Prompt:
Human: Gary Norcross, our Chairman, President and CEO, will discuss our operating performance and share our strategy to continue accelerating revenue growth and maximizing shareholder value.
Woody Woodall, our Chief Financial Officer, will then review our financial results and provide forward guidance.
Bruce Lowthers, President of Banking and Merchant Solutions will also be joining the call today for the Q&A portion.
Turning to slide three.
Also, throughout this conference call, we will be presenting non-GAAP information, including adjusted EBITDA, adjusted net earnings, adjusted net earnings per share and free cash flow.
These are important financial performance measures for the company, but are not financial measures as defined by GAAP.
I'm pleased to announce our fourth quarter and full-year results starting on slide five.
2020 was an unprecedented year for the world and for FIS, with the COVID-19 pandemic impacting the world on a human as well as an economic level.
Despite the extraordinary year, we leveraged our scale and resources to keep the global economy running, while delivering solid results.
We generated $12.6 billion in revenue as our balanced solution portfolio allowed us to offset weaker consumer spending trends with strong demand for our Banking and Capital Markets Solutions.
As we close out 2020, all three of our business segments ended the year with record annual sales, continuing to improve that our solutions and technologies are winning share around the globe.
Our backlog grew 7% organically to $22 billion.
This gives us a exceptional visibility into our future growth trajectory and drives our confidence in accelerating organic revenue growth for our Banking and Capital Markets segments.
From a merchant perspective, given the accelerating rollout of COVID vaccines globally and improving trends and economic indicators, we are confident we will see strong merchant revenue acceleration throughout 2021.
Our team continues to execute at the highest level as demonstrated by our ability to expand adjusted EBITDA margins by 120 basis points for the full-year, despite near term COVID challenges.
We also made great progress with the Worldpay integration, remaining well ahead of plan and exited the year generating more than $200 million in revenue synergies, and more than $750 million in cost synergies.
With this impressive momentum, we are excited to build on our strengths as we look ahead to accelerating organic revenue growth in 2021.
Turning to slide six.
FIS has had a very successful year operating in the business, and I couldn't be prouder of the team's accomplishments and unwavering commitment to support our clients and communities.
The modernization and innovation investments we've made are paying dividends, enabling us to accelerate organic growth across our entire business.
Amazon, a long-term merchant client added our capital markets industry-leading treasury management system to the growing portfolio of services that we provide them.
Further, Walgreens and Giant Eagle expanded their long-standing relationships with FIS.
Walgreen selected our integrated payable solution and Giant Eagle selected a series of our back office financial solutions from our comprehensive banking suite.
We also recently developed an innovative benefits card solution with UnitedHealth Group.
The combined strengths from across FIS.
In this partnership, we created a fully in-house solution where we accept transactions as the merchant processor route them through our network and finish with our own authorization and settlement engine.
2020 highlighted how our unique capabilities are being successfully combined to serve our clients and ways if they can't find anywhere else.
We continue to invest in cutting-edge technologies for the future, including contactless, voice-enabled and self-service solutions as well as AI and automation.
We launched over 60 new products in 2020 with a focus on enabling our clients to grow their revenues and operate more efficiently.
All of this enables FIS to emerge from the pandemic, and an even stronger competitive position.
We also continue to be relentlessly focused on improving our own operational efficiencies.
We made exceptional progress in integrating Worldpay as well as consolidating platforms and data centers with over 70% of our global compute now running in the cloud.
To continue our upward margin momentum, we are beginning the next phase of our enterprise transformation.
We will leverage data analytics and automation to reduce our cost and create new efficiencies by upgrading and consolidating our technology platforms as well as continuing to simplify our technology architecture.
As a result, FIS will be faster, more agile and deliver frictionless service by transforming our operating model and streamlining our organization.
Given the tremendous achievements from our data center consolidation program and ongoing cost synergies, I am confident in our ability to deliver 45% adjusted EBITDA margins this year and then continue to expand them in each year for the foreseeable future.
From a market viewpoint, demand continues to increase.
Both our sales pipeline and backlog continue to grow and we are finding new sources of revenue synergies and cross-sell wins to accelerate our business further.
Turning to slide seven.
In Banking Solutions, we continue to win share and accelerate revenue growth.
Our investments have enabled us to build a differentiated offering, winning new logos across markets of all sizes and actively expanding wallet share with existing clients.
As a result, our backlog within the banking business expanded by 8% organically and generated $3.5 billion in new sales during 2020, which is our largest selling year ever.
Cross-selling of new solutions into our existing client base is also up, including a 23% increase in cross-selling solutions to our top 100 clients.
In addition, three of our recent modern banking platform wins are now live, and we project that the modern banking platform will generate in excess of $100 million of revenue in 2021.
We expanded our relationship with Bank of Hawaii to power their digital banking product offering.
They will implement our Digital One solution to bring modern, best-in-class capabilities to both self-service and banker-assisted channels.
Lastly, US Bank, a top-5 bank selected our bill-pay solution due to our simple integration and personalization across digital channels.
Our multi-year sales success, strong revenue backlog, continued strength in the pipeline and ability to consistently drive innovation into the market lay out a clear path for banking to accelerate revenue growth in 2021.
Turning to slide eight.
In merchant, we will leverage our technology advantage and leading competitive position to continue to win share, all while taking advantage of the revenue tailwind being presented by recovering economic and pandemic indicators.
We continue to outpace the industry regarding total volumes being processed, indicating not only the overall strength of our capabilities, but our continued ability to gain share throughout the pandemic.
We are also seizing the opportunity created by the rapid shift of consumer spending to online and digital channels, where e-commerce volume excluding travel and airlines grew 32%.
We provide advanced and highly differentiated omnichannel capabilities, including buy online and pick up or return in store, which merchants must have to compete in the digital economy.
Our expanded relationship with Walmart to process e-commerce transactions is a great example.
And we are also winning new business with innovative online providers like GrubHub.
NortonLifeLock also selected FIS to provide global e-commerce acquiring using our Innovative Access Worldpay gateway, which is The Strawhecker Group just recognized for having the highest authorization rates in the industry.
Looking forward, our global reach, tailored solutions and innovative technology will continue to drive share gains for us as changing merchant and consumer behaviors play to our strengths.
Moving to slide nine.
Demand is strong for our end-to-end, front, middle and back office solutions within capital markets and our leading regulatory compliance technology.
We continue to gain traction with our SaaS-based delivery model, which drove a 7% increase in new sales for reoccurring revenue in 2021, including a 19% increase in the fourth quarter.
In addition, new logos contributed to 26% of our fourth quarter new sales and average deal size grew 9% as we continue to add to our portfolio of leading buy side and sell side clients.
All of these are strong indicators for accelerating growth in 2021.
A few sales highlights included BNP Paribas, who recently chose to expand our relationship.
We will transform their post-trade derivatives clearing platform, which will allow them to benefit from significant cost and operational efficiencies, as well as enhanced customer service, all while reducing risks.
We also signed an agreement with Allianz, a large global insurance companies provide payment and cash processing platforms.
On the buy side, Vanguard recently expanded their relationship with us to include outsource tax reporting, highlighting one of our leading RegTech solutions.
Our differentiated end-to-end solutions are winning share and our transition to reoccurring SaaS-based revenue streams is also taking hold, which gives us confidence in our ability to further accelerate this business.
I'd like to underscore that we are pleased with our full-year 2020 results across all of our business segments.
We expect this positive momentum to continue into 2021 and beyond.
Woody will now provide additional detail on the financial results for the quarter as well as forward guidance.
Starting on slide 11, I will touch on our fourth quarter results before transitioning to our forward guidance.
We remain excited about the trajectory of our Banking and Capital market segments and look forward to significantly rebounding growth in our Merchant segment as global economies reopen.
On a consolidated basis, organic growth was flat during the fourth quarter and adjusted EBITDA margins expanded by 60 basis points to generate adjusted earnings per share of $1.62.
We expect to exit 2021 generated $400 million of run rate revenue synergies based on strong client demand for our premium payback solution, growing distribution with new bank referral partners as well as geographic expansion and cross sell initiatives across the enterprise.
These revenue synergies will help supplement our organic revenue growth profile, giving us increased confidence in achieving 7% to 9% organic revenue growth on a sustained basis.
We also have line of sight to execute an additional $100 million of operating cost synergies, bringing net total to $500 million, exiting 2021 or 125% of the original opex target.
Turning to segment results on slide 12.
In Banking, organic revenue growth accelerated to 5%, a strong execution more than offset lower termination fees.
Based on our large and growing backlog as well as our growing pipeline of new opportunities, we continue to expect the Banking segment to accelerate into the mid to high single-digits.
Our Merchant segment revenue declined 9% organically or 7% on a normalized basis, when excluding the step up in debit routing synergy that we achieve following the Worldpay acquisition.
As we begin to lap the impact of COVID-19 in the second quarter, we expect Merchant revenue growth to rebound sharply, driving mid to high teens growth for 2021.
Our Capital Market segment continues to exceed expectations with organic growth of 3% in the quarter, which includes about a point of headwind associated with the timing of license renewals.
This segment is positioned for low to mid single-digit organic growth in 2021, driven by another strong year of new sales and recurring revenue growth.
On slide 13, we provide more detail about how client mix is affecting merchant revenue growth during the pandemic.
The significant difference in consumer spending trends between discretionary and non-discretionary verticals is creating an unusual revenue mix headwind for us.
Discretionary spending verticals, which typically carry higher yields experienced a sharp contraction during the pandemic.
