Prompt:
Human: Such risks and uncertainties include, but are not limited to, those that are described in Item 1A in Kohl's most recent annual report on Form 10-K and as may be supplemented from time to time in Kohl's other filings with the SEC, all of which are expressly incorporated herein by reference.
2021 was a pivotal year for the company.
We achieved record earnings per share and successfully launched several key strategic initiatives that position us to drive growth for years to come.
I am proud of how our team has remained agile and focused in a challenging environment during the past couple of years.
We've proven that Kohl's is an incredibly strong and resilient company and has a very bright future.
During today's call, I want to leave you with three things.
First, we have fundamentally restructured our business to be more profitable.
In 2021, we delivered an all-time record adjusted earnings per share of $7.33, eclipsing our previous high of $5.60 in 2018.
And our operating margin of 8.6% exceeded our goal of 7% to 8% two years ahead of plan.
Second, our strategy is building momentum.
Sephora is driving impressive results, which gives us a lot of confidence as we expand the partnership to more than half of our store base this year.
We are also pleased with the ongoing strength in our active business, which grew more than 40% relative to last year.
And third, we are returning a significant amount of capital to shareholders.
We continue to see a lot of value in our company and are reinforcing our commitment to driving shareholder value in 2022.
The board has approved a 100% increase in our dividend, which equates to an annual dividend of $2 per share.
In addition, the board has authorized a $3 billion share repurchase program, and we plan to repurchase at least $1 billion this year, of which $500 million is expected to be repurchased through open market transactions or an accelerated share repurchase program executed in Q2 2022.
In addition, we are focused on running our business the right way.
We have a long-standing commitment to ESG stewardship, including a strong environmental platform, diversity and inclusion strategy and focus on giving back to communities.
We continue to raise the bar in all of these areas and look forward to releasing our 2021 ESG Report in the spring, which will include details on our ESG goals, progress to date and SASB and TCFD reporting.
We remain extremely confident in driving profitable future growth and cash flow generation, and we look to build on this past year's success in 2022 and beyond.
I'll start by adding more color to our Q4 results.
We drove strong margin improvement and delivered fourth-quarter earnings per share ahead of expectations.
Following a strong sales start to the quarter, we experienced significant additional inventory receipt delays and were unable to fulfill all of the customer demand during this critical holiday time.
We estimate that our sales growth was impacted by approximately 400 basis points as a result of the worsening of supply chain disruption to our business.
We also experienced a softening in-store traffic in January due to omicron.
Our ability to navigate these challenges and still report strong earnings is a testament to how we fundamentally restructured our business to be more profitable, with an assortment that has a higher margin profile and an expense structure that is more efficient.
In terms of the top line, Q4 sales increased 6% to last year, led by a double-digit increase in-store sales.
We saw the best performance in categories where we had sufficient inventory, such as active, and conversely, weaker results in areas with inventory challenges, like women's.
This gives us confidence that as we improve our inventory position in 2022, we will be able to better capture customer demand and drive sales growth.
Stores remain extremely important to our business.
The vast majority of our customers shop our stores, and the stores play a central role in our omnichannel model.
During the fourth quarter, more than 40% of digital sales were fulfilled by stores.
As it relates to digital, sales increased 21% to the same period in 2019 and were down 1% to 2020.
As a percentage of total sales, digital sales were 39% in the quarter.
For the year, relative to 2019, digital sales increased 30% and accounted for 32% of total sales.
From a category perspective in Q4, active continues to be a key growth driver of our business, with sales increasing more than 25% to both last year and on a two-year basis.
Kohl's continues to assert itself as a leading destination for the overall active category, including performance, athleisure and outdoor, through its differentiated portfolio of national and private brands.
We saw strength across all active categories in Q4: women's, men's, and children's apparel as well as in footwear.
From a brand perspective, our key active national brands of Nike, Under Armour, adidas, and Champion all experienced exceptional growth.
In addition, our national brands of Levi's, Vans, Ninja, Koolaburra by UGG, LEGO, and Hurley also outperformed.
From a private brand standpoint, we saw strength in brands like Tek Gear, Sonoma and SO.
Jill will share more color on the quarter in a moment.
Let me now provide an update on our strategy and key 2022 initiatives.
We made important progress in our pursuit of becoming a leading destination for the active and casual lifestyle in 2021.
Core to this strategy is our product, building a meaningful beauty business, continuing to grow our active category, improving women's and introducing iconic relevant brands to further differentiate our brand portfolio.
Many of these major initiatives were launched late in 2021 and are just starting to scale, with most of the upside opportunity still ahead of us.
Let me start with our game-changing partnership with Sephora.
As we've shared before, this introduction will propel Kohl's into a leading beauty destination.
It also is a great example of how we are investing in profitable future growth by elevating our product assortment and the overall experience.
Sephora drove significant beauty sales in its first holiday season at Kohl's.
We are continuing to see increased levels of traffic and a mid-single-digit sales lift in the first 200 stores that have Sephora as compared to the balance of the chain.
We continue to see strong new customer acquisition in our Sephora stores who are younger and more diverse.
New customers represent more than 25% of Sephora at Kohl's shoppers.
Customers are shopping across a wide range of price points and categories such as makeup, skincare, and fragrance.
Some of the top-selling brands during the holiday season included Sephora Collection, Fenty, Too Faced, Charlotte Tilbury, OLAPLEX, and tarte.
Sephora at Kohl's customers are also shopping across the store.
More than half are attaching at least one other category in their purchase, with women's, accessories, and active being the most prevalent.
The frequency of customer return trips is also building the longer the Sephora shops have been opened.
Sephora will be a key driver of our growth in 2022 with the opening of another 400 new shops, reaching half of our store base.
And in 2023, we will open another 250 Sephora shops.
We are working closely with Sephora to test and launch additional opportunities to grow our collective business.
We look forward to highlighting some of these at next week's Investor Day.
In conjunction with the Sephora openings, we are also investing to elevate the overall store environment.
We are repositioning categories to deliver against our new strategy, such as moving active to the front of the store.
We continue to improve our merchandising efforts and offer an ongoing pipeline of newness and discovery.
By the end of 2022, more than half of our store base will have Sephora and the new elevated experience, which is an important milestone in our evolution.
In addition to moving active to the front of the store, we will be driving growth through further expansion in our assortment and elevated merchandising across all of our key national brands.
We're also growing our outdoor business.
Following the successful launch of Eddie Bauer, we will expand the brand offering from 500 stores to all stores in 2022.
We will also increase distribution of Under Armour Outdoor from 400 stores to all stores and remain committed to growing our business with Columbia and Lands' End.
And we're focused on further growing our plus size and big and tall businesses, which continue to resonate with our customers.
In addition to Sephora and active, let me share some of our other key initiatives, starting with men's.
Our men's business has continued to be a strong performer and benefit from our recent brand introductions of Tommy Hilfiger, Calvin Klein, and Hurley.
We look to build on this momentum in 2022 by dedicating more space and expanding each of these brands.
Let me now turn to women's, which is an important business for Kohl's.
As you know, we have taken a number of steps to reposition the women's business.
We entered 2021 with a conservative plan given the uncertainty of the year ahead and the significant transformation of that business.
As the macro environment improved, we were challenged to sufficiently replenish our inventory levels given the worsening supply chain disruption.
As a result, the core women's business operated with an average inventory down nearly 45% to 2019 during the fourth quarter.
While 2021 included many challenges, the women's business delivered multiyear highs for sell-through, turn, and margins.
You'll hear more about our women's strategy at next week's Investor Day.
We are also focused on other initiatives across the business.
We will inject more discovery into our stores with more frequent use of capsules such as: Draper James RSVP, a collection from the brand founded by Reese Witherspoon; and a premium denim offering, including Buffalo and Levi's SilverTab.
Leveraging the reach of our strong omnichannel platform, we will also be introducing dozens of emerging products and brands on a rotating basis, including brands such as Colors for Good and Love Your Melon that have a philanthropic mission.
Let me now provide a quick preview of what to expect at next week's Investor Day event.
We are looking forward to sharing with you how we are evolving Kohl's into a focused lifestyle concept with a clear mandate on driving profitable growth.
In addition to Jill and I, several other members of our executive leadership team will join us to discuss key initiatives across merchandising, marketing and technology.
We will also review our long-term financial plan and highlight our ESG efforts.
Before I hand it off to Jill, let me briefly summarize my comments today.
2021 was an important and pivotal year for Kohl's.
We accomplished a great deal strategically and financially as we've highlighted today.
Given the strong growth initiatives in front of us, we have great confidence in the future.
We are focused on driving shareholder value and are reinforcing our commitment to returning capital to shareholders.
We are doubling our dividend, and our Board has approved a $3 billion share repurchase authorization, with a plan to repurchase at least $1 billion in shares in 2022.
As we close out this important year for the company, I want to express my sincerest gratitude to all of our associates across the country for their tremendous commitment and hard work.
It has been an extraordinary couple of years, and this team continues to foster a strong culture, deliver exceptional service to our customers and create a bright future for Kohl's.
I want to start by reiterating the three key takeaways from today's call: one, we have fundamentally restructured our business to be more profitable, and this is showcased by a record year of EPS; two, our strategy is building momentum, and this will continue in 2022; and three, we are reinforcing our commitment to driving shareholder value, doubling our dividend and planning to repurchase at least $1 billion in shares in 2022.
For today's call, I'm going to review our fourth-quarter results, discuss our capital allocation plans and then provide details on our 2022 guidance outlook.
