Prompt:
Human: We will discuss non-GAAP financial measures, and a reconciliation of GAAP can be found in the earnings materials on our website.
I'm extremely proud of our team's accomplishments in the second quarter.
Their collective efforts delivered the company's strongest quarterly adjusted EBITDA on record at $1.6 billion, surpassing last quarter's record by 43%.
Our year-to-date adjusted EBITDA is almost $2 billion higher than the first half of 2020.
Wood Products delivered another record quarter at $1.4 billion of adjusted EBITDA, surpassing last quarter's record by 56%.
Turning now to our second quarter business results.
I'll begin the discussion with Timberlands on Pages five through eight of our earnings slides.
Timberlands earnings and adjusted EBITDA improved by approximately 5% compared with the first quarter.
In the West, adjusted EBITDA increased slightly in the second quarter.
Western domestic markets remained favorable despite the decline in lumber prices late in the quarter and a healthy supply of logs to the market.
Demand remains strong as mills took precautionary measures to bolster log inventories in response to an early fire season resulting from persistent dry conditions in a period of extremely high temperatures.
This steady demand pull drove our sales volumes modestly higher during the second quarter.
Salvage operations from last year's fires in Oregon are continuing to supply an abundance of smaller diameter logs to the market.
Consequently, prices for smaller diameter logs in Oregon have experienced some downward pressure.
As a result of this dynamic, our domestic sales realizations were slightly lower in the quarter.
To date, we've harvested nearly 2/3 of our planned salvage volume in Oregon.
Salvage productivity has slowed somewhat as warm summer weather arrived early and we began to transition salvage harvest operations into higher elevation tracks, which generally have lower productivity and higher operating costs.
Forestry and road costs were seasonally higher during the quarter as we do a significant amount of this work during the warmer summer months.
Turning to our export markets.
In Japan and China, demand for our logs remained strong, and our sales realizations increased significantly.
Global logistics constraints, particularly with respect to shipping container availability and strong North American lumber prices continued to impact the availability of imported lumber into Japan and China.
This has resulted in strong demand for locally produced lumber and increased demand for imported logs.
Additionally, a ban on Australian logs continues to reduce the supply of imported logs to China.
Our China sales volumes increased in the quarter as we intentionally flexed volume from the domestic market to capitalize on strong demand signals and pricing from our Chinese customers.
Moving to the South.
Southern Timberlands' adjusted EBITDA increased by approximately 10% compared with the first quarter.
Southern sawlog markets improved due to record lumber and panel pricing for most of the quarter and supply limitations resulting from persistent wet weather.
Fiber markets also strengthened as mill inventories remain lean and wet conditions constrained supply.
As a result, our sales realizations were slightly higher than the first quarter.
Fee and sales volumes were significantly higher in the quarter despite impacts from multiple heavy rain events across the Gulf South.
The wet weather in the quarter did, however, limit our ability to catch up on delayed harvest from the first quarter snow and ice events.
Log and haul costs increased slightly, and forestry and road costs were seasonally higher.
Although Southern export represents a small component of our operations, we continue to see strengthening demand signals from China and India, resulting in increases in both sales volumes and realizations in the second quarter.
However, container availability and increased freight rates continue to be a notable headwind.
In the North, adjusted EBITDA decreased slightly compared to the first quarter due to significantly lower sales volumes associated with seasonal spring breakup conditions, partially offset by significantly higher sales realizations.
Turning to real estate, energy and natural resources on Pages nine and 10.
Earnings and adjusted EBITDA decreased by approximately 5% compared with the first quarter due to timing of real estate sales and mix of properties sold, but were significantly higher than the year ago quarter.
Earnings increased by more than 230% compared with the second quarter of 2020.
Demand for HBU properties has been very strong year-to-date and average price per acre remains elevated compared to historical levels.
We continue to capitalize on this market and have been increasing our prices in many regions.
This is resulting in a steady stream of high-value transactions with significant premiums to timber.
In Energy and Natural Resources, production of construction materials increased as demand remained strong during the quarter.
Wood Products, Pages 11 through 13.
Wood Products earnings and adjusted EBITDA improved by almost $0.5 billion compared with the prior quarter.
Our lumber, OSB and distribution businesses all established new quarterly adjusted EBITDA records in the second quarter.
These exceptional results were delivered, notwithstanding ongoing challenges with transportation and resin availability in the quarter.
In the lumber market, average framing lumber composite pricing increased 29% compared with the first quarter.
Lumber demand was strong during the first half of the quarter, but began to soften as do-it-yourself repair and remodel activity weakened toward the latter part of May.
The drop-off in the do-it-yourself segment, largely a result of changing consumer spending habits coming out of COVID restrictions and to some extent, record high lumber prices resulted in lower sales activity and higher inventories at the home centers and treaters.
As a result, lumber prices peaked in late May and retreated at a rapid pace for the remainder of the quarter.
Although inventories at home centers and treaters increased, inventory levels at dealers and distributors serving the homebuilding and professional repair and remodel segments remained below normal at quarter end.
Buyer positioning remains cautious with the reluctance to build meaningful inventory positions and a dynamic pricing environment.
Adjusted EBITDA for lumber increased $291 million or 57% compared with the first quarter.
Our sales realizations increased by 25% and sales volumes increased moderately.
Log costs increased slightly in the second quarter, primarily for Canadian logs.
OSB markets experienced historic strength in the second quarter as demand continued to outpace supply.
Inventories remain lean throughout the channel and supply constraints persisted due to resin availability and transportation challenges.
As a result, pricing continued to accelerate to record levels before peaking at the end of the quarter.
Average OSB composite pricing increased 52% compared with the first quarter.
OSB adjusted EBITDA increased by $172 million or 57% compared to the first quarter.
Our sales realizations improved by 48%.
Production and sales volumes decreased modestly and unit manufacturing costs increased, primarily due to a planned extended maintenance outage to complete a capital project at our Elk in OSB mill.
Fiber costs were slightly higher in the quarter, primarily for Canadian logs.
Engineered Wood Products adjusted EBITDA increased $11 million compared to the first quarter, a 26% improvement.
Sales realizations improved across all products, and we continue to benefit from the price increases announced over the last year for solid section and I-joists products.
This was partially offset by higher raw material costs for oriented strand board web stock, resin and veneer.
Sales and production volumes increased for solid section and I-joists products.
In Distribution, adjusted EBITDA increased $36 million compared to the first quarter, a 92% improvement as strong demand drove higher sales volumes for most products and the business captured improved margins.
I'll begin with our key financial items, which are summarized on Page 15.
We generated over $1.3 billion of cash from operations in the second quarter and over $2 billion year-to-date.
These are our highest first half operating cash flows on record.
Adjusted funds available for distribution or adjusted FAD for year-to-date second quarter 2021 totaled nearly $1.9 billion, with approximately $1.2 billion related to second quarter operations, as highlighted on Page 16.
Year-to-date, we have returned $255 million to our shareholders through payment of our quarterly base dividend.
As a reminder, we target a total return to shareholders of 75% to 80% of our annual adjusted FAD; in the case of 2021, the majority will be returned to the variable supplemental component of our new dividend framework.
Turning to the balance sheet.
We ended the quarter with approximately $1.8 billion of cash and just under $5.3 billion of debt.
During the second quarter, we repaid our $225 million variable rate term loan due in 2026 and incurred no early extinguishment charges.
We plan to repay our $150 million 9% note when it matures in the fourth quarter.
Looking forward, key outlook items for the third quarter and full year 2021 are presented on Pages 17 and 18.
In our Timberlands business, we expect third quarter earnings and adjusted EBITDA will be approximately $25 million lower than second quarter.
Turning to our Western Timberland operations.
Domestic mills ended the second quarter with ample inventory.
We anticipate slightly lower domestic log sales realizations in the third quarter, absent significant fire-related disruption.
This is primarily due to modestly lower pricing for smaller diameter sawlogs.
We expect large log pricing will remain favorable due to limited supply and strong export demand.
We anticipate seasonally higher forestry and road spending as those activities accelerate with favorable weather conditions.
