% year-over-year RevPAR growth for the quarter.
Our drive-to resorts also continued their recent outperformance during the second quarter as the group generated weighted average occupancy of 72% and ADR growth of 23%, leading to weighted average RevPAR growth of 17% compared to the second quarter of 2019, further proving that the leisure traveler is not price sensitive for high-quality, well-located, differentiated hotels.
The Sanctuary Beach Resort continues to lead our resorts from a rate perspective as its $506 ADR and 82% occupancy resulted in 21% RevPAR growth versus the second quarter of 2019.
Our Hotel Milo down in Santa Barbara reports 77% occupancy at a $333 ADR, and a very similar 21% RevPAR growth versus prior year.
We recorded a 77% occupancy and an average daily rate of $294 last quarter, which led to 7% RevPAR growth over the period.
Looking further out toward the end of the third quarter, the hotel has several rebooked corporate and retreats that are helping to drive 15% ADR growth for Q3 versus 2019.
With summer travel underway, demand across the portfolio continues to be heavily weighted on weekends versus weekdays, but weekdays have shown a noticeable increase compared to just 90 days ago.
Month-to-date results in July for our portfolio versus March show average weekday occupancy growth of more than 1,200 basis points, leading to RevPAR growth of approximately 55%.
Removing our resort markets, our urban cluster saw weekday RevPARs grow more than 100% over that same period, indicating our gateway cities remain attractive to all segments of the traveler.
The Ritz-Carlton Georgetown finished the quarter with nearly 72% occupancy at a $456 ADR. The Rittenhouse Hotel in Philadelphia also turned cash flow positive this quarter as ADR reached $478 with occupancy growing by more than 2,500 basis points versus the first quarter.
RevPAR and occupancy were up meaningfully from the first quarter, but RevPAR was still down approximately 45% from the second quarter of 2019.
The strong demand at our leisure-oriented properties and weekend demand at our urban hotels allowed us to maintain our average daily rates, less than 18% below 2019, all without any meaningful business travel or group demand in the marketplace.
On the weekends from March to June, we were able to achieve ADR growth at our resorts approximating 13%, while our urban portfolio captured 46% increase in rates with occupancies up 1,000 basis points.
During the second quarter, 24 of our 33 hotels broke even on the EBITDA line, a 71% increase versus the first quarter.
In June, each of our 33 operational hotels broke even on the GOP line, with 24 achieving EBITDA break-even levels, representing 79% of open hotels breaking even on EBITDA versus 58% in March.
We originally forecasted levels needed to break even at the corporate level, approximately 60% of occupancy with a 40% RevPAR decline from 2019.
Results from June cemented these projections as our comparable portfolio generated 59% occupancy with a 40% RevPAR decline.
And combined with our $7.7 million in property level earnings, resulted in $334,000 of positive corporate cash flow.
The asset management initiatives we implemented in 2020, in conjunction with our flexible operating model, showed early signs that our margin improvement goal following the pandemic is beginning to take shape, as GOP margins of 44% during the second quarter were 830 basis points higher than the first quarter and just 260 basis points below our second quarter 2019 GOP margin.
This provides us confidence in our ability to forecast post-pandemic EBITDA margin growth as our ability to drive ADR in tandem with applied expense savings initiatives should allow us to generate 150 to 250 basis points of sustainable long-term margin savings for the portfolio.
From a profitability perspective, our South Florida cluster led the portfolio again this quarter with 41% EBITDA margins, highlighted by our Parrot Key and Cadillac assets.
The Parrot Key and Cadillac finished the quarter with 58% and 43% EBITDA margins, respectively, both exceeding second quarter 2019 EBITDA margins by more than 2,000 basis points.
Robust results were also seen at our California and Washington, D.C. drive-to resorts as our Sanctuary Beach Resort and Hotel Milo generated a 49% and 38% EBITDA margin, respectively.
While outside D.C., a strong start to the summer travel season from a rate and occupancy perspective, coupled with proprietary operational initiatives we have implemented since acquiring the hotel in 2018, led to a 59% EBITDA margin at the Annapolis Waterfront Hotel, 1,200 basis points higher than the second quarter of 2019.
We have been more nimble in this strategy at our independent hotels, which has resulted in significant margin savings versus our brand-oriented portfolio, as our independent and Autograph Collection hotels generated a weighted average 38% EBITDA margin for the second quarter.