For the fourth quarter, net sales increased 6% to last year, and other revenue, which is primarily credit revenue, also increased 6%.
As Michelle indicated, following a strong start to the quarter, the sales trend worsened due to inventory receipt delays and the spread of omicron.
We estimate that our sales were impacted by approximately 400 basis points in the fourth quarter as a result of supply chain challenges.
Turning to gross margin.
Q4 gross margin was 33.2%, up 124 basis points from last year, driven primarily by higher inventory turns and regular price selling, reduced sourcing costs, and pricing and promotion optimization strategies.
This was partially offset by higher transportation costs as freight expense was more than 140 basis point headwind to gross margin in Q4 and was $40 million higher than we expected.
Now let me discuss SG&A.
In Q4, SG&A expenses increased 5% to $1.7 billion, driven principally by our top-line growth.
As a percentage of revenue, SG&A expenses leveraged by 15 basis points to last year, with improved store labor productivity and lower technology expenses more than offsetting increased wage investments across our stores and fulfillment centers.
Depreciation expense of $207 million was $11 million lower than last year due to lower capital spend.
In total, our Q4 operating margin was 6.9%, representing an increase of 172 basis points to last year.
Last, let me touch on some additional financial items.
Interest expense was $5 million lower than last year due to lower average debt outstanding during the quarter based on steps we took in 2021 to return our balance sheet to its healthy prepandemic debt structure.
Net income for the quarter was $299 million, and earnings per diluted share was $2.20.
This compares with last year's adjusted earnings per share of $2.22, which included $1.15 of tax benefits.
As evident in our performance during 2021, our strategic actions over the past 18 months to enhance our gross margin and improve the efficiency within our expense structure are working.
For the full year, we achieved a gross margin of 38.1%, which exceeded our 36% target, and we have managed expenses tightly, lowering marketing and technology spend each by more than $100 million since 2019.
These were key drivers in our ability to deliver an operating margin of 8.6% in 2021, exceeding our 2023 target of 7% to 8% two years ahead of plan.
And we reported an all-time record earnings per share of $7.33, well ahead of our prior high of $5.60 in 2018.
Turning to the balance sheet.
We continue to be in a strong financial position.
We ended the quarter with $1.6 billion of cash and cash equivalents.
As it relates to inventory, we continue to deliver very strong inventory turnover in Q4, resulting in a 4.1 times turn for the year, achieving our goal of four times or more.
Our inventory balance at year end was 13% lower than 2019.
However, this was not reflective of our position during the holiday period.
We entered the quarter with inventory trending down 25% to 2019 and slightly worse on an available-for-sale basis, and we expect it to maintain this level through the holiday.
However, a strong start to November, coupled with unexpected receipt delays, led to significantly less inventory in stores than planned during the key shopping weeks.
Average available-for-sale inventory was down nearly 40% to 2019 during November and December, and our position in stores was even worse than this.
In assessing our results, it was clear that our challenged inventory position hindered our ability to drive the intended sales.
We saw a distinct correlation between inventory and sales growth across our store base and across our categories.
Our inventory position began improving in January as receipts began arriving, though was still down approximately 30% on average during the month.
Looking ahead, we feel good about our overall inventory composition.
Although certain receipts were late, we don't believe we have a margin liability as we will continue to work through inventory in Q1 in core merchandise items like fleece and use pack and hold strategies on seasonal goods such as sleep sets and pajamas.
And we've taken additional proactive steps to ensure we are better positioned.
Turning to cash flow.
We continued our strong cash flow generation with $497 million of operating cash flow and $296 million of free cash flow in Q4.
For the full year 2021, we generated operating cash flow of $2.3 billion and free cash flow of $1.6 billion.
Capital expenditures for the year were $605 million, driven mainly by Sephora build-outs, refreshes, and fixtures for new brand launches as well as the completion of our six e-commerce fulfillment centers.
For 2022, we are planning capital expenditures of approximately $850 million.
This is higher than 2021 due to our continued investment in enhancing our store experience, including 400 Sephora build-outs and store refreshes as well as five new stores and four relocations.
Now let me discuss our capital allocation actions.
During the fourth quarter, we further accelerated our share repurchase activity, buying over 10 million shares for $548 million.
For the full year, we repurchased 26 million shares for $1.35 billion and ended the year with approximately 131.3 million shares outstanding.
As it relates to our dividend, we paid $147 million to shareholders in 2021.
In total, we returned $1.5 billion to shareholders in 2021.
The board has approved a 100% increase in our dividend, which equates to an annual dividend of $2 per share, and a $3 billion share repurchase authorization.
In 2022, we plan on repurchasing at least $1 billion, illustrating the confidence we have in our business and in our key strategic initiatives.
Now let me provide details on our outlook for 2022.
As you've heard today, we are confident in our strategies to continue our growth in 2022.
Our guidance assumes that our business will strengthen as the year progresses, given the timing of our key strategic growth initiatives, specifically the rollout of our 400 Sephora shops.
For the full year, we currently expect net sales to increase 2% to 3% versus 2021; operating margins to be in the range of 7.2% to 7.5%; and earnings per share to be in the range of $7 to $7.50, excluding any nonrecurring charges.
Let me share some additional guidance details and notes.
We are expecting higher G&A and interest expense in 2022 due to lease accounting.
As we have stepped up our investment in stores with Sephora and refreshes, it has resulted in a number of leases being reclassified to finance leases from operating leases.
Accounting treatment for finance leases recognizes expense in G&A and interest expense rather than rent expense.
As a result, we expect G&A to be approximately $860 million and interest expense of approximately $300 million in 2022.
And lastly, we expect a tax rate of approximately 24%.
I want to highlight some additional guidance items.
First, from a net sales perspective, we expect Sephora to be a key driver of our growth in 2022 with the opening of another 400 new shops.
Given the timing of the Sephora store openings and inventory flow normalizing, we are expecting sales growth to build as the year progresses, with the second half stronger than the first half.
Second, we are expecting significantly higher freight and product cost inflation in 2022.
While we will benefit from our ongoing sourcing initiatives and some pricing actions, we do not expect to fully mitigate the headwind.
As a result, we are planning gross margin to contract by approximately 100 basis points in 2022 relative to 2021.
Third, from an SG&A expense perspective, we are planning expenses to be higher in Q1 and Q2 driven by the opening of 400 Sephora stores and the related store refresh costs.
And fourth, our guidance assumes our plan to repurchase at least $1 billion of shares in 2022, of which $500 million is expected to be repurchased through open market transactions or an accelerated share repurchase program executed in Q2 of 2022.
For modeling purposes, please note that we ended 2021 with 131.3 million shares.
In summary, our business remains financially strong.
We delivered record earnings per share in 2021 and returned $1.5 billion in capital to shareholders.
We will build on this performance in 2022 as we scale key initiatives and improve our inventory positions.
I will now hand it back to Michelle.
Before we move to Q&A, I want to address some of the uninformed and inaccurate commentary regarding the Board's openness to maximizing value.
We have a strategic and financial plan that will deliver substantial value.
The board is testing and measuring that plan against other alternatives.
As we announced on February 4, the company retained Goldman Sachs to engage with interested parties.
That effort continues and has included engaging with unsolicited bidders as well as proactive outreach.
Engagement with those parties is ongoing.
Our proxy, when filed, will provide more detail.
The board is committed to fulfilling its fiduciary duties and will choose the path it believes will maximize the value to shareholders.
So contrary to what others might say, the Board's approach is robust and intentional.
We won't be commenting further on this topic during today's call.
 Assistant:

Chosen response:
q4 earnings per share $2.20.
sees fy earnings per share $7.00 to $7.50 excluding items.
sees fy sales up 2 to 3 percent.


Prompt:
Human: Joining me virtually today, as we are all working from home, are Mary Hall, our CFO; Robert Traub, our General Counsel; and Shane Hostetter, our Head of Finance and Chief Accounting Officer.
We have slides for our conference call.
You can find them in the Investor Relations section of our website at www.
A great deal has changed in the world with the COVID-19 pandemic since our last quarter's conference call.
For us, our top priority is to protect the health and safety of our employees and our customers, while ensuring our business continuity to meet our customers' needs.
All of our 34 plants around the world are operating and we are meeting our customers' needs.
I am very proud of what the Quaker Houghton team has done to continuing servicing our customers as well as continuing with our integration, which has not missed a beat.
In our last conference call, we knew China was being impacted by COVID-19, which really started impacting us in February.
But in the second half of March, we began experiencing impacts everywhere around the world.
And toward the end of March, many of our customers had significantly reduced production or shut down altogether, especially in the automotive sector.
Overall, we estimate that COVID-19 impacted our sales by about 4% in the first quarter.
We were also impacted by Boeing temporary halting the 737 MAX production, which impacted sales by approximately 1%.
These were the two main drivers of our volume decline in our pro forma comparisons.
We have gone through a customer-by-customer analysis to see what our gains and losses and market share were at the customer and product levels.
This analysis continues to show that we took share in the marketplace as we estimate total organic volume growth due to net share gains was approximately 2% in the first quarter of this year versus the first quarter of last year.
Concerning gross margins, you may recall from our comments in the past that the combined gross margins of Quaker Houghton were expected to be about 1% lower than stand-alone Quaker.
In the first quarter comparison, you can see this difference is only 0.5 percentage point.
This is indicative of our raw material savings from our integration starting to come through.
While crude was also decreasing during this period, we do not see any material benefits from this as of yet, as our raw material costs were relatively stable.
So overall, the first quarter results were somewhat better than expected when considering the COVID-19 impact.
