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 in the world in 2020 with the COVID-19 pandemic.
For us, our top priority is and has been to protect the health and safety of our employees and our customers, while ensuring our business continuity to meet our customers' requirements.
All of our 34 plants around the world are operating, and we are satisfying all of our customer needs.
I am very proud of what the Quaker Houghton team has done to continuing to service our customers, as well to continue our integration efforts, which are going well.
We are pleased with our results for the third quarter when considering we were coming from such a weak second quarter.
Overall, our sales were up sequentially 28% from the second quarter and down 5% from the third quarter of last year on a pro forma basis.
Let me now give you a little more flavor on what we experienced by segment or region.
First, as we look sequentially, the Americas saw the largest quarterly net sales improvement as sales grew 48% sequentially, driven primarily by stronger volumes.
A similar story I heard in Asia Pacific, EMEA, and our Global Specialty Businesses, where volume improvement drove net sales increases of 24%, 21% and 16% respectively compared to the second quarter.
So we saw good sequential improvement in all business segments.
Another way to indicate this sequentially quarterly sales trend is to look at what happened in our three main customer industry groups on a global basis.
Metalworking increased the most and grew 39% sequentially from the second quarter, due primarily to automotive OEMs and related suppliers coming back from the prolong shutdowns or significantly reduced production rates in the second quarter due to COVID.
Our other industry groups of metals and Global Specialty Businesses also increased and showed growth of 21% and 16% respectively.
I hope these different cuts of our significant sequential sales increases help provide insight to what was happening in the quarter.
So overall, our sequential volumes were up 27% but our pro forma volumes were still down versus last year by approximately 10%, when excluding the positive impact of Norman Hay, which we acquired last October.
This approximately 10% decline was felt in all regions and segments.
However, Asia Pacific was less impacted since China actually showed modest year-over-year growth.
I also want to point out that we did continue to take market share despite the weakness in our end markets as our continued analysis shows that we have total organic sales growth due to net share gains of approximately 2% in this quarter versus the third quarter of last year.
I am very pleased to see this strong rebound from last quarter, but we're certainly not all the way back.
As we said previously, we estimate it will take at least two more years for our markets to fully return, and some markets like aerospace, which makes up about 3% of our sales, will take more time than that.
However, we expect our sales to rebound more quickly due to our projected continued market share gains, as well as our potential smaller bolt-on acquisitions in the future that we may make.
Concerning gross margins for the third quarter, they were up significantly compared to both the second quarter and for last year.
The sequential increase is primarily due to higher volumes and its impact on the fixed portion of our manufacturing costs.
The increase from last year was primarily due to the realization of our manufacturing and raw material cost synergy savings.
This pandemic and its impacts have been similar in many ways to what we went through in late 2008.
Just like then, we took fast action to save costs in numerous ways.
Essentially, all discretionary expenses have been eliminated, we stopped new hires where possible, some positions were furloughed, and our planned capital expenditures have been cut by over 30%.
And very importantly, we reviewed our integration and synergy plans in light of this situation and took additional actions as well as accelerated other synergies where possible.
This has led to additional cost synergies as we have increased our guidance on synergy achievement again this quarter.
For 2020, our current estimate is $58 million of cost synergies achieved versus our earlier estimate of $53 million.
Also, the total synergies we estimate that we will achieve in 2021 have been raised from $65 million to $75 million with '22 reaching $80 million.
In this quarter, we achieved $17 million in synergies, and we expect sequential improvement during our future quarters.
So overall, we are pleased with the quarter, given the environment in which we were operating and we were -- and we did see significant sequential improvement in our sales, gross margins, and adjusted EBITDA.
Also, our cash flow is very strong and our net debt decreased by 7% or $58 million.
The positive cash flow nature of our business during severe downturns is something we have discussed with investors in the past, and we're now seeing its positive impacts again in these tough times.
Looking ahead, we anticipate that throughout the next year or two, our markets will show gradual sequential improvement.
However, it's hard to predict that improvement by quarter, given the continued uncertainty in our operating environment.
For the fourth quarter, we expect our adjusted EBITDA to be in the ballpark of the third quarter, and for the full year, we expect our adjusted EBITDA to exceed $215 million.
Overall, our higher expected synergies, additional cost saving actions, and improvement in our product margins and our cash flow management are expected to continue to help us during this period of time when our markets are down versus pre-COVID levels.
As we look forward to 2021, we expect our adjusted EBITDA to increase by 20%-plus as we continue our integration savings, take market share in the marketplace, and benefit from an expect gradual rebound in demand.