Meanwhile, non-discretionary verticals and most of e-com typically comprised of lower priced large enterprise and multinational clients experienced strong demand.
As a result, merchant revenue declined even as volumes continue to grow.
Beginning in the second quarter, we expect these mix headwinds on yield to reverse as discretionary verticals rebound over easy comps.
This should create a significant yield tailwind for our merchant revenue growth that extends until these verticals rebound fully.
Turning to slide 14.
I want to touch on the strength of our balance sheet, cash flow and liquidity position.
We generated over $3 billion of free cash flow in 2020, which was up about 50% over last year.
We invest over $1 billion in capex in order to drive new technology and solutions to the market.
We made the strategic decision to maintain our capital expenditure budget through the pandemic as others were forced to retrench in order to continue to accelerate our new sales and competitive momentum relative to our peers.
Even as we continue to invest in innovation and growth, our liquidity position continues to grow and reached $4.6 billion by the end of the fourth quarter, which is up by about $400 million sequentially.
Looking forward, we expect free cash flow conversion to continue to improve, up from 24% of revenue in 2020, increasing to 25% to 27% of revenue in 2021, as we continue to drive integration and efficiency throughout the business.
Turning to slide 15.
I want to touch on our capital allocation priorities in light of the large share repurchase authorization and simultaneous dividend increase that we recently announced.
Over the long-term, organic growth and M&A opportunities have been and will continue to be our first priority for the long-term success.
We will invest aggressively in our fastest growing businesses and target high growth assets for M&A to accelerate or extend our growth profile.
If it fits our overall strategy and drives accelerating growth for our company and is actionable, we will execute accordingly.
Next, share repurchase will continue to be a primary tool for returning excess free cash flow, along with consistent 10% to 15% dividend increase each year.
In the short term, we believe that FIS shares are trading well below their intrinsic value, creating an opportune time to buy back stock.
We recently announced Board approval to buy back 100 million shares, which represents approximately 16% of our shares outstanding, or over $13 billion at current stock price.
The Board's decision to approve this program reflects continued confidence in the strength of our financial position and the durability of our business model.
There is no time limit on this authorization and we expect to begin buying stock as soon as we can.
I'd like to begin our discussion of '21 guidance with a view into our adjusted EBITDA margin expectations on slide 16.
We expect to achieve 250 basis points to 300 basis points of adjusted EBITDA margin expansion in '21.
The biggest driver of this will be high incremental margins as revenue growth accelerates.
We anticipate approximately 100 basis points of margin expansion associated with our ongoing achievement of operating expense synergies.
Unwinding our COVID-related short-term cost actions will create approximately 150 basis points of headwind in 2021, as these costs come back online.
We continue to anticipate meaning margin -- meaningful margin expansion beyond 2021, supported by our one to many operating model and ongoing efficiencies as we continue to optimize our infrastructure.
Turning to our guidance on slide 17.
In the first quarter, we expect organic growth of 1% to 2% generating revenues of $3.13 billion to $3.16 billion.
Once we lap the COVID pandemic comps in late Q1, we expect revenue growth to accelerate materially, beginning with the second quarter and driving us to our full year expectations.
We expect to generate $1.25 billion to $1.28 billion of adjusted EBITDA for a margin of approximately 40% to 40.5%, as we begin to fund our bonus pool.
This will result in adjusted earnings per share of $1.20 to $1.25 for the quarter.
For the full-year, we anticipate revenue of $13.5 billion to $13.7 billion.
This represents 8% to 9% organic revenue growth, which is higher than the 7% to 9% range that we initially expected reflecting our increased confidence as Gary described.
Further, we expect to generate $6 billion to $6.15 billion of adjusted EBITDA for a margin of approximately 45%.
As a result of our accelerating revenue growth and expanding margins, we expect adjusted earnings per share to grow 14% to 17% to a range of $6.20 to $6.40.
Finally, we provided some additional guidance assumptions in the appendix material.
As we enter 2021, I'm excited about our accelerating revenue growth and free cash flow generation.
I believe we are uniquely positioned as a sustained higher growth large cap stock and we'll be able to drive consistent long-term shareholder value.
 Assistant:

Chosen response:
q4 adjusted earnings per share $1.62.
sees fy 2021 adjusted earnings per share $6.20 - $6.40.
sees q1 2021 adjusted earnings per share $1.20 - $1.25.
covid-19 continued to impact our financial results in q4 of 2020.


Prompt:
Human: We appreciate you participating in our conference call today to discuss Flowserve's second quarter 2021 financial results.
These statements are based upon forecasts, expectations and other information available to management as of August 6, 2021, and they involve risks and uncertainties, many of which are beyond the company's control.
We are pleased with the performance and solid results in the second quarter, including adjusted earnings per share of $0.37, which represents a 32% sequential improvement and reflects our continued transformation progress.
We were encouraged by our bookings of $953 million, which is nearly an 18% year-over-year improvement.
At this level, Q2 was a momentum-building quarter for Flowserve, as our bookings inflected upward and we now have clear line of sight to earnings growth.
The higher level of bookings and our improved operational performance have provided us the confidence to raise our outlook further for the full year.
Our revised adjusted earnings per share guidance is now $1.45 to $1.65 for 2021.
Since the start of the pandemic, we indicated that recovery in our end markets was expected to be directly correlated with the progress being made with COVID-19.
Each country and geography are at different stages in fighting the pandemic.
But on a global basis, a clear pattern has emerged as countries roll out vaccines, COVID cases decline dramatically and then mobility and consumption begin to improve.
This, in turn, drives customer spending for nearly all of our end markets.
We are confident in our ability to continue to grow the Flowserve enterprise and ultimately restore our bookings to pre-pandemic levels in the coming quarters.
There are several factors that contribute to our confidence in the outlook.
First, we expect to continue to grow our MRO and aftermarket bookings.
As countries emerge from COVID, we are seeing higher utilization rates in our customers' facilities, which necessitates increased parts replacement units and service activity.
Additionally, our distribution partners are just now beginning to replenish their inventory levels.
After about six quarters of destocking, we are now expecting these distributors to rebuild their inventory levels over the coming quarters.
Second, we believe major project activity will emerge and begin to recover in the back half of 2021 and into 2022.
In the early part of last year, we had very good visibility to a significant amount of project activity that was expected to be awarded during that year.
Most of those projects were put on hold as operators were both assessing the COVID impact and reducing their capital spending budgets.
Today, we are working with many of those same customers to bring those projects forward, as the economic environment has improved dramatically over the past several months and additionally, our activity with EPCs is increased significantly this year.
Finally, we see energy transition theme as a significant opportunity for Flowserve.
To date, actual spending in this area is still very [Technical Issues] but we expect it to grow substantially in the quarters and years ahead based on the commitments of our customers -- the commitments that our customers are making as well as from the potential for increased regulation and costs associated with emissions.
Flowserve is no stranger to this type of work, and I'll talk further about this growing market later in the call.
Even as the outlook and trends look promising, predicting the exact timing associated with these opportunities is still challenging.
The Delta variant is causing concerns for Flowserve operations and for our customers.
We have remained diligent and focused on our safety protocols, and we have successfully limited pandemic impacts at most of our global facilities during the quarter.
The recent upturn in COVID cases in the Americas due to the Delta variant has the potential to impact our return to office.
However, we do not believe that the latest COVID trends will negatively impact our business and growth outlook at this time.
Unfortunately, we did experience significant disruption in our Indian operations during the quarter.
As a reminder, we have three large manufacturing facilities and several smaller locations in India.
The good news is that we have seen tremendous improvements over the past several weeks, and we are currently operating at about 80% associate participation in these facilities, which is up from 20% to 30% participation that we experienced for most of the second quarter.
Our Indian-based suppliers were also challenged in the quarter, which presented modest headwinds for us, but our supply chain team has done a good job mitigating the impact and leveraging our global suppliers to minimize disruptions.
Let me now turn to our second quarter bookings.
We are pleased with the 17.9% year-over-year increase, which brought this quarter's total bookings to $953 million.
Both original equipment and aftermarket bookings grew in the 17% to 19% range.
We were very pleased to have delivered almost $525 million of aftermarket awards this quarter, returning to pre-pandemic bookings levels for this part of our business.
Each of our core end markets delivered year-over-year growth with the biggest drivers being oil and gas and chemical, which increased 39% and 19%, respectively.
On a regional basis, we saw solid growth across the globe with the exception of the Asia Pacific market, which was negatively impacted by India's COVID resurgence in a more difficult compare period.
Our bookings performance this quarter was driven almost exclusively by our aftermarket and MRO business, which represented a large volume of small awards.
In fact, we only secured one award that exceeded $10 million, where FCD booked a $12 million nuclear power order in North America.
To achieve this level of bookings without any large projects in the mix is an encouraging sign for future growth.
We expected larger project spending to lag aftermarket and MRO work, and it has.
And we are now confident in the return of project investment later this year and into early 2022 across our end markets.
Our project funnel continues to grow and is up nearly 25% compared to this time last year, driven by the feedback we obtained from customer discussions, insights gains from EPC bidding and backlogs and our interaction on the delayed projects, which we originally expected to be released in 2020.
We continued to anticipate bookings in this $950 million range in this year's third and fourth quarters, assuming continued progress with COVID.
At this level, we should see significant bookings growth in the next two quarters relative to the 2020 comparative periods.
Delivering these level of bookings or higher would position Flowserve well to deliver a strong 2022 financial performance.
