Prompt:
Human: Please visit our website at transdigm.com to obtain a supplemental slide deck and call replay information.
The company would also like to advise you that during the course of the call, we will be referring to EBITDA, specifically EBITDA as defined, adjusted net income and adjusted earnings per share, all of which are non-GAAP financial measures.
First, I'll start off with the usual quick overview of our strategy and then a few comments about the quarter and a discussion of our fiscal 2022 outlook, then Jorge and Mike will give additional color on the quarter.
To reiterate, we are unique in the industry in both the consistency of our strategy in good and bad times, as well as our steady focus on intrinsic shareholder value creation through all phases of the aerospace cycle.
To summarize here are some of the reasons why we believe this.
About 90% of our net sales are generated by proprietary products and over three quarters of our net sales come from products, which we believe we are the sole source provider.
Most of our EBITDA comes from aftermarket revenues, which generally have significantly higher margins and over any extended period have typically provided relative stability in the downturns.
We follow a consistent long-term strategy.
Specifically, we own and operate proprietary aerospace businesses with significant aftermarket content.
We utilize a simple, well-proven, value-based operating methodology.
We have a decentralized organization structure and a unique compensation system, closely aligned with shareholders.
Next, we acquire businesses that fit this strategy where we see a clear path to PE-like returns.
And finally, our capital structure and allocation are a key part of our value creation methodology.
Our long-standing goal is to give our shareholders private equity-like returns with the liquidity of a public market.
To do this, we stay focused on both the details of value creation, as well as careful allocation of our capital.
We continue to see recovery in the commercial aerospace market and are encouraged by the trends in air traffic among other factors.
Our Q1 fiscal results show positive growth in comparison to the same period in fiscal 2021 as we are lapping the first quarter of 2021, which was heavily impacted by the pandemic and prior to the widespread availability of vaccines.
Although our results have improved, they continue to be unfavorably affected in comparison to pre-pandemic levels as the demand for air travel remains depressed.
However, the continued improvement in global air traffic despite emergence of a new COVID-19 variant in late 2021 is encouraging, it further illustrates the pent-up demand for air travel and bodes well for the momentum of the commercial aerospace recovery in 2022.
To date, the recovery has remained primarily driven by domestic leisure travel, although we are optimistic for recovery of international travel as many governments across the world have softened travel restrictions.
Even the travel restrictions reimposed by certain governments during the months of December due to the Omicron variant are now starting to ease, which is again an encouraging sign.
In our business, we saw another quarter of sequential improvement in our commercial markets, with total commercial aftermarket revenues up 10% over Q4 of fiscal 2021 and bookings up more than 15% compared to Q4.
Commercial OEM bookings came in even stronger with almost 20% sequential improvement over Q4.
I am also very pleased that despite the challenging commercial environment, our EBITDA as defined margin was 47.3% in the quarter.
Contributing to this better-than-expected margin is the continued recovery in our commercial aftermarket revenues, as well as the careful management of our cost structure and focus on our operating strategy.
This was achieved despite the emergence of the Omicron variant during the quarter.
Additionally, we continued to generate significant cash in Q1.
We had strong operating cash flow generation of almost $280 million and closed the quarter with a little over $4.8 billion of cash.
We expect to steadily generate significant additional cash throughout the remainder of 2022.
Next, an update on our capital allocation activities and priorities.
We are now at a decision point with regard to our sizable cash balance, which is now approaching $5 billion.
Consistent with our history, when we have a significant amount of cash available, we aim to get that back to the shareholders in one form or another.
At this time, we're still in the process of evaluating our capital allocation options with regard to any significant acquisitions, share buybacks and dividends.
All three options are on the table each individually, but then also potentially in some combination over the next 12 months.
Any significant M&A, share buyback and/or dividend activity will still leave the company with substantial liquidity and the financial flexibility to deal with any currently anticipated capital requirements or other opportunities in the readily foreseeable future.
We continue to look at possible M&A opportunities and are always attentive to our capital allocation.
Both the M&A and capital markets are always difficult to predict, but especially so in these times.
Regarding the current M&A pipeline, we are still actively looking for M&A opportunities that fit our model.
We continue to see a pickup in acquisition opportunity activity, but it's still slower than pre-COVID.
We have a decent pipeline of possibilities as usual, mostly in the small, midsized range.
I cannot predict or comment on possible closings, we remain confident that there is a long runway for acquisitions that fit our portfolio.
Now, moving to our outlook for 2022.
We are still not in a position to provide full financial guidance as a result of the continued disruption in our primary commercial end markets.
We continue to be encouraged by the recovery we have seen in our commercial aftermarket revenues and the strong bookings received for both commercial OEM and aftermarket in Q1.
We will look to reinstitute guidance when we have a clearer picture of the future.
We continue to expect COVID-19 to have an adverse impact on our financial results compared to pre-pandemic levels throughout the remainder of fiscal 2022 under the assumption that both our commercial OEM and aftermarket customer demand will remain depressed due to lower worldwide air travel.
Although recent positive trends in commercial air traffic could impact us favorably.
To reiterate what we said on the Q4 earnings call, our teams are still planning for our commercial aftermarket revenue to grow in the 20% to 30% range.
We expect our commercial OEM revenue to grow significantly as well, but at a rate slightly less than the commercial aftermarket.
As you know, we aim to be conservative and would be happy to have both of these end markets rebound more strongly.
To reiterate, these are planning assumptions for organizational purposes and not guidance.
As for the defense market, we still expect defense revenue growth in the low single-digit percent range from fiscal 2022 versus prior year despite the slow start to the year.
Jorge will provide more color on our defense end market.
We now expect full year fiscal 2022 EBITDA margin to be slightly north of 47% due to the rate of commercial aftermarket recovery.
Please note that our Q1 EBITDA margin was stronger than anticipated, and we may see less year-over-year margin improvement for Q2 and expect margins to move up throughout the second half of the fiscal year.
As a final note, this margin guidance includes the unfavorable headwind of our Cobham acquisition of about 0.5%.
We believe we are well positioned for the remainder of fiscal 2022.
As usual, we'll closely watch the aerospace and capital markets as they develop and will react accordingly.
Mike will provide details on other fiscal 2022 financial assumptions and updates.
Now, shifting gears for a moment to nonfinancial matters.
I'd like to touch on our DoD IG audit report, which was released in mid-December.
As we expected and communicated, the audit scope and results were similar to prior audits.
The report found no legal wrongdoing on behalf of TransDigm or any of our employees.
The report asked for a purely voluntary refund of approximately $21 million.
We disagree with many of the implications contained in the report, as well as the methodology used to arrive at many of the report's conclusions.
We also disagree with the use of arbitrary standards and analysis, which render many areas of the report inaccurate and misleading.
Additionally, at the request of the House Oversight and Reform Committee, we participated in a hearing on January 19 to discuss the results of the audit.
Going forward, we will continue to work with the IG, the DLA and any other relevant parties to evaluate the results of this audit.
The U.S. government and the U.S. warfighter remained top priorities for TransDigm.
At this time, we are engaged directly with the DLA and do not have any further update on whether or not we expect to pay all or a portion of the $21 million voluntary refund request.
Finally, I wanted to announce the retirement of our Vice Chairman, Bob Henderson.
He retired at the end of first fiscal quarter.
Bob has been a key member of the TransDigm management team for over 25 years and a significant partner in the company's growth during the entire period.
He served in a range of roles over his years with TransDigm, including as president of several operating units, executive vice president, COO of TransDigm's airframe business group and most recently, vice chairman, where he oversaw the integration of the operating units acquired as part of the Esterline transaction.
We wish Bob well in his retirement.
Let me conclude by stating that I'm pleased with the company's performance in this challenging time for the commercial aerospace industry and with our commitment to driving value for our stakeholders.
As always, we remain focused on executing our operating strategy and managing our cost structure as we continue on this journey to a full recovery of the commercial aerospace industry.
We look forward to the remainder of our fiscal 2022 and expect that our consistent strategy will continue to provide the value you have come to expect from us.
Now, let me hand it over to Jorge to review our performance and a few other items.
I'll start with our typical review of results by key market category.
For the remainder of the call, I'll provide color commentary on a pro forma basis compared to the prior year period in 2021.
That is assuming we own the same mix of businesses in both periods.
This market discussion includes the acquisition of Cobham aero connectivity.
We began to include Cobham in this market analysis discussion in the second quarter of fiscal 2021.
This market discussion also removes the impact of any divestitures completed in fiscal 2021.
In the commercial market, which typically makes up close to 65% of our revenue, we will split our discussion into OEM and aftermarket.
Our total commercial OEM revenue increased approximately 13% in Q1 compared with the prior year period.
Bookings in the quarter were robust compared to the same prior year period and strongly outpaced sales.
Sequentially, the bookings improved almost 20% compared to Q4.
We are hopeful that the narrowbody rate ramps disclosed by Airbus and Boeing will play out as forecasted.
Now, moving on to our commercial aftermarket business discussion.
Total commercial aftermarket revenue increased by approximately 49% in Q1 when compared with prior year period.
