Prompt:
Human: Additionally, the content of this conference call may contain time-sensitive information that is accurate only as of the date hereof.
We do not undertake and specifically disclaim any obligation to update or revise this information.
As a reminder, Annaly routinely posts important information for investors on the company's website, www.
Please also note this event is being recorded.
Today, I'll provide an update on the broader market, our capital allocation trends, including credit activity, and our outlook.
Ilker Ertas, our head of securitized products will follow-up with specific commentary on our agency and hedging activity, and Serena will review our financial results.
And as Sean noted, our other business heads are also present to provide additional context during Q&A.
The primary themes, the dominated markets in the fourth quarter are largely consistent with our third-quarter narrative.
The Fed's monetary policy accommodation provided considerable support for risk assets and contained interest rate volatility.
This backdrop, coupled with active portfolio management, drove our strong performance to close out the year as we delivered an economic return of 5.1% for the quarter, ensuring a positive return for our shareholders for 2020 which is particularly notable given the historic disruption we all faced in March.
Now turning to the macro environment.
The yield curve bears steepened in the fourth quarter in light of optimism about the post-COVID economic recovery which outweighed the negative developments of record virus cases and the resulting lackluster economic growth to end the year.
We have seen a continuation of this rate move into 2021 largely due to the results of the January runoff election and democratic control of each branch of government, leading to greater prospects' further stimulus.
witnesses a meaningful recovery in labor markets and higher inflation readings.
Thus, the Fed is expected to continue purchasing assets at their current pace through 2021 while forward guidance will keep the front end anchored.
We do think the shift to higher longer-term rates will be gradual.
Nonetheless, it remains prudent to hedge the tail risk of a spike in rates as we'll discuss shortly.
Now to address how this landscape influences our positioning and capital allocation, monetary policy tailwinds maintain agency as the primary vehicle for reinvestment of portfolio runoff.
And we remain comfortable with the agency market for reasons Ilker will discuss, but the continued spread tightening does leave us cautious on higher levels of leverage.
Fiscal stimulus should ensure healthy consumer spending once the economy reopens more broadly and service consumption can resume which should be a constructive backdrop for credit.
Our allocation to credit marginally increased to 22%, as we began the fourth quarter at the lower end of our range.
And targeted opportunities, largely in residential credit and middle market lending modestly tilted the relative value equation back toward certain pockets of credit.
It should be noted, however, that risk assets continue to see strong sponsorship and associated spread contraction, given liquidity in the system, and optimism for a cyclical recovery which necessitates a very disciplined approach to asset selection as our investment teams consistently employed.
With respect to our residential credit business specifically, we found the unrated NPL and RPL securities sector attractive, as we discussed last quarter which drove much of the $400 million growth in our residential securities portfolio during the quarter.
Within the CRT universe, we have rotated our investments up the capital structure with a focus on very short spread duration assets that have strong deleveraging profiles in light of elevated prepayment speeds.
Spreads on our non-agency securities purchased in the fourth quarter have rallied over 100 basis points, given the strength of the market to date this year.
Although securities remain an important part of our portfolio as they provide opportunistic relative value, we were encouraged to see volumes once again gained traction within the non-QM loan market.
Our expanded prime whole loan effort continues to be a priority and we are focused on new strategic relationships to grow our sourcing capabilities which builds further optionality for us within residential finance.
Turning to middle market lending.
Activity picked up in the fourth quarter as liquidity reentered the sector and we were able to grow our portfolio nearly 10% to $2.2 billion.
Of the nearly $400 million of gross activity in the quarter, 80% was first lien and included both new and existing borrowers.
As discussed on recent earnings calls, our targeted investment strategy continues to differentiate our portfolio relative to our peers, and our middle market lending group's disciplined credit focus has proven itself out through strong fundamentals with underlying borrower LTM EBITDA, increasing by 14% on average since initial close.
We continue to maintain an active dialogue with our borrowers and sponsors, and our watch list performance improved by 43% this quarter, underscoring the health of our portfolio.
Our commercial real estate portfolio decreased somewhat quarter over quarter.
While we were able to resume origination activity this past fall, volume did not offset the $108 million in pay downs, as well as, an opportunistic sale in our healthcare portfolio.
The $150 million sale price for a portion of our skilled nursing facilities which closed in the fourth quarter, resulted in an IRR of 35% for the portfolio and then nearly 2 times equity multiple.
Now shifting to the financing of our portfolio which Serena will discuss in greater detail, I would just like to note that borrowing conditions that exist today are the best we've seen during the company's two-plus decade history.
The liquidity in the system has shifted the market advantage to the borrower, much more so than in past periods of monetary accommodation.
It's not just the absolute low level of rates, but also the flat term structure of the repo curve which signals the persistence of an ample borrowing capacity and also affords us the ability to fund agency MBS out a year inside of a mere 20 basis points.
Additionally, on the financing front, securitization markets have rebounded substantially, resulting in execution inside of pre pandemic levels.
This continued momentum provides attractive nonrecourse term financing to bolster our asset generation strategy and diversify funding for our whole loan business.
Now prevailing financing and securitization dynamics have made both balance sheet and structural leverage more attractive than capital structure leverage in the current environment as evidenced by our recent preferred stock redemption which was prudent from both the capital management and efficiency standpoint and follows a series of transactions since 2017 to reduce our cost of capital and preferred equity.
We have differentiated ourselves from others in the REIT sector by growing capital structure leverage more slowly and maintaining a relatively stable amount of total leverage on common equity which is important as we've seen a higher portion of capital structure leverage lead to higher volatility in returns, if not well managed.
Annaly is unique in that our size, expense ratio, and liquidity afford us the flexibility to manage our capital exclusively in an accretive fashion.
Proactive capital management remains a priority and we renewed our common stock repurchase program authorization following $209 million in repurchases in 2020.
Lastly, despite the attractiveness of balance sheet leverage and funding, we remain disciplined with respect to our overall leverage profile.
We've reduced leverage in each quarter since the end of 2019 through last year and maintained leverage at 6.2 times quarter over quarter, the lowest we've had since the first quarter of 2017.
We strive to deliver the highest risk-adjusted return for our shareholders and I'm confident our current risk construct is appropriate to yield book value and earnings stability going forward.
Now with that, I'll hand it over to Ilker to dive deeper into our agency portfolio activity.
As David mentioned, the agency portfolio had a strong quarter, supported by healthy investor demand, both low in-flight and realized interest rate volatility, and steepening yield curve.
Lower coupon TBAs were the strongest performing part of the agency market as they benefited directly from Fed purchases.
However, in contrast to prior episodes of QE, specified pools have also demonstrated solid performance.
Given the current elevated prepayment environment, the desire for more cash flow certainty and a strong bid for longer duration mortgage assets, we are seeing the level of pay-ups which stand higher rates and steeper curve experienced over the quarter and into 2021.
Apart from Fed, Agency MBS demand remains robust, led by notable appetite from commercial bank community.
In the current environment, banks are seeing strong deposit growth while C&I loan growth remains muted.
In fact, the loan-to-deposit ratio for the sector is the lowest we have seen in the past 50 years.
With deposits continuing to rise, banks have chosen to grow their securities portfolios which directly benefits MBS valuations and strengthens the specified pool market.
Looking at 2020 data, banks [Inaudible] set net bought over $1 trillion MBS in aggregate which was more than twice the available net agency supply last year.
Turning to composition of our MBS portfolio.
Our lower coupon holdings remain largely in TBAs while our higher coupons are predominantly improved.
This barbell approach maximizes liquidity and benefits from high levels of nominal care in the dollar roll market while providing cash flow stability across diverse interest rate environments from our pools.
Approximately, 86% of our pool portfolio consists of higher coupon quality specified pools which provides us with improved convexity and prepayment protection, while the remainder is mainly concentrated in seasoned pools, which are beginning to experience prepayment burnout.
The value of our asset selection is evidenced by the prepayment speeds on our portfolio of just under 25 CPR or roughly 10 CPRs slower than the MBS universe over the quarter.
In terms of portfolio activity, portfolio runoff was reinvested in lower coupon TBAs and we also rotated out of some of our higher coupon TBAs into specified pools.
On the hedging side, we added to our treasury features and swaption positions, mostly in the 10-year part of the yield curve which benefited from the steepening in the fourth quarter.
Hedging costs remain relatively inexpensive in this low rate and low volatility environment.
We also want to be positioned for further rising yields under the scenario, where optimism on the economic recovery leads to higher long end interest rates in the medium-term.
Given how well risk assets have performed since the second half of 2020, the agency reinvestment landscape is somewhat less attractive than earlier in the year.
However, our outlook for agency MBS remains constructive due to a number of factors.
First, the availability of attractive funding in the repo and dollar roll markets.
David addressed the repo market.
And as for rolls, as we forecasted on the last call, gross specialness has moderated somewhat with market being repopulated with new collateral beyond that, which has been delivered to Fed.
We still achieved a net negative financing cost for our TBAs over the quarter and we expect current production coupon rolls will remain modestly special over the near-term.
Secondly, we expect the technical backdrop of strong demand for agency MBS to persist over the course of this year given nominal carry and continued bank demand.
And finally, there is a -- there is potential for improved prepayment profile, resulting from steeper yield curve and very early signs of burnout in prepayments.
To expand on that point, we observed from recent data that the primary secondary spread is narrowing despite more than 75% of the universe having greater than 50 basis points of refinancing incentive.
In addition, average time to refinance loans has steadily increased from 40 days this past spring to almost 60 days as of late.
This suggests that [Inaudible] of easily refinanced target is decreasing for originators, requiring incremental efforts to find eligible borrowers.