At our Parrot Key, revenue generated from our outlets during the second quarter was 58% higher than the second quarter of 2019.
The Envoy boasts the premier rooftop in the city and its popularity helped the hotel achieve close to $2 million in revenues during -- in food and beverage revenues during the second quarter, $1 million of which was generated in June alone.
We ended the second quarter with $80.2 million in cash and cash equivalents and deposits.
As of July 1, we had approximately $46 million in capacity on our $250 million senior revolving line of credit, and $50 million of undrawn credit from the unsecured notes facility we placed with affiliates of Goldman Sachs Merchant Bank.
Additionally, we received approximately $1 million in business interruption proceeds in the second quarter from the impact of COVID-19 at several of our hotels.
As of June 30, 79% of our debt is fixed or swapped with our total debt weighted average interest rate of 4.48% and 3.1 years life to maturity.
We spent $2.6 million on capital projects last quarter, and we continue to limit our capex spend strictly to maintenance and life safety renovations.
During the first half of 2021, we spent $5.3 million on capital projects, and we anticipate our full year capex load to be roughly 40% below our 2020 spend.
The largest outperformance month-to-date in July has been our New York portfolio, which is currently trending up approximately 20% from June on occupancy growth, both on weekdays and weekends.
Month-to-date in July, we are up over 1,000 basis points in occupancy in our Manhattan portfolio, and our New York City Metro, which includes the Boroughs, White Plains and Mystic, are running close to 80% occupancy.
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That's just 13% below June 2019 without the core business traveler in the marketplace.
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Number two, the completion of our transaction with Gallo to divest a number of our lower-end wine brands priced at $11 and below in retail has set the stage for accelerated growth and profitability, driving focus more fully on a tighter set of powerful brands that already have traction with consumers.
Despite the challenges posed by COVID-19, including the continued partial closure of the on-premise, which was down about 35% year over year, Constellation's beer business continues to be one of the largest contributors to U.S. beer industry growth, delivering depletion trends of plus 12% in the quarter.
And while some depletion growth we saw this quarter included benefits from inventory restocking, the portfolio delivered accelerating underlying trends that align with our sales growth projection of 7% to 9% for the foreseeable future, as consumer demand remains exceptionally strong for our products across the majority of the portfolio.
In fact, Constellation's beer portfolio posted IRI consumer takeaway dollar growth of more than 15% for the third quarter.
The Corona Brand family grew nearly 12% in IRI channels, led by particularly strong contributions from Corona Premier, Corona Hard Seltzer and Corona Extra.
It also has the distinction of being the second fastest moving Hard Seltzer among major seltzer brands, while continuing to maintain strong incrementality levels at nearly 90%.
2, which will offer consumers the same great Corona taste and refreshment attributes while expanding to new flavors, including pineapple, strawberry, raspberry and passion fruit.
2 will be followed shortly thereafter by the introduction of another exciting new hard seltzer initiative.
This exceptional brand has excellent marketplace momentum and achieved the number one spot as the top share gaining imported beer in the U.S. beer category, with depletion growth of almost 20%.
Finally, Pacifico was also a top share gainer within the import segment during the quarter, continuing its strong momentum with depletion growth of nearly 20%.
From an operational perspective, we plan to complete the 5 million hectoliter expansion of our Obregon facility in early fiscal 2022, which is a slight delay versus our original plans due to pandemic-related construction slowdowns for this project last year.
Overall, our excellent year-to-date results provide confidence in our ability to achieve 7% to 9% net sales growth for fiscal 2021.
In addition, we have increased our operating income growth target to 8% to 10% for the year.
With the completion of the divestitures, we believe the wine and spirits business is positioned to grow net sales low-to-mid single digits, while producing operating income growth ahead of net sales growth as the business works to take out stranded costs and execute against other cost, price mix and efficiency improvements to achieve a 30% operating margin over the medium-term.
In the near-term, we expect the remaining portfolio post the Gallo deal to generate fiscal 2021 net sales growth in the 2% to 4% range.
Furthermore, it is important to our growth and margin profile that we continue to invest in this space, since DTC is heavily weighted toward the higher end of the wine category as wines priced $20 up, make up nearly 90% of total DTC sales.
We are pleased with the progress the Canopy Growth team has made in defining and strategically positioning themselves in the U.S. CBD and legal THC cannabis markets, which will be beneficial upon U.S. federal permissibility, which was probably enhanced with the change in the Senate that's occurred in the last 48 hours.