Our first quarter pro forma adjusted EBITDA grew 10% versus last year due to our integration savings, the impact of the Norman Hay acquisition last quarter, and the additional cost control measures we put in place to combat the global effect of COVID-19 on our volumes.
This event has been similar in many ways to what we went through in late 2008.
Just like then, we took fast action to save cost in numerous ways.
Essentially, all discretionary expenses have been eliminated.
We stopped new hires, executive pay cuts were implemented, some positions were furloughed, and our planned capital expenditures have been cut by over 30%.
And very importantly, we reviewed our integration's synergy plans in light of this situation and took additional actions as well as accelerated other synergies where possible.
We have now increased our guidance on synergy achievement.
For 2020, our new estimate is $53 million of cost synergies achieved versus our previous estimate of $35 million.
And the total synergies that we estimate will be achieved by 2022 have been raised from $60 million to $75 million.
One question we have been asked about is if this pandemic has impacted our integration.
And the answer is that it really hasn't negatively impacted our integration in any way, especially in the timing.
I give our people a tremendous amount of credit for being able to do plant shutdowns, product manufacturing site transfers, and ERP implementations during these challenging work conditions that we're currently operating under.
For instance, we successfully implemented our [Indecipherable] at two sites recently and has done such all remotely due to the current working conditions.
Our two years of planning are paying off and we're fortunate that we had this integration execution ongoing during this period of time to help us offset the volume impacts that we're experiencing.
Even with these additional cost synergies, we have not done anything that will impact our business execution or strategic initiatives, including our ability to service our customers well, continue to grow above the market into the future, and further develop and execute on our strategic platform.
Looking forward to the rest of the year, we expect the second quarter to be the most challenging quarter.
Many of our customers has significantly reduced production or shut down.
For example, our April revenues were down in the order of 30%.
We do anticipate that in the second half of the year, we will begin to see a gradual sequential improvement in business through the rest of the year.
However, we do not expect our business to return to the levels expected pre-COVID-19 by the end of the year.
Given how clouded the economic environment is to the COVID- 19, we will not be providing specific guidance at this time.
However, in order to try to give some direction for the remainder of the year, I can say that we're currently see that the second quarter's adjusted EBITDA could be down by nearly half of the first quarter's adjusted EBITDA.
For the full year, we expect our adjusted EBITDA to be more than $200 million.
And we do not expect to have any liquidity or bank covenant issues.
Overall, our higher expected synergies, additional cost saving actions, the improvement in our gross margins, and the expected release in cash via working capital reductions are expected to continue to help us during this period of time when our volumes are down.
And if we look forward to 2021 and 2022, I continue to be optimistic in our future, and I do expect us to achieve significant increases in our adjusted EBITDA, as we complete our integration cost synergies, continue to take share in the marketplace, and benefit from a projected gradual rebound in demand in our end markets over this period of time.
I am so proud of how our team has performed in servicing our customers, meeting their needs, and successfully continuing on with our execution of our integration, which is so critical for us this year.
People are everything in our business and by far our most valuable asset, and ensuring their safety and well-being is and will continue to be a priority for us.
I'm very happy with our Quaker Houghton team and what we have and will be able to accomplish for our customers, both now and going forward.
I will now hand it over to Mary so that she can review some of the key financials for you for the quarter.
These are available on our website.
Please also note that we updated the risk factors in yesterday's first quarter 10-Q to address COVID-19-related issues and these risk factors should be reviewed along with those in our 2019 Form 10-K.
Reconciliations are provided in the appendix of this investor deck.
We followed a similar review format for this deck as the one we used for our last couple of calls post Combination, where our comparison periods show actual and non-GAAP results as well as pro forma sales and pro forma adjusted EBITDA as if we've been combined with Houghton throughout the periods presented.
So please see Slides 6 and 7 and also the chart on Slide 8, while I review some highlights.
When we had our Q4 earnings call in early March, we noted that we continued to face strong headwinds from global automotive and general industrial weakness that surfaced the latter half of 2019, as well as a stronger U.S. dollar.
COVID-19 at that point was generally considered a China issue.
As March unfolded, COVID-19 became a global pandemic as Mike noted, significantly exacerbating the auto and industrial weakness already seen.
So, while our actual sales are up significantly to $378.6 million in Q1, this is due to the inclusion of Houghton and Norman Hay.
On a pro forma basis, as if Houghton was also in Q1 of 2019, net sales were down 3%, which reflects negative impacts from lower volumes and foreign exchange, partially offset by additional sales from Norman Hay.
Despite the challenges we faced in Q1, the Company generated good cash flow and adjusted EBITDA, which was up 10% on a pro forma basis and non-GAAP earnings per share of $1.38 was well above consensus of $1.
Gross margin of 35.4% for Q1 was down from 35.9% Q1 of last year, which is in line with our expectations and communication.
We previously noted that somewhat lower gross margins in the legacy Houghton business due in part to the accounting treatment for Fluidcare, the chemical management business.
If Houghton was included in the prior year, we estimate that our prior year gross margin would have been approximately 1% lower.
This indicates improvement in the current quarter's gross margin, which largely reflects the procurement savings related to the combination that Mike mentioned.
In the table on Slide 8, you can see a reported operating loss of $12.4 million in the GAAP section but in non-GAAP operating income of $36 million in the middle section.
The main non-GAAP adjustments are combination and restructuring charges totaling about $10 million and a $38 million non-cash impairment charge in Q1 to reflect the writedown of our Houghton trademark indefinite-lived intangible assets to their estimated fair value.
These were recorded at fair value at close of the Combination on August 1, 2019 and tested for impairment during the fourth quarter of 2019.
However, given the recent changes in business conditions as a result of COVID-19, we determined that these assets needed to be tested again and confirm their carrying value exceeded their current estimated fair value by approximately $38 million.
As we noted in our 10-Q, as business conditions evolve, we will continue to reevaluate all our long-lived assets as necessary.
In non-operating items, we reported a non-cash charge of $22.7 million for final settlement and termination of legacy Quaker's U.S. defined benefit pension plan, a process we previously disclosed.
The offset is reflected in the accumulated other comprehensive income/loss account in the equity section of the balance sheet.
Concurrent with this termination, the Company paid approximately $1.8 million, subject to final adjustment.
Our reported effective tax rate was a benefit of 31.1% in Q1 2020 versus an expense of 26.8% in Q1 of last year.
Adjusting for all one-time charges and benefits, we estimate our ETR would have been 22% this Q1 and 24% in Q1 last year.
We currently expect our full-year ETR, excluding all one-time charges and benefits, to be between 22% and 24%.
Our non-GAAP earnings per share of $1.38 is down from $1.41 in Q1 last year, due primarily to the additional shares issued in the Combination, partially offset by the inclusion of Houghton and Norman Hay.
Sequentially, non-GAAP earnings per share is up from $1.34 in Q4 of 2019, which included Houghton and Norman Hay and the additional shares.
On Slide 9, we show the trend in pro forma trailing 12 months adjusted EBITDA, which reached $239 million as of Q1, up from $234 million at the end of 2019.
This increase reflects the strong adjusted EBITDA performance in Q1 of $60 million, up 10% from pro forma Q1 last year of $55 million due to the inclusion of Norman Hay and the benefits of cost savings realized in the quarter from the Combination.
On Slide 10, we provide an update on our leverage and liquidity.
Please note that we drew down most of the available liquidity on our revolving credit facility in March in an abundance of caution as COVID-19 went global and created significant uncertainty and volatility in all global markets.
This drop was leverage neutral as the additional cash in our balance sheet is a direct offset to our debt.
In fact, our reported net debt to adjusted EBITDA declined to 3.40 times from our year-end level of 3.47 times as a result of good cash flow and the cost savings mentioned earlier.
Our bank covenant ratio also improved from about 2.94 at year-end to 2.76 at the end of this quarter per the definitions in our borrowing agreement.
We expect to continue to be in compliance with our bank covenants and we have strong liquidity to support these uncertain times.
Our capital allocation decisions reflect these priorities, including an approximately 30% reduction in previously planned capex.
As you know, we have a very asset-light business model and we also expect a release of working capital at sales decline to generate good cash flow similar to the global crisis in 2008/2009.
Our cost of debt continues to benefit from declining interest rates and was estimated at approximately 2.4% at March 31 versus about 3% at year-end.
As Mike mentioned, we're encouraged by the additional cost synergies realized to date and expected to be achieved overall.
The increase in expected realized synergies this year from $35 million to $53 million in addition to the cost reduction actions we have taken to address the global crisis and our history of generating good cash flow in downturn all give us confidence in our ability to weather this storm.
 Assistant:

Chosen response:
q1 non-gaap earnings per share $1.38.
q1 sales $378.6 million versus refinitiv ibes estimate of $362.8 million.
quaker chemical - qtrly net sales negatively impacted by volume declines due to boeing's decision to temporarily stop production of 737 max aircraft.
qtrly net sales also negatively impacted by volume declines primarily attributed to initial impact of covid-19.
expects to realize combination cost synergies of $53 million in 2020, $65 million in 2021 and $75 million in 2022.
expect our q2 adjusted ebitda to be down by nearly half of q1 adjusted ebitda.
expect full year adjusted ebitda to be more than $200 million.
expects reductions in headcount and site closures to continue to occur during 2020 and into 2021 under restructuring program.
currently does not expect to see significant net cash outflows for 2020.
has no material debt maturities until august 1, 2024.
as we look forward to 2021 and 2022, we expect to achieve significant increases in our adjusted ebitda.