Typical of the drier, warmer summer months, harvest activity will focus on higher elevation tracks where operations are less productive, resulting in slightly lower fee harvest volumes and higher per unit log and haul costs.
Moving to the export markets.
In Japan, log demand remains strong.
We expect our third quarter sales realizations and log sales volumes to be generally comparable to the second quarter.
In China, we anticipate significantly higher sales volumes and slightly higher sales realization.
Although Chinese log demand generally moderates during the summer rainy season, we expect demand for U.S. logs will remain strong as imports from other countries remain constrained.
In the South, we anticipate significantly higher fee harvest volumes as well as higher per unit log and haul costs during the third quarter due to a seasonal increase in activity.
Although our sawlog and fiber log pricing should be comparable to the second quarter, we expect average sales realizations will be slightly lower due to a higher percentage mix of fiber logs.
We also expect seasonally higher forestry and road costs as most of this activity is completed during these dryer summer months.
In the North, sales realizations are expected to be lower due to mix, while fee harvest volumes are expected to be significantly higher as we come out of the spring breakup season.
I'll wrap up the Timberlands outlook with a comment on the sale of our North Cascades Timberland, which was completed on July 7.
In the third quarter, we will record a cash inflow of $261 million and a gain of approximately $30 million related to this transaction.
The gain will be reported as a special item within the Timberlands segment.
Turning to our real estate, energy and natural resources segment.
We expect third quarter adjusted EBITDA will be comparable to the third quarter 2020, but earnings will be approximately $20 million higher than one year ago due to a lower average land basis on the mix of properties sold.
As Devin mentioned, we continue to capitalize on exceptionally strong demand and pricing for HBU properties.
In addition, we've seen strong year-to-date production of construction materials.
As a result, we are increasing our guidance for full year 2021 adjusted EBITDA to $290 million.
We now expect land basis as a percentage of real estate sales to be approximately 30% to 35% for the year.
For our Wood Products segment, third quarter benchmark pricing for lumber has significantly reduced from record levels and benchmark pricing for oriented strand board has also recently declined.
As a result, we are expecting adjusted EBITDA will be significantly lower in the third quarter.
For lumber, our quarter-to-date realizations are approximately $425 lower, and current realizations are approximately $535 lower than the second quarter average.
For OSB, our current realizations are still significantly higher than the second quarter average due to the length of our order files.
Our quarter-to-date OSB realizations are approximately $155 higher and current realizations are approximately $125 higher than the second quarter average.
As a reminder, for lumber, every $10 change in realizations is approximately $11 million of EBITDA on a quarterly basis.
And for OSB, every $10 change in realizations is approximately $8 million of EBITDA on a quarterly basis.
For lumber, as prices have retreated, we expect higher sales volumes as inventories at home centers and treaters normalize and demand signals improve for do-it-yourself activity.
We are also anticipating improved unit manufacturing costs during the quarter.
We anticipate this will be partially offset by slightly higher costs for Canadian and Western logs.
For oriented strand board, we expect demand will remain favorable due to continued strength in new residential construction activity.
We expect improved operating rates following the second quarter outage to complete the capital project at our Elkin OSB mill previously mentioned.
With increased operating rates, we anticipate higher third quarter sales volumes and improved manufacturing costs.
These improvements are expected to be partially offset by higher fiber costs.
For Engineered Wood Products, we expect higher sales realizations for our solid section and I-joists products as we continue to benefit from previously announced price increases.
In May 2021, we announced another increase, which ranges from 15% to 25% and will be captured over the next several quarters.
We anticipate significantly higher raw material costs, primarily for oriented strand board web stock, as the cost of web stock lags benchmark OSB pricing by approximately 1/4.
For our Distribution business, we're expecting the recent declines in commodity pricing will result in reduced margins and significantly lower adjusted EBITDA.
Business results are expected to remain strong compared to a historical perspective.
I'll wrap up with a couple of additional comments on our total company financial items.
Each year in the second quarter, we finalize prior year-end estimates for pension assets and liabilities.
As a result, we recorded a $138 million improvement in our net funded status as well as a reduction in our noncash, nonoperating pension and post-employment expense.
Slide 18 includes our current full year outlook for pension and post-employment items.
It also shows the $40 million capital expenditure increase we announced back in June for some additional high-return projects across our businesses.
We are now -- we now expect our effective tax rate to be between 20% to 24% based on the forecasted mix of earnings between our REIT and taxable REIT subsidiary.
The $90 million tax refund associated with our 2018 pension contribution has now been approved, and we expect to receive the refund in the third quarter of 2021.
U.S. housing activity continues at an impressive pace, with total housing starts in the second quarter averaging 1.6 million units on a seasonally adjusted basis and total permits averaging 1.7 million units.
Single-family starts in June reached their highest monthly level since May of 2007.
Notwithstanding a slight pullback in the second quarter as homebuilders navigated supply chain disruptions, year-to-date momentum is strong, and our customers continue to expect robust housing activity over the back half of the year.
Our near-term and longer-term housing outlook remains very favorable and is bolstered by encouraging long-term housing demand fundamentals.
Turning to repair and remodel.
Although demand for small do-it-yourself projects has softened from the elevated levels established in the pandemic, demand for larger professional remodels remains healthy.
Our long-term outlook for repair and remodel continues to be favorable, supported by an aging housing stock, rising home equity and low interest rates.
In closing, we delivered our best financial performance on record in the second quarter, and we're well positioned to capitalize on favorable demand fundamentals for U.S. housing.
Looking forward, we remain focused on industry-leading performance across our operations and are on track to deliver our 2021 OpEx target of $50 million to $75 million.
Our balance sheet is extremely strong and with year-to-date adjusted FAD of nearly $1.9 billion, we expect to return significant amounts of cash to shareholders through the variable supplemental component of our new dividend framework.
And finally, I'm pleased to announce that we will hold a virtual Investor Day on September 22.
Nancy, Russell and I will give an update on our key longer-term strategic, capital allocation and sustainability initiatives.
We're excited to share that update and we'll look forward to speaking with you all again in September.
 Assistant:

Chosen response:
for real estate, energy & natural resources sector, company expects adjusted ebitda will be comparable to q3 2020 (adds segment).
for timberlands, co expects q3 earnings and adjusted ebitda will be significantly lower than q2.
weyerhaeuser-sees fy2021 adjusted ebitda for real estate, energy & natural resources about $290 million, an increase from $255 mlnpreviously expected.
weyerhaeuser - sees q3 real estate,energy & natural resources significantly higher than q3 2020.
weyerhaeuser - for wood products sees q3 earnings and adjusted ebitda will be significantly lower than the second quarter.


Prompt:
Human: They will provide their perspective on Xylem's second-quarter results and our outlook.
I'll ask that you please keep to one question and a follow up and then return to the queue.
A replay of today's call will be available until midnight, on August 31.
Additionally, the call will be available for playback via the investors section of our website under the heading investor events.
All references will be on an organic or adjusted basis unless otherwise indicated.
These statements are subject to future risks and uncertainties such as those factors described in Xylem's most recent annual report on Form 10-K and in subsequent reports filed with the SEC including in our Form 10-Q to report results for the period ending June 30, 2020.
We have provided you with a summary of our key performance metrics including both GAAP and non-GAAP metrics.
Let me start by expressing my sincere hope that you and everyone close to you are keeping safe and well.
In hindsight, April turned out to be the low point of the quarter.
We hope we'll eventually look back and say it was a low point of the pandemic.
After April, we saw modest improvement in both May and June as demand began to stabilize in our key markets.
Because our business is global, we were exposed to the pandemic's effects early, and so we've also benefited from our presence in markets that have already begun to recover.
Back in April, it's fair to say that uncertainty overshadowed both supply and demand outlooks as COVID spread from Asia to Europe and then North America.
So we felt it responsible to set our second-quarter guidance range intentionally wide to bracket a broad set of scenarios for the macro environment.
Today, we have far more insight and confidence on the supply side, that's because of one notably positive effect of feeling COVID's impact early.
It catalyzed early action by our teams.
Fortunately, we were working from solid financial foundations and a strong position.