I am so proud of how our team has performed in servicing our customers, meeting their needs, and successfully continue with our integration execution, which is both critical and difficult 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 top priority for us.
I'm proud of and very happy with our Quaker Houghton team and what we have and will be able to accomplish for our customers and investors both now and going forward.
I'll 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 continue to update our risk factors in our Form 10-Q to address the evolving 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.
In this review, 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.
Remember that we closed the Combination on August 1, 2019, so our actual reported and non-GAAP Q3 2019 results include only two months of Houghton.
Please see slides 6 through 10 now, while I review some highlights.
As Mike noted, we saw sales rebound of $367 million in the third quarter, up 28% from $286 million in Q2, but still down 5% from pro forma Q3 2019 sales of $386 million, due primarily to lower volumes as a result of COVID-19.
Our gross margin of 38.2% is up significantly from our gross margin of 34% in Q2 and 32.3% in Q3 of last year, which we estimate would have been about 35.5%, excluding a purchase accounting adjustment.
We also saw a benefit to our gross margin this quarter that we estimated approximately 0.5%, which we attribute to price mix that we believe was unique to the quarter.
You might remember on our last call that I commented that we expected the benefits of our procurement synergies and manufacturing optimization to be more visible as volumes pick up and this is what you see coming through as part of our sequential improvement.
In addition, our cost synergies in these areas continue to increase as reflected in our updated cost synergy estimates.
Our non-GAAP operating income of $43.2 million rebounded significantly from Q2's $11.2 million and is also up 25% from $34.5 million in Q3 of last year, primarily due to the addition of Houghton and Norman Hay and the benefits of realized cost synergies, partially offset by the negative impact of COVID-19.
Similarly, our non-GAAP earnings per share of $1.56 is up significantly from Q2's $0.21, while it is flat to last year as a result of the additional shares issued at close of the Combination.
Our effective tax rate in the current quarter was an expense of 8.1% versus a benefit of 27.6% in Q3 of last year.
We've seen significant volatility in our quarterly effective tax rates due to COVID-19-related changes in profitability as well as continued updates to the 2017 tax law.
Excluding the impact of all unusual items, we estimate that our Q3 effective tax rates would have been approximately 24% and 20% for 2020 and 2019, respectively.
For the full year, we expect our effective tax rate, excluding all unusual items will be in the range of 23% to 25%.
As Mike mentioned earlier, we're pleased to see our adjusted EBITDA almost double to approximately $64 million in Q3 from the Q2 level of approximately $32 million and increased approximately 5% compared to our pro forma adjusted EBITDA of $61 million in Q3 of last year.
This is due primarily to the benefits of our realized cost synergies in the quarter and the inclusion of Norman Hay more than offsetting the negative impact of COVID-19.
Another bright spot in the quarter was our cash flow.
As we discussed in our last call, because our business is so asset light, with most of our investment in working capital versus property, plant and equipment, when we experience a major downturn in volumes, we expect to see significant positive cash flow from releases in working capital.
Indeed, we saw this in both Q2 and Q3 and are pleased to report that our year-to-date operating cash flow more than tripled versus last year to $112 million.
In addition, our low capital intensity allows us flexibility with our capital spending, and consistent with our Q2 call, we're on pace to reduce our capex by more than 30% versus our original pre-COVID estimate.
As a result of our strong cash flow, we were able to reduce net debt by $58 million, a 7% reduction from Q2.
This improves our leverage ratio to 3.4 times from 3.7 times at the end of June, and our bank calculated leverage at the end of Q3 was about 2.9 times versus our covenant maximum of 4.25 times.
In short, our liquidity and leverage showed good improvement from already solid levels.
In addition, as Mike noted, we further increased our estimates of expected Combination cost synergies from $53 million to $58 million in 2020, from $65 million to $75 million in 2021, and from $75 million to $80 million in 2022.
In summary, our track record of navigating successfully through tough economic environments by gaining share, disciplined cost management, and generating good cash flow during major downturns all give us confidence in our ability to weather the current challenges.
This strong core operating performance is further enhanced by the cost synergies we are realizing from the Combination, and we're seeing the meaningful impact [Technical Issues] synergies have on our financial performance.
In 2021, as Mike mentioned, we expect to see a greater than 20% increase in adjusted EBITDA.
Finally, we believe the Company is well positioned to leverage the expected upswing in business activity.