Prompt:
Human: We have slides for our conference call, you can find them in the Investor Relations section of our website at www.
A great deal has changed over the past year with the COVID pandemic for us.
Our top priority is and has been the protect the health and safety of our employees and our customers, while ensuring our business continuity to meet our customers' requirements.
All of our plants around the world are operating and we are continuing to meet our customers' needs.
Despite the challenging conditions caused by COVID as well as the current year global supply chain pressures that have impacted raw material availability.
I'm very proud of what the Quaker Houghton team has done the continue to service our customers, as well as continue our integration.
Our results for the second quarter were stronger than we expected.
This was primarily being driven by continued strong sales.
While sales volumes were down 3% from the first quarter, the first quarter was unusually strong as we believe some of our customers were replenishing their inventories.
If we compare our second quarter sales to the fourth quarter of 2020, which was another strong quarter for us, our current quarter sales volumes were up 4%.
You can see from chart 8 where we show our sales volume trends that our sales volumes were up 35% from the second quarter of last year and has sequentially improved at a steady rate since then with the first quarter being unusually high as I mentioned earlier.
Overall, our top line revenue was up 52% from the second quarter of 2020 with all segments showing strong growth since 2020 was particularly hard-hit from COVID.
On a sequential basis sales were up 1% from the first quarter with 3 of our 4 segments showing growth, but our Asia Pacific segment was down 5%.
Overall sales were great for Asia Pacific continue to be strong, but did sequentially declined compared to the first quarter due to unusually strong demand in the first quarter in our China metalworking business, but this is largely due to certain customers replenishing their supply chain in the first quarter.
We are also seeing higher selling prices, which we estimate increased an overall 6% in the quarter, with increases in all 4 segments.
I also want to point out that our ability to gain new pieces of the business and take market share also contributed to the strong performance as our analysis shows, we had total organic sales growth due to net share gains of approximately 4% in the second quarter of 2021 versus the second quarter of 2020.
So we continue to feel good about our ability to deliver on our historical performance of consistently growing 2% to 4% points above the market due to our share gains.
And looking forward, we continue to feel good about these levels of share gains given the opportunities we have recently won or or actively working on.
While strong sales were a positive for us in the quarter, a clear negative was the continued increase in our raw material costs.
While we knew raw material costs we're increasing the last time we talked, the increases have continued longer and at a higher level than we expected.
Overall, our cost of raw materials have increased an additional 10% since our last call in May when our original expectation was that it will begin to stabilize in June.
This has not been the case, there is tremendous stress on the supply chain of raw materials and logistics.
Further, the availability of raw materials has impacted us at times for I'm proud to say that we've navigated this so far and have ensured that all our customers' businesses continue to operate.
The increase in raw material costs did put downward pressure on our gross margin in the second quarter and this increase in raw materials will continue into the 3rd quarter, just given the sheer magnitude and duration of the additional increases and the lag effect we experience between the time raw material cost increase and the time we have to fully implement price increases to offset them.
So overall, we're very pleased with the quarter given the raw material issues we are facing as we achieved our second highest quarterly adjusted EBITDA ever.
Our trailing 12-month adjusted EBITDA is now $277 million compared to the $222 million in 2020.
So we are already experiencing the step change we projected in our profitability.
Synergy achievement also was a factor in our results as we achieved $18.5 million in the current quarter compared to $12.5 million last year.
Related to our liquidity.
We did increase our net debt in the quarter due to increases in our working capital related to raw material costs and availability.
However, our leverage ratio of net debt to adjusted EBITDA continued to improve from 3.1 at the end of the first quarter to 2.7 now.
As we look forward to the 3rd quarter, we expect short-term headwinds from higher raw material costs and additional impacts in the automotive market due to the continued semiconductor shortage and some typical seasonality impacts.
I do now see the 3rd quarter as our lowest quarter of the year, both in terms of gross margin and profitability.
However, we do expect our margins and profitability to sequentially improve in the 4th quarter.
We expect raw material prices to stabilize by the end of the 3rd quarter and we expect our product margins to get back to their targeted levels as we exit the year.
As I think about our full year, we are continuing with our previous guidance, which is the floor or the low end of our expected adjusted EBITDA.
However, a more optimistic on the year than I was several months ago, while we may end up the year in the same place or slightly better based on our strong first half.
That the shape of our years expected profitability trend has changed.
Essentially, we are seeing higher demand for the year but greater margin pressures in the near term, which is expected to be largely offset this higher demand.
However, the margin pressures are expected to be short-term in nature once our price increases are fully implemented.
So we are currently expect to exit the year at a better-than-expected demand for our products and our product margins largely returning to our expected levels.
So, we now expect the year's profitability to be in a similar or slightly better place compared to our previous expectations.
I feel better about the scenario than the already positive one I envisioned a few months ago.
We will have a step change in our profitability essentially complete our integration cost synergies continue to grow above the market by taking share and reach our targeted net debt to adjusted EBITDA leverage of 2.5%.
I'm so proud how our team has performed in servicing our customers, meeting their needs and successfully continuing with our integration execution, which is both critical and difficult for us given the conditions we face.
People are everything in our business and by far and was valuable asset and ensuring their safety and well-being is and will continue to be a top priority for us.
So I can't help but reemphasize my pride for our Quaker Houghton team and what we have and will be able to accomplish for our customers and investors both now and going forward.
Looking at our second quarter performance, we had another strong quarter.
And as Mike mentioned, it was really the story of a positive solid top-line performance but tempered by a negative higher input cost due to the global supply chain disruption that we and the rest of the world are currently facing.
As I begin to discuss our quarterly performance, I'll point you to Slide 6, 7 and 8 in our call charts, which provide a further look into our financials.
And also I want to remind everyone that our prior year comparison was heavily impacted by COVID-19 hitting us the hardest.
In the second quarter of 2020.
Our record net sales of $435.3 million increased 52% from the prior year and this was driven by 35% higher volumes, 8% from foreign exchange, 5% percent from acquisitions and 4% from price and mix.
When looking sequentially, we were up 1% from the first quarter as increases from our pricing initiatives offset about 3% lower volumes quarter-over-quarter.
As the first quarter enjoyed some additional volumes due to customers replenishing their inventories.
Turning to our gross margin trend, our second quarter margin ended at 35.5% which as we expected, was down roughly 1% sequentially due to the pricing lag that Mike previously discussed.
That said we did show improvement compared to 34% in the prior year, but this 1.5% improvement year-over-year is really due to the impact of fixed manufacturing costs on prior year volume levels as well as the benefit of strong execution of integration synergies, which offset higher raw material costs in the current quarter.
We expect 3rd quarter gross margin to be at or somewhat below our second quarter level before beginning to increase in the 4th quarter.
As we exit the year, we do expect our product pricing to catch up to the current year raw material increases.
However, the impact of price increases to our top line will naturally impact our overall gross margin levels as we priced to ensure we retain our product margins, at least on a per-kilo basis to ensure we maintain our levels of gross profit in dollars rather than percent.
SG&A was up $22 million compared to the prior year quarter as we had additional direct selling costs due to our increase in sales, higher labor and other costs that were directly impacted by COVID last year.
Additional costs associated with our recent acquisitions, and higher SG&A due to the impact of foreign exchange, which were partially offset by additional savings from integration cost synergies.
The net of this performance resulted in our second highest ever adjusted EBITDA of $70.1 million for the quarter, up 118% compared to the prior year COVID impacted, $32 million.
As you could see in chart 9, this increased our trailing 12-month adjusted EBITDA to a record $277 million.
From a segment perspective, these results were really driven by higher operating earnings in each of the company's segments year-over-year.
This was certainly attributable to the prior year weak performance due to COVID but this quarter also benefited from recent acquisitions higher integration cost synergies as well as the market share gains Mike previously mentioned.
When looking at our segment's sequential performance each segment's top line was above the first quarter as global pricing initiatives offset some volume decline quarter-over-quarter with the exception of Asia Pacific, who had a decline in sales as they experienced a very strong first quarter specifically in certain China metalworking markets.
Each segment's top line performance drove their sequential operating performance to be relatively consistent compared to the first quarter in the Americas, EMEA and GSP.
As the pricing initiatives largely offset lower volumes and the impacts of higher raw material costs.
Whereas, Asia Pacific did have a sequential decline in earnings, which was largely due to the exceptional first quarter that I previously mentioned.
From a tax perspective, we had an effective tax rate of 32.2% in the quarter compared to 57.9% in the prior year.
Excluding various one-time items in each period, our tax rate would have been 24% for the current quarter compared to 18% in the prior year, which was a bit low due to the impacts from COVID on our effective tax rate.
To note, we do expect both our 3rd quarter and full-year effective tax rates will be in the range of 24% to 26%.
Our non-GAAP earnings per share of $1.82 grew over 700% compared to the prior year as our strong operating earnings, coupled with over $1 million of interest savings due to lower borrowing rates or partially offset by slightly higher tax expense.
As we look to the Company's liquidity summarized on chart 10, our net debt of $759.2 million increased about $9 million in the quarter, which is primarily driven by $7.1 million of dividends paid, $6 million of additional investments in normal CapEx as well as a small acquisition, which were partially offset by $3 million of operating cash flow.
The quarter's low operating cash flow was driven by further investment in the company's major working capital requirement.
Specifically, the company had considerable increases in the inventory, which were due to higher raw material costs, restocking of low levels given past impacts of COVID as well as bulk purchases to ensure safety stock given the disruption in our global supply chain.
