Prompt:
Human: We refer to certain of these risks in our SEC filings.
Participating in today's call with me will be Paul McDermott, President and Chief Executive Officer; Steve Riffee, Executive Vice President and Chief Financial Officer; Karen Filter, Senior Vice President and General Counsel; Drew Hammond, Chief Accounting Officer and Treasurer; and Graham Montgomery, Vice President and Head of Research.
We delivered strong second quarter financial performance against the backdrop of the ongoing economic disruption, highlighting the resilience of our portfolio.
As the local economy gradually reopens, our primary focus continues to center around the health and safety of our residents, tenants, employees and their families.
Over the past several months, WashREIT created and implemented a comprehensive reentry plan to mitigate the spread of COVID-19 at our properties.
We connected with our office tenants through personalized outreach to understand their needs and discuss our approach to make sure that they are comfortable with the protocols that we have implemented.
We are fortunate to have not experienced material bad debt to date in alongside reentry planning, we've been diligently working with tenants who have been financially impacted by the economic shutdown to discuss and finalize deferral arrangements.
As of today, we are pleased to report that we have substantially completed that effort.
There is no doubt that these are trying times.
However, we have adjusted to the new demands of today's operating environment and have taken swift and deliberate action to protect and support our residents and tenants.
I could not be more proud of the dedication shown by the WashREIT team during this challenging period.
Furthermore, these times have highlighted the importance of social fairness, equity and justice.
And our company has responded with a refocused commitment to improving diversity, inclusion and belonging within our company and our community and creating long-lasting positive change.
As we enter the second half of the year, we are increasingly confident in the resilience of our region and likewise, our portfolio.
Our Washington metro focus provides economic stability compared to other major metropolitan areas.
This is true both historically and during the current downturn.
As the Washington metro area continues to experience fewer job losses since the pandemic hit than other large metro areas and the U.S. overall.
Washington Metro employment declined 9% during the second quarter compared to over 11% for the U.S. overall.
A recent analysis completed by Delta Associates determined that the Washington multifamily market is better positioned to weather a down cycle than nearly all of the nation's other large metropolitan areas.
This is due in large part to the presence of the federal government and the corresponding stability of the professional business services sector, which together comprised 46% of the D.C. metro economy compared to 25% for the 30 largest metro areas.
Furthermore, our professional business services sector is more heavily weighted toward the professional, scientific and technical subsector, which has fared very well during this crisis and generated year-over-year job growth of 1.6% in June.
This sector is expected to bounce back much quicker than other sectors and continues to be the primary private job creation source in the region over the long term, according to Delta Associates.
Unsurprisingly, the federal government sector has been the least negatively impacted by the pandemic thus far.
Many federal agencies actually received funding a funding boost, which could lead to additional hiring, especially at critical agencies such as the FDA, NIH and FDA.
Government contractors have seen $1.2 billion in contracts awarded year-to-date that are directly tied to the COVID-19 response, according to JLL.
Employment trends for the regional information sector reflect limited disruption and major tech industry investments, including Amazon's HQ2 campus construction and Virginia Tech yard campus.
The Washington metro area led the country in Q2 leasing activity, driven by 1.6 million square feet of positive net absorption in Northern Virginia.
Despite the stay-at-home orders, office leasing activity in Northern Virginia declined only 12% in the second quarter compared to the five-year trailing quarterly average, according to CBRE.
Over half of the leasing activity in Northern Virginia was driven by government contracting services.
Government contractor awards are up 4% year-over-year due to the government's response to COVID-19.
Check and government contracting for 60% of our office leasing volume in Northern Virginia last year.
And looking forward, we expect demand from these sectors to continue to grow.
Unsurprisingly, Washington D.C. office leasing activity has slowed more than it did in Northern Virginia due to lower momentum leading into this downturn.
However, the impact of local job losses for office using sectors in D.C. has been limited.
With no office using sector losing more than 5% of the total workforce during the second quarter, according to BLS data.
Additionally, the number of tours increased substantially in July.
We expect our D.C. office portfolio to act defensively against this backdrop.
Maryland, Virginia and D.C. each took a phased approach to reentry beginning at the end of May.
D.C. and Maryland are currently in Phase two with limited reopenings of shops and restaurants, and Virginia is in Phase 3, which has allowed all retail and public services to resume with social distancing measures in place.
With the implementation of Phase two reentry protocols, we are seeing increased activity across all of our asset classes.
Multifamily touring and application volumes have increased threefold from early April for both our same-store and non-same-store assets and same-store applications are trending above prior year levels.
Following the closure of our leasing office, we took advantage of our virtual touring capabilities and continued leasing in April and May.
And once social distancing requirements were eased locally, we began offering self-guided tours in June.
Just recently, we have opened our multifamily amenities in common areas and started offering in-person tours with additional safety precautions.
Lease-up of Trove continues to progress and is expected to reach stabilized occupancy in the fourth quarter of 2021.
While the economic shutdown has impacted the original expected pace of leases, we averaged approximately 16 leases per month during the second quarter and expect to reach breakeven levels of occupancy by year-end, followed by steady quarterly NOI growth thereafter.
Our total lease rate growth for the quarter was a positive 40 basis points, which, combined with our sequential decline in ending occupancy of less than 80 basis points to our stabilized properties demonstrates the resilience of our value-oriented multifamily portfolio.
Lease rates for our non-same-store portfolio, which includes strong performance from our Class B suburban communities, grew over 2% during the quarter on a blended basis, comprised of 2.6% of renewal lease rate growth and 1% of new lease rate growth.
Our suburban garden-style apartments offer larger unit sizes, open-air hallways and less density compared to mid or high-rise buildings, allowing us to participate in the increasing demand for these qualities over the near-term in the wake of the pandemic.
Over the long term, the expansion of our multifamily portfolio to growing suburban markets in the D.C. metro suburbs positions us to capture an increasing share of regional household formation and job growth.
We began to experience an uptick in utilization at all of our office properties toward the end of the quarter, although, most notably at our Northern Virginia office assets, as Northern Virginia is now in Phase three of reopening.
In preparation for the repopulation of our properties, we prepared a detailed property reentry plan that emphasizes employee and tenant health and well-being as top priorities.
We have reached out to our tenants to discuss the plans and protocols that we have put in place.
The feedback regarding our collaborative approach has been very positive, and in many cases, we strengthened our relationships with our tenants.
We've upgraded our office buildings to ventilation filters, which is the standard for superior commercial office buildings, installed directional safety practice signage, contactless opening technology and proactive shield around front office desk in addition to a variety of other measures taken to facilitate safe reentry.
We have also established enhanced cleaning protocols that include more frequent cleaning and the use of electrostatic cleaning sheets and have developed elevator and common area safety protocols designed to mitigate the risk of virus transmission.
Our tenant experience app, NU, which began rolling out in January, has kept us connected with many of our tenants despite working remotely.
The Concierge program has continued to provide a wide range of on-demand services and partner with local vendors and farmers to provide grocery and other essential deliveries.
We could not have picked a more critical time to roll out this technology to assist our tenants both professionally and personally during this challenging time.
Our Space+ program has allowed us to meet changing tenant needs more efficiently with flexible lease terms.
Our spaces offer tenants quick move-ins all in pricing, flexibility for short and long-term planning as well as privacy and independence, not just for brand building, but now more importantly than ever for control over the health of the tenant's office.
All of our Space+ tenants have control over their own private space, which is becoming increasingly important in this COVID-19 environment.
In an environment where many tenants are moving slower on larger and longer requirements, flexibility is key, and Space+ is playing a crucial role in meeting tenant needs.
We entered 2020, expecting to see sequential quarterly growth, driven by renovation-led value creation and commercial lease commencements.
While the pandemic has disrupted the timing of that growth, our key growth drivers remain intact.
In multifamily, we have positioned our portfolio to retain the growth drivers but we may capture that value for our shareholders as normal activities and opportunities return.
We've allocated capital to Class B properties in submarkets with wider than average gaps between Class A and Class B rents and limited competitive supply, which sets us up for a quick recovery and preserve the value-add rent growth from renovations for the future.
Through our 2019 strategic allocation, we increased our renovation pipeline to over 3,000 units, which represents five years of growth at compelling return on costs.
While most of our portfolio does not directly compete with new supply, deliveries in Northern Virginia, where 80% of our multifamily portfolio is located, are expected to decrease by 24% over the next 12 months.
Furthermore, the pandemic will likely cause delays in projected construction starts in the second half of 2020, which will reduce the number of deliveries in 2022 and into 2023.