Our results this quarter also helped drive strong first half results for 2021.
Our adjusted decremental margins for the first six months was just 13% with our improved market outlook.
We remain focused on returning Flowserve to growth while driving margin expansion and increased returns.
Looking at Flowserve's second quarter financial results in greater detail, our reported earnings per share of $0.35 increased significantly over the prior year period.
In addition, the quality of our earnings also improved, with after-tax adjusted items declining from $61 million in the prior year period to just $3 million this quarter.
Our adjusted earnings per share of $0.37, excluded just $0.02 of net items, including realignment expenses, the logo line FX charges and a gain on sale of business.
We were pleased with these results, particularly considering the impact of COVID-related headwinds of about $0.02, primarily from our Indian facilities, as Scott discussed.
Second quarter revenue of $898 million was down 2.9% or 7.1% on a constant currency basis.
The decrease was primarily due to the 6.1% decline in original equipment sales, driven by FPD's 19% decrease, but partially offset by FCD's 12% increase.
As a reminder, FPD entered 2021 with an OE backlog down roughly 25% versus the start of last year.
Aftermarket sales were relatively resilient, up 0.3%, but mix in composition as FCD's 11% increase was mostly offset by FPD's 1% decline.
Our second quarter adjusted gross margin decreased 70 basis points to 31.4%, primarily due to OE sales decline and related under absorption, including the previously mentioned COVID impact, partially offset by a 2% mix shift toward higher-margin aftermarket sales.
Sequentially, adjusted gross margin increased 100 basis points on a solid 53% incremental margin performance.
On a reported basis, gross margin increased 180 basis points to 31%, primarily due to a $23 million decrease in realignment charges as we took significant cost actions in last year's second quarter.
Second quarter adjusted SG&A increased $13.9 million to $209 million versus prior year, due largely to foreign exchange movements as well as a return of certain temporary cost benefits realized in 2020, such as the absence of travel that has begun to return.
Reported SG&A decreased $18.5 million versus prior year, where realignment charges declined $27 million versus prior year.
Second quarter adjusted operating margins of 8.5% increased 40 basis points sequentially, but declined 280 basis points year-over-year, primarily due to increased under-absorption related to FPD's OE revenue decline.
FCD's adjusted operating margin increased 10 basis points year-over-year to 13.3%, driven by revenue growth and top SG&A -- and tight SG&A cost control, which were partially offset by mix headwinds.
Second quarter reported operating margin increased 330 basis points year-over-year to 8%, including the $57 million reduction of adjusted items.
Our second quarter adjusted tax rate of 14% was driven by our income mix globally and favorable resolutions of certain foreign audits in the quarter.
The full year adjusted tax rate is expected to normalize in the low 20% range.
Turning to cash and liquidity.
Our second quarter cash balance of $630 million decreased $29 million sequentially as solid free cash flow of $14 million was more than offset by a return of $38 million to shareholders in dividends and share repurchases.
Flowserve's quarter-end liquidity position remained strong at nearly $1.4 billion, including $739 million of capacity available under our undrawn senior credit facility.
Turning to working capital.
It was a $34 million use of cash in the second quarter, primarily due to accrued liabilities and timing of certain payments, partially offset by modest improvement in accounts receivable and inventory, including our contract assets and liabilities.
The performance was much improved from last year's second quarter when the COVID-related impacts and seasonal inventory build resulted in a use of cash $36 million higher than this quarter's.
Taking a look at primary working capital as a percent of sales.
We saw a modest 20 basis point sequential decrease to 29.4%, driven primarily by accounts payable as well as a 4-day improvement in DSO versus the first quarter.
Despite our backlog increase of $66 million, some progress delays due to COVID and the proactive purchasing of certain inventory items to mitigate potential supply chain issues, we were pleased that our inventory, including contract assets and liabilities, decreased a modest $4 million sequentially.
Working capital remains a top priority for us, and we're confident that the foundation has been laid for further improvement in the second half of the year as demand-related sales volumes increase result in further reduction of inventory levels.
We remain committed to delivering free cash flow conversion in excess of 100% of net income for the second consecutive year.
Turning now to our outlook for the remainder of 2021.
Based on the combination of our strong first half bookings, driven mostly by shorter-cycle aftermarket and MRO activities and visibility into improving end markets, Flowserve was pleased to increase our adjusted earnings per share guidance range for the full year to $1.45 to $1.65.
In terms of cadence, we expect volumes to increase sequentially in the third quarter and to deliver our typical fourth quarter seasonality.
Our adjusted earnings per share target range continues to exclude expected realignment expenses of approximately $25 million as well as below-the-line foreign currency effects and the impact of potential other discrete items which may occur during the year.
Beyond adjusted EPS, we now expect less of a revenue decline versus 2020.
Our guidance is now for 2021 revenues to be 2% to 4% down compared to last year versus the prior guidance of down 3% to 5%.
In terms of other guidance metrics, our net interest expense remains unchanged at $55 million to $60 million, and we modestly lowered our adjusted tax rate guidance to 21% to 23%.
From a booking standpoint, we now expect full year 2021 bookings to increase in excess of 10% year-over-year versus our previous outlook of mid-single-digit growth.
Additionally, we believe a majority of this increase will come from our aftermarket and shorter-cycle MRO original equipment products, where the associated revenue may be recognized in 2021.
Our expected major cash usages in 2021 remain in line with prior guidance, including dividends and share repurchases of roughly $120 million, capital expenditures in the $70 million to $80 million range and funding our modest remaining realignment programs.
In conclusion, with our solid first half operating performance and improved market outlook, we look forward to continuing the momentum through the second half of 2021 and expect to be well positioned to drive margin expansion and earnings growth in 2022.
Let me close with an update on our energy transition strategy and our outlook for the remainder of the year.
As I mentioned earlier, Flowserve is well positioned for energy transition.
In fact, energy transition and decarbonization activities have been a part of our offering for the last few decades, where Flowserve has a demonstrated foundation in product portfolio to capitalize on this growing market.
We estimate that even before the recent increased awareness driven by the global pandemic, Flowserve is delivering $100 million to $150 million annually of equipment and services into energy transition-related work, including areas like energy efficiency enhancements, upgrades, retrofits, carbon and emissions reductions, solar power facilities, biofriendly processes and lithium and hydrogen work.
Equally important, we have been a valued partner to the customers and the industries that have among the highest opportunities available from energy transition, and we are absolutely committed to supporting them today and through their energy transition journey.
With increased government regulation and potential costs on greenhouse gas emissions, the financial community's increase focused on ESG metrics and the individual companies' public environmental commitments, it is clear to us that energy transition represents a substantial growth opportunity for Flowserve.
The International Renewable Energy Agency estimates that nearly $60 trillion will be invested over the next decade, with almost half of that amount focused on energy efficiency.
Energy efficiency is essentially a continuation of existing process industries, but conducting that business in a more environmentally friendly and efficient manner.
Year-to-date, we have booked nearly $100 million of energy transition-related business.
We have held numerous discussions with our customers over the last year, which have confirmed our approach, validated our offering and these discussions support our growth ambitions.
Let me now highlight some of our recent success stories.
We are supporting a large customer in the United States to convert a former petroleum refinery to a biodiesel facility.
To make the transition, a number of Flowserve pumps required upgrades to support the new application conditions and improve the operator's production and energy efficiency.
Our work on the project will save the plant over $800,000 in electricity annually, which is equivalent to over 9,000 tons of CO2.
Leveraging Flowserve's expertise in flow control solutions, pumps and valves, we successfully support our customer's shift to renewable fuel and their decarbonization efforts.
Another example comes from China.
Earlier this year, Flowserve received a substantial order for over 150 SIHI Dry vacuum pumps for their production of polybutylene succinate, or PBS, which is a biodegradable plastic that naturally decomposes in the water and carbon dioxide.
With China's recent ban on several types of non-degradable single-use plastics, PBS and other biodegradable plastics will be preferred alternative materials due to their similar plastic attributes without the harmful impact to our environment.
As I mentioned earlier, we estimated that roughly $30 trillion of energy transition-related investment over the next 10 years will be focused on energy efficiency.
Our RedRaven IoT offering launched earlier this year instruments pumps, valves and seal systems to provide the capability to assist our customers with a data-driven approach on how to improve their operations, increase asset uptime and reduce associated energy emissions.
We continued to incorporate our RedRaven functionality across additional valves and pumps in the quarter, increasing the coverage of our portfolio, where we can provide advanced analytics and predictive capabilities.
Customer interest levels remain high, and we continue to average roughly one order every week.
We believe RedRaven aligns well with our customers' objectives and expect to continue to grow this offering to a meaningful level in the future.
A recent example of our value of our IoT solution comes from a longtime Flowserve customer who recently upgraded their monitoring solution to RedRaven.
Shortly after the upgrade, we detected that a critical pump motor was overheating.
We detected the temperature spike early, alerted the refinery and deployed resources to support their operations.
According to the operator's estimates, had the pump failed they would have had to shut down the facility for over three weeks as they remove the damaged pump and install the commission and replacement.
This downtime would have cost the refinery upwards of $20 million.
RedRaven is clearly adding value to Flowserve and to our customers.
Let me now shift our focus to the remainder of the year.
During the quarter, I was excited to resume a more normal travel schedule and visited a number of our U.S. and European facilities and many of our customers in these regions.
During these business reviews, I came away highly encouraged by the operational progress we continue to make in our transformation journey.