So for the first time since last spring, the prepayment environment may not be as big of a headwind for higher coupon MBS.
As a final point, we note that we cannot look at Agency MBS in isolation.
During previous QEs, other risk assets like the MBS tightening and gave private investors opportunity to rotate into these asset classes.
In contrast, during the current QE, nearly all spread products tightened in line, if not more than agency MBS.
As a result, we remain constructive on the outlook for agency MBS.
Before I get started with the numbers, I just wanted to comment that December 2020 marks my first year with the company as CFO.
Over the year, the company performed exceptionally well given the challenges we faced.
Our results and performance during 2020 reinforced the reasons I was compelled to join the Annaly team which include our human capital, differentiated risk culture, and robust infrastructure built around the businesses in terms of finance, legal, technology, and other support functions.
During 2020, Annaly demonstrated a 23-year old company's steadfast nature while exhibiting an adept industry leaders agility.
So with that as a backdrop, today I'll provide brief financial highlights for the quarter ended December 31st, 2020 and discuss select year-to-date metrics.
As David mentioned earlier, the primary drivers of performance were an extension of themes from last quarter.
We took advantage of the interest rate and financing environment to generate strong results while prudently managing leverage.
To set the stage with some summary information, our book value per share was $8.92 for Q4, a 2.5% increase from Q3.
Book value increased on GAAP net income, partially offset by the aggregate common and preferred dividends of $344 million or $0.25 per share and other comprehensive loss of $215 million or $0.16 per share.
We generated core earnings per share, excluding PAA, of $0.30, a decrease of 6% or $0.02 per share from the prior quarter.
Our core earnings also represent 140% of our dividend and we saw back-to-back quarters of 13% plus of core ROE.
Combining our book value performance for the $0.22 common dividend we declared during Q4, our quarterly economic return was 5.1%.
We generated a full-year economic return of 1.76% and a total shareholder return of 2.43%.
While down compared to prior years, we are proud of our positive 2020 return given the unprecedented market conditions we faced earlier this year.
Delving deeper into the GAAP results, we generated GAAP net income of $879 million or $0.60 per common share for Q4, down from $1 billion or $0.70 per common share in the prior quarter.
GAAP net income decreased primarily due to lower realized gains on investments resulting from fewer agency MBS sales in Q4 versus Q3.
However, GAAP net income benefited from higher unrealized gains on interest rate swaps driven by higher rates.
Additionally, we recorded higher gains on other derivatives, largely futures, offset by lower gains in fair value option loans and securities, and lower interest expense on lower average repo rate, down to 35 basis points from 44 basis points, and lower average repo balances down to $65.5 billion from $67.5 billion.
Moving on now to CECL reserves.
In the current quarter, we continue to see a general improvement in market sentiment and the economic models we use in this process.
Total CECL and specific reserves were relatively consistent with prior quarters.
We recorded an immaterial increase in reserves, primarily associated with our commercial real estate business of $1.5 million on funded commitments during Q4, driven by an increase in specific reserves, partially offset by a decrease in the general CECL reserve.
Total reserves, net of charge-offs, now comprise 4.48% of our ACREG and MML loan portfolios as of December 31st, 2020, versus 4.56% as of the prior-quarter end.
We remain comfortable with our existing credit portfolios and the associated CECL reserve, and we'll continue to monitor specific asset performance and economic projections as we determine future reserves.
Turning back to earnings.
I wanted to provide more details surrounding the most significant factors that impacted core earnings quarter over quarter.
First, consistent with my commentary around GAAP drivers, interest expense of $94 million was lower than $115 million in the prior quarter due to lower average repo rates and balances.
TBA dollar roll and CMBS coupon income of $99 million was lower than $114 million for the third quarter due to slightly more modest specialness in the fourth quarter.
We had increased expenses related to the net interest component of interest rate swaps of $67 million relative to $63 million in the prior quarter as the swap portfolio reset to lower market receive rates and two high strike receive swaps expired.
And finally, we experienced a continued improvement in G&A expenses.
On the financing front, our all-in average cost of funds this quarter was 87 basis points versus 93 basis points in the preceding quarter.
The fourth quarter brought the full-year average cost of funds to 1.34% versus 2.25% in the prior year.
Our weighted average days to maturity are down, compared with the prior quarter at 64 days versus 72.
Our Q4 weighted average days, slight reduction compared to Q3, results from the natural roll down from our longer-duration repo trades we executed in prior quarters.
Our treasury group's view in the latter part of last year was that term curve would continue to flatten.
What I can tell you is that we set this view based upon the Fed's forward guidance on remaining at the zero lower bound into 2023, as well as, a meaningful increase in already abundant reserves in the system in 2021 from both continued QE and a drawdown in treasury general account balances.
As we've entered the new year, this view has come to fruition as one year bilateral term repo for agency MBS can be locked in, in the upper high-teens currently.
Consequently, we are beginning to add duration to our repo book this quarter.
Concerning credit financing, we see further improvement in repo terms for our credit securities with increasingly lower hiccups and tighter spreads.
We have also renegotiated our warehouse facilities to support our direct lending businesses proactively and have realized cost savings accordingly.
The portfolio generated 198 basis points of NIM, down from 205 basis points as of Q3, driven primarily by the decrease in average asset yields and reduced dollar roll income offset by the decline in the cost of funds that I mentioned a moment ago.
And as a management team, we focus on providing value to our shareholders, including a keen eye on the company's expenses.
Having said that, we continue to see improvements in our efficiency ratios, being 1.27% of equity for the fourth quarter in comparison to 1.32% in Q3 of 2020 and 1.62% for the full year, compared to 1.84% for the prior year.
The 2020 annual opex results are within the range of expected cost savings disclosed in Q1 with our internalization transaction announcement.
And I would reiterate the 1.6% to 1.75% opex target we disclosed last year as an appropriate benchmark.
And to wrap things up, Annaly ended the quarter with an excellent liquidity profile with $8.7 billion of unencumbered assets, consistent with prior quarters of $8.8 billion, including cash and unencumbered agency MBS of $6.3 billion.
Lastly, before we move on to Q&A, I thought I'd provide broader perspective in two areas.
First, there is an abundance of metrics that underscore a growing disconnect between valuations and fundamentals.
Broadly, market indices are reaching historical records and consensus calls for them to continue to rise.
The S&P 500 at 40 times earnings, high-yield credit, and the proximity of all-time tight spreads and the $81 billion of SPACs raised last year as liquidity has flowed further out the portfolio balance channel.
Annaly, however, continues to be a source of responsible yield in a market where it's increasingly challenging to deploy capital.
As I mentioned at the outset, the fundamentals are positive for Annaly investors with a low-cost, stable financing environment, an upward sloping yield curve, low interest rate volatility, and a strong supply and demand backdrop for our assets.
We've seen our book value continue to strengthen into 2021 and have outearned our dividend for the past few quarters.
We are delivering a dividend yield of over 10%, in line with our historical average while the S&P 500 earnings yield of 2.5% is the lowest it's been in the past decade.
Annaly represents one of few countercyclical or acyclical yield strategies that are less at risk to the pace of economic recovery.
Additionally, we provide equity portfolio diversification without sacrificing returns while money market funds are zero and real treasury yields are at near-record lows.
As unforeseen events will once again shift investors focused to fundamentals, balance sheet strength and earnings stability will be coveted.
Now secondly, we have talked about leading with purpose this year in response to the trying societal and economic climate that marked 2020.
And at Annaly, our mission is to utilize our capital to generate attractive returns and support the American homeowner.
To that end, we have kept our focus on the individual needs of our borrowers and supported government policies to extend forbearance periods.
We have also used our human capital to meaningfully contribute to the communities where we live and work.
Through our corporate philanthropy initiatives, we have focused on partnerships with high-impact programs that seek to combat homelessness, provide food security, and advance women and underrepresented groups in the workforce.
Annaly employees have volunteered their time and energy to serve vulnerable New Yorkers in their hour of need and our culture of responsible investment with respect to where we invest, both our dollars and time is something we're very proud of, and it has undoubtedly yielded considerable impact for our overall stakeholders.
And with that, operator, we can open it up to Q&A.
 Assistant:

Chosen response:
q4 gaap earnings per share $0.60.
core earnings (excluding paa) of $0.30 per average common share for quarter.


Prompt:
Human: Given our strong start to the year, we're pleased to announce an increase in our guidance for 2021 core FFO by approximately 6% from a range of $2.55 to $2.62 per share to a range of $2.70 to $2.75 per share.
Kevin will have more details on this increase in his remarks.
Turning to the highlights of our first quarter financial results.
Our portfolio of 3,161 freestanding single-tenant retail properties continued to perform exceedingly well.
Occupancy was 98.3% at the end of the quarter, which remains above our long-term average of 98% and while our occupancy rate ticked down 20 basis points from December 31, we're seeing impressive activity in our leasing department including interest by a number of strong national tenants in some of our vacancies.
We also announced collection of 97% of rents due for the first quarter as well as collection of 98% of rents due for the month of April.
Our impressive collection results continue to compare very favorably to other retail real estate companies, including those with a significantly higher percentage of investment-grade tenants.
The majority of the remaining uncollected rent in the first quarter was simply deferred rent that we expect to collect when the tenant's repayment obligation kicks in later this year.
Notably, we only forgave 0.1% of our first quarter rents.
Recently, our two largest bankruptcies were resolved in favorable fashion.
Chuck E. Cheese's affirmed all 53 of our leases, in exchange for a 25% temporary base rent reduction that will expire at the end of this year and Ruby Tuesday's affirmed 26 of our 34 leases, accounting for over 80% of our annual rent from Ruby Tuesday, again in exchange for a comparable temporary base rent reduction.