Growth in commercial aftermarket revenue was primarily driven by increased demand in our passenger submarket, although all of our commercial aftermarket submarkets were up significantly compared to prior year Q1.
Sequentially, total commercial aftermarket revenues grew approximately 10% and bookings grew more than 15%.
Commercial aftermarket bookings are up significantly this quarter compared to the same prior year period and Q1 bookings strongly outpaced sales.
To touch on a few key points of consideration, global revenue passenger miles remained low but continued to modestly improve throughout our Q1.
IATA currently forecasts a 39% decrease in revenue passenger miles in calendar year 2022 compared to pre-pandemic levels.
Within IATA's estimate is the expectation that domestic travel will be back to 93% of pre-pandemic levels in calendar year 2022.
Despite the impact of the Omicron variant, December global revenue passenger miles still improved month on month, which demonstrates the strong underlying demand and the willingness of passengers to travel.
Countries that reimposed travel restrictions due to this variant are already announcing significant easing of those restrictions.
The limited impact from the Omicron variant on air travel provides optimism for the pace of the recovery of air traffic in 2022.
The recovery in domestic travel has been more resilient than international.
Domestic air traffic for calendar 2021 was only down 28% compared to pre-pandemic versus international, which was still down 75%.
As the commercial aerospace recovery has progressed, the U.S. and Europe have shown strong demand for domestic travel.
China has been more volatile due to its zero COVID policies, which lead to localized lockdowns and rapid drop-offs in air travel.
Though the pace of the international air traffic recovery has been slow, we are hopeful for improvement in international travel in 2022 as vaccination rates continue to improve globally and many of the government travel restrictions are softening.
Global cargo volumes continue to surpass pre-COVID levels and it is generally expected that airfreight demand will remain robust throughout 2022.
Business jet utilization remained strong.
Commentary from business jet OEMs and operators have been encouraging and these higher levels of business jet activity may be here to stay, though time will tell.
Now, let me speak about our defense market, which traditionally is at or below 35% of our total revenue.
The defense market revenue, which includes both OEM and aftermarket revenues, decreased by approximately 12% in Q1 when compared with the prior year period.
As we have said many times, defense sales and bookings can be lumpy.
This quarter, Cobham was lapping a very tough prior year comparison as Cobham's defense sales accelerated in fiscal Q1 2021, which was the last quarter prior to TransDigm's ownership.
This was the single largest contributor to the year-over-year decline.
There are also some supply chain-induced delays in fulfilling orders at certain operating units.
As Kevin mentioned earlier, we continue to expect low single-digit percent range growth in fiscal 2022 for our defense market revenues.
Lastly, I'd like to wrap up by stating how pleased I am by our operational performance in this first quarter of fiscal 2022, despite the continued impact of the pandemic.
We remain focused on our value drivers and executing with operational excellence.
I'm going to quickly hit on some additional financial matters for the quarter and then our expectations for the full fiscal year.
First, in regard to profitability for the quarter, EBITDA as defined of about $565 million for Q1 was up 19% versus our prior Q1.
EBITDA as defined margin in the quarter was approximately 47.3%.
This represents year-over-year improvement in our EBITDA as defined margin of about 450 basis points versus Q1 of last year.
Sequentially, EBITDA as defined margin declined slightly by about 200 basis points during Q1 versus Q4 of last fiscal year.
As you know, this is typically the case for us given the higher volume levels in Q4 and lower number of working days in our fiscal Q1.
Now, a few quick additional financial data points for the quarter.
Organic growth was 9%, driven by the rebound in our commercial OEM and aftermarket end markets.
On taxes, the slightly lower-than-expected GAAP rate for the quarter was driven by significant tax benefits arising from equity compensation deductions.
This is just timing.
Barring some deviations in the rates for this first quarter, our tax rate guidance for the full year is unchanged from what we provided on our last earnings call.
Moving to cash and liquidity.
We had another nice quarter on free cash flow.
Free cash flow, which we traditionally defined at TransDigm as EBITDA less cash interest payments, capex and cash taxes, was roughly $250 million.
We ended the quarter with about $4.8 billion of cash.
During Q1, we also paid down our $200 million revolver balance, which was drawn at the onset of COVID in March of 2020 out of an abundance of caution.
The $200 million revolver paydown is the primary reason that our cash balance ticked up much less than the $250 million of free cash flow we generated in Q1.
Our net debt-to-EBITDA ratio is now at 6.7 times.
This ratio is down from 8.2 times, at its peak.
We expect to continue running free cash flow positive.
And barring any additional capital markets activities, this ratio would keep coming down as we proceed through our fiscal '22.
From an overall cash liquidity and balance sheet standpoint, we remain in good position and well prepared to withstand the currently depressed but now rebounding commercial environment for quite some time.
 Assistant:

Chosen response: full fiscal 2022 guidance remains suspended at this time.


Prompt:
Human: This is Jason VanWees, Executive Vice President.
We began 2021 with the best first quarter sales, earnings, operating margin and cash flow in the Company's history.
Furthermore, we achieved these GAAP results despite incurring $39 million or $0.79 per share of expenses related to the pending acquisition of FLIR.
Excluding these non-recurring charges, earnings increased 39.2% compared to last year.
Operating margin increased 426 basis points and free cash flow nearly doubled.
In addition, I'm very pleased with the breadth of our financial performance across Teledyne.
Year-over-year sales increased in nearly every major business category except commercial aerospace, which is now only 4% of our total sales.
The recovery in our short cycle commercial business is unfolding nicely and our government businesses are also growing and performing well, in both cases, strongest within our Digital Imaging segment.
Also in the first quarter, we received all time record orders with a book to bill of 1.15x resulting in quarter-end backlog of approximately $1.8 billion.
Given our strong first quarter, we now think a reasonable outlook for the total company organic sales growth in 2021 is approximately 6% led by forecasted growth of about 10% in Digital Imaging excluding FLIR.
And now with respect to the fair acquisition over the last few months while transaction certainty progressively increased, Teledyne performed in-person visits covering 90% of all FLIR on-site several on multiple occasion.
Most importantly, we were also granted access to the operating management in all key functional areas.
To summarize, FLIR's people, products, technology and manufacturing are outstanding.
I am now even more excited about the prospect for FLIR as part of the Teledyne family.
We remain confident of immediate pre-tax annual synergies greater than $40 million having continue to expect, earnings per share accretion even on a GAAP basis in 2022 with earnings per share accretion, excluding amortization being substantially greater.
Al will now comment on the performance of our four business segments.
In our Instrumentation segment, overall, first quarter sales increased 0.5% versus last year.
Sales of environmental instruments increased 5% from last year.
Sales of most product categories increased with the strongest year-over-year organic growth resulting from the gas and flame detection products acquired in 2019.
Sales of our electronic, test and measurement systems increased 4.8% year-over-year.
Sales of marine instrumentation decreased 6.7% in the quarter.
However operating profit increased due to aggressive cost management and business simplification and standardization initiatives.
Overall, instrument segment operating margin increased 291 basis points to 20.7%.
Turning to Digital Imaging segment.
First quarter sales increased 6.7%.
GAAP segment operating margin was 19.7%, an increase of 200 basis points year-over-year.
Now turning to the Aerospace and Defense Electronics segment, first quarter sales declined 3.3% as greater defense sales were more than offset by a 28.5% decline in sales of commercial aerospace products.
GAAP segment operating margin increased over 1,000 basis points to 18.7% versus 8.6% in 2020.
In the Engineered Systems segment, first quarter revenue increased 8% primarily due to greater sales from defense and other manufacturing programs as well as electronic manufacturing services products.
Segment operating margin increased 242 basis points when compared with last year.
I will first discuss some additional financials for the quarter not covered by Robert and Al, and then I will discuss our second quarter and full year 2021 outlook.
In the first quarter, cash flow from operating activities was $124.9 million compared with cash flow of $76.4 million for the same period of 2020.
Record first quarter free cash flow, that is cash from operating activities less capital expenditures was $107.3 million in the first quarter of 2021 compared with $56.2 million in 2020.
Excluding after-tax cash payments related to the FLIR transaction first quarter free cash flow was $110.1 million.
Capital expenditures were $17.6 million in the first quarter compared to $20.2 million for the same period of 2020.
Depreciation and amortization expense was $29.3 million for both the first quarters of 2021 and 2020.
We ended the quarter with $9.1 million of net debt that is approximately $3.24 billion of debt less cash of approximately $3.23 billion.
The higher cash and debt balances at April 4, 2021, including the proceeds of debt incurred to fund the cash portion of the consideration for the FLIR test acquisition.
Stock option compensation expense was $4.2 million for the first quarter of 2021 compared to $7.4 million for the same period of 2020.
Turning to our outlook, management currently believes that earnings per share in the second quarter of 2021 will be in the range of $2.85 to $2.95 per share and for the full year 2021, our earnings per share outlook is $12 to $12.20.
In each case, these do not reflect the pending acquisition of FLIR and related acquisition and financing costs.
The 2021 full year estimated tax rate, excluding discrete items is expected to be 22.6%.
In addition, we currently expect less discrete tax items in 2021 compared with 2020.