 Assistant:

Chosen response:
q3 non-gaap earnings per share $1.56.
full year 2020 adjusted ebitda guidance increased to exceed $215 million.
expects reductions in headcount and site closures to continue during 2020 and into 2021.


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-19 pandemic.
For us, our top priority is and has been to protect the health and safety of our employees and our customers, while ensuring our business continuity to meet our customers' requirements.
All of our 31 plants around the world are operating and we are continuing to meet our customers' needs.
I am very proud of what the Quaker Houghton team has done to continue to service our customers as well as continue our integration.
We were pleased with our results for the fourth quarter.
Overall, our sales were sequentially up 5% with all regions or segments showing revenue growth, which was primarily being driven by higher volumes as our businesses continue to come back from the negative impact that COVID-19 had on our end markets.
The sequential increase was strongest for us in EMEA as we saw an increase in sales of 13% compared to the third quarter.
I think it is interesting to look at our revenue changes from the fourth quarter of 2019, which was pre-COVID of course.
Overall, our sales were down only 1% and our volumes were relatively flat but there was a difference when looking at this by region or segment.
The only area that showed an increase in volume sold was Asia Pacific, which had an increase of 8% versus prior year, primarily being driven by higher sales in China and India.
EMEA was relatively flat on volumes, mainly due to the fourth quarter of '19 being an unusually weak quarter.
Americas was down 2% on volumes, primarily due to our end market still being impacted by COVID.
And our global specialty business volumes were down 9%, primarily driven by lower aerospace maskant sales.
I also want to point out that our ability to gain new pieces of business and take market share contributed significantly to our performance as our analysis shows that we had total organic sales growth due to net share gains of approximately 4% in the fourth quarter of '20 versus the fourth quarter of '19.
So while we were overall relatively flat in our volumes, the 4% net share gains made a big difference, as did our Asia Pacific growth, helping to offset the negative COVID impact on our end markets.
I am very pleased to see the continued improvement from last quarter, but we're certainly not all the way back.
As we said previously, we estimate we'll take approximately two more years for our end markets to fully return and some markets like aerospace, which makes up about 3% of our sales, may take up more time than that.
However, we expect our sales to rebound more quickly due to our projected continued market share gains as well as making acquisitions, which I'll now talk more about.
As you may have noticed, since our last conference call, we did make two small bolt-on acquisitions.
The first was a private company called Coral Chemical based in the US that we purchased in mid-December for $53 million net of cash acquired.
Coral provides technical expertise and product solutions for pre-treatment, metalworking and waste treatment applications to the beverage can and general industrial end markets.
Coral had approximately $37 million in net sales and approximately $5.5 million of adjusted EBITDA in 2020.
For this acquisition, we also expect to achieve annualized synergies of approximately $3 million over the next two years.
Also in February, we bought assets related to tin-plating solutions, primarily for the steel end markets for $25 million, which will add full-year net sales of approximately $8 million and approximately $4 million of full-year adjusted EBITDA going forward.
So we are pleased with the strategic additions to our product portfolio, which we estimate will add about $11 million of EBITDA in 2021, which equates to an approximate 7 times EBITDA multiple purchase price for the combination of these two acquisitions.
So overall, we were pleased with the quarter given the environment we're operating in and we saw a good sequential improvement in our sales and adjusted EBITDA.
Synergy achievement also was a factor on our results as we achieved $18 million in this quarter compared to $5 million in the fourth quarter of last year.
In addition, our strong operating cash flow of $66 million in the quarter allowed us to reduce our net debt by another $24 million for the full year.
And for the full year, we reduced debt by about 12%, in addition to making the Coral acquisition.
The positive cash flow nature of our business during severe downturns is something we have discussed with investors in the past and we have seen this positive impact again over the past year.
And reflecting upon the full year, the past 12 months have been challenging due to COVID-19, but I'm very pleased with our overall performance.
Over the past year, we continue to service and supply our customers despite difficult economic conditions.
We continue to gain share in our markets and we completed a significant part of our integration activities.
And we were able to realize $58 million of cost synergies, which exceeded our previous estimate of $35 million.
We also made these two additional bolt-on acquisitions, which will add approximately $11 million to our adjusted EBITDA in 2021.
And even with those acquisitions, we were able to reduce our debt by 12% or $94 million.
So in short, we are delivering on the powerful benefits that we anticipated for our combination with Houghton [Phonetic].
As we look forward to 2021, we expect some short-term headwinds from higher raw material costs and lower-than-expected volumes to the automotive market due to the semiconductor shortage.
Hopefully, these are just timing issues and will impact mainly the first half of the year.