And overall, there is an acute housing shortage in the Washington metro region and our in-house research affirms our confidence that growth opportunities are still ahead of us.
We also have a tremendous opportunity for growth, having substantially made the capital outlay for Trove with Phase two delivering in a couple of months.
While the disruption certainly changed the initial pace of lease up, we expect to reach a breakeven occupancy level in the fourth quarter and thereafter achieve quarterly sequential NOI growth through stabilization in 2021 and into 2022.
We in the office portfolio, our embedded growth is comprised of future commencements for high-quality space and value-oriented pricing and move-in ready space with flexible lease terms.
We expect signed leases to continue to occupy, and we expect to benefit from higher occupancy in the fourth quarter and throughout 2021.
Many of our speculative leasing opportunities, for which we had excellent momentum before the pandemic hit, are located in our best assets, including Watergate 600, Arlington Tower and Silverline center as well as our Space+ program, which is positioned well to meet demand in these early, cautious transition months.
While physical touring did pause, it is now resuming, although decision-making remains slower than normal wire entry is being more pure by prospective tenants.
We believe those leasing opportunities are a matter of when, not if, they will commence.
I'll start off by discussing our cash collection performance before reviewing our second quarter results and outlook for the remainder of 2020.
Our multifamily collections continue to be very strong, which is a testament to the resilience of our submarkets and industry mix and lower average rent-to-income ratio of 26%.
We collected over 99% of cash rents during the second quarter and over 99% of contractual rents.
And our rent collections through the first three weeks of July have been strong also.
While we are offering deferred payment programs to residents who've been financially impacted by the pandemic to date, deferrals have been relatively low, representing less than 0.4% of total monthly rental income on average.
Our monthly multifamily collection performance continues to track above national averages.
We collected 99% of cash rents in June compared to 96% per NMHC.
We attribute our outperformance in part to high exposure to industries that have outperformed during this crisis and lower relative exposure to underperforming industries.
The impact of COVID-19 on the Washington metro market has been contained primarily to three sectors, representing approximately 75% of Washington metro job losses.
While the impact has been more broadly spread across a wider range of sectors in the U.S. overall.
As those same three sectors represented less than 60% of total losses nationally through June.
Thus, the U.S. overall is experiencing job losses that are spread across more industries than our region.
The Washington metro market's relative strength reflects the stability in business revenue provided by technology and federal contracting.
We track the industries our residents are employed in, and our exposure is most heavily weighted to the most resilient economic sectors and likewise, less weighted to the industries that have been most impacted, which has resulted in very high collection rates and stable cash flows.
We collected 97% of cash rents during the second quarter and over 99% of contractual rents, which excludes rent that has been deferred.
As of July 22, our collections for July are in line with the same period in June.
Similar to our multifamily resident industry minutes, our office tenants are relatively weighted to the stronger economic sectors than the U.S. overall, which has helped us experience limited bad debt thus far.
We have agreed to defer $1.2 million of rent for office tenants, and we expect to collect over 85% of that deferred rent by year-end 2021 with the balance thereafter.
We believe our efforts to substantially derisk our portfolio by selling all single-tenant office assets and 75% of our prior retail exposure, including all of the power centers, and reallocating that capital to our multifamily portfolio is certainly proving its value in these economic times.
Retail now comprises just 6% of NOI and while retail tenants have struggled the most, we collected 72% of retail rents in the second quarter.
Excluding deferred rent, our collection rate was approximately 90% during the second quarter and 91% during the first three weeks of July.
Year-to-date, we've only incurred approximately $770,000 of bad debt expense related to retail tenants and $638,000 of that was related to covet 2019.
We will continue to monitor their strength and ability as the economy progresses.
We've agreed to defer approximately $1 million of rent for retail tenants, and we expect to collect over 50% of that rent by year-end 2021.
This assumes that our region continues to gradually reopen through year-end.
To date, we've not incurred material bad debts related to COVID-19.
Overall, we have only deferred a small portion of rent and the expected cash NOI impact is less than $0.01 per share through year-end 2021.
While we have possibly experienced the most disruptive part of the pandemic, uncertainty regarding its duration and future impact remains.
We currently believe the second quarter represented the most challenging quarter.
However, future and ongoing economic disruption could result in bad debt greater than what we've incurred to date.
We will continue to monitor future developments and proactively address them as they occur.
Turning to the balance sheet.
We have a strong liquidity position with approximately $530 million of available liquidity as of June 30, and no significant capital commitments for the balance of the year and no remaining maturities in 2020.
As of June 30, our net debt-to-EBITDA ratio was 6.1 times, at the lower end of our targeted range.
We prepaid our $250 million 4.95% bonds in early April, and we can go to the capital markets to further term out debt when it makes sense to do so.
We expect to remain well within our bank and bond covenants and have access to our mostly undrawn line of credit if needed.
Based on our current projections, we have reduced 2020 assumed capital expenditures for the year by approximately $40 million compared to our initial 2020 guidance.
Included in this amount is almost $30 million of lower assumed capital expenditures and $11 million in less development spending as we no longer expect to break ground on the Riverside development this year.
Our capital expenditure reductions include nonessential building improvements, tenant improvements and leasing costs, perspective of leasing as well as lower multifamily renovation capex.
I our future multifamily renovation pipeline remains intact, although we are suspending the program until after the market disruptions subside.
We plan to allocate the renovation capital at a later date when the market allows for rent increases to deliver the appropriate ROI.
As we navigate through the second half of the year, we will continue to explore opportunities to further reduce nonessential capex spending to further bolster our liquidity.
Looking forward, we feel confident in our ability to execute on our short-term goals of providing payment flexibility to residents and tenants in need while retaining the operational flexibility necessary to execute our long-term goals.
As Paul mentioned, we posted a solid second quarter despite the challenging operating environment.
I will discuss those results before addressing our future outlook.
We reported core FFO of $0.39 per diluted share.
Overall, same-store NOI declined 4.5% year-over-year on a GAAP basis and 3.5% on a cash basis, due to the same-store office NOI decline of 4.8% on a GAAP basis and 3.7% on a cash basis as well as bad debt expenses related to COVID-19 of approximately $720,000.
The same-store office NOI decline was driven by expected decline in parking income as well as an increase in bad debt expenses related to COVID-19.
Excluding the decline in parking income and the increase in bad debt expenses compared to our prior 2020 expectations, same-store office NOI would have increased slightly on a year-over-year basis.
Our multifamily same-store NOI increased by 0.7% year-over-year on a GAAP basis and 0.8% year-over-year on a cash basis.
The company achieved 40 basis points of blended year-over-year lease rate growth, driven by strong performance from our suburban assets in our non same-store portfolio.
Same-store new lease rates declined by just under 4%, while renewal rates increased by over 1.4%, reflecting blended lease rate decline of approximately 40 basis points.
Non-same-store lease rates grew over 2% during the quarter on a blended basis, comprised of 2.6% of renewal lease rate growth and 1% of new lease rate growth.
Our same-store multifamily portfolio is currently approximately 94% occupied, and our total day bag portfolio is over 94% occupied, a 97% leased.
Same-store NOI decreased in our residual retail centers, which we report as other, by 24.6% on a GAAP basis and 22.1% on a cash basis, driven primarily by higher credit losses, which included amounts to do from tenants impacted by COVID-19, been likely not collectible.
And lower recoveries compared to the prior year period.
The combined write-off impact of COVID-19 in the quarter was approximately $560,000, which included straight-line rents and lease intangibles, and the cash impact was approximately $335,000.
Turning to leasing activity for the quarter, while velocity and touring was hit by the economic shutdown, we signed approximately 20,000 square feet of new office leases and 15,000 square feet of office renewals in the second quarter.
We achieved rental rate increases of 0.8% on a cash basis and negative 2.3% on a cash basis, both for new leases and 19.4% on a GAAP basis and 1.9% on a cash basis for renewals.
The impact of operational cost savings initiatives reduced operating costs by approximately $848,000 during the second quarter, net of tenant recoveries and expense related to preparing our built office buildings for reentry.
Second quarter operational cost savings primarily included reduced utility consumption, lower R&M, security expenses and lower tenant event and amenity expenses relative to our original forecast.
Now I'd like to discuss our financial outlook.
We are now four months into the pandemic.
And while we are not in a position to predict the ongoing magnitude of the pandemic or durability of the recovery, we believe that we are able to forecast subject to certain caveats, the impact of COVID-19 for the balance of 2020 on our NOI and interest expense, exclusive of future bad debt.
Today, I will describe the impacts that we're experiencing on various financial performance metrics.