These impressive post-pandemic occupancy, leasing and rent collection outcomes have once again validated our consistent long-term strategy of acquiring well-located parcels, lease to strong regional and national operators at reasonable rents, while maintaining a strong and flexible balance sheet.
Although we continue to be prudent in our underwriting, we acquired 29 new properties in the quarter for just under $106 million, at an initial cash cap rate of 6.4% and with an average lease duration of 17.5 years.
Almost all of our acquisitions were from relationship tenants with which we do repeat programmatic business.
In an unsettled post-pandemic environment, where cap rates remain at all-time lows, we will continue to be very thoughtful in our underwriting and primarily pursue sale-leaseback transactions with our relationship tenants.
We also reported that during the first quarter, we sold 11 properties, raising $17.6 million of proceeds to be reinvested into new acquisitions and our balance sheet remains rock solid.
During the quarter, we issued $450 million of unsecured 30-year interest-only bonds at a rate of 3.5%.
Kudos to Kevin and his team for once again raising well-priced capital when it's available.
A portion of those bond proceeds were used to redeem our 2023 debt maturities.
So we ended the first quarter with $311 million of cash in the bank, a 0 balance on our $900 million line of credit, no material debt maturities until 2024 and an average debt duration of over 13 years.
Thus, we're well-positioned to fund all of our 2021 acquisition guidance with the available capital on hand.
That's up $0.06 from the preceding fourth quarter $0.63 and down $0.01 from the prior year's $0.70 per share.
Results for the first quarter included two nonrecurring type items totaling $5 million.
First, we collected $2.2 million of receivables from cash basis tenants that relate to prior quarters.
And second, we received $2.8 million of lease termination fee income, which is more than typical.
For context, full year 2020 was $2 million of lease termination fee income.
So these two items, totaling approximately $5 million, added just under $0.03 per share to our results.
Today, we also reported that AFFO per share was $0.76 per share for the first quarter, which is $0.07 per share higher than the preceding fourth quarter $0.69.
We did footnote this amount included $9.4 million of deferred rent repayment and our accrued rental income adjustment in the first quarter AFFO number.
Rent collections continue to drift higher.
As Jay mentioned, we reported today rent collections of approximately 97% for the first quarter, 98% for April rent collection.
Most notable collections from our cash basis tenants, which represent approximately $50 million or 7% of our annual base rent, improved to approximately 80% for the first quarter.
Previously, we projected these cash basis tenants would pay at their historical payment rate of about 50% of rent.
So improving to 80% added about $4 million of revenues in the first quarter versus our prior guidance.
As Jay mentioned today, we increased our 2021 core FFO per share guidance from the range of $2.55 to $2.62 per share to a range of $2.70 to $2.75 per share.
This incorporates the better-than-expected rent collections and the results from Q1.
The driver for the increase in full year guidance is the $5 million of first quarter nonrecurring items I previously mentioned and the assumed higher rent collection rates more in line with current collection rates.
So while we previously assumed 50% rent collections from the $50 million of cash basis tenant annual base rent, we are now assuming 80% rent collection.
So that incremental 30% amounts to $15 million for the full year and for the remainder of our tenants, we previously assumed 2% potential rent loss, and we now assume 1% rent of potential rent loss, which equates to approximately $6 million of improvement for the year.
So compared to prior guidance, current guidance incorporates approximately a total of $21 million in improved rent collection, plus $5 million of onetime items in Q1 or a total of $26 million, and that all equates to about $0.15 per share.
As Jay noted, we ended the fourth quarter with $311 million of cash on hand.
Nothing outstanding on our $900 million bank line.
We did execute a $450 million 30-year debt offering, with a 3.5% coupon on March 1, and used a large portion of those proceeds to pay off our $350 million of 3.3% notes due in 2023.
While time will tell, given where we are in the 40-year declining interest rate cycle, it felt like it was a good time to continue to push out debt maturities at these rates.
Our weighted average debt maturity is now 13.3 years, with a 3.7% weighted average fixed income interest rate.
Our next debt maturity is $350 million, with a 3.9% coupon in mid-2024.
So on very good liquidity and leverage position, I have no need to raise any additional capital to meet our 2021 acquisition guidance.
Net debt to gross book assets was 34.7% at quarter end.
Net debt-to-EBITDA was 5.0 times at March 31.
Interest coverage was 4.6 times and fixed charge coverage 4.1 times for the first quarter of 2021.
Only five of our 3,161 properties are encumbered by mortgages totaling about $11 million.
So 2021 is off to a good start as the economy and retailers seem to be catching wind in their sales from the several trillion-dollar stimulus injected by the government, which feels like it will continue into 2022.
Our focus remains on the long term as we continue to endeavor to give NNN the best opportunity to succeed in the coming years.
And Melinda, with that, we will open it up to any questions.
 Assistant:

Chosen response:
national retail properties sees 2021 core ffo per share $2.70 to $2.75.
qtrly core ffo per common share $0.69.
sees 2021 core ffo per share $2.70 to $2.75.


Prompt:
Human: Before discussing the details of this past year, I want to once again offer my sincere gratitude to all the associates at National Retail Properties for their hard work, perseverance, flexibility, collegiality, professionalism and dedication in 2020.
I could not be prouder of how this talented team worked tirelessly to create shareholder value and support each other during this past crazy year.
As I've said before, perhaps the best word to describe National Retail Properties is consistent: consistent investment focus on single-tenant retail properties; consistency of people and culture; consistently raising the dividend for 31 consecutive years; consistent conservative balance sheet philosophy that maintains flexibility and dry powder; consistent long-term tenant relationships.
And although our long-term track record of consistent per-share growth was disrupted in 2020 due to the pandemic, we remain committed to our multiyear business plan.
Highlights for National Retail Properties in 2020 include: increasing the common stock dividend for the 31st consecutive year, a feat matched by only two other REITs and by less than 1% of all U.S. public companies; raising $700 million of well-priced debt capital early in the year, which put us in a strong liquidity position as the pandemic began to spread and enabled us to end 2020 with $267 million of cash in the bank and nothing drawn on our $900 million line of credit; reaching collaborative rent deferral agreements during the early stages of the pandemic with a number of our relationship tenants, which solidified our relationships and set us up for future acquisition business; collecting 95.7% of our rents due for the fourth quarter and 89.7% of our annual base rent for the year 2020; supporting our associates and our community with programs and activities to advance associate well-being, employee engagement and community involvement; and lastly, enhancing our executive leadership team with the appointment of Steve Horn, a 17-year veteran with the company, as our Chief Operating Officer.
Let me now turn to some details about our fourth quarter and 2020.
As highlighted above, our rent collections continued to trend positive during the quarter, resulting in collections of 95.7% of fourth quarter rents.
For the year 2020, we collected just under 90% of rents due for the year.
And for the month of January 2021, we have collected approximately 95% of the rents due for the month.
These collection numbers compare very favorably with other retail real estate companies and are similar to the reported rent collections by companies with a significantly higher percentage of investment-grade retail tenants.
I'd also like to highlight that we forgave zero rent in the fourth quarter and only forgave less than 0.5% of our annual rents for the entire year.
Consistent with our long-term practice and multiyear business model, we do not anticipate reporting monthly rent collections in 2021.
Notwithstanding the impact of the pandemic, our broadly diversified portfolio of 3,143 single-tenant retail properties ended the year with an occupancy rate of 98.5%, which continues to exceed our long-term average of 98%.
Our high lease renewal rate also continued in 2020.
Approximately 80% of our expiring leases were renewed by the current tenants at approximately 100% of the expiring rent without material investment of lease incentive or tenant improvement dollars and with an average lease renewal term of over six years.
In our opinion, this impressive statistic validates the high demand for our well-located real estate sites.
A reminder that our tenants are typically large, well-capitalized, regional and national operators with the scale, financial wherewithal and management expertise to weather significant disruptions in the business environment.
Additionally, the majority of our properties are located in suburban markets, largely in the southern half of the United States, which have been somewhat less impacted by the pandemic than urban city centers.
We're pleased to see that many of our tenants' businesses are bouncing back more quickly than we had initially anticipated.
And as our relationship tenants return to growth mode in the fourth quarter, we ramped up our acquisition activities as well.
During the fourth quarter, we invested $102 million in 42 new single-tenant retail properties at an initial cash yield of 6.2% and at an average lease duration of 20 years.
For the year 2020, we invested a total of $180 million in 63 new properties at a weighted average initial cash yield of just under 6.5% and with an average lease duration of over 18 years.
An important strategic advantage of our business model is the long lease durations we achieve through our focus on sale leasebacks with our relationship tenants.
We also had an active fourth quarter of dispositions, selling 13 properties for $12 million.
And for the year 2020, we sold 38 properties, raising over $54 million of capital to be redeployed into our business.
Our balance sheet remains strong.
We ended the year with $267 million of cash in the bank and zero balance drawn on our $900 million line of credit.
Kevin will provide more details on the $120 million of equity capital we raised in 2020 via our ATM.
As we enter 2021, we're well positioned to take advantage of the right opportunities when they present themselves and/or weather further choppiness in the economy if that may occur.
Consistent with our long-term focus and culture, we approached guidance with a conservative mindset.
Although our portfolio continues to perform well and our relationship tenants are returning to growth mode, the pandemic is not yet behind us, and there may be additional turmoil in the economy ahead.
Kevin will review the details of our guidance in his remarks.
Looking ahead to 2021 and beyond, you should expect us to continue to adhere to the core strategic drivers of National Retail Properties' long-term success, including: first, a consistent focus on single-tenant net leased retail properties.