Despite these short-term headwinds, we feel positive about 2021and continue to expect a step change in our profitability with over a 20% increase in our adjusted EBITDA from 2020 as we complete our integration cost synergies, continue to take further share in the marketplace, benefit from a projected gradual rebound of demand in our end markets and see the positive impact of our recent acquisitions.
As far as the timing and why I made this decision now, I really wanted Quaker Houghton to be in a strong position when we made this transition and we are.
This year we will take a step-change in our profitability.
We will essentially complete our integration and we will pay down more debt and reach our targeted leverage ratio.
We have the right strategy in place, a strong management team, tremendous people throughout the whole organization and strong opportunities for above-market growth in our businesses for the foreseeable future.
So to me, our future is very bright.
And this is the right time to make this transition.
And I look forward to continuing to be involved in the company's bright future as Chairman of the Board following my retirement.
I am so proud of how our team has performed in servicing our customers, meeting their needs and successfully continuing with our integration execution, which was both critical and difficult for us this past year.
People are everything in our business.
And by far, most valuable asset, ensuring their safety and well-being is and will continue to be a top priority for us.
I'm proud of them very happy with our Quaker Houghton team and what we have and will be able to accomplish for our customers and investors both now and going forward.
I'll now hand it over the Mary so that she can review some of the key financials for you.
These are available on our website.
Please also note that updated risk factors will be included in our 2020 Form 10-K, which we plan to file next week.
We followed a similar review format for this deck as the one we used for our Q3 call where our comparison periods show actual and non-GAAP results and also pro forma sales and adjusted EBITDA as if we had been combined with Houghton throughout the periods presented.
Our Q4 comparisons of 2020 and 2019 in this deck reflect actual results, not pro forma, as we completed the combination with Houghton in Q3 of 2019.
For the full year comparisons, I will generally compare 2020 to pro forma 2019 results so that you can see the periods on an apples-to-apples basis.
As Mike mentioned, the gradual recovery in our business that we began to see in Q3 of 2020 continued through Q4.
Q4 net sales were up 5% sequentially as all segments benefited from a gradual increase in volumes and net sales were down only 1% compared to Q4 2019.
Recall however that Q4 2019 was a relatively weak quarter that was negatively impacted by a widespread slowdown in industrial production, especially in Europe.
For the full year, reported net sales increased 25% in 2020 due to the inclusion of Houghton and Norman Hay.
But on a pro forma basis, sales were down 9%, primarily on lower volumes due to the global downturn in economic production as a result of the COVID-19 pandemic.
Gross margin of 36.8% in Q4 is up from 34.8% in Q4 of 2019, which was deflated somewhat due to inventory adjustments for purchase accounting for Norman Hay.
Excluding these adjustments, we estimate Q4 of 2019's gross margin would have been about 35.3%.
The increase in gross margin Q4-over-Q4 is primarily a result of our progress in achieving combination-related synergies in logistics, procurement and manufacturing.
Our sequential gross margin was down somewhat from Q3, reflecting a one-time benefit to gross margin in Q3 of approximately 0.5% and current quarter pressure from rising raw material costs and product mix.
On a full-year basis, gross margin was 36.2% versus 2019's 34.6%.
Excluding similar cost adjustments of Q4, we estimate our gross margins in 2020 and 2019 would have been 36.3% and 35.7% respectively.
Looking ahead, we expect to realize additional combination cost synergies throughout 2021, which should result in a gradual improvement to gross margin.
We expect to head toward the 38% gross margin area later this year as we further realize our combination synergies and manage prices to offset rising raw material costs.
On both the GAAP and non-GAAP basis, our Q4 operating income improved significantly and our non-GAAP operating margin of 11.3% is up 1.7% versus Q4 last year, reflecting a sequential recovery in sales this year and our combination synergies and the cost-saving actions we took to mitigate the impacts of COVID-19.
Full-year GAAP and non-GAAP operating income also improved significantly.
However, full-year operating margin declined due to the COVID-related steep decline in sales and volumes in Q2 and the resulting pressure from fixed cost absorption, which we discussed in our Q2 earnings call.
Our reported effective tax rate was an expense of 4.9% in Q4 of '20 versus a benefit of 18.2% in Q4 of '19.
Excluding various one-time items, our Q4 effective tax rates would have been approximately 30% and 24% respectively.
For full-year 2020 and 2019, we estimate that our effective tax rates, excluding non-core and one-time items, would have been approximately 25% and 22% respectively, in line with our guidance for this year.