Our expectations are based on the assumption that the gradual reopening will continue uninterrupted through year-end.
Multifamily occupancy dipped to 94% in June and has remained stable through July.
With the easing of confinement measures and increased staffing in our leasing offices, we've seen touring and application volumes increase substantially.
Total application volumes have increased by 3 times from early April lows, and same-store applications have trended over 30% above prior year levels since the end of May.
We expect the continual increase in leasing volume to drive a gradual increase in occupancy to 95% by year-end.
We did not increase rents on 12-plus month renewals and for the second quarter, which impacted our NOI growth as we normally would be achieving significant rent increases during the strong second quarter leasing season, especially since we had such strong lease rate growth in March.
As a result, we experienced an increase in renewal retention to 60%.
While this higher renewal retention has helped us to maintain occupancy and preserve our seasonal rent roll during these uncertain times, it did not fully offset the impact of occupancy from lower new leasing volumes.
Lower new and renewal lease rate growth as well as lower move in and other fee income were partially offset by operating expense savings initiatives during the second quarter.
The majority of the expected full year impact of operating expense savings related to COVID-19 was recognized in the second quarter.
Excluding the impact of bad debt, we expect the impact of COVID-19 on our multifamily NOI to translate to a reduction of approximately $0.03 per share relative to our initial core FFO guidance for 2020.
Overall, we had previously expected significant multifamily growth in 2020, and that growth is likely now going to be deferred until 2021 and thereafter.
As Paul said, we have a five-year pipeline of value-add renovations once conditions improve and it is appropriate to resume such growth.
And we still expect future NOI growth from TRO, which I will cover next.
Trove is on pace to deliver Phase II in the fourth quarter.
Our lease-up had just begun when social distancing measures drew on-site touring to a haul.
However, we've been successfully converting virtual tours into signed leases.
While virtual touring is having continued success, we expect lease-up to take longer than we have originally guided and will likely to incur a loss of between $600,000 to $700,000 in 2020.
Which translates to a negative impact on core FFO relative to our initial guidance of approximately $0.01 per share.
As Paul also said, we expect to reach breakeven occupancy near this year-end and to reach stabilization in the fourth quarter of 2021.
Therefore, the TRO should not only provide substantial growth in 2021 and but also further year-over-year growth in 2022.
Now moving on to commercial.
Tenant improvement build-outs for near-term lease commencements are expected to continue uninterrupted.
We have over 55,000 square feet, representing approximately 150 basis points of future increased occupancy of signed leases that have not yet written commenced.
Although physical tours had stopped they resume toward the end of the quarter and a substantial increase through July to just below pre COVID-19.
Overall decision-making has been slower as the pace of Phase III entry has, in many cases, allowed prospective tenants more time.
Additionally, we are in lease extension negotiations with a handful of tenants who were previously expected to vacate.
Our previous revenue expectations for 2020 included speculative office lease commencements that have been impacted by the current economic disruption and are now likely to be substantially executed in 2021.
The lease is not signed as of today.
The majority of this leasing was expected to occur during the third and fourth quarters at high-quality spaces across Watergate 600, Silverline Center, Arlington Tower and Space+.
The leasing momentum has been the strongest.
We expect the impact of lower speculative leasing to be only partially offset by higher revenue from lease renewals and extensions.
And we have minimal commercial lease expirations for the remainder of 2020, limiting the downside risk of our internal leasing estimates.
Office lease expirations represent approximately 4% of our office revenues and less than 2% of our overall revenue.
And as many tenants are opting to delay long-term decisions, short-term lease extensions and renewal activity could trend higher as the year progresses.
Parking revenue is down as people are not driving to their offices.
Our current projection of set parking revenue will decline by over $1.3 million over the remainder of the year.
However, that estimate could change if the shutdown is more protracted than we've assumed.
Likewise, once the economy returns, we can experience an increase in parking income from higher utilization as tenant transportation preferences shift away from public transportation.
We are already seeing signs of increased transient parking at many of our properties.
Currently, we are assuming that we may achieve additional operating cost savings of approximately $750,000 for the balance of the year, assuming a gradual increase in office utilization over the remainder of the year.
This amount is net of expenses associated with preparing our bill for reentry and the cost savings that we expect to pass along to our tenants.
Excluding future bad debt, we expect the impact of COVID-19 in our office and other NOI to translate to a negative impact of approximately $0.08 per share relative to our initial core FFO guidance for 2020.
Most of that impact will occur during the second half of the year as we previously expected a ramp-up in that time frame that we now expect to occur throughout 2021.
Offsetting a part of the negative impact of COVID-19 on our business is a reduction in our expectations for interest expense by $0.04 per share relative to our initial core FFO 2020 guidance, excluding any future refinancings to further term out debt.
On a combined basis, we expect the impact of COVID-19 on NOI and interest expense to translate to a negative impact of approximately $0.08 per share relative to our initial guidance for 2020.
We are not updating other guidance assumptions at this time.
The majority of the impact will occur during the second half of the year as we previously expected a ramp-up in that time frame that we now have expected to incur throughout 2021.
Overall, we're actually slightly ahead of our original budget for the first six months of 2020, despite going through a historically challenging four-month period.
As we just explained, much of the growth we had planned for the second half of 2020 appears to be deferred, but we believe still intact for the future.
In closing, while we are operating in a challenging environment, we are confident in our ability to effectively manage through this period of uncertainty while preserving the embedded growth of our assets.
Our value-oriented portfolio has demonstrated resilience as we absorb the near-term impact, which is further underscored by our strong rent collection performance and the proven stability of the Washington metro economy.
Furthermore, our sustained multifamily lease rate growth and stabilizing occupancy trends highlight the value of our research-driven capital allocation strategy, which has led us to invest in well-located residential units that will be in the path of growth once the economy resumes.
 Assistant:

Chosen response:
washington real estate investment trust q2 core ffo per share $0.39.
q2 core ffo per share $0.39.
qtrly same-store noi declined 4.5% and cash noi declined 3.5% compared to q2 of 2019.
available liquidity of approximately $530 million as of june 30.
is not reinstating 2020 guidance at this time.
core ffo attributable to operating multifamily portfolio to be about $0.03 per share lower than assumed in initial guidance for 2020.
expects slightly positive same-store multifamily noi growth for 2020.
for 2020 excluding any future re-financings, interest expense is expected to be about $0.04 per share lower than initial guidance.


Prompt:
Human: Hope everyone is having a safe and good day.
This is Al Nahmad, Chairman and CEO.
And with me is A.J. Nahmad, who is our President; and our two Executive Vice Presidents, Paul Johnston and Barry Logan.
Now as we normally do, before we start, we need to read our cautionary statement.
Now on to our report.
I am pleased to share that Watsco has delivered an incredible second quarter, achieving new records in virtually every performance metric.
Earnings per share jumped 64% to a record $3.71 per share on a 66% increase in net income.
This was by far our most successful quarter ever.
Sales grew 36% or nearly $500 million to a record $1.85 billion in sales for the quarter.
Gross profits increased 50% with gross margins expanding 220 basis points.
Operating income increased $88 million or 68% to $217 million.
And operating margins, this is a big one, operating margins expanded 220 basis points to a record 11.7%.
Now these results are all the more positive when considered against last year's second quarter, which had only a modest impact from the COVID-related slowdowns.
Now we have two new companies in our family, TEC and Acme.
They performed very well, and we cannot be happier that they are now part of an important part of Watsco.
They have a rich and successful history and we will help them any way we can.
Looking ahead, we are engaged in a very fragmented $50 billion North American market.
Again, this is a $50 billion North American market.
And we hope to find more great companies to join us.
Greater scale in this industry provides more capital for us to fund our growth priorities.
Also Watsco's industry-leading technologies continues to gain traction, and we believe they are helping us gain market share.
Here are a few important highlights to mention.
First, growth rates among active users of our technologies continues to outpace the growth rates of nonusers.
Customers using our technology are simply growing faster.
Next, attrition among customers using our technology is meaningfully lower compared to nonusers.
The technology enables us to create stickier customer relationships.
Also, more customers are using our digital selling platforms that are called OnCall Air and CreditForComfort.
They help and modernize how HV solutions are presented to homeowners.
These tools have also benefited the sale of higher efficiency systems, which we think is an important contributor to the climate chain discussion.
As older systems are replaced, our technology can play an important role in helping consumers choose more energy-efficient solutions.
Our progress is very encouraging, but we believe it is still early in terms of reaching the full potential of our technology investments.
Our focus remains in the long term.
I think you've heard me say that over and over again.
We are long-term players in the industry.