I will now pass the call back to Robert.
 Assistant:

Chosen response:
sees q2 adjusted earnings per share $2.85 to $2.95.
sees fy adjusted earnings per share $12.00 to $12.20 excluding items.
expect to complete acquisition of flir on may 14, 2021.


Prompt:
Human: I'll begin by discussing our 2020 results, briefly comment on the outlook for 2021, and of course, comment on the pending acquisition of FLIR.
We concluded 2020 with the best earnings, operating margin and cash flow in the company's history.
Compared to last year, fourth quarter earnings increased 13.7%.
Operating margin increased 173 basis points and free cash flow increased 50.7%.
For the full year 2020, GAAP operating margin increased slightly.
Free cash flow increased significantly, 39.1% to $547.5 million.
It is worth emphasizing that full year margin and cash flow performance occurred despite over $33 million in nonrecurring charges, record negative GDP in the second quarter and the constant challenges faced by manufacturers during the COVID-19 pandemic.
We entered 2021 with a clear improvement in demand across the majority of our businesses.
In fact, we received record orders in the fourth quarter and ended 2020 with record backlog.
Q2 orders were $920 million or 1.14 times sales with year-end backlog of $1.7 billion.
While it's still early in 2021, we're expecting continuing recovery in our commercial businesses as well as growth in our government businesses.
In both cases, strongest within our Digital Imaging segment.
Given some caution and conservatism, related to the ongoing tug of war between shutdowns and vaccines, we think a reasonable outlook for the total company's organic growth is between 5% and 6% for 2021.
Of course, the largely pre-COVID comparison in the first quarter will be the most difficult with revenue relatively flat.
Finally, I want to comment on the FLIR acquisition.
We've been watching FLIR since we first entered the Space-based Infrared imaging market in 2006 when we acquired Teledyne Scientific and Imaging.
We believed then and we believe now that our infrared imaging technologies and market segments are uniquely complementary.
As both companies evolved, we've grown to be even more complementary.
For example, Teledyne entered the subsea drone business in 2008 and FLIR entered the airborne unmanned business in 2016, and more recently, the land-based robotics business.
Perhaps more importantly, each company exited unattractive businesses, Teledyne in 2011 and FLIR in 2018.
While our respective sensing technologies and market segments are different, the fundamental desire of our end customers is an image or even better, information.
This is true for extra imaging, infrared imaging, industrial machine vision and even our underwater marine sonar imaging and software businesses.
In other words, there is similarity and synergy in digitization, imaging algorithms, machine learning and other related technologies across each of our organizations.
I will conclude by noting that for 21 years, Teledyne has consistently and predictably compounded earnings and cash flow, and 2020 was no different.
Nevertheless, I have never been more excited about Teledyne's future than I am today with the pending acquisition of FLIR.
Al will now comment on the performance of our four business segments.
In our Instrumentation segment, overall fourth quarter sales decreased 6.2% when compared with last year.
Sales of environmental instruments decreased 6.7% from last year.
However, sales increased 6.9% sequentially from the third quarter.
Compared with last year, sales of certain products, such as wastewater samplers increased.
However, this was more than offset by year-over-year declines and sales of selected industrial products, such as ambient air monitoring instrumentation.
Sales of electronic test and measurement systems increased 3.7% year-over-year to a quarterly record of $70 million.
Sales of marine instrumentation decreased 11.4% in the quarter, due in part to a difficult comparison with the fourth quarter of 2019.
In spite of lower sales, overall Instrumentation segment operating margin increased 262 basis points to a record, 22.3%.
Now turning to the Digital Imaging segment.
Fourth quarter sales decreased 2.3%, and primarily reflect the core sales of X-ray detectors for dental and medical imaging, partially offset by greater sales of infrared and visible detectors for space applications.
GAAP segment operating margin was 21.6%, an increase of 407 basis points year-over-year and also, a record.
Now in the Aerospace and Defense segment, fourth quarter sales declined 14.8% as greater U.S. defense sales were more than offset by a 45% decline in sales of commercial aerospace products as well as lower commercial space sales related to OneWeb.
The GAAP segment operating margin decreased due to lower sales as well as $5.8 million in severance facility consolidation and other contract charges.
In the Engineered Systems segment, fourth quarter revenue increased 26.8%, primarily due to greater sales from defense, nuclear and other manufacturing programs as well as electronic manufacturing services.
Segment operating margin increased 175 basis points compared with last year.
I will first discuss some additional financials for the quarter, not covered by Robert and Al, and then I will discuss our first quarter and full year 2021 outlook.
In the fourth quarter, cash flow from operating activities was $236.4 million compared with cash flow of $167.9 million for the same period of 2019.
Record free cash flow, that is cash from operating activities less capital expenditures, was $217 million in the fourth quarter of 2020 compared with $144 million in 2019.
Capital expenditures were $19.4 million in the fourth quarter compared to $23.9 million for the same period of 2019.
Depreciation and amortization expense was $28.7 million in the fourth quarter compared to $29.3 million for the same period of 2019.
We ended the quarter with $105.4 million of net debt, that is $778.5 million of debt less cash of $673.1 million for a net debt-to-capital ratio of only 3.2%.
Stock option compensation expense was $5.9 million for the fourth quarter of 2020 compared to $5.7 million for the same period of 2019.
Turning to our outlook.
Management currently believes that earnings per share in the first quarter of 2021 will be in the range of $2.55 to $2.60 per share.
And for the full year 2021, our earnings per share outlook is $11.25 to $11.45.
In each case, these do not reflect the pending acquisition of FLIR and related acquisition and financing costs.
The 2021 full year estimated tax rate, excluding discrete items, is expected to be 22.3%.
In addition, we currently expect significantly less discrete tax items in 2021 compared with 2020.
I will now pass the call back to Robert.
 Assistant:

Chosen response:
sees fy earnings per share $11.25 to $11.45.
sees q1 earnings per share $2.55 to $2.60.
issuing full year 2021 diluted earnings per share outlook of $11.25 to $11.45.


Prompt:
Human: Due to the large number of participants on the Q&A portion of today's call, we're asking everyone to limit themselves to one question to make sure we can give everyone an opportunity to ask questions during the allotted time.
We are willing to take follow-up questions but ask that you rejoin the queue if you have a second question.
Before Heath and I get into the slides and the details of the quarter, I want to frame our view of the environment that we're operating in as well as our performance.
We are in an economy that is showing strong GDP growth globally, driven by the recovery from last year's COVID shutdowns with consumer spending that is robust, as well as corporations around the world increasing investment to capitalize on this recovery.
In addition to the recovery, it's also important to note that we've strategically focused TE around select secular trends and these trends are accelerating in the key markets that we serve.
You'll see this in our transportation segment with electric vehicle adoption accelerating in our communications segment around cloud investment and in our industrial segment with capital spending accelerating globally around factory automation as well as digitization.
While we have a recovery that is happening faster and is more robust than we all thought, the reality is that the world is dealing with supply chains trying to catch up to this faster recovery.
This is causing volatility for our customers as well as everyone that's in our customer supply chains.
In this backdrop, we are performing well in this environment and our strong results for the quarter and our performance so far this year demonstrates the strength and diversity of our portfolio.
You'll see this with contributions from each of our three segments.
We are generating sales, adjusted operating margins and adjusted earnings per share that are above pre-COVID levels and we remain excited about the additional growth and margin opportunities that we'll be on this year.
With this backdrop, let me provide some key messages from today's call about our performance.
First, I am pleased with our execution in the third quarter and the quarterly records that we achieved.
These records include sales of over $3.8 billion, adjusted earnings per share of $1.79 and adjusted operating margins of over 19%.
Our results were ahead of our expectations, driven by the continued recovery in most end markets that we serve, our broad leadership positions and strong operational performance by our teams.
It's also important to note that, while we are in a recovery, our growth also continues to be driven by the secular trends across our markets that are driving our market outperformance this year and will continue to drive the outperformance going forward.
Another key factor that you see is that, we are continuing to demonstrate our strong free cash generation model, and continue to expect free cash flow conversion to approximately 100% for this full fiscal year.
And as we look forward, you'll see and we'll talk about our orders in quarter three remain consistent with our second quarter, and we expect our quarter four sales to be roughly flat to our quarter three sales.
And we expect that these revenue levers will translate into strong performance with $1.65 in adjusted earnings per share in the fourth quarter.
As I mentioned, our results are demonstrating the strength and diversity of our portfolio, with growth and margin contributions from each segment.
In communications, you see the growth opportunities in the cloud and the ongoing increase in capital expenditure trends by the cloud providers.
In our industrial segment, you see increased investments in capacity and higher levels of factory automation.
And in transportation, you see content growth trends for electrification, as well as further electronification of both autos and trucks.
And in each of our segments, we are delivering strong operational performance, which are evident in the margins.
And when we look back to our discussion we had in October, we did indicate that our first quarter would be the peak of global quarterly auto production for our fiscal year, but not the peak of our earnings.
This is playing out as we anticipated because of our diverse portfolio.
