Prompt:
Human: Speaking on the call will be Ocwen's chief executive officer, Glen Messina; and chief financial officer, June Campbell.
We believe these non-GAAP financial measures provide a useful supplement to analysis of our financial condition and an alternate way to view certain aspects of our business that is instructive.
Non-GAAP financial measures should be viewed in addition to and not as an alternative for the company's reported results under accounting principles generally accepted in the United States.
These statements are based on currently available information and reflect our current estimates and assessments.
The company has not finished its fourth-quarter financial closing procedures.
There can be no assurance that actual results will not differ from our current estimates and assessments, including as a result of fourth-quarter financial closing procedures and any such differences could be material.
Let's get started today on Slide 3.
We're really energized by the great progress we've made across the company.
We've executed an incredible business transformation.
We're a better balanced and more diversified mortgage originator and servicer.
We're stronger, more efficient, and better aligned with future market opportunities.
We've concluded our strategic review and are excited to announce an expansion of our strategic alliance with Oaktree Capital with their investment in OFC Holdco notes.
We believe our alliance with Oaktree can enable a level of growth and earnings per share accretion, and potential value creation that we cannot achieve on a stand-alone basis, as well as, support the refinancing of our corporate debt.
In the fourth quarter, we continued to improve profitability.
We delivered record growth in originations and we continued to reshape and diversify our servicing portfolio.
As we look ahead, we believe we are well-positioned to capitalize on potential future growth opportunities in multiple market segments and we're focused on executing five straightforward operating objectives to drive improved value for shareholders.
Let's jump to Slide 6 to discuss the outcome of our strategic review process.
Our expanded strategic alliance with Oaktree marks the conclusion to our strategic review process that we announced in May 2020.
The objective of our strategic review was to maximize long-term value for Ocwen's shareholders.
Our review of alternatives which was overseen by our board and with the support of Barclays and Credit Suisse was fulsome and robust.
Our outreach was aided by our public announcement of the strategic review process which also resulted in inbound increase by parties not included in our initial outreach.
Now we had discussions with numerous parties and all options were considered.
And at the end of the day, there were really no actionable change of control or merger opportunities that emerged from these discussions.
In the absence of a change of control transaction, we believe we need to accelerate our originations and servicing growth, and address the upcoming corporate debt maturities to maximize our value as a stand-alone company.
We concluded through our strategic review that our ability to increase the leverage of the total company using the assets of the operating company was limited by a number of factors, including proposed regulatory requirements that may increase capital and liquidity requirements for nonbank mortgage companies.
So to address our growth and refinancing objectives with these constraints, we focused our structured financing solutions that would provide incremental capital to accelerate our growth and position the company to successfully refinance our upcoming corporate debt maturities without encumbering the assets necessarily of PHH, our operating company.
We're excited to announce that we've executed definitive agreements with Oaktree for $250 million in incremental capital through Holdco notes issued by Ocwen Financial Corporation.
This is our holding company and this incremental capital is in addition to our joint venture with Oaktree MAV.
When combined with MAV, we expect the over $460 million in capital provided by Oaktree can enable us to potentially increase our earnings per share by 65% or more once the proceeds are fully invested.
We believe the Holdco notes also support our corporate debt refinancing on more favorable terms while increasing capacity for secured financing and share repurchases.
Now for these reasons, the board found the Oaktree offer to be the most compelling opportunity to enable a level of growth, earnings per share accretion, and potential long-term value creation that we could not achieve on a stand-alone basis.
We believe the Oaktree investment enhances our ability to compete and prosper, as well as, demonstrates their confidence in and commitment to Ocwen's long-term success.
Yes, starting with the Holdco notes.
These are structured with the collateral package limited to a second lien on the assets of OFC, the holding company.
There is no lien on the PHH assets or guarantees from PHH.
This is a substantially reduced collateral coverage and more deeply subordinated position in our capital structure versus our existing high-yield notes.
The limited collateral package and deep subordination enables us to treat the proceeds from the Holdco notes that gets contributed to PHH, our operating company, as equity.
And we expect this will increase our ability to leverage the assets of PHH with first lien debt and secured financing.
You know this deeply subordinated position in our capital structure relating to the Holdco notes does translate into pricing that's close to equity.
The Oaktree notes have a face value of $285 million with a $35 million original issue discount for net proceeds of $250 million.
The coupon is 12%, plus about 2% for the effective annual cost of the OID.
In addition, Oaktree will receive warrants for 12% of the fully diluted shares of Ocwen.
In terms of use of proceeds, we intend to use $100 million of the proceeds to pay down and support the refinancing of our existing corporate debt in a concurrent refinancing transaction.
We expect less restrictive covenants, eliminating amortization, and relative to existing corporate debt, extending the maturity with an expected tenure of six years on the Holdco notes.
Concurrent with the refinancing, we'll pay off our existing corporate debt per their respective terms.
The remaining $150 million in proceeds from the Holdco notes will be used to support our on book growth objectives through MSR purchases and funding a portion of the MAV investment.
We do expect the incremental capital in the operating company will allow us to improve the terms of our existing MSR financing which can create up to about $75 million in additional capital from our existing MSRs.
The proceeds from Oaktree will come in two tranches.
The first tranche is $175 million and that will come in concurrently with the closing of the corporate debt refinancing.
The remaining $75 million will come in concurrent with the closing of MAV.
Moving on to MAV.
As we announced in December, we formed a partnership joint venture with Oaktree Capital to launch an MSR asset vehicle.
This vehicle will purchase MSRs.
Oaktree will own 85% and Ocwen will own 15%.
You know, MAV expects to leverage up to $250 million in capital that will be contributed by Oaktree and Ocwen, respectively, based on our relative shares to purchase MSRs and this will be leveraged up roughly one for one with secured MSR financing.
So that gives us the capacity for up to about $60 billion in MSR UPB.
Now PHH will be the sole provider of originations, subservicing, and recaptured administrative services to MAV.
And Ocwen will also earn MSR investment returns on its capital contribution and from profit sharing on returns in MAV above 12%.
Now MAV is expected to close in the first half of 2021, subject to GSE and regulatory approvals.
In terms of benefits, MAV supports our servicing and subservicing growth objectives on a capital-efficient basis and will help generate increased cost efficiency through increased origination and servicing scale.
Moving on to Slide 8.
In terms of the financial impact of the Oaktree investment in Ocwen, we estimate that a -- on a combined basis, the Holdco notes and MAV can contribute up to $78 million in annualized pre-tax income from full deployment of the capital provided by these two structures.
We estimate full deployment of the proceeds can generate roughly $5 per share in incremental earnings on a fully diluted basis.
This translates to over a 65% increase above our potential baseline earnings per share range which assumes an after-tax ROE range of roughly 10% to 15% on about $414 million of equity.
Using a PE multiple range of some of our peers of roughly 4 times to 6 times forward earnings, the potential incremental value creation is roughly $20 to $30 per share.
This is a 7 times to 10 times multiple of the potential book value per share dilution, assuming the warrants are fully issued and the corresponding increase to our equity from the proceeds related to issuing the warrants.
The incremental investment capital will allow us to further expand our originations activities and expand our participation in the bulk purchase market.
We expect to source roughly up to $200 billion in incremental total volume over the next couple of years.
And again, it's estimated to source up to $200 billion in incremental volume over the next two years.
The total growth in volume will allow us to grow our total subservicing portfolio to roughly $300 billion by the end of 2022, assuming the NRZ subservicing contract does not renew.
So again, strong growth in the servicing portfolio resulting from the originations.
We believe it's a great time to invest in MSRs.
Pretax cash IRRs in our MSRs generated in December were about 12% before MSR financing, that translates to roughly 18% after MSR secured financing.
Now in addition, we'll continue to opportunistically evaluate M&A transactions to expand our originations and servicing capabilities which might provide enhanced returns versus MSR investments.
These estimates are based on the judgment of management and based on our current assumptions which may be subject to change based on market and industry conditions, among other things.
Look, the bottom line here is, we're really excited about our alliance with Oaktree and the opportunity it provides to enable a level of growth and earnings per share accretion and potential value creation that we could not achieve on a stand-alone basis.
Moving on to Slide 9, maybe a little bit about the fourth quarter.
So look, during 2020, we demonstrated exponential total volume growth, total cost improvement and built a scalable and efficient platform to support our future growth.
Adjusted pre-tax profitability was up roughly 15% in the fourth quarter over the third quarter despite declining origination margins.
Annualized adjusted pre-tax profitability has improved over $380 million over the second-quarter 2018 baseline for Ocwen and PHH combined.
Our multichannel origination platform continued to deliver really strong results.
Flow origination volume in the fourth quarter was up 49% over the third quarter and up over 7 times as compared to 2019.
So again, just really great performance by the originations team.
And as we talked about earlier, we're focused on accelerating our growth trajectory in 2021.
Yeah, we are focused on driving efficiency in our operating expenses.
And as a result of that efficiency and our continuous cost improvement, operating expenses are down 44% over the second-quarter 2018 baseline for Ocwen and PHH combined.