So we were able to focus on adapting to the uncertainty and managing the things under our control.
In addition to addressing the immediate need, those actions have built a more robust foundation for both the medium and long term.
I want to make a point of giving credit to my colleagues across Xylem and all of our external partners who made that happen.
They've shown incredible resolve and resilience to a time that has put excessive demands on everyone.
I want to credit everyone around the world who's kept the water flowing and kept essential services running despite everything being thrown at them.
Throughout this period of incredible challenge, they've focused on keeping everyone safe and serving our communities.
Within Xylem, I want to highlight the work of our supply chain, manufacturing and our distribution team.
They've kept our customers supplied and serviced with very few interruptions.
Today, we are up and running across our manufacturing network at greater than 90% availability.
So while demand side uncertainties continue, our outlook now reflects greater clarity and confidence about supply, putting us in a much better position to guide for the third quarter.
I also want to recognize the dedication of our commercial teams, despite the challenges of working remotely.
They drove 10% backlog growth, despite COVID-related macro softness.
You will have seen our announced wins in Telangana, India and with Anglian Water in the U.K. The Telangana irrigation project is our largest win in the country to date, and we do anticipate it will generate roughly $115 million in revenue over the next two to three years.
which combines metrology, communications and digital offerings, is expected to deliver revenues of roughly $90 million over the course of the project.
These wins are further evidence of the durability of our business, even in challenging times.
Because of the differentiation of our portfolio and the resilience of our teams, we expect we will have more news to share about additional big wins when we deliver our third quarter results.
Clearly, I'm very pleased that the team's hard work is evidenced both operationally and commercially.
Having said that, the outlook for the second half is still not back normal.
Therefore, we are not reinstating full-year guidance.
Conditions are improving in a number of our key markets, but the shape of the COVID curve overall is still unpredictable.
Now, I'd like to hand over to Mark to provide some detail in the second quarter, and then we'll come back to our outlook and the trends we see emerging through this period.
Mark, over to you.
Our revenue in the quarter declined 12% which was better than we anticipated coming out of the first quarter.
As Patrick mentioned, our revenue and orders performance improved throughout the quarter with a very strong month in June.
Geographically, U.S. revenues declined 15% as our businesses felt the impact of site shutdowns and project deployment delays.
Emerging markets were down 15% driven largely by the lockdowns in the Middle East and India.
Notably, China grew 6% in the quarter as the utility end market returned to nearly pre-pandemic levels, and industrial and commercial businesses began to modestly recover.
Europe was also a relative bright spot for us as revenues declined a modest 3%.
Western Europe which is the majority of our European revenue base was down mid-single digits.
However, our business in Eastern Europe grew double digits.
This has been a region we've been very focused on, and I want to highlight the tremendous work our team has done there.
They have quietly but consistently delivered a revenue CAGR of mid-teens growth over the last five years.
Orders declined 9% in the quarter, while total backlog grew 10% driven by the large Signature deals Patrick mentioned earlier.
Backlog shippable in 2020 is down 1%.
However, backlog shippable after 2020 is up 23% which gives us confidence that we'll be emerging from 2020 in a position of strength with a solid foundation for growth in 2021 and beyond.
Operating margin was 9.3% in the quarter which I'll review in more detail by segment shortly.
Based on our experience in China, we entered the second quarter cautious of COVID potential impacts on our supply chain.
However, based on those learnings and the great work of our global supply chain teams, we successfully managed through the COVID challenges and turned those learnings into a competitive advantage.
Our teams quickly adapted and began to work in new ways with our customers, our suppliers and internally, enabling us to deliver earnings per share of $0.40, an achievement punctuated by commercial savvy, operational excellence, cost discipline and a focus on what really matters.
Water Infrastructure orders grew 7%, and total backlog grew 24% in the quarter.
This performance was largely driven by the $115 million deal we won in India which is expected to deliver revenue beginning late this year and over the next three years.
Shippable backlog for the remainder of 2020 is up 5%.
Segment revenue declined 8% in the quarter and was significantly impacted by declines in the dewatering, industrial and construction rental business.
As we noted last quarter, we expect utilities to continue to remain resilient as they focus on maintaining their critical infrastructure for wastewater collection and treatment.
This was certainly true this past quarter as our wastewater transport business declined only 4%.
To date, we've seen wastewater capital projects continue with minimal delays.
This was an important driver of the strong quarter from our treatment business which grew 7%.
While U.S. sales were impacted by double-digit declines in the dewatering business, Western Europe revenues were flat in the quarter, showing resilience and some early signs of recovery, especially with our utility customers.
As we continue to feel the near-term impacts from COVID-19 across the emerging markets, we remain confident in the long-term growth prospects for the water sector.
The Chinese and Indian governments, for example, have expressed their ongoing commitment to continued investments in infrastructure for clean drinking water, wastewater treatment and environmental protection.
Operating margin in the quarter was 16.2%, contracting on lower volumes and unfavorable mix impacts from dewatering partially offset by productivity, cost savings and price.
The applied water segment's orders declined 17% in the quarter, while revenue declined 13% as site restrictions continue to impact customers across industrial, commercial and residential end markets.
As regions begin to reopen, we're seeing modest recovery in our book and ship business in both commercial and industrial markets.
We also had a strong quarter in the North American ag business driven by dry weather conditions.
Total segment backlog grew 1% in the quarter.
Geographically, both the United States and emerging markets revenue declined 14%.
However, we saw demand in China begin to recover, growing 2% in the quarter.
Industrial and Commercial end markets in China have been slower to recover than utilities, and our customers are indicating that it may take several months to fully recover in those end markets.
Operating margin in the segment was 13.4%.
Margins contracted primarily due to volume declines and inflation partially offset by 570 basis points of productivity and cost savings as well as 100 basis points of price.
Measurement and control solutions orders declined 24% in the quarter, and revenue declined 17% as the metrology business slowed due to utility workforce availability and physical distancing requirements including restrictions on approaching or entering residents' homes.
This is delaying both project deployments and installations of replacement meters.
We expect order and revenue trends to normalize over the coming months as utility workers are able to safely return to meter replacement and installation.
Importantly, our bidding pipeline remains strong, and there have been no project cancellations.
Despite the near-term challenges, we're very encouraged by the large win we announced with Anglian Water in the U.K. The $90 million contract demonstrates the competitiveness of our AMI and digital solutions to drive key international wins.
This win, and a robust pipeline of AMI opportunities highlight the continued commercial momentum and the differentiated value our offerings bring through our combined digital platform, networking, data analytics and metrology capabilities.
Total segment backlog grew 3% year over year with backlog shippable in 2021 and beyond up 12%.
The segment margin performance was primarily driven by the impacts from volume declines on meter replacement activity and project deployment delays stemming from COVID-19, while we continue critical investments to support growth.
Looking forward, we expect meaningful leverage on the upside as revenue growth drives increased incremental margins from recent large contract wins.
With continued commercial momentum and growing project backlogs, our MCS segment will be a significant source of revenue growth and margin expansion for the company in 2021 and beyond.
We ended the quarter with approximately $1.6 billion in cash and total liquidity of roughly $2.4 billion driven by the $1 billion green bond offering we issued in June as well as strong cash flow performance in the quarter.
The green bond offering was opportunistic enabling us to lock in longer maturities at historically low rates while effectively prefunding $600 million of maturities due in October 2021 at an after-tax cost of less than 1%.
This offering was also the latest example of the importance of linking our financing strategy to our sustainability goals.
Given the strength of our financial position and liquidity, I'll take a moment to note that our capital allocation strategy remains unchanged.
Alongside funding organic investments in key strategic areas, M&A remains a top priority.
And we maintain a healthy pipeline of opportunities which we closely monitor.
Now turning to cash flow.
Our performance in the quarter was very strong.
Operating cash flow improved roughly 50% year over year in our free cash flow of $137 million, more than doubled from the prior year.
This was driven by the continued focus and discipline around working capital, the timing of payment on taxes and the prioritization of our capital spend which was $44 million in the quarter, down almost 30% from the prior year.