For this fiscal year, we are expecting over 20% growth in sales, approximately 400 basis points of adjusted operating margin expansion and over 50% growth in adjusted earnings per share.
I am very pleased with this level of progress toward our business model and our team's ability to execute, especially with some of the markets continuing to recover and the broader challenges we've faced in the supply chain.
So, now, let me turn -- and I want to take a moment to frame the current market environment and our business relative to where we were just 90 days ago when we last spoke.
So, starting with transportation.
Consumer demand for autos remains robust, but ongoing challenges with semiconductor supply continue to impact our customers' ability to produce.
Global auto production came in slightly lower than expected in the third quarter, and we're expecting auto production to be approximately 19 million units in our fourth quarter.
The trends around our content growth remain strong in the transportation segment.
Our content per vehicle has accelerated from the low $60 range, a few years ago into the $70 range this year.
We continue to benefit from increased electronification and higher production of electric vehicles, which will enable us to continue to outperform auto production going forward, as content continues to grow.
In our industrial segment, we continue to see an industrial backdrop that is improving, which is benefiting our industrial equipment, as well as our energy businesses.
Also, in our quarter, our orders in medical have begun to recover, and we returned to growth as interventional procedures have started to increase again.
And the one area, where we are not seeing acceleration is in our AD&M business, but I will highlight, the business does feel stable at current revenue levels.
From 90 days ago, let me talk about communications.
The end market trends that we mentioned last quarter are continuing.
Consumer demand continues to be robust in appliances and capital expenditure trends remain strong in cloud applications.
And while that to look at where we were versus 90 days ago by our segments, I do want us all to remember that we are in a world that's still dealing with COVID and the uncertainties around variants.
While all our global factories are operational, we continue to watch developments in each of the regions we operate and our focus has been and will continue to be on keeping our employees safe, while also helping our customers capitalize on the improving economic conditions.
In the third quarter, sales of $3.8 billion were better than our expectations and were up over 50% year-over-year, demonstrating strong performance through the economic recovery with growth in all segments.
Also on a sequential basis, sales were up 3% and our earnings per share was up 14% with sequential margin expansion in each segment.
Compared to last quarter, industrial segment sales were up 5%, driven by ongoing strength in industrial equipment and increases in energy and medical.
And in the communications segment, sales were up 16% with double-digit growth in both data and devices and appliances on a sequential basis.
And in our transportation segment, our sales were in line with our expectations.
When you look at orders in the quarter, they remained strong at $4.5 billion consistent with the levels we had in the second quarter.
And this reflects market improvement along with ongoing inventory replenishment by our customers.
If you think about the balance sheet, we continue to maintain the capital strategy between making sure we're returning capital to shareholders as well as M&A.
Earlier this month, we entered into an agreement to acquire ERNI, a European connector manufacturer that has a complementary product line and serving the industrial market.
This acquisition has a purchase price of approximately $300 million and is consistent with the bolt-on strategy around acquisitions that we talked to you about.
As we look forward, we expect our strong performance to continue into our fourth quarter.
We expect sales to be up in the high teens over the year to approximately $3.8 billion.
Adjusted earnings per share is expected to be approximately $1.65 and this will be up 40% year-over-year.
And as you can see on the slide, we've included our full year numbers and our performance relative to both fiscal 2020 and 2019 which I highlighted earlier.
For the third quarter, our orders remained strong at approximately $4.5 billion consistent with the second quarter levels that I mentioned earlier.
Order levels continue to reflect economic recovery and replenishment across a number of our end markets.
Year-over-year, we saw orders growth in all businesses and in all regions.
Transportation orders remained elevated due to the market recovery, as well as the auto industry supply dynamics.
In our industrial segment, orders grew 8% sequentially and with growth in industrial equipment, energy and medical and flat orders in AD&M which indicates the stabilization that I mentioned earlier.
In communications, sequential order growth was driven by strength in data and devices.
So let me also add some color on orders and what we're seeing from a geographic perspective on a sequential basis.
We continue to see growth in Asia where our China orders were up 6% sequentially.
In Europe, our orders were down 7% sequentially and in North America, our orders were essentially flat versus last quarter.
So with that as a backdrop around orders, let me get into our segment results that you'll see on slides five through seven and I'll cover this briefly.
Starting with transportation, our sales were up approximately 70% organically year-over-year with growth in each of our businesses.
Our auto business grew 90% organically and we are benefiting from the market recovery and are demonstrating continued content outperformance due to our leading global position.
We continue to benefit from increased production of electric vehicles, as TE's technology and products are enabling high-voltage architectures and applications with every leading OEM on the planet.
In commercial transportation, we saw 56% organic growth driven by the market recovery, ongoing emission trends as well as content outperformance.
We are continuing to benefit from stricter emission standards around the world and increased operator adoption of Euro 6, which reinforces our solid position in China.
The other key point is that we continue to gain momentum with wins on electric powertrain platforms and trucks, which while this doesn't give revenue or orders today, it will provide future content growth for our leading position in commercial transportation.
In sensors, we saw 20% organic growth, driven primarily by auto applications and we also saw growth in the commercial transportation and industrial applications as well.
For the segment, adjusted operating margins expanded sequentially to 19.4% on essentially flat sales.
So let me turn to the industrial segment.
And in this segment, sales increased 13% organically year-over-year.
In our industrial equipment business, sales were up 36% organically with growth in all regions and benefiting from the momentum in factory automation applications where we continue to benefit from accelerating capital expenditures in areas like semiconductor and automotive manufacturing.
Our AD&M business, sales declined 7% organically, driven by the continued weakness in the commercial aerospace market.
In our energy business, we saw 9% organic growth driven by increases in renewables, especially global solar applications.
And lastly, in our medical business as I mentioned earlier, a return to growth in the quarter and was up 10% organically year-over-year with the recovery in interventional procedures around the world.
From a margin perspective, adjusted operating margin for the segment expanded year-over-year by nearly 300 basis points to 15.8% despite the volume declines in our AD&M business.
And this was driven by solid operational performance by the teams.
Now let me turn to the communications segment.
And our team continues to demonstrate strong operational execution, while capitalizing on the growth trends in the markets that we serve.
Sales grew 31% in the segment organically year-over-year with robust growth in both data and devices and appliances.
In data and devices, we grew 16% organically year-over-year due to the solid position we built in high-speed solutions for cloud applications.
We continue to see capital expenditures increasing by our customers and our content growth is enabling us to grow cloud-related sales at double the market rate this year.
In appliances, sales grew 57% organically versus the prior year with growth in all regions driven by market improvement, our leading global market position, and ongoing share gains.
I do want to say that our communications team continues to deliver outstanding performance to complement the higher sales levels that they're executing to.
And you see this with our adjusted operating margin in the segment of 23.5%, which is up 760 basis points versus the prior year.
Overall, across our segments our teams are capitalizing on growth trends in their end markets demonstrating the diversity of our portfolio while delivering strong operational execution.
Adjusted operating income was $734 million, up significantly year-over-year with an adjusted operating margin of 19.1%.
GAAP operating income was $714 million and included $11 million of restructuring and other charges and $9 million of acquisition-related charges.
We still expect total restructuring charges to approximate $200 million for fiscal 2021 as we continue to optimize our manufacturing footprint and improve the cost structure of the organization.
Adjusted earnings per share was $1.79 and GAAP earnings per share was $1.74 for the quarter which included restructuring acquisition and other charges of approximately $0.05.
The adjusted effective tax rate in Q3 came in as we expected at approximately 18% with our fourth quarter tax rate expected to be around 20%.
We expect to continue our -- we continue to expect our adjusted effective tax rate for the full year to be around 19%.
Importantly, we expect our cash tax rate to stay well below our reported ETR for the full year.
As Terrence mentioned, we delivered record performance in Q3 on sales, adjusted operating margins, and adjusted EPS.
We are not only showing progress versus the prior year, but we are also delivering higher sales margins and adjusted earnings per share versus fiscal 2019, which represents a pre-COVID baseline.
Sales of $3.8 billion were up over 50% versus the prior year and up 3% sequentially with solid performance in each of our segments.
Currency exchange rates positively impacted sales by $138 million versus the prior year.
Adjusted earnings per share of $1.79 was up significantly year-over-year and up 14% sequentially reflecting our strong operational performance.
Adjusted operating margins were 19.1% also up significantly versus the prior year.
Year-to-date our adjusted operating margins are running at around 18% and our fourth quarter is expected to be a continuation of this strong performance.
Turning to cash flow, in the quarter cash from operating activities was $682 million.
We had very strong free cash flow for the quarter of $539 million and year-to-date free cash flow is approximately $1.5 billion.
In Q3, we returned approximately $445 million to shareholders through dividends and share repurchases.
Our cash flow performance demonstrates the strength of our cash generation model.
And we continue to expect free cash flow conversion to approximate 100% for the full year.
We remain committed to our disciplined use of capital.
And overtime, we continue to expect two-thirds of our free cash flow to be returned to shareholders and one-third to be used for acquisitions.
As Terrence noted, we entered into an agreement to acquire ERNI earlier this month.
And we expect to close by the end of this quarter.