For 2021, we expect our full-year effective tax rate will be in the range of 24% to 26%.
Our non-GAAP earnings per share of $1.63 for Q4 is up 22% from $1.34 in Q4 of '19, due primarily to the improved operating income I discussed earlier.
Our full year non-GAAP earnings per share of $4.78 was down from $5.83 last year but ahead of consensus of $4.67.
On Slide 11, we show the trend in our pro forma adjusted EBITDA.
Our Q4 adjusted EBITDA of $65 million is up $4 million from Q4 last year and up $1 million sequentially.
And our full-year adjusted EBITDA of $222 million is ahead of consensus.
Also, our adjusted EBITDA margins improved for both the quarter and the full year.
Our Q4 adjusted EBITDA margin of 17% is up 1.5% versus 15.5% last year and on a full year basis, our adjusted EBITDA margin increased to 15.7% from our 2019 pro forma margin of 15%.
The improved margins are primarily due to the combination-related synergies we've realized, partially offset by the lower impact -- by the impact of lower sales due to COVID-19.
On Slide 12, we provide an update on our leverage and liquidity.
As Mike noted, cash flow was the star in 2020.
We frequently talked about how the asset-light nature of our business helps us to weather downturns as our main investment is in working capital versus property, plant and equipment and we released working capital and generate increased cash flow and economic downturns.
We saw this in 2020 during the financial crisis and we saw this year during the COVID pandemic.
Operating cash flow for the full year was a record $178.4 million, allowing us to reduce net debt by 12% to $717.3 million, paid $53 million for the Coral acquisition, net of cash acquired and pay approximately $7 million in dividends.
We're delivering on our commitment to prudently allocate capital by prioritizing debt reduction, while continuing to pay our dividends and seizing growth opportunities which make strategic sense.
As a result of our prudent capital allocation, our primary leverage covenant of net debt to trailing 12 months adjusted EBITDA continues to improve and was 3.2 times at year end 2020 versus 3.5 times last year.
We expect to be at our target level of 2.5 times net debt to adjusted EBITDA by the end of 2021.
In addition, our cost of debt continues to benefit from the current interest rate environment with our borrowing cost under 2%.
In summary, Quaker Houghton continued to deliver on its commitments in 2020 despite the very challenging market conditions we faced.
At that time, we were in the very early stages of the pandemic with no way of knowing what was to come.
It certainly turned out to be a very difficult year, but we focused on what we can control.
We kept our integration, execution and synergy capture on track and in fact ahead of schedule, we implemented additional cost savings actions to mitigate the fall off in sales and we continued to deliver market share gains.
As a result, we achieved record cash flow during the year and were able to reduce debt while continuing to execute on strategic acquisitions that make financial sense.
In 2021, we expect to see a greater than 20% increase in adjusted EBITDA and further expansion of our margins as we realize the full synergy benefits toward the end of the year.
And now, back over to you, Mike.
 Assistant:

Chosen response:
michael f. barry will retire from his role as ceo on december 31, 2021.
michael f. barry will retain role of chairman of board following his retirement.
q4 non-gaap earnings per share $1.63 excluding items.


Prompt:
Human: I am Alexandra Deignan, the company's Head of Investor Relations.
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.
Today, Lazard reported strong results for the fourth quarter and full year 2020.
We achieved record quarterly operating revenue.
Financial Advisory had a record quarter with strong performance across practices and regions.
Asset Management's fourth quarter revenue increased 12% and achieved a record year end level of AUM.
We entered 2021 with significant momentum as we serve clients positioning themselves for a post pandemic recovery.
In Financial Advisory, our M&A activity progressed throughout 2020.
Our global announcement volume increased 3% even as the markets volume declined 10%.
This reflected strong activity in both the US and Europe.
In particular, our volume of French and UK announcements increased 34% and 37% respectively from the prior year.
Our preeminent global restructuring practice continued its work on a wide range of complex assignments.
In 2020, Lazard ranked number one in the league tables for completed restructurings globally.
As we anticipated, the pace of new restructuring assignments in Europe increased.
Our sovereign capital and private capital advisory businesses all had strong years as we advise governments, corporations and partnerships on financing strategy and capital raising.
Our private equity secondary business continues to grow and we are advising on a significant number of growth equity investments globally.
We continue to see opportunities for growth in Financial Advisory and have increased our pace of lateral hiring.
In 2020, we recruited 12 new Managing Directors globally, plus two more in January of this year.
In addition, we are promoting 15 new Managing Directors in Financial Advisory this month.
