Prompt:
Human: I'm Steve Rolfs, Senior Vice President and Chief Financial Officer of Sensient Technologies Corporation.
During our call today, we will reference certain non-GAAP financial measures which we believe provide investors with additional information to evaluate the Company's performance and improve the comparability of results between reporting periods.
These non-GAAP financial results should not be considered in isolation from or as a substitute for financial information calculated in accordance with GAAP.
Our actual results may differ materially, particularly in view of the uncertainties created by the COVID-19 pandemic, governmental attempts at remedial action and the timing of a return of more normal economic activity.
We urge you to read Sensient's filings, including our 10-K, our first quarter 10-Q, and our forthcoming second quarter 10-Q for a description of additional factors that could potentially impact our financial results.
Please bear these factors in mind when you analyze our comments today.
Now, we'll hear from Paul Manning [Phonetic].
I'm very pleased with the results of our Flavors & Fragrances Group as well as our Food & Beverage business in the Color Group.
Flavors & Fragrances is up mid-single-digits in revenue and high-single digits in operating profit during the quarter, continuing its revenue growth trend from the first quarter.
We also had favorable growth in our natural colors and pharmaceutical businesses, which were up in the quarter.
The growth in these businesses was offset by the adverse impact of COIVD-19 in the personal care market and throughout Latin America, Europe and Asia-Pacific.
Despite these COVID-19 headwinds and based on current trends, we expect to deliver on our earnings per share outlook for the year.
I'm also pleased on the progress we had made during the quarter on our divestitures.
We completed the sale of our Inks business and signed a definitive agreement to sell our Yogurt Fruit Prep business.
We anticipate closing the Yogurt Fruit Prep sale in the third quarter.
We continue to make progress on the divestiture of our aroma chemical and fragrance compound business, although we have been delayed by COVID-19.
We believe we can close this transaction by the end of the year.
All of our production facilities are open and have been throughout the pandemic.
Our on-time delivery remains high and we have successfully managed our raw materials.
Our staffing and attendance at our facilities remains outstanding and I'm very proud of the dedication of our employees.
We will continue to closely monitor each of our production facilities to remain ahead of prevailing GMP and sanitation practices.
As a result of COVID-19, we have incurred additional costs and we have experienced significant revenue headwinds in a number of businesses.
Overall, the impact of COIVD-19 has reduced our earnings per share by approximately $0.10 year-to-date.
The impact of COVID-19 on our Food & Beverage business is mixed.
However, the impact is significantly negative for our personal care business.
Now let me turn to the Groups.
The Flavor Group had another nice quarter.
Adjusted local currency revenue for the Group was up 5.7%.
The Group continues to experience positive sales growth in the finished flavors and extract product lines as well as an improving picture in the flavor ingredient product lines.
The natural ingredients business also had a solid quarter.
The overall impact of COVID-19 was negative to the Group's revenue.
The Group's revenue growth is based on strong new wins generated throughout 2019 and the first part of 2020, retaining existing business, and an overall decline in attrition which was a lingering effect from our earlier restructuring activities.
Net of these factors, we had generated mid-single digit growth year-to-date and I anticipate the same growth rate for the remainder of the year.
This quarter, the Flavor Group returned to quarterly profit growth with adjusted local currency operating profit up 8%.
The higher profit was a direct result of the higher volumes, new wins, and the Group's production cost initiatives.
Moving forward, I anticipate continued profit growth.
Overall, the Group's operating profit margin was up 30 basis points in the quarter and I would anticipate a 50 basis point to 100 basis point improvement for the year.
In summary, I expect mid-single digit revenue growth and mid to high single-digit operating profit growth for the Flavor Group for the remainder of the year.
Within our Color Group, revenue for Food & Beverage Colors was up low-single digits for the quarter.
Pharmaceutical had a nice quarter, up double-digits and natural colors continues to grow and that product line is up mid-single digits for the year.
Similar to the Flavor Group, Colors continues to focus on retaining existing business and improving the Group's overall sales win rate.
Unfortunately, the growth in Food & Beverage Colors revenue was offset by a more than 20% decline in our Personal Care business revenue.
While we saw some improvement in our Personal Care business in Asia and Latin America, the demand for make-up in Europe and North America was down substantially in the quarter.
Given the uncertainty with COVID-19 and continued restrictions, I would anticipate continuing challenges for this product line in the second half of the year.
In terms of operating profit, the Color Group achieved mid-single-digit profit growth in Food & Beverage Colors for the quarter and has generated double-digit operating profit growth for the year.
However, profit in Personal Care in the quarter was down by more than 35% due to the lower demand in make-up and other personal care products, and that was the main reason for the Color Group's overall decline in profit.
The Color Group remains focused on production take-out actions.
However, these actions need more time to realize their full potential and we do not expect that the actions will outpace the profit decline in Personal Care.
Short of a significant opening of the world economy, I would expect the profit declines in the Personal Care business to continue for the remainder of the year.
In summary, Food & Beverage Colors revenue is up nearly mid-single digits year-to-date and double digits for profit.
For the back half of the year, I would expect mid-single digit revenue growth and mid-to-high single-digit profit growth for that product line.
Because of the impact of the -- because of the impact of Personal Care, we would expect the Color Group to be flat in revenue and profit for the year.
Our Asia Pacific Group had solid revenue growth in some regions but this growth was offset by declines in other regions as government COVID-19 restrictions have significantly impacted many sales channels.
The Group delivered outstanding profit growth in the quarter and I anticipate the Group to return to revenue growth once restrictions in certain areas begin to ease.
Based upon current trends, I expect Asia to deliver a low-single digit sales growth and mid-to-high single-digit profit growth for the year.
Overall for the Company, we continue to focus on our supply chain.
We have increased our inventory levels on certain key raw materials, and as a result, we are providing outstanding on-time delivery to our customers around the world.
While we do experience supply chain disruptions, we have avoided any significant financial disruptions and we continue to reduce our overall inventory levels for the Company.
I'm pleased with the progress we had made in the first six months of this year.
The Flavor Group has had a great first half and I would anticipate this to continue in the second half.
Our Food & Beverage Colors business is also performing well.
In Asia Pacific, I'm confident that the strategy and investment we have in place will return this Group to revenue growth.
While I am optimistic about our Food businesses, our Personal Care business will continue to struggle.
Furthermore, the ultimate impact of COVID-19 remains unknowable.
New product launches are significantly below prior year and there has been some customer SKU rationalizations.
Nevertheless our business is strong and well-positioned to grow for the year.
Steve will now provide you with additional details on the second quarter results.
The adjusted results for 2020 and 2019 remove the impact of the divestiture-related costs and the operations divested or to be divested.
The second quarter 2019 results do not include any divestiture-related costs.
We believe that the removal of the gains and losses connected to the businesses that we are divesting provides a clearer picture to investors of the Company's performance.
This also reflects how management reviews the Company's operations and performance.
Included in this year's second quarter reported results is a gain realized related to the reclassification of accumulated foreign currency translation as a result of the sale of the Inks business as well as other divestiture-related costs, which were primarily non-cash.
These items, which are included in the divestiture and other related costs, increased net earnings by $1 million or approximately $0.02 per share.
In addition, this year's second quarter reported results include $28.2 million of revenue and an immaterial amount of operating income related to the results of the operations to be divested.
Last year's second quarter results include $36.4 million of revenue and an immaterial amount of operating income from the operations to be divested.
Excluding divestiture-related costs and the results of operations to be divested, consolidated adjusted revenue was $294.9 million in the second quarter of 2020 compared to $302.8 million in the second quarter of 2019.
Consolidated adjusted operating income was $40.3 million in the second quarter of 2020 compared to $47 million in the second quarter of 2019.
Adjusted diluted earnings per share was$0.70 in this year's second quarter.
Compared to $0.81 in last year's second quarter.
We have reduced debt by approximately $60 million since the beginning of the year and approximately a $120 million over the last 12 months.
We have adequate liquidity to meet operating and financial needs through our cash flow and available credit lines.
Our debt-to-EBITDA is now just under 2.7.
Cash flow from operations was $107.6 million for the first six months of 2020, an increase of 41%.
Capital expenditures were $21.4 million in the first six months of 2020 compared to $16.6 million in the first six months of 2019.
We expect our capital expenditures to be approximately $50 million for the year.
Our free cash flow increased approximately 45% during the first six months of 2020 to $86.2 million.
We expect continued strong cash flow growth for the remainder of the year.
Consistent with what we communicated during our last call, we expect our adjusted consolidated operating income and earnings may be flat to lower in 2020 because of the level of non-cash performance-based equity that may be deducted in 2020 based on our results.
We also expected a higher tax rate in 2020 compared to our 2019 rate which was lower as a result of a number of planning opportunities.
Based on current trends, the Company is increasing our GAAP earnings per share guidance to $2.10 to $2.35.
This guidance now includes $0.35 to $0.40 per share of divestiture and other related costs and the results of the operations to be divested.
This guidance also includes approximately $0.10 of currency headwinds based on current exchange rates.
On an adjusted basis, based on current trends, we are maintaining our original estimate for the year of a range of $2.60 to $2.80, which excludes divestiture-related costs, the impact of the divested or to be divested businesses and foreign currency impacts.