The visits validated the improvement we're making in a number of key performance metrics, and I'm confident we are on the right path to fully embed the transformation work and activities into our daily processes.
The Flowserve 2.0 operating model is being driven throughout the enterprise, and we continue to expect the transformation to be fully embedded by the end of the year.
And with our operations and functions now taking ownership, we expect continuous improvement to remain post-2021.
Our improved model is expected to deliver a more consistent margin profile and ongoing productivity improvements, which would position Flowserve well to leverage and capture the value of the improved market opportunities.
The visits also confirmed that we are strongly positioned to shift our focus to growth optimization and strategic initiatives, including inorganic opportunities.
The success of our transformation in a consistent operating approach provides the confidence in our ability to integrate acquired businesses should we see the right assets and economics.
Our operational and functional organizations have made significant progress throughout this journey, and we are now prepared to do more.
In closing, we began our Flowserve 2.0 transformation journey in 2008.
And even as the pandemic required mid-course adjustments, we are approaching the full institutionalization of the playbooks and processes of our ongoing operating model.
And we are increasingly well positioned to support our customers, capitalize on the improved market environment and create long-term value for our shareholders and other stakeholders.
 Assistant:

Chosen response:
flowserve q2 adjusted earnings per share $0.37.
q2 adjusted earnings per share $0.37.
q2 earnings per share $0.35.
raised full-year 2021 revenue and adjusted earnings per share guidance.
sees fy revenues down 2.0% to 4.0%.
sees fy adjusted earnings per share $1.45 - $1.65.


Prompt:
Human: Following their prepared comments, the operator will announce that the queue will open for the Q&A session.
This information is not calculated in accordance with GAAP and may be calculated differently than non-GAAP information at other companies.
These statements reflect the best information as of today.
All statements about our recovery, outlook, new products and acquisitions, expectations regarding business development and future acquisitions are based on that information.
They are not guarantees of future performance and you should not put undue reliance upon them.
These documents are available on our website and at sec.gov.
Upfront here, I'll plan to cover three subjects.
First, I'll share my perspective on our Q2 results, along with rest of your outlook.
Second, I'll provide an update on our two newest acquisitions.
And then lastly, I'll talk about our fuel card business, including our latest view on EV, along with a couple of innovative developments underway in that business.
Let me turn to our Q2 results.
So very pleased to report outstanding Q2 financial results meaningfully above our internal expectations.
We reported Q2 revenue of $667 million that's up 27% and cash earnings per share of $3.15, up 38%.
Both our Q2 2021 revenue and cash earnings per share exceeded our Q2 2019 results, so finally moving past our pre-pandemic baseline.
Organic revenue growth came in at 23% for the quarter, our full AP outsourcing platform segment, up 53% versus Q2 last year.
The trends in the quarter are really quite good.
Our same-store sales metric improved to plus 18%, so hardness of 18%, many of the sectors in our client base recovering.
Retention, record level, we reached nearly 94%, an all-time high since we've been reporting the metric.
And interestingly, our global fuel card business reached 92% retention, also an all-time high.
Credit losses remain very good, running at historic levels and sales outstanding in the quarter finishing up almost two times last year's Q2 and up 6% against 2019.
Okay, let me transition to our view of the rest of the year.
So, today, we're raising guidance to $2.765 billion at the midpoint for full year revenue, raising cash earnings per share at the midpoint to $12.90.
That's driven by our Q2 beat, the AFEX close, and really the momentum that we have running into the second half.
I do want to remind everyone we had previously guided to a pretty substantial second half sequential step-up already.
As a reminder, cash earnings per share guidance up nearly $0.60 from the start of the year.
So, we opened the year at $12.30; today, $12.90, so obviously, better than we outlooked.
The second half guidance implies a few things.
So, first, the revenue growth will run about 20% ahead of last year and high single-digits really above the second half 2019 baseline.
So, we are expecting the business to reach all-time highs again in both revenues and profits.
Our Q4 earnings per share profit guidance implies nearly a $14 annualized cash earnings per share exit rate.
Okay, let me transition now to an update on our recent acquisitions.
So as a reminder, we closed AFEX, that's the add-on cross-border deal, on June 1st.
And then last week, we signed definitive documents to acquire ALE, which is a lodging provider to the insurance vertical.
So, let me start with ALE, really a highly complementary add-on to our existing lodging business and that company brings a whole set of specialized capabilities designed just to serve the insurance vertical.
So, we've got a pretty interesting synergy plan for that business and expect accelerated revenue and profit growth next year.
We're also well underway on our AFEX integration.
We've already exited about $10 million of run rate payroll expense.
We've implemented one unified cross-border management organization and we've designed an IT consolidation plan to move to a single system.
That will significantly reduce run rate IT and operations expense.
So, look, both of these acquisitions, classic FLEET wheelhouse deals.
We paid reasonable prices.
There are extensions of our existing business, so we know them well, and both have very rich synergy opportunities.
We're expecting the businesses to grow about 20% on the top on a pro forma basis next year and together deliver incremental cash earnings per share in 2022 in the $0.50 to $0.70 range, so big upside.
So, obviously, we are quite enthusiastic about the transactions.
Let me shift gears now and talk a bit about our fuel card business, which we continue to love and which we think has a bright future.
So I'll talk a bit about EV, the latest and greatest, and then talk about innovation and specifically two new things that we're doing to improve the growth prospects of our fuel card business.
So starting out with EV.
I mentioned last time, we're really embracing EV as an opportunity and in no way see it putting an end to our fuel card business.
Employers are going to need to reimburse employees for recharging electric vehicles much like they reimburse employees for refueling combustion engines.
And I think you may find that it costs more to operate EV than people think.
We also think there'll be some new economics and that we've got an opportunity to achieve, very similar economics from EV measuring and reimbursing as we do from combustion engines.
We've included a couple of EV exhibits in our Q2 earnings supplement.
You'll see some comparisons of spend where the cost of public charging is about 70% of fossil fuel charging.
And then because there's more attractive MDR rates, we believe that we can achieve pretty interesting revenue there as well.
In a nutshell, we expect the at-home software subscription fees to be pretty significant and augment a number of the other fees that we get in the revenue mix.
We are outlooking the commercial transition to EV to be slow, particularly here in the US, giving us ample time to build out our public charging network and implement recharging at home.
We expect mixed fleets to be how things start out.
So our incumbent position should give us quite an advantage in consolidating activity and data for our clients.
So look, in conclusion, we're outlooking EV to really just be a different way to serve commercial fleets but one in which we think can still be attractive.
Let me leave EV and cut over to the couple of innovations that we're working in the fuel card business.
So first is digital and particularly digital selling, which now in Q2 has reached about 60% of all our new fuel card sales globally coming to us digitally.
So lots of improvements in our digital selling capabilities.
We've got automated keyword bidding now.
We've redesigned our maximize sales conversion, and we're beginning investments at the top of the funnel in the form of digital TV, radio, Facebook advertising, which is driving about 50% more visitors to our websites, so obviously leading to incremental sales.
The last innovation I'd like to touch on is our effort to transform our fuel card UI, which is used by over 100,000 clients, really into a broader payment platform.
So we're combining our newest cloud-based SMB bill pay platform with our fuel card UI, so that clients go on to pay us the fuel card bill that they'd have the option then of paying additional vendors with the same software platform.
So, this idea is really aimed at accelerating the number of active bill pay clients we can add to our platform and again beginning the transformation of the fuel card business into a corporate payments business.
So, we'll keep you updated there as we go.
So, look, in closing, three thoughts for you.
So, one, on 2021, again, we're pleased with Q2, particularly the record retention and record sales levels.
And again, our second half outlook calls for new all-time highs again in revenue and profits.
Second, on the fuel card business, again, we think the prospects are bright for the business.
We do have a plan to monetize EV adoption by providing some new services and particularly measuring and reimbursing at-home recharging.
We've got an opportunity to keep stepping up digital sales and digital advertising at the top of the funnel.
We think we can drive incremental visitors and incremental sales.
And we're launching a bill pay cross-sell opportunity to our fuel card clients again by turning our existing fuel UI into a broader payment platform.
And lastly, although early, we're quite encouraged by our 2022 setup.
Our second half guidance calls for nearly $7 in cash earnings per share for the second half or approximately $14 annualized, again, forecasting record sales for the full year, which will flow revenue into next year.
We'll roll off $1 billion in interest rate hedges in January.
That will free up about $0.20 of incremental cash EPS.
And lastly, our two newest acquisitions, hoping to contribute in the $0.50 to $0.70 range of incremental cash EPS.
So, look, taken together a lot to like about our 2022 setup.
He'll provide some additional details on the quarter.
I'm delighted to share with you the results of a very good quarter.
For Q2 of 2021, we reported revenue of $667 million, up 27%; GAAP net income up 24% to $196 million; and GAAP net income per diluted share up 26% to $2.30.
Adjusted net income for the quarter, or ANI, increased 36% to $268 million and ANI per diluted share increased 38% to $3.15 as we finally lapped the worst of COVID.
Organic revenue growth improved 29 points sequentially to up 23% on a year-over-year basis, driven by strong sales, record retention levels, and same-store sales recovery.
Looking at organic growth across the categories.
Corporate payments was up 32% in the second quarter, led by our full AP solutions.
We are seeing very good success leading with our full AP and selling a more complete package versus just a stand-alone virtual card offering.
Full AP is clearly what we prefer to sell, so we've reoriented our combined sales force with this focus, and it's paying off.