Looking ahead to the second half of the year we believe our operating and free cash flow will return to the typical levels we've demonstrated in the past, as we don't believe we will have such dramatic increases in working capital to sustain our day-to-day operating requirements.
Despite an increase in net debt, the company was able to significantly improved our reported leverage ratio to 2.7 times as of Q2 2021 compared to 3.1 times at the end of March.
Overall, I want to emphasize we are committed to prudent allocation of our capital.
This includes prioritizing debt reduction, while continuing to pay our dividends, which we just to get out the 5% increase as well as investing in acquisitions that provide growth opportunities which make strategic sense.
And all while remaining committed to reducing our leverage, which we still expect to be at our target of 2.5 times by the end of the year.
So, to summarize Quaker Houghton had another strong quarter that was above our expectations due to continued strength in demand, and good market share gains, which partially offset higher input costs.
Our liquidity remains very healthy, and we remain committed to our overall capital allocation and deleveraging strategy.
That concludes my remarks.
 Assistant:

Chosen response:
q2 non-gaap earnings per share $1.82.
q2 sales $435.3 million versus refinitiv ibes estimate of $392 million.


Prompt:
Human: This is Devan Bhavsar, and joining us today from Kennedy-Wilson are Bill McMorrow, Chairman and CEO; Mary Ricks, President; Matt Windisch, Executive Vice President; and Justin Enbody, Chief Financial Officer.
Please see the Investor Relations website for more information.
I'm very pleased with our strong third quarter results, which saw EBITDA -- adjusted EBITDA increased over 165% compared to Q3 of 2020 and the record results we have posted for the first nine months of the year.
Adjusted EBITDA totaled $741 million thus far in 2021, compared to $261 million for the first nine months of 2020.
We've made tremendous progress this year on our two key initiatives, growing our in-place annual NOI and growing our fee-bearing capital.
We had a very active quarter, completing $1.8 billion of investment transactions, bringing our year-to-date total to $4.4 billion.
Our assets under management has grown by 17% in 2021 to a record $20.5 billion, from $17.6 billion at the end of 2020.
We have a strong pipeline of new transactions that we expect to close by the end of the year, which would further increase our AUM and result in a record year of capital deployment for KW.
I'd like to start by providing some perspective on what we are seeing in our markets, as real estate fundamentals continue to improve in the quarter.
Global transaction volumes remain healthy, with Q3 volumes in the U.S. increasing 150% from last year's levels, according to Real Capital Analytics.
Institutional demand for real estate remains high, with trillions of dollars of capital globally that continue to search for sound risk-adjusted returns.
2021 operating metrics continue to improve for us.
In our U.S. market, we saw continued impressive apartment rent growth, with rents increasing at one of the fastest rates in recent memory across all our regions.
Investor demand for high-quality rental housing remained very strong and has resulted in cap rate compression and further increases to the value of our real estate portfolio.
Our Mountain West apartment portfolio, which is our largest region, with almost 11,000 units, outperformed once again, driven by very attractive migration trends and relative affordability.
We also saw significant improvements in our Pacific Northwest and California portfolio, as pandemic-related moratoriums began to burn off, and we expect meaningful rent growth in all of these areas over the next 15 months.
In Europe, we saw outstanding performance in our U.K. and Dublin properties.
On July 19, the U.K. removed all COVID restrictions.
And in Dublin, essentially all travel reopened on July 26, and we saw a gradual return to office that we expect will accelerate over the next six months and have a positive impact on our portfolio.
Strong leasing demand in our Dublin multifamily portfolio resulted in occupancy growing by over 400 basis points in Q3 to 96.6 occupancy.
The key acquisitions in the quarter were three wholly owned with multifamily assets totaling 879 units that we acquired for a total of $399 million.
Two of these assets are located in suburban Seattle, and the third asset is located in suburban Denver.
We look forward to implementing our value-add programs at these communities, which has consistently shown our ability to drive outsized returns.
Our multifamily portfolio globally grew to a record 33,400 units at quarter end, including almost 5,000 units under development, which we expect to complete at yields well above current market cap rates.
We're on track to increase our global unit count to 35,000 by year-end.
Mary will speak later on the impressive growth of our European logistics portfolio.
Our Q3 transactions grew estimated annual NOI to $413 million, an increase of $19 million in the year, and we increased our fee-bearing capital to $4.8 billion, representing a 23% growth year to date.
I'm also pleased to announce that yesterday, our board of directors authorized a 9% increase to our quarterly dividend, which now annualizes to $0.96 per share.
Looking ahead, I believe the key drivers of our business will be -- are well positioned with our multifamily portfolio, the reopening of our European markets, the growth of our investment management platform, and the completion of our development projects.
Before we discuss these initiatives in more detail, I'd like to pass the call over to our CFO, Justin Enbody, to highlight our Q3 financial results.
In Q3, we had GAAP earnings per share of $0.47 per diluted share, compared to a loss of $0.18 in Q3 of last year.
Adjusted net income in the quarter grew to $112 million, compared to $27 million last year.
And adjusted EBITDA grew to $203 million in the quarter, compared to $76 million in 2020.
For the year, we've had GAAP earnings per share of $1.96 per share, adjusted net income of $424 million, and as Bill mentioned, adjusted EBITDA of $741 million, representing record results for the first nine months of the year.
In our co-investment portfolio, which includes our unconsolidated funds and joint ventures, we continue to see appreciating asset values, driven by strong NOI growth and further cap rate compression.
This strong performance led to $79 million in gains and $46 million of accrued performance fees in the quarter.
For the quarter, including promotes, total adjusted fees were $56 million, up from $8 million in Q3 of last year.
Turning to our balance sheet, in August, we issued $600 million of unsecured bonds maturing in 2030.
The proceeds were used to fully pay off our line of credit, as well as the remaining $296 million of our KWE bonds due in 2022, which was completed in October.
We have significantly improved our maturity schedule, with no unsecured debt maturities until 2025 and nothing outstanding on our $500 million revolving credit facility.
Our debt has a pro forma average interest rate of 3.6% and a weighted average maturity of 6.5 years, which has improved by 2.5 years since the beginning of the year.
During the quarter, we bought back $25 million of stock at an average price of $21.55.
Since the beginning of 2018, we've now returned $750 million, or approximately $5.40 per share, to shareholders in the form of dividends or share repurchases, which includes repurchasing 15.7, million shares or approximately 10%, of our outstanding share count.
We still have $213 million on our $500 million buyback authorization remaining, a portion of which was utilized in October.
Our global multifamily portfolio continues to outperform, due to our market selection and our hands on asset management style.
Our assets are experiencing improving market conditions, lower delinquencies and increasing rents.
Positive migration trends and affordability continue to create outsized demand, in particular for our Mountain West portfolio, which saw same-property revenues grow by 11% and NOI grew by 15%.
We think there remains strong upside in our Mountain West portfolio, where average rents are $1,366 per month, and as people continue to seek a higher quality of life and migrate out of higher rent, higher tax states.
We are also starting to see improving trends from our Pacific Northwest and our California assets.
Offices began to reopen, which has been a positive for renter demand.
Rent concessions in the U.S. were down 63% in Q3 compared to Q3 of 2020, and we saw leasing spreads average a record 27% on new leases across our U.S. portfolio.
We also continue to work with our tenants and take advantage of the rent relief measures that are available.
The combination of these factors resulted in robust same-store revenue growth across our U.S. market rate multifamily portfolio of 8% and NOI growth of 12% versus Q3 of 2020.
This represents our best quarter of NOI growth in the last five years.
Sequentially, from Q2 of this year, revenues grew by an impressive 6% and NOI by 8%.
In-place rents in our U.S. portfolio are now 6% above pre-pandemic levels.
And with an average loss to lease of 15%, we believe our portfolio is set up for strong growth in 2022 and beyond.
Similarly, at our Dublin apartment portfolio, we continue to see strong demand, as people begin returning to the city.
This led to Clancy Quay being stabilized in Q2.
And currently, Capital Dock is 77% leased and on track to be stabilized in Q4.
Overall occupancy is now returning to pre-pandemic levels in Dublin.
In addition to the mega-cap tech companies that have been large employers in Dublin for many years, other high-growth tech companies are looking to expand their presence in Dublin, such as Stripe, TikTok, ServiceNow, and First Data.
We continue to believe in the long-term prospects of the Irish apartment market, driven by a young and growing population.
Additionally, there are a large number of multinational companies with their European headquarters in Dublin, with a workforce that is more likely to rent than buy.
Turning to our office portfolio, as tenants begin to return to the workplace, we are seeing improvements in the operational environment, including a growing number of firm requirements, requests for tours, and deals being executed.
Quality in both design and construction and staff wellness continues to be an important factor as tenants are drawn toward amenity-rich buildings with ESG credentials.
Thematically, we continue to focus on office tenants in high-growth and essential business sectors, including life sciences, media, and technology.
When you include our suburban apartment and growing logistics assets, we believe this thematic approach positions our overall portfolio well for future cycles.
A great recent example is at one of our largest office assets, 111 Buckingham Palace Road in London, where by October, we transacted on approximately 100,000 square feet of lease transactions, including 20,000 square feet under offer, which in total represents 45% of the building.
These transactions will improve the occupancy significantly, from 80% to 100% in Q4, deliver 26% growth above in-place rents and 40% of the income at pre-COVID top rents in excess of GBP70 per square foot, compared to 15% in Q3 of 2020.
Major tech firms represented 80% of the new leases, illustrating that top tenants are active in the market and willing to make decisions for the right space.