We are also maintaining our adjusted EBITDA guidance of low-to-mid single-digit growth.
 Assistant:

Chosen response:
current diluted earnings per share guidance for 2020 is $2.10 to $2.35.
reconfirms previously issued guidance of $2.60 to $2.80 for 2020 adjusted earnings per share.
continues to expect 2020 adjusted ebitda to grow at a low to mid-single digit rate.
sensient technologies - expect 2020 adjusted operating income to be flat to down at low-single digit rate, in each case on local currency basis.
2020 adjusted operating income will be impacted by higher non-cash performance-based compensation.
full impact of covid-19 remains unknown and continues to create uncertainty.
also confirming previously issued guidance for low to mid-single digit revenue growth in 2020.


Prompt:
Human: This information can be accessed by going to the Investor Relations section of the website.
During the call, we will refer to non-GAAP financial measures in discussing the Company's performance.
You can find a reconciliation of these measures to GAAP financial measures in our materials for today's call.
Finally, Synchrony Financial is not responsible for and does not edit or guarantee the accuracy of our earnings teleconference transcripts provided by third parties.
Synchrony delivered strong results during the second quarter, reflecting the power of our technology-enabled model, the durability of our partner-centric value proposition, and the early indications of a consumer resurgence.
With now more than a year of the COVID-19 pandemic moving into the rearview mirror, I am proud of how our team has continued to execute on our strategic priorities.
Our multi-product, multi-capability strategy has enabled us to nimbly adapt and deliver best-in-class products and services to address our partners' evolving needs, while also generating appropriate risk-adjusted returns for all our stakeholders.
Let's get things started by reviewing some of the key financial highlights from the quarter.
Net earnings reached a record $1.2 billion, or $2.12 per diluted share.
This reflected an increase of $2.06 over last year as we mark the anniversary of the pandemic's initial impact on our business and really, the world.
We are deeply grateful for all of the front line workers, scientists and leaders have done to support our community and make progress toward an eventual return to normalcy.
Purchase volume grew 35% over last year, reflecting a 33% increase in purchase volume per account.
This increased spend was broad-based across our five business platforms.
This strength in purchase volume was largely offset by the persistently elevated payment rate trends resulting from the government stimulus and industrywide forbearance actions, leading to a slight increase in loan receivables, which were $78.4 billion for the second quarter.
Average balances per account were down about 4% for the period, while new accounts were up about 58%.
Net interest margin of 13.78% was 25 basis points higher than last year.
Elevated payment rates and excess liquidity levels continue to have an impact on receivables and yield.
The efficiency ratio was 39.6% for the quarter, primarily reflecting lower net interest income.
Expenses were down about 4%, compared to last year and down 5% year-to-date as our cost efficiency initiatives continue as planned.
We remain on track to remove about $210 million from our expense base by year end, even as we continue to invest in our business.
Credit continue to perform very well.
Net charge-offs were 3.57% for the second quarter, down almost 178 basis points from last year.
Turning to our balance sheet.
Deposits were down $4 billion, or 7% versus last year, reflecting retail deposit rate actions we took to manage our excess liquidity position.
Deposits represented 81% of our funding mix at quarter end, a slight increase versus last year due to the retirement of some of our debt during the second quarter of 2021.
During the quarter, we returned $521 million in capital through share repurchases of $393 million and $128 million in common stock dividends.
We also continue to reinvest in our business.
One of our greatest competitive differentiators remains our digital capabilities.
We continue to invest in innovative products and services that enable our partners to meet their customers wherever and however they want to be met.
That where and how, of course, can change fairly quickly, as can the objectives that our partners seek to achieve.
So we need to stay nimble and ahead of the curve.
We have continued to win and renew key partnerships, including our recent renewal with TJX Companies.
This has been a very valuable partnership for over 10 years now, and we are excited to continue to provide innovative financing products to TJX customers.
We also renewed 10 other programs during the quarter, including Shop HQ, Daniels, and Sutherlands and added four new programs, including JCB and Ochsner Health.
Our go-to-market strategy utilizes innovative and scalable ways to reach and serve customers effectively across a broad spectrum of industries and financing needs and over the course of their life cycle.
We have built a technology platform that harnesses our proprietary data analytics, cutting edge digital capabilities to offer a customized suite of products specifically designed with our partners and their customers in mind, all while delivering appropriately aligned economic outcomes.
Our recent business reorganization, which included the creation of a growth organization and the redistribution of our partners from three sales platforms into five will allow us to better leverage these company resources and deliver swifter, more optimized products and capabilities for our partners and sustainable profitable growth for our business.
In fact, the growth we expect to achieve within each platform will be driven by utilizing our suite of products to expand lifetime value, deploying more of our digital capabilities to expand customer reach, or adapting our value propositions to harness organic trends as the landscape evolves.
In the case of our Home & Auto platform, a combination of all three.
In particular, our home partnerships have been a focus of Synchrony's going back to our business inception when we started providing financing for appliance purchases.
Over the years, we've significantly broadened the scope of this platform and expanded our customer reach.
Today, Synchrony has penetrated across all distribution points in each sector of the home market, from big retailers, to independent merchants and contractors and OEMs and dealers, our Home platform provides financing solutions to about 60,000 merchants and locations across a broad spectrum of industries, including furniture and accessories, mattresses and bedding, appliances, windows, roofing, HVAC and flooring.
Our partnerships are deeply rooted in industry expertise, data-driven strategic objectives, and mutually beneficial economic outcomes.
The average length of our top 20 partners is over 30 years, because we are able to deliver a breadth of financing products, innovative digital capabilities, and seamless customer experiences that are customized to each partners' needs as they evolve over time.
Our data insights and analytics expertise, when combined with the partners' own data, empowers each merchant as they seek to optimize their marketing, customer acquisition and sales strategies.
And the value that our suite of products provides to their customers is clear, about 58% of our sales are repeat purchases.
Whether customers are looking to upgrade their living room couch, or suddenly find themselves in need of a new washing machine, we enable our partners to consistently support those needs through a variety of financing options that are best suited to the customer and the particular purchase they're considering.
So, whether we've been entrusted to enhance customer loyalty, drive transaction volume, or usher a retailers' adoption of digital assets, our strategy has enabled steady growth across the home market.
For the four years prior to the pandemic, Synchrony's Home receivables grew at a 7% CAGR as consumers spend within home improvement, furniture and decor and electronic and appliances sectors each grew by between 4% and 8% annually.
Certainly, the pandemic has brought with it both challenges and opportunities.
As consumers quarantined in their homes, the desire to renovate their homes or upgrade their furniture and decor intensified.
As people thought to leave crowded metropolitan communities for suburban neighborhoods, home improvement spend increased.
In 2020 alone, the home industry represented an approximate $600 billion market opportunity.
Synchrony serves a fraction of that today.
Even as we normalize toward a pre-pandemic cadence, the consumers' desire to invest in their living spaces is as strong as ever, perhaps reflecting a secular shift in favor of more remote work.
We have positioned our Home platform very well to capitalize on these trends.
We have opportunities to deepen the scope and reach of existing partnerships, while also implementing a number of strategic initiatives to better leverage our core competencies and deepen our market penetration.
For example, we have begun using more data and advanced analytics to enhance our acquisition marketing and drive higher repeat sales.
We've also launched our direct-to-device capability, which puts the simplicity of our financing application and the power of our underwriting in the hands of the contractors and customers as they seek to install a new HVAC system, replace their windows or repair an oven.
This direct-to-device technology is also being deployed in retailer locations, which helps shorten checkout lines and delivers a completely digital solution to apply and buy when in store.
In short, we are excited about the opportunities for growth that we see in our Home platform.
There are certainly some natural tailwinds in the industry that should feel home spend even as life normalizes in a post-pandemic world.
But we are actually more excited about the ways in which we're leveraging our technological innovations to extend our customer reach, enhance the value of the products and services we offer, and deepen our competitive differentiation.
As we continue to execute on our long-term strategy, we are driving even greater customer lifetime value for our partners, better experiences for their customers and strong returns for our stakeholders.
As Brian mentioned earlier, the strong results we achieved during the second quarter reflected a number of factors.
First, a healthy consumer with significant savings and pent-up demand to spend it leading to broad-based purchase volume growth.
Second, continued strength in credit quality across our portfolio.
We continue to closely monitor our portfolio as industrywide forbearance begins to expire across the broader consumer finance landscape and for some customers, as rental forbearance also expires.
Finally, the strong positioning of our business, combined with consistent execution by our team, while we maintain focus on efficient delivery of customized financing solutions and digitally enabled customer experiences across our diverse portfolio of partners, merchants and providers focusing on the healthy consumer who has robust savings and desire to spend in an environment with improving economic trends.
During the second quarter, consumer savings rates remained strong, unemployment continued to improve and consumer confidence reached a 16-month high.
As a result, discretionary spend seems to be making a gradual return to pre-pandemic levels.
In fact, a conference board survey from June indicated that there is also a healthy interest among consumers to spend on long-lasting manufactured goods over the next six months, including homes, cars, and major household appliances, which we expect to be a positive tailwind for our Home & Auto platform in particular.
Across our diverse set of platforms, strong consumer spend trends contributed to 35% higher purchase volume compared to last year, primarily reflecting 33% stronger purchase volume per account.