The real estate attributes of single-tenant retail properties are far superior to the attributes of other property types, and the universe of opportunities to acquire these properties remains vast.
Second, a broadly diversified portfolio of single-tenant retail properties that generates a stable, growing cash flow from long-term leases.
As noted above, our tenants are primarily large regional and national operators in lines of trade that provide customer services and e-commerce-resistant consumer necessities.
Third, a fortress-like balance sheet that provides us with the capability to withstand economic turbulence and positions us to be able to continue our long history of consecutive annual dividend increases.
Fourth, a relationship-oriented acquisition model that results in high-quality investments.
Our proprietary tenant relationships allow us to obtain higher investment yields, superior lease documents, longer lease duration and better quality real estate.
Fifth, an active asset management that focuses on maximizing the value of each individual property.
Our deep real estate expertise enables us to get the most out of our portfolio and to recycle capital through thoughtful, disciplined dispositions.
And last, but not least, a commitment to ESG, including a deep commitment to our team of great people in a supportive culture, which is the true backbone of our success.
Almost 3/4 of our associates have been with the company for at least five years, and approximately half have been with us for 10 years or more.
The executive leadership team averages almost two decades of tenure at the company.
That level of commitment to culture and institutional knowledge is invaluable.
We believe that as we continue to execute on these strategic drivers in the post-pandemic world, we will consistently deliver core FFO per share growth and outperform REIT averages on a multiyear basis.
That's up $0.01 from the preceding third quarter's $0.62.
And AFFO per share was $0.69 per share for the fourth quarter, which is $0.07 per share higher than the preceding third quarter's $0.62.
Additionally, we recognized $2.5 million of deferred rent repayment that was repaid in the fourth quarter and was included in calculating AFFO.
As Jay noted, occupancy was 98.5% at quarter end, up 10 basis points from the prior quarter.
G&A expense for the fourth quarter was 5.7% of revenues and -- for the fourth quarter and then 5.8% for the full year 2020, which is fairly flat with 2019's G&A levels.
Rent collections, as Jay noted, continue to improve throughout the fourth quarter.
Today, we reported rent collections of approximately 95.7% for the fourth quarter and 95% for the month of January 2021.
So we have seen steady incremental improvement on the rent collections front over the past eight months.
To be clear, these rent collection percentages are for the regular original rent owed for those respective periods, meaning that it does not include collections of previously deferred rent.
In the fourth quarter, we also collected, as I mentioned, $2.5 million of rent that was previously deferred, which represented approximately 100% of the deferred rent repayment that was due in the fourth quarter of 2020.
As we've previously noted as well, the majority of deferred rent is due in 2021, and the very early indications suggest good collection results for those deferred rents.
We have included on page 22 of today's supplemental, which is on our website, some disclosure on the amounts and timing of the anticipated repayment of deferred rent over the next couple of years.
At the end of the fourth quarter, we had approximately $50 million or about 7.4% of our annual base rent being recognized on a cash basis as a result of our estimation that it was not probable these tenants were going to pay substantially all of their remaining lease payments.
So this classification required us to write off all outstanding receivable balances for these tenants, which in the fourth quarter was $2 million of rent receivables and $5 million of accrued rent balances totaling $7 million or approximately $0.04 per share for the fourth quarter.
So without this noncash write-off, FFO results would have been notably better.
However, please note that despite this GAAP accounting write-off, we will be pursuing these receivables and ongoing rent payment with the usual vigor.
Rent receivables from cash-basis tenants totaled approximately $10 million as of December 31.
Again, these receivables are not reflected on our balance sheet.
Now over to receivables that are on our balance sheet.
First, rent receivables of $4.3 million were -- was fairly flat with September 30 levels and now very much in line with our pre-pandemic rent receivable levels of $3 million to $4 million.
These rent receivables include a general reserve of 16% or $835,000 at December 31.
Secondly, accrued rental income receivables decreased slightly to $54 million and had a general reserve of 11% or $6.9 million at December 31.
In the fourth quarter, we collected $2.5 million of previously deferred rent, which would -- reduces the accrued rental income receivable.
This collection of previously deferred rent is excluded from GAAP earnings, FFO and core FFO results.
We did note that -- what AFFO would have been if we had excluded the pandemic-related accrued rent, both via deferral and the subsequent repayment.
We have currently less than 1% of our annual base rent coming from tenants in bankruptcy, and that primarily consists of Ruby Tuesday today.
I will note, Chuck E. Cheese exited bankruptcy during the fourth quarter.
And while we agreed to a 25% rent reduction for 15 months ending December 2021, none of our 53 leases were rejected in bankruptcy.
As Jay noted, today, we initiated 2021 core FFO per share guidance of $2.55 to $2.62 per share.
While our rent collections materially improved throughout 2020, compared to many previous years, we have assumed there would be some continued uncertainty in this variable going forward into 2021.
$50 million of our $675 million of total annual base rent as of 12/31/2020.
We've assumed these cash-basis tenants pay 50% of the rent due in 2021 in our guidance, and that's relatively consistent with what they've been paying in recent months.
Additionally, on top of this, we have assumed 2% rent loss from the remainder of our annual base rent, which equates to about $12 million or $13 million in rent.
This rent loss or vacancy estimate is not made with any particular tenant concerns and on its face feels like a conservative assumption, meaning the actual rent loss could be better than guidance.
But given this is our first issuance of guidance in this pandemic, it seemed prudent to be more conservative than not.
And those of us -- those of you who have known us for the past 25 years are probably not too surprised by that approach.
We ended the fourth quarter with $267 million of cash on hand and no amounts outstanding on our $900 million bank credit facility.
We did not draw down our bank line as many companies did in 2020.
We raised $60 million of equity in the fourth quarter at just over $40 per share.
Our next debt maturity is in April 2023.
It's $350 million with a 3.3% coupon.
So we're in a very good liquidity position.
Our weighted average debt maturity is now 10.2 years with a weighted average interest rate of 3.7%.
So the balance sheet and our leverage profile remains very strong.
A couple of numbers.
Net debt to gross book assets was 34.4%.
Net debt-to-EBITDA was 5.0 times.
Interest coverage was 4.5 times and fixed charge 4.0 times for the fourth quarter of 2020.
Only five of our 3,000-plus properties are encumbered by mortgages totaling only $11.4 million.
So 2021 seems the beginning of where 2020 left off with sustained rent collection levels and incremental improvement in tenant health, which allows us to continue to shift to a more offensive posture.
As our focus remains on the long term, we will continue to endeavor to give NNN the best opportunity to succeed in the coming years.
And Matthew, with that, we will open it up to any questions.
 Assistant:

Chosen response:
compname reports qtrly ffo per common share $0.62.
qtrly ffo per common share$0.62.
qtrly affo per common share $0.69.
sees 2021 core ffo per share $2.55 - $2.62 per share.


Prompt:
Human: Joining me are Bill McDermott, our president and chief executive officer; and Gina Mastantuono, our chief financial Officer.
During today's call, we will review our third-quarter 2020 financial results and discuss our financial guidance for the fourth quarter of 2020 and full-year of 2020.
The guidance we will provide today is based on our assumptions as to the macroeconomic environment in which we will be operating.
Those assumptions are based on the facts we know today.
Many of these assumptions relate to matters that are beyond our control and changing rapidly including, but no limited to, the time frames for and severity of social distancing and other mitigation requirements, the continued impact of COVID-19 on customers' purchasing decision and the length of our sales cycle particularly for customers in certain industries.
We'd also like to point out that the company reports non-GAAP results in addition to and not as a substitute for financial measures calculated in accordance with GAAP.
All financial figures we will discuss today are non-GAAP except for revenues, net income and remaining performance obligations.
A replay of today's call will also be posted on the website.
I hope you and your loved ones are healthy and safe.
We continue to be ServiceNow strong in support of our employees and communities in these challenging times.
We also remain passionately focused on delivering for our customers, partners and shareholders.
2020 has brought unimaginable change to the world.
Companies have to operate in new and faster ways, pivoting their business models.
Everyone is adapting to new employee and customer expectations.
It's all about people.
Getting teams to collaborate across the enterprise is now more important than ever.
The workplace of the future will be distributed.
Managing complex digital workflows will be critical.
Enterprises need innovation without disruption.
It's clear that speed has become the differentiator.
ServiceNow is leading this once-in-a-generation opportunity to make work, work better for people.
And this is what we're seeing.
All value chains are being split apart.
They are being reformed into modern digital workflows across the enterprise.
More than $3 trillion have been invested in digital transformation initiatives.
But as IDC research shows us, only 26% of the investments have delivered meaningful ROI.
Massive investment is simply not creating massive change.
This is fueling the workflow revolution.
The missing link is integration.
Systems, silos, departments and processes must come together into holistic, cross-enterprise workloads.
The Now Platform unlocks this ROI by offering speed, agility and resilience.
Companies need it now.
It gives companies the ability to deliver at scale the experiences employees and customers demand.
That's the power of the Now Platform, a single architecture and data model that serves as the enterprise platform for all other platforms.
In other words, it's the platform for digital business.
As one CIO said to me, my goal with the Now Platform is to enable my colleagues to perform their top 50 tasks in a single environment that provides a consumer-like experience.
The momentum of the workflow revolution is unstoppable.
Despite the COVID operating environment, our team delivered outstanding Q3 results.
Gina will provide the details.
Here are the headlines.
We beat expectations across the board.
We surpassed 1,000 customers with ACV over $1 million.
We landed our largest deal ever with our largest customer who has now crossed over $40 million in ACV.
And we're raising full-year guidance today.