T&E card revenue was up 58% year-over-year, rebounding significantly as business activity and travel began to resume.
This T&E description is a bit of a misnomer, as it's really a multipurpose card that can be used as either a purchasing card or is walk-around plastic, depending on how the customer wants to use it.
And while spending within T&E-related categories has rebounded, it's still below historical levels.
So there's clearly room for further improvement there.
Cross-border revenue was up 25%.
These results do include one month of AFEX with pro forma results for Q2 last year, so which is if we owned it in both periods.
And finally, virtual card revenue was up 13%.
Both of these areas are still affected by COVID softness in industries that we've discussed before, like airlines, cruise operators, hotels and restaurants, international trade and commercial construction to a lesser extent.
We do believe much of this softness is recoverable, but the timing is hard to predict.
Fuel was up organically 19% year-over-year with strong retention trends and record digital sales helping to drive the performance.
We still see opportunities for further softness recoveries in fuel once the labor shortage affecting our large trucking fleet customer subsides and offices reopen more broadly so our white-collar commuters can return to normal activity levels.
Tolls was up 9% compared with last year and showed impressive performance in light of the lockdowns in place for much of the quarter.
This growth was driven by record first half tag sales, demonstrating the value proposition and attractiveness of our offerings even when many folks aren't driving on the roads.
And approximately one quarter of all consumer tags sold year-to-date are signed up to urban plans, which allow purchases beyond tolls, such as for parking, fueling and fast food.
We also added 25% more fuel stations to our tag acceptance network during the first half with plans to add another 50% during the second half.
The combination of urban tag sales and non-toll network expansion should produce beyond total volume growth as lockdowns ease and consumer activity increases.
Lodging was up 39%, with workforce up 36%.
The pace of improvement in workforce lodging has leveled off some as customers are being held back by the labor shortage, but we feel this volume will come back over time as the labor market normalizes.
Airline lodging was up 49% as domestic air travel recovered faster than expected but still remains below historical norms.
International airline lodging should come back as international air travel recovers.
So despite the sizable recovery in lodging, we still see upside potential here.
Gift organic growth was 22% year-over-year, benefiting from continued retailer embrace of the online sales channel.
We expect this trend to continue as we are experiencing success with gift clients using our proprietary platform to sell both digital and physical cards online.
In fact, we expect to double the number of clients utilizing this platform by year-end.
Momentum in mobile wallet services and B2B sales, where third parties sell gift cards to companies for use as employee incentives and rewards, are also contributing to the improvement.
Looking further down the income statement.
Our operating expenses were up 18% to $370 million, totaling 55% of revenue.
The increase was primarily due to higher levels of business activity, the effect of currency translation impact on international expenses and acquisitions.
We've also made incremental investments in digital sales and top-of-funnel marketing efforts and incurred some non-recurring integration-related expenses for AFEX, such as severance and platform migration costs.
Operating margins improved four points from last year to 45% due to recovering volumes that have higher margins, higher fuel prices, and solid expense control.
In the quarter, bad debt was $6 million or two basis points.
Credit performance continues to be strong, although we do expect our bad debt to normalize as our new sales improve and grow.
Interest expense increased 7% to $34.7 million due to a $6.2 million charge associated with our debt refinance, a higher balance on the new Term B note, partially offset by lower borrowings on our revolver and lower LIBOR rates on the unhedged portion of our debt.
Our effective tax rate for the second quarter was 25.2%, similar to last year, and reflects a $6.5 million adjustment to our deferred tax position due to a rate change in the UK.
In our guidance, we are increasing our expected tax rate for the year given this adjustment and an assumed lower level of excess tax benefits on stock option exercises in the second half.
Now, turning to the balance sheet.
We ended the quarter with $1.3 billion of unrestricted cash.
We also had approximately $1.2 billion of undrawn availability on our revolver.
In total, we had $4.1 billion outstanding on our credit facilities and $1 billion borrowed on our securitization facility.
As of June 30th, our leverage ratio was 2.62 times trailing 12-month adjusted EBITDA as calculated in accordance with our credit agreement.
We repurchased approximately 926,000 shares during the quarter for $246 million at an average price of $266 per share.
The Board increased our share repurchase authorization by $1 billion on July 27, which now gives us $1.6 billion of share buyback capacity.
Now, even including the recent buybacks, the AFEX closing, and the pending ALE deal, we still have low leverage and ample liquidity for additional deals and/or buybacks.
Our high margin, high cash flow business, which generated $268 million of ANI this quarter quickly replenishes capital, allowing us to pursue attractive buying opportunities as they present themselves.
Now, let me share some thoughts on our outlook.
We are raising our full year revenue guidance to between $2.74 billion and $2.79 billion, which is up over $100 million at the midpoint.
We are also raising our adjusted net income per diluted share guidance to between $12.80 and $13 or $12.90 at the midpoint.
AFEX is a big contributor as is a better macro environment in addition to volumes that improved faster than we expected in the first half of the year.
We continue to be encouraged by our strong sales and retention trends and currently expect COVID volume recovery to continue through the second half of the year.
We are being mindful of the potential impact from the Delta variant, and we'll adjust our outlook and operations as necessary.
We are expecting Q3 2021 adjusted net income per diluted share to be in the range of $3.35 to $3.55.
I would note that our guidance does not include the impact of the ALE acquisition that we just announced.
We'll update for that when we actually close the transaction.
 Assistant:

Chosen response:
sees q3 adjusted earnings per share $3.35 to $3.55.
q2 adjusted earnings per share $3.15.
q2 earnings per share $2.30.
board increased share repurchase authorization by $1 billion.
sees fy adjusted earnings per share $12.80 to $13.00.
sees fy revenue $2.74 billion to $2.79 billion.


Prompt:
Human: Following the prepared comments, the operator will announce that queue will open for the Q&A session.
This information is not calculated in accordance with GAAP and may be calculated differently than non-GAAP information at other companies.
These statements reflect the best information we have as of today.
All statements about our recovery, outlook, new products and acquisitions and expectations regarding business development and future acquisitions are based on that information.
They are not guarantees of future performance, and you should not put undue reliance upon them.
These documents are available on our website and at sec.gov.
So up-front here, I'd like to run through four subjects: first, I'll give you my take on our Q3 results along with the rest of your outlook; second, take you into a bit deeper dive into our sales results; third, give you an update on the three acquisitions that we've completed year-to-date; and then lastly, an early preview of 2022 and beyond.
So let me make the turn to our Q3 results.
We reported Q3 revenue of $755 million, up 29% and cash earnings per share of $3.52, up 25%, so both of those all-time record highs for the company.
Also, the Q3 results annualized, finally above $3 billion, so past the $3 billion mark in revenue and $14 in cash EPS.
Organic revenue for the quarter, up 17%.
And inside of that, Corporate Payments business grew 22% organically.
The trends in Q3 are quite good.
Sales finishing at record levels, up over 50% versus Q3 last year and over 30% against the baseline of Q3 '19.
Retention, steady as she goes at 93% for the quarter.
And again, our global fuel card business inside of that also coming at 93%.
Same-store sales strengthened plus 5% for the quarter, which further adds to the same-store sales rebound we saw in Q2.
Credit losses low again at three basis points, continuing to run below historic levels.
You may notice our tax rate kind of four points higher than last year.
That did shave about $0.20 off the $3.52 that we reported for the quarter.
So look, overall, kind of pretty pleased with the quarter.
So in terms of rest of the year, we're raising guidance today.
So revenue guidance at the midpoint now, $2.795 billion, that's up $30 million from August.
Cash earnings per share at the midpoint to $13.05, that's up $0.15 from August.
This raise versus last time reflects, obviously, these Q3 results are beat the ALE acquisition, which closed September one and a bit more favorable fuel prices, all of those offset just a bit by slower-than-planned COVID recovery.
If you look at the Q4 on its own, it anticipates revenue and profit growth up about 20% versus Q4 last year and about 10% against Q4 2019.
Let me make the transition into a bit deeper dive into our sales results.
So as I mentioned, new sales or bookings reached record levels in the quarter and are up sequentially, significantly and up dramatically over the prior periods.
So as I'm sure you're aware, sales reflect the market demand for our solutions but are also really the best leading indicator of future prospects.
And so crazy record this quarter.
We signed up almost 50,000 new business clients globally in Q3.
So 50,000 new accounts joined the fold, so a record.
Over 50% of all of our global fuel card sales now come to us through our digital channels.
So great because it's very low cost.
We continue to increase our digital advertising spend, and we're enjoying record levels of prospects visiting our websites.
Interest in EV solutions increasing, so a number of large accounts signing on to our EV solution.
So that included Hertz, Volkswagen USA, Union Pacific, LeasePlan Europe and Siemens.
Brazil toll sales rocked in the quarter.
Our urban sales or kind of the city dwellers that are lower frequency toll users represented 23% of all new sales in the quarter.
So programs, whatever, two or three years old now, almost a quarter.
And the active tags for the quarter reached a new milestone, six million, so six million active paying tags now in Brazil.
We are planning to launch our new bank JV this month with the largest bank in Brazil, who will be helping to promote our products.
We don't talk about it much, but our customer acquisition cost is really quite attractive, runs about 65% of the sales new revenue, so really super important for profitable growth.
So let me shift gears and talk a little bit about the three acquisitions that we've closed year-to-date and how they're doing.
So Roger, first up.
We've now rebranded Roger to be Corpay One, which is our entry into the Corporate Payments SMB space.