When comparing these trends to the more normalized operating environment of the second quarter 2019, and excluding the impact of Walmart, purchase volume was 18% higher in the second quarter 2021 and purchase volume per account was 22% higher.
This demonstrates strong consumer demand translating to higher spend relative to pre-pandemic levels.
Dual and co-branded cards accounted for 39% of the purchase volume in the second quarter and increased 56% from last year.
On a loan receivables basis, they accounted for 23% of the portfolio and were flat to the prior year.
Average active accounts were up about 2%, compared to last year and new accounts were 58% higher, totaling more than 6 million new accounts in the second quarter and over 11 million new accounts year-to-date.
Loan receivables reached $78.4 billion in the second quarter, a slight increase year-over-year as the period [Phonetic] strong purchase volume growth was largely offset by persistently elevated payment rate.
This marks the first quarter of year-over-year growth since the start of the pandemic.
Payment rate was almost 300 basis points higher when compared to last year, which primarily led to a 6% reduction in interest and fees on loans.
RSAs increased $233 million, or 30% from last year and were 5.25% of average receivables.
The increase relative to last year's second quarter was primarily reflecting the significant improvement in net charge-offs.
As a reminder, our retailer share arrangements are designed to share in the program's performance and when the portfolios are performing better on a risk-adjusted basis, our partner share in this performance.
So the RSA is performing as it is designed and the elevated levels we have seen over the last few quarters are a reflection of Synchrony's particular financial strength through the pandemic.
We continue to expect RSAs to decline as net charge-offs begin to rise.
With an improved credit performance and a more optimistic macroeconomic environment, we reduced our loan loss reserves by $878 million this quarter.
Other income decreased $6 million, generally reflecting higher loyalty program costs from higher purchase volume during the quarter.
Other expense decreased $38 million due to lower operational losses, partially offset by an increase in employee, marketing and business development, and information processing costs.
Moving to Slide 8 and our platform results.
We saw a broad-based purchase volume growth across all five platforms as consumers have become increasingly confident and remaining local restrictions are being lifted.
Both our Health & Wellness and Diversified & Value platforms experienced more than 50% growth in purchase volume.
In Health & Wellness, this primarily reflected lifting of local restrictions on in-person interactions and consumers being more comfortable with the environment and undergoing elective procedures.
The lifting of state restrictions was also a primary driver of the significant purchase volume growth in our Diversified & Value platform as consumers increased their discretionary spend in categories like clothing and assorted household goods.
Meanwhile, purchase volume grew by 30% in our Digital platform, 25% in Home & Auto and 9% in Lifestyle.
Loan receivable growth trends by platform generally reflected stabilization or modest growth versus the prior year as the higher purchase volume was partially offset by the elevated payment rates.
The one exception being our Diversified & Value platform, which is also impacted by store closures in 2020.
Average active account trends were mixed on a platform basis, up by as much as 5% in Digital and down by as much as 6% in Health & Wellness.
The active account growth in Digital generally reflected the combination of a shift in the timing of an annual promotional events and the ramp up of some of our recent partner launches.
The active account decline in Health & Wellness was primarily associated with the continued strength in consumer balance sheets.
Interest and fees were generally down across the platforms, with the exception of Lifestyle due to lower yield as a result of elevated payment trends we've been discussing.
I'll move to Slide 9 to discuss net interest income and margin trends.
During the quarter, the continued combined impacts of the March stimulus and high savings balance built during the pandemic led to higher-than-average payment rate across our portfolio.
As Slide 9 shows, payment rate ran approximately 280 basis points higher than our five-year historical average and about 300 basis points higher relative to last year's second quarter.
It's worth noting the gradual moderation in payment rate from April to June, at which point the payment rate was 18.5%, a 90 basis point decrease for the March monthly peak of 19.4%.
We expect continued gradual moderation in payment rate as consumers continue to spend the excess savings they accumulated resulting from the combined impact of stimulus and slower discretionary spend during the lockdown.
Interest and fees were down about 6% in the second quarter, reflecting lower finance charge yield from elevated payment rate trends and continued lower delinquent accounts resulting from our strong credit performance.
Net interest income decreased 2% from last year.
The net interest margin was 13.78%, compared to last year's margin of 13.53%, a 25 basis points year-over-year improvement driven by favorable interest-bearing liabilities costs and mix of interest earning assets, partially offset by the pandemic's impact of loan receivable yield.
More specifically, interest-bearing liabilities costs were 1.42%, a year-over-year improvement of 73 basis points, primarily due to lower benchmark rates.
This provided a 62 basis point increase in our net interest margin.
The mix of loan receivables as a percent of total earning assets increased by 170 basis points from 78% to 79.7% driven by lower liquidity held during the quarter.
This accounted for 32 basis point increase in the margin.
The loan receivables yield was 18.62% during the second quarter.
The 84 basis points year-over-year reduction reflected the impact of higher payment rate and lower interest and fees, which we discussed earlier and impacted our net interest margin by 65 basis points.
We continue to believe that in the second half of the year liquidity will continue to be deployed into asset growth and slowing payment rates should result in a higher interest and fee yields leading to increasing net interest margin.
Next, I'll cover our key credit trends on Slide 10.
In terms of specific dynamics for the quarter, I'll start with the delinquency trends.
Our 30-plus delinquency rate was 2.11%, compared to 3.13% last year.
Our 90-plus delinquency rate was 1%, compared to 1.77% last year.
Higher payment trends continue to drive delinquency improvements.
Focusing on the net charge-off trends.
Our net charge-off rate was 3.57%, compared to 5.35% last year.
Our reduction in net charge-off rate was primarily driven by improving delinquency trends as customer behavior pattern improved over the last several quarters.
Our allowance for credit losses as a percent of loan receivables was 11.51%.
As far as our credit outlook is concerned, we are monitoring trends in our portfolio closely as the accounts enrolled in multiple forbearance programs roll off, but have not seen any indication in our portfolio to date.
Our best expectation at this time is that, delinquencies should begin to rise sometime in the back half of 2021, leading to peak delinquencies in mid-2022.
This would translate a net charge-off peak in late 2022.
Moving to Slide 11, I will cover expenses for the quarter.
Overall expenses were down $38 million, or 4% from last year to $948 million as we continue to execute on our strategic plan to reduce cost and remain disciplined in managing our expense base.
Specifically, the decrease was driven by lower operational losses, partially offset by increased employee, marketing and business development, and information processing costs.
The efficiency ratio for the second quarter was 39.6%, compared to 36.3% last year.
The main driver of the increase of the efficiency ratio was a negative impact from lower revenue that resulted from a combination of lower receivables and lower interest and fee yield.
This was partially offset by a reduction in expenses.
Moving to Slide 12.
Given the reduction in our loan receivables in 2020 and early 2021 and the strength in our deposit platform, we continue to carry a higher level of liquidity.
While we believe it's prudent to maintain a higher liquidity level during uncertain and volatile periods, we continue to actively manage our funding profile to mitigate excess liquidity where appropriate.
As a result of this strategy, there was a shift in our mix of funding during the quarter.
Our deposits declined $4.3 billion from last year.
Our securitized and unsecured funding sources declined by $2.6 billion.
This resulted in deposits being 81% of our funding, compared to 80% last year with securitized funding comprising 10% and unsecured funding comprising 9% of our funding sources at quarter end.
Total liquidity, including undrawn credit facilities, was $21.2 billion, which equated to 23% of our total assets, down from 29% last year.
Before I provide details on our capital position, it should be noted that we elected to take the benefit of the transition rules issued by the joint federal banking agencies, which had two primary benefits.
First, it delays the effect of the CECL transition adjustment for an incremental two years.
And second, it allows for a portion of the current period provisioning to be deferred and amortized with the transition adjustment.
With this framework, we ended the quarter at 17.8% CET1 under the CECL transition rules, 250 basis points above last year's level of 15.3%.
The Tier 1 capital ratio was 18.7% under the CECL transition rules, compared to 16.3% last year.
The total capital ratio increased 250 basis points to 20.1% and the Tier 1 capital plus reserves ratio on a fully phased in basis was 28%, compared to 26.5% last year, reflecting the impact of the retained net income.
During the quarter, we returned $521 million to shareholders, which included $393 million in share repurchases and paid a common stock dividend of $0.22 per share.
During the quarter, we also announced the approval of a $2.9 billion share repurchase program through June 2022, as well as our plans to maintain our regular quarterly dividend.
We will continue to take an opportunistic approach to returning capital to shareholders as our business performance and market conditions allow subject to our capital plan in any regulatory restrictions.
As we exit the pandemic and the environment normalizes, we are confident in our capabilities and positioning of our business.
We are emerging from this period as a stronger and more dynamic Company and we're excited about the opportunities we see to drive strong financial results and shareholder value.
While the pandemic has presented our Company and the world with never before seen challenges, Synchrony has continued to rise to the occasion facilitating the evolution of many of our partners as a new operating environment has been ushered in.
We have a truly unique understanding of the partners we serve and the customer needs they seek to address.
We have an almost 90-year history in consumer financing.
We have continued to invest in our comprehensive product suite, amass our proprietary data and leverage our advanced analytics to achieve targeted outcomes for each of the merchants we work with.