That's over a $400 million cost reduction.
So again, just great performance by the team in really rethinking and reimagining our business infrastructure.
You know, we're disappointed that settlement discussions with the CFPB did not resolve this matter and especially since we've resolved all state regulatory actions filed against Ocwen in 2017.
We engaged with the bureau in good faith throughout the course of mediation and numerous related discussions and took all actions in an attempt to reach a fair and reasonable resolution.
We increased our legal and regulatory accrual related to the CFPB matter by $13 million in the fourth quarter, resulting from our efforts to resolve the matter in mediation.
We remain steadfast in our belief that the CFPB's claims regarding Ocwen's past servicing practice are unsubstantiated and the bureau settlement demands do not reflect the merits of this case.
While we remain committed to attempting to resolve the matter prior to trial, our pending motion for summary judgment which was filed on June 5th, 2020, supports our position on this matter, and we expect to continually -- continue to vigorously defend ourselves going forward.
Look, it was a great quarter, the fourth quarter, a great year in 2020, and I could not be proud of the team of what they accomplished.
Yeah, moving to Slide 10.
Maybe a little bit about the originations platform.
We delivered a record total volume of $30 billion in the fourth quarter.
It translates to roughly an annualized run rate of about $60 billion from our flow channels and about $60 billion annualized from bulk.
Total volume for 2020 was $59 billion versus $26 billion last year, so we've doubled total volume.
Full-year flow and co-issue originations were up 8 times over last year.
Full-year bulk and subservicing adds were up over 48% as compared to last year.
Our correspondent and flow seller base increased about threefold since the fourth quarter of 2019.
You know, all of our channels delivered strong double-digit growth quarter over quarter.
As I mentioned before, cash yields and MSRs continued to be very strong, and our portfolio replenishment was exceptional.
In addition, in the fourth quarter, we were awarded multiple subservicing contracts with projected volume of $16 billion to $24 billion that we expect will board in the first and second quarter.
Now margins as well continued to contract in the fourth quarter.
We had expected that.
The average margins fell to about 56 basis points versus our expectation of 77 basis points for Q4.
This is really solely due to higher-than-expected third party volume.
Margin compression by each channel was actually slightly less than expected.
Again, here, great performance by our originations and capital markets teams and I believe we've got more room to grow.
We'll talk about that in a minute.
Turning to Slide 11.
Our servicing platform continued to deliver very strong performance in the fourth quarter.
Our servicing leadership team is doing a great job of driving continued improvement in efficiency and effectiveness and helping customers navigate through the crisis.
Our call center continued to outperform the MBA reported industry averages.
Our key claims metrics also continued to perform with nearly 100% effectiveness.
We continued to invest in technology to lower unit costs, improve performance for investors and enhance the customer experience.
Despite almost all of our people working remotely, we've continued our unparalleled track record of helping homeowners in need.
In 2020, we provided forbearance relief for over 180,000 consumers and we completed about 40 virtual borrower outreach events to reach consumers potentially impacted by the pandemic.
The strength of our originations have allowed us to grow our servicing portfolio slightly in the fourth quarter.
And we achieved roughly a 50-50 mix of owned servicing and subservicing.
Again, here, I'm really proud of how our servicing team has transformed their operation.
All our hard work over the last two years really positions us well for profitable growth, leveraging a scale -- a scalable and efficient platform for 2021.
Turning to Slide 12.
In 2021, looking ahead, the market, we expect the total originations will be down roughly about 17%, with much decline in the second half of the year.
You know Black Knight is reporting that there's still about 16 million to 17 million borrowers who are eligible for refinancing which should continue to drive the refi market in the near-term.
As well, the millennial generation is driving significant growth in the number of first-time potential homebuyers which should, long-term, also bode well for the purchase market.
Our reverse origination platform is positioned to support the financial needs of our growing senior population by tapping into an estimated $7.8 trillion of untapped home equity.
Our special servicing expertise and track record of creating non-foreclosure outcomes for consumers, you know, positions us to support the roughly 1.8 million homeowners who are still on forbearance who may need loss mitigation assistance.
We estimate that roughly 85% of these borrowers are delinquent and we further estimate that about 25% will need loss mitigation assistance.
We expect the increase in Ginnie Mae workouts as foreclosure alternatives will drive increased EBO, early buyout gain opportunities, in Ginnie Mae servicing, and the current low interest rate environment can create opportunities to drive increased realization of gains for executing call rights.
As most of you know, as rates rise, total industry volume will decline.
We also expect margins will contract and we've seen some of that this year.
However, rising rates can increase the value of our owned MSRs by extending duration and MSR amortization will slow as prepayments decrease.
The increase in MSR values, this rate rise will positively impact book value per share.
Turning to Slide 13.
You know, our focus for 2021 will be on executing five key business initiatives that we believe will help us capitalize on the opportunities that are available in the market ahead.
Those are accelerated growth, strengthen our recapture performance, improve our cost leadership position, maintain high-quality operational execution, and expand servicing revenue opportunities.
Yeah, from a regulatory perspective, we are monitoring and we'll continue to evaluate the impact that the Biden administration's key agenda items may have on our industry.
We'll also closely monitor -- be monitoring statements from the CFPB regarding any planned priorities or areas of focus.
And the President has already signed an Executive Order calling for various federal agencies to extend foreclosure and eviction moratoria, and the administration's enhanced stimulus plans could include additional protections with respect to forbearance and foreclosure, and eviction moratoria.
Any changes at the federal level will, obviously, be uniform across all competitors in the industry, and thus far, Ocwen alone, as well as, the industry has proven to be adaptable in a dynamic regulatory environment.
We expect the successful execution of our key initiatives will allow us to deliver positive GAAP earnings in 2021, with low double-digit to mid-teen after tax ROEs again by mid-2021, assuming no adverse changes in the market, industry or business conditions or legal and regulatory matters.
And June will take us through our road map for 2021 later.
And maybe I'd like to share a little bit more about each of these initiatives for 2021 on the next few pages.
Turning to Slide 14.
In 2021, our goal is to achieve over $100 billion in volume with the 40-60 mix of owned servicing and subservicing, respectively.
Our fourth-quarter run rate kind of puts us on track for those levels.
We focused on several actions to accelerate our growth trajectory by leveraging our multichannel platform.
Now we're targeting to grow our seller base again, over 450 sellers in 2021 to support our growth in correspondent and flow volume, as well as, performing and special subservicing opportunities.
We believe our broad portfolio of services, including subservicing, specialty servicing, MSR purchase through multiple delivery methods, provides a compelling value proposition.
We're also focused on expanding our product reach, so expanding our share in the Ginnie Mae market through correspondent, in the Ginnie Mae co-issue market and correspondent.
We're also working to introduce Jumbo and non-QM products, as well as, expanding our service to include best efforts and non-delegated delivery methods.
In subservicing, we're expanding our small balance commercial loan business.
That's begin to grow nicely for us.
And finally, MAV will allow us to expand our participation in the bulk market significantly which will help us create synthetic subservicing.
And finally, as I mentioned earlier, we continue to evaluate opportunities to enter higher-margin channels based on market conditions.
Now turning to Slide 15.
We continue to target achieving at least a 30% recapture rate for our recapture platform and we believe our recapture performance is only limited by our operating capacity to address available opportunities.
And our recapture team has consistently, over the last four or five quarters, grown our closings quarter over quarter and has marched up the recapture rate quite nicely, but we've still got more room to grow.
So we expect to increase staffing levels by over 40% through the course of 2021.
We're continuing to hire and train new team players in every position and intend to do so throughout the year.
We are focused on process and technology as well.
We're focused on helping new team players improve their productivity as they mature in their roles.
We're also driving continuous process improvement with our process improvement teams, leveraging our global workforce, and we're focused on implementing new technology to support expanding our capacity across the entire loan origination life cycle.
Yeah, moving to Slide 16.
We remain focused on driving productivity to improve our cost leadership position while maintaining high-quality operational execution.
We're targeting to reduce our servicing operating cost by roughly 2 basis points of UPB in this year and reducing corporate overhead expenses by roughly 1 basis points of UPB.
We're executing over 60 technology-enabled projects across the business to drive productivity, cost reduction, improved customer experience, and support growth.
We'll continue to focus on high-quality execution at our operations relative to comparative industry benchmarks to further improve our customer experience and create value for investors and clients.
And as we did in 2020, we stand ready to support consumers in need of forbearance relief and loss mitigation assistance as they come off forbearance.
On Slide 17, finally, we're focused here on several actions aimed to expand our servicing revenue opportunities.
We're preparing for a surge in loss mitigation related to expiring Ginnie Mae forbearance plans.
We expect this will also create a potential surge in early buyouts and modification related redelivery gains.
We're tracking roughly $300 million in RMBS call right opportunities.
We expect roughly $125 million will be eligible to call in 2021 and we'll continue to evaluate the variables that impact eligibility and economics of executing these calls throughout the year.
And finally, we continue to evaluate opportunities to expand our capabilities in both forward and reverse servicing.