In fact, Canopy predicts that CBD beverages can grow at a 35% CAGR through 2025 as consumer realize the compelling benefits from CBD beverages.
The completion of our transaction with Gallo to divest a number of lower end brands priced at $11 and below at retail has set the stage for accelerated growth and profitability.
Our excellent third-quarter performance drove strong cash generation, which coupled with the finalization of the Gallo deal, enhances the financial profile of our business, enables further debt reduction and allows us to continue to execute our commitment to return $5 billion in value to our shareholders through fiscal 2023.
Specifically, during our third quarter, we generated comparable basis EPS, excluding Canopy Growth of $3.16, an increase of 32% versus prior year, delivered strong operating margin and accelerating double-digit depletion growth for our beer business and increased operating cash flow and free cash flow by 14% and 23% respectively, resulting in ongoing debt repayment and achievement of target net leverage, excluding Canopy equity earnings as we ended the quarter at 3.3 times.
Post transaction closing, we are left with a more focused and premium portfolio which nicely positions our wine and spirits business to produce low-to-mid single-digit topline growth, while migrating to an operating margin of 30% in the medium-term.
In total, at transaction close, Constellation received cash of approximately $560 million and the opportunity to receive up to $250 million in earnouts if brand performance targets are met over a three-year period after closing.
We also received approximately $130 million related to the closing of the Nobilo deal and expect to receive approximately $265 million from Sazerac upon closing the Paul Masson Grande Amber Brandy deal.
In total, from all transactions, we expect to receive approximately $955 million before tax and we expect the overall tax payments related to the transactions to be approximately $50 million, which are expected to be paid in fiscal 2022.
The cash proceeds from these transactions will facilitate further debt reduction, so we can continue to execute on our commitment to lower our leverage ratio and to return $5 billion in value to shareholders through dividends and share repurchases through fiscal 2023.
Due to the continued resiliency of our business and further clarity of the operating environment, we have issued fiscal 2021 earnings per share guidance and are projecting our comparable basis diluted earnings per share to range between $9.80 and $10.05.
Net sales increased 28% and shipment volume growth of 27%.
Excluding the impact of the Ballast Point divestiture, organic net sales increased 30% driven by organic shipment volume growth of 28% in favorable price and mix.
Depletion volume for the quarter accelerated and achieved 12% growth as inventory levels improved and strong performance continued in the off-premise channel, which more than offset the impact of approximately 35% year-over-year reduction in the on-premise channel due to COVID-19.
As product inventories begin to rebuild from a COVID-related slowdown of Mexican beer production earlier in the fiscal year, this resulted in Q3 year-to-date organic shipment and depletion volume growth of approximately 6% to 7%, which is in line with our medium-term goals and accounts for volume timing between quarters.
Beer operating margin increased 330 basis points versus prior year to 42.6%.
However, due to favorable leverage driven by increased throughput at our breweries, marketing as a percent of net sales decreased 170 basis points to 9.3%.
We expect net sales growth of 7% to 9%, which includes one to two points of pricing within our Mexican product portfolio.
Excluding the impact to Ballast Point, we expect organic net sales to land in the higher end of the 7% to 9% range.
We now expect fiscal 2021 operating income growth of 8% to 10%, which is an increase versus our prior guidance provided during the quarter.
Furthermore, we expect full-year operating margin to range between 40% and 41%, achieving margin expansion versus prior-year operating margin of 40%.
We also expect margin headwinds related to incremental headcount driven by the 5 million hectoliter expansion at Obregon, which is now expected to be completed in early fiscal 2022.
Q3 Power Brand depletion volume accelerated and achieved nearly 4% growth as these brands continue to win in the higher-end and across the majority of price segments in the U.S. wine category.
Overall depletion volume declined 1%, which reflected the brands recently divested.
Wine and spirits net sales increased 10%, and shipment volume up 3% driven by our Power Brands, as well as strong innovation contributions.
Excluding the impact of the Black Velvet divestiture, organic net sales increased 13%, reflecting shipment volume growth of approximately 7%.
Operating margin decreased 200 basis points to 24% as benefits from price and mix were more than offset by higher COGS and increased marketing, driven by the shift in spend from the first half.
Higher COGS was mostly driven by unfavorable fixed cost absorption of $20 million resulting from decreased production levels as a result of the wildfires.
However, we still expect to incur approximately $10 million of costs in Q4 associated with unfavorable fixed cost absorption due to the wildfires.