We have been consistently investing in digital innovation for years and have demonstrated how effectively we can adapt to deliver the value our partners have come to expect, while also driving strong financial results and attractive returns for our shareholders.
We will now begin the Q&A session.
So that we can accommodate as many of you as possible, I'd like to ask the participants to please limit yourself to one primary and one follow-up question.
If you have additional questions, the Investor Relations team will be available after the call.
Operator, please start the Q&A session.
 Assistant:

Chosen response:
qtrly diluted earnings per share $2.12.
qtrly net interest income decreased $84 million, or 2%, to $3.3 billion.


Prompt:
Human: For today's call, I will provide opening comments, followed by Preston with an update on the trends we saw during the quarter.
Glenn will then provide additional details regarding our quarterly results before opening the call to Q&A.
For the quarter, we posted organic sales growth of 8.4% versus 2019, driven by excellent double-digit growth from our MedSurg and Neurotechnology businesses, but this was offset by softer sales of hip, knee and spine due to the resurgence of COVID-19.
A slowdown in deferrable procedures primarily impacted the US and worsened through the quarter.
While our implant businesses were challenged, we saw strong results for our Mako product technology and capital products across our MedSurg portfolio.
In addition, we had strong performances from our more emergent businesses, including our core trauma business and another standout performance by Neurovascular.
International organic growth of 12%, again, outpaced growth in the US, representing robust performances and lessening impacts of COVID-19 across most major geographies, including strong results across Europe, Australia, Canada and emerging markets.
Our year-to-date organic growth is 7.6%.
And with the continued uncertainty related to COVID recovery as well as healthcare staffing shortages, we are updating our full year organic sales growth guidance to 7% to 8% compared to 2019.
Our capital equipment order book remains strong, and we are well positioned for the eventual procedure recovery.
Our adjusted earnings per share grew 15% versus 2019, and we continued our focus on driving cash flow, leading to a year-to-date cash conversion of 87%.
The earnings per share growth, although solid, was lower than our expectations and is reflected in our updated guidance, which Glenn will elaborate on.
Meanwhile, we are pleased with our cash flow performance, which provides us with additional flexibility for future M&A opportunities.
While the quarter did not progress as we had anticipated due to the Delta variant, we remain confident in the outlook for our businesses as evidenced by our strong international MedSurg and Neurotechnology performances.
We expect these businesses to continue to perform at high levels with the uncertainty most concentrated in deferrable procedures in the United States.
We continue to feel bullish about our longer-term prospects as the pandemic recedes with our proven strategy and strong fundamentals.
We are excited to share more with you at our upcoming Analyst Day on November 18th.
My comments today will focus on providing additional insights into the current environment, including how certain products and geographies performed during the quarter.
In addition, I will provide an update on the continued integration of Wright Medical, including the performance of our combined trauma and extremities business.
During the quarter, significant spikes of the COVID-19 Delta variant drove increased infections and hospitalizations that require higher hospital bed utilization, which ultimately led to the deferral of elective procedures.
In addition to increased hospitalization, hospital staffing shortages also pressured procedural volumes throughout the quarter.
This primarily impacted our implant-related businesses including hips, knees and spine, which can be, in many cases, deferred for a period of time.
However, the disease states that we treat are degenerative and the patients that defer their procedures will eventually return to have those procedures completed.
The impact on elective procedures was more pronounced in the United States than on other geographies outside the United States.
Within the United States, there were areas of disruption in most states but disruption was more widespread in the Southeast and Southwest portions of the country, impacting major markets like Florida and Texas throughout the quarter.
Other markets around the world, including China, Japan and Australia experienced intermittent lockdowns throughout the quarter, which also drove uneven results across our implant-related businesses in those markets.
During the quarter, Europe, which was more impacted by COVID in previous quarters, had impressive organic growth compared to 2019.
COVID related hospitalizations in the United States began to trend upwards toward the end of July and then progressively worsened peaking at beginning of September.
At the end of the quarter, infection and hospitalization rates were declining in impacted regions and has continued into October.
As a result, we are beginning to see some improvements in our more impacted businesses through the first few weeks of October.
However, we expect the recovery will be partially muted by discontinued hospital staffing challenges and ongoing COVID related volatility.
Our assumption for the fourth quarter is that deferrable procedures will gradually return, starting with a low base in October before returning to more normal levels by the end of the quarter.
As a result, we expect that the fourth quarter growth rates for our more deferrable businesses will be similar to the third quarter.
Despite the ongoing challenges with elective procedures, we had strong performances in our more emerging businesses like Neurovascular, which grew strong double digits compared to 2019 as a result of continued market expansion and ongoing global demand for our innovative technologies.
In addition, demand for our capital equipment remains healthy as evidenced by our continued strong sales performance and robust order book for small and large capital products, including our surgical technologies, emergency care and neurosurgical businesses.
The ongoing strength in capital is also reflected in the continued demand for our Mako robotic technology.
Our industry-leading Mako robot continues to help surgeons improve patient outcomes by knowing more and cutting less.
This trend across capital is expected to continue as hospitals take advantage of flexible financing and prioritize capital products like those within our portfolio that are critical to providing emergency care, driving profitable procedures and ensuring safe working environments for caregivers and patients.
Turning to the Wright Medical integration, which continues to progress in all regions and functions.
United States commercial integration has moved past the sales force realignment and is now focused on continued business process improvements and system efficiencies.
The teams have also developed long term product pipeline strategy.
Outside the United States, we continue to work through integration activities, including sales force and indirect channel alignment across all key geographic regions.
Overall, we remain pleased with the progress and the pace of integration over the past year.
Including Wright Medical, the combined US Trauma and Extremities business has grown 8.1% year-to-date.
The year-to-date growth in the United States has been driven by strong double digit growth in both our core trauma and upper extremities businesses, reflecting the execution of the sales integration in the United States.
Outside the United States, sales have declined 3.8% year-to-date, driven by timing of distributor conversions in Latin America and Asia Pacific and declines in our legacy Trauson and Trauma business in China as a result of the provincial tendering process.
Considering the latest results, ongoing COVID related volatility and the provincial tenders in China, we now expect our combined Trauma and Extremities business to grow mid single digits for the full year.
Today, I will focus my comments on our third quarter financial results and the related drivers.
As a reminder, we are providing our comments in comparison to 2019 as it is a more normal baseline given the variability throughout 2020.
Our organic sales growth was 8.4% in the quarter.
The third quarter included the same number of average selling days as Q3 2019 and Q3 2020.
Compared to 2019, the two year impact from pricing in the quarter was unfavorable 2.2%.
Versus Q3 2020, pricing was 0.7% unfavorable.
Foreign currency had a favorable 1.2% impact on sales.
Our MedSurg and Neurotech businesses saw another very strong quarter, continuing the growth momentum of the second quarter with double digit growth in both segments.
Our Orthopedics and Spine businesses have been adversely impacted by increases in hospitalization rates starting in early August, especially in the US as a result of the Delta variant.
The corresponding impact on elective procedures has significantly slowed the recovery in our Orthopedics and Spine implant businesses.
For the quarter, US organic sales increased 7.1%, reflecting the continued strong demand for Mako, instruments, medical and neurovascular products.
International organic sales showed strong growth of 12%, impacted by positive sales momentum in Europe, Australia, Canada and emerging markets.
Our adjusted quarterly earnings per share of $2.20 increased 15.2% from 2019, reflecting sales growth, gross margin expansion and a lower quarterly effective tax rate, partially offset by the impact of business mix and higher interest charges resulting from the Wright acquisition.
Our third quarter earnings per share was positively impacted from foreign currency by $0.04.
Now I will provide some highlights around our segment performance.
Orthopaedics had constant currency sales growth of 19.9% and organic sales growth of 2%, including organic growth of 1% in the US.
This reflects the impact of the slowdown in elective procedures as a result of the Delta variant, which primarily impacted our hip and knee implant businesses.
Our knee business grew 0.9% organically in the US, reflecting the previously mentioned impact on elective procedures, offset by continued adoption of our robotic platform for total knee procedures.
Our US trauma business grew 8.8%, reflecting solid performances across the portfolio.
Other ortho grew 19.8% in the US, primarily reflecting demand for our Mako robotic platform, partially offset by declines in bone cement.
Internationally, Orthopaedics grew 4.1% organically, which reflects the strong performances in Europe and the momentum in Mako internationally, somewhat offset by the increased impact of restrictions imposed on elective procedures due to COVID, especially in Japan.
For the quarter, our Trauma and Extremities business, which includes Writer Medical delivered 3.2% growth on a comparable basis.
In the US, comparable growth was 7.4%, which included double digital growth in our upper extremities business.
In the quarter, MedSurg had constant currency and organic sales growth of 12%,,which included 12% US organic growth as well.
Instruments had US organic sales growth of 15.9%, led by double digit growth in their orthopedic implants and surgical technology businesses, which include power tools, waste management, smoke evacuation and skin closure products.
Endoscopy had US organic sales growth of 10.6%, reflecting strong performances across their portfolio, including video and general surgery products and strong double digit growth of their communications and sports medicine businesses.
The Medical division had US organic growth of 12.5%, reflecting double-digit performances in its emergency care and Sage businesses.