This is our fifth consecutive quarter of positive adjusted pre-tax income.
Revenue decreased quarter over quarter, driven primarily by lower NRZ subservicing fees, resulting from UPB transfer and runoff.
We've been awarded multiple subservicing contracts with projected volume $16 billion to $24 billion and closed approximately $15 billion of MSR bulk purchases which should largely offset the lost revenue.
MSR adjustment decrease is driven by fair value calibration for higher one-off which reduced the fair value of MSRs in the third quarter.
We also recorded $3 million of higher gain during the quarter, largely driven by higher MSR purchase volumes.
Operating expense improvement is from leveraging technology and productivity actions as we continued to invest in our originations platform.
Adjusted pre-tax income is $15 million, $2 million higher than prior quarter, as favorable MSR valuation and lower expenses offset lower revenue.
Notables in the fourth quarter include a $13 million additional CFPB accrual and $4 million in other legal accruals.
We had higher income tax expense during the quarter which excludes tax benefit on fourth-quarter legal accruals which we expect to recognize when paid in 2021 and fourth-quarter period adjustment to the CARES Act benefit for higher pre-tax income than previously estimated for the year.
We reported a GAAP net loss of $7 million, $2 million improvement over prior quarter and after the $13 million of additional CFPB accrual I previously mentioned.
Our balanced business model is operating well.
Originations growth and profitability is replenishing the servicing portfolio and offsetting one-offs.
On the left side of the slide, you can see that our multichannel platform is fueling strong originations volume with growth up 164% quarter over quarter.
Servicing originated volume is up almost 4 times quarter over quarter, driving strong replenishment of 267%.
Adjusted pre-tax income was $35 million, $2 million lower than the prior quarter as higher volume was offset by expected margin normalization and $5 million of investment in our platform.
On the right side of the slide, our servicing segment is demonstrating strong performance through the refinance cycle, delivering improved results quarter over quarter.
UPB runoff is being replenished through newly originated servicing and subservicing despite a $16 billion transfer of the NRZ portfolio previously terminated in 2020.
We have a strong subservicing pipeline with our top 15 prospects at approximately $85 billion, with additional opportunities from MAV.
We continue to optimize our cost structure through rigorous process redesign and increased automation, driving improved efficiency.
Our total exposure to loans on forbearance continues to diminish and tracks favorable to our forecast.
You can see on the left that both the total number of forbearance plans and the forbearance plans where we have ultimate responsibility to advance continue to decline.
As the chart reflects, there's a significant difference between total forbearance plans and the amount where we have ultimate responsibility to advance.
This is a function and a benefit from our strategy to maintain a mix of owned servicing and subservicing.
On the upper right chart, you can see that our owned servicing portfolio is performing favorable to other nonbank servicers in terms of percent of loans on forbearance.
We are seeing roughly 53% of our borrowers on maturing forbearance plans reinstate and 40% extend.
Roughly 4% have progressed to loss mitigation and we are awaiting decision for direction from the borrower on about 3% of plans that have matured.
Our expectation is roughly 75% of borrowers on forbearance will reinstate and less than 25% will need some form of loss assistance.
We ended the quarter with $285 million in liquidity.
We have made significant investments in bulk MSR market opportunities and originations during the quarter.
We invested $190 million in cash before financing to fund $25 billion of MSR originations, $18 billion higher than the prior quarter, largely driven by opportunistic bulk MSR acquisitions.
Our originations generated strong cash-on-cash unlevered yields of approximately 12% across all channels.
Servicing advances continue to track favorably and actual advances were 29% lower than forecast.
Lower advance originations were largely driven by higher prepayments and more forbearance plans performing.
We're focused on our five operating objectives, as highlighted by Glen earlier to achieve our profitability goals.
We expect to generate positive GAAP earnings in 2021 with low- to mid-teen after-tax ROE by mid-2021.
This page is a road map to achieving these results broken down by operating objectives in originations, servicing, and corporate segments.
I won't go through the details on the call here today, but please let me know if you'd like to review at another time as we have to go through the details.
You know, wrap up, let's turn to Page 24.
As I said at the onset, I'm just energized about the opportunities and our potential for 2021 and beyond.
We've radically transformed Ocwen.
It's a better balanced, diversified mortgage originator and servicer.
Our strategic alliance with Oaktree can provide almost $0.5 billion of incremental capital to enable a level of growth, earnings per share accretion, and potential value creation that we could just not achieve on a stand-alone basis.
We're stronger, more efficient, and better aligned to future market opportunities as a result of all the hard work of the Ocwen global team.
We're delivering record growth in originations and we continue to reshape and diversify our servicing portfolio.
As we look to the opportunities ahead, we believe we're fairly well-positioned to capitalize on the potential future growth opportunities in multiple market segments.
You know in 2021, we're focused on executing five straightforward objectives to drive improved value for shareholders and achieve our goal of low double-digit to mid-teen after-tax return on equities by mid-2021.
And you know, none of this would be possible without all the hard work of our global Ocwen team.
 Assistant:

Chosen response:
ocwen financial - executed agreement with special purpose entities owned by funds and accounts managed by oaktree capital management, l.p.
ocwen financial - executed agreement with special purpose entities owned by funds and accounts managed by oaktree capital management, l.p..
ocwen financial - agreement with oaktree for a debt investment in co that would generate $250 million in proceeds.
ocwen financial - intends to utilize $100 million of proceeds from agreement with oaktree to pay down & support refinancing of existing corporate debt.


Prompt:
Human: Joining us today are: Brian Chambers, Owens Corning's Chairman and Chief Executive Officer; and Ken Parks, our Chief Financial Officer.
Refer to the Investors link under the Corporate section of our homepage.
Please reference slide 2 before we begin, where we offer a couple of reminders.
We undertake no obligation to update these statements beyond what is required under applicable securities laws.
I hope all of you on the call are staying healthy and safe.
Over the past year, I'm pleased to say that our team has consistently risen to the challenges that fundamentally impacted not only our businesses and markets, but the ways we work and live.
While many of those challenges continue to affect our daily lives, they are no longer unprecedented.
We've learned to be more agile to adapt and respond to changing market condition, demonstrating that strong execution and an uncompromising commitment to our people and our customers can drive exceptional performance even against this backdrop.
We certainly demonstrated this in the first quarter, delivering great operational and financial results by leveraging our market leading positions, unique product and process technologies and enterprise operating model to capitalize on strong or improving market conditions.
, before turning it over to Ken, who will provide additional details on our financial performance.
I will then come back to talk about our business outlook for the second quarter and share our perspective on key markets.
As always, I will begin my review at safety, where our collective focus remains working together to keep each other, our customers and our suppliers, healthy and safe.
During the first quarter, we maintained a very safe environment with an RIR of 0.64, which is in line with our full year 2020 performance.
More than half of our facilities across the globe have remained injury-free for more than a year.
Financially, we delivered record first quarter revenue of $1.9 billion, an increase of 20% compared with the first quarter of 2020, up 18% on a constant currency basis; and adjusted EBIT of $282 million, which is more than double what we reported for the same period last year and a record for any first quarter historically.
Our global teams continue to execute well, delivering outstanding financial results in a dynamic market environment, demonstrating the earnings power of our company.
Our performance during the quarter was driven by good volumes, broad price realization and strong manufacturing efficiencies across all our businesses, resulting in an adjusted EBIT margin for the company of 15%, with all three of our businesses posting double-digit EBIT margins for the third consecutive quarter.
During the quarter, we saw broad strength across many of our end markets.
Specifically, the US residential housing market continues to run at a robust pace, with both repair and remodeling activity and new construction growth driving strong demand for our products.
In addition, we continue to see many of our global markets as well as our commercial and industrial end markets improved throughout the quarter.
While market conditions have certainly turned more favorable, our operating priorities, investments and execution have positioned us to deliver these strong financial results.
Across the enterprise, we continue to invest in select growth and productivity initiatives to service our customers and improve our operating performance.
Within Insulation, we are investing in automation and process technologies to create a lower cost, more flexible manufacturing network in our residential insulation business as we commercially position ourselves to benefit from a strong housing market.
In addition, we continue to invest in new Insulation materials and systems in nonresidential applications to expand our global product offering.
In our Composites business, we are investing to grow in higher-value downstream applications, such as building and construction, wind energy and infrastructure.
And we remain focused on optimizing our low-cost manufacturing network to service key markets such as North America, Europe and India.
And in roofing, we continue to leverage our vertical integration model to develop innovative products and systems, while expanding our roofing components offering and strengthening our partnerships with contractors and distributors, to help grow their businesses with our products and brands.
All of this work is enabled by our enterprise operating model, which leverages our commercial strength, material science capabilities and global operating scale, to expand our growth opportunities, improve our operating efficiencies and generate strong free cash flow.
On the talent front, we recently announced the appointment of two great executives.
First, I'd like to congratulate Dr. Jose Mendez Andino on his recent promotion to Chief Research and Development Officer.