So we're underway now adding new SMB bill pay clients through digital channels and accounting channels, and have some early returns on cross-selling bill pay into our fuel card base.
So super early, but it looks like about 10% of our fuel card clients that pay their bills with our new Corpay One platform are choosing to pay a second non-fleet Cor bill with us, so effectively becoming bill pay customers.
We're looking at somewhere around 10,000 to 20,000 SMB bill pay clients coming online in 2022.
And also interesting, we plan to launch what we call our 2-in-1 solution before year-end that will combine our smart business cards with our bill pay platform into one interface.
So an SMB client could potentially pay all of their nonpayroll expenses with us on a single platform.
Second deal this year, AFEX, which is a cross-border provide, very similar to our Cambridge business.
Super performance in '21.
Pro forma revenue growing mid-teens.
EBITDA up almost 50% versus prior year.
Well along on integration, we've already combined the management teams into one group, and are about halfway through migrating the AFEX customers onto the Cambridge IT platform.
So I hope to retire most of the AFEX IT system by year-end.
Last deal up is ALE.
That's the lodging extension for the insurance vertical.
It helps homeowner insurance place policyholders into hotels and temporary housing.
So we closed at September one about 3.5 million incremental annual hotel rooms, will be added to our lodging business.
Underway with the synergy work.
And early view is about $0.20 accretive to 2022.
So, so far, so good really across all three transactions this year.
So lastly, let me share our view, early view of 2022, and speak a little bit to the beyond '22 prospects for the company.
So for next year, encouraged by a few things.
First, the run rate, we're exiting '21 with about $3 billion of annualized revenue and $14 of cash EPS.
So nose of the plane is up.
Sales again, running at record levels, which will drive incremental revenue into '22.
We also expect sales to grow again next year about 20%.
Macro is on our side, helping us.
Obviously, fuel prices are high.
FX is generally holding, so setting up well there.
And then I mentioned the acquisitions, particularly AFEX and ALE, together contributing probably about $0.50 of incremental accretion next year.
So look, taken together, the early 2022 set up is quite good.
If we look just a little farther out into the midterm, we're kind of also encouraged there for a couple of reasons.
So first, we've expanded, via our Beyond strategy, the market segments or the served market segments in each of our five major lines of business.
So that's laid out on, I think, page 14 of the earnings supplement.
So for example, in Corpay, our Corporate Payments business, we've added cloud-based AP solutions to our original virtual card business.
So we did that a couple of years ago in the middle market with Nvoicepay, and then obviously, this year, in the SMB market with Roger.
So look, much, much better positioned now to attack the Corporate Payments TAM.
And then again, if you look at our lodging business initially focused only on workforce or blue collar travelers going to economy hotels.
Since we've added two new segments, the airline crew business and now the insurance policyholder business of the fold, that really triples the opportunity in terms of room nights for the lodging business.
A second thing is we're on a path, as I mentioned, to combine our card business with our payables business into a single platform, which would do two things: first, give us differentiation in the marketplace, where we can help clients pay all their nonpayroll expenses with us, both walk-around purchases and supplier payables from a single account; and second, could help us turn our fuel card business into a Corporate Payments business by cross-selling our bill pay services to our hundreds of thousands of fuel card clients.
So as I mentioned, underway there.
So look, the combination of expanding our served market segments in our existing five businesses along with this idea of joining up our cards and bill pay onto a single platform is encouraging for us.
So look, in closing, just a few final wrap-up thoughts.
So again, a really good quarter, record revenue and profits for Q3, good trends, same-store sales up -- sales -- new sales up and retention steady, again, record sales and very attractive cost of acquisition of new accounts.
three acquisitions on track against our thesis, and our early '22 set up attractive.
So look, all-in-all, it feels like we're in a pretty good place.
I'm delighted to share with you some more color on a very solid clean quarter.
For Q3 of 2021, we reported revenue of $755 million, up 29%; GAAP net income of $234 million, up 24%; and GAAP net income per diluted share of $2.80, up 28%.
Adjusted net income for the quarter, or ANI, increased 22% to $294 million or roughly $1.2 billion annualized.
ANI per diluted share increased 25% to $3.52.
Organic revenue growth was 17%, driven by continued strong sales, solid retention levels and same-store sales recovery.
Looking at organic growth across product categories.
Corporate Payments was up 22% in the third quarter, highlighted by full AP, which grew over 50% again this quarter.
Corpay One, our small business-focused full AP offering, grew 78%.
So our full AP solutions continue to sell well in the market.
Cross-border revenue was up 19%, which showed some softness from the lockdowns down under in Australia.
We do believe much of this softness is recoverable, but the timing is hard to predict.
The AFEX integration is progressing quite well, and we've converted more than half of its customers onto our existing cross-border payment systems.
We expect to convert the remaining customers before year-end.
And within B2B, a lot of attention has been paid to new small entrants, several of which we enable with our partner program using our best-in-class virtual card.
The partners we enable own the customer relationship, do the marketing and take the credit risk, so they keep most of the economics.
We're more of a processor to them.
So our take rate is meaningfully lower than when we go direct to customers, which is really where we tend to focus most of our sales and marketing efforts.
So while these partners drive some volume growth, they still only represent about 13% of our Corporate Payments revenue.
Fuel was up organically 13% year-over-year, with strong retention trends and record digital sales continuing to drive the performance.
We're seeing some softness in same-store sales as Australia, New Zealand and parts of Continental Europe are still grappling with COVID-related lockdowns, and over-the-road trucking is facing the driver supply shortage that's been all over the news.
But despite these headwinds, our fuel businesses continued to grow in every geography as a result of our sales efforts and strong retention rates.
Tolls was up 14% compared with last year and showed impressive performance again this quarter, growing to above six million total tag holders, with five million consumer tags and one million business tags.
Now just for context, the business had approximately 4.5 million total tag holders when we acquired it back in 2016.
Economic and business activity has returned to relatively normal levels in Brazil, which has increased customer mobility and sales traffic through retail and toll locations, helping us to achieve record Q3 sales.
Lodging was particularly strong, up 40%, with airline lodging up 61% on the back of the recovery in domestic air travel.
We hope to see more recovery in international airline lodging as borders reopen.
Gift organic growth was 25% year-over-year, benefiting from continued retailer embrace of the online sales channel.
Now looking further down the income statement.
Operating expenses were up 30% to $417 million and were 55% of revenue, stable with last year.
The increase was primarily due to higher levels of business activity, the effect of currency translation impact on international expenses and acquisitions.
Interest expense decreased 7% to $29 million, primarily due to higher interest income earned on cash balances and lower LIBOR rates more than offsetting higher debt and securitization balances.
As Ron mentioned, our effective tax rate for the third quarter was higher than expected, coming in at 24.1%.
This was due to fewer stock option exercises during the quarter likely due to the low share price, which resulted in minimal excess tax benefits.
We currently expect our tax rate in Q4 to be back within our full year guidance range.
Now turning to the balance sheet.
We ended the quarter with $1.3 billion of unrestricted cash, and we also had approximately $650 million of undrawn availability on our revolver.
In total, we had $4.6 billion outstanding on our credit facilities and $1.1 billion borrowed on our securitization facility.
As of September 30, our leverage ratio was 2.76 times trailing 12-month adjusted EBITDA, as calculated in accordance with our credit agreement.
We used $406 million to repurchase approximately 1.6 million shares during the quarter at an average price of $260 per share.
We still have $1.18 billion of share buyback capacity in our program.
So far this year, we've bought back 3.1 million shares and we've closed three deals, putting $1.7 billion of capital to work.
On top of that, we still have low leverage and ample liquidity for additional deals and/or buybacks, clearly demonstrating the earnings power and attractiveness of our high-margin, high-cash flow business.
I would also like to mention that we expect to publish our latest ESG report to our Investor Relations website within the next few weeks, and we'd be happy to take your feedback on our ESG efforts after you've had a chance to review that report.
 Assistant:

Chosen response:
q3 adjusted earnings per share $3.52.
q3 revenue rose 29 percent to $755.5 million.
sees fy earnings per share $13.05.
q3 earnings per share $2.80.


Prompt:
Human: On a per share basis, first quarter earnings were $1.93 compared to a loss per share of $1.06 last year and earnings per share of $1.52 for the first quarter of 2019.
This year's quarter includes pre-tax charges of $2 million related to the impairment of one of the company's minority investments, and $2 million primarily related to severance costs in connection with the reorganization of certain support functions.
Excluding these items, first quarter non-GAAP earnings were $1.96 per share, a significant reversal to the loss per share of $0.67 for the first quarter of last year and up 28.1% compared to earnings per share of $1.53 for the first quarter of 2019.
We're excited to have him on board.
Last quarter, I talked about entering our fiscal 2021 momentum.
That was certainly the case in our first quarter.
And the momentum gained strength as the quarter progressed, enabling us to deliver exceptional top line and bottom line results, even against the ongoing challenges of store closures in Europe and Canada and congestion at the U.S. ports, leading to abnormally lean inventory levels.
On a sequential basis, comps dramatically accelerated through the quarter, led by our stores.
A mid-teens decline in February due mainly to launch calendar shifts and tax refund delays gave way to strong triple-digit gains in March and April as we lapped the onset of the COVID pandemic last year and the disruption caused by the shutdown of our store fleet.
But our stores weren't the only highlight.
Our digital business also remained quite strong, up 43% on a comp basis and landing at a penetration rate of 25% of our total sales, which was higher than our expectations coming into the quarter.