Please feel free to schedule a Zoom call with us, and we can further explain our technology and its impact.
Finally, but very important, our balance sheet remains in pristine condition with only a small amount of debt.
We have plenty of capacity and even more ambitions to grow our company both organically and through acquisitions.
 Assistant:

Chosen response:
watsco earnings per share jumps 64% to $3.71 in q2.
watsco earnings per share jumps 64% to $3.71 setting records for sales, operating profit, operating margin and net income.
q2 earnings per share $3.71.
q2 revenue $1.85 billion versus refinitiv ibes estimate of $1.68 billion.
targeted operating cash flow to exceed net income in 2021.


Prompt:
Human: The company undertakes no obligation to update this information.
whitestonereit.com in the Investor Relations section.
With that, let me pass the call to Jim Mastandrea.
We continue to hope and pray that all of you, your families and your businesses remain healthy, and are doing well as we navigate these most unusual times.
I am pleased to share with you our strong operating and financial results that have sustained the economic downturn caused by the COVID-19 pandemic.
Our business has recovered quickly, and in doing so produced shopping center sector-leading results.
Dave Holeman, our Chief Financial Officer, will provide a more detailed look at the drivers of our operating and financial performance.
We attribute these results to owning properties located in areas with high household income neighborhoods and the fastest-growing MSAs in business-friendly states.
Operating a consumer business-driven model based on consumer demographics and psychographics to design a tenant makes that drives customer visits and experiences.
Our strategic customer focus differentiates Whitestone from other real estate owners that leads to traditional hard and soft good retailers.
To enhancing our intrinsic value through redeveloping and developing, which adds value to -- value as we physically expand our real estate footprint and grow rents and to balancing a capital management structure to drive revenues, net operating income and funds from operation.
With this background, I would like to provide some color as to where we are today, where we plan to go in the coming months and quarters to drive long-term shareholder values, key building blocks to Whitestone's success and our progress toward the long-term goals we announced in February of 2018.
First, where we are today.
Since the onset of COVID-19, which injected considerable economic uncertainty, relative to the real estate industry in particular, we've had shopping center sector leading rental collections throughout the pandemic and most recently announcing 90% cash collections for the third quarter of 2020.
These results are in line with our expectations and are trending upward from the first-half of the year.
Rental collections, solid leasing spreads and execution of our business model is deeply rooted in Whitestone's team culture.
Since the end of the first quarter, we focused on improving our dividend payout ratio, increasing our cash on hand, paying down our debt and strengthening our balance sheet.
These actions have prepared us for the next level of growth and provided greater financial flexibility.
Our judicious and disciplined allocation of capital has produced positive third quarter operating results, including occupancy of 88.9% at the end in the quarter, revenue that approached $30 million for the quarter, up 8% from the second quarter.
Property net operating income of $21.3 million, up 6% from the second quarter.
Leasing spreads that were strong and resulted in a positive 11% increase for the quarter.
Cash collections, which I mentioned earlier that achieved 90% for the quarter were up from 81% in the second quarter and funds from operation core that were solid at $0.23 per share, up $0.01 or 5% from the second quarter.
Dave in his remarks will follow mine, will go into greater detail on these results and comparisons to the prior year.
Overall, I am very pleased with the way our management team is navigating the economic crisis caused by the coronavirus, stabilizing our business quickly and enabling us to refocus on extracting the embedded intrinsic value in our properties, while targeting acquisitions that are accretive and further scaling our platform.
Second, where we plan on doing in the coming months.
We intend to maintain our disciplined capital allocation philosophy going forward, as we have over the past.
Our track record of our growth from 2010 to 2019 speaks to our plan.
Our long-term plan is to grow our strategically chosen markets of Houston, Dallas-Fort Worth, Austin, San Antonio and Phoenix through redevelopment and development opportunities within our portfolio and externally grow by making targeted acquisitions in our existing markets and beyond.
Third, the key building blocks for Whitestone's success is building a portfolio of choice properties in great markets that we lease and manage with a team of well-trained professionals who continue to do what has worked for us in the past.
We view Whitestone as a highly differentiated and somewhat a special really -- specializing in e-commerce-resistant entrepreneurial tenants and crafting the right mix of those tenants who ultimately meet the neighborhood consumers' needs.
Our diversified mix of tenants provide essential services for lease that cannot usually be acquired online, if at all.
As a result, our open-air centers provide community experiences that cater to adjacent neighborhood as an extension of their lifestyle.
While we recognize that we are in the retail real estate business, our differentiated approach and contrarian business model has allowed us to profitably grow an asset base over the years despite significant overall industry challenges.
Our growth since our IPO in 2010 has been steady and disciplined and we intend to continue this disciplined approach.
Finally, we continue to make progress toward our long-term goals of improving debt leverage and scaling our G&A cost that we set in 2018.
During the third quarter, we paid off $9.5 million of real estate debt from cash, lowering our net real estate debt by $11 million from a year ago and improving our ratio of debt to gross book value real estate assets to 55% from 58% a year ago.
We also are making progress on scaling our G&A.
These costs since the beginning of the year have been reduced through reduction of headcount from 105 to 85 or 21% through further automation, improvements in processes and all of our team working smarter and harder.
Our total G&A costs for 2020 are approximately $900,000 or 6% lower in the same time last year.
We have a highly dedicated team that works every day to create local connections in communities that drive and we feel strongly that we are positioned to withstand the current headwinds and thrive into the future.
Given the severe economic pressures caused by the coronavirus during the quarter, our portfolio has performed quite well.
Despite having a significant amount of our tenant businesses impacted, we only had a handful of tenants close for good such that the portfolio occupancy rate held up well ending the quarter at 88.9%, down just 0.3% or 13,000 leased square feet from the second quarter.
Also our annualized base rent per square foot at the end of the quarter was $19.43 and $19.38 by cash and straight-line basis.
This represents a 0.5% increase on a cash basis and a 1.3% decrease on a straight-line basis from a year ago.
The decrease on a straight-line basis is largely related to the conversion of 84 tenants to cash basis accounting and the associated write-off of accrued straight-line rents.
Our square foot leasing activity was up 43% from the second quarter of 2020 and 46% from the third quarter of 2019.
And we are pleased with positive blended leasing spreads on new and renewal leases of 3.3% and 11% on a cash and GAAP basis for the quarter.
As Jim mentioned, for the quarter, we collected 90% of our rents, this include base rent and triple net charges billed monthly.
We have also entered into rent deferral agreement on 3% of our third quarter rents.
As part of the deferral agreements, we have negotiated beneficial items, such as, entry into our online payment portal, further reporting of tenant sales, suspension of co-tenancy requirements, loosening of exclusive or restrictions that allow further development and stronger guarantees.
While we are encouraged by how things are progressing, the pandemic has continued to impact our business in term -- in the terms of our financial results.
Funds from operations core for the third quarter was $10.1 million or $0.23 per share compared to $10.9 million or $0.26 per share for the same quarter of the prior year and our same-store net operating income for the quarter decreased by 4.5%.
These decreases are primarily due to the impact of the pandemic, which resulted in a charge of $1.3 million to bad debt expense and $100,000 in write-off of straight-line receivables in the third quarter.
This charge was incremental to the bad debt expense and straight-line revenue recorded in the prior year by $900,000 or $0.02 per share.
Let me add some color on our collectability analysis related to the pandemic and the related receivable balances.
At the end of the quarter, we had $23.6 million in accrued rents and accounts receivable.
This consists of $21.1 million of billed receivables, $1.9 million of deferred receivables, $16.1 million of accrued rents and other receivables and a bad debt reserve of $15.5 million.
Since the beginning of the year, our billed receivable balance has increased $4.4 million and our deferred receivables have increased $1.9 million for a total build and deferred receivable balance increase of $6.3 million.
Against this increase of $6.3 million, we have recorded an uncollectible reserve in 2020 of $4.5 million or 71%.
Our accrued rents and other receivables had decreased by $1.1 million, largely the result of the write-off of accrued straight-line rent receivables on tenants converted to cash basis accounting and our bad debt reserve has increased by $4.3 million.
In accordance with generally accepted accounting principles, if the company determines that the collection of a tenant's future lease payments is not probable, the company must change the revenue recognition for that tenant to cash basis from accrual basis.
In light of the financial pressures that COVID-19 has been placing on many of our tenants, we reevaluated all of those tenants in the second and third quarters, as a result have switched 84 tenants in our portfolio to cash basis accounting.
These 84 tenants represent 3.6% of our annualized base rent and 3.4% of our leasable square footage.