Material science research and product and process innovation are fundamental to what we do and how we deliver value as a company.
Jose will play a key role in leading our efforts to increase our innovation pipeline and ensure we are helping our customers win and grow in the market.
She joins us from Nordson Corporation where she served for 8 years, most recently as their General Counsel.
Gina brings more than two decades of experience working across multiple industries and will be a valuable partner to both me and our entire executive team.
Another highlight I would like to share is the recent publication of our 15th annual sustainability report titled, Beyond Today Shaping Tomorrow.
We began our sustainability journey nearly 2 decades ago.
And over the years, our goals have evolved and expanded well beyond environmental sustainability.
Today, they are built on three key pillars: expanding the positive impact of our products, reducing our environmental footprint and increasing our social impact.
We are proud of our progress and our accomplishments over the past decade across all of our 2020 sustainability goals, particularly our progress on climate action, where we have reduced absolute greenhouse gas emissions from our operations by 60% since our peak year despite adding several material acquisitions along the way.
In our recently published 2030 goals, we are committed to further reduce these emissions by another 50%.
This will result in 2030 absolute greenhouse gas emissions being 75% below our peak.
At the same time, we are also committed to a 30% reduction in our scope 3 emissions as we focus on making a positive impact throughout our supply chain.
Sustainability is core to our purpose and will continue to be an important driver and differentiator for our company moving forward.
As Brian commented, Owens Corning delivered outstanding financial results in the first quarter.
Strong top line growth, 400 basis points of gross margin expansion and continued operating expense discipline drove record first quarter adjusted EBIT, along with an adjusted EBIT margin of 15%.
The stronger earnings, combined with a continued focus on working capital management and capital investments, resulted in healthy free cash flow generation in the quarter.
While benefiting from market conditions that are broadly stronger than they were a year ago, continued solid execution across the business was fundamental to driving this performance.
As anticipated, we're managing a more inflationary environment, primarily related to materials and transportation.
Positive price realization and manufacturing productivity more than offset the inflation headwind in the quarter.
Maintaining this positive balance remains a focus as we move through this inflationary environment.
Now turning to slide 5.
We can take a closer look at our results.
For the first quarter, we reported consolidated net sales of $1.9 billion, up 20% over 2020 with double-digit revenue growth in all 3 segments, reflecting the robust US residential housing market and the continued strengthening of commercial and industrial markets.
Adjusted EBIT for the first quarter of 2021 reached $282 million, up $166 million compared to the prior year and was highlighted by all 3 segments continuing to deliver double-digit EBIT margins.
Adjusted earnings for the first quarter were $183 million or $1.73 per diluted share compared to $67 million or $0.62 per diluted share in Q1 2020.
Depreciation and amortization expense for the quarter was $119 million, up slightly compared to the prior year.
Our capital additions for the first quarter were $60 million, up $6 million as compared to Q1 2020.
We'll continue to be disciplined in our capital spending as we focus on delivering strong free cash flow and prioritizing investments that drive growth and productivity.
Slide 6 reconciles our first quarter adjusted EBIT of $282 million to our reported EBIT of $301 million.
During the quarter, we recognized $20 million of gains on the sale of certain precious metals.
Ongoing progress on our productivity initiatives and manufacturing process technology has enabled us to further modify the designs of our production tooling and reduce certain precious metal holdings.
In addition, we recorded $1 million of restructuring costs associated with the Insulation network optimization actions that we initiated in the fourth quarter of 2020.
These items are excluded from our adjusted first quarter EBIT.
Slide 7 provides a high-level overview of our first quarter adjusted EBIT comparing 2021 to 2020.
Adjusted EBIT of $282 million was a new first quarter record for the company and increased $166 million over the prior year.
Roofing and Insulation more than doubled their EBIT and Composites grew by 80%.
Before turning to the review of each of our businesses, I want to speak to the onetime financial impacts we had from the winter storms in February.
Each of our businesses faced operational disruptions related to the storms.
However, these were offset in each of the businesses by gains on renewable energy settlements.
As we discussed at the time of our year-end call, these impacts were contemplated in our first quarter guidance.
Now, turning to Slide 8.
I'll provide more details on the performance of each of the businesses.
The Insulation business executed well to deliver strong growth on both the top and bottom lines.
Sales for the quarter were $700 million, a 16% increase over first quarter 2020.
We saw volume strength across the business as US new construction continued to be robust, and many of the commercial end markets we serve globally continue to strengthen.
In North American residential Fiberglas Insulation, we continue to ship all we can produce as the US new residential market remains very healthy.
We saw volumes up in line with the expectations we had at the time of our last call and continue to see positive pricing as a result of the actions that we've taken over the past three quarters.
I'm happy to share that we started up our batts and rolls lines in Kansas City in February and continued to ramp up production as we move through the quarter.
In technical and other insulation, we saw volume up across the business with our highly specified products, continuing to see growth in demand in North America and Europe.
Pricing continues to be stable, and we saw a benefit from currency translation in the quarter.
For the Insulation business overall, good execution in our manufacturing operations partially offset continued transportation headwinds and accelerating material inflation.
We delivered margins of 12% and EBIT of $82 million more than double the $39 million of EBIT in the first quarter of last year.
The Composites business had a strong start to the year.
Sales for the first quarter were $559 million, up 13% compared to the prior year.
Stronger-than-expected volume growth in the quarter resulted from demand for downstream applications serving the building and construction and wind markets as well as demand in key geographies where our local supply for local demand model is being valued by customers and drove higher volumes compared to the prior year.
We also saw positive price realization in Composites, resulting from our most recent contract negotiations and the strength of the markets.
Operationally, solid manufacturing performance offset headwinds from material and transportation inflation.
For the quarter, Composites delivered $79 million of EBIT and EBIT margin of 14%.
Slide 10 provides an overview of our Roofing business.
The Roofing business produced its strongest first quarter top and bottom line performance as we continue to operate in a sold-out environment.
Sales in the first quarter were $711 million, up 28% compared to the prior year.
The US asphalt shingle market grew 26% for the quarter as compared to the prior year with our US shingle volumes, slightly outperforming the market.
We're seeing strong realization on our announced price increases and price costs remained positive as asphalt deflation continued to narrow through the quarter, and we started to face into transportation inflation.
Similar to the other 2 businesses, strong manufacturing performance was a fundamental element of the Roofing business results.
For the quarter, EBIT was $156 million, up $92 million from the prior year, achieving 22% EBIT margins.
Turning to Slide 11.
I'll discuss significant financial highlights for the first quarter and full year 2021, continued discipline around management of working capital, operating expenses and capital investments resulted in strong cash flow.
In addition, we didn't experience the seasonal working capital build that we typically see in the first quarter of the year due to robust demand across our businesses.
Free cash flow for the first quarter of 2021 at $120 million, up $264 million compared to the first quarter of 2020.
It was a record for a first quarter.
During the first quarter of 2021, we repurchased 1.6 million shares of our common stock and returned $197 million of cash to shareholders through stock repurchases and dividends.
With the strong cash performance and last year's deleveraging activities, we maintain a solid investment-grade balance sheet and are operating within our target debt to adjusted EBITDA range with ample liquidity.
At quarter end, the company had liquidity of approximately $1.7 billion, consisting of $605 million of cash and nearly $1.1 billion of combined availability on our bank debt facilities.
We remain focused on consistently generating strong free cash flow, returning at least 50% to investors over time and maintaining an investment-grade balance sheet.
Now, turning to 2021 outlook for key financial items.
I'll point out that there are no changes from our initial outlook provided in February.
General corporate expenses are expected to range between $135 million and $145 million.
Capital additions are expected to be approximately $460 million, which is below expected depreciation and amortization of approximately $480 million.
We continue to focus on opportunities to support our businesses at a sustained lower level of capital intensity over time.
Interest expense is estimated to be between $120 million and $130 million.
And we expect our 2021 effective tax rate to be 26% to 28% of adjusted pre-tax earnings and our cash tax rate to be 18% to 20% of adjusted pre-tax earnings.
We're closely monitoring potential changes to the US tax landscape and will be proactive to mitigate the long-term effect on our cash tax rate.
Our first quarter performance provided a strong start to the year.
As we look forward, we expect the US residential repair and remodeling and new construction end markets to remain robust with our commercial and industrial markets continuing to strengthen.
While the COVID-19 pandemic continues to create market uncertainty, our teams are performing at a high level, producing results that demonstrate the earnings power of our company and position us well to continue building on this outstanding performance.
Given the strength of our key markets and our continued operational performance, we expect the company to generate another quarter of significant revenue and earnings growth in the second quarter versus prior year.
Consistent with prior practice, I'll focus my business outlook comments on our expectations for Q2.
In each business, we expect prior year comparisons to be impacted by pandemic-related market responses, which affected our production and volume shipments last year.
Starting with Insulation, we continue to see strength in new U.S. residential construction.
Given the decline in North American residential Fiberglas Insulation shipments last year during the second quarter, we expect those sea shipments to grow about 25%, with pricing continuing to improve from realization of our April increase.