Internationally, MedSurg had organic sales growth of 12%, reflecting strong growth in the Endoscopy, Instruments and Medical businesses across Europe and Australia.
Neurotechnology and Spine had organic growth of 11.8%.
This growth reflects double digit performances in our neurovascular, neurosurgical and interventional spine businesses.
Our Neurovascular business had particularly strong growth of approximately 26% and makes up roughly 30% of this segment.
Our US Neurotech business posted an organic growth of 11.8%, reflecting strong product growth in Sonopet iQ, Bipolar Forceps and Bone Mill.
Our US Neurovascular business had significant growth in all categories of products, including hemorrhagic, flow diversion and ischemic.
Internationally, Neurotechnology and Spine had organic growth of 24.6%.
This performance was driven by strong neurotech demand in China and other emerging markets as well as Europe and Australia.
Now I will focus on operating highlights in the third quarter.
Our adjusted gross margin of 66.3% was favorable approximately 55 basis points from third quarter 2019.
Compared to the third quarter in 2019, gross margin was primarily impacted by acquisitions, which was partially offset by business mix and price.
Adjusted R&D spending was 6.7% of sales, reflecting our continued focus on innovation.
Our SG&A was 34.1% of sales, which was slightly negative as compared to the third quarter of 2019.
This reflects continued cost discipline and fixed cost leverage, offset by ramping of certain expenses, hiring to support future growth and the dilutive impact of the Wright Medical acquisition.
In summary, for the quarter, our adjusted operating margin was 25.4% of sales, which is approximately the same as third quarter 2019.
This performance primarily resulted from our positive sales momentum, offset by the dilutive impact of acquisitions, primarily Wright Medical.
Related to other income and expenses compared to the third quarter in 2019, we saw a decline in investment income earned on deposits and interest expense increases related to our debt outstanding for the funding of the Wright Medical acquisition.
Our third quarter had an adjusted effective tax rate of 14%, which was impacted by our mix of US, non-US income and favorable discrete items during the quarter.
Our year-to-date effective tax rate is 14.8%.
For the year, we continue to expect an adjusted effective tax rate of 15% to 15.5%.
Focusing on the balance sheet, we ended the third quarter with $2.6 billion of cash and marketable securities and total debt of $12.7 billion.
year-to-date, we have paid down $1.2 billion of debt.
In October, we completed the refinancing of our revolving credit facility and increased that facility from $1.5 billion to $2.25 billion.
Turning to cash flow.
Our year-to-date cash from operations was approximately $2.3 billion.
This performance reflects the results of earnings and continued focus on working capital management.
Based on our performance in the third quarter, the continued volatility experienced as a result of COVID, procedural delays in hospital staffing shortages as well as uncertainty around the pace of recovery in the fourth quarter, we expect 2021 organic net sales growth to be in the range of 7% to 8%.
As it relates to sales expectations for Wright Medical, we now expect comparable growth for Trauma and Extremities to be in the mid single digits for the full year when compared to the combined results for 2019.
If foreign currency exchange rates hold near current levels, we expect net sales in the full year will be positively impacted by approximately 1%.
Adjusted net earnings per diluted share will be positively impacted by approximately $0.05 to $0.10 in the full year and this is included in our revised guidance range.
Based on our performance in the first nine months and including consideration of the aforementioned volatility impacting the recovery of elective procedures and the full year Wright Medical impact, we now expect adjusted net earnings per diluted share to be in the range of $9.08 to $9.15.
And now I will open the call for Q&A.
 Assistant:

Chosen response:
q3 adjusted earnings per share $2.20.
expect 2021 organic net sales growth to be in range of 7% to 8% from 2019.
expect 2021 adjusted net earnings per diluted share to be in range of $9.08 to $9.15.


Prompt:
Human: A copy of these materials can be found in the Investors section at sysco.com.
To ensure that we have sufficient time to answer all questions, we'd like to ask each participant to limit their time today to one question and one follow-up.
I hope that you and your families are staying safe and healthy.
I will provide an update on our business transformation and I'll share some highlights of our preparation for the pending business environment recovery.
As we have discussed during prior calls, Sysco has taken swift and decisive action throughout the pandemic to help our customers succeed during a time of disruption.
We have carefully managed our associate productivity, inventory productivity, and business investments.
To that end, we initiated a bold business transformation to strategically transform our company for long-term success.
I am pleased to confirm that our business transformation remains on track and we are confident that the strategic initiatives will enable profitable future growth and will differentiate Sysco from our competitors.
The COVID environment has placed substantial restrictions upon the customers we serve in the food-away-from-home sector and has disrupted our marketplace.
In light of those realities, we are pleased with the financial results that we delivered in the first half of fiscal 2021, and for the second quarter, we performed generally in line with our expectations adjusted for the environment.
While our second quarter financial results were down compared to prior year, we delivered a profitable quarter despite 23% decline in our top line sales and funded investments to enable our transformation.
Our customers experienced increasingly restrictive conditions on their operations during the second quarter, which were most notable in December when restaurant traffic and sales declined.
Additionally, our international segment has been hard hit due to tougher restrictions in the countries in which we operate.
At Sysco, we are not taking the restrictions on customers as a gravity issue.
We are doing more than ever before to help our customers navigate this challenging environment.
I am pleased to report that during the second quarter Sysco gained overall market share versus the rest of the industry, reflecting the early progress of our transformation and the success we're having in winning new business, We continue to win meaningful business in the national account space and signed an incremental $200 million of net new business in the quarter, which totals more than $1.5 billion of net new contracted business since the start of the pandemic.
Additionally, throughout the second quarter, we began making investments in preparation for the business recovery that we believe will begin in calendar year 2021.
Those investments will increase in the third fiscal quarter and Aaron will speak more to this in a moment.
Examples of investments during the second quarter include investments in our customers, in our people, in our working capital, and in our technology.
I'd like to highlight some examples of each of these purposeful choices.
Investments in our customers, including our new Restaurants Rising campaign, which makes it easier for restaurants to succeed and strengthen their business for the future.
Most notably, we announced in November that we are eliminating minimum delivery requirements for regularly scheduled delivery days, which provides operators significant flexibility in managing their business and makes it easier to order what they need when they need it.
In addition, we are not eliminating delivery service days during the second wave of COVID, a practice we know select competition is currently doing.
We see the light at the end of the tunnel and as such, we are prioritizing customer service.
A little incremental expense right now is a small price to pay for customer loyalty and partnership.
Our sales consultants are leveraging the restaurants rising program to retain current customers and help Sysco attract and serve new ones.
In addition to the no order minimums commitment, Sysco's sales consultants are assisting their customers with setting up touchless menus, optimizing delivery and takeout operations, and helping with marketing programs to create awareness of our customers' operations, just to name a few of our value-added services.
I'm proud to report that our Net Promoter Score increased by more than 1,000 basis points in the quarter due in large part to the connections with our customers generated by the Restaurants Rising program.
The NPS increase was our largest quarterly increase in our company's history.
Importantly, as you can see on page seven in our slides, the incremental closure rate of Sysco's customers is 50% below the industry average.
And lastly, we onboarded more new local customers in Q2 than in any single quarter in the last five years.
In addition to investing in our customers, we are making investments in our people.
We are intentionally retaining drivers despite the volume decline in December to ensure we have them available for our pending volume recovery.
Drivers are in short supply across the country and while this investment will drive some incremental transportation expense in the short term, over the long term, it will help ensure that Sysco is able to maximize our share gains during the upcoming business recovery.
As you know, we made changes to our sales organization and sales compensation during the summer.
Our associate retention has improved compared to historical retention rates and our improved retention will help with sales productivity metrics in the future.
We are beginning to make investments in working capital to position the right products in the right locations in preparation for the upcoming business recovery.
Sysco has the broadest inventory assortment in the industry.
Our ability to ship product on time and in full during the upcoming period of volume recovery is a core element of what makes Sysco the strongest broadline distributor in the industry.
We have the financial strength and capacity to invest in products and in inventory, while other foodservice distributors may struggle with sufficient cash flow to make similar investments in the coming quarters.
We are also offering payment plans in partnership with our customers to ensure their continuity.
Lastly, we are making strategic investments in our technology to improve the customer experience.
This includes our Sysco Shop technology, our new pricing software and improvements we are making in our supply chain systems.
Sysco's ability to invest in our customers, our people, our inventory and our technology while delivering a profitable quarter during this pandemic is a testament to the strength of our balance sheet and our leadership team.
I'd like to turn now to providing an update on our business transformation.
First, as we have shared previously, we are focused on advancing our customer-facing digital tools to improve the customers' experience with Sysco and drive incremental sales.
Priority number one is improving our mobile ordering platform Sysco Shop.
Notably, we are now onboarding new customers in less than 24 hours, a step change improvement.
The number of customer orders placed through Sysco Shop continues to meaningfully increase throughout the quarter.
Additionally, our new pricing software is now live in our first test region.
We are learning a lot through this regional pilot and we remain on track to roll out the pricing system across the country.
The goal of this effort is to improve pricing transparency with our customers and drive incremental sales in gross profit growth by optimizing prices at the customer item level.