71% of our office NOI is from our European portfolio, which saw Q3 same-property revenue grow by 4% and NOI grow by 5%.
These results were driven by strong rent collections, lower bad debt, and the burn-off of free rent in the quarter.
With an even larger focus on employee retention, large corporate tenants are taking advantage of the benefits of modern, low-rise suburban offices, such as affordability, shorter commute times, and outdoor amenities.
We continue to see this play out in our own portfolio, with approximately 90% of the NOI from low and midrise properties.
We completed 585,000 square feet of leasing in the quarter, bringing our year-to-date total to 1.5 million square feet, with a WALT of 7.6 years.
Our leasing pipeline remains strong, with 152,000 square feet of leasing completed thus far in Q4 and another 600,000 square feet in legals that we're actively working on closing out, giving us good momentum heading into next year.
Turning to our investment management platform, we continued to see strong growth in the quarter, with our fee-bearing capital growing to $4.8 billion.
This has now increased over 160% since the beginning of 2018.
Our fast-growing global credit platform continued to lead the charge in Q3.
In July, we announced a new GBP500 million commitment focused on European loans, bringing total global commitments to $3 billion.
In Q3, we completed $440 million of loan investments, including our first loans in Europe on a few large industrial portfolios.
Our debt platform grew by 24% to $1.4 billion in loans outstanding, with $140 million in future unfunded commitments.
We've been able to attract institutional-quality borrowers with high-quality assets to our debt platform, with an average loan size of $70 million and weighted average maturity of four years.
We continue to see a strong macroeconomic environment in the European logistics sector.
Occupational demand has driven vacancy to an all-time low in the U.K. of 3.4%, and yields continued to compress across Europe, due to accelerating rent growth.
Our thesis from the start when we launched this platform was that last-mile logistic properties in close proximity to transit centers would have strong demand, as they allow for companies to get their products to the end customer in an efficient manner.
COVID has accelerated the thesis, as online sales penetration continues to grow, with online sales making up 28% of total retail sales in the U.K.
Our industrial portfolio has grown rapidly, and including assets under offer, our portfolio has a gross value of approximately $1.1 billion today across 59 assets, with KW's share at approximately 20%.
We look forward to further growing both our debt platform and our logistics platform in the fourth quarter and continued expansion of our investment management business, which has, in total, $2.1 billion in future commitments from our various strategic partners.
Another important area of growth for KW will be the completion of our development and lease-up projects, where we continued to make progress throughout the pandemic.
Our developments, totaling $2.7 billion at cost, are being delivered with strong sustainability credentials, with environmental improvements and tenant wellness at the center of our focus.
Once these assets are completed and stabilized, we expect an incremental $105 million of estimated annual NOI to KW, which represents an initial yield on cost of approximately 6%.
We are nearing completion of two office properties in the heart of Dublin, Hannover Quay and Kildaire Street, which total 134,000 square feet that are expected to complete in Q4 and Q1, respectively.
We remain on track to complete the majority of our construction projects in 2023 and 2024, on time and on budget.
Last month, we announced a new project that we are extremely excited about in a public-private partnership with Cal State Channel Islands.
We are going to develop 589 residential units as part of a master-planned community in Camarillo, California.
The project will have 310 wholly owned market-rate units, 170 affordable units built through our vintage housing joint venture, and 109 for-sale townhomes sold by Comstock Homes.
This development sits adjacent to a 386-unit wholly owned community, which we acquired in 2016.
A project of this nature was a natural fit for KW, given our broad multifamily expertise in developing both market-rate and affordable units.
We are aiming to complete construction in 2024 and look forward to breaking ground in Camarillo later this month.
With that, I'd like to pass it back to Bill.
As you can see that we have a combination of ways to further drive earnings and cash flow growth at Kennedy-Wilson.
As I mentioned on the last call, we have a clear path to grow our stabilized NOI at the rate of 10% to 15% a year over the next three years, driven by strong organic NOI growth, new acquisitions, and the completion of our construction.
We also plan to grow our fee-bearing capital and resulting fees by 15% to 20% per year over the next three years.
The combination of these factors should lead to significant growth in both our net asset value per share and our assets under management.
As we look ahead to 2022, I'm very optimistic in our ability to continue expanding our business for a number of reasons.
First, business conditions have rebounded as economies reopen, and we have a very healthy transaction and financing market, perhaps the strongest we've seen in the last decade.
Second, over the last 18 months, we either grew or establish new investment platforms with well capitalized, extremely liquid, global strategic partners who have a keen desire to expand their relationship with Kennedy-Wilson.
We can now creatively allocate capital across the entire capital structure and in a wide range of asset classes.
Finally, our global investment team remains intact, and our global communication has never been better.
I'm very pleased with the progress our team has made not only in Q3, but over the course of 2021.
I'm also reminded of the importance of long-term relationships, both internally and externally to KW.
Although I'm biased, we have an exceptional global team that has been working together for decades and our internal communication, as I mentioned, is the best it's ever been.
This fact, combined with very high-quality properties in the right product category, located in diversified and growing markets, has set up KW for excellent long-term growth.
And with that, Daven, I'd like to open it up to any questions.
 Assistant:

Chosen response: kennedy-wilson holdings inc - qtrly earnings per share $0.47.


Prompt:
Human: I am Alexandra Deignan, the company's Head of Investor Relations and Corporate Sustainability.
Today's discussion also includes certain non-GAAP financial measures that we believe are meaningful when evaluating the company's performance.
Hosting our call today are Kenneth Jacobs, Lazard's Chairman and Chief Executive Officer; and Evan Russo, Chief Financial Officer.
Evan will start the discussion with an overview of our financial results, then Ken will provide his perspective on the outlook for our business.
After that, we'll open the call to questions.
Today, we reported record operating revenue for the second quarter and first half of 2021, driven by strong results across the firm.
Second quarter revenue was a record $821 million, up 51% from a year ago, and first half revenue was a record $1.5 billion, up 33% from a year ago.
Revenue for the last 12 months was a record $2.9 billion.
This high performance underscores the strength of our franchise and the breadth and depth of our business.
In financial advisory, record second quarter revenue of $471 million increased 61% from last year's period, reflecting broad based activity across sectors, market cap and regions.
M&A completions in the second quarter increased substantially in the Americas, Europe and Asia as did private equity transactions.
Our advisory revenue reflects a growing percentage of financial sponsor activity.
Our Global Private Capital Advisory franchise also had a strong quarter serving financial sponsors with new fundraising and innovative secondary market solutions.
Our second quarter restructuring revenue was down from last year's elevated level, and we expect lower levels of restructuring to continue in the second half of the year, given the strong liquidity across markets.
Our sovereign and capital markets businesses continue to be active, advising governments and corporations on financing strategy and capital raising.
Overall, our advisory business is experiencing unprecedented activity levels.
Assuming current macroeconomic conditions, as we said last quarter, we expect that our Financial Advisory revenue in the second half of 2021 will be higher than the first half.
Asset Management operating revenue reached an all time high for the quarter and first half of the year with second quarter revenue of $343 million, up 40% from a year ago.
This reflected management fees on a larger base of assets under management, as well as strong incentive fees, primarily from European equity strategies.
Average AUM for the second quarter reached a record high of $276 billion, 32% higher than a year ago and 6% higher on a sequential basis.
As of June 30th, we reported AUM at a quarter end record level of $277 billion, 29% higher than last year's period and 5% higher on a sequential basis.
The increase was primarily driven by market appreciation and positive foreign exchange movement with $0.8 billion of net outflows.
The quarter's net outflows were limited to our equity platform, particularly in emerging markets.
These were partly offset by net inflows in our fixed income and alternatives platforms.
Gross inflows continue to be healthy across our platforms.
As of July 23rd, AUM increased to approximately $278 billion driven primarily by market appreciation of $2.5 billion, partly offset by negative foreign exchange movement of $1.3 billion and net outflows of approximately $1 billion.
We continue to see demand for global and international equities as well as our quantitative and fixed income strategies.
We are investing for growth across the firm.
In Asset Management, we continue to invest in people, technology and our distribution effort, as well as the development of new and existing funds and the scaling up of our platforms.
In the second quarter, we launched an investment grade convertible bond fund, our fifth long only strategy in the convertible space, an area where we are gaining significant traction.
In addition, this week we announced the senior hire to build and launch an investment strategy focused on sustainable private infrastructure.
We continue to see substantial opportunities to recruit talented investment teams adding strategies that are complementary to our existing platforms.
In financial advisory, we are driving growth with an elevated pace of strategic recruiting.
Year to date, we have made more than a dozen senior hires, including several high level senior advisors to increase the firm's breadth of revenue sources and connectivity.
Now turning to expenses, even as we invest for growth, we are maintaining our cost discipline.
Our adjusted non-compensation ratio for the second quarter was 14.5%, compared to 18.3% in last year's second quarter.
Non-compensation expenses were 19% higher than the same period last year, reflecting increased business activity over the last year's depressed levels.
We continue to accrue compensation expense at a 59.5% adjusted compensation ratio in the second quarter.
Regarding taxes, our adjusted effective tax rate in the second quarter was 25.2%.
For the first half of the year, it was 26.7%.
We continue to expect this year's annual effective tax rate to be in the mid 20% range.
Lazard continues to generate strong cash flow, which supports return of capital to shareholders.
In the second quarter, we returned $161 million, which included $111 million in share repurchases.
We expect to continue our share repurchase program utilizing our cash flow from operations.
Our total outstanding share repurchase authorization is now approximately $339 million.