Perhaps more impressively, even with the challenges I mentioned, our sales performance was not only strong relative to last year's unprecedented first quarter, but also versus Q1 2019, where we saw low single-digit growth versus a strong result that year.
Athleisure and fitness consumer trends continued to drive strong demand across genders and families of business.
Although our inventory levels were lower than we would have liked, the composition and quality of goods was fresh, and our consumers responded very well to our merchandise assortments.
This resulted in higher inventory productivity and significantly less promotional activity, enabling us to deliver healthier margins and a truly impressive bottom-line performance.
Finally, we believe U.S. government stimulus and tax refunds provided incremental positives in the quarter.
This stellar performance would not have been possible without all of the associates whose dedication to the success of our company and whose passion for creating incredible experiences for our customers drives our business every day.
I often say we have the best team in retail, and our performance in Q1 serves as a testament to the strength of our team.
As we expected, COVID-related restrictions pressured our business in Europe throughout Q1, as the EMEA fleet was opened only 39% of possible operating days in the quarter.
But omnichannel growth was positive, nonetheless.
And in pockets where lockdowns began to ease, such as the U.K., we saw pent-up demand drive growth at the store level as well, leaving us optimistic that the trend will continue as the region opens back up.
To that end, we continue to break exciting new ground in Europe, including today's opening of our first high-profile store in Barcelona.
The store features dedicated women's and kids' spaces, local artwork and curation and enhanced connectivity, including a digital interactive zone and BOPIS lockers.
Additionally, we refreshed several stores across EMEA during Q1, with upgrades to fixtures, layouts and light touch improvements as we anticipate the broader reopening of the economy in EMEA.
Looking ahead, we continue to have strong product tailwinds, led by the culture of basketball and footwear, comfort trends in apparel and new and exciting strategic brands in our portfolio, which Andy will talk to in more detail.
While we continue to manage against the remaining port delays and gradual reopening's in Europe and Canada, these are transient issues, and we remain optimistic about our prospects as we move through the year.
As it relates to the West Coast ports, there's some good news to share.
Inventory flow and receipt velocity did improve as delays began to ease through the first quarter, and we expect further improvement in Q2, which should reflect positively on our inventory levels.
In the meantime, we have been working with our vendor partners to utilize ultimate ports and expedited rail and truck services to accelerate the flow of goods.
Now let me provide an update on our strategic initiatives and technology milestones.
We continue to see enrollment increase with over 20 million members now enrolled in the countries where the program is active.
We also continue to refine the KPIs that will define success for FLX moving forward, including customer retention and satisfaction.
In addition to growing membership in 2021, we will also focus on expanding into additional countries, driving engagement and incremental spend by connecting in more relevant ways with our customers and integrating FLX deeper into the customer experience at Foot Locker, Inc., adding value to programs like BOPIS and Launch Reservation.
Now for some highlights on our key technology initiatives.
First, we continued to build on our new payments platform, adding Adyen, Giropay, and Clearpay to our selection of payment options in Europe.
Providing increased convenience and flexibility for our consumer remains an imperative for us, and these new options will complement the successful rollout of Apple Pay and Google Pay last quarter.
Second, as part of our digital commerce transformation, we deployed new websites in four additional European countries: the U.K., Netherlands, Germany and France, that build off the modernized platform we launched in North America last year.
The new sites are easier to personalize to local markets, less costly to maintain and better leverage data analytics.
Finally, we expanded the SKUs we offer on Eastbay as part of the Nike dropship program we announced in February, and we're working toward getting additional banners up on the program in the coming months.
Having the right product at the right time is fundamental to our business.
This program is one step toward providing more flexibility to meet customer demand.
Now I'd like to discuss an important update on our organizational evolution.
We've talked a lot about how the accelerated shift to digital throughout pandemic pushed us to more quickly adapt to our consumers' changing preferences and to create stronger connections with them.
It's also led us to proactively accelerate our initiatives to optimize our real estate portfolio in our best-performing banners and across the most valuable locations to competitively position our store fleet for the future.
The decision to shutter Runners Point in Europe during 2020 is an example of this ongoing effort, as was the decision in the U.S. to more closely align Champs Sports and Eastbay.
With that in mind, during the second quarter, we have made the strategic decision to wind down our Footaction banner over the next two years and focus our resources on our iconic concepts: Foot Locker, Kids Foot Locker, Champs Sports and Eastbay.
We are currently in the process of assessing the Footaction fleet to determine the best decision for each location.
First, as we've discussed on prior calls, the flexibility we have with respect to our portfolio management will allow us to take advantage of a number of lease expirations over the next two years.
Second, we plan to convert approximately one-third of the top-performing Footaction locations into new Foot Locker stores, establishing a bolder women's and kids presence as well as new Champs Sports and Kids Foot Locker stores.
We are excited about the opportunities to expand our women's and kids presence within our Foot Locker and Champs Sports banners.
But a decision like this is never easy.
Through their contributions, we've gained valuable learnings and consumer insights.
As we look ahead, we see this as an opportunity to strengthen our global portfolio of brands, increase our value to our shareholders and vendor partners and ultimately position Foot Locker, Inc. to better serve our consumers in a post-COVID marketplace.
As part of our broader brick-and-mortar strategy, we will also continue to flex our powerful and expansive real estate portfolio to our advantage to accelerate our pivot off-mall, while continuing to invest in our community and Power Store assets.
We also intend to grow the Champs Sports homefield concept, with extended assortment for men's, women's and kids that will expand to include lifestyle and performance categories.
It truly speaks to the power of this category and our consumers' appetite for cool, premium product.
For over a year now, we have been tested by the COVID pandemic and have prevailed as a leader in our industry.
Most importantly, COVID has taught us to innovate, to move faster and to go above and beyond for our consumers as we strive to inspire and empower youth culture.
Many parts of the world are still dealing with lockdowns due to emerging COVID variants and the uneven vaccine distribution.
We continue to feel that impact on our business in Europe and Canada, where roughly 230 stores are temporarily closed.
That said, there's a lot to be excited about right now in our business and industry.
Trends and momentum are strong.
Our strategic direction and focus have never been sharper.
Our financial position is in excellent shape and our bench of talent is deep.
I'm confident in our team's ability to take advantage of the many opportunities we see as the year progresses and the world continues to recover.
With that, let me pass it over to Andy.
I'm looking forward to the partnership ahead.
Throughout the quarter, we remain focused on our strategies to strengthen our competitive advantages, while reinforcing our existing relationships and bringing new consumers into our business.
We did that by building on three key areas of strength: Our product leadership and diversity; continuing to create a pipeline of new products, new brands, new categories and new ideas to excite our consumers; our omni experiences, utilizing our global scale and investments to enhance and further connect the digital and physical journey for our consumers; and our commitments to our communities, being of the community and in the community, and personalizing our relationships to make a meaningful impact on our consumers' lives.
All of that was evident in the first quarter as we delivered new products, new content and new experiences to delight our consumers.
In total, all our families of business were strong.
Our footwear business increased over 70%, while our apparel and accessory businesses were both up triple digits.
Both families of business also increased as compared to 2019.
The strength in footwear was broad-based with gains across all regions, led by North America and Asia Pacific.
Similarly, we saw strong double-digit increases across men's, women's and kids' footwear, with our women's business driving the largest gain.
By category, men's basketball continued to see healthy momentum, delivering a high double-digit increase led by the Jordan brand, key Nike icons and some compelling new initiatives by Puma and Reebok.
Additionally, we brought new consumers into the business with an increased focus on our seasonal category.
This helped to drive a triple-digit increase with gains in UGG, BIRKENSTOCK and new brand introductions, including Crocs.
Meanwhile, men's running increased strong double digits, led by the key franchises of Max Air, Adidas Nomad, Puma RS-X and strong momentum in our partnership with New Balance.
It was also a strong quarter for our apparel business, which was up triple digits compared to the first quarter of last year and up double digits versus the first quarter of 2019.
Men's and kids led the way up triple digits, while women's increased strong double digits.
The casualization of society remained the catalyst for our business, and we saw all major categories increase, with shorts driving the largest gain with momentum across many brands, including our own.
And across all product areas, our customers continue to respond well to elevated storytelling, with our consumer concept offense delivering exciting exclusive programs.
These included, City to the World from Nike, and All Day I Dream About Sneakers with Adidas, which both feature unique versions of their respective iconic silhouettes.
We also partnered with We Need Leaders and New Balance to pay homage to the leaders of the street running movement, and we created some fun with our Sesame Street and Champion collaboration.
Looking ahead, there's a lot coming to market to keep our consumers engaged.
The culture of basketball remains strong with new launches from Adidas, Puma and New Balance bringing further dimension to the category.
We are continuing our seasonal expansion with UGG, Crocs, Converse and Vans, and we have a very strong pipeline of ideas and inventory in apparel to maximize the ongoing momentum in the category.
And we will continue to enhance our storytelling in Q2 through our celebration of the 25th anniversary of the Griffey 1 with our Nike concept and our second installment of All Day I Dream About Sneakers with Adidas.
We also have exciting collaborations in the pipeline with the likes of Kids of Immigrants and Vans, Louis de Guzman and New Balance, and Puma and White Castle, to name a few.
Beyond product, I also remain enthusiastic about our community initiatives and how we continue to lead with purpose and extend our community stores across the globe and expand our local geo teams to ensure that we are more deeply rooted in the neighborhoods we serve.
That includes local experiences, local products and local give back.