ERNI has revenues of approximately $200 million annually, and will be reported as part of our industrial equipment business.
Before we go to questions, I want to reiterate, that we are performing well in this environment, despite challenges in the broader supply chain.
Our results for the quarter and our performance so far this year, demonstrate the strength and diversity of our portfolio with contributions from each of our three segments.
We delivered record performance in Q3.
Our fourth quarter guidance represents a continuation of our strong performance.
And we are excited about growth and margin opportunities beyond this fiscal year in line with our business model.
Ludy, could you please give the instructions for the Q&A session?
 Assistant:

Chosen response:
te connectivity q3 adjusted earnings per share $1.79.
q3 adjusted earnings per share $1.79.
q3 gaap earnings per share $1.74 from continuing operations.
q3 sales $3.8 billion versus refinitiv ibes estimate of $3.74 billion.
sees q4 adjusted earnings per share about $1.65.
sees q4 sales about $3.8 billion.


Prompt:
Human: I'm joined by John Garrison Chairman and Chief Executive Officer; and John Duffy Sheehan Senior Vice President and Chief Financial Officer.
In addition we'll be discussing non-GAAP information that we believe is useful in evaluating the company's operating performance.
Reconciliations for these non-GAAP measures can be found in the conference call materials.
I want to take a moment to emphasize once again that Terex actions are always guided by our values.
We consistently act with integrity operate with excellence and care for our team members customers and communities.
Safety remains the top priority in the company driven by think safe work safe home safe.
All Terex team members have contributed to our effort to continue to produce some service equipment for our customers while maintaining a safe working environment.
Please turn the slide four.
The team is built on the strong foundation for long-term success with our environmental social and governance or ESG efforts.
A few key points that I would like to highlight as we progress on this journey.
Leading with strong governance our ESG efforts are led by senior management with oversight from our Board of Directors.
Turning to social diversity equity and inclusion is being embraced and driven by our senior leaders as we increase the dialogue and training around this important topic.
On the environmental front you'll hear more later about how our teams continue to deliver sustainable and innovative products which our customers are demanding.
Finally we continue to communicate with stakeholders about our ESG journey.
We recently released our second ESG report which can be found in our Investor Relations website.
The team support is continuing to engage with investors about ESG matters.
I am pleased with our efforts to date but the team recognizes there is more work to do around this important topic and we will drive execution of our ESG priorities.
Now let me highlight some of our third quarter results which Duffy will describe in greater detail.
During the quarter we continued to deliver strong year-over-year top-line revenue growth.
We were impacted by supply chain challenges limiting our production output especially within our AWP segment.
As a result of the supply chain challenges revenues were approximately 9% below our expectations from the beginning of the quarter.
Global end market demand remained very robust as demonstrated by our quarterly bookings and Q3 being double the prior year.
Even when compared to historically good end market demand environment such as Q3 2019 our bookings were up approximately 140%.
We do expect end market demand to remain strong to the remainder of this year and into 2022.
Our operating margins in earnings per share in the quarter improved significantly versus the third quarter of last year but were lower than our prior expectations because of the revenue shortfall supply chain challenges impacting the efficiency of our manufacturing operations and inflationary cost pressures which we are only partially offset by our pricing actions.
We expect the supply chain environment we experienced in Q3 to continue through the fourth quarter and into 2022.
Today's updated financial outlet for 2021 reflects this expectation.
I'm extremely proud of our team's management of working capital and free cash flow generation.
With $43 million of positive free cash flow in the quarter we posted our sixth consecutive quarter of positive free cash.
Year-to-date we have now generated more than $180 million of free cash.
This strong performance allowed us to use available cash to prepay another $150 million of debt in October.
Today Terex enjoys one of the strongest balance sheets it has ever had.
During the third quarter our team worked tirelessly to manage supply chain and logistics disruptions by delivering for our customers.
Tightly managed all costs and delivered improved margins and positive free cash flow.
Our financial results demonstrates that our strategic priorities are working to improve the company and to deliver positive financial results for shareholders.
We continue to improve Terex's global cost competitiveness.
For the full year 2021 our SG&A as a percent of sales will be substantially below our target of 12.5%.
During 2021 we have been treating nearly all SG&A costs as fixed taking advantage of higher revenue to leverage the cost structure.
We will continue to maintain strict cost discipline while recognizing that growth in the business will necessitate some investment spending.
In the third quarter we started production of our telehandlers in Monterrey Mexico.
This action is on track and will reduce the cost of manufacturing our telehandler products for the North American market.
Turning to innovation we remain focused on purposeful innovation delivering electrification digital and other offering enhancements that provide value to our customers.
In utilities we've rolled out our high-power solution which operates the boom electrically and eliminates noise and emissions.
And Genie is producing E-Drive scissor which addresses the need for hybrid and fuel electric product offerings.
Approximately two thirds of Genie's scissors and one third of Genie booms are offered with hybrid and electric technology.
MP has launched 28 new products in 2021.
The segment also continues to develop and deploy digital offerings for dealers and customers.
More than 7000 units in the installed base are now fitted with telematics hardware that is enabling these offerings.
MP is also implementing digital dealer solutions including connected dealer inventory or CDI.
The number of active dealers using CDI doubled in 2021 and more growth is anticipating.
Finally we are investing for growth.
In China we're increasing production in both segments.
We produced our first Genie in our recently expanded Changzhou facility and our MP production is progressing according to plan.
We launch a new product line in waste and recycling called Terex Recycling Systems or TRS.
The new product line will lead modular offerings for stationary systems.
The TRS offering compliments our Ecotech and [Indecipherable] businesses which offer mobile waste and recycling equipment.
Turning to slide seven our AWP and MP segments continue to demonstrate resiliency and flexibility to capture the benefits from the positive market fundamentals that we are seeing.
First in Genie the current market dynamics points our multiyear replacement cycle for Genie equipment.
The average age of fleets globally is increasing and customers need to replenish their fleets.
So the replacement cycle is here.
Adoption is taking place in emerging markets such as China non-residential investment indicate are positive.
These factors are leading to strong order activity.
Material processes we expect global demand for crushing and screening equipment to continue to grow.
Broad-based economic growth construction activity and aggregates consumption are the primary market drivers.
We are seeing strong markets for our concrete mixer truck material handling and environmental businesses.
Overall we are seeing robust market conditions around the world for our industry-leading products and solutions.
However while demand remained strong we anticipate ongoing supply chain disruptions to persist throughout the fourth quarter and into 2022.
It is a dynamic situation which is constantly changing and we're not expecting significant improvement in the near-term.
Freight and logistics have also been a growing issue with delays and increased cost.
The availability of containers ships and increasing offload times are impacting our production and delivery schedules.
Our production and supply chain team members are doing a remarkable job demonstrating resilience and flexibility to maximize the number of machines we can ship to our customers.
Our strategic sourcing initiative has produced strong relationships with suppliers resulting in more impact in transparency and communication.
This has helped our teams work with suppliers to ensure we are receiving a higher allocation of components.
Our engineering teams are working with suppliers to redesign components to maximize availability of critical electronic subsystems.
These are dynamic times and I am confident that Terex will deliver continued operational progress due to the tireless efforts of our team members.
Turning to slide eight let's look at our third quarter results.
Overall revenues of almost $1 billion were up nearly 30% year-over-year with both of our operating segments revenues up more than 25%.
As John mentioned earlier revenues were lower than our expectations going into the quarter.
As a result of the higher revenues our absolute amount of gross profit in the quarter increased 22%.
The current global supply chain dynamics materially increased the cost of our operations for both segments through reduced efficiency in our manufacturing facilities and higher material logistics and labor costs.
In the short-run given previously committed customer purchase orders especially in our AWP segment we have been unable to pass all of these increased costs onto our customers.
As a result gross margins contracted year-over-year in the third quarter.
To mitigate the negative impacts of the operating environment our teams have been maintaining strict discipline in our SG&A spending.
Despite this quarter's revenue being 30% higher than the same quarter last year SG&A was $6 million lower than the prior year.
For the quarter we recorded an operating profit of $74 million compared to $37 million in the third quarter of last year achieving an operating margin of 7.5%.
Interest and other expenses was approximately $3 million lower than Q3 of last year resulting from lower outstanding borrowings combined with reduced rates on the debt we financed earlier this year.
Our third quarter 2021 global effective tax rate was approximately 23% driven by a mix of discrete items in the quarter.
Our tax rate estimate for the full year remains 19% consistent with our previous look.
Finally our reported earnings per share of $0.67 per share more than doubled year-over-year.
Turn into slide nine and our AWP segment financial results.
Sales of $573 million were up 29% compared to last year driven by continued strong demand in all global markets.
AWP delivered improved operating margins in the quarter driven by increased production and aggressively managing all costs.
Third quarter bookings of $981 million were up dramatically compared to Q3 2020 while backlog at quarter end was $1.7 billion almost four times the prior year.
Approximately 70% of AWPs September 30th backlog is scheduled for delivery in 2022.
A portion of this backlog represents orders with 2021 pricing that were scheduled for delivery in 2021 that have now over into 2022.