Given our outlook for inflation, we have also recently announced an 8% price increase effective June 28.
In our technical and other building insulation businesses, we are seeing volumes recover to pre-COVID levels.
In the second quarter, we expect our volumes to be up mid-teens as we see increasing demand for our products in global building and construction applications.
Pricing in these businesses is expected to remain relatively stable to slightly up.
In terms of inflation, we expect material and transportation cost increases we faced in Q1 to continue in a more meaningful way in the current quarter, partially offset by ongoing strong manufacturing productivity.
Additionally, we anticipate benefits of approximately $30 million from better fixed cost absorption on higher production volumes.
Given all this, we expect EBIT margins to improve sequentially, approaching mid-teens for the quarter.
Moving on to Composites; we expect our volume growth to continue at a strong pace, up approximately 30% versus the prior year.
Pricing is also expected to improve low to mid-single digits year-over-year.
Margins should benefit from the reversal of roughly $30 million of curtailment cost we saw in the second quarter of 2020.
Consistent with the broader industry trend, inflation will represent a more meaningful headwind for the business, which we would expect to partially offset through productivity gains.
On a sequential basis, EBIT margins in Q2 are expected to be similar to the first quarter.
And in Roofing, we expect the market to be up between 15% and 20%, with our volumes up mid to high single digits.
We anticipate our volume growth will trail the market growth due to the strength of our shipments in Q2 of last year.
Roofing pricing is expected to improve with the announced increase of 5% to 7% that was effective at the beginning of this month.
From an inflation standpoint, we expect to face more significant headwinds in asphalt cost and other material inputs, particularly resin used in our components business.
Given this, we have recently announced an additional price increase of 4% to 6% effective in mid-June.
Overall, we expect EBIT margins to increase sequentially from Q1, approaching mid-20%.
With that view of our businesses, I'll turn to a few key enterprise areas.
Our team remains committed to generating strong operating and free cash flow.
In terms of capital allocation, our priorities remain focused on reinvesting in our business, especially productivity and organic growth initiatives.
Returning at least 50% of free cash flow to shareholders over time through dividends and share repurchases and maintaining an investment-grade balance sheet.
In addition, we are also evaluating investments in bolt-on acquisitions that leverage our commercial, operational and geographic strengths and expand our building and construction product offering.
Overall, we are well positioned to capitalize on near-term market opportunities as well as several longer-term secular trends that provide multiyear growth opportunities, including the demand for new housing in the US which has been underbuilt for several years and continued remodeling investments as homeowners renovate their living spaces and upgrade their homes.
We are also seeing growing opportunities to benefit from the drive for increased energy efficiency in homes and buildings, a greater importance being placed on sustainability and material durability and additional investments being made in renewable energy and infrastructure.
Each of tease trends creates opportunities for Owens Corning to leverage our material science, building science and unique product and process technologies to partner with our customers and help them grow with additional products, systems and services.
As I noted at the beginning of today's call, our team is proud of the outstanding operational and financial performance we delivered in the first quarter and are excited by the opportunities we have to grow our company, help our customers win in the market and deliver value to our shareholders.
 Assistant:

Chosen response:
compname reports q1 adjusted earnings per share of $1.73.
q1 adjusted earnings per share $1.73.
qtrly consolidated net sales of $1.9 billion, an increase of 20% compared with 2020.
sees 2021 capital additions to be about $460 million.


Prompt:
Human: Throughout this past quarter, our global team has demonstrated tremendous resiliency, continuously adapting to changing market conditions and maintaining an incredible focus on taking care of each other, supporting our customers and maximizing our financial performance relative to the market opportunity.
Prith will then provide additional financial details on the second quarter, and then I'll come back to discuss our outlook for the third quarter and the remainder of the year.
I will start with safety and our second quarter results.
An unconditional commitment to safety has long been our guiding principle at Owens Corning, and this has served us well to address the challenges of COVID-19.
In the quarter, our recordable incident rate was 0.69, a slight improvement compared with the second quarter of 2019.
I'm pleased with this performance and that everyone has kept safety and caring for each other the forefront of everything we do.
Over the past several months, our executive team and dedicated COVID-19 response team have worked with our global enterprise to ensure our operations remain safe and effective for our employees, their families and other key stakeholders.
We remain vigilant in our use of personal protective equipment, health screenings, robust cleaning procedures, restrictions on business travel and work-from-home options as we actively monitor local health conditions and update our operating protocols as risk levels change.
I would like to now move to our financial performance in the quarter.
Through the strength of our market-leading businesses, innovative product and process technologies and unique enterprise capabilities, the company delivered financial results better than what we outlined during our last earnings call as we capitalize on a faster recovery in residential end markets, particularly in the U.S., improved manufacturing leverage and strong cost controls.
For the second quarter, revenues were $1.6 billion, down 15%, 14% on a constant currency basis compared with the same period last year, and adjusted EBIT was $167 million.
Since the start of the pandemic, we've been focused on four key areas to ensure the strength and continuity of our business.
First, keeping our employees and other key stakeholders, healthy and safe, as I just discussed.
Second, staying closely connected to our customers, our suppliers and our markets.
Third, rapidly adapting our businesses to near-term changes in market conditions, while remaining focused on positioning us for long-term success.
And fourth, ensuring a strong balance sheet with access to capital as needed.
I remain confident that by managing these four priorities well, we will continue to deliver strong performance for the remainder of this year and position the company well for 2021.
During this time of increased demand uncertainty, we have stayed closely connected with our customers and suppliers to understand and respond to shifting market conditions.
After experiencing a significant drop in order volumes at the start of the quarter, we continue to see our business improve in May and June as shelter-in-place restrictions began to lift, and demand for our products in most of our end markets increased.
As mentioned earlier, we have seen residential markets in the U.S. and also in parts of Europe recover at a faster pace than many had anticipated, which positively impacted our second quarter results.
In our Roofing business, after temporarily curtailing operations earlier in the quarter, we ramped up production to run at full capacity to service increasing demand.
And in Insulation, we have experienced solid demand in our North American residential fiberglass business due to the strong recovery in U.S. new construction housing.
Within most of our commercial and industrial end markets, the recoveries has been slower, and we continue to take the necessary actions to balance our production with expected near-term demand.
Given the essential products we provide and the localized nature of our supply chain, we've been able to operate our manufacturing network effectively and productively, quickly adjusting to the changing needs of our customers while managing our inventories.
In addition, our team has delivered great results during the quarter around cost control.
We have focused on minimizing or postponing discretionary expenses and reduced operating expenses in the quarter by over $30 million compared with last year.
We are also realizing benefits from the longer-term structural changes we made prior to the pandemic in our Insulation and Composites businesses.
In insulation, we are clearly seeing the impact of the network optimization actions implemented late last year.
And in Composites, we have maintained a consistent focus on manufacturing productivity and network optimization to lower our cost, which is evident in the results we delivered in the quarter despite the challenging market conditions.
We maintained a strong balance sheet with access to liquidity and a well-structured debt maturity profile.
While our financial position at the beginning of the quarter was strong, in May, we took advantage of favorable capital markets and successfully completed a 10-year $300 million bond issuance.
This, along with our working capital management and opex and capex controls, led to an increase in our available liquidity to approximately $1.5 billion, including almost $600 million in cash.
During the second quarter, we paid down $210 million on our existing revolving credit facility.
Our only near-term debt maturity is the remaining $150 million from our term loan due in February 2021.
Before turning it over to Prith to discuss our second quarter financial results in more detail, there's one other item I would like to highlight.
Last month, Owens Corning ranked number one on the 100 Best Corporate Citizens list for 2020, and is one of only a small number of companies that have earned this honor twice.
The list ranks companies in the Russell 1000 index for standout global environmental, social and governance performances.
We were honored by this recognition, which is evidence of our continuing commitment to integrate high ESG standards into all that we do.
We believe our commitment and that of the entire business community to improving environmental, social and governance issues is critical to addressing the extraordinary challenges we all face today with racial inequalities and other social injustices which have been compounded by the economic and health uncertainties associated with the COVID-19 pandemic.
These issues have and will continue to have a tremendous impact on how we work and live.
At Owens Corning, we believe in the power of our diversity and aspire to create an environment where all of our employees' voices are heard and appreciated for their unique value.
Our team has been and will continue to be active, vocal and promote meaningful reform.
As a company, I'm proud of our people, the work we've done so far and what I know we will accomplish in the future.
Through the collective agility and resilience of our 19,000 colleagues, Owens Corning delivered solid financial performance in the second quarter in the face of a challenging environment.
We have continued to respond to dynamic market conditions by adjusting production and maintaining discipline on operating expenses and capital investments throughout the quarter.
In addition, we have taken a number of actions to increase liquidity and reinforce our cash position, which gives us the financial strength and flexibility to navigate uncertainty caused by COVID-19.
The tables in today's news release and the Form 10-Q include more detailed financial information.
For the second quarter, we reported consolidated net sales of $1.6 billion, down 14% versus 2019 on a constant currency basis.