Working capital as a percentage of sales improved 110 basis points year over year as our teams continue to drive hard on collections and payment terms while managing inventories in a very challenging demand environment.
I'm pleased with our overall cash performance through the first half of the year, and we now expect free cash flow conversion for this year will be at least 100%.
And with that, I'll hand it back to Patrick.
The end market dynamics we anticipate going into the third quarter are consistent with what we saw in Q2.
Utilities have remained relatively resilient as expected.
However, there is significant divergence between wastewater and clean water.
As Mark mentioned, our wastewater business was down only modestly.
We're seeing continued opex spending to service mission-critical needs and continued execution of capital projects with approved funding.
On the clean water side, the short-term declines were steeper.
They were in the mid-teens.
We are seeing some project delays, but not cancellations, and we do expect execution to pick back up when physical distancing requirements ease.
And we've had some very impressive wins, reflective of healthier long-term trends.
There is considerable discussion about the U.S. utilities capex budgets going into 2021.
We do expect modest capex softening in the U.S. utilities, but as a leading indicator, we are not seeing a slowdown in our bidding pipeline for capital projects.
It is worth noting for a broader context that only 8% of our overall revenue is tied to U.S. utilities capex.
By contrast, opex represents 70% of our overall U.S. utilities revenue, and it remains resilient.
In addition, we see healthy multiyear trends in both opex and capex in emerging markets, Europe and the rest of the world.
Turning now to industrial and commercial end markets.
Industrial didn't slow as much in the second quarter as originally feared, but it will remain soft while facilities continue to deal with restricted access.
Commercial has lagged industrial, and the book and ship business will remain vulnerable in COVID-19 hotspots.
Our backlog remains robust.
Those distributors who destock in the face of uncertainty are beginning to rebuild their inventory.
We see these end market trends fairly consistent across emerging and developing markets, but it's clear that China and Europe are showing more resilience in the U.S. as they emerge sooner from the pandemic.
China's recovery which was up 6% in the second quarter is a strong indicator.
is still grappling with the pandemic's impact, we remain appropriately cautious.
Now please turn ahead to Slide 12.
It's worth noting a few trends that we're seeing more broadly across the sector.
First, there are some fundamentals that COVID-19 has not changed.
The most important is the role that water plays in society.
There is perhaps no service more essential than drinking water and wastewater.
As a result, our strategy is as relevant as ever.
The global challenges of water scarcity, affordability and the resilience of our water systems remains front and center.
Innovation of all kind is essential, now more than ever, to addressing those challenges.
While the fundamentals are unchanged, other dynamics are accelerating.
Interest in digital adoption has clearly gained pace as operators seek a step change in their operational and financial resilience.
In a constrained budget environment, they are rethinking how they spend their money.
It's become an operational and economic imperative to consider the benefits of remote monitoring, automated operations and their decision support systems.
It is absolutely front of mind for every utility executive I speak with, and we're seeing their interest reflected in accelerated quote activity.
We're also seeing a shift in the way that we work with customers every day.
The trends are away from face-to-face interaction and more toward virtual customer engagement across sales, commissioning and servicing.
Because of that, we're making changes to reinforce our competitive strength.
First, as you know, we took a number of structural cost actions across Xylem during the quarter.
Second, we've reprioritized our investments.
We're focusing further on the projects that deepen the differentiation and the market leadership of our portfolio, things such as increasing connectivity and interoperability across our solutions, and we continue to invest in our highest growth geographies.
Lastly, we are reorienting the way that we work within Xylem.
We've accelerated the deployment of the IT platforms that make remote engagement, distant selling and virtual servicing easier for both our customers and our colleagues.
And we are of course assessing the permanent changes that we make to travel, facilities and distance working, changes that no doubt will have a positive impact on cost and productivity and also on employee engagement and morale.
We are focused through the pandemic on managing the things that we can control.
And we're taking the actions now that will make us even a stronger competitor in both the near and longer term.
Given the uncertainties related to the reemergence of COVID-19 across parts of the U.S. and other geographies and its potential ramifications for the back half of the year, we're not reinstating full-year guidance.
However, we do have reasonable visibility through the third quarter which I'll briefly highlight.
We expect revenue declines of 8% to 12% and operating margins in the range of 11% to 11.5%.
This reflects approximately 200 basis points of sequential margin improvement and year over year decrementals of approximately 45%.
The decremental margins are impacted by continued softness in our high-margin dewatering and North American Sensus water businesses, along with a tough prior year compared to last year's third quarter, where we had 90% incremental margins on revenue growth.
While we've seen some positive trends in the second quarter, the global economic landscape remains uncertain, and we are by no means out of the woods.
While Europe is showing positive trends toward recovery, we're closely monitoring the trajectory in the United States.
The pandemic's impact varies widely across emerging markets, from a return to normalcy in China to ongoing shutdowns in India and parts of Latin America.
Lastly, I want to provide a little more clarity on the structural cost actions we announced in early June.
In that announcement, we detailed our plans for permanent actions to simplify our operations and increase our ability to act as one company.
These actions help us better serve our customers and afford us long-term financial resilience.
This year, we expect to incur $80 million to $100 million in restructuring and realignment charges.
This predominantly reflects the actions that we announced in early June, but also some carryover related to prior programs.
We have also provided a summary table on this slide which details the total savings we expect to realize in 2020 and 2021 from our announced structural cost programs.
As a reminder, that includes savings from restructuring and realignment actions we initiated before this year as well as savings from actions we announced in June of this year.
In total, we expect to realize approximately $70 million in savings this year and an additional savings of approximately $80 million in 2021.
So before we go to Q&A, there are a few other milestones that deserve a mention.
The first to touch on sustainability.
We released our most recent sustainability report in June, and I'm very proud of the work by the team, and it reflects the impact our colleagues have delivered across the company.
It shows how we delivered on our 2019 goals, and establishes comprehensive 2025 targets.
It also reinforces the relevance and the value of a strong sustainability approach even in these difficult times.
We follow that up with the launch of our green financing framework which underpinned our recent $1 billion green bond offering.
In addition to showing up our financial strength and liquidity, it extended our commitment that sustainability is at the heart of our business strategy, something we've been doing and we'll continue to do.
We recently announced that Mark will be retiring at the end of the year.
I feel confident in saying he will take with him the gratitude of all Xylem's stakeholders, but most of all mine.
This impact has been undisputable.
And his commitment to both our principles and to delivering value has been constant and unwavering.
We have appointed an outstanding CFO to succeed Mark.
Sandy Rowland has been CFO of HARMAN International, both while they were publicly traded and since becoming part of Samsung.
And that experience has put her right at the intersection of innovation, technology and disruption.
In her board role at Oshkosh makes her no stranger to capital goods, manufacturing and muni markets.
We look forward to introducing her after she joins us on October 1.
Mark is going to be with us through the end of the year which will ensure an orderly and a smooth transition.
And lastly, we also announced today that we've appointed two new members to our board of directors as part of our normal board succession process.
The board has appointed Lila Tretikov, who is the corporate vice president at Microsoft and a globally renowned technologist.
And we look forward to her bringing that perspective to the digital transformation of our sector.
Our second new board member is Uday Yadav, who is president and COO of Eaton's electrical sector, and he brings a disciplined global operating perspective to our growth.
These appointments further deepen our board's diversity, our technology depth and our global orientation.
I'm very pleased that Xylem continues to attract this quality of talent to our purpose and to our mission as a company.
With that, let's open up to questions.
And operator, please lead us into Q&A.
 Assistant:

Chosen response:
xylem q2 adjusted earnings per share $0.40.
q2 adjusted earnings per share $0.40.
appoints two new board members.
not reinstating full-year guidance.
providing a framework for q3.
sees q3 organic revenue will be down in range of 8 to 12 percent - down 10 to 14 percent on a reported basis.
sees q3 adjusted operating margin will be in range of 11.0 percent to 11.5 percent.
lila tretikov and uday yadav have been elected to company's board.


Prompt:
Human: I hope you are all well and safe.
Joining me virtually today are Bryan Hanson, our President and CEO; and CFO, Suky Upadhyay.