During the quarter, we also recognized a $26.5 million loss in connection with the writedown of certain grapes as a result of smoke damage sustained during the wildfires.
Even though margins for the segment took a step back during Q3, the underlying fundamentals of our consumer-led premiumization strategy continue to shine through as significant mix and price were generated during the quarter.
We now expect fiscal 2021 wine and spirits net sales and operating income to decline 9% to 11% and 16% to 18% respectively, which reflects the closing of the Gallo transaction, including Nobilo and the concentrate transaction, as well as the Paul Masson divestiture.
In addition, we expect the retained portfolio post divestitures to grow net sales in the 2% to 4% range this year.
Fiscal year-to-date corporate expenses came in at approximately $171 million, up 15% versus Q3 year to date last year.
We now expect full-year corporate expense to approximate $240 million.
Comparable basis interest expense for the quarter decreased 7% to approximately $96 million primarily due to lower average borrowings as we continued to decrease our leverage ratio.
Fiscal 2021 interest expense is now expected to approximate $390 million.
Our Q3 comparable basis effective tax rate, excluding Canopy equity earnings came in at 17.7% versus 17.5% in Q3 last year, primarily driven by higher effective tax rate on our foreign businesses, partially offset by an increased benefit from stock-based compensation.
As indicated last quarter, we expect our full-year fiscal 2021 comparable effective tax rate, excluding Canopy equity and earnings impact to approximate 19%, which would imply an increase in the Q4 tax rate driven by the timing of stock-based compensation benefits.
We generated free cash flow of $1.9 billion for the first nine months of fiscal 2021.
This represents an impressive 23% increase and reflects strong operating cash flow and lower capex.
We are projecting full-year fiscal 2021 capex spend to be in the range of $800 million to $900 million, which includes $650 million to $750 million of beer capex as we expect an acceleration of spend during Q4, driven by the 5 million hectoliter expansion at Obregon.
Furthermore, we expect fiscal 2021 free cash flow to be in the range of $1.7 billion to $1.8 billion and operating cash flow to be in the range of $2.5 billion to $2.7 billion.
In Q3, we recognized a $770 million increase in fair value of our Canopy investments.
The total pre-tax net gain recognized since our initial Canopy investment in November of 2017 is $834 million, which increased significantly from Q2 driven by Canopy's robust share price movement during the quarter.
As a result of our strong cash generation profile, we've reduced our net debt by $1.2 billion since the end of fiscal 2020, which has led to further reduction of our leverage ratio to our target range.
These financial strides coupled with the fact that our business has continued to remain resilient through this economic environment, now provides us with the flexibility to be opportunistic and resume share repurchase activity in the near-term as we remain fully committed to our goal of returning $5 billion to shareholders through dividends and share repurchases through fiscal 2023.
We are also pleased that the board of directors recently authorized an additional $2 billion for share repurchases.
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And while some depletion growth we saw this quarter included benefits from inventory restocking, the portfolio delivered accelerating underlying trends that align with our sales growth projection of 7% to 9% for the foreseeable future, as consumer demand remains exceptionally strong for our products across the majority of the portfolio.
2, which will offer consumers the same great Corona taste and refreshment attributes while expanding to new flavors, including pineapple, strawberry, raspberry and passion fruit.
2 will be followed shortly thereafter by the introduction of another exciting new hard seltzer initiative.
Overall, our excellent year-to-date results provide confidence in our ability to achieve 7% to 9% net sales growth for fiscal 2021.
In the near-term, we expect the remaining portfolio post the Gallo deal to generate fiscal 2021 net sales growth in the 2% to 4% range.
Specifically, during our third quarter, we generated comparable basis EPS, excluding Canopy Growth of $3.16, an increase of 32% versus prior year, delivered strong operating margin and accelerating double-digit depletion growth for our beer business and increased operating cash flow and free cash flow by 14% and 23% respectively, resulting in ongoing debt repayment and achievement of target net leverage, excluding Canopy equity earnings as we ended the quarter at 3.3 times.
Due to the continued resiliency of our business and further clarity of the operating environment, we have issued fiscal 2021 earnings per share guidance and are projecting our comparable basis diluted earnings per share to range between $9.80 and $10.05.
We expect net sales growth of 7% to 9%, which includes one to two points of pricing within our Mexican product portfolio.