We're driving sustainable growth well on our way to $10 billion and beyond.
I'm incredibly proud of our team.
In the most challenging of times, we are focused, disciplined committed to helping our customers succeed above all other priorities.
The speed at which we're innovating has never been faster.
Our team is leading the future of work.
We are releasing new innovations every two weeks with our Safe Workplace suite to help our customers safely return their employees back to the workplace.
Other new product introductions include Hardware Asset Management, Financial Services Operations, Telecom Service Management, Legal Service Delivery, Workplace Service Delivery and Connected Operations.
I could go on.
In addition, our platform innovations are differentiated for the direct-to-consumer industry where subscribers demand flawless customer service.
One of the largest streaming services in the world seamlessly upgraded their ServiceNow environment this past weekend with 0 downtime.
There was no impact to any of their active subscribers.
How's that for customer service.
Such innovation demonstrates the power of the Now Platform.
We were honored in Q3 to be named a leader in the 2020 Gartner Magic Quadrant for enterprise low-code application platforms.
We believe this is yet another example of the agility of the Now Platform to help customers quickly workflow any challenge.
We think our Gartner recognition validates the breadth of our IT solutions, putting ServiceNow in a leader position in the two 2020 Magic Quadrants: IT risk management and IT vendor risk management tools.
And of course, we remain the leader on both completeness of vision and highest in ability to execute for our ITSM core business.
Now let's look at Q3 performance.
Highlights across our portfolio, here we go.
Our top 20 deals included three or more products.
Our core remains ever strong.
ITSM was included in 17 of the top 20 deals with customers choosing ITSM Pro in 16 deals.
The embedded AI and machine learning capabilities are helping IT organizations scale and automate, reduce complexity, cost and risk, while enabling people to work from anywhere.
ITOM was included in 18 of the top 20 deals.
We won deals with Mount Sinai and the Federal Defense Information Systems Agency.
Our customer workflows continue to be a growth driver.
13 of the top 20 deals included CSM.
Eight of those deals were greater than $1 million.
Our customer wins in Q3 demonstrate how ServiceNow is becoming the enterprise workflow standard.
For example, Q3 was our largest federal quarter ever.
We now have nine federal customers over $10 million in ACV.
Army and the U.S. Department of Veteran Affairs.
And we had new customer wins with agencies such as the U.S. Senate and Federal Claims Court.
In our largest deal ever, the Department of Veteran Affairs is modernizing its enterprise service management and IT capabilities.
They are using the Now Platform to have real-time visibility into the health, availability and costs of their critical business services.
This will deliver significant benefits to our heroic veterans.
With ITSM Pro, VA will automate its manual workflows with AI and machine learning capabilities to free up employees to better serve veterans.
As the U.S. Air Force has publicly described, they are deploying the Now Platform as part of their digital Air Force of the Future vision.
We are helping them deliver Genius Bar-like self-help services to the women and men serving our country around the globe.
In addition to federal, state governments also are leveraging the Now Platform.
Tennessee's Department of Human Services expanded its relationship with ServiceNow.
They are using CSM to reopen state offices for public services, while keeping health and safety a priority.
They quickly adopted our latest Now Platform Paris release, utilizing a new feature that enables the public to self-schedule appointments and digitally check in when arriving for appointments.
The state of Alaska's governor issued a directive to protect workers and ensure that the state can continue operating in a pandemic environment.
Their existing systems, manual processes and dispersed population created numerous issues to work effectively.
The HR department is transitioning to a centralized operating model, and ServiceNow will solve their manual onboarding issues and enable employee workflows to be digitally transformed.
Outside of federal and state and customers across industries, the Now Platform is the standard for driving enterprise digital transformation.
2020 has brought significant changes to Dell's work-from-home model.
Our HR product will support this new way of working by providing enterprise onboarding and transitions.
And the Now Platform is helping Dell in its mission to provide the best customer experience in the markets they serve.
Leading managed services provider, TPx, became the first customer of our new telecom industry-specific product.
ServiceNow is going to run TPx' customer portal, enabling, onboarding, project management, customer servicing and IT support.
A major Indian financial institution chose ServiceNow to give them complete visibility to better control enterprise risks, replacing legacy solutions that were stitched together.
This is another example of the movement we are seeing in the industry to replace legacy solutions and consolidate on the Now Platform.
In Q3, we continued to see strong momentum with our Safe Workplace suite of apps.
This quarter, we added two new apps into the Safe Workplace suite: Employee Travel Safety and Health and Safety Testing.
Our Safe Workplace apps demonstrate our ability to innovate quickly and deliver fast time to value in weeks, not months and years.
We've seen nearly 800 downloads of our Safe Workplace apps.
Customers include Standard & Poor's, Raymond James and Rutgers University.
At Rutgers, our Safe Workplace apps are being used for health screening, contact tracing and room reservations to ensure a safe environment for all students and faculty.
Here's my favorite customer win.
I'm a huge basketball fan.
As many of you know, my grandfather, Bobby McDermott, was a Hall of Famer.
So I couldn't be more proud of how ServiceNow helped pro basketball have a successful restart season.
The NBA and WNBA were able to implement ServiceNow's employee workflows in under a week to manage the complex manual processes associated with restarting.
ServiceNow helped the league facilitate screening for more than 2,600 league staff, vendors and guests who entered the NBA and WNBA bubble in Florida and successfully processed more than 13,000 essential documents.
Using ServiceNow technology, the league demonstrated that a safe, careful return to professional sports was possible with the right tools and protocols in place.
We are very proud to become the official workflow partner of the NBA and WNBA, and we look forward to helping the league continue to drive digital transformation to deliver great employee player and fan experiences.
As we drive great customer wins, our partner ecosystem is growing even stronger.
We are grateful for the investments our partners are making to grow their ServiceNow businesses and to serve our customers.
We recently announced a go-to-market partnership between IBM and ServiceNow.
This new business opportunity combines ServiceNow's ITSM and ITOM capabilities with IBM's Watson AI ops to help customers automate IT and scale, reducing cost and risk.
Last week, we announced an expanded partnership with Accenture.
The new Accenture ServiceNow business group will accelerate digital transformation programs for customers in telecom, government, financial services, manufacturing, healthcare and life sciences.
Hey, in summary, Q3 was another great outperform quarter.
We are confident in our ability to succeed in this environment.
We are bullish on our long-term outlook and our path to $10 billion and beyond.
Our leadership is expanding our reach and opportunities with marquee partnerships, such as the NBA and WNBA, IBM and Accenture.
There are many more.
Our brand is resonating.
We are becoming an essential C-suite strategic partner.
Our ecosystem is growing fast.
Our go-to-market capabilities are stronger than ever.
Our product innovation is second to none.
We are deeply committed to attracting, retaining and developing the best talent in this industry.
We are a big tent company dedicated to diversity, inclusion and belonging.
Diversity makes us stronger, making ServiceNow the destination company where the best talent belongs and thrives.
And this is what's going to make us unstoppable.
Our new board member and new chief global talent officer were announced today, and it demonstrates the caliber of people we are attracting.
I could not be more thrilled to have Larry Jackson joining our board and Gaby Toledano joining our leadership team.
Both are exceptional leaders.
Larry is leading the music industry revolution for Apple Music.
His experience using technology to create innovative, market-leading consumer experiences will be invaluable as we drive innovative employee and customer experiences for the global marketplace.
Likewise, Gaby brings deep tech industry and talent leadership experience, building world-class organizations at scale for some of the best-known companies in the world.
We were humbled to recently be recognized as the company with the best leadership team in an anonymous survey of more than 10,000 employees across the industry.
Gaby is a great addition who will only make us stronger.
In so many ways, we are just getting started.
This year's unprecedented headwinds have only strengthened our digital transformation tailwinds.
We have the platform businesses need to workflow standard for enterprise transformation, the missing link for integration of existing technology investments and the creation of modern enterprise workflows.
Remember, behind every great experience is a great workflow.
Whatever challenge a business is facing, we workflow it.
We will make workflow a verb.
ServiceNow is incredibly well positioned to become the defining enterprise software company in the 21st century.
We will not slow down in pursuit of this goal.
We couldn't be more fired up to finish this year very strong.
Q3 was a fantastic quarter for ServiceNow as the team continued to execute very well despite the challenges created by COVID-19.
We exceeded the high end of our subscription revenues and subscription billings guidance, and that top line beat carried through to our robust operating margin and strong free cash flow generation.
Q3 subscription revenues were $1.091 billion, representing 29% year-over-year constant currency growth.
Q3 subscription billings were $1.081 billion, representing 24% year-over-year adjusted growth driven by the great execution from our sales team.
Remaining performance obligations, or RPO, ended the quarter at approximately $7.3 billion, representing 28% year-over-year constant currency growth.
And current RPO was approximately $3.8 billion, representing 30% year-over-year constant currency growth.
Our top line strength demonstrates the power of our product portfolio and our ability to meet the evolving needs of our customers.
The Now Platform is uniquely positioned to deliver exceptional time to value and provide workflows that create great experiences for customers, employees and partners.
We are solving customers' challenges and playing a key role in accelerating their digital transformation.
The Now Platform enables the missing integrations that link together systems, silos, departments and processes into unified workflows.
Our best-in-class renewal rate improved quarter-over-quarter to 98%, demonstrating the resilience of our business as the Now Platform remains a mission-critical part of our customers' operations.
As Bill highlighted, our sales teams continued to win bigger deals in Q3, including our largest ever $13 million ACV deal.
We closed 41 deals greater than $1 million in ACV in the quarter, and what's more, nine of those were with net new customers.
Our ability to land new logos despite the macro uncertainty that COVID has introduced is a testament to our amazing products and our brand that continues to resonate with the C-suite.