Additionally, by automating customer level pricing, we will free up time for our valued sales consultants to spend with customers on value-added activities, such as menu design, Sysco brand penetration, and other drivers of sales and margin.
Second, we are improving our go-to-market selling strategy by transforming our sales process.
Through our sales transformation, we have an improved more customer-centric organizational structure.
Our sales transformation is progressing well and the team-based selling approach is gaining traction.
We have created and built new specialist selling positions.
We have implemented a sales quarterback position that helps guide the collective sales teams across a given geography.
As I mentioned on our last call, we have launched our first cuisine segment go-to-market selling strategy and we are seeing initial signs of success with that customer segment through incremental market share gains.
We will roll out this program to additional cuisine segments in calendar 2021.
Lastly, Sysco completed the regionalization of our field leadership structure at the start of our second quarter.
I am pleased to report that our new regional presidents are in place and are finding quick wins to improve our business.
The average tenure of our market and regional leaders is over 20 years and these experienced and talented leaders are highly capable of driving top performance within Sysco.
Examples of quick wins include optimizing our inventory assortment across multiple physical sites and optimizing the servicing of key customers by ensuring the most efficient physical location services each customer location.
To be a great company, you need to have a world-class leadership team.
I am pleased that during the quarter, we made important progress in strengthening our leadership team.
Aaron Alt joined Sysco as our Chief Financial Officer.
Aaron is a proven finance leader with over 20 years of experience in foodservice and retail leadership positions.
He has a track record of transformation and value creation at large organizations in multiple industries.
Additionally, Tom Peck has joined Sysco as Chief Information and Digital Officer.
Tom has experience leading enterprise information technology strategy, services, operations risk, and cybersecurity for large global enterprises.
In his most recent role, he worked great global B2B distributor in the electronics industry, experience that is directly applicable to the transformational journey at Sysco.
Additionally, Tim Orting has officially started his position leading our International division.
Tim will be based in our London offices and will be responsible for driving profitable growth and operational excellence across our international geographies.
With Tim joining Sysco, I was able to reduce the number of my direct reports by four, which allows me to focus more of my time and energy on managing the strategy development and execution of the company.
Joel Grade has begun his new role leading business development and is actively engaged in identifying new sources of growth for Sysco.
I am pleased to say that the transition of Sysco's leadership team is now complete.
We have a strong management team that balances Sysco and foodservice industry expertise with best-in-class experience from other industries.
Our new leaders join a talented and experienced Sysco leadership team.
Greg Bertrand, the leader of our U.S. business has over 35 years of industry experience and 30 years specific with Sysco.
Greg's expertise and steady hand in running our largest business during the COVID disruption has been invaluable.
I appreciate his leadership and the strong impact he has on our results.
Great leadership teams work as a team on a common agenda.
Our transformation strategy has galvanized this leadership team around a common purpose, and I am honored to work with them to set the standard for foodservice distribution for many years to come.
I report to you today with strong confidence that a pending business recovery sits before us.
As vaccine administration mixed progress across the globe, the restrictions currently placed upon our customers will begin to ease.
We can see in our performance data that once those restrictions ease, consumers are ready and willing to eat away from home.
At Sysco, we are working to maximize our opportunity to recover faster than the industry.
We have an opportunity to gain market share, given our financial strength and our compelling business transformation.
We are prepared to do more than any other foodservice distributor in the industry to ensure the success of our customers.
And our customer success will generate business growth for Sysco.
Our industry-leading sales force has been inspired by the Restaurants Rising campaign to support our customers at levels higher than any point in our proud history.
Our warehouse and delivery associates are the best in the business, working hard every day to ensure we ship to our customers what they want when they need it.
I am proud of their dedication during this challenging operating time.
At Sysco, our customers are an inspiration to us and we will show them just as much determination and how we serve them.
I am really excited to be at Sysco.
Before I joined Sysco, what I could see from the outside was a company with global scale, a strong competitive position and great profitability and liquidity for the industry.
Now that I'm on the inside, I see all of that in addition to a driven leadership team relentlessly focused on being ready for the business recovery and then driving a customer and capability-led transformation.
In short, I see many opportunities in front of us to create shareholder value.
I will start today with second quarter results for the enterprise and our business segments, followed by an update on cash flow.
Second quarter sales were $11.6 billion, a decrease of 23.1% from the prior year, but flat to the prior quarter.
Sales had been trending ahead of Q1 through October and November as restrictions eased, but new lockdown restrictions during December reversed the earlier progress, particularly in the International segment.
There are a couple of additional metrics.
For the quarter, local case volume within U.S. Broadline operations decreased 19.7% while total case volume within U.S. Broadline operations decreased 23.7%.
We do know that there is keen interest in the continued impact of COVID.
The answer varies by region.
Europe went into lockdown in December and is expected to remain in varying degrees of lockdown for a significant portion of the second half.
However, since the week after the holidays, we have been seeing signs of life from volume improvements in our U.S. FS business and SYGMA continues to grow.
This battle will be fought week by week, region by region for the next couple of quarters until the vaccination is widespread and the business recovery takes hold.
The only commitment we can make is that we will be ready and more competitive than ever.
As we move down the P&L, gross profit decreased 25.8% to $2.1 billion in the second quarter.
Most of the decline in gross profit was driven by lower volumes due to COVID.
However, we did see a modest gross margin dilution at the enterprise level of roughly 67 basis points as our rate came in at 18.2%.
A couple of thoughts on that.
First, we typically see a seasonal decline in gross margin sequentially from the first quarter through the second quarter as we did this year.
Second, our largest segment US Foodservice and its partner segment SYGMA, each had a flat gross margin rate versus the same pre-COVID, quarter which is frankly remarkable given these market dynamics.
Given the growth of our national accounts business at SYGMA, which is lower margin, we did see business mix shift, which accounted for the vast majority of the margin rate change.
Our enterprise margin was also impacted by the International and other businesses as both showed gross margin decline in the quarter for reasons which are being addressed.
Our expense profile changed over the course of our second quarter as adjusted operating expense decreased 15.3% to $1.9 billion.
This expense profile reflects a deleverage of our cost structure as sales remained down 23%.
These results arise from some purposeful choices.
First, and on the positive side of the equation, we targeted and achieved increased productivity in key areas such as our warehouse network.
We also maintained our key transportation efficiency metrics despite significant swings in case volume.
Second, we continue to make excellent progress against our $350 million of cost savings initiatives in fiscal 2021.
I can see the savings in the detailed income statement, and we continue to identify and pursue more opportunities.
Third, but on the other side of the equation, we have made the purposeful choice to leverage our financial strength to prepare for the business recovery before it happens.
As previously announced, we changed our sales consultant compensation to include both the fixed and variable component to drive retention and focus on key operational metrics.
We can see that change working in our market wins.
Additionally, we brought back hundreds of associates in the second quarter in support of our business model.
In the third quarter, and indeed in the back half, we anticipate we will hire thousands of additional sales consultants, new business developers, culinary experts and operations associates in anticipation of the pending business recovery.
We plan to be ahead of the recovery curve, not catching up and we have the financial resources to do just that.
Finally, as Kevin mentioned, we continue to make purposeful investments in our capability builds in support of our transformation, pricing, customer experience, sales, vendor management and personalization.
While we expect significant returns on these efforts in future quarters, the investment dollars are offsetting part of our savings in the second quarter and will do so in the back half.
When combined with the impact of slower openings in our International segment, we expect our third quarter results to be more challenging than originally anticipated.
However, as volume returns and grows, whether due to market recovery or our purposeful investments, we expect to move up the sales curve more rapidly than others and expect over the next several quarters the impact of the cost savings efforts separated from the ongoing investments will be more visible.
Finally, at the enterprise level, adjusted operating income decreased 63% to $234 million.
For the second quarter, our non-GAAP tax rate of 16.8% was favorably driven by the impact of stock option exercises.
Adjusted earnings per share decreased 80% to $0.17 for the quarter.
Now let's turn to our second quarter results by business segment, starting with the U.S. Foodservice operations.
Sales were $8 billion, which was a decrease of 23.9% versus the prior-year period.
Notwithstanding the difficult environment, the business acquired a record number of new customers, as our sales teams hit the streets and we deployed digital tools.
We also saw growth in our national accounts customer base.
Within the business, Sysco brand sales for the second quarter decreased 165 basis points to 36.5% for total U.S. cases, driven by the customer and product mix shift.
With respect to local US cases, Sysco brand sales decreased 455 basis points to 42%, which was driven by product mix shift in the pre-packaged and takeaway ready products.
Gross profit decreased 24% to $1.6 billion for the quarter, while as I called out earlier, gross margin was flat for the quarter at 19.7% as the business very successfully managed through the puts and takes of the COVID environment and addressed headwinds such as aged inventory for customers like cruise lines and product mix shift out of higher margin categories like PP&E.
The segment's adjusted operating expenses decreased 18.9% to $1.1 billion and adjusted operating income decreased 33% to $472 million.
Moving on to the SYGMA segment.
Sales increased 4% to $1.5 billion compared to the prior-year period, driven by the success of national and regional quick service restaurant servicing drive-through traffic.
This is the second consecutive quarter of sales growth in this segment.
We continue to see new business wins in the SYGMA segment and are pleased by the overall improvement.