As a result we expect the first half of next year to be price cost negative.
However we do expect AWP to be price cost neutral for the full year 2022.
Now turning to slide 10 a material processing's Q3 financial results.
MP had another excellent quarter.
Sales of $419 million were up 35% compared to last year driven by strong customer demand across all end markets and geographies.
The MP team has been aggressively managing all elements of cost as end markets improve resulting in an operating margin of almost 14%.
It is a Testament to the MP team's operational strength to deliver these robust operating margins.
MP saw its businesses strengthen through the quarter with bookings up approximately 62% year-over-year.
Backlog of $1 billion is more than 3.5 times higher than last year and was up 18% sequentially.
Turning to slide 11 and I'll now review our updated financial outlook for the full year.
This outlook takes into consideration the current end market demand environment as well as the increased supply chain and input cost headwinds that we have discussed today.
As for commercial demand we have seen our end markets remain robust over the course of the third quarter.
We expect continued global end market strength over the remainder of the year and into 2022.
Our full year revenue outlook for the company as a whole and both segments is limited due to the availability of components from our supply chain.
We now expect our AWP segment revenues for the full year to be slightly lower than our previous sales outlook communicated in July.
In addition we are expecting our operations to be impacted over the remainder of this year and into 2022 by accelerating cost increases.
As we've already contracted with customers for nearly all of our remaining 2021 revenue most of the benefit of price increases which we have been implementing to offset inflationary pressures will not be realized until 2022 especially in our AWP segment.
We have slightly lowered our total company outlook for operating margins as a of lower AWP margins partially offset by improving MP margins.
As a result of positive first half callouts corporate and other costs continue to be expected to be slightly higher in the second half versus the first half of the year.
Finally we continue to plan the total company incremental margins for the full year 2021 which exceed our 25% target.
Our full year earnings per share outlook including charges of $0.27 per share for the refinancing of our capital structure and other year-to-date callouts has been revised to $2.75 to $2.85 per share based on sales of approximately $3.85 billion.
For the full year 2021 we are estimating free cash flow in excess of $200 million reflecting a strong year of positive cash generation.
The year free cash flow continues to include approximately $75 million from income and back tax refunds which are not expected to reoccur.
We now plan for cash capital expenditures of approximately $80 million.
The largest project included in capital expenditures is for the Genie Mexico manufacturing facility.
Turning to slide 12 our updated 2021 full year earnings per share outlook takes into consideration.
First the small reduction in our full year outlook for AWP segment revenues.
Second the inflationary cost pressures we are experiencing in most areas of our businesses.
Third the benefit of price increases we have been implementing which is only partially offsetting these cost increases and finally the operational efficiency and SG&A cost mitigation actions we have been taking to improve the business.
Overall our 2021 outlook continues to represent a significant improvement in operating performance when compared to 2020.
We will continue to aggressively manage costs while positioning our businesses for growth.
Turning to slide 13 and I'll review our discipline capital allocation strategy.
Our team members remain vigilant and will continue to efficiently manage production and scrutinize every expenditure.
The positive free cash flow of $43 million in the quarter demonstrates the focus and discipline of our team members who have tightly managed networking capital.
Terex has ample liquidity.
At the end of the quarter we had approximately $1.2 billion available to us with no near-term debt maturities so we can manage and grow the business.
Our strong liquidity position and cash generation allowed us to prepay $150 million of term loans in October which is in addition to the $279 million prepaid earlier this year all this while the company continues to pay our quarterly dividend.
We are committed to continuing to strengthen Terex's balance sheet while maintaining flexibility to execute our growth plans.
And with that back to you John.
He has been a great leader mentor and teammate and he has created tremendous value for our company.
In his five years as CFO Duffy's guidance has been especially important to me as he has helped lead our transformation journey and position Terex for a strong future.
I know you will continue to do the same for Julie.
Your pushing and prodding made me a better CFO for Terex and most importantly to you John for giving me this opportunity.
We are a great team and good friends.
 Assistant:

Chosen response:
sees fy earnings per share $2.75 to $2.85.
sees fy sales $3.85 billion.
q3 2021 income from continuing operations of $47.5 million, or $0.67 per share.


Prompt:
Human: Additionally, during this conference call, you will hear management make references to the estimated positive or negative impacts as a result of COVID-19 during the third quarter of 2020.
You'll also hear management make statements regarding intra-quarter business performance during the month of October.
Management is providing this commentary to provide the investment community with additional insights concerning trends, and these disclosures may not occur in subsequent quarters.
It's a pleasure to speak with you today, and I hope you're all keeping safe and well.
Overall, considering the environment we are operating in, we are pleased with our third quarter performance as it reflected the expected improvement in trends across many of our global product categories, led by a faster-than-expected recovery within our Interventional Urology business, and continued strength within our vascular access product sales.
While from a regional perspective, we saw particular strength within the Americas as the pace of recovery in the United States during the third quarter was encouraging.
Quarter three revenues was $628.3 million, which was down 4.1% as compared to the prior year period on a constant currency basis but far better than the 12% decline we experienced during the second quarter of the year.
The decline in year-over-year revenue is due to the impact of COVID-19, which we estimate caused a net negative impact of approximately $78 million, or approximately 12%.
If we were to normalize for the negative COVID impact, we estimate that our underlying business grew by approximately 8% on a constant currency basis, consistent with our quarter two revenue performance.
We also saw a significant sequential improvement within our adjusted gross and operating margins from the levels achieved during the second quarter.
With our adjusted earnings per share of $2.77 in the quarter meaningfully exceeded our internal expectations.
This reflects the continued recovery we saw as we moved through the quarter, coupled with prudent operating expense management.
Before I go into more detail on our quarterly financial performance, I am happy to announce that during the month of October, we signed a definitive agreement to acquire Z-Medica, a market leader in hemostatic products.
We are pleased to be able to deploy capital for a differentiated product portfolio that leverages existing Teleflex call points and is immediately accretive to our revenue growth rates, adjusted growth and operating margin profile and to our adjusted earnings per share.
Turning to a more detailed review of our third quarter results.
As I just mentioned, quarter three revenue declined 4.1% on a constant currency basis and 3.1% on an as-reported basis.
The decline in revenue was due to COVID-19, which we estimate had a negative impact of approximately $81 million across several global product categories.
This was somewhat offset by approximately $3 million of additional revenue within our vascular access and other product categories, which experienced modestly higher-than-expected demand as a result of COVID-19.
From a margin perspective, we generated adjusted gross and operating margins of 57.2% and 25.1%, respectively.
This translated into a year-over-year decline of 140 basis points at the gross margin line and 190 basis points at the operating margin line.
That said, we saw a sequential improvement of 330 basis points on both the adjusted gross and operating margin lines as compared to the levels we achieved in the second quarter.
On a year-over-year basis, reduced sales volumes due to COVID was a headwind.
However, it was partially offset by our cost containment efforts as we continue to tighten our belts where we deem appropriate in the current environment, balanced against continued investment to sustain our long-term growth aspirations.
Adjusted earnings per share was $2.77, down 6.7% year-over-year but ahead of our internal expectations as the business continued to recover during the quarter.
When excluding the negative impact of COVID-19 had on our third quarter results, we estimate that our adjusted earnings per share would have grown approximately 13% as compared to the prior year period.
Overall, I am very pleased with our financial performance as it demonstrates the resiliency of our diversified global product portfolio.
Let's turn to a discussion on our quarterly revenue trends, which will be on a constant currency basis.
The Americas delivered revenues of $375 million in the third quarter, which represents an increase of 0.4%.
Growth within the Americas was driven by vascular access and respiratory products, which both saw elevated demand driven by COVID.
In addition, Interventional Urology was a strong contributor as UroLift continues to be one of the fastest recovering procedures.
However, there were offsets with declines in other product categories.
We estimate that the Americas would have grown approximately 9%, excluding the impact that COVID-19 had on the region.
EMEA reported revenues of $135.7 million in the third quarter, representing a decline of 7%.
During the quarter, declines occurred across most product categories as increasing COVID infection rates negatively impacted procedures and results.
Adjusting for COVID, we estimate an approximately 3% underlying decline for the region.
Revenues totaled $68.2 million in the third quarter, which represents a decline of 14.2%.
However, we estimate that we would have had positive constant currency revenue growth in the high single digits, if not for the impact of COVID-19.
Additionally, during the third quarter, we began transitioning a distributor in Japan.
When normalizing for both COVID and the distributor change, growth in the region would have been closer to the low double-digit range, consistent with our longer-term outlook.
And lastly, our OEM business reported revenues of $49.4 million in the third quarter, which was down 11.8% on a constant currency basis.
As we anticipated, during the third quarter, our OEM business saw a lagged impact related to COVID relative to our other businesses.
Investors familiar with Teleflex will be aware that our OEM business supplies medical companies with complex catheters and surgical sutures, and the quarter three impact reflects reduced orders from these customers, whose business is tied to non-emergent procedures.
Excluding the estimated COVID-19 impact, the business grew roughly 28%, which includes a benefit of approximately 11% from the acquisition of HPC.