10 of them began their careers here as analysts or associates.
Our ability to develop talent organically remains a powerful competitive strength.
Our Asset Management business also had a strong fourth quarter, with higher management and incentive fees, reflecting AUM growth and the performance of our strategies.
On assets under -- our assets under management increased by $31 billion or 14% from the start to the finish of the fourth quarter.
Our investments in new strategies and product extensions continue to create new avenues for growth.
Our quantitative business achieved net inflows for both the fourth quarter and full year as did our global equities and our global and multiregional fixed income platforms.
We are also seeing an increase in solutions oriented mandates as we serve more clients with customized strategies.
We continue to invest in Asset Management's growth through investment in people, technology and distribution as well as the development of new funds and the scaling up of existing platforms.
In 2020, we introduced eight new strategies for clients across our traditional and alternative platforms.
Three of the strategies are from independent teams we recently recruited.
As the asset management industry undergoes a wave of consolidation, we see substantial opportunities to accelerate our recruitment of talent and investment teams, adding strategies that are complementary to our existing platforms.
We also continue to build our talent pool from within.
This year, Asset Management will name seven new Managing Directors in its annual promotion process.
Firm wide, Lazard's results -- record results for the quarter underscore the strength of our diversified business model, our global platform and our deep culture of client service.
We entered 2021 with momentum across our businesses.
We see substantial opportunities for growth in both Financial Advisory and Asset Management and are investing to capitalize on them.
Evan will now provide some color on our results and then I will comment on our outlook.
Lazard's full year and fourth quarter results reflect the stability and continued high performance of our businesses.
Our fourth quarter operating revenue of $849 million was a record quarter for the firm, 20% higher than last year's period.
Fourth quarter adjusted earnings per share of $1.66 increased 82%, reflecting the significant operating leverage in our model.
Annual revenue of $2.5 billion was about even with 2019, representing a strong recovery from the volatile environment of 2020.
Our Financial Advisory business had a breakout fourth quarter, with record quarterly revenue of $509 million, which is 23% higher than our previous peak level in 2018.
The compelling story behind Financial Advisory's record quarter is that it was driven by strong contributions across our advisory practices and across regions.
Our revenue performance demonstrates the earnings power of the diversified advisory business we have built.
In Asset Management, this story was similar as we generated $336 million in revenue for the fourth quarter, up 12% from the prior year.
This reflected contributions across our global platforms with accelerating momentum in a year of extreme volatility.
Fourth quarter management and other fees increased 10% sequentially from the third quarter, reflecting higher average AUM.
Fourth quarter incentive fees were up substantially from the prior year, primarily reflecting strong performance in our alternative strategies.
Average AUM for the fourth quarter was $246 billion, up 3% from last year's period and up 9% from the third quarter of 2020.
The sequential increase was driven by market appreciation of $25.4 billion and foreign exchange appreciation of $5.8 billion, partially offset by net outflows of $0.3 billion.
For the full year, we experienced net outflows of $11.4 billion, primarily in our value strategies within emerging markets and local equities.
Platforms with net inflows for the year included global and quantitative equities as well as our global and multiregional fixed income strategies.
We finished 2020 with AUM of $259 billion.
And as of January 28, AUM was approximately $258 billion.
The decrease was driven by foreign exchange depreciation of $1.3 billion and net outflows of $1 billion, partially offset by market appreciation of $1.3 billion.
Looking ahead across our franchise, in Financial Advisory, client activity is strong across our advisory practices globally in an improving environment.
Asset Management is off to a good start in 2021 with AUM well above its average level for 2020.
We have a strong pipeline of unfunded mandates.
We continue to see demand for both our quantitative and fundamental strategies across our platforms as well as growing demand for our sustainable and customized solutions.
Turning to expenses, our compensation ratio for 2020 on an adjusted basis was 59.5%, up from 57.5% in 2019.
On an awarded basis, our annual compensation ratio was 59.8% compared to 57.7% for 2019.
The increase reflected our investments for growth as well as the change in business mix this year.
We are maintaining our cost discipline while we navigate a volatile market environment.
Non-compensation expense of $117 million in the fourth quarter was 10% lower than the same period last year, primarily reflecting a continuation of global travel restrictions and lower business development costs.
Our adjusted non-compensation ratio for the fourth quarter was 13.7% and the ratio for the full year was 17.1%.
As business activity picked up in the fourth quarter, we saw commensurate rise in non-compensation costs especially related to variable expenses.
Our effective tax rate for 2020 was 20.2% compared to 24.1% a year ago.