Excluding the impact to Ballast Point, we expect organic net sales to land in the higher end of the 7% to 9% range.
Even though margins for the segment took a step back during Q3, the underlying fundamentals of our consumer-led premiumization strategy continue to shine through as significant mix and price were generated during the quarter.
We now expect fiscal 2021 wine and spirits net sales and operating income to decline 9% to 11% and 16% to 18% respectively, which reflects the closing of the Gallo transaction, including Nobilo and the concentrate transaction, as well as the Paul Masson divestiture.
In addition, we expect the retained portfolio post divestitures to grow net sales in the 2% to 4% range this year.
Furthermore, we expect fiscal 2021 free cash flow to be in the range of $1.7 billion to $1.8 billion and operating cash flow to be in the range of $2.5 billion to $2.7 billion.
We are also pleased that the board of directors recently authorized an additional $2 billion for share repurchases.
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During Q2, we achieved revenue of $491 million, which was down sequentially from Q1, but supported by strong demand in our Medical and Semi-Cap sectors.
Non-GAAP gross margin for the quarter was 7% and non-GAAP earnings per share were $0.07.
Our non-GAAP earnings include $4 million or $0.10 per share of COVID related costs that we could not fully anticipate as we entered the quarter.
Our cash conversion cycle for the quarter was 84 days.
Despite operating challenges, we generated $23 million in cash flow from operations and returned $6 million of cash to shareholders as part of our recurring quarterly dividend payment.
Further, our revamped go-to-market organization has grown the manufacturing and engineering services opportunity pipeline by over 30% in the past 12 months, and have delivered three quarters of sequential growth in bookings, which bodes well for our long-term growth potential.
As we look out to the end of the year, we are still on track to exit 2020 with at least 9% gross margin and we expect to build on this momentum into 2021.
Where possible we are continuing to permit about 20% of our employees to work from home.
As we entered Q2, our Penang, Malaysia operations, which includes our largest precision machining facility operated at 50% capacity based on local restrictions, which were subsequently lifted at the end of April.
The 100% shutdown that impacted our Tijuana operations was lifted in mid-May after we passed some inspection and were given authorization to operate by the Baja's state.
There has been a phase return to work since this time and the Tier 1 sites are now operating at approximately 75%.
Our Guadalajara facility has been essentially operating at 75% productivity due to at-risk employees being required to stay home for the Jalisco state government restrictions.
Total Benchmark revenue was $491 million.
Medical revenues for the second quarter increased 14% sequentially and were up 18% year-over-year from continued new product ramps, strength throughout our medical customers and increasing demand for critical devices necessary to support the COVID-19 fight, including X-ray and ultrasound devices, ventilators and diagnostic equipment, which we estimate is approximately a third of our sequential growth.
Semi-Cap revenues were up 5% in the second quarter and up 39% year-over-year from continued strong demand across our Semi-Cap customers.
A&D revenues for the second quarter decreased 26% sequentially due to approximately $15 million lower revenue from our commercial aerospace programs, which is approximately 30% of the sectors revenue.
Industrial revenues for the second quarter decreased 15% sequentially.
Demand for products in the oil and gas industry, which is approximately 20% of our revenue, continued to be generally soft and will likely stay soft for the remainder of the year.
Overall, the higher value markets represented 81% of our second quarter revenue.
In the traditional markets, computing was up 20% quarter-over-quarter from new program ramps and two engineering and manufacturing programs in high-performance computing.
Telco was down 10% sequentially.
Our traditional markets represented 19% of second quarter revenues.
Our top 10 customers represented 44% of sales for the second quarter.
Our revenue of $491 million reflects a decrease on a quarter-over-quarter basis.
Our GAAP loss per share for the quarter was $0.09.
Our GAAP results include restructuring and other one-time costs totaling $5.7 million.
$3.3 million is related to the severance and other items for the announced closure of our Angleton site which Jeff will cover in more detail in his initiatives update.
$1.2 million is related to the completion of our San Jose closure and the remaining is due to other various restructuring activities around our network.
For Q2, our non-GAAP gross margin was 7%, a 140 basis points sequential decline.
As Jeff stated earlier, our results were negatively impacted by $4 million of costs related to COVID-19 including site shutdown days pursuant to government orders, idle and not fully productive labor costs, personal protective equipment and incremental freight charges.
We expect the second quarter to be the lowest quarterly gross margin in fiscal year 2020, and we still believe that we can exit 2020 at, at least 9% of gross margin.