As a result of this conversion to cash basis accounting we have written off $1.1 million of accrued straight-line rents for the year, but the company intend to collect all unpaid rents from its tenants to the extent possible.
Our tenants on cash basis accounting paid 63% of contractual rents in the third quarter, up from 41% in the second quarter.
We have provided some additional details of our collections, it can be found on Page 27 of the supplemental.
Turning to our balance sheet.
Since March, we have implemented various measures to conserve cash, including further reductions in headcount.
To-date, we have approximately $39 million in cash, representing a 6% increase since March 31st.
Additionally, we paid off $9.5 million of real estate debt in the third quarter and have no debt maturities in 2021.
We have reduced our total net real estate debt by $11 million since the third quarter of 2019.
Currently, we have $111 million of undrawn capacity and $13 million of borrowing availability under our credit facility.
We are in full compliance with our debt covenants and expect to remain so in the future.
Looking ahead, one particular trend we are seeing as COVID-19 persists is that Whitestone's best-in-class geography is benefiting from net migration of businesses coming out of the regulation-heavy gateway market.
Our markets continue to attract both large and small businesses, as evidenced by Charles Schwab's recent announcement of its move of its headquarters to Dallas from San Francisco.
Whitestone's properties are seeing this migration also.
Recently, we added a successful restaurant who needed to escape the high-tax high-regulation environment of California to our Mercado property in Arizona.
Examples like these prove the resilience of our markets and give us further assurance that our business model is thriving.
We have seen pent-up demand in our markets, as consumers are leaving their homes and returning quickly and in force.
Parking lots are filling and stores and restaurants are becoming more active.
Whitestone is well positioned to capture this pent-up demand and intends to do so.
Our team has worked together through this ongoing crisis and our shareholders will reap significant future benefits through greater collaboration, a more robust exchange of ideas, better and more effective communication and improved systems and processes that provide new actionable data and allow us to more efficiently scale our infrastructure.
Whitestone is continuing to perform and deliver on our strategic plan.
We operate in many of the most highly desirable growth markets in high-population growth states and expect these markets to lead the country in economic recovery from the pandemic.
We look forward to providing further updates as we progress.
And with that, we will now take questions.
Operator, please open the lines.
 Assistant:

Chosen response:
qtrly net income attributable to common shareholders of $0.02 per diluted share.
qtrly core ffo per share $0.23.


Prompt:
Human: On Slide 2 is our safe harbor statement.
These statements are based on our beliefs and assumptions, current expectations, estimates and forecasts.
During today's call, management will make reference to non-GAAP financial measures, including organic sales growth, adjusted operating profit, adjusted operating profit margin and adjusted diluted EPS.
The past several months have been some of the most difficult times for our communities across the world as we face challenging circumstances related to COVID 19.
This pandemic has made clear the importance of global healthcare and the criticality of the role West plays during these unprecedented times.
Our mission to improve patient lives cannot be any more meaningful than in times like today.
We take great pride that for nearly 100 years, we have provided innovative, high-quality products and solutions for the containment and delivery of injectable medicines.
Despite the COVID-19 challenges, the West team remains focused on creating and delivering value to all our stakeholders.
West has two priorities that are guiding us through this pandemic.
First and foremost, we're focused on the well-being and safety of our team members across the globe.
Our crisis management team was engaged at the outset, implementing precautionary measures across our company to protect our teams.
It seems nearly every day, I learned about another great way that our team is stepping up to deliver the critical components to meet the urgent needs of our customers and their patients while looking out for the safety of one another.
These moments are not only inspirational, but they serve as a testament to the collective strength of the One West team, and I'm grateful for their unwavering commitment to our mission.
In addition, our culture of philanthropy and community involvement has our team members offering their time, unique skills and knowledge in support of local response efforts.
Turning to Slide 4.
Our second priority is the continuity of manufacturing and supply of components and solutions to our customers.
The strong tenets of our market-led strategy and globalization of the manufacturing network are contributing to the resiliency of West's business in today's climate.
I'm pleased to say that the growth trends we experienced throughout 2019 have continued in the first quarter, and the outlook for the balance of the year remains positive.
Despite the current challenges, so far, we have been able to maintain operations at normal capacity.
For the benefit of our customers, we have been able to leverage our world-class global manufacturing network by enabling the right capabilities, scale and flexibility to keep up the increase in demand.
Because of the constantly changing environment and its effect on the economy, we conduct business impact analyses daily and make adjustments as they are required.
These assessments are an integral part of our business continuity plans within each of our global sites and operations network.
Throughout the past several months, we have monitored our supply chain, including our close partner, Daikyo, and at this time, do not foresee any negative impact from direct or indirect suppliers.
As the pandemic has intensified, as expected, we have seen an increase in customer orders in recent weeks.
We are monitoring order flow to ensure that we're addressing the true demand for our products.
As shown on Slide 5, despite today's uncertain environment, I am pleased to report that we had a strong first-quarter performance, and we entered the second quarter well-positioned.
We had 13% organic sales growth in the first quarter, largely through strong high-value product sales.
This resulted in double-digit growth in adjusted earnings per share for the first quarter.
As we enter the second quarter, the demand for our products continues to be solid from both existing customers, as well as new opportunities from companies looking to develop COVID-19 solutions.
Each day seems to bring new challenges: supply chain, transportation, government regulations.
And I want to emphasize that across West, we're operating with a sense of urgency to address and manage these issues.
I hope everyone is healthy and safe during this time.
So let's review the numbers in more detail.
We'll first look at Q1 2020 revenues and profits where we saw strong sales and earnings per share growth, led by strong revenue performance, primarily in our biologics and generics market units and contract manufacturing.
I will take you through the margin growth we saw in the quarter, as well as some balance sheet takeaways.
And finally, we'll review guidance for 2020.
GAAP measures are described in slides 13 to 16.
We recorded net sales of $491.5 million, representing organic sales growth of 12.7% and 30 basis points of inorganic growth.
Proprietary Products sales grew organically by 11.8% in the quarter.
High-value products, which make up more than 63% of Proprietary Products sales, grew double digits and had solid momentum across all market units throughout Q1.
Looking at the performance of the market units, the biologics market unit delivered strong double-digit growth.
We continue to work with many biotech and biopharma customers who are using West and Daikyo high-value product offerings.
The generics market units experienced high single-digit growth led by sales of Westar and FluroTec components.
Our pharma market unit saw mid-single-digit growth with sales led by high-value products and services, including Westar, NovaPure and FluroTec components.
And contract manufacturing had double-digit organic sales growth for the first quarter, led once again by sales of diagnostic and healthcare-related injection systems.
Moving to Slide 7.
We continue to see improvements in gross profit.
We recorded $167 million in gross profit, $20 million or 13.6% above Q1 of last year, and gross profit margin of 34% with a 90-basis point expansion from the same period last year.
We saw improvement in adjusted operating profit with $88 million reported this quarter, compared to $71.3 million in the same period last year or a 23.4% increase.
Our adjusted operating profit margin of 17.9% was a 180-basis point increase from the same period last year.
And finally, adjusted diluted earnings per share grew 36% for Q1.
Excluding stock tax benefit, earnings per share grew by approximately 31%.
So what's driving the growth in both revenue and profit?
On Slide 8, we show the contributions to sales growth in the quarter.
Volume and mix contributed $51.1 million or 11.5 percentage points of growth.
Sales price increases contributed $6.6 million or 1.5 percentage points of growth.
And changes in foreign currency exchange rates reduced sales by $9.7 million or a reduction of 2.2 percentage points.
Looking at margin performance, Slide 9 shows our consolidated gross profit margin of 34% for Q1 2020, up from 33.1% in Q1 2019.
Proprietary Products' first-quarter gross profit margin of 40.2% was 130 basis points above the margin achieved in the first quarter of 2019.
The key drivers of the continued improvement in Proprietary Products gross profit margin were favorable mix of products sold, driven by growth in high-value products.
Production efficiencies and sales price increases, partially offset by increased overhead costs, contract manufacturing's first-quarter gross profit margin of 14.3% was 30 basis points above the margin achieved in the first quarter of 2019.
Our adjusted operating profit margin of 17.9% was a 180-basis point increase from the same period last year, largely attributable to our Proprietary Products' gross profit expansion.
Now let's look at our balance sheet and review how we've done in terms of generating more cash for the business.
On Slide 10, we have listed some key cash flow metrics.
Operating cash flow was $57.1 million for the first quarter of 2020, an increase of $9.5 million compared to the same period last year, a 20% increase.
Our Q1 2020 capital spending was $32.1 million, $3.3 million higher than the same period last year and in line with guidance.