We're obviously very pleased to see that so many people now have access, full access to the COVID-19 vaccinations, and that adoption has been pretty strong so far.
Now of course, we'd like to see this even more broadly on a worldwide basis, but it certainly feels like we're making really important progress toward moving forward -- and ultimately, as a result of that moving, hopefully, on from the pandemic.
Now it's not over.
I think all of us realize that.
But I, for one, feel more optimistic than ever that we're coming out, I think, on the other side of COVID-19 and with that, much better days ahead and I guess with that, probably it's a good lead into our Q1 call.
Q1 was a stronger quarter than we initially expected and I'm pretty excited to discuss it with you.
Whenever you have a good quarter, obviously, earnings calls are a lot more fun.
So clearly, we're excited about this one and I'm going to try to keep my remarks relatively brief this way.
I know you're kind of laughing at that because it's not always easy for me to do that.
I'm going to try to keep it brief.
So I'm just going to stick to really three topics, as a result.
Number one, I want to talk about the COVID recovery just briefly and our execution inside of that recovery and then ZB's ongoing transformation and our progress against that.
That will be the second topic and the third topic would just be around our long-term growth strategy, just reiterating our position there and how we believe that's going to drive value for our shareholders and stakeholders overall.
So let's start with navigating COVID and how we're executing inside of it.
COVID clearly is not over, just as I stated a minute ago and I'm very confident we're going to continue to have surprises ahead and disruptions ahead, but based on what we saw at the end of Q1 and what we're seeing in the beginning of Q2 and coupling that with just the pace of vaccine rollouts right now, we're clearly moving in the right direction.
I don't think anybody can argue against that and is that shift toward what I would define as more stability, and I know that's on a relative basis, kind of talk about stability here.
But that shift toward more stability, it really enabled us to give you the full year 2021 financial guidance.
Now inside of that guidance, there's going to be some important assumptions about trends and recovery timing that underpin our outlook, and Suky's going to get into more of that in just a few minutes.
But overall, it feels good, feels good to have better insight into the broader market and greater confidence in what the rest of 2021 should look like for our business.
Now as we start to return to a more normal environment, I'm going to put normal environment in air quotes given the situation right now.
But when that happens, we expect that part of what we'll see is a pretty significant tailwind from the backlog of patients that has built up over the last year or more.
Now how fast that happens, how fast we work through that backlog, especially across certain regions is something we're going to have to pay attention to.
You're going to have to watch and track.
But we absolutely believe that the vast majority of those patients who put off in elective procedure will come back into the funnel and that's going to provide a significant tailwind well into 2022 and I, for one, cannot wait for that tailwind and I can tell you that ZB is ready for them.
They're ready for those patients, and we're ready to be able to help our customers, care for those patients.
Speaking of being ready.
As I've said to you before, the things that ZB was able to directly control over the past year, I truly think the team has executed against.
I'm very proud of the ZB team for how they stood up and delivered against a backdrop of a whole lot of things that were absolutely out of their control and I know I talk a lot about the importance of our talent, our mission, our culture here at ZB and I can tell that each were absolutely critical for us in 2020 and continue to be in 2021 and well beyond and with that in mind, we've made some additional changes to our leadership team here very recently.
We've added a Chief Transformation Officer, again, to help us with all the transformation that we're going to continue to have as an organization.
We've appointed a new Chief Human Resource Officer to help us move our talent agenda forward.
One of the key areas of focus for me as we move forward as an organization, and promoting Sang Yi to group President of Asia Pacific.
He's now going to have some responsibilities of certain projects, OUS.
He brings a real disciplined execution mindset, and he can absolutely help us outside of Asia Pacific and then expanding Ivan Tornos' role as a Chief Operating Officer with the added leadership now of EMEA, which is a region that he has had deep responsibility for in the past and knows very, very well, and I know it can bring us value in that region.
So I can tell you is continued focus on talent and development is not just contained to the executive ranks.
Our entire ZB organization is hyper-focused on our people.
I'm really getting the right team members in the right roles and giving them the tools and support and really the opportunities to drive their performance, to develop and excel, and it's working.
I can tell you, this focus on talent is working and I believe it is going to continue to set us apart from the competition and in addition to the foundation built by our team members, our mission, our culture, our core business momentum is stronger than ever.
The team's execution continues to be on point.
Our market momentum is building.
Our commercial confidence is higher than ever and I can say right now, we are very excited about the R&D innovation pipeline that we still have coming.
That's an important part of our revenue growth.
Throughout Q1 and even in recent weeks, we hit key milestones with our ZB products and our innovation.
The application for Partial Knee now is available for ROSA.
I was just approved by the FDA.
We've actually already had our first procedure using that application last week with very good results and this is just the latest addition to our ROSA robotics program, our platform here and it's also another launch inside of our ZB edge suite of integrated digital and robotic technologies.
Again, something we truly do believe will set us apart from the competition.
So if I just look at ROSA overall in the quarter, we continue to see strong market demand traction with our ROSA platform.
For Persona Revision, another strong performance.
This continues to move forward in an amazing way.
Q1 was ahead of our expectations and it is another example of a tip of the spear product that we have that as we make the conversion of provision, we also have the opportunity then to go after the standard knee business as well.
So again, still exciting opportunities there for revision and then our Signature ONE Planner for shoulder procedures, again, demonstrated a very strong sequential growth from Q4.
We're actually up 65% over Q4 when we look at registrations.
Again, that's a pretty significant move.
And again, this provides that stickiness with our customers in that procedure, but it also provides a mix benefit wherever that presurgical planning is used.
And as we come into Q2 and the rest of 2021, ZB has additional innovation that's coming.
And it's pretty exciting innovation with our anticipated launch of Persona iQ and also ROSA Hip later in the year.
And I can tell you, for Persona iQ, the initial feedback from evaluating surgeons has been very positive.
And I can tell you that they're interested in being able to capture data from inside the body.
I mean this is unique.
They've not been able to do this before.
And then ultimately, remotely monitoring those data the hope would be that using that information to change the way that we care for patients.
So the excitement around this is very strong from our surgeons.
And we can tell that the momentum is going to be strong when we do get regulatory approval.
So all I have to say, the momentum on the innovation front is real here at ZB.
This will allow us multiple shots on goal across a number of innovations.
Again, with multiple robotics launches, continuing success with Persona Revision, Persona iQ, new iterations of mymobility and just really the broader ZB edge ecosystem to drive mix benefit, for sure, but also competitive conversions.
And ultimately, we really believe, change the way that we care for patients, change the treatment paradigm for patients.
That's really what it's about.
It's about driving the mission of this organization.
Truthfully to remove pain from patients around the world and improving the quality of their life.
And we truly do believe ZB edge can help us do that.
Now you've heard me talk about the three phases of transformation.
The first was winning the hearts and the minds of the organization of the team members and really dealing with the execution challenges that we had that we spent a lot of time on in the first year.
And then second was moving to that longer-term firm strategy for the organization that would drive innovation and really building the structure around that strategy and the operating mechanisms to ensure that we move it forward.
And then third, where we are now is the portfolio transformation.
And truly, that is where we sit that is squarely where we are positioned today in Phase III, these three phases.
And we have the ZB portfolio management strategy and process in place.
And we have definitely built out our capabilities to move forward in this phase.
We're focused on what we're going to define as mission-centric M&A that is WAMGR accretive that would absolutely increase our weighted average market growth and does not disrupt our best-in-class margin profile and as you've seen, we've moved this forward already with selective tuck-in acquisitions that we did last year and that really does illustrate the strategy of work.
Now those deals were smaller.
No question, they're smaller, and they're relatively immaterial when it comes to the initial revenue that we acquired, but they're absolutely designed to fill portfolio gaps and better position us in high-growth markets.
Those high-priority markets and submarkets where ZB has a path to leadership, and we believe are right to win in markets like sports medicine, ASC and in the external closure market for us and each of these deals gives us a gap filling and, we believe, differentiated product portfolio to drive growth, and that's important to growth, but also drive additional confidence in our ASC business category and of course, inside of this active portfolio management phase, there's the planned spin-off transaction of our spine and dental business that we discussed back in Q4.