Our SG&A was $28.5 million, a decrease of $3.1 million sequentially and $3 million year-over-year due to the cost containment measures, which we have continued, including salary reductions for certain management personnel, including the executive team, freezing travel, reducing discretionary spending and delaying hiring in addition to our reduction in variable compensation expense.
Operating margin was 1.2%, a decrease from 2.3% in Q1 due to lower revenue, reduced gross margin offset by the lower SG&A.
In Q2 2020, our non-GAAP effective tax rate was 29%, which was higher than expected for the quarter due to the distribution of income across our network and certain discrete tax items.
The higher tax impact was approximately $0.01 per share.
Non-GAAP earnings per share was $0.07 for the quarter and non-GAAP ROIC was 5.9%.
Our cash balance was $356 million at June 30, with $194 million available in the US.
Our cash balances include $30 million of proceeds from borrowings under our revolving line of credit.
At June 30, we were at a positive net of debt cash position of approximately $183 million which was higher than the end of Q1 by approximately $12 million.
We generated $23 million in cash flow from operations and $13 million free cash flow after netting $10 million of capital expenditures.
Our accounts receivable balance was $302 million, a decrease of $16 million from the prior quarter.
Contract assets were $154 million at June 30 and $160 million at March 31.
Payables were down $11 million quarter-over-quarter.
Inventory at June 30 was $364 million, up $26 million quarter-over-quarter.
Our cash conversion cycle days was 84.
In Q2, we continued to pay a quarterly cash dividend of approximately $5.8 million.
As a reminder, we increased our recurring quarterly cash dividend to $0.16 per share on February 3, 2020.
We expect revenue to range from $490 million to $530 million.
Our non-GAAP diluted earnings per share is expected to be in the range from $0.26 to $0.30 or a midpoint of $0.28.
Capex for the year will be approximately $30 million to $35 million as we prioritize investments to support new customers and expand our production capacity for future growth.
Implied in our guidance is a 2.9% to 3.1% operating margin range for modeling purposes.
We expect to incur restructuring and other non-recurring costs in Q3 of approximately $800,000 to $1.2 million.
Other expenses net is expected to be $2.4 million, which is primarily interest expense related to our outstanding debt.
We expect that for Q3, our non-GAAP effective tax rate will be in the range of 20% to 22%, because of the distribution of income around our global network.
The expected weighted average shares for Q3 are 36.7 million.
I will start with the Medical sector where demand grew almost 14% sequentially from Q1 and is forecasted to remain strong throughout the rest of the year from new program ramps in imaging systems and for critical care and diagnostic devices supporting COVID-19.
Our A&D sector is comprised of approximately 70% defense related products and 30% aerospace.
We see limited recovery for customers supporting oil and gas through 2020, which represents approximately 20% of sector revenue.
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Non-GAAP gross margin for the quarter was 7% and non-GAAP earnings per share were $0.07.
Total Benchmark revenue was $491 million.
Our GAAP loss per share for the quarter was $0.09.
Non-GAAP earnings per share was $0.07 for the quarter and non-GAAP ROIC was 5.9%.
We expect revenue to range from $490 million to $530 million.
Our non-GAAP diluted earnings per share is expected to be in the range from $0.26 to $0.30 or a midpoint of $0.28.
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Net income for the first quarter of 2021 included: first, the net after-tax loss from the second phase of the closed block individual disability reinsurance transaction of $56.7 million, which is $0.27 per diluted common share.
Second, the after-tax amortization of the cost of reinsurance of $15.8 million, which is $0.08 per diluted common share and a net after-tax realized investment gain on the company's investment portfolio and this excludes the net realized investment gain associated with the reinsurance transaction of $13.5 million or $0.06 per diluted common share.
Net income in the first quarter of 2020 included a net after-tax realized investment loss of $113.1 million, which is $0.56 per diluted common share.
So excluding these items, after-tax adjusted operating income in the first quarter of 2021 was $212 million or $1.04 per diluted common share compared to $274.1 million or $1.35 per diluted common share in the year-ago quarter.
Most notable, the increase of 2.8% in premium income growth we experienced in our core business segments from the fourth quarter of 2020 to the first quarter of 2021.
Our holding company cash position finished the quarter at $1.7 billion, aided by the successful completion of Phase two of the closed Disability Block Reinsurance transaction.
Risk-based capital for our traditional U.S. insurance companies remained solidly above our targets at 370%, and our leverage is down three points from a year ago.