And we continue to bring this to life with the openings of Foot Locker and Kids Foot Locker in Old Spanish Trail in Houston and Champs Sports in the Oakbrook Mall in Chicago.
We also continue to fuel the future of our industry for the next generation of creators through our greenhouse incubator and our homegrown and lead initiatives.
On the latter, in addition to our work to advance education and economic opportunities for the black communities we serve, we have also established partnerships with 45 new black-owned brands and creators to provide a platform to showcase their design collaborations this year.
Next to that, we also continue to invest in growing our membership and enhancing our consumer journey through the geographic rollout of FLX and adding millions of new members to our business in Q1, expanding our dropship initiative, elevating our mobile app experience, enhancing our buy online and pickup in-store journey, providing new payment options and much more, all to better serve our consumer.
So a lot of work against our key strategic initiatives as we continue to push our consumer offense forward.
It's a combination of product leadership and diversity, our enhanced omni capabilities and our focus on community and purpose that will keep us moving forward and strengthen our relationship with our consumers.
Let me now pass the call over to Andrew.
It is my pleasure to join you today to discuss our first quarter results.
As a consumer of this brand, Foot Locker always stood out to me as a source of inspiration and empowerment of youth culture.
Now as a member of the Foot Locker family, this is more evident than ever, and I see that passion in all that we do.
In my short time with the company, my observations have reaffirmed my belief that this is a very special organization, one that is positioned for ongoing success and value creation.
It's no secret that the retail environment is rapidly changing.
The pandemic has only accelerated the change.
Everything from the customer journey, the process of discovery and the magnitude of digital engagement has evolved and intensified.
It's clear to me that our team is focused on key initiatives that amplify the consumer experience across all of our touch points.
Supporting our transformative initiatives is our financial position, which is as strong as it's ever been and will allow us to remain opportunistic as we pursue our strategic plans.
No doubt, there are challenges that stand before us, as well as key strategic decisions, such as the rationalization of our real estate portfolio that Dick mentioned earlier.
But as we continue to emerge from the pandemic, our objectives will center around executing our growth strategy, amplifying our unique value proposition to our consumers and vendor partners and returning value to our shareholders.
Let me say once again: I'm glad to be here working with Dick and the broader team, and I look forward to sharing more as we continue to evolve the omnichannel retail experience for our consumers.
Before we get into the numbers, I'd like to note that in addition to comparing our results to last year, I will also reference comparisons to the first quarter of 2019 where it's helpful.
Now let's talk about our performance in the first quarter.
We delivered exceptionally strong top and bottom-line results in Q1, especially when considering the impact the pandemic continue to have on our operations.
Our comp sales increased 80.3% in spite of store closures in Europe and Canada and supply chain pressures in the U.S. and EMEA.
The combination of robust demand for our assortment and lean with fresh inventory composition led to significantly lower levels of promotional activity this quarter.
As a result, we had strong gross margin recovery compared to Q1 of 2020 as well as expansion versus Q1 of 2019.
This, coupled with leverage on our SG&A expense, drove a meaningful swing in first quarter earnings per share versus last year's loss and a nearly 30% increase over Q1 of 2019.
Taking a closer look at our results.
Total sales increased 83% over last year and 3.6% over Q1 of 2019.
On a constant currency basis, sales increased 79% over Q1 of 2020.
The strength was primarily driven by our stores, which increased 99%.
Let me remind you that our fleet was open 83% of potential operating days in the quarter versus 48% last year.
While our U.S. and Asia Pacific banners were essentially fully opened, EMEA and Canada continued to face pressure due to COVID restrictions, opened roughly 39% and 75% of potential operating days, respectively.
Our direct-to-consumer channel remained quite healthy as well, with sales up 47% as customers truly embraced our omnichannel offering.
DTC was 25% of total sales for the quarter compared to 31% last year.
Despite being much less promotional, average selling prices were down low single digits in the quarter, while units nearly doubled.
The decline in ASP was driven primarily by product mix.
We had a higher level of apparel and accessories in our mix this year versus last year.
In general, apparel and accessories carry lower ASPs than footwear.
In addition, we lapped last year's strong digital performance, which was heavily penetrated in footwear.
Clicking down to our regions.
North America saw impressive growth nearly across the board, led by Champs, where comps increased triple digits.
The rest of the U.S. banners follow with comps up over 90% and Foot Locker Canada posted a low 70% gain as it contended with store closures as we previously discussed.
Eastbay was up middle single digits for the quarter, which was an improvement from recent trends.
The gradual return to group sports participation sparks sales of hard goods and team performance products.
Recall, that unlike our other banners, Eastbay did not comp against store closures last year.
Foot Locker Asia delivered a triple-digit comp gain, while Foot Locker Pacific increased in the mid-90% range.
Despite extensive COVID restrictions, Foot Locker Europe still posted a high 30% comp increase.
Sidestep, which experienced the most store closures, decreased in the high teens.
Encouragingly, the direct businesses remained very strong for both banners.
Moving down the income statement.
Gross margin was 34.8% compared to 23% last year.
When compared to a more normal Q1 2019, gross margin improved 160 basis points.
Our merchandise margin rate improved 250 basis points over last year and 80 basis points over 2019, as the meaningful reduction in markdowns more than offset the higher freight expense that comes with increased penetration of digital sales.
Looking ahead, we expect the promotional environment to remain favorable through most of the year, but to a lesser extent than what we experienced in Q1.
As a percent of sales, our occupancy and buyer's compensation returned to more normal levels versus last year's abnormally high rate.
Inclusive of approximately $5 million of COVID-related rent abatements in the quarter, our occupancy costs leveraged 80 basis points over Q1 of 2019.
Our SG&A expense rate came in at 19.4% of sales in the quarter, as our strong sales results provided us with 750 basis points of leverage over last year and 60 basis points of leverage compared to 2019.
In addition to careful expense control, we received approximately $10 million in government subsidies, which partially offset nearly $2 million of incremental PPE expense and 90 basis points of higher bonus expense.
For the quarter, depreciation expense was up slightly to last year at $45 million.
Net interest expense increased $1 million compared to last year due to lower levels of interest income on our cash balance.
We previously disclosed, given the considerable improvement in credit markets, we amended our credit facility, which will result in lower fees moving forward.
Our tax rate came in at 28.7% versus 22% in Q1 last year.
We ended the quarter in a strong liquidity position with over $1.9 billion of cash, an increase of $951 million as of the end of Q1 last year.
Our higher inventory turn and slower receipt flow rate was a significant source of cash, building upon the cash we accumulated through our preservation efforts last year.
We currently have no outstanding borrowings on our $600 million credit facility.
At the end of Q1, inventory was down 30% compared to last year.
However, keep in mind that at the end of Q1 2020, our inventory was up 20%, which was due to the elevated store closures resulting from the pandemic.
We expect our inventory levels to begin building back up in Q2.
We invested approximately $51 million into our business during the quarter.
This funded the opening of 12 new stores as well as the remodeling or relocating of 15 stores.
We also closed 58 stores in the quarter, primarily in the U.S., leaving us with 2,952 company-owned stores at the end of Q1.
For the full year, we now expect to open approximately 160 stores, remodel or relocate 120 and close 240.
These amounts reflect the Footaction stores we plan to close or reposition in 2021.
Looking ahead, we are tracking toward approximately $275 million in capital expenditures this year, in line with our prior guidance.
In terms of shareholder returns, we paid out $21 million in dividends this quarter and repurchased approximately 620,000 shares for $34 million.
Given the ongoing uncertainty of the pandemic and its continued impact on our visibility across our global portfolio, we are not providing detailed guidance at this time.
However, the following directional considerations for Q2 and the full year may be helpful.
For the second quarter, looking at sales, keep in mind that our comps were up nearly 19% last year in what is historically our lowest volume quarter of the year.
This was due to pent-up demand, high promotional activity and government stimulus.
Due to delays in inventory receipts in Q1 of the current year, some sales have shifted into Q2; and as a result, we expect Q2 total sales to be relatively in line with last year.
With respect to gross margin, given the level and freshness of our inventory, we expect less promotional pressure on merchandise margins as compared to Q2 last year.
Please keep in mind that we face a $6 million headwind for rent abatements we obtained in Q2 last year.
Compared to the second quarter of 2019, we expect to see some modest gross margin expansion.
With respect to SG&A, bear in mind, our strong Q2 sales last year helped to provide leverage beyond our expense management efforts.
We anticipate SG&A to be elevated compared to 2020 as we lap the unique elements that benefited Q2 last year, including $17 million in government subsidies and reduced store operating costs.
Given our strong start to fiscal 2021 and assuming a continued recovery from the pandemic, our current high-level expectations for the full year are as follows: total sales to increase at a low double-digit to low teens rate over fiscal 2020; meaningful gross margin expansion over fiscal 2020, largely reflecting a more rational promotional environment.
When compared to fiscal 2019, we expect to see modest gross margin improvement.
SG&A rates to be roughly in line with fiscal 2019.
Looking at our non-GAAP tax rate, for the full year, we expect it to be lower than fiscal 2020 but somewhat higher than fiscal 2019.
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Chosen response:
foot locker q1 non-gaap earnings per share $1.96.
q1 non-gaap earnings per share $1.96.
q1 earnings per share $1.93.
q1 same store sales rose 80.3 percent.
foot locker - in q2 2021, company decided to convert about one third of its footaction stores into other existing banner concepts over course of year.
co will close majority of remaining footaction stores as leases expire over next two years.
not providing detailed full-year 2021 guidance at this time.