Ken will now provide perspective on our outlook.
The global macroeconomic environment continues to strengthen and market conditions remain excellent for both our businesses.
Even if the course of the pandemic remains uncertain, business conditions in most of the developed world are normalizing.
Economic recovery continues to be underpinned by unprecedented support from central banks and fiscal policy.
As CEOs, Boards and investors look past the short-term uncertainties, they are increasingly confident in the longer-term outlook.
The forces driving global strategic activity remain in place.
Technology driven disruption continues to be a catalyst for M&A across industries.
The global push to lower carbon emissions is an emerging catalyst.
The pandemic is driving structural changes in the real economy.
Shareholder activism continues to evolve globally and there is an abundance of private capital being put to work alongside strategic capital and specs.
Our advisory business is in high demand in this environment.
We are serving clients with the most sophisticated capabilities and deep insights into local markets, reinforced by expertise from global sector and specialty teams.
In Asset Management, we entered the second half of the year with a record level of assets under management.
Low interest rates continue to drive demand for risk assets including equities and corporate and emerging market debt as well as alternative investments.
Institutional investors continue to seek sources of differentiated alpha.
Our Asset Management business is especially well positioned in this environment with a diverse array of innovative strategies and solutions for a sophisticated client base.
We see significant opportunities for productive growth across our businesses, and we continue to invest in people, capabilities, technology infrastructure to enhance our competitive edge.
We remain focused on serving our clients well, while managing the firm for profitable growth and shareholder value over the long-term.
Lazard's people are returning to the office and meeting clients in person with greater regularity, which is boosting spirits across the firm.
Even as we hope for a continued lifting of quarantines and travel restrictions, we have proven our ability to serve clients in both fully remote and hybrid environments.
They are serving our clients with outstanding financial advice and solutions and they continue to be remarkably productive.
They are improving day in and day out that Lazard's greatest asset is our people.
Now, let's open the call to questions.
 Assistant:

Chosen response:
q2 revenue $821 million versus refinitiv ibes estimate of $660.5 million.
average assets under management (aum) for q2 of 2021 was $276 billion.
qtrly financial advisory operating revenue was $471 million, 61% higher than q2 of 2020.
aum as of june 30, 2021, was $277 billion.


Prompt:
Human: Presenting today are Ray Scott, Lear President and CEO; and Jason Cardew, Senior Vice President and CFO.
Other members of Lear senior management team have also joined us on the call.
The agenda for today's call is on Slide 3.
First, Ray will review highlights from the quarter and provide a business update.
Jason will then review our third quarter financial results and our full-year 2021 outlook.
Finally, Ray will offer some concluding remarks.
Now I'd like to invite Ray to begin.
The third quarter was marked by the continuation of supply chain challenges the auto industry has been facing.
Our financial results were negatively impacted not only by significant volume reductions versus last year but also by low visibility from our customers leading to short notice production shutdowns.
Slide 6 highlights numerous achievements in the quarter, including innovation, quality, awards, and strategic investments in both business segments.
In the third quarter, Lear's sales growth outpaced the market by 9 percentage points with strong growth over market in both Seating and E-Systems, continued new business wins as well as products that are favorably aligned with the industry shift to electrification are expected to deliver continued growth above market over the next several years.
Last week, we announced the acquisition of substantially all of Kongsberg Automotive Interior Comfort Division, which will further strengthen our industry-leading Seating business.
On the E-System side, we announced agreements to form two separate joint ventures, which will further enhance our capabilities in electrification.
The joint venture with Hu Lane, which we expect will close later this year will further enhance our growing portfolio of connectors capabilities for both high voltage and low voltage applications.
This joint venture -- The joint venture with Shinry, when agreed on complementary portfolios of advanced onboard chargers from Lear and Shinry and increased access to a broad range of customers.
We also continue to be recognized across both of our business segments for excellence and innovation and quality.
We won our third consecutive Automotive News PACE award and two PACEpilot awards, more than any other supplier.
Lear has long been known as a leader in Seat quality and this year we won more than twice as many Seat Quality awards from J.D. Power as any other company.
We increased cash returns to shareholders in the quarter by doubling our dividend and buying back more stock.
In total, we returned $100 million to shareholders during the quarter.
We also increased our credit agreement to $2 billion and extended the maturity to 2026.
With respect to capital allocation, we continue to follow a balanced plan that includes organic investment, inorganic investment, and returning excess cash to our shareholders.
Turning to Slide 7, our seating business continues to grow faster than the market, reflecting our strong position in SUVs, CUVs in luxury vehicles.
In the third quarter seating growth over market was 8 percentage points, reflecting new business and the Ford Bronco and Bronco Sport, the Hyundai Tucson and strong performance on the luxury brands in Europe, the seating also benefited from strong demand from GM's full size SUVs.
During the quarter, we were awarded key programs with GM, BMW, Stellantis, Nio and Great Wall.
And there are additional programs we expect to be sourced prior to the year-end.
We also received a new development award for our award winning configure plus product.
This award is with the European OEM and is expected to launch in 2026.
Customer interest in our patent protected configure plus product remains very high.
We continue to move forward on key launches in the quarter, including a new plant in Canada to supply seats for GM's large pickup trucks, at the reopened Oshawa plant.
Other key ongoing launches are highlighted on this slide.
A few weeks ago, we broke ground on our new energy-efficient jet facility in Detroit to supply seats for GM battery electric truck programs.
I've already touched on the Innovation and Quality awards we received in Seating, but I want to spend a little bit more time explaining the PACEpilot award for thermal comfort.
This new product that was developed jointly with Gentherm integrates, intelligent climate control software into a complete seating system.
The algorithms and software controls were developed by Lear.
They use a combination of occupant temperature data, seat position and cabin temperature to optimize energy usage within the vehicle and keep passengers at an optimal temperature.
Kongsberg is a recognized automotive supplier specializing in luxury comfort seating solutions, with strong market positions in massage, lumbar, seat heat and ventilation systems, comfort features continue to be of increasing importance as automakers look to improve the driving experience through product differentiation in Increased efficiency and improved performance, especially in luxury SUV in electric vehicle segments.
The company has almost 50 years of experience in seating comfort solutions.
Technical centers and sales offices in three different continents, and an experienced and dedicated team with approximately $300 million of annual revenue.
Kongsberg has well-balanced customer portfolio built on long-standing relationships with leading premium automakers.
Kongsberg is a global leader in-seat massage and he has a number 3 position in lumbar and adjustable comfort.
The company is a technology leader with expertise in Pneumatic Comfort Systems and patented technology that enables superior performance, weight reduction in packaging flexibility In addition to performance benefits, there also much player, which is even more important in electric vehicles where noise will be much more noticeable.
Kongsberg also has a strong market position as the number 2 player Heat Mats and the number 4 player in Vent Systems for thermal comfort.
On Slide 9, I will highlight how Kongsberg will enhance our competitive advantage in Seating.
This acquisition is consistent with other acquisitions we have made over the past decade to enhance our vertical integration capabilities.
These moves have enhanced growth in margins and extend our market leadership in luxury and premium seating.
This acquisition extends our capabilities in Comfort Systems Solutions.
Further, solidifying our position is the most vertically integrated seating supplier while bringing additional price of a content to our offerings.
It strengthens our ability to serve EV, luxury, SUV customers and to provide them with the next level vertically integrated design solutions.
Integrating Kongsberg in Lear's operations solidifies our strategy to offer a complete suite of luxury comfort seating solutions to our OEM customers and ultimately to the consumer.
This combination will enable Lear to improve overall seat system performance by offering more efficient, lower weight, and flexible packaging design solutions.
The total addressable market for massage, lumbar heat, ventilation products is estimated at $2.5 billion to $3 billion.
IHS trend data indicates this market will grow about 2 percentage points faster than the vehicle production over the next five years.
Based on our assessments of industry, mega trends, we expect the market to grow even faster in that timeframe and beyond.
Customers are looking for features to improve the driving experience.
As cars become smarter, a higher emphasis is being placed on interior comfort.
We are already seeing this with luxury in EV customers.
And we anticipate this trend and focus on interior comfort to further increase when a autonomous cars come to market.
We also expect increased adoption of seating comfort products beyond the luxury segments into higher volume vehicle segments.
In addition, we believe that by creating a more efficient packaging solution, we will see more proliferation of seating comfort systems in the rear seats.
And perhaps the biggest opportunity which will unfold over a longer term will come with the acceleration in electrification, which requires more efficient, heating and cooling systems in the cabin.
Our expertise in software and algorithms combined with heating and cooling products from Kongsberg and our other partners will position us as one of the leaders in this area.
Slide 10 highlights Lear's leading performance in the latest J.D. Power US seat quality of sales section study.
For years, Lear has consistently been recognized is by the industry experts and our customers as a leader in seat quality.
In the latest J.D. Power seat quality survey, Lear was the only seat supplier to win two first-place awards.
We also won five additional awards and more than twice as many total awards as any other seat supplier.
Our leadership in luxury and SUVs was evident by the multiple awards in both categories.
The bread of our wins was notable as well, with awards for products with six different OEMs and in six of the seven different categories.
In the third quarter, new system sales grew 9 percentage points faster than the market, reflecting new business on the Ford Bronco Sport in the Mustang Mach-E in North America and strong performance in connection systems in Europe and with Geely and the Great Wall in China.
We have one -- over $1 billion in business awards so far this year.
Over 80%, which are new for Lear.
Based on awards to date, our 2022 to 2024 backlog is expected to be higher than our prior three-year backlog.