Gross profit increased 4.1% to $129 million for the quarter and gross margin was flat to the prior-year.
Adjusted operating expenses increased 4%, $118 million and adjusted operating income increased 5% to $11 million.
Moving to the International segment, our European, Canadian and Latin American businesses have been substantially impacted by recent shutdowns, which are more aggressive than lockdowns in the U.S. The International Foodservice operation segment saw sales of $2 billion, a decrease of 32% while gross profit decreased 36.2% and gross margin decreased 128 basis points.
The gross margin decline was a result of adverse market mix, customer mix, product mix and aged inventory.
For the International segment, adjusted operating expenses decreased 16% and adjusted operating income decreased 175% for an operating loss of $55 million.
Our Other segment, which includes our Guest Worldwide business, remains challenged as hospitality occupancy rates remain low compared to prior year levels.
However, the business is in better shape than many of its competitors and has achieved a number of recent customer wins, including being named the preferred distributor for Renaissance Hotels, JW Marriott, and Westin Hotels via a new contract with Avendra in both the U.S. and Canada, and being given access to all Marriott properties in North America, Central America and the Caribbean.
While still in turnaround mode in a difficult hospitality environment, the business improved its underlying profitability during the second quarter.
Cash flow from operations was $937 million for the first half of fiscal 2021.
Free cash flow was $788 million year-to-date, which is in line with our previously noted guidance.
Net capex for the first half of fiscal 2021 was $148 million, which was $235 million lower than last year as the company carefully assessed its capital investment choices in the face of COVID.
Sysco remains financially strong from a balance sheet perspective.
At quarter end, we had balance sheet cash of $5.8 billion, plus access to $2 billion of available borrowing capacity for a total of $7.8 billion.
Our cash and available liquidity ensures us the stability and flexibility to make decisions that are in the best interest of the company.
We continue to monitor our operating environment carefully.
And as we assess reopening timelines and investment needs consistent with the transformation, we will be updating our views of our levels of cash and capital structure opportunities in future calls.
Although this is a tough operating environment for our customers, which will impact our results for the next quarter or two, Sysco remains resolutely focused on managing its businesses aggressively preparing for the business recovery and building customer-centric capabilities to accelerate long-term growth.
We believe our strategy and our transformational initiatives will drive future value for our associates, shareholders and customers.
 Assistant:

Chosen response:
qtrly sales decreased 23.1% to $11.6 billion.
compname reports q2 adjusted earnings per share of $0.17.
q2 adjusted earnings per share $0.17.


Prompt:
Human: We caution you that such statements reflect our best judgment based on factors currently known to us and that the actual events or results could differ materially.
These non-GAAP financial measures were not prepared in accordance with generally accepted accounting principles.
These non-GAAP measures are not intended to be a substitute for our GAAP results.
This was another excellent quarter, and I'm extremely proud of the entire SentinelOne team.
Our ARR growth accelerated to 131% year over year in the third quarter, our third consecutive quarter of triple-digit growth.
We continue to scale our business on the back of leading endpoint protection, machine speed DDR, XDR innovation, and our powerful partner-supported go-to-market strategy.
The demand environment remains incredibly strong.
Before digging deeper into the details of our quarterly performance and results, I'd like to share some perspectives on the cybersecurity landscape.
I'd encourage you all to also look at our shareholder letter we have on our Investor Relations website, which provides a lot more detail.
We're still early in the generational shift in cybersecurity led by the ongoing digital transformation of the enterprise.
There are millions of cyberattacks inflicting trillions of dollars in damages every year.
This is unacceptable and a growing risk to enterprises across the world.
The increasing number of attacks and sophistication clearly shows that enterprises must deploy best-of-breed solutions that enable them to stay one step ahead of attackers.
Take the current state of ransomware.
Attackers have shifted from simply holding operations hostage to actual data compromise and infiltration, infiltrating both legacy and unprotected devices.
That's where SentinelOne comes in.
We pioneered the world's first purpose-built, AI-powered XDR platform to make cybersecurity defense truly autonomous from the endpoint and beyond.
We believe it's essential to protect all parts of the enterprise estate, such as unknown devices, cloud workloads, and the data itself.
We focus on data to provide enhanced visibility and advanced analytics.
We protect our customers in real-time at machine speed, empowering human operators with the speed, scale, and precision of technology.
Our approach is resonating with our customers.
We received the highest overall rating in the 2021 Gartner Voice of the Customer Report for endpoint protection platforms where 97% of reviewers would recommend the SentinelOne Singularity XDR platform.
I'm very proud of the work we all do to keep our customers secure, engaged, and delighted.
We focus on putting our customers first.
Let's turn the discussion to how we're executing.
During our IPO earlier this year, we outlined five key aspects to our growth strategy.
Our third quarter results demonstrate success and progress against each of these.
First, we continue to innovate and enhance our cybersecurity and data platform.
Automation is a top priority for SentinelOne.
Machine speed automation can help counter instantaneous cyberattacks and enable under-resourced IT teams.
Last quarter, we introduced Storyline Active Response, or STAR, for customized dynamic detection and response rules.
This quarter, we began offering Remote Script Orchestration, or RSO, to instantly investigate and triage threats on multiple endpoints across entire organizations remotely.
Together, these two capabilities deliver increased level of automation, as well as help enterprises, consolidate legacy workflows in tooling with the Singularity XDR platform.
I want to dig more deeply into RSO.
We designed RSO to transform endpoint management for incidence response providers and enterprises.
We're offering complete remote control and orchestration across endpoints.
It's a scalable way for security providers to not only detect and respond with existing endpoints but also manage and control the entire deployed footprint.
It's like having a security analyst on every single endpoint at all times.
Our customers and partners are already realizing the benefits of the advanced capabilities of RSO.
One of our incident response partners said RSO helps eliminate time-consuming efforts to collect and consolidate forensics data in rapidly contained attacks, enabling us to minimize adversary impact.
On the customer side, a Fortune 500 wholesale company added RSO to help ultimate threat hunting capabilities, making SentinelOne more powerful and integral to their security posture.
In addition to automation, we believe a true XDR platform must be a comprehensive and open platform that provides visibility, protection, and response across the entire enterprise landscape.
Customers have been asking us to provide mobile protection to complement our leading protection capabilities.
And just this week, we announced Singularity Mobile.
SentinelOne customers can now manage mobile device security alongside endpoint, cloud workloads, and IoT devices.
Singularity Mobile brings behavioral AI-driven machine speed protection, detection and responds directly to iOS, Android, and Chrome OS devices.
Putting this all together, we were recently recognized as a strong performer in the Forrester New Wave Extended Detection and Response Providers report.
Forrester highlighted that SentinelOne Singularity XDR platform is the best fit for companies that want customizability and to grow into XDR. We were also named Best Innovator in SE Labs' Annual Report.
The second part of our strategy is to protect more enterprises every day.
In Q3, our ARR grew by 131% year over year, and our revenue was up 128%.
Our business is performing exceptionally well.
We added over 600 new customers sequentially.
We grew our total customer count by over 75% to over 6,000 compared to a year ago.
Customers with ARR over $100,000 grew 140%, and we continue to see a growing mix of large enterprises within our business.
In addition to expanding our global presence through direct sales teams, our channel remains a source of scalable growth and differentiation.
With our partner-friendly approach, we're succeeding by further expanding our scale with incidence response in managed security service provider partners.
Nick will touch on this in more detail later on.
Third, we're unlocking further product adoption within our existing customer base.
In the fiscal third quarter, our net retention rate reached 130%, a new record for our company.
This growth was driven by strong license expansion, platform upgrades, and customer adoption of our new capabilities.
We're early in our module strategy, but we're seeing great customer interest and adoption.
Our emerging products such as Ranger IoT, cloud workload protection, and data capabilities are all growing at impressive triple-digit rates.
In particular, our cloud workload protection product delivered the highest growth during the quarter, a testament to the demand for our real-time run-time protection for cloud workloads and containerized environments.
In one case, a leading book publisher selected SentinelOne for cloud workload protection because of its ease of use, simplicity of deployment, and having a true EDR in one console to manage their cloud-native Windows, Linux, and Kubernetes environments.
The fourth element of our growth strategy is to further expand our global footprint.
Revenue from international markets grew 159% year over year.
International markets now represent 33% of our total revenue, up from 29% a year ago.
As an example, in Q3, we secured a European conglomerate by replacing over 20 different antivirus products.
This shows how our platform can help with vendor consolidation while also delivering leading performance.
We're growing our sales coverage and channel presence in international markets.
Last quarter, we talked about opening a new R&D center in the Czech Republic, and I'm excited that we're hiring great talent in this region.
These initiatives will continue to strengthen our international presence.
Fifth and last, we're well-positioned to expand our total addressable market through both acquisitions and strategic investments.
We further strengthened our leadership team with the appointment of Rob Salvagno to lead Corporate Development.
As we consider acquisitions, we evaluate prospects that align with our product, customer, and strategic market opportunities.
Over time, we intend to use these opportunities to extend the reach of our XDR platform into adjacencies that complement our offerings.
Our strategy also involves making minority investments.
We recently made two strategic investments in early funding rounds for Laminar and Torq, companies that align with our approach to automation and APIs.