That process of creating two independent even stronger companies is on track.
It's early days, obviously, but it is on track and as you saw from our Q1 results, we do not believe it's causing distraction or disruption in our business.
In fact, it's more the opposite.
We've seen significant energy in the business, kind of a gelling in the business as the NewCo team starts to come together under CEO Vafa Jamali, and they begin to build out their own strategy and their focus.
So again, it's early days, but we're very happy with the progress so far of this spin.
We've said before, we'll say it again that the spin-off of NewCo actually serves to de-risk and potentially accelerate our path to mid-single-digit growth and a best-in-class 30% operating margin profile by the end of 2023 and we're confident that throughout this process and as we achieve this growth in margin profile, we're also going to have the flexibility to reinvest for growth and that is a key thing for us.
We've got to continue to be disciplined, but ultimately invest for growth in this business.
And that's what we will continue to do.
Now to get these growth levels and to achieve our top quartile performance in TSR, which, I think, you probably remember, is one of our strategic pillars, and we're going to continue to execute in our priority growth areas.
And just as a reminder, that means that we expect to drive above-market growth sustainably in knees.
We plan to grow hips consistently at market, but then later this year, above-market rates when we launched the ROSA Hip application and we expect to stabilize, first and foremost, but also drive focus.
And then ultimately, through that focus, drive our set business at the higher end of market rates there.
We're also very focused on driving change for ZB, a real evolution of the company from a metal and plastic provider of implants to a leading med tech innovator.
Think of us as a high-tech company that happens to be in med tech.
That's the ZB brand that we're looking for, that brand evolution of this company and I can tell you that already, more than 70% of our product development dollars are being spent in this area, being spent on ZB edge, that ecosystem of connected technologies.
Now we're always going to be an implant company and that's the center of the universe for this company.
But the ZB edge ecosystem around it is the way that we can differentiate ourselves versus the competition and we're already -- we have exclusive relationships to help us here.
We have relationships already with Apple and several other tech companies that we truly do believe will drive future innovation that will delight our customers and ultimately benefit patients and I believe, fundamentally, that this shift is coming, not only for us -- this technology shift, not only for us, but for the entire market that we play in them and I truly do believe that the technology advancements potentially can reshape the growth curve of these markets.
I'll say that again, I think the technology advancements that we're seeing and the value they bring can reshape the growth curve of the markets that we play in.
And I think very importantly, also change the care paradigm for our customers and their patients.
Let me close by saying that I continue to be highly confident in the ZB team and in our business momentum and I truly believe that we are well positioned for success, and our strategy is working.
Our transformation is well under way, and I'm excited about the value that we can drive for our shareholders on a go-forward basis.
Your vigilance and dedication to our safety protocols over the past year or so has been absolutely critical.
And you're focused on our mission, our strategy and really just how you show up and execute every day, it's unmatched in my view, it truly is unmatched.
You are what makes us ZB, I truly believe that.
And what makes me confident really is you, that we can absolutely continue to deliver on all fronts.
He's going to give you more financial details on the quarter, and obviously, most importantly, our expectations looking forward.
As Bryan mentioned, our underlying fundamentals remain strong as does our confidence in our outlook.
And third, how ZB is positioned for long-term growth in 2022 and beyond.
Net sales in the first quarter were $1.847 billion, a reported increase of 3.6% and a constant currency increase of 80 basis points versus the same period in 2020.
It's important to note that we had one fewer selling day, resulting in approximately 150 basis point headwind to consolidated revenue growth.
Overall, consolidated and regional results were better than our initial expectations, as vaccine adoption continued to ramp up and pandemic pressure eased across most markets in March versus January and February.
First, the Americas increased 1%.
We continue to see variability by country, and while the region was in decline for most of the quarter, a sharp increase in U.S. procedures in March drove regional growth.
As expected, the EMEA region was hardest hit by COVID-19, decreasing 10.3% with all submarkets in decline.
While we did see some recovery or decrease in COVID pressure as we move through the quarter, some markets continue to operate under recently enacted restrictions and actions that are limiting the near-term recovery of elective procedures.
So we are continuing to monitor uptake very closely and expect that recovery in EMEA will lag other regions by one to two quarters.
Lastly, Asia Pacific grew 15.5% with solid year-over-year growth across our three largest markets.
Overall, we've seen a stabilization around COVID cases and surges in the region, but we continue to see some significant delays in recovery across India and other smaller markets.
Turning to our business performance in Q1.
Before jumping in, let me call out that we've updated our product category reporting to provide visibility into NewCo and to align products to categories based on how we internally evaluate performance of those businesses.
Also, we have adjusted our historic reporting of revenue for these changes to assist in year-over-year comparisons.
First, our ROSA robotics capital revenue has been moved from the knee's category to the other category.
And our disposable revenue associated with robotic knee procedures have been moved from the other category into the knee category.
This will allow us to more clearly indicate to investors the growth of our base knee business and sets us up for reporting once we launch ROSA Hip, which is currently expected in the second half of 2021.
We've also broken out our global spine and dental revenues this quarter in conjunction with NewCo reporting.
The global knee business declined 5.2% versus Q1 2020, negatively impacted by ongoing pressure from COVID.
Inside of that, we continue to see strong momentum from Persona and from ROSA Knee.
Our global hip business increased 0.3%.
Both the Americas and Asia Pacific continued their growth trends, increasing 0.9% and 11.2%, respectively.
We continue to see strong demand and favorable feedback on the Avenir Complete hip with adoption from both gold and platinum accounts.
Sports extremity and trauma increased 7.2%, driven by solid growth in upper extremities, trauma and CMFT.
In S.E.T., we continue to see strong surgeon registrations of the Signature One surgical planning system for shoulder procedures.
Our dental and spine segment grew 9.6%, fueled by outpaced recovery, especially in Dental.
New products and better commercial execution also drove growth in the quarter with strong contributions from implants and digital solutions in our dental business and from Mobi-C and Tether within Spine.
Finally, our other category was down 2.5%.
As mentioned earlier, this quarter, our other category includes the contribution of ROSA Knee capital sales.
Moving on to the P&L.
In the first quarter, we reported GAAP diluted earnings per share of $0.94 and adjusted diluted earnings per share of $1.71.
Our reported GAAP diluted earnings per share were up significantly when compared to a reported GAAP diluted loss per share of $2.46 last year.
The increase in year-over-year GAAP earnings was driven by higher revenue in the current period in tandem with prior year goodwill and product liability related charges.
On an adjusted basis, earnings per share was up about 60 basis points driven by higher revenues, with operating margins down slightly compared to 2020 and a higher share count.
The adjusted tax rate of 16% in the quarter was better-than-expected, driven by the realization of excess stock compensation benefit and other smaller discrete items.
Turning to cash and liquidity.
Overall, operating cash flows were $247 million and free cash flow totaled $137 million for the first quarter.
We paid down an additional $200 million of debt and ended the first quarter with cash and cash equivalents of $724 million.
We continue to make good progress with another quarter of delevering the balance sheet.
Moving to our full year outlook and financial guidance.
While we continue to see pressure due to the global pandemic, vaccine rollout and adoption is approaching meaningful levels.
Translating into a reduction of infection surges and hospitalizations in most markets.
This increased stability gives us greater confidence that we'll return to normalized market growth in our key markets within the year and also begin to see deferred patients reenter as an added tailwind.
As a result, today, we provided financial guidance based on our latest expectations, and that is underpinned by two key assumptions: First, current vaccine adoption trends continue to strengthen, driving a decrease in the number of new COVID-19 cases through 2021; and second, hospitals increase capacity to work through some portion of patient backlog this year.
Against that backdrop, our current expectations for full year 2021 financial results are reported revenue growth of 14% to 17% versus 2020 with an expected foreign currency exchange tailwind of approximately 150 basis points.
Adjusted operating profit margins of 26.5% to 27.5%, an adjusted tax rate of 16% to 16.5%, adjusted diluted earnings per share in the range of $7.50 to $8 and free cash flow of $900 million to $1.1 billion.