We now have over 1,000 customers paying us more than $1 million of ACV.
Q3 operating margin was 26%, a 400 basis point beat versus our guidance driven by our strong top line outperformance, lower T&E expenses as a result of COVID and about 150 basis points of marketing spend that shifted from Q3 into Q4.
Year over year, our Q3 operating margin was consistent with last year as lower T&E expenses were offset by planned incremental investments in R&D and marketing spend of pipeline generation.
Our free cash flow margin was 19%, up 500 basis points year over year driven by lower T&E spend in capex in the quarter as well as strong collections.
Together, these results demonstrate the strength of our business model and our ability to drive a balance of growth and profitability.
Before I move to guidance, I want to give a brief update on the trends we are seeing in our business.
Overall, we see strong momentum heading into the last quarter of the year.
The highly affected industries we outlined earlier in the year, which represented about 20% of our business and include areas such as transportation, hospitality, retail and energy, continue to see macro headwinds but remain steady customers of ServiceNow.
We closed six new deals over $1 million in these affected industries.
And while we do expect some headwinds in severely impacted industries like airlines, renewals of existing customers have remained very strong.
Furthermore, we've also seen very healthy payment terms and DSOs.
Collections have been strong, helping drive free cash flow upside in Q3, and we expect that trend to continue into Q4.
Enterprises are realizing that they need to quickly adapt to the workplace of the future, and ServiceNow is providing a smarter and faster way to workflow.
Our pipeline generation has remained robust, and our pipeline coverage ratio for the remainder of the year gives us confidence in our ability to deliver a strong finish to 2020.
As a result, we are raising guidance for the full year.
We're raising our subscription revenues range to between $4.257 billion and $4.262billion, representing 31% year-over-year constant currency growth.
We are raising our subscription billings range to between $4.78 billion and $4.8 billion, representing 26% to 27% year-over-year adjusted growth.
We continue to expect 2020 subscription gross margin of 86%, and we are raising our full-year 2020 operating margin from 24% to 24.5%.
This reflects additional savings from lower T&E expenses related to COVID.
Let me note that while we expect many of these expenses to return at some point in the future, we're taking our learnings from the current environment and leaning into the future of work.
These learnings will have lasting effects on our overall efficiency, giving us the ability to redeploy savings elsewhere.
We plan to take advantage of the incremental leverage and make disciplined investments for growth.
We're reinvesting in R&D and quota-bearing resources to drive innovation and pipeline to fill our tremendous organic growth engine, ensuring that we maintain our market leadership and are well positioned to take advantage of the digital acceleration heading into 2021 and beyond.
Turning to free cash flow.
We're raising our full-year 2020 free cash flow margin 200 basis points from 29.5% to 31.5%, reflecting the increase in our operating margin.
And our expectations for better than originally forecasted collections for the year.
We expect subscription revenues between $1.155 billion and $1.160 billion, representing 27% year-over-year constant currency growth.
We expect subscription billings between $1.625 billion and $1.645 billion, representing 24% to 26% year-over-year adjusted growth.
Moving on to profitability.
For Q4, we expect a 21% operating margin, which includes about 150 basis points of marketing spend that shifted from Q3 into Q4 and some incremental investment into pipeline-generating activities to set us up for a strong and successful 2021.
Finally, we expect fourth quarter and full-year 2020 diluted weighted average outstanding shares of 201 million and 199 million, respectively.
In summary, ServiceNow is the strategic workflow authority.
As enterprises are adapting to the workplace of the future, CXOs are using the Now Platform to create new workflows for new value chains, transforming experiences across siloed systems and functions across the enterprise.
The Now platform is the missing integration layer that multiplies the power of enterprises' existing technology investments and delivers exceptional time to value.
I'm extremely proud of our team's performance as we focus on addressing these needs for our customers.
Our ecosystem partners are efficiently expanding our capabilities and our reach.
And more and more enterprises are recognizing the strength of our one architecture model and its ability to deliver great, scalable experiences with speed and efficiency.
We are the platform company for digital business.
I'm very excited about the traction we are seeing in our journey toward becoming a $10 billion revenue company and the defining enterprise software company of the 21st century.
We know everyone has a lot going on in their lives, juggling work and caring for your families at home.
And we just want to express how appreciative we are of your contributions.
ServiceNow wouldn't be in the position of strength it is without each and every one of you.
You make us ServiceNow strong.
 Assistant:

Chosen response:
subscription revenues of $1,091 million in q3 2020, representing 31% year-over-year growth.
raises full-year guidance.


Prompt:
Human: These statements involve a number of risks and uncertainties, including the impacts from the COVID-19 pandemic and related governmental responses and their impact on the general economy as well as other risks and uncertainties that are described in our filings with the SEC, including our most recent Form 10-K and Form 10-Q.
Also during the call, we will reference a number of non-GAAP financial measures.
The impact of foreign exchange rate changes subsequent to the end of the second-quarter impacts from further spread of COVID-19 and other variants and environmental and litigation charges.
We appreciate you joining us today and hope you and your families are all staying healthy and safe.
I want to begin by saying how honored I am that the board of directors has placed their trust in me to lead EnPro as interim president and CEO.
I also want to recognize Marvin for his contribution to EnPro over the last several years.
On behalf of the board and management team, I wish him the best in his future endeavors.
By the way of background for those who may be unfamiliar, I have been with EnPro for the better part of 12 years.
And over that time, have had the opportunity to work in a variety of leadership positions across our sealing technologies segment.
I most recently served as president of sealing technologies, a segment which I'm proud to say delivered an exceptional quarter.
I also have had the pleasure to serve as a member of the EnPro executive counsel, which is a team of leaders from across EnPro focused on developing and implementing our commercial, strategic, financial, and operational objectives.
Serving in these positions has given me the opportunity to experience firsthand what is truly so special about this organization.
Our collaboration and focus on empowering our colleagues.
I know as well as anyone that the success of our organization is built on the hard work, dedication and tireless execution and commitment of our 4,400 employees around the world.
As we will discuss throughout today's call, our team has continue to deliver for each other, our customers, and our shareholders in the second quarter.
And I know I speak for the entire leadership team when I say I'm incredibly proud of what we have accomplished.
My goal is to continue to work with our leadership team to encourage and position our employees to unleash their full potential as we continue the clear strategy articulated over the past year.
We are excited about what is ahead.
With that introduction, let's move on to our second quarter highlights.
As I noted, and as our results show, we had another exceptional quarter.
In the second quarter, sales of $298.6 million increased 20.9% year over year, with organic sales increasing 27.1%.
We saw a sequential growth of 6.9% from the prior quarter.
Our strong top-line results were driven by organic revenue growth and the addition of Alluxa.
Importantly, our growth was broad-based, as we experienced positive momentum across all of our businesses.
Our second-quarter adjusted EBITDA of $57.2 million increased 52.5% year over year, and the adjusted EBITDA margin expanded 400 basis points to 19.2%.
This strong performance reflects the sustainable benefits of our portfolio reshaping actions, operating leverage, and pricing strategies, partially offset by higher incentive compensation accruals and raw material inflation.
All three business segments contributed to our adjusted EBITDA growth year over year.
In the past year, we took action to increase the level of collaboration between supply chain, manufacturing, and our commercial teams.
This enhanced focus and coordination throughout our organization have helped us improve customer engagement and respond quickly to mitigate raw material issues.
Nevertheless, the raw material environment remains highly dynamic due to pandemic-related impacts.
And we expect these conditions will likely persist at least through year end.
Our order trends in the quarter were extremely strong, surpassing our solid first quarter and are at the highest level in three years.
As we look ahead, we continue to see broad-based strength across our businesses and are encouraged by what we are hearing from our customers, particularly in the general industrial, semiconductor, heavy-duty truck, food and pharma, automotive, and petrochemical markets.
Now, I will hand the call over to Milt for a deeper dive into our financial results for the quarter.
As Eric mentioned, we had another exceptional quarter, positive momentum across most major end markets as well as the addition of Alluxa contributed to strong top-line results, partially offset by the reduction in sales due to last year's divestitures.
As reported, sales of $298.6 million in the second quarter increased 20.9% year over year.
Organic sales for the quarter increased 27.1% compared to the second quarter of 2020.
As Eric noted, sequentially, sales were up 6.9%.
Gross profit margin of 39.2% increased 580 basis points versus the prior-year period.
The increase was driven primarily by strong organic sales volume and the benefit of divesting lower-margin businesses.
Adjusted EBITDA of $57.2 million increased 52.5% over the prior-year period as a result of higher operating leverage from solid organic sales growth, the addition of Alluxa, and increased pricing, partially offset by increased raw material costs and higher incentive compensation accruals.
Adjusted EBITDA margin of 19.2% increased approximately 400 basis points compared to the second quarter of 2020.
Corporate expenses of $12.8 million in the second quarter of 2021 increased from $7.1 million a year ago.
The increase was driven primarily by higher incentive compensation accruals, reflecting the stronger year-over-year performance companywide.
Adjusted diluted earnings per share of $1.56 increased 77.3% compared to the prior-year period.
Amortization of acquisition-related intangible assets in the second quarter was $11.3 million, compared to $9 million in the prior-year period, reflecting the addition of Alluxa.
We anticipate amortization of acquisition-related intangibles will be between 44 and $46 million in 2021.
As a reminder, our estimated normalized tax rate used in determining adjusted earnings per share is 30%.
Moving to a discussion of segment performance.
sealing technologies sales of $162.5 million increased 7.9% compared to the prior-year period despite the impact of divestitures in 2020.