Working capital of $633.1 million at March 31, 2020, was $74 million lower than at December 31, 2019 primarily due to a reduction in our cash and cash equivalents.
Our cash balance of March 31 of $335.3 million was $103.8 million less than our December 2019 balance primarily due to $115 million of expenditures under our share repurchase program.
Our capital and financial resources, including overall liquidity, remains strong.
Slide 11 provides a high-level summary.
Full-year 2020 net sales guidance continues to be in a range of between $1.95 billion and $1.97 billion.
This includes an estimated headwind of $26 million based on current foreign exchange rates compared to prior guidance, which forecasted a $15 million headwind.
We expect organic sales growth to be approximately 8%.
We expect our full-year 2020 reported diluted earnings per share guidance to be in a range of $3.52 to $3.62, compared to prior guidance of $3.45 to $3.55.
Capital expenditure will be in the range of $130 million to $140 million.
There are some key elements I want to bring your attention to as you review our guidance.
Estimated FX headwind on earnings per share has an impact of approximately $0.07 based on current foreign currency exchange rates, compared to prior guidance of $0.04.
The revised guidance also includes a $0.07 earnings per share impact from our first-quarter tax benefits from stock-based compensation.
So to summarize the key takeaways for the first quarter, strong top-line growth in both Proprietary and contract manufacturing, gross profit margin improvement, growth in operating profit margin, growth in adjusted diluted earnings per share and growth in operating and free cash flow, our sales and earnings per share projections for 2020 and performance are in line with our long-term construct of approximately 6% to 8% organic sales growth and earnings per share expansion.
Our company is financially strong.
Today, more than ever, the pursuit of our mission is priority and not taken for granted.
West products are needed by patients across the globe and in many cases, for the administration of life-saving medicines.
As the market leader, we are committed to ensure continuity of supply to our customers around the globe.
In addition, we are supporting our many customers that are developing potential solutions to address COVID-19 with components for diagnostics, antiviral therapeutics and vaccines.
We are confident in our long-term growth strategy.
Although these are trying times, we are optimistic and dedicated to doing what is necessary supporting the healthcare industry as it works to resolve this global pandemic.
We will emerge from this experience collectively stronger.
And on behalf of all of the team members at West, it is our wish that you stay healthy and safe in the days ahead.
Andrew, we're ready to take questions.
 Assistant:

Chosen response:
sees fy 2020 adjusted earnings per share $3.52 to $3.62.
sees fy 2020 sales $1.95 billion to $1.97 billion.
q1 sales $491.5 million versus refinitiv ibes estimate of $466.8 million.
organic sales growth is expected to be approximately 8% in 2020.
net sales guidance includes an estimated full-year headwind of $26 million for full-year 2020.


Prompt:
Human: On Slide 2 is the safe harbor statement.
These statements are based on our beliefs and assumptions, current expectations, estimates, and forecasts.
The company's future results are influenced by many factors beyond the control of the company.
During today's call, management will make reference to non-GAAP financial measures, including organic sales growth, adjusted operating profit, adjusted operating profit margin, and adjusted diluted EPS.
Before we dive into our Q3 results and raised 2020 guidance, I like to make clear the importance of our mission at West and the values that formed the pillars in which we operate.
In today's uncertain environment and what seems like a new set of challenges each day, we remain focused on two key priorities: keeping our team members safe and ensuring uninterrupted supply of high quality containment and delivery devices required by our customers and the patients we currently serve.
Moving to Slide 5, West is uniquely positioned to satisfy increasing market demand by leveraging our global operation of scale and our resources.
Our team recognized at the outset of the pandemic that need to increase production capacity.
We were already supporting the growth trajectory of our base business and the future demand for our products required for COVID-19 vaccines and therapeutics meant that we needed to act quickly and very decisively.
To address the increase in demand, we brought forward planned capital investments and production capacity.
So, earlier this month we installed new manufacturing equipment at one of our HVP sites to prepare for the future demand of FluroTec and NovaPure.
As of this week, that capacity is operational and we have additional equipment being installed at a second HVP site with more installations planned in the coming months at other global sites.
The strength of our performance this past quarter demonstrates the forward momentum we have built over time with our market led strategy and also One West team approach to satisfy market demand.
And now turning to Slide 6, the disruption caused by the pandemic has impacted the way all of us conduct business in our daily lives.
West is no exception.
Customers can come to West for a scientific and technical expertise, and this differentiates us in the market.
We have been investing in digital technology and automation with two objectives in mind, bringing new connected products to market, as well as enhancing the productivity of our operations at every level of the organization.
While we're early in our digital journey, I would like to share a few examples of the recent success, starting with our manufacturing automation strategy.
We made great strides over the past year and helping us to achieve continuous improvements and quality, safety, service and cost.
Petersburg, Florida site has developed an automation process for robotically loading and unloading molding presses.
This has considerably reduced idle production time associated with product changeovers and improved operating efficiency.
Our Kinston site has automated molding, trimming, rinsing processes, which will drive higher quality and final product and greater efficiency gains.
And I'm especially pleased with the team's agility in bringing forward the production capacity expansion, I mentioned earlier.
A great deal of planning and engineering went into this initiative to help us meet our customers' requirements.
On the digital front, we have just introduced the West virtual, the future of customer interactions with a truly immersive, fully interactive online experience.
We expect this tool to be a primary customer interface, even beyond the current pandemic.
So, turning now to Slide 7 and our performance in the third quarter, our financial results remain strong.
I'm pleased to say that the growth trends we have experienced over the past several quarters continued in the third quarter and the outlook for the fourth quarter remains positive.
And we've had over 18% organic sales growth in the third quarter, driven again by robust high value product sales, as well as sales in contract manufacturing.
And we experienced solid growth in operating profit margin expansion.
This resulted in a strong adjusted earnings per share and free cash flow for the third quarter.
Similar to the second quarter, our base business had solid organic sales growth in the third quarter.
We also had incremental sales associated with many COVID-19 development projects we are supporting for both therapeutics and vaccines.
Specifically for vaccines, toward really the back end of the quarter, we were asked by our customers to accelerate initial deliveries of components is more than offset continued sales decline of products associated with injectable drugs and treatments such as dental and elective surgeries that have been impacted negatively by the pandemic.
As for guidance for the remainder of the year, we are confident that we're well positioned with the strength and resiliency of our core underlying business and the incremental opportunities being presented to support our customers with pandemic solutions.
Therefore, we're raising our sales and earnings per share guidance for the remainder of this year.
Let's review the numbers in more detail.
We'll first look at Q3 2020 revenues and profits, where we saw strong sales and earnings per share growth, led by strong revenue performance primarily in our biologics and generics market units and Contract Manufacturing.
I will take you through the margin growth we saw in the quarter as well as some balance sheet takeaways.
Finally, we'll review our updated 2020 guidance.
Our financial results are summarized on Slide 8, and the reconciliation of non-U.S. GAAP measures are described in Slides 16 to 20.
We recorded net sales of $548 million, representing organic sales growth of 18.2%.
COVID-related net revenues are estimated to have been approximately $32 million in the quarter.
These net revenues include the assessment of our components associated with treatment and diagnosis of COVID-19 patients, offset by lower sales to customers affected by lower volumes due to the pandemic.
Excluding net COVID impact, organic sales grew by approximately 11%.
Looking at Slide 9.
Proprietary product sales grew organically by 20.3% in the quarter.
High-Value Products, which made up more than 65% of proprietary product sales in the quarter, grew double-digits and had solid momentum across all market units throughout Q3.
Looking at the performance of the market units, Biologics market units that were -- have delivered strong double-digit growth.
We continue to work with many biotech and biopharma customers who are using West and Daikyo high-value product offerings.
The generics market unit experienced high single-digit growth led by sales of Teflon stoppers and FluroTec components.
Our Pharma market unit saw mid single-digit growth with sales led by high-value products and services, including Westar and FluroTec components.
And Contract Manufacturing had double-digit organic sales growth for the third quarter, led once again by sales of diagnostic and healthcare-related injection devices.
We continue to see improvement in gross profit.
We recorded $194.6 million gross profit, $46.8 million or 31.7% above Q3 of last year.
And our gross profit margin of 35.5% was a 310 basis point expansion from the same period last year.
We saw improvement in adjusted operating profit, with $103.9 million recorded this quarter, compared to $70.1 million in the same period last year for a 48.2% increase.
Our adjusted operating profit margin of 19% was a 360 basis point increase from the same period last year.
Finally, adjusted diluted earnings per share grew 46% for Q3.