As it relates to HPC, I am pleased to report that we remain on track with our integration efforts.
Let's now move to a discussion of our revenue by global product category.
Starting with vascular access.
Due to growth within both our PICC and EZ-IO products, third quarter revenue increased 6.8% to $160 million.
We estimate that COVID-19 positively impacted the growth rates of our vascular products during the third quarter by approximately 1%.
Moving to interventional access.
Third quarter revenue was $93.2 million, or down 13.5% as compared to the prior year period.
The decrease was largely due to the delay in the recovery of certain non-emerging procedures because of COVID-19, along with the negative impact stemming from a catheter recall that occurred during the quarter.
We estimate that the recall impacted our business negatively by approximately $4 million.
The impact on the recall will continue to linger for the next several quarters as we do not expect to be back on the market with this product until September of 2021.
When normalizing for the impact that COVID had on these product lines, we estimate that underlying growth was in the low single digits.
Revenue was $75.7 million, which is lower than the prior year by 14.4%.
The revenue decline was the result of lower sales of laryngeal masks, regional anesthesia and airway management products.
We estimate that COVID had an approximately 10% negative impact in the quarter, implying mid-single-digit declines for the business on an underlying basis.
Revenue declined by 12.3% to $82.2 million, driven by lower sales of our ligation and instrument product lines.
We estimate a 13% headwind from COVID during quarter three, indicating recovery as compared to the estimated 30% COVID headwind in quarter two.
Moving to Interventional Urology.
Quarter three revenue increased by 11% to $81.8 million.
We estimate an approximate 29% COVID-19-related headwind during quarter three.
Notwithstanding the significant headwind on our growth in quarter three, we are pleased with the path of recovery for this business unit and are also happy with the early impact of our national DTC campaign, which is exceeding our expectations.
Additionally, we are encouraged that we trained 120 new urologists in quarter three, moving to a cadence that is consistent with our expectations prior to COVID.
And finally, our other category, which consists of our respiratory and urology care products, grew 0.5%, totaling $86 million.
In large part, we estimate that growth during the quarter was due to increased demand for certain humidification and breathing products resulting from COVID-19.
From a monthly perspective, we note that September outperformed July and August when normalizing for the distributor termination and the product recall within our interventional business.
Furthermore, as we have progressed through the first few weeks of October, we continue to see additional modest improvements as compared to last October.
That said, due to the significant resurgence of COVID cases globally, and when normalizing for selling days, we expect to see a modest improvement in the constant currency revenue performance during quarter four as compared to the decline of 4% we achieved in quarter three.
Tom will provide more details later.
That completes my comments on quarter three revenue performance.
Turning to some recent clinical and commercial updates.
The response to our national DTC campaign is exceeding our expectations.
The strategic role of DTC is important as about half of the 12 million men being treated for BPH believe prescription medications are their only solution.
Thus far, we are tracking well against the target to generate six times the number of impressions from the regional campaigns in the year ago period.
Web traffic has increased over 150% since the launch and another encouraging metric is that multiple urologists are now motivated to get trained on UroLift as a result of patient requests due to the campaign.
In addition, while there was likely a nominal impact on quarter three results, we expect the momentum for the campaign to continue building into quarter four and early next year as we turn down the advertising full strength starting in early September.
Turning to UroLift two.
Since the FDA clearance on July 31, we have begun a market acceptance test and received positive preliminary feedback, including the streamlining of the delivery device triggering mechanism and the reduction of waste.
We are also increasing manufacturing levels for the product ahead of the full commercial launch slated for early in 2021.
Lastly, regarding the UroLift ATC.
We know that the market acceptance test is well under way, and we have received very positive feedback, which indicates that the device is delivering on the intended benefit of enhanced tissue controls when treating challenging anatomies such as obstructive median lobe.
Taken together, we see these efforts as helping to build momentum as we seek to further expand our leadership position in BPH.
Turning to the next slide on key commercial updates.
We recently received an expanded indication for EZ-IO as the device can now be used for up to 48 hours when our alternate intravenous access is not available in both adults and pediatric patients, 12 years and older.
While we do not expect a material sales uplift from this label expansion, we are always looking to improve our portfolio based on clinician feedback, and this is a prime example of those efforts.
Lastly, I'd like to provide the investment community with a few more details of the Z-Medica acquisition we announced last night.
In mid-October, we entered into a definitive agreement to acquire Z-Medica, an industry-leading manufacturer of hemostatic products.
Under the terms of the agreement, Teleflex will acquire Z-Medica, for an upfront payments totaling $500 million and up to an additional $25 million upon the achievement of certain commercial milestones.
As part of the transaction, Teleflex will also be acquiring certain tax attributes that are expected to result in future tax benefits.
We value these tax attributes at approximately $40 million, which we considered when arriving at our purchase price.
Z-Medica's hemostatic technologies are helping reinvent hemorrhagic control with cost-effective efficient bleeding control solutions being adopted by markets worldwide.
The company offers three main brands: QuikClot, Combat Gauze and QuikClot Control+, which utilize the proprietary technology consisting of gauss impregnated with calin.
The technology activates and accelerates the body's natural clotting ability.
Z-Medica's products currently focus on the trauma surgery, EMS, military, emergency departments and interventional segments with opportunities to expand into additional indications over time.
Teleflex's strategy is to invest in innovative products and technologies that can meaningfully enhance clinical efficacy, patient safety and comfort, reduce complications and lower the overall cost of care.
The acquisition of Z-Medica enables Teleflex to leverage strength in the hospital, EMS and military call points with the differentiated products that complement our EZ-IO and EZPlas product portfolio.
We are excited to announce this acquisition given its above company average revenue growth capabilities as well as its above company average gross and operating margin profile.
Pending the receipt of certain regulatory approvals, the transaction is expected to be completed during the fourth quarter of this year.
As we look forward, the transaction is expected to contribute between $60 million and $70 million of revenue and between $0.07 and $0.15 of adjusted earnings per share in fiscal year 2021.
Beyond 2021, we expect the acquisition to deliver a high single-digit revenue growth profile and further accretion to adjusted earnings per share.
After our recent meetings with the FDA, we determined to proceed with the BLA submission rather than an EUA.
We continue to work closely with the agency in determining the timing of that submission.
Overall, we continue to invest organically in clinical and commercial catalysts that will help to sustain our revenue growth aspirations in a normalized environment.
We will also look to augment those internal efforts through the deployment of capital for inorganic growth opportunities, such as Z-Medica.
Given the previous discussion of the company's revenue performance, I'll begin at the gross profit line.
For the quarter, adjusted gross profit was $359.6 million versus $380 million in the prior year quarter or a decrease of approximately 5%.
Adjusted gross margin totaled 57.2% during the quarter, which is a decrease of 140 basis points versus the prior year period.
The decline in gross margin was primarily due to COVID-19-related impacts, including lower sales volumes and higher manufacturing costs, along with a foreign exchange headwind.
The volume impact was significant for the quarter as the adverse revenue impact from COVID-19 tended to skew toward higher gross margin products, including Interventional Urology, interventional access and Surgical.
In total, we estimate that COVID-19 negatively impacted our adjusted gross profit by approximately $59 million in the quarter.
We continue to tightly manage discretionary spending as a means to partially offset the reduced revenue and gross profit resulting from COVID-19.
And as a result of the efforts, we estimate that operating expenses were reduced in the third quarter by approximately $22 million.
While we expect the actions taken to continue to deliver opex savings through the remainder of the year, by far the largest quarterly opex reduction was realized in the second quarter.
Adjusted operating profit during the third quarter of 2020 was $157.6 million, and this compares to $175.3 million in the prior year or a decrease of approximately 10%.
Third quarter operating margin was 25.1% were down 190 basis points year-over-year, driven primarily by the gross margin decline.
And while our adjusted margins were down in the third quarter as compared to the year ago period, we are pleased to see the sequential improvement in both gross and operating margins from the lows we experienced during the second quarter.
Looking forward, we expect sequential margin improvement to continue during the fourth quarter.
Net interest expense totaled $16.4 million, which is a decrease of approximately 14% versus the prior year.
The decrease in interest expense primarily reflects reduced average interest rates associated with our variable rate debt, partially offset by higher average debt balances versus the prior year period.
For the third quarter of 2020, our adjusted tax rate was 7% as compared to 10.3% in the prior year period.
The year-over-year decrease in our third quarter adjusted tax rate is primarily due to a favorable mix of taxable income versus the prior year period as well as a higher benefit from stock-based compensation as compared to the prior year period.
At the bottom line, third quarter adjusted earnings per share decreased 6.7% to $2.77.
Included in this result is an estimated adverse impact from COVID-19 of approximately $0.60 as well as a foreign exchange headwind of approximately $0.09.
Turning to select balance sheet and cash flow highlights.
For the first nine months of 2020, cash flow from operations totaled $241.5 million as compared to $289.2 million in the prior year period.
The decrease is attributed to larger contingent consideration payments, partially offset by favorable changes in other working capital driven by higher accounts receivable collections.
Overall, the balance sheet remains in good shape.