We will update and provide details on our backlog in our next earnings call.
With the momentum of new business wins, we expect our E-Systems business to continue to grow faster than market for the next several years.
Despite the industry slowdowns, we remain busy executing launches with Mercedes, Volvo, Jaguar among others.
We also are launching our initial programs with GM and Audi on our recent award-winning battery disconnect unit and our first to market 5G Telematics Control Unit.
Our Connection Systems Business is on track to grow to approximately $600 million next year.
Growing this part of our business is part of our strategy to increase the size and strength of our Electrical Distribution Systems business and increase our margins.
In addition to organic investments, we are entering into joint ventures and partnerships and making acquisitions to enhance our capabilities in connection systems.
We already are seeing benefits from our M&N acquisition, and our developing new high-speed connectors with IMS. And we are looking forward to closing the whole lane joint venture by the end of the year, which will increase our presence in connector catalogs.
We're also making progress in our plan to grow our connection systems business to $900 million to $1 billion by 2025.
We will continue to identify and pursue additional acquisitions or partnerships to accelerate this growth.
On the power electronics side joint venture announced yesterday was Shinry will expand our capabilities to improve manufacturing and design efficiencies for onboard chargers.
They are, one our third consecutive Automotive News PACE Award for the battery disconnect unit we designed for GM, this product controls all power switching in and out of the battery pack.
Our design incorporates breakthrough thermal management innovations, which improves the efficiencies of large and high performance electric vehicles.
We will be supplying this part on the GMC Hummer EV, the Chevrolet EV Silverado and other vehicles on GM battery electric truck programs.
We also are pursuing opportunities on strategic EV platforms with other customers.
We also won a PACEpilot Award for our 5G V2X Telematics Control Unit.
A single state of the art installation featuring nine antennas integrated onto one printed circuit board to support all next-generation wireless technologies.
Our design removes the Shark Fin external antenna required on many vehicles today, reducing complexity in improving styling capabilities in aerodynamics, which is particularly important for EV's were every element that increases range is critical.
We have received interest from numerous customers to commercialize this technology.
We also have been recognized by our customers for quality.
A few weeks ago, we received the World Excellence Award from Ford for our plant in particular Argentina and earlier this year, we received two Plant Quality Award from General Motors.
And now, I'd like to invite Jason to review our third quarter financial results and full-year outlook.
Slide 14 shows vehicle production and key exchange rates for the third quarter.
The impact of continuing component shortages led to a significant reduction in global industry production in the third quarter particularly in our two largest markets North America and Europe.
As a result, global vehicle production in the third quarter decreased by 19% compared to 2020 and on a Lear sales weighted basis global production declined by approximately 25%.
From a currency standpoint, the U.S. dollar continued to weaken against the Euro and RMB compared to 2020.
Slide 15 highlights Lear's growth over market in the third quarter.
Overall company growth over market was a strong 9 percentage points with E-Systems growing nine points and seating growing eight points above market respectively.
Growth over market in North America of 12 points reflected the benefit of new business in both segments and strong production on GM's full-size SUVs as well as Mercedes SUVs.
In Europe, growth over market of five points was driven primarily by new businesses while strong performance in the luxury segment and seating.
Increased business in connection systems in Europe also contributed to the growth over market performance.
In China growth over market of four points resulted from strong production on BMW programs and seating and new business with GLE and Great Wall and E-Systems.
Year-to-date Lear's sales have grown faster than the market by nine points that was above market growth in both segments.
Slide 16 highlights our financial results for the third quarter of 2021 compared to 2020.
Our sales declined 13% year-over-year to $4.3 billion.
Excluding the impact of foreign exchange, commodities, and acquisitions sales were down by 16% primarily reflecting lower production and Lear platforms partially offset by the addition of new business.
Semiconductor shortages in the quarter negatively impacted our revenue by approximately 24%.
Core operating earnings were $98 million compared to adjusted operating earnings of $327 million last year.
The reduction in earnings resulted from the impact of lower production volumes and higher commodity costs partially offset by positive operating performance in addition of new business.
Adjusted earnings per share were $0.53 as compared to $3.73 a year ago.
Third quarter free cash flow was negative $157 million compared to $474 million in 2020.
Free cash flow was negatively impacted by lower earnings, higher capital expenditures, and an increase in working capital.
Working capital was higher in the quarter as volatility and customer production schedules resulted in elevated inventory levels.
Slide 17 explains the third quarter year-over-year variance in sales and adjusted operating margins in the seating segment.
Sales in the quarter were $3.2 billion, a decrease of $526 million or 14% from the third quarter of 2020.
Excluding the impact of foreign exchange, acquisitions and commodities sales were down 16% reflecting lower production partially offset by the benefit of new business.
In seating production downtime in the third quarter related to semiconductor shortages reduced our sales by approximately $1.1 billion or 25%.
Core operating earnings were $144 million, down $142 million from the third quarter of 2020.
Lower volume on their platforms and higher commodity costs partially offset by positive net operating performance in margin accretive backlog.
Slide 18 provides details for the third quarter year-over-year variance in sales and adjusted operating margins in our E-Systems segment.
Sales in the third quarter were $1.1 billion, a decrease of 9% from the third quarter of 2020.
Excluding the impact of foreign exchange, acquisitions and commodities, sales were down 15% driven primarily by lower volumes somewhat offset by a strong backlog.
In E-Systems production downtime in the third quarter related to semiconductor shortages reduced our sales by approximately $300 million or 21%.
Core operating earnings were $23 million or 2.1% of sales compared to $93 million in 2020.
The decline in earnings resulted primarily from lower volumes, higher commodity costs, and semiconductor and COVID related premium cost, the decline was partially offset by margin accretive backlog and positive net performance.
Last week our treasury team took advantage of favorable market conditions and our strong financial position to opportunistically increase and extent our revolving line of credit.
The credit agreement was increased to $2 billion and the maturity was pushed out by more than two years to October of 2026.
Our strong balance sheet supports investments in innovation and growth and positions Lear to quickly execute bolt on acquisitions such as the pending acquisition of Kongsberg Automotive's Interior Comfort Division expected to close in the first quarter of 2022.
We continue to analyze additional organic and inorganic investments to strengthen both of our business segments.
At the same time, we remain fully committed to returning excess cash to shareholders.
In the third quarter we returned $100 million through continued share repurchases and the doubling of our quarterly dividend of $0.50 per share.
Slide 20 provides the assumptions for global vehicle production volumes and currencies that form the basis of our 2021 full year outlook.
We've based our production assumption on several sources, including internal estimates, customer production schedules, and IHS forecasts.
Due to the ongoing supply disruptions we expect full year 2021 global vehicle production to be roughly the same as 2020 and generally in line with the most recent IHS forecast.
From a currency perspective, our 2021 outlook assumes an average Euro exchange rate of $1.19 per Euro, and an average Chinese RMB exchange rate of RMB6.46 to the dollar.
Slide 21 compares our updated outlook to our prior outlook for sales and core operating earnings.
We are reducing our outlook to reflect the impact of significant additional reductions in customer production schedules that have resulted from continuing component shortages.
We are forecasting sales in the range of $18.8 billion to $19.2 billion and operating income in the range of $750 million to $850 million.
Our 2021 outlook for core operating earnings at the midpoint was down $215 million to $800 million, primarily reflecting lower volumes and modestly higher commodity costs partially offset by net performance improvements.
Slide 22 highlights a more detailed view of our updated financial outlook.
Despite the reduction to our revenue outlook, we are projecting the company to deliver full year growth over market of approximately eight percentage points.
This reflects both the strength of our new business backlog, as well as our strong customer program and product portfolio.
Adjusted net income is expected to be in the range of $420 million to $500 million, down $180 million at the midpoint from our prior guidance reflecting lower sales.
Our outlook for free cash flow for the year is expected to be approximately $175 million, which is lower than our prior outlook by $250 million reflecting both lower earnings and higher working capital.
Full year free cash flow could be further impacted by continuing production disruptions, which may lead to temporarily higher working capital.
While our outlook reflects our best insight into customer production plans for the remainder of the year, the production environment remains volatile.
As we've done in the past, we plan to provide an update on our financial outlook during an investor conference in early December, reflecting new developments and industry conditions.
While it's too early to provide guidance for next year, we thought this slide might be a little bit helpful to indicate what trends we are tracking.
There are many positive drivers as we head into next year and beyond, most importantly, customer demand is strong and dealer inventories are extremely low.
This positions the industry for a strong recovery once we get beyond the short-term supply constraints.
We have a strong product lineup, which is driving new business wins.
We are laser-focused on driving operational excellence and improvements that we have made in both business segments this year will support margin improvements going forward.
The challenges are very similar to those we've faced over the last few quarters; limited visibility on production schedules, commodity and labor inflation, and supply chain disruptions are expected to continue to impact the auto industry into 2022.
While no one in the industry is immune and it is difficult to predict when production volumes will normalize, I know that we have the right team and we have the right strategy in place to capitalize when the industry conditions do improve.
The strength of our balance sheet, along with the cash-generating capabilities of our business will continue to provide us with financial flexibility to support investments in our business while returning capital to our shareholders.
In closing, I want the team to know how proud I am of their performance and for focusing on the things we can control.
 Assistant:

Chosen response:
q3 adjusted earnings per share $0.53.
q3 sales fell 13 percent to $4.3 billion.
lear - at midpoint of fy guidance range, have assumed that global industry production will be roughly in-line with 2020, lower than prior guidance.
sees fy capital spending about $600 million.