Excluding stock tax benefit of $0.02 in Q3, earnings per share grew by some 53%.
Let's review the gross drivers in both revenue and profits.
On Slide 10, we show the contributions to sales growth in the quarter.
Volume and mix contributed $77.1 million or 16.9 percentage points of growth, including approximately $32 million of volume driven by COVID-19-related net demand.
Sales price increases contributed $6.1 million or 1.3 percentage points of growth, and changes in the foreign currency exchange rates increased sales by $8.7 million or a reduction of 1.9 percentage points.
Looking at margin performance.
Slide 11 shows our consolidated gross profit margin of 35.5% for Q3 2020, up from 32.4% in Q3 2019.
Proprietary products third-quarter gross profit margin of 40.8% was 260 basis points above the margin achieved in the third quarter of 2019.
Our key drivers of the continued improvement in proprietary products gross profit margin were: favorable mix of products sold, driven by high-value products; production efficiencies; and sales price increases, partially offset by increased overhead costs.
Contract Manufacturing third-quarter gross profit margin of 17.9% was 350 basis points above the margin achieved in the third quarter of 2019.
This is a result of improved efficiencies and the plan utilization.
Now let's look at our balance sheet and review how we've done in terms of generating more cash.
On Slide 12, we have listed some key cash flow metrics.
Operating cash flow was $323.8 million for the year-to-date 2020, an increase of $63 million, compared to the same period last year, a 24.2% increase.
Our year-to-date capital spending was also $116.7 million, $27.9 million higher than the same period last year and in line with guidance.
Working capital of $790.6 million at September 30, 2020 was $73.5 million higher than at December 31, 2019, primarily due to an increase in Accounts Receivable due to increased sales activity and inventory, mainly as a result of increasing safety stock.
Our cash balance at September 30 of the $519.4 million was $80.3 million more than our December 2019 balance, primarily due to our positive operating results.
Our capital and financial resources, including overall liquidity, remain strong.
Turning to guidance, slide 13 provides a high-level summary.
Full year 2020 net sales guidance will be in a range of between $2.1 billion and $2.11 billion.
This includes estimated net COVID incremental revenues of also approximately $85 million.
There is an estimated headwind of $4 million based on current foreign exchange rates.
We expect organic sales growth to be approximately 14% to 15%.
This compares to prior guidance of $2.035 billion to $2.055 billion and growth of approximately 12%.
We expect our full year 2020 adjusted diluted earnings per share guidance to be in a range of $4.50 to $4.55, compared to prior guidance of $4.15 to $4.25.
As Eric discussed, we are expanding our HVP manufacturing capacity at the existing sites to meet anticipated 2021 COVID-19 vaccine demand.
Capex guidance remains at $170 million to $180 million.
There are some key elements I want to bring your attention to as you review this revised guidance.
Estimated FX headwinds on earnings per share has had an impact of approximately $0.02 based on current foreign currency exchange rates.
The revised guidance also includes $0.18 earnings per share impact from tax benefits from stock-based compensation.
So just to summarize the key takeaways for the third quarter, strong top-line growth in both Proprietary and Contract Manufacturing, gross profit margin improvement, growth in operating profit margin, growth in adjusted diluted earnings per share and growth in operating and free cash flow.
Our sales and earnings per share projections for 2020 and performance are in line with our long-term construct or approximately 6% to 8% organic sales growth and earnings per share expansion.
Before I close, I'm pleased to share that last evening we received FDA clearance for West to market our 20 millimeter Vial2Bag advanced product.
The team is excited to bring this innovative product to the healthcare professionals.
To conclude, there are many challenges ahead of this, but we're resolute in our mission focus systems and most importantly, the team to address these challenges.
We see strengths in our core business and we're confident in our long-term growth strategy.
Our market led strategies delivering unique value propositions to our customers.
Our global operations network is able to flex and respond to the demand, while driving our market leading service and quality.
And our investments in digital technology and automation will continue to keep us on the forefront of the industry.
We remain focused on delivering value to all our stakeholders on a very sustainable basis and doing our part to support the healthcare industry as it works to resolve this global pandemic.
On behalf of the team members at West, we continue to wish you well in the days ahead.
Gila, we're now ready to take questions.
 Assistant:

Chosen response:
sees fy 2020 adjusted earnings per share $4.50 to $4.55.
sees fy 2020 sales $2.1 billion to $2.11 billion.
q3 sales $548 million versus refinitiv ibes estimate of $510.1 million.
sees fy 2020 organic sales growth approximately 14% to 15%.
full-year 2020 adjusted-diluted earnings per share is expected to be in a range of $4.50 and $4.55.


Prompt:
Human: We're glad that you could join us.
During today's call, Bob will provide an overview of the second quarter and discuss the current state of our operations and markets.
He will also update you on our smart and connected and sustainability efforts.
Shashank will discuss the details of our second quarter performance, provide an initial outlook for the third quarter and offer a revised outlook for the full year 2021.
Following our remarks, we will address questions related to the information covered during the call.
For information concerning these risks, see Watts publicly available filings with the SEC.
They've been navigating a robust demand environment and at the same time, managing through persistent supply chain constraints and the emergence of COVID-19 variants.
I'm proud of our team's efforts to support our customers while remaining safe in the workplace.
We anticipated a strong second quarter performance as the economy improved.
However, demand was even better than we expected and our team delivered record results.
As we guided last call, the February U.S. weather freeze provided a revenue tailwind in Q2 and we also benefited from our announced price increases.
Adjusted operating margin exceeded our estimate, driven by incremental volume and our focus on productivity and cost management.
Year-to-date, free cash flow is strong despite additional working capital needed to meet the current demand.
In late June, we successfully completed negotiations to exit our manufacturing facility in Mery, France.
This action will help to simplify our manufacturing structure and provide the incremental productivity.
We've taken a charge for GAAP reporting in the second quarter.
We expect to realize the full savings by 2023.
Shashank will provide more financial details in a few minutes.
Now, let me provide a view on the markets.
In general, the markets continue to move in a positive direction during the second quarter.
GDP expectations for 2021 have trended up in many of our key global regions since the first quarter.
So, we expect that should continue to drive repair and replacement activity.
In the Americas, single-family residential new construction remained strong in the second quarter in both residential and non-residential repair and replacement activity was buoyant.
These markets have more than offset weakness in multifamily new construction and certain non-residential new construction especially in verticals like lodging and office buildings.
Europe markets were solid again in the second quarter, driven by repair and replacement activity.
The wholesale market remained strong in France and Italy, while the OEM market held its own, especially in the electronics business.
Here, we saw high demand from channel anxiety caused by component shortages in the market.
We also saw heating OEMs continue to benefit from green initiatives driven by government stimulus.
We are introducing our third quarter outlook with sales and margin improvements expected versus the prior year, and we have increased our full year adjusted outlook to account for the stronger second quarter and expected third quarter results.
We are more encouraged about the markets in general, but still have concerns about non-residential new construction, supply chain issues, continued inflationary pressures and virus variants.
On Slide four, I'd like to update you on our smart and connected journey.
We continue to introduce new connected products in the marketplace based on customer feedback.
The tekmar snow melt controller has a snow ice sensor interface designed specifically to integrate into building management systems.
It was developed to eliminate the need to write custom code, which is a time and cost saver for the contractor.
In addition, the challenge of commissioning, testing and then maintaining the code is made easier.
The tekmar snow ice interface provides proven snow melt functionality in a simple to integrate device.
HF scientific's copper silver monitor or CSM is designed to monitor the level of copper and silver ions in a plumbing system down to the parts per billion range.
Copper-silver ionization has emerged as one of the leading technology used in mitigation of waterborne pathogen growth, specifically Legionella in the plumbing systems of healthcare and hospitality facilities.
By monitoring ion concentrations daily, the CSM allows copper-silver ionization systems to more accurately regulate their disinfection levels.
Under dosing reduces the efficacy of the system, while overdosing increases operating costs and risk patient guest health.
During the second quarter, the percentage of smart and connected product sales to total sales increased sequentially as compared to the first quarter as well as to the full year 2020.
We continue to make progress toward our goal of 25% smart and connected product sales by 2023.
Now, on Slide five, I'd like to update you on our sustainability efforts.
We are focused on and committed to having a positive impact in the world.
This commitment is leading us to deploy ongoing initiatives to reduce energy, water and waste usage within our own organization as well as developing solutions to support our customers' sustainability goals.
We also view our role as an employer as an opportunity to affect positive change and are addressing diversity, equity and inclusion in our everyday actions.