Revenues were down in all three segments as a result of the demand decline from COVID-19.
Although the recovery in residential end markets in the U.S., particularly in May and June, has been more robust than what many would have expected from the initial slowdown due to shelter-in-place restrictions.
Adjusted EBIT for the second quarter of 2020 was $167 million, down $64 million compared to the prior year, largely driven by a $61 million decline in Composites.
Net earnings attributable to Owens Corning for the second quarter of 2020 were $96 million compared to $138 million in Q2 2019.
Adjusted earnings for the second quarter were $96 million or $0.88 per diluted share compared to $141 million or $1.29 per diluted share in Q2 2019.
Depreciation and amortization expense for the quarter was $116 million, up slightly as compared to Q2 2019.
Our capital additions for the second quarter was $47 million, down $60 million versus 2019.
On slide six, you will see our adjusting items, reconciling our second quarter 2020 adjusted EBIT of $167 million to our reported EBIT of $171 million.
During the second quarter, we took actions to reduce personnel costs in our Composites segment and recorded $5 million of restructuring costs associated with these actions.
In addition, we recognized $9 million of gains on sale of precious metals used in our production tooling.
As we discussed in last quarter's call, our productivity initiatives and further developments in our manufacturing process technology have enabled us to modify the designs of our production tooling by reducing the precious metal needed and thus allowing us to sell certain precious metal holdings in the second quarter of 2020.
Adjusted EBIT of $167 million was down $64 million as compared to the prior year.
Roofing EBIT decreased by $3 million.
Insulation EBIT decreased by $10 million.
And Composites EBIT decreased by $61 million.
General corporate expenses of $19 million were down $10 million versus last year, primarily due to our disciplined cost controls.
Sales for the second quarter were $595 million, down $9 million from Q2 2019 on a constant currency basis.
During the quarter, our overall volumes were impacted throughout the segment by COVID-19, and selling prices were down $6 million year-over-year.
Within North American residential fiberglass insulation, sales volumes were largely consistent with Q2 2019 and some favorable price realization on the January price increase helped to partially offset negative price carryover from last year.
In technical and other building insulation, volumes were down.
However, we saw sequential improvement within the quarter.
We were encouraged by the resiliency of our mineral wool businesses in Europe and in the U.S., which maintained flat volumes year-over-year.
EBIT for the second quarter was $32 million, down $10 million as compared to 2019, primarily due to lower sales volumes.
We are continuing to proactively balance production with expected demand.
In the quarter, higher curtailment costs in technical and other insulation were largely offset by favorable manufacturing performance and better production leverage in North American residential fiberglass insulation, allowing us to see stronger results versus prior downturns.
Sales in Composites for the second quarter were $398 million, down 23% on a constant currency basis, primarily due to lower sales volumes.
The remaining decline in sales was driven by unfavorable customer mix and slightly lower selling prices.
Volumes in our downstream specialty applications, including wind and specialty nonwovens, outperformed volumes in other glass fiber applications.
EBIT for the quarter was $6 million, down $61 million from the same period a year ago, primarily due to lower sales and production volumes.
The negative impacts from production curtailments were slightly offset by manufacturing productivity improvements in the quarter.
The benefit of lower transportation costs was more than offset by lower selling prices and negative foreign currency translation.
Despite these difficult global market conditions, the Composites business still delivered positive EBIT margins and strong cash flow performance in the quarter due to continued focus on operating performance and initiatives around costs and productivity that we have discussed previously.
slide 10 provides an overview of our Roofing business.
Roofing sales for the quarter was $677 million, down 13% compared with Q2 2019 due to lower shingle volumes, $23 million of lower selling prices and lower third-party asphalt sales.
Our shingle volumes tracked relatively close with the overall U.S. asphalt shingle market.
We believe the market decline was driven by destocking at distribution early in the second quarter, coupled with lower out-the-door demand in April.
EBIT for the quarter was $148 million, down just $3 million from the prior year, and yielding 22% EBIT margins for the quarter.
The negative impact of lower sales volumes and early quarter production curtailments was partially offset by lower marketing and administrative expenses.
In addition, we realized a $10 million onetime gain that benefited our margins by 150 basis points related to an exclusion on certain tariffs paid over the last two years.
The U.S. government recently provided a tariff exclusion covering certain components products that we imported from China dating back to late 2018.
Input cuts deflation and lower transportation costs more than offset the negative impact of lower year-over-year selling prices.
As a result, we maintained a favorable price/cost relationship in the quarter, and cash contribution margins were solid as we exited the quarter.
Given the unpredictable market environment, we are continuing to take actions to manage our working capital balances and reduce both operating expenses and capital investments.
As a result, first half free cash flow in 2020 was $15 million higher as compared to the first half of 2019 on lower year-over-year earnings.
We are proactively managing inventories and will temporarily curtail operations that have adequate inventory to service near-term market demand.
We continue to be focused on managing our liquidity through this period of high uncertainty.
In May, we took advantage of favorable capital markets to reinforce our cash position and successfully completed a 10-year $300 million bond issuance with a yield below 4%.
We also generated cash in the second quarter through the sales of precious metals that I discussed earlier and cash settlements related to certain U.S. dollar-euro cross-currency swaps.
Near the end of the first quarter, we drew $400 million on the revolver to increase our cash balance.
With our good year-to-date free cash flow and the financial actions I described a moment ago, we paid down $210 million of the revolver balance in the second quarter.
As of June 30, the company had liquidity of approximately $1.5 billion, consisting of $582 million of cash and equivalents and nearly $900 million of combined availability on our revolver and receivable securitization facility.
As a result of the proceeding, we currently expect interest expense to be between $125 million and $130 million in 2020 compared to our previous guidance of $120 million to $125 million.
Moving forward, we are focused on ensuring a strong balance sheet with access to capital as needed.
We continue to evaluate the possibility of paying the remaining $150 million term loan balance in 2020.
As we move into the second half of the year, our financial performance will continue to be impacted by the depth and duration of the market disruptions caused by the COVID-19 pandemic.
Given the continued uncertainties we face with the pandemic and potential government responses, I'll focus my comments on our short-term outlook based on July trends that could impact the third quarter results for each of our three businesses.
I'll then close with my perspectives on a few key enterprisewide initiatives that will impact our full-year performance.
Broadly speaking, we have experienced a faster recovery in our residential end markets, while commercial and industrial end markets are following at a slower pace.
Given this continued recovery, we expect the company to generate sequentially higher revenues and earnings in the third quarter.
I'll provide some additional details by business, starting with Insulation.
Within our North American residential business, we saw the impact from shelter-in-place restrictions in the second quarter delay the completion of housing starts, creating a backlog, which will continue to be worked through in the third quarter.
We expect this backlog of work, along with normal seasonal increases, could lead to relatively flat volumes in Q3 versus last year, which we are seeing in our order book so far in July.
In our technical and other building insulation businesses, July volumes are down high single digits versus July 2019.
While we anticipate sequential improvement versus Q2, we expect year-over-year volumes will continue this trend through the third quarter based on a steady but slower recovery in commercial and industrial end markets.
Prices in July have remained relatively stable in both our North American residential and our technical and other insulation businesses.
Given market uncertainties, we continue to proactively balance production with expected demand and to tightly control our inventory levels.
Overall, for our Insulation business in the third quarter, we expect to realize incremental margins of approximately 50% versus the second quarter.
In Roofing, second quarter industry shingle shipments were down about 9%, with our volumes tracking relatively close to the market.
While we have seen positive momentum in recent months, we believe it will be difficult for demand, which has been delayed due to COVID-19, to fully recover in 2020.
Our July shipments have started the quarter higher than prior year.
Based on current trends, we could see market volumes up mid-single digits versus the third quarter of 2019, depending on storm volume and assuming states remain open.
While the current pricing environment has remained relatively stable, in the third quarter, we expect to continue to face an increasing year-over-year headwind from the lack of a spring price increase.
We have recently announced an August increase that could partially offset some of this impact.
Although there was a significant drop in oil prices in March and April, asphalt costs did not trend down at the same level.
Since then, WTI costs have steadily increased, resulting in asphalt costs beginning to increase as well.
While we do expect to realize additional asphalt deflation in Q3, low refinery utilization rates, combined with strong paving demand will impact asphalt cost as we move through the quarter.
Based on all these factors, Roofing EBIT margins in the third quarter could be slightly better than our second quarter margins, normalized for the 150 basis point benefit from the tariff recovery that Prith mentioned in his remarks.
In Composites, while we expect overall volumes to improve versus the second quarter, the global impact of COVID-19 is having a greater impact on demand than in our other businesses.
Our July volumes are down low double digits versus last year, and we expect this trend will continue in the near term.
Volumes in our specialty nonwovens business, which is primarily focused on building and construction applications, and our wind business have continued to perform better than some of our other industrial end markets such as automotive.
In terms of pricing, we came into the year expecting some headwinds due to contract negotiations completed at the end of last year.
Similar to other businesses, transactional pricing has remained relatively stable.