I'll start with the Unum US segment, which reported adjusted operating income for the first quarter of $115.7 million compared to $143.5 million in the fourth quarter.
Beyond the significant mortality impact, we were pleased with the underlying performance of the rest of the businesses, particularly the 2.7% increase in premium income related to the fourth quarter.
Starting with the Unum US group disability line, adjusted operating income for the first quarter was $64.1 million compared to $64.7 million in the fourth quarter of 2020.
We were very pleased to see premium income increased by 3.5% compared to the fourth quarter, with solid sales this quarter, very good persistency, and natural growth stabilizing.
The benefit ratio was 74.8% compared to the very favorable 72.5% in the fourth quarter.
We continue to expect the annual group disability benefit ratio to run in the 73% to 74% range with some quarterly volatility.
Second, the expense ratio improved nicely, declining to 28.4% in the first quarter from 30.4% in the fourth quarter.
Adjusted operating income for Unum US Group Life and AD&D continue to show the impact of COVID-related mortality, with a loss of $58.3 million in the first quarter compared to a loss of $21.9 million in the fourth quarter.
The change from the fourth to the first quarter is largely explained by the national COVID-related mortality trend that showed an increase from approximately 145,000 nationwide observed deaths in the fourth quarter to approximately 200,000 in the first quarter.
Our 1% claims rule of thumb for Unum share of COVID-related mortality did hold consistent in the quarter, and we estimate that we incurred approximately a 2,050 COVID claims with an average claim size of approximately $50,000.
Second-quarter estimates of U.S. COVID-related mortality are in the 50,000 to 60,000 range compared to the first quarter level of approximately 200,000.
However, the 1% rule of thumb we have experienced throughout the pandemic is likely to change somewhat.
If the age distribution of mortality changes and is skewed more to younger people and away from the elderly population due to the vaccine rollout, we would expect to see a higher percentage of national claim counts and a higher average claim size since working-age policies tend to have higher policy amounts than retired and over age 65 individuals.
This does equate to an approximately $40 million impact to group life income from COVID-related claims compared to over $100 million in the first quarter.
In other words, using these estimates, we would expect our group life earnings to improve by approximately $60 million from the first quarter to the second quarter to an approximately breakeven level of earnings in the second quarter.
Now shifting to the Unum US supplemental and voluntary lines, we saw an improved quarter with adjusted operating income of $109.9 million in the first quarter compared to $100.7 million in the fourth quarter.
The individual disability line continues to generate favorable results with a benefit ratio at 42.4% in the first quarter compared to 42% in the fourth quarter and 52.1% in the year-ago quarter, driven primarily by continued favorable incidence and mortality trends in the block.
Finally, utilization in the dental and vision line was higher this quarter, pushing the benefit ratio to 73.2% in the first quarter compared to 65.4% in the fourth quarter.
Sales for Unum US in total declined by 10.3% in the first quarter compared to the year-ago quarter.
Within that, sales increased 15.9% for the employee benefits lines, which are STD, LTD, group life, and AD&D combined, with a good mix of growth in both large case and core market business.
Our recently issued individual disability sales were down 25.1% in the quarter, coming off a strong pre-pandemic first quarter last year.
Voluntary benefit sales were down 21.5% in the quarter, which is consistent with our view that mid and larger case VB sales will take longer to recover.
Finally, sales in dental and vision were 25.9% lower, caused by the disruption in group sales resulting from discounts and other incentives, many carriers are providing in response to the unusually favorable claims trends seen in the second quarter of last year.
We are seeing a positive offset with higher persistency for dental and vision at 87.4% for the first quarter compared to 81.9% in the year-ago first quarter.
Now let's move on to Unum International segment, where adjusted operating income for the first quarter showed a strong improvement to $26.4 million compared to $20.7 million in the fourth quarter last year.
A big driver of this improvement was improved results in Unum U.K. with adjusted operating income of GBP18.6 million in the first quarter compared to GBP15.4 million in the fourth quarter.
Unum Poland has seen adverse impacts from COVID on its results in the first quarter relative to the year-ago quarter, but we are pleased with the growth we're seeing in this business with growth in premium income of 11.7% on a year-over-year basis.
Next, we are very pleased with the results generated by Colonial Life, with adjusted operating income of $73.3 million in the first quarter compared to $71.2 million in the fourth quarter.