At the end of the third quarter, our cash balance was $347.5 million versus $553.5 million at the end of the second quarter.
During the third quarter, we repaid nearly $285 million of revolver borrowings and restored revolver availability to the full $1 billion.
Net leverage at quarter end was approximately 2.6 times.
The acquisition of Z-Medica is projected to increase net leverage by less than 3/4 of one turn and net leverage pro forma the acquisition remains comfortably below our 4.5 times covenant.
Our intention is to finance the purchase of Z-Medica through revolver availability.
However, we may choose to permanently finance the acquisition through a future notes issuance.
Lastly, we have no near-term debt maturities of material size.
Given the continued uncertainty surrounding the impact of COVID-19 pandemic on business operations, we are not reinstating financial guidance at this time.
However, we will provide the following directional expectations for the fourth quarter.
Looking ahead, we continue to expect further sequential improvement in our constant currency revenue performance as compared to what we achieved in the third quarter.
However, due to the resurgence in global COVID-19 cases over the past seven to eight weeks, we expect our constant currency revenue growth to be only modestly better than what we achieved during the third quarter.
This expectation of a modest fourth quarter improvement excludes the benefit of two additional selling days that occur in the fourth quarter of 2020, which we estimate would add approximately 3% of additional revenue growth during the fourth quarter.
And this expectation also excludes any benefit from the acquisition of Z-Medica as the closing date is not yet determined.
In closing, we delivered solid third quarter results as our diversified portfolio showed continued expected improvement relative to our quarter two results on both the top and bottom line.
Excluding the impact of COVID, we see our underlying business performance is encouraging and very much in line with our initial expectations.
We continue to view the resurgence of COVID globally, combined with the willingness of the more vulnerable population to get procedures done as the primary wildcards impacting recovery.
While the next several quarters still have elements of uncertainty, we remain confident in our ability to execute as we head into 2021 and are optimistic in our long-term prospects.
We, as an organization, will continue to focus on serving our hospital customers and working with our key stakeholders.
We will manage the business prudently while staying focused to capitalize on the long-term potential of our global product portfolio.
 Assistant:

Chosen response:
compname reports q3 adjusted earnings per share $2.77 from continuing operations.
q3 adjusted earnings per share $2.77 from continuing operations.
q3 revenue $628.3 million versus refinitiv ibes estimate of $619.3 million.
not reinstating 2020 financial guidance due to covid-19 pandemic.


Prompt:
Human: Before we begin, I'd like to direct all participants to our website, www.
We hope that you and your families are all safe and healthy.
Before I hand the call over to Kenneth, I will briefly review our financial results for the first quarter of 2021.
In the first quarter, we reported consolidated adjusted net income of 11 million, or $0.11 per share, up from 3 million, or $0.03 per share in the prior quarter.
We also generated total adjusted EBITDA of 202 million, up slightly from the previous quarter.
Compared to Q4, we recorded higher results in each of our entities, supported by our large portfolio of long-term contracts in our gas shipping business, higher spot tanker rates in our oil shipping business, and higher revenues from our marine services business in Australia.
All of this despite the continued weakness in the spot conventional tanker market.
Looking ahead, we are expecting the second quarter to be lower than the first quarter, mainly due to a heavy dry dock schedule in both our gas and tanker fleets, certain non-recurring items in the first quarter and the recent expiration of fixed rate charters in our tanker fleet that were locked in last year at higher rates.
Since reporting earnings in February, we have made significant positive progress toward the strategic objective of winding down our FPSO segment, which we expect will result in a material reduction in our total asset retirement obligations in the second quarter.
Kenneth will discuss this in more detail on the next slide.
Over the last couple of quarters, we discussed our ESG strategy, and we are now excited to have published our 11th consecutive Teekay Group sustainability report last month, which aligns with global frameworks such as GRI and SASB.
We have included a link to our latest sustainability report on this slide and it is also available on our website.
And as Vince just mentioned, we have made good progress on winding down our FPSO segment.
Starting with the Banff.
As highlighted last quarter, we have successfully completed Phase 1 of our decommissioning project with net costs below budget.
With respect to the recycling of the Banff, our Q1 cost came in lower than expected as the repositioning of the unit to its recycling yard was delayed while awaiting regulatory approvals.
However, we are pleased to say that the unit departed by tow for its final voyage from the U.K. on May 2 and will safely handed over to the mass recycling shipyard in Denmark on May 11, where it will be recycled in accordance with the EU Ship Recycling Regulation over the next several months.
As such, in Q2, we expect to incur approximately $5 million to $6 million of costs relating to the towage and initial milestone payments to the recycling yard, which represents the most part of our remaining cost associated with the unit, with only minimal cost expected to be incurred after Q2.
Separately, in April, we entered into a conditional agreement with CNR, whereby the customer will take over our remaining Phase 2 decommissioning responsibilities on the Banff field, which, when finalized, will effectively conclude and eliminate our remaining obligations related to the Banff field after over 20 years of successful operations.
This agreement should enable CNR to achieve synergies when combining this with their own existing subsea decommissioning work scopes.
regulatory authorities that Teekay has completed all of its obligations in relation to Phase 1 of the decommissioning project.
We're currently on track to satisfy these conditions by the end of May.
The Foinaven FPSO is now expected to be redelivered to us in the first half of 2022 as a result of BP's recent decision to suspend production on the Foinaven field.
As a reminder, the unit has been operating under a bareboat contract at a nominal day rate since we received an upfront cash payment of $67 million in April 2020.
Following the redelivery, we expect to green recycle the unit with the associated cost expected to be covered by a fixed contractual lump-sum payment from the customer, which was also part of our new bareboat contract.
The redelivery of the Foinaven is happening earlier than what was previously expected.
However, this will not have a material economic impact to Teekay since our day rate is only nominal.
And, in fact, our cost to recycle the unit may be slightly less in 2022 compared to doing it after many years of additional usage, while the lump sum amount we will receive is the same irrespective of whether it is redelivered in 2022, or say, 2025.
As a result of these recent developments, we soon expect to have largely eliminated our remaining exposure to both the Banff and Foinaven FPSOs.
Assuming the conditions precedent relating to the Banff decommissioning agreement are met by June 2021, we expect this to result in a material reduction in our net asset retirement obligation or ARO liabilities in the second quarter.
We'll provide an update on this in due course.
Lastly, the Hummingbird FPSO continues to operate on the Chestnut field under a fixed rate contract with the charterer having the right to terminate the contract with three months prior notice if the field is deemed uneconomic.
However, the current level of oil production is stable at approximately 4,000 barrels per day, and oil prices are more than double the level that we experienced at this time one year ago.
Meanwhile, the unit continues to generate stable positive cash flow for Teekay.
On Slide 5, I will briefly touch on the results and highlights of our daughter companies.
Starting with Teekay LNG.
The partnership generated adjusted net income of $60 million, or $0.61 per unit, which is slightly better than the prior quarter.
We've been experiencing strong counter seasonal demand for LNG carriers since late March with increases in both the spot and time charter LNG shipping markets.
Teekay LNG has taken advantage of this improvement by recently securing three new time charters, including one spot market linked contract.
The partnership's LNG fleet is now 98% fixed for the remainder of 2021 and 89% fixed for 2022.
Lastly, Teekay LNG recently increased its quarterly common unit distribution by 15% to $1.15 per unit per annum.
This represents the third consecutive annual double-digit increase to the partnership's common unit distribution.
This distribution level, which is supported by a large and diversified portfolio of long-term contracts, enables Teekay LNG to continue delevering its balance sheet, which provides financial flexibility to optimally allocate capital as the global demand for LNG continues to grow while adding $6 million per year to TK parent's free cash flow for a total of $43 million per year in cash distributions from TGP.
Lastly, Teekay Tankers recorded an adjusted net loss of $22 million or, $0.65 per share, which is an improvement of $19 million, or $0.56 per share compared to last quarter.
Although the near-term outlook is uncertain due to the continued impact of COVID-19, we are seeing positive indicators that point toward an anticipated tanker market recovery, including improvements in the global economy, a continued decline in global oil inventories, an upcoming increase in OPEC+ production and positive tanker fleet supply fundamentals.
Teekay Tankers is also maintaining its strong balance sheet with healthy liquidity and low leverage, which enables Teekay Tankers to continue reducing its overall cost of capital by unwinding expensive sale leasebacks and replacing them with lower-cost financings.
We're not out of the woods yet, especially in relation to the devastation that India is currently experiencing.
But we successfully managed through uniquely challenging circumstances last year, and we're confident that we are taking all measures to manage through the current situation.
In addition, we continue to see a strong correlation between global vaccination programs and the increase in oil demand, which we estimate to be approximately 5% lower currently compared to the pre-pandemic levels.
As the world recovers from the pandemic, we expect the demand for oil and gas and related transportation services to gradually return to 2019 levels, which we believe will be positive for our core gas and oil shipping businesses and for the Teekay Group overall.
With that, operator, we are now available to take questions.
 Assistant:

Chosen response:
compname reports qtrly adjusted net income per share $0.11.
teekay corp - qtrly adjusted net income attributable to shareholders per share $0.11.