Inside of that guidance, we expect to see seasonality in revenues in '21 that begins to resemble pre-COVID cadence.
Additionally, our investments in R&D and key commercial initiatives will increase throughout the year.
However, we do expect operating margins to improve as we exit 2021 as a result of higher revenues.
Net interest expense is expected to step up about 5% versus 2020, and we expect fully diluted shares outstanding to be about 211 million shares for the full year.
Of course, we will continue to update you on market dynamics and financial expectations as we move through the year.
Let me now turn to our long-term growth profile.
We continue to expect our structural organic revenue growth rate to accelerate to the mid-single-digit range, with adjusted operating margins of at least 30% as we exit 2023.
We're confident in our expectations as a result of the following proof points.
First, we have been delivering consistent strong performance versus the market.
Second, we have the best new product pipeline in the company's history that will complement an already robust portfolio.
And third, our global team members continue to ramp up execution across our strategic priorities.
In addition, our previously announced transformation initiatives are progressing well, and the addition of a Chief Transformation Officer has the potential to drive even greater investment opportunity for growth while maintaining a leading margin profile.
To summarize, we are pleased with our better-than-expected revenue performance in Q1.
While we anticipate and are prepared for ongoing short-term market uncertainty due to COVID and remain sensitive to ongoing challenges in a number of markets, from a financial standpoint, we believe the worst of the pandemic is behind us and look forward to improving results as we execute on our strategy.
[Operator Instructions] With that, operator, may we have the first question please?
 Assistant:

Chosen response:
compname reports q1 earnings per share $0.94.
q1 adjusted earnings per share $1.71.
q1 earnings per share $0.94.
q1 sales rose 3.6 percent to $1.847 billion.
sees fy revenue up 14 to 17 percent.


Prompt:
Human: I hope you are all well and safe.
Joining me virtually today are Bryan Hanson, our Chairman, President and CEO; and EVP and CFO, Suky Upadhyay.
As we're all aware, obviously, given the news recently, COVID is still very much with us, and we're watching it very closely, as you can imagine.
But given that even, we've seen some real progress since our last call, and I think that's obvious to everybody.
The world has not returned to normalcy yet, but travel is returning.
We have more team members in our offices, and I am personally looking forward to attending the AAOS meeting in about a month in San Diego.
So really looking forward to that meeting.
We have a lot of great technology that we're going to be able to showcase there and just really happy it's going to be in person again, finally.
You, our team members are the driving force for this progress that we've seen in our own facilities and certainly in our communities as well.
Also, I want to say that I hope in our investor community that you're continuing to stay safe and have been hopefully able to travel over the last few months to see family and friends.
This is an opportunity for us to take advantage of some travel as we begin to turn to more of a normal environment, of course, not there yet, and we know this isn't happening consistently anyway in all regions.
But overall, we are encouraged and we're doing our part to keep this moving forward.
And every single day, we are supporting our customers and patients that they serve.
We're doing this safely, obviously, but this is a big focus for us as a mission-driven organization to be there for our customers so they can complete the procedures that they have and we can make sure that the patients receive the care that they deserve.
And with that, I think it's a good lead into our Q2 call.
And I think most importantly, our 2021 guidance view on a go-forward basis.
And then I'll come back to close out the call with some updates on our active portfolio management and product in pipeline highlights.
I'll wait to do that after he provides the guidance information.
So just to set him up a little bit, overall, let me just say that our performance in the quarter improved meaningfully from the first quarter of this year, and that was pretty much across all regions and product categories.
And as recovery from the global pandemic continued to take hold, we saw that recovery in our procedures also move in the right direction.
While we certainly anticipate some ongoing COVID pressure, we currently think it's going to be manageable by hospitals, and we expect that the recovery will continue to build sequentially throughout the second half of 2021.
Again, moving in the right direction.
And my revenue and P&L commentary will be on a constant currency or adjusted basis.
Also, I'll provide constant currency revenue growth versus 2019 as we think that is a more relevant comparison for this quarter.
Net sales in the second quarter were $2.027 billion, a reported increase of 65.3% and an increase of 60.7% on a constant currency basis versus the same period in 2020.
When compared to the second quarter of 2019, net sales were flat on a constant currency basis, and we did not have a material impact from selling days.
Overall, consolidated and regional results were slightly better than the expectations we provided on our last quarterly call, with growth versus 2019 in the Americas and Asia Pacific and sequential improvement in EMEA.
For the quarter, the Americas increased 68.3% or up 1.9% versus 2019.
We continue to see variability by country within the region with the U.S. growing 66.2% or 3.3% versus 2019.
EMEA grew 80.5% or down 7.3% versus 2019 with continued COVID pressure being a factor.
We did see improvement in EMEA as we moved through the quarter, and we expect that trend to continue through the back half of this year.
Lastly, Asia Pacific grew 24.4% or 2.8% versus 2019 in spite of some unexpected headwinds.
While the region has been largely stable in recent quarters, it was impacted late in the second quarter by channel inventory contraction in our knee and hip categories within China, and advance of the rollout of volume-based procurement or VBP.
In addition, we saw a resurgence and increase of COVID19 in a number of markets, including Japan.
Despite these headwinds, the region continued to pose growth.
Turning to our business categories.
The global knee business increased 72.2% or down 6.3% versus 2019.
In the U.S., knees increased 77% or was flat versus 2019.
While we are seeing sequential improvement in the recovery of procedural volumes in large joints, the path back to normalized market growth is taking a bit longer than most expected.
Still, we continue to be encouraged by the team's execution and ongoing strong momentum for Persona and ROSA Knee.
Our global hip business increased 39.9% or down 2.8% versus 2019.
In the U.S., hip grew 46.6% or up 3.1% versus 2019.
Strong demand and favorable feedback continues for the Avenir Complete hip, which continued adoption for both gold and platinum accounts.
The sports, extremities and trauma category increased 53% or up 10.8% versus 2019 driven by solid growth in sports medicine, CMFT and upper extremities.
We continue to see strong surgeon registrations of the Signature ONE surgical planning system for shoulder procedures.
Our dental and spine category grew 69.4% or up 0.8% versus '19, fueled by recovery in dental.
New products and better commercial execution drove growth in the quarter with strong contributions from implants and digital solutions in our dental business.
Finally, our other category grew 105.9% or up 7.5% versus '19.
This reflects the ongoing demand for ROSA Robotics and strong capital purchases in the quarter.
We saw improvements both sequentially versus Q2 2020 in units sold as well as increased revenues from software due to the launch of our Partial Knee application.
Moving on to the P&L.
For the quarter, we reported GAAP diluted earnings per share of $0.67.
Our reported GAAP diluted earnings per share were up significantly when compared to a reported GAAP diluted loss per share of $1 in the second quarter of 2020.
The increase in year-over-year GAAP earnings was driven by higher revenue, offset by normalized spending levels and IPRD investments within the quarter.
In addition, the second quarter of 2020 had some onetime GAAP charges that did not repeat.
On an adjusted basis, diluted earnings per share of $1.90 was significantly higher than the prior year, driven as expected by the recovery of elective procedures since the pandemic drop in the second quarter of 2020.
Adjusted gross margin was 71.7% and in line with expectations.
Our adjusted operating expenses of $923 million stepped up sequentially versus the first quarter due to higher variable selling expenses related to higher sales and increased discretionary spending to support investments in commercial infrastructure and innovation through R&D.
Improved revenue performance and stable gross margins more than offset higher spending to drive 26.2% operating margins, a slight improvement over the first quarter of this year.
The adjusted tax rate of 16.5% in the quarter was in line with our expectations.
Turning to cash and liquidity.
For the quarter, operating cash flows were $453.9 million, and free cash flow was robust at $358.7 million, and we ended the second quarter with cash and cash equivalents of just over $1 billion.
We continue to make good progress on deleveraging the balance sheet and expect to make another $300 million in debt repayments in the third quarter.
Moving to our financial guidance.
We are tightening our guidance range to better reflect our year-to-date performance and a more informed view of the potential impact of COVID.
There are some key assumptions that underpin our 2021 financial guidance.