Excluding the impact of foreign exchange translation and divested businesses, sales increased 25.3%, driven by strong demand in the heavy-duty truck, general industrial, food and pharma, and petrochemical markets, offset partially by power generation and aerospace markets.
Sequentially, sales increased 10.9% as we saw momentum accelerate in our heavy-duty truck, general industrial, aerospace, and petrochemical markets.
For the second quarter, adjusted segment EBITDA increased 39% to $42.4 million, and adjusted segment EBITDA margin expanded 580 basis points to 26.1%.
The margin expansion was driven primarily by operating leverage commensurate with strong volume, portfolio reshaping, select pricing actions, and continuous improvement initiatives.
Excluding the impact of favorable foreign exchange translation and divestitures, adjusted segment EBITDA increased 45.6% compared to the prior-year period.
Turning now to advanced surface technologies.
Second-quarter sales of $59.2 million increased 48%, driven by continued strong growth in semiconductor and the addition of Alluxa.
Excluding the impact of foreign exchange translation and the Alluxa acquisition, sales increased 23.8% versus the prior-year period.
Sequentially, sales increased 8.2%, driven by growth in semiconductor markets.
For the second quarter, adjusted segment EBITDA increased 41.8% to $15.6 million, and adjusted segment EBITDA margin contracted from 27.5% a year ago to 26.4%.
Excluding the impact of Alluxa and foreign exchange translation, adjusted segment EBITDA remained unchanged.
Results for the quarter were impacted by increased operating costs related to the standup and qualification of the third LeanTeq facility in Taiwan and by foreign exchange transactional charges.
As a reminder, LeanTeq is a highly differentiated cleaning, coding, and related service provider with industry-leading solutions that support the most advanced technology nodes within the semiconductor industry, a high-growth market that has strong secular tailwinds.
The new facility nearly doubles our capacity in Taiwan.
More broadly, across the entire AST segment, we continue to see secular growth signals and expect sustained organic revenue growth and strong profitability over the long term.
In engineered materials, second-quarter sales of $80 million increased 36.5% compared to the prior year, driven by stronger sales in all major markets, including general industrial, automotive, oil and gas, and petrochemical.
Excluding the impact of foreign exchange translation and the divestiture of GGB's bushing block business completed in the fourth quarter of last year.
Sales for the quarter increased 34.2%.
Sequentially, sales were flat when compared to a very strong first quarter.
We saw a quarter-over-quarter sales growth in petrochemical and oil and gas markets, offset by slower automotive production environment due to the supply chain constraints affecting that market.
Based on conversations with automotive customers, we believe that sales growth will resume in the latter part of the second half of the year as supply chain shortages are resolved and production schedules normalize.
Second-quarter adjusted segment EBITDA increased 165% over the prior-year period to $13 million, and adjusted segment EBITDA margin expanded 790 basis points to 16.3%.
The strong year-over-year increase in EBITDA and EBITDA margins was driven primarily by the brisk volume recovery from the pandemic low, partially offset by increased material costs.
Excluding the favorable impact of foreign exchange translation and the impact of the bushing block business divestiture, adjusted EBITDA increased 155% compared to the prior-year period.
Now, let's turn to the balance sheet and cash flow.
We ended the quarter with cash of $262 million and full availability of our $400 million revolver, less $11 million in outstanding letters of credit.
At the end of June, our net debt to adjusted EBITDA ratio was approximately one times, a sequential improvement from the 1.4 times reported at the end of the first quarter.
Our balance sheet remains solid, and we have ample financial flexibility to execute our strategic growth initiatives.
Free cash flow for the first six months of 2021 was $48 million, up from $25 million in the prior year, driven primarily by higher operating profits, offset partially by working capital investments supporting stronger sales.
During the second quarter, we paid a $0.27 per share quarterly dividend.
For the first six months of the year, dividend payments totaled $11.3 million, a 4.6% increase versus the prior year.
Moving now to 2021 guidance.
Taking into consideration all the factors that we know at this time, including current order patterns, we are increasing our guidance for 2021 adjusted EBITDA to be in the range of $200 million to $210 million, up from our previous guidance of $190 million to $200 million.
The updated adjusted EBITDA range is based on sales growth of 9% to 14% over 2020 pro forma sales of $983 million, up from a previous range of 7% to 12% growth.
We expect adjusted diluted earnings per share from continuing operations to be in the range of $5.16 to $5.50, up from a range of $4.74 to $5.08 provided last quarter.
Our guidance assumes depreciation and amortization expense, excluding amortization of acquisition-related intangible assets in the range of $30 million to $32 million and net interest expense of $14 million to $16 million.
Like each of you, we continue to monitor developments around COVID-19 and new variant.
And we'll evaluate potential impacts of such developments on our business, while focusing on the health and safety of our colleagues.
Our second-quarter results again demonstrate the benefits of our clear and consistent strategy.
The sustained benefits of our portfolio reshaping actions and our intention to continue investing in organic growth opportunities.
We expect this momentum to continue as we focus on driving safety, commercial and operational excellence throughout the company.
With a strong financial foundation in place, I am confident that our experienced leadership team, diverse and dedicated workforce, and compelling profitable businesses will lead to continued growth and increase shareholder value.
I'm proud to be in a position to lead this organization forward, and I look forward to speaking with many of you over the coming months.
We'll now open the line to questions.
 Assistant:

Chosen response:
enpro - q2 adjusted earnings per share $1.56.
q2 adjusted earnings per share $1.56.
q2 sales $298.6 million versus refinitiv ibes estimate of $273.6 million.
raising 2021 guidance ranges: sales of $1.075 to $1.125 billion, and adjusted diluted earnings per share from continuing operations of $5.16 to $5.50.


Prompt:
Human: Our second quarter results reflect another step forward in our strategy execution as we continue to reshape and position the company for sustainable and profitable growth.
Consolidated revenues improved 1% sequentially to $142 million with a 28% increase in international Fluids Systems and a 15% improvement in Industrial Solutions rental and service revenues, offsetting the previously anticipated pullback in Industrial Solution product sales that we discussed on our prior quarter call.
Second quarter EBITDA generation was $7 million.
Turning to the specifics of the segments.
Our Industrial Solutions business continues to demonstrate the value of our diversification efforts as we expand our presence in the power transmission and other industrial end markets.
As anticipated, coming off the exceptionally strong first quarter product sales, segment revenues declined 15% sequentially to $45 million in the second quarter as site access product sales pulled back to $10 million for the quarter.
Partially offsetting the product sales reduction, rental and service revenues improved 15% sequentially, contributing $33 million of revenue in the second quarter, including a record $25 million contribution from the power transmission and other industrial end markets, reflecting strong performance both in the United States and in the United Kingdom.
Industrial Blending revenues also pulled back to $2 million in the second quarter, reflecting the anticipated impact of product transition with our primary customer.
With the lower revenue, our Industrial Solutions operating margins declined modestly to 22% in the second quarter, generating $15 million of EBITDA.
Reflecting on our first half 2021 performance, it's worth highlighting that the power transmission and other industrial end markets contributed $75 million of our Site and Access Solutions revenues.
This annualized run rate of $150 million represents a 30% improvement over the previous high of $115 million achieved in 2018, illustrating the continued momentum in our market penetration.
Meanwhile, our historical upstream oil and gas end market contributed less than 20% of the first half 2021 segment revenues, reflecting the lower industry activity and our focus on the more stable industrial end markets.
In the Fluids Systems segment, revenues improved 11% sequentially, benefiting from project start-ups and the early phases of recovery within certain international markets following the COVID-related disruptions that significantly impacted the previous four quarters.
Our international revenues improved 28% sequentially to $35 million in the second quarter, benefiting primarily from improvements in Europe and North Africa.
In North America, revenues improved modestly to $62 million with a 19% improvement in the U.S., largely offset by the seasonal pullback in Canada.
Despite the revenue growth and positive earnings contributions from our international businesses, the Fluids segment remained below EBITDA breakeven in the second quarter, impacted by elevated operating expenses, including employee severance and cost associated with our ongoing inventory rationalization efforts.
In addition, the quarter is impacted by an unfavorable sales mix on U.S. land, which we expect to normalize going forward.
During the second quarter, I'm very pleased to highlight that we won two notable fluids contracts, including a three year award in Thailand to provide drilling and completion fluids on land, which reflects our first entry into the Southeast Asian market.
This contract is expected to provide approximately $25 million of revenue over the three year term with work scheduled to begin in the third quarter.
In addition, as part of the latest Shale Oil tender in the Gulf of Mexico, we were awarded a contract to continue providing drilling fluids, reservoir drilling fluids and related services for two deepwater drillships, which we expect will generate approximately $30 million of revenue annually.
We believe the recent contract awards are a direct result of our continued focus on providing differentiated technology and superior customer service.
As global activity improves in the energy market, we feel we are well positioned to capture our fair share of the value chain, while also continuing to reshape our cost structure to generate profitable growth and provide an acceptable return on capital.
And with that, I will hand the call over to Gregg to discuss in more detail the financials for the second quarter.
I'll begin by covering the specifics of the segment and consolidated financial results for the quarter before providing an update on our near-term outlook.
Total revenues for the Industrial Solutions segment declined 15% sequentially to $45 million in the second quarter, which includes a $43 million contribution from the Site and Access Solutions business and $2 million from Industrial Blending.
The sequential decline primarily reflects the anticipated $10 million reduction in product sales following the exceptionally strong Q1 performance along with a $3 million decline in Industrial Blending product sales.
Rental and service revenues improved 15% on a sequential basis, coming in at $33 million for the second quarter, which reflects our strongest quarter in nearly two years.