For 2021, we expect an annual effective tax rate in the low to mid 20% range.
Regarding capital allocation, our business continues to generate significant free cash flow, which supports our goal of returning excess capital to shareholders.
Throughout the year, we have been consistent in returning capital through our quarterly common dividend.
In the fourth quarter, we returned $51 million of capital to shareholders.
Yesterday, we declared a quarterly dividend on our common stock of $0.47 per share.
In 2021, we have resumed our share repurchase program in order to at a minimum, offset dilution from our year end equity grants.
Our total outstanding repurchase authorization is now $267 million.
Lazard's financial position remains strong with ample liquidity and balance sheet flexibility.
As of December 31, our cash and cash equivalents were approximately $1.4 billion.
Ken will now conclude our remarks.
A few words on our outlook before we open the call to questions.
In the near-term, the macroeconomic outlook remains uncertain based on the ongoing health crisis.
However, fiscal and monetary stimulus in developed countries and the rollout of vaccines globally are driving expectations of a recovery by the second half of this year.
Both of our businesses are already benefiting from growing optimism in boardrooms and investment committees.
In Financial Advisory, the forces driving global strategic activity have accelerated.
Technology-driven disruption continues to be a catalyst for M&A across industries.
Shareholder activism has resumed its growth after a brief pause during the first half of 2020 with increasing impact in Europe.
The rapid growth of SPACs alongside strategic and private capital, adds substantial dry powder to the M&A market.
In addition, climate risk is becoming increasingly relevant to company valuations and is an emerging catalyst for strategic activity.
Our ESG expertise is well entrenched in our Asset Management business and increasingly in our Financial Advisory business as well.
In Asset Management, the expectation of low interest rates for the foreseeable future is a tailwind for our business.
Investors need for income and return is driving increased demand for risk assets, including equities and corporate and emerging market debt as well as alternative investments.
In addition, institutional investors are seeking sources of differentiated alpha, including ESG, thematic and alternative strategies.
We are in an excellent position to meet this demand with a world class investing franchise in markets that reward deep fundamental research and our quantitative strategies are competing effectively in the market for low-cost products.
We see substantial opportunities for growth across our businesses and we continue to invest in our people, capability and technology infrastructure to enhance our competitive edge.
We remain focused on serving all of our clients well, while we manage the firm for profitable growth and shareholder value over the long-term.
In one of the most challenging environments in modern history, they rose to the occasion serving our clients with outstanding financial advice and solutions and reinforcing this great franchise.
I am proud to work with them.
Now, let's open the call to questions.
 Assistant:

Chosen response:
q4 adjusted earnings per share $1.66.
q4 revenue rose 20 percent to $849 million.
for q4 of 2020, financial advisory operating revenue was $509 million, 29% higher than q4 of 2019.
aum as of december 31, 2020 was of $259 billion, up 4% from december 31, 2019, and up 14% from september 30, 2020.


Prompt:
Human: On the call today are Tim Crew, Chief Executive Officer; John Kozlowski, the company's Chief Financial Officer, Maureen Cavanaugh, our Chief Commercial Operations Officer and Steve Lehrer, who leads our insulin biosimilar initiatives.
A playback will be available for at least three months on Lannett's website.
We trust you all remain safe and well.
Despite the pandemic and ongoing headwinds specific to our industry and our company, we are proud of our significant progression on several strategic fronts these past months.
First, we refinanced our debt providing significant balance sheet runway to execute on our growth plan.
Second, we advanced the development of key large pipeline assets, third, we expanded our pipeline of key assets and more such assets are being actively pursued and fourth, we maintained our operating discipline and are tracking to our near-term goals.
I'll begin my specific remarks with a brief review of our financial results.
For fiscal 2021 third quarter, we had net sales of $112 million, adjusted gross margin of 27%, adjusted EBITDA of $17 million and adjusted net income of $1 million equal to $0.02 per diluted share.
Gross margin, adjusted EBITDA and adjusted net income were all better than we anticipated.
Moreover, our cash position significantly improved to more than $80 million at the end of Q3 from $34 million at the end of the preceding quarter.
While we are pleased with our overall results, we believe the most important recent news was the April refinancing transaction I earlier mentioned.
We used the proceeds from the refinancing on some cash to retire our outstanding Term B loan balance of approximately $540 million.
The financing was significant for several reasons including, first, we have extended the maturity of our debt to 2026 from 2022 and that maturity is now after several of our larger and more durable pipeline assets are expected to launch and make meaningful contributions to our business.