We reported a decline of $5 million in Q2 and expect a slightly higher impact in Q3 based on improving volumes.
We remain committed to tightly managing our inventory levels, which will continue to impact our manufacturing performance in the third quarter as we curtail production to meet demand.
Sequentially, from Q1 to Q2, we experienced decremental margins of about 35%.
With our current outlook of sequential volume growth, we expect incremental margins to be in a similar range in the third quarter.
With that view of our businesses, I'll discuss a few key enterprise focus areas.
We continue to closely manage our operating expenses and capital investments.
We expect corporate expenses for the company to be in the range of $105 million to $115 million and capital investments to be in the range of $250 million to $300 million, both broadly consistent with prior guidance.
We remain committed to generating strong free cash flow and to our target of returning at least 50% to investors over time.
So far this year, we have returned $133 million through share repurchases and dividends, and we'll pay our second quarter dividend of approximately $26 million next week.
As we move through the second half of the year, we will continue to evaluate our liquidity needs based on market conditions and prioritize deleveraging the balance sheet and maintaining our dividend.
As I stated at the beginning of the call, our current operating environment is extremely dynamic.
Our focus is on taking thoughtful, decisive actions, being responsive to the current conditions and quickly capitalizing on our market opportunities.
Our team remains committed to operating safely, servicing our customers and creating value for our shareholders.
 Assistant:

Chosen response:
compname reports q2 adjusted earnings per share $0.88.
q2 adjusted earnings per share $0.88.
q2 earnings per share $0.88.
q2 sales $1.6 billion versus refinitiv ibes estimate of $1.53 billion.
capital additions are estimated to be between $250 million and $300 million in 2020.


Prompt:
Human: Our unique investment strategy of clustering assets or our newest defense installation supporting national security activities continues to generate strong high-quality earnings.
Second quarter FFO per share as adjusted for comparability of $0.58 exceeded the high end of guidance by a $0.01.
It was driven primarily by same property results.
Additionally, NOI from real estate operations in the quarter was up 8% and AFFO increased 17% from a year ago.
Through the second quarter, we completed total leasing of 1.7 million square feet, which included 815,000 square feet of renewals, 205,000 square feet of vacancy leasing and 641,000 square feet of development leasing.
So far in the third quarter we've executed 53,000 square feet of development leasing and we are in advanced negotiations on another 250,000 square feet that should close this quarter.
Based on this activity we're highly confident we will achieve our 1 million square foot growth for the year.
Regarding our large renewal at DC-6, we have not finalized the lease yet.
We reached agreement on business terms in June and expected documentation would follow quickly.
The tenant is controlling the pace and progress of the actual lease document preparation and that process continues to labor.
Based on their deployment, power usage and the nature of other activities, we are conducting with them we have every confidence they will remain in our building.
During the quarter, we placed 197,000 square feet of development projects in the service including Project EL, 107,000 square foot specialized facility we built for a defense contractor in San Antonio.
We completed this project full quarter earlier than forecasted and we expect to deliver two additional projects ahead of schedule later in the year thereby accelerating lease commencements.
We expect to deliver NoVA C in 610 Guardian Way earlier than planned, which combined with Project EL are adding nearly $0.03 to this year's FFO per share.
Stronger same property operations and accelerated development completions drivers that once again increased the midpoint of our full year guidance for FFO per share as adjusted for comparability.
The $2.26 midpoint of updated 2021 guidance is $0.07 above our original midpoint and 6.6% higher than 2020 results.
Metrics and trends in our Defense IT Locations exhibit strength and we continue to capture strong demand as shown in our lease accomplishment to-date.
In the second quarter, we leased 1.4 million square feet including 661,000 square feet of renewals for a very strong retention rate of 89%.
Cash rents on renewals rolled up 0.1% and annual escalations averaged 2.6%.
For the 6-month period, we completed 815,000 square feet of renewal leasing with a 78% retention rate and average lease term of 4.3 years and cash rents rolling down 0.2%.
Late in the quarter, we learned that a tenant at Redstone Gateway did not win the recompete of a large contract and at the end of the year will vacate RG 1200, a 121,000 square feet building.
This will be our first opportunity in 10 years to demonstrate the strength of demand for second-generation space at the park.
We already have strong interest from multiple defense contractors looking to move to Redstone Gateway, including two that have 2022 occupancy requirements and want to gain control of the full building.
The strength of demand we continue to see demonstrates Redstone Gateway's position in the market as the essential location for serving government customers on Redstone Arsenal.
In terms of vacancy leasing, we completed 111,000 square feet in the quarter, representing 10% of our available space at the beginning of the period.
For the first half of the year, we completed 205,000 square feet of vacancy leasing.
Our leasing activity ratio is 105%, the highest level since well before the pandemic demonstrating continued growth in demand across our portfolio.
As such, we expect to accomplish healthy volumes of vacancy leasing in the remainder of this year.
Regarding development leasing, second quarter achievement was a robust 630,000 square feet and consisted of a 265,000 square foot data center shell in Northern Virginia for our cloud computing customer and 179,000 square feet at Redstone Gateway in the form of two major pre-leases with KBRwyle.
We also executed a 183,000 square foot build-to-suit at the National Business Park.
The tenant is a Fortune 100 company and an important defense contractor that provides secure infrastructure, artificial intelligence and cloud computing services to U.S. Defense and Intelligence agencies.
Their selection of the National Business Park for their local headquarters further reinforces the dominance of our location for serving the missions at Fort Meade.
So far in the third quarter we have executed a 53,000 square foot lease in 8000 Rideout Road with i3, a defense contractor that specializes in software engineering, systems integration and IT.
As a result, that project is now 73% leased and we are in advanced negotiations on leases that will stabilize the building.
Lastly, we are in advanced negotiations with a defense contractor for a two-building campus at Redstone Gateway for 250,000 square feet.
These leases would bring our total development leasing for the year to 950,000 square feet.
Based on the 1.8 million square feet of opportunities in our development leasing pipeline, we are highly confident we will meet our 2021 development leasing goal.
Second quarter FFO per share as adjusted for comparability of $0.58 exceeded the high end of guidance by $0.01 driven primarily by stronger same property results.
Lower operating costs due to effective expense management and the timing of R&M projects boosted second quarter same property cash NOI by nearly $0.02 above our second quarter forecast.
We expect to complete these R&M projects in the third and fourth quarters, which will impact quarterly same property cash NOI and FFO per share as shown on page 18 of the results deck.
That being said, for the second consecutive quarter, operating savings and better than expected leasing outcomes are pushing our same property cash NOI forecast higher.
We now expect same property cash NOI for the year to either be flat or increase as much as 1%, which at the midpoint is a 150 basis point increase relative to our original guidance.
We are maintaining our full year occupancy guidance of 90% to 92%, which continues to incorporate the negative impact of joint venturing fully occupied wholly owned datacenter shells to raise equity as well as the unexpected vacancy of the 121,000 square foot contractor building at Redstone Gateway in December.
In early June, we sold two data center shells to a new 90%/10% joint venture with Blackstone Real Estate, which generated proceeds of $107 million.
The assets were valued at $119 million, which represented a 48% profit and demonstrated the value we create through development.
Including three properties under development, we wholly own 10 data center shells that we estimate represent more than $750 million of equity value we can monetize to fund the equity component of future development.
Lastly, and for reasons already discussed, we are increasing our full year guidance from a previously elevated range of $2.19 to $2.25 to a new range of $2.24 to $2.28.
Our updated guidance range implies 5.7% to 7.5% growth over 2020 results and 6.6% at the midpoint.
It is important to note that early development deliveries are driving most of the increase to guidance and that the NOI from these developments expected in 2022 remains unchanged.
For the third and fourth quarters we are establishing ranges for FFO per share guidance as adjusted for comparability of $0.54 to $0.56 and $0.56 to $0.58 respectively.
The $0.55 midpoint in the third quarter reflects a full quarter's dilution from the two data center shells we joint ventured in June and executing additional R&M projects.
At mid-year, our FFO achievement has outperformed our business plan significantly.
This quarter's FFO result is the fifth time in the past six quarters that we exceeded our plan and the third time in which we elevated full-year FFO guidance.
Our key performance metrics such as vacancy leasing and development leasing are tracking at or above plan.
Clearly our strategy of concentrating investments adjacent to priority Department of Defense missions and creating value through low risk developments at these locations is delivering FFO growth and lowering our cost of capital.
Our strategy continues to provide over a million square feet of new development opportunities annually and by expansion, high value Defense IT assets that benefit our shareholders long term.
This year, our development capability excellence is not only delivering projects on budget and on time, in several instances we're completing projects ahead of schedule and accelerating our bottom line results.
Our property operations excellence is ringing out additional performance from our portfolio and improving our same property results.
Our highly durable operating portfolio, strong balance sheet and reliable, low-risk development program combined to create the very visible growth we are delivering.
We have a strong set of development and leasing opportunities before us and the balance sheet and access to capital to seize upon them.