The sequential growth was driven by robust demand in both the U.S. and the United Kingdom with the U.S. benefiting from a few large scale utility projects completed in the second quarter.
As a result of the $8 million decline in revenues, the Industrial Solutions segment operating income declined by $3 million sequentially to $10 million, contributing $15 million of EBITDA in the second quarter.
Comparing to the second quarter of last year, revenues from the Site and Access Solutions business increased $16 million or 59%.
This increase includes an $11 million or 50% improvement in rental and service revenues along with a $5 million improvement in product sales.
Looking at the first half 2021 for the Industrial Solutions business, as Paul touched on, it's notable that we're continuing to see a significant shift within our segment revenue mix.
More specifically, the power transmission end market contributes more than half of our Industrial Solutions segment revenues, while our historical E&P market activity accounts for less than 20%.
Turning to Fluids Systems.
Total segment revenues improved by 11% sequentially to $97 million in the second quarter.
Revenues from U.S. land increased $10 million or 24% sequentially, reflecting the benefit of the 16% improvement in market rig count along with an increase in market share, which stands at roughly 20%.
All U.S. land regions contributed to the sequential revenue improvement.
Revenues from the Gulf of Mexico declined modestly, contributing $8 million in the second quarter.
In Canada, revenues followed the typical seasonal pattern through spring breakup, declining 61% sequentially to $5 million in the second quarter.
Outside of North America, as Paul noted, we are beginning to see the early signs of recovery, particularly in Europe and North Africa.
International revenues improved $8 million sequentially to $35 million in the second quarter as delayed projects moved forward, although it's worth noting that COVID-related restrictions continue to suppress customer activity, particularly in the Middle East.
As Paul touched on, while our international Fluids business performance was relatively in line with our expectations, our U.S. operations were negatively impacted by elevated expenses in the quarter along with an unfavorable sales mix.
On a year-over-year basis, our Fluids Systems revenues increased $22 million or 30%.
U.S. land revenues increased by $21 million or 74%, which significantly outpaced the 16% increase in market rig count over this period.
The strong revenue growth primarily reflects our increased market share and improvements in customer spending per well along with higher barite sales and our continued expansion into stimulation chemicals.
Gulf of Mexico revenues declined $6 million or 44% year-over-year, driven primarily by the changes in customer drilling and completion plans, including a strong contribution from completion fluids in the prior year quarter.
International revenues improved $6 million or 22% year-over-year, benefiting from new project start-ups and the recovery of customer activity in several European markets and Algeria, while the Middle East remains roughly $2 million below prior year levels, reflecting the ongoing COVID challenges.
SG&A costs were $23 million in the second quarter, which includes $6.9 million of corporate office expenses, reflecting a $2 million increase from both the prior quarter as well as the second quarter of last year.
The sequential and year-over-year increase is primarily attributable to higher long-term incentive expense, including awards tied to our relative share price performance as well as the April 1 restoration of certain austerity measures, including the company matching contributions to our U.S. retirement plan.
Interest expense decreased modestly to $2.2 million in the second quarter, nearly half of which reflects non-cash amortization of facility fees and discounts.
Our weighted average cash borrowing rate on our outstanding debt is approximately 3.5%.
The second quarter includes a $400,000 income tax expense despite reporting a pre-tax loss.
We are currently unable to recognize the tax benefits on our U.S. losses, and therefore, the income tax expense primarily reflects taxes on foreign earnings.
Our net loss in the second quarter was $0.07 per share, which compares to a net loss of $0.06 per share in the first quarter and a net loss of $0.29 per share in the second quarter of last year, which included $0.09 of charges.
Turning to cash flow.
Net working capital changes used $7 million of cash in the second quarter as we saw DSOs return as anticipated to a more typical level from the unusually strong performance achieved in the prior quarter.
With the higher working capital, cash used in operating activities was a modest $2 million for the quarter.
Investing activities again used less than $1 million of cash in the second quarter with $2 million of capital investments largely offset by proceeds from sales of used mats from our rental fleet and other underutilized assets.
We ended the second quarter with a total debt balance of $78 million and a cash balance of $35 million, resulting in a modest 14% debt to capital ratio and 8% net debt to capital ratio.
As such, the convertible notes are now classified as long-term debt in the June 30, 2021 balance sheet.
Now turning to our near-term outlook.
As we look ahead, we are encouraged by the improving longer term fundamentals in both business segments, but we continue to see significant inflationary pressures on raw materials and transportation.
We are also closely monitoring the evolving situation with the COVID variants around the world.
In the Site and Access Solutions business, while we are very pleased with the strong growth rate in targeted end markets, we expect the near-term market activity in the utility sector will face the typical seasonal slowdown seen in past years as utility companies reduce project activity during the period of high electricity demand associated with the elevated summer temperatures.
Although we are continuing to execute our geographic expansion efforts, we anticipate that Q3 rental and service revenues will return to near Q1 levels.
Looking beyond Q3, we continue to be encouraged by the robust pipeline of opportunities as we execute our growth strategy.
On the product sales side, although it is always difficult to predict the timing of sales activity, we expect revenues will remain relatively in line with Q2 in the near-term, with the fourth quarter expected to benefit from the year end strength in the utility sector.
In total, we expect Q3 revenues for the Industrial Solutions segment will pull back modestly to roughly $40 million.
And with the seasonal slowdown in rental project activity as well as our ongoing investments to support our growth strategy, we expect operating margins to decline into the low to mid-teens for the third quarter, which should reflect the softest quarterly results for the year.
Beyond Q3, we expect both revenues and operating margin will rebound in Q4, benefiting from the year end product sales demand and our ongoing penetration in the power transmission and other industrial markets.
In Fluids Systems, we continue to expect our international markets will recover through the second half of 2021, ultimately returning to pre-COVID levels by the end of the year.
With the lingering effects of COVID, particularly in the Middle East, we expect international revenues will increase by roughly 10% in Q3 with a more pronounced improvement in Q4.
In addition, we expect to see strong quarter-over-quarter growth in North America in Q3, led by our robust recovery in Canada from the seasonal trough and the continued improvements in U.S. land.
In the Gulf of Mexico, we expect Q3 revenues will remain fairly in line with the second quarter as a Q3 start-up on the second deepwater drillship will likely offset the decline in completion fluids products which are excluded from the recent contract award.
In total, we anticipate our Fluids segment revenues will grow by a low-teens percentage in Q3, which should bring the segment closer to breakeven operating income for the quarter with a return to positive income expected in Q4.
With regard to capex, we expect expenditures in the near-term will remain fairly limited with investments focused on growth opportunities within the Industrial Solutions segment.
Corporate office expense is expected to increase by roughly $1 million from the Q2 level, largely reflecting the timing of long-term performance-based incentive expense along with the full lifting of salary austerity measures put in place during 2020.
Overall, I'm pleased with the continuing progress we've made in the second quarter.
Looking ahead, there are obvious ongoing market hurdles to navigate, including meaningful cost inflation as well as the elevated uncertainty regarding the impact of the COVID variants around the world.
With that said, we remain encouraged by the longer term market fundamentals in all of the key industries that we serve, which we believe provides the opportunity for sustainable and profitable growth over the long-term.
Further, with our very modest debt level and our capital-light Fluids business model, we are well positioned to fund growth objectives and generate strong free cash flow over the long-term.
Our key priorities remain unchanged, beginning with our expansion and diversification of the Industrial Solutions business.
As we continue to execute on our strategy, we're very pleased with the growing market awareness of the unique value proposition that we provide within the multi-billion dollar power transmission market.
Benefiting from our strong utility sector growth, our Industrial Solutions segment contributed 35% of our first half revenues, while consistently generating strong profitability and returns.
Expanding this business remains our highest priority, including expansion of our geographical reach and invest in the necessary capital to support our targeted growth plans.
On the Industrial Blending operations, although we are disappointed by the shift in outlook that our primary customer is seeing in the demand for disinfectants and cleaning products, it's important to highlight that we view this reduction in near-term demand as a typical challenge for a new business.
Over the past year, the surge in cleaning product demand associated with the fight against COVID, provided us an opportunity to quickly penetrate the Industrial Blending market and showcase our agility and capabilities.
During a period of extreme urgency, our ability to move quickly, execute every facet of the manufacturing process and deliver quality and consistent products was met with extremely high praise from our customers.
Our near-term priority for this business remains unchanged to capitalize upon our proven capabilities to build a diversified industrial and specialty chemical blending business.
In Fluids Systems, we are proud of the efforts of our global team in reshaping the business, while maintaining the highest quality of service for our customers.
Internationally, with the worst of COVID hopefully behind us, we feel we are well positioned to benefit from what many expect to be a robust multi-year growth cycle.
It's important to note that prior to COVID, our international operations maintained a long history of stable and profitable performance.
And despite the challenges of the past 18 months, we've continued to build upon our global relationships, expanding in key markets where we expect to play a meaningful role going forward.
We've also added to our extensive resume and geothermal drilling, a small but growing area that we believe will see a tailwind in the energy transition.
We expect our international Fluids growth will outpace North American market in the years to come, driven primarily by our extensive geographical footprint in the EMEA region and our expanding presence in Asia Pacific.
In the U.S. Fluids business, while the market outlook continues to strengthen, we are taking further actions to scale the business for what we expect to remain a structurally smaller market in the future.
In addition, with the U.S. oil and gas industry now benefiting from stronger commodity prices, our near-term focus also includes driving the much-needed price increases.
We expect both of our cost and pricing actions on U.S. land will continue through the second half of the year as we strive to generate consistent cash flow and acceptable return on invested capital.
 Assistant:

Chosen response: qtrly loss per share $0.07.