The benefit ratio of 55.4% was slightly improved from 56.6% in the fourth quarter but did remain higher than our historical trends due to the continued impact from COVID on our life insurance line.
Premium income for the first quarter picked up slightly from the fourth quarter, increasing 1.8%, primarily the result of favorable persistency trends.
We will need to see further recovery in new sales to rebuild premium growth back to the historic levels of 5% to 6%.
Although quarterly sales were down 9.2% year-over-year, that has sharply improved from the 31% cumulative decline we experienced for the last three quarters of 2020.
We look forward to further improvement in sales momentum over the balance of 2021.
We are encouraged by the uptake we are seeing in our recently developed digital enrollment tools, which in the quarter accounted for about 1/3 of our enrollments.
Adjusted operating income, excluding the impact of the Closed Block individual disability reinsurance transaction, was $97 million in the first quarter compared to $104.2 million in the fourth quarter last year, both strong quarters relative to our historical levels of income for this segment.
Looking at the primary business lines within the Closed Block, for the LTC block, the interest adjusted loss ratio was 77.7% for the first quarter compared to 60.2% in the fourth quarter, excluding the income of the reserve assumption update in the fourth quarter of last year.
The results for the first quarter remain favorable to our long-term assumption of a range of 85% to 90%, primarily due to the continued impact of COVID-related mortality on our claimant block.
In the first quarter, we estimate the accounts were approximately 15% higher than expected, a similar trend to what we experienced in the fourth quarter.
For the Closed Disability Block, the interest adjusted loss ratio was 68.9% in the first quarter and 79.5% in the fourth quarter, both excluding the impacts from the reinsurance transaction in these quarters.
Then wrapping up my commentary on the quarter's financial results, the adjusted operating loss in the corporate segment was $38.9 million in the first quarter.
This is favorable to the fourth quarter 2020 adjusted operating loss of $42.7 million, primarily due to higher net investment income, which offset a slightly higher level of operating expenses.
Phase two involved the transfer of approximately $767 million of assets to the reinsurer and the recording of a net after-tax loss on the transaction of $56.7 million.
In addition, the amortization of the after-tax cost of reinsurance was $15.8 million this quarter.
With the transaction now completed, we are very pleased with the ultimate release of approximately $600 million of capital to holding company cash and the flexibility that creates for us.
First, we recorded an after-tax net realized investment gain of $66.9 million in the first quarter.
Of that gain, $53.4 million was associated with the completion of Phase two of the Closed Block individual disability reinsurance transaction.
The balance of this quarter's realized investment gains, which result from normal investment operations was $13.5 million and was largely driven by a positive mark on our Modco embedded derivative balance.
Second, as I mentioned previously, we continue to see a strong recovery in the valuation mark on our alternative invested assets of $35.9 million this quarter, following a positive mark of $29.4 million in the fourth quarter.
Given the current portfolio size, we would expect quarterly positive marks in the portfolio of $8 million to $10 million.
Third, with Phase two of the reinsurance transaction, we were able to retain approximately $361 million of invested assets that were not transferred to the reinsurer.
Of that amount, $234 million of investment-grade assets with a book value -- with a book yield of 7.4% have been allocated to the LTC portfolio.
During the first quarter, we saw only $92 million of investment-grade bonds downgraded to below investment grade and $13 million of upgrades of below-investment-grade bonds to investment-grade status.
Our holdings of high-yield fixed-income securities were 7.7% of total fixed income securities at the end of the first quarter, which was down from 7.9% at year-end 2020.
The risk-based capital ratio for our traditional U.S. insurance companies is slightly over 370% and holding company cash is at $1.7 billion as of the end of the first quarter, both well above our targeted levels.
In addition, I'd note that our leverage ratio has declined to 26%, providing additional flexibility.
With our fourth-quarter reporting in February, we outlined our expectation of a modest decline of 5% to 6% for full-year 2021 adjusted operating income per share relative to the 2020 level of $4.93 per diluted common share.
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So excluding these items, after-tax adjusted operating income in the first quarter of 2021 was $212 million or $1.04 per diluted common share compared to $274.1 million or $1.35 per diluted common share in the year-ago quarter.
Our 1% claims rule of thumb for Unum share of COVID-related mortality did hold consistent in the quarter, and we estimate that we incurred approximately a 2,050 COVID claims with an average claim size of approximately $50,000.
We look forward to further improvement in sales momentum over the balance of 2021.
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