 Assistant:

Chosen response:
compname reports second quarter 2021 results; raises midpoint of full year guidance by 4-cents, implying 6.6% growth in ffops, as adjusted for comparability.
q2 adjusted ffo per share $0.58.
total leasing of 1.4 million sf in quarter included 630,000 sf of development leasing.
sees fy ffops, as adjusted for comparability $2.24-$2.28.


Prompt:
Human: We had another outstanding performance in the third quarter earning $0.81 per share.
This reflects, several factors, our consistently growing repairing net income, our larger scale, our focus on increasing digital utilization and customer service differentiation, and Puerto Rico's nascent economic and post-pandemic recovery.
All this continues to validate our optimism on Puerto Rico's economy and OFGs future.
Our third quarter results confirm this across all businesses.
Total core revenues were $135 million, a 4% annualized increase compared to the second quarter.
Net interest income increased to $103 million, in part that benefited from a 17% decline in cost of funds.
Banking and financial services revenues rose 3%.
Provision for credit losses was a $5 million net benefit as asset quality continue to trend to levels closer to U.S. peer banks.
Non-interest expenses fell 5%, reflecting in part reduced credit-related expenses.
And pre-provision net revenues increased to $56 million from $52 million in the second quarter.
Looking at the September 30th balance sheet, customer deposits increased $154 million to $9.2 billion, reflecting even greater liquidity on the part of both commercial and consumer customers.
As a result, both cash and assets grew.
Loans held for investment declined $87 million.
Excluding PPP loan forgiven, they increased $5 million.
New loan origination remain strong at $556 million.
Ex-PPP originations now total more than $1.6 billion as of the nine months, that is up 69% compared to the same period last year and 79% compared to the same period in 2019 pre-COVID.
During the third quarter, we also successfully executed on our capital actions.
We acquired $40.2 million of shares as part of our current $50 million buyback program.
We increased our common stock dividend to $0.12 per share from $0.08 in the first and second quarters, and $0.07 in the year ago quarter.
And we completed our $92 million redemption of all preferred stock.
Please turn to Page 4.
At OFG, we believe better banking is built upon fulfilling our purpose, mainly helping our customers, our people and our communities achieve their financial well-being.
During the third quarter, for our customers, we continue to demonstrate our agility by launching the first digital residential mortgage process in Puerto Rico.
With one click, in just minutes, a customer can get a pre-qualification letter, access valuable information about the mortgage process and apply online all in one place.
We also quickly process forgiveness for our PPP customers.
We have now processed forgiveness for 91% of first and 25% of second loan PPP loans using our proprietary all digital system.
We believe faster, better solutions like these, show our retail and commercial customers the value of doing business with Oriental.
Online and mobile banking 30 and 90-day utilization levels continue well above pre-pandemic levels.
These continues to validate our long-standing digital strategy and its growing acceptance by our customers in the market in general.
For our people, we have decided on a mandatory COVID vaccination policy to keep our customers and people safe.
We have also implemented a hybrid work model to increase flexibility for our people.
And as we mentioned on the previous slide, we have increased the hourly base pay rate for non-salaried staff.
For our communities, PASH Global and Oriental closed on a $15 million financing for a joint venture between PASH and Puma Energy.
This is enabling 200 Puma gas stations in Puerto Rico to install solar panels to produce and consume solar energy.
This project is the first of its kind and scale on the island.
We have also been working on several new corporate social responsibility programs, one program launched in the third quarter is a farming developing program with the Puerto Rico conservation trust to help several communities achieve economic sustainability.
We are extremely proud of these achievements.
At the end of the day, there is nothing more rewarding them being part of a team that delivers on its purpose.
This quarter's overall performance energizes us at OFG to work harder and to aspire for more.
Now, here's Maritza to go over the financials in more detail.
Please turn to Page 5 to review our financial highlights.
Total core revenues were $135 million.
There is an increase of about $1.4 million or about 4% analogized from the second quarter.
This is as a result of positive impact of $1.8 million declining in cost of funds, a $1 million increase in core non-interest income and $800,000 increase from cash and investment securities and $730,000 as a result of one additional day.
This more than offset a $2 million decline from B2B loans and a $700,000 loan prepayment that benefited fee income in the second quarter.
The PCD decline was due to a combination of lower volume, mainly from mortgage pay down on lower rates.
Non-interest expenses totaled $79 million.
There is a decrease of $3.8 million from the second quarter.
The third quarter included a $2.2 million benefit in credit-related expenses.
This was mainly driven by gains on sales of real estate.
The second quarter included a $2.2 million technology project write down.
The third quarter also included a combination of increased compensation from hourly staff on our previously announced cost savings.
Overall, we continue to see recurring operating expenses in line with our previously announced plans for the year.
The higher revenues and lower net-interest expenses resulted in increased operating leverage.
The efficiency ratio improved to 58.6%.
This compares to 62% in the second quarter.
Our goal is to continue to improve our efficiency ratio to the mid to lower 50% range.
Return on average assets was 1.6%, return on average tangible common equity was 70.7%.
We continue to build capital.
Tangible book value per share was $18.59.
This is an increase of 3% from the second quarter.
Please turn to Page 6 to review our operational highlights.
Average loan balances totaled $6.5 billion.
There is a decline of $133 million from the second quarter.
This was due primarily to residential mortgage pay downs on PPP loan forgiveness.
In turn, this was partially offset by new commercial and auto loans.
The change in mix resulted in a 7 basis point decline in loan yields.
Higher levels of residential mortgage breakdowns reflected increased liquidity on the part of consumers.
Our residential mortgage portfolio consists of legacy Oriental mortgage loans and mortgage loans from the BBVA and Scotiabank acquisition.
Those are new origination worth $556 million, ex-PPP that is down $85 million from the second quarter, but it is up $109 million year-over-year.
We believe we are continuing to see generally a strong trends in mortgage, commercial and auto.
We continue to see increase in demand from commercial loans to expand business operations, with the new stores and warehouses, buying inventory or making acquisitions.
Commercial portfolio [Indecipherable] ex-PPP has increased two consecutive quarters.
Average core deposits totaled $9.1 billion.
There is an increase of 1.6% or $140 million from the second quarter.
Increases in non-interest bearing accounts, savings accounts and non-accounts were partially offset by the decline in customer CDs.
Core deposit costs continue to fall.
They were 30 basis points in the third quarter.
That is a reduction of 8 basis points from the second quarter.
This reflects general rate reductions and the continued maturity of older, higher price CDs.
As a result of the increase in deposits, average cash balances totaled $2.7 billion billion.
There is an increase of 7% or $180 million from the second quarter.
The average investment portfolio was $750 million that increased $100 million or 70% from the second quarter.
That includes the partial impact of $250 million of MBS purchases at the end of the quarter, taking advantage of market conditions.
Net interest margin was 4.12%, a decline of 10 basis points from the second quarter.
They increased amount of cash, reduced NIM by 6 basis points.
Our current strategy is to continue to look for opportunities to deploy excess liquidity through lending, capital actions for investments.
Please turn to Page 7 to review our credit quality and capital strength.
Asset quality metrics continue trend positively.
Our net charge-offs were 37 basis points.
Third quarter net charge-off of $6 million [Phonetic] included $6.5 million for our previously reserved amount on our commercial loans.
The early and total delinquency rates were 2.06% and 3.82% respectively, some of the lowest levels in the last five quarters.
The non-performing loan rates on the non-PCD loan portfolio was 1.93%.
It's lowest level in the last five quarters.
As a result of all of these, provision for credit losses was a net benefit of $5 million, that reflects $4.3 million of net reserve release.
Our allowance coverage was 2.82% on a reported basis and 2.88% excluding PPP loans.
The CET1 ratio remains high compared to our U.S. peers at 13.52%.
Stockholders' equity was $1.05 billion, a decline of $26 million from the second quarter.
This reflected the redemption of Preferred Stock Series D and the common stock buyback, a good portion of this was offset by the increase in [Indecipherable].
The tangible common equity ratio was 8.86%.
Please turn to Page 8 for our conclusion.
As I mentioned earlier, we had a strong performance this quarter at all levels.
Our performance and credit metrics continue to be equal to or better than Mainland peers.
We executed most of our stock buyback program in addition to increasing our common share dividend and redeeming our preferred stock.
Looking at the big picture, Puerto Rico continues to benefit from federal reconstruction and COVID stimulus.
But the relative economic impact here is more meaningful than in other U.S. jurisdictions, given the size of our economy and average incomes.
As a result, we continue to see incremental business sector optimism, confirming Puerto Rico's economic revival.
Our plan is to continue to take advantage of our momentum in this improved economic environment.
We intend to deploy excess liquidity for loan growth and/or capital return initiatives.
We also intend to accelerate the speed of our transformation, further simplify operations and improve efficiencies, all part of our effort to serve customers faster and better, while helping them achieve their financial well being.
We at OFG are more than ready.
Operation, please begin the question-and-answer session.
 Assistant:

Chosen response:
compname posts q3 earnings per share $0.81.
q3 earnings per share $0.81.