We assume no worsening of elective procedure trends due to COVID and that procedure volume recovery continues in the second half of the year.
But recovery may not be linear by region and/or by product category.
e also expect to see seasonality impact in the third and fourth quarter as we have observed in prior years.
With the narrowing of our guidance range, we are now expecting reported revenue growth to be 14.5% to 16.5% versus 2020, with the impact of foreign currency unchanged at about 150 basis points of a tailwind for the full year.
On a constant currency basis, compared to 2019, we expect Q3 to grow sequentially over Q2 and for that improvement to continue in the fourth quarter.
Turning to the P&L.
Our adjusted diluted earnings per share is now in the range of $7.65 to $7.95, and we have narrowed our adjusted operating margin projection to be 26.5% to 27% for the full year.
Our updated earnings per share guidance reflects our performance to date, our expectation of improved growth in the second half and that discretionary operating expenses remained consistent with Q2 through the balance of the year.
While operating margins are expected to decline sequentially in the third quarter, in line with lower sales revenue and steady investment levels versus the second quarter, we expect overall second half operating margins to be stronger than first half operating margins.
Our adjusted tax rate projection is unchanged at 16% to 16.5% for the full year.
And finally, our free cash flow estimates remain in the range of $900 million to $1.1 billion.
We will continue to update you on market dynamics and financial expectations as we move through the remainder of the year.
To summarize, our performance in Q2 was slightly better than our expectations that we have communicated to you through the second quarter.
While we anticipate some ongoing COVID pressure, we have more confidence in the momentum of the recovery and our ability to execute against that backdrop.
And I'm going to now just hit three topics before we move to Q&A.
First, I want to talk about execution in some of the product and pipeline highlights that we have under that category; second, I'm going to talk about our progress against active portfolio management, which is a big effort for us, obviously; and then third is innovation.
And inside of that innovation, how we believe we're going to be able to drive attractive long-term growth that ultimately will deliver value to you, our shareholders.
So let's start with our team's execution.
And I've said this before, and I'll continue to say it, that the things that ZB was able to directly control over the past year, 1.5 years, the team -- they've executed against it, they delivered against it.
And I'm very proud of the team for doing that during a time of significant turbulence around them.
And in Q2, in the recent weeks, we've hit key milestones with our ZB products and our solutions.
ROSA for Partial Knee was approved back in April, as we've talked about before.
And our first patient surgery was actually performed early in the quarter, and we've continued to see good traction with that technology so far and great feedback so far.
And it's important for us because partial knees, I think most of you know, is a market where ZB has a sizable market share position.
So we're very excited about the possibilities here, not just from a revenue standpoint, but also the potential impact for patients in the surgery area.
And then if I just look at ROSA overall, we did see another strong quarter in Q2 of market demand and traction with ROSA total knee as well with placement momentum broadly continuing across the world, not just in the U.S. but internationally as well.
We want to see strength in the U.S., but we want to see that OUS, and we did get to see that kind of mix again in Q2.
We also saw capital expenses for our customers being much stronger in Q2 and -- And as a result of that, we saw a shift back to upfront sales of ROSA.
So more of those happened in Q2 than what we would typically see.
And again, that just speaks to the strength of capital budgets and people's desire to acquire in that way.
But what is clear is that there's a real focus for hospitals to be bringing in robotic systems for their ORs whether they buy them outright or they get them through other arrangements.
Either way, that momentum, that demand is very real.
And ROSA continues to be a cornerstone, one of the key ones, of our ZBEdge suite of connected solutions.
So again, a lot of enthusiasm on what that will mean in coming years in terms of expansion of indications, and overall robotics penetration for ZB.
Also in the quarter, we saw Revision continue its very strong momentum.
Again, this is a great tip of the spear product for us, where we can go in and get competitive conversions and revision but also use those competitive conversions for access to the typical total knee as well for that surgeon.
So very exciting, not just on the revision side but also opening the door to a much larger opportunity to get their typical knee conversion as well.
We're also excited about adding another key variable to our ZBEdge portfolio of connected technologies, and that is our Persona iQ, which will be the first and only smart implant on the market.
And we certainly still have to get FDA approval on that.
We're working diligently with them to help with any information they need to move that forward, and we're certainly hoping to receive approval in the relatively short term.
But ultimately, again, that time line is up to the FDA.
And it's important for us because it takes the Persona implant, which is that known and trusted design in an implant and it combines it with Canary Medical's tibial extension, which has the sensor technology in it.
And the combination of those two things will now inside the body, give us an opportunity to measure the range of motion of that patient, step count, walking speed and other mobility metrics that we believe are going to be indicators of post-surgery progress.
So again, helping us close the loop in those connected technologies that we have in ZBEdge.
So more to come when we hear back from the FDA.
But once we do get that approval, we would look to limited launch the technology for a quarter or two and then post that time frame, move into full launch.
So let's move to my second topic that is on active portfolio management, and our efforts around active portfolio management.
We have the ZB portfolio management strategy in place.
We have the right process in place, and we have definitely built our capabilities to move this forward over the last 1.5 years to two years.
So we're excited about this phase of the organization.
And we're focused, as we said before, on mission-centric M&A that is WAMGR-accretive.
So in other words, weighted average market growth accretive to the organization.
And you've seen us move this forward already with the selective tuck-in acquisitions that we did late last year that really illustrate our strategy at work.
These are smaller deals, again, tuck-in size deals that were designed to fill portfolio gaps and better position us as an organization in high-growth, high-priority markets like sports medicine, ASC and sternal closure where we truly do believe we have a right to win in attractive markets with strong profitability.
And of course, there's the planned spin-off transaction of our spine and dental businesses that is fully underway and on track.
We continue to be encouraged by the energy and the momentum around NewCo.
As CEO Vafa Jamali, builds out his team and refines his corporate strategy, and we believe creates two independent and even stronger companies that is going to maximize value for not just our customers, but also for you, our shareholders.
And that brings me to the last topic that we have before we move to the Q&A, and that's going to be around innovation.
And really inside of innovation, how we see our ability to drive attractive long-term growth that will ultimately deliver value to all of our stakeholders, including you, obviously, our shareholders.
We are focused on evolving ZB from what I would define as a metal and plastic provider of implants into a leading med tech innovator.
And we have a lot of shots on goal across a number of programs to do this, including a number of robotics launches over the near term, smart implants that we have today, but also the technology road map that we have in smart implants.
New functionality with mymobility and really just the broader ZBEdge ecosystem of those connected technologies that are going to help us drive mix benefit and share of wallet benefit, but also competitive conversions.
And I've mentioned before, more than 70% of our new product development investment is directed toward ZBEdge and those connected technologies inside of ZBEdge.
And our exclusive partnership with Apple continues to be productive and collaborative.
And we forged several other tech alliances that we know are going to drive future innovation that will benefit patients.
And I believe this fundamental shift is coming for ZB and for our core markets with technology advancements, potentially changing the care paradigm for patients in the future, and that's really what our focus is.
So the momentum is real on the innovation front.
And we think it will ultimately allow us to drive long-term growth that is very attractive to us and to you.
And most importantly, it also gives ZB the chance to really change the lives of patients around the world.
And let me close by saying that I continue to be highly confident in the ZB team and our business momentum.
While there continues to be uncertainty due to the global pandemic that we cannot control, I truly believe that we are ready and well positioned for success.
And our strategy is absolutely working.
The transformation of our business is well underway, and I'm excited about the value we can drive for our shareholders on a go-forward basis.
Your dedication to safety is critical and your focus on delivering on our mission is unmatched and you do it daily.
I remain incredibly proud of what we're accomplishing and what we're accomplishing together.
With that, operator, may we have the first question, please?
 Assistant:

Chosen response:
q2 adjusted earnings per share $1.90.
q2 earnings per share $0.67.
q2 sales $2.027 billion versus refinitiv ibes estimate of $1.98 billion.
updates 2021 financial guidance, narrowing range for full year outlook.
sees 2021 reported revenue growth of 14.5% - 16.5%.
sees 2021 adjusted earnings per share of $7.65 - $7.95.