In June, we issued our most comprehensive sustainability report to date, highlighting 2020 accomplishments in establishing some longer-term goals to reduce our environmental impact.
In 2020, we reduced our water usage by 33% and our greenhouse gas emissions by 13%.
Our product portfolio shift to ecofriendly products and solutions continues.
This past year, sales of our condensing boilers and water heaters reduced more than 110,000 metric tons of CO2 for our customers, more than four times what Watts generated as a company.
We have maintained our partnership with Planet Water, providing funding and resources to install water purification systems for disadvantaged areas of the world.
To date, we have positively impacted over 30,000 people in eight different countries, providing safe drinking water and education on the importance of proper hand sanitization.
And later this year, we'll be sponsoring additional sites as part of a Global Handwashing Day initiative.
Concerning diversity, equity and inclusion, we commenced our first internal DE&I survey to employees.
We've revised our recruiting guidelines and training manuals to include new diversity based standards.
We've begun partnerships with several historically black colleges and universities, supporting programs that we hope will garner future Watts employees, and we've initiated multiple diversity employee resource groups to promote education, awareness and inclusivity.
Sales of $467 million increased 38% on a reported basis and 32% organically, driven primarily by the global economic recovery.
Sales benefited from a five percent foreign exchange tailwind and acquisitions added one percent.
Adjusted operating profit increased 85% and adjusted operating margins expanded 380 basis points to 14.9%.
Both measures were driven by increased volume from easier compares to last year, price, productivity and cost actions.
This more than offset incremental investment spend, inflation and the return of expenses related to business normalization.
Adjusted earnings per share increased 100% as compared to last year from the better operating result as well as favorable below the line items and a foreign exchange benefit.
Our adjusted effective tax rate was 27.1% compared to 26.4% in the prior year period.
As a reminder, last year included a benefit from a discrete item related primarily to the foreign exchange impact of repatriations.
As Bob mentioned, we have completed negotiations to exit our facility in Mery, France.
Total pre-tax exit costs approximate $26 million, which includes approximately $2 million in non-cash charges.
Most of the costs are severance-related and are expected to be incurred through 2022.
For GAAP purposes, we booked approximately $18 million of those costs in the second quarter and expect approximately $2 million in additional restructuring charges in the second half of 2021.
Full year pre-tax run rate savings should approximate $5 million, which should be fully realized in 2023.
We expect about $0.5 million in savings this year, largely in the fourth quarter.
Free cash flow was $65 million through June 30, up 160% from the same period last year.
The increase was due to improvements in net income and lower net capital spending.
Our goal remains to achieve free cash flow conversion at 100% or more of net income for the year.
The balance sheet remained strong.
Gross leverage was 0.7 times and net leverage was negative 0.2 times.
Our net debt to capitalization ratio at quarter end was also negative at 4.5%.
During the quarter, we repurchased approximately 31,000 shares of our common stock and at investment of $4 million, primarily to offset dilution.
Turning to Slide seven and our regional results.
The region experienced organic sales growth of between 28% and 51% during the second quarter as compared to last year, amid a strong economic recovery.
Sales also benefited from favorable foreign exchange in Europe and APMEA by 14% and 10%, respectively.
Acquisitions benefited APMEA sales by 14%.
The Americas had an estimated five percent revenue tailwind from the continuing benefit of the February weather freeze in South Central United States.
The Americas experienced strong repair and replacement activity and growth in single-family residential markets.
Growth was across all major platforms with plumbing related products, especially strong.
Americas adjusted operating profit increased 54% and adjusted operating margin increased 270 basis points to 17.7%, driven by volume, price, cost actions and productivity, which is partially offset by incremental investments, inflation and the return of expenses related to business normalization.
Europe delivered another solid quarter with sales growth in all major regions and platforms.
The wholesale markets in France and Italy remained strong and we saw a good growth in Germany and Italy OEM sales.
Electronics sales increased as pre-buying by customers continued from market concerns around component shortages.
Europe's adjusted operating margin increased 700 basis points to 17.1%.
This was driven by volume, price and cost actions, which more than offset investments, inflation, the return of expenses related to business normalization and the loss of benefits from government employment subsidies.
APMEA's second quarter sales increased double-digits, both inside and outside China.
China sales continued to benefit from commercial valve demand in data centers.
Outside China, New Zealand was strong due to the residential demand and the Middle East is slowly improving as the region benefits from higher oil prices.
APMEA's adjusted operating margin increased 460 basis points to 17.9%, driven by trade volume, a 61% increase in affiliate volume, productivity and cost actions, which more than offset inflation.
Moving to Slide eight and general assumptions about our third quarter operating outlook.
We are estimating consolidated organic sales growth for the third quarter to be eight percent to 12% over the third quarter of 2020.
Versus last year, we should see the benefit of additional volume and price increases allowed through June.
We have announced a third price increase in the Americas, which goes into effect in September, but we anticipate minimal benefit in the third quarter.
Acquired sales should approximate $2 million.
We anticipate that our adjusted operating margin could range from 13.7% to 14.5% in the third quarter, driven by volume and price, partially offset by investments of $6 million and incremental cost of $7 million related to the return of discretionary spend.
Corporate costs should approximate $13 million in the third quarter.
Interest expense should be in line with Q2 at about $1.5 million.
The adjusted effective tax rate should approximate 27%.
Foreign exchange is expected to be neutral to slightly positive to last year should current rates persist throughout the quarter.
From an organic perspective, we expect Americas sales growth to be in the range of nine percent to 13% for 2021.
This is higher than anticipated in our May outlook and is being driven by stronger growth in non-residential repair and replacement due to higher GDP expectations, a stronger North America residential market and the third price increase recently announced.
Sales should increase by about $5 million for the full year from acquisitions.
We expect adjusted operating margins in the Americas should be up versus 2020, driven by the drop-through benefits of additional volume, including the freeze impact.
We also expect the price will more than offset cost inflation for the year.
For Europe, we're forecasting organic sales to increase between 10% and 14%.
In France, the increase will be driven by continued residential market growth and government energy incentives will drive the growth in Germany and Italy.
Adjusted operating margin should be up from incremental drop-through on volume, price and cost savings initiatives.
In APMEA, we now expect organic sales to grow from 23% to 27% for the year.
Sales also increased by approximately $6 million from the AVG acquisition in the first half of 2021.
We anticipate adjusted operating margin for the year to be up as compared to 2020 from third-party and affiliate volume drop-through.
Consolidated organic sales growth for the full year is expected to range from 10% to 14%.
This is approximately 7.5% higher at the midpoint from our previous outlook and is primarily driven by better global end market expectations and our third price increase in the Americas.
We anticipate adjusted operating margin will be up by 100 to 150 basis points year-over-year, driven by the incremental volume drop-through, price, restructuring savings of approximately $12 million, partially offset by $32 million of incremental investments and expenses related to business normalization and general inflation.
And now regarding other key inputs, we expect corporate costs will approximate $48 million for the year.
Interest expense should be roughly $7 million for the year.
Our estimated adjusted effective tax rate for 2021 should approximate 27.5%.
Capital spending is expected to be in the $35 million range.
Depreciation and amortization should approximate $46 million for the year.
We expect to continue to drive free cash flow conversion equal to a greater than 100% of net income.
We are now assuming a 1.21 average Euro U.S. dollar FX rate for the full year versus the average rate of EUR1.14 in 2020.
Please recall that for every $0.01 movement up or down in the euro-dollar exchange rate, our European annual sales are impacted by approximately $4 million and our annual earnings per share is impacted by $0.01.
We expect our share count to approximate 34 million for the year.
To summarize, let me leave you with a few key themes.
Second quarter results were better than expected as activity improved during the quarter, helped by the global economic recovery, a strong repair and replacement market and the U.S. weather freeze tailwind.
We have announced a third price increase in the Americas as inflation and supply chain costs continue to rise.
Markets are supportive and the leading indicators for non-residential new construction are positive entering 2022.
We continue to invest in long-term growth opportunities, especially in smart and connected solutions and in productivity-enhancing technology in our manufacturing facilities that support our long-term strategy.
We have also increased our full year investment spend.
During the second half, we expect to see increased costs on necessary investments, such as in-house training as business normalizes from pandemic levels.
Still, we continue to closely monitor expenses.
We expect to see improvement in third quarter results versus last year.
Our full year outlook has been raised for both sales and adjusted operating profits, given the stronger than anticipated second quarter results and expectations for Q3 in the second half.
 Assistant:

Chosen response:
q2 sales $467 million versus refinitiv ibes estimate of $425.5 million.
increasing adjusted full year 2021 outlook.