Investments in emerging technologies will allow us to constantly enhance the SentinelOne platform in areas that may be of future interest to us.
These investments reflect our long-term commitment to innovation, automation, and securing data wherever it resides with a front-row seat into cutting-edge cybersecurity technologies.
Finally, as part of our XDR road map, Scalyr is performing extremely well and has continued to grow year over year and quarter over quarter.
At the same time, we're onboarding all new customers on our revamped back end seamlessly.
We've begun migrating select existing customers.
By using Scalyr, our customers are enjoying faster performance and advanced analytics capabilities.
Our true competitive advantage comes from the employees of SentinelOne.
We've invested in talent across sales, marketing, engineering, and corporate functions while cultivating an inclusive and diverse workplace.
We've grown rapidly in the past year, and our number of employees has gone from 600 to about 1,100.
This has been no small feat, and we're continuing to grow and expanding the team.
We work very hard to foster a productive and inclusive culture, and our efforts are showing up in results.
As part of the 2021 Great Places to Work certification, 96% of responses from employees said SentinelOne is a great place to work.
We received several other awards during the quarter that recognize our workplace culture.
With the combination of our differentiated technology and dedicated team, we're helping our customers stay ahead of adversaries, prevent breaches, and autonomously respond to innovation.
We're helping our customers reimagine cybersecurity.
I'm excited about what we can do from here.
Our go-to-market flywheel of sales and marketing, channel, and technology partners resulted in another outstanding quarterly performance across the board.
Strong demand for our Singularity XDR platform is evident by our third quarter results.
Our customers are clearly choosing SentinelOne as a partner and technology of choice.
In Q3, we reported an impressive ARR growth of 131%, reaching $237 million compared to last year.
This growth was driven by a healthy combination of new customer additions, existing customer renewals, and upsells.
Today, we are protecting over 6,000 customers through our Singularity XDR platform.
That's total customer growth of more than 75% or almost 2,500 more customers compared to last year.
Our focus on automation, speed, and accuracy is critical to any enterprise, in fact, all enterprises.
I want to be clear.
This is a competitive market.
The environment has not changed, yet we've maintained incredibly strong win rates in all competitive situations against legacy and next-gen vendors.
With every new quarter, we're protecting more and more mission-critical businesses around the world.
In Q3, we added a leading global financial exchange in a seven-figure multiyear agreement.
This was a true platform win.
They selected SentinelOne for endpoints, cloud workload protection, remote script orchestration, and data applications.
It's telling that we're getting so much attention by our competitors, which speaks to the traction we're having in the market.
We're winning more and more customers, and our growth rates speak for themselves.
What enterprises need is automated security, not repackaged legacy AV and crowd-powered protection.
Our mission is to elevate security for our customers through a relentless focus on innovation.
And our customers are happy with 97% gross retention rate and the highest score in Gartner's Voice of the Customer survey.
That's hundreds of customer reviews, and that speaks volumes compared to any single customer example.
Let me take a step back and share some details around our customer and business mix.
We grew customers with ARR over $100,000 by 140% versus last year.
Our business mix from customers with ARR over $100,000 continues to grow driven by our success with larger enterprises, strategic channel partners, and increasing module adoption.
In addition to protecting new larger customers, we're seeing strong retention and expansion within our existing customer base.
Gross retention rates remained consistent with prior quarters.
Our net retention rate was 130% this quarter, a new record for our company.
This record NRR was driven by license expansion, platform tier upsells, and adoption of emerging capabilities.
In Q3, two of our Fortune 10 customers renewed with multiyear deals, and both expanded their use of the Singularity platform, adding modules such as Ranger and Remote Script Orchestration.
I'd like to talk more about our channel partners.
Our partner ecosystem helps magnify our market access and significantly extends our reach and efficiency.
We do not compete with our partners.
Instead, we equip them with industry-leading capabilities like multi-tenancy and open APIs.
In fact, we're expanding our partner ecosystem, and this is driving significant growth for us.
Let me double click on our managed security service provider partnerships as an example.
MSSPs provide outsourced monitoring and management of security devices and systems.
Our growing and highly scalable partnerships with MSSPs give us robust mid-market and large enterprise coverage.
Together, we have fueled significant new customer and business growth over the past several quarters.
We're proud to partner with companies like N-able, AT&T, Pax8, Continuum, Kroll, and many others.
To demonstrate the momentum we're seeing, in our third fiscal quarter, ARR from our MSSP channel increased by 300% year over year.
In addition to MSSPs, our incident response partners leverage the SentinelOne platform for their breach response services, making us an integral part of their capabilities.
Last quarter, we talked about our commitment to support even more IR partners through our Singularity platform.
In Q3, we built upon that progress and further expanded our network of IR partners.
We added KPMG as a global go-to-market partner for incident response and proactive cybersecurity services.
Our growing network of IR partners continues to help secure businesses.
As an example, during the quarter, we won a large airline customer in Asia through one of our IR partners.
Finally, I'd like to share how we're putting our customers and partners first.
We recently hosted our first-ever customer conference called OneUP.
Participation and response has been incredibly positive.
We've also hosted partner conferences throughout the Americas and EMEA.
Our goal is to educate on our latest innovations and continue to build on our momentum.
Over the last few quarters, we've also received great feedback on our accreditation programs.
We added continuing education courses to complement our accreditation programs.
These courses keep our partners up to date on new capabilities and modules, which in turn support our growing scale and platform reach.
We had around 2,000 accreditations in June 2021.
We've made amazing progress since then and now have surpassed over 6,000 accreditations across our sales and presales courses through the end of November.
This tremendous improvement illustrates the growing attention we're seeing in the channel.
I'm proud to work with our global team of relentless Sentinels every day.
I'm excited about our future.
We will continue to deliver on our vision with focus on execution and listening to our customers.
I'll touch on the financial highlights from the quarter and then provide additional context around our guidance for Q4 and fiscal year 2022.
Our third quarter results exceeded expectations across the board.
Our revenue and ARR growth both accelerated in the quarter.
Our performance strength was broad-based, coming from a healthy mix of new customers and existing customer expansion.
It also balanced across geographies and customer sizes.
We achieved revenue of $56 million, increasing 128% year over year, and delivered ARR of $237 million with growth accelerating to 131% over the same period.
Turning to our costs and margins.
Our non-GAAP gross margin in Q3 was 67%.
This was up 9% year over year and up 5% quarter over quarter.
The biggest benefits are coming from our increasing scale and business expansion, including modest benefits from module and platform upsell.
Costs associated with the migration of existing customers to our Scalyr back end were minimal in Q3.
This contributed to the gross margin upside relative to our prior expectations.
I want to provide more detail here.
Scalyr is a critical part of our XDR road map and future innovation, giving us enhanced data storage and ingestion capabilities.
We are balancing our product road map with our migration of existing customers.
We will follow the optimal cadence for our customers and our business.
In Q3, we took a more measured approach to migrations, which had less of an impact to margin.
We anticipate migrating more customers in Q4 and the first half of next year.
That said, when I look at our Q3 gross margin of 67% and how far we've come in just the past few quarters, I see glimpse of scale and efficiency in our model.
Looking at the rest of our P&L.
We're investing for growth and achieved triple-digit growth rates in ARR and revenue again this quarter.
Our non-GAAP operating margin was negative 69%.
We're continuing to make strategic investments that enhance our product and scale our go-to-market.
Even still, this is a significant improvement from negative 102% in the year-ago quarter and also from negative 98% last quarter, showcasing the potential for leverage throughout our business model.
We remain in investment mode in the near term, which is the right strategy given the vast opportunity in front of us.
Now for our outlook for Q4 and the full fiscal year.
In Q4, we expect revenue of $60 million to $61 million, reflecting growth of between 101% to 104% year over year.
We're raising our full-year revenue guidance from $199 million to $200 million.
This implies full-year growth of 115% at the midpoint.
The structural tailwinds of digital transformation, hybrid work environment, and an evolving yet persistent threat environment are here to stay.
We're executing extremely well.
Our product innovation, increased brand awareness and scale, and go-to-market are giving us favorable opportunities to engage with existing and prospective customers.
We expect Q4 non-GAAP gross margin to be between 62% to 63% and full-year non-GAAP gross margin to be between 61% to 62%.
Our Q4 guidance implies a minimum of 8% non-GAAP gross margin expansion year over year as we're benefiting from increasing scale, improved cloud hosting agreements, and processing efficiency gains.
Our guidance also reflects the migration of existing customers to Scalyr, which we expect will continue into the first half of next year.
Finally, for non-GAAP operating margin, we expect negative 83% to 80% in Q4 and negative 91% to 90% for the full year.
We see tremendous opportunity for growth and the investments we're making today will put us in a position to succeed for the long term.
Additionally, as a reminder, our IPO lockup expires, and vested options and outstanding shares can be traded starting December 9, 2021.
This is a continuation of late September's 15% lockup expiration.
In closing, Q3 was another excellent quarter with strong execution companywide, and we're expecting that momentum to continue into the end of our fiscal year.
 Assistant:

Chosen response:
q3 revenue rose 128 percent to $56 million.
qtrly annualized recurring revenue increased 131% year-over-year to $237 million as of october 31, 2021.
sees q4 2022 revenue $60 million -61 million.