Second, our free cash flow improved substantially, primarily due to the elimination of mandatory principal payments until maturity.
We estimate that the transaction will add approximately $50 million of free cash flow in the first year alone.
Our plan is to use a portion of the extra cash to invest in additional growth opportunities.
And third, the new debt did not have leverage covenants.
To our view, we believe the successful offering provides investors' validation of our future expected cash flows.
Similarly, I'd like to note that the part of this financing, the second-lien investors received warrants in Lannett, which have historic price of $6.88.
We believe the support of these experienced investors to accept the second-lien position in exchange in part for these warrants further validates our assessment of the future earnings anticipated from our pipeline.
So now let's turn to our pipeline.
Most recently, we launched two products in Q3 including Levorphanol, IR tablets 3 mg a partnered product and Chlorpromazine, an internally developed product.
Thus far in Q4, we launched Venlafaxine ER tablets 75 mg and expect to launch a few more products in the next few months.
In addition, we have more than 18 products in development, another 11 pending with the FDA including partnered products, plus four additional products that are approved and pending launch.
We will now turn to larger more durable opportunities in our near-term pipeline, dealing with products in the respiratory arena.
As we recently announced, we achieved a key milestone with the filing of our generic ADVAIR DISKUS product on April 1.
This asset is a partnered product and of the larger products in our pipeline is currently the closest to expected commercialization.
The investments in technology, dedicated manufacturing infrastructure and development of assets are very significant.
So we are quite pleased to be so far along the development and expect only a handful of competitors.
While we do expect more than one FDA review cycle, and we need FDA feedback to firm up our expectations, we continue to believe an approval and U.S. launch of the product is possible in calendar year 2022 and given our listing in the market, we anticipate the product will generate substantial net sales soon after launch.
Another drug device combination product in our pipeline is generic Flovent DISKUS.
The pivotal clinical trial for this product has been initiated.
So we are tracking to a possible launch in 2023.
As a reminder, we are co-developing this product with the same partner generic ADVAIR DISKUS.
This relationship means that the generic Flovent product leverages the same R&D and manufacturing platforms that support the generic ADVAIR product and will likely follow similar clinical development assets.
For both the generic ADVAIR and Flovent products, we are increasingly confident of our path to launch for three primary reasons.
First, the FDA now has clear guidance for companies developing its complex products and our development programs have been advancing rapidly.
Second, our partners already built R&D and commercial scale manufacturing facilities, both dedicated to inhalation products.
And lastly, our partnered senior management team includes members of GlaxoSmithKline team that was intently involved in developing, filing and manufacturing the ADVAIR into their product.
As we said previously, we are evaluating and in late-stage negotiations for additional product opportunities in the drug device inhalation respiratory space, particularly dry powder inhalers, and Metered Dose inhalers.
These markets are, as we have stated before, generally quite large, growing and durable.
Turning to our biologic insulin products.
The situation is similar to what we noticed for the drug device inhalation opportunities, namely, we are relatively well advanced in the programs and the investments in technology, dedicated manufacturing infrastructure and development are even more significant, it takes multiple hundreds of millions of dollars.
Let me say that again, multiple hundreds of millions of dollars.
Thus we expect only a handful of competitors in what is expected to be a multi-billion dollar market even at competitive biosimilar pricing.
And as we have shared, our partner HEC is shouldering the significant majority of these infrastructure related costs.
With regard to biosimilar insulin glargine, we believe we remain on track to; submit an IND later this calendar year, commence the clinical trial early next calendar year, submit the biologics license application later in calendar year 2022, and launch in 2023, just over two years from now.
You'll recall that representatives from Lannett and HEC's both received guidance from the FDA on the biosimilar insulin glargine clinical advancement program in June of 2020.
The FDA then requested that we submit a protocol and the statistical analysis plan for the pivotal trial for review which we did in November of 2020.
The FDA has since completed its review and provided feedback, which we incorporated into design of the upcoming pivotal trial including the type and sized of the trial, as well as primary and secondary endpoints.
Importantly, the upcoming conforming pivotal human healthy trial plan is similar to our previously completed normal healthy volunteered pilot study.
It's a modestly larger study and will be conducted at the same site as the previous study.
So the FDA's feedback is very encouraging as they reviewed in detail our human pilot study where our insulin glargine met all the primary pharamakinetic and pharmadynamic safety endpoints and the FDA has indicated the same type of study with glargine produced at commercial scale to complete the new facility will be sufficient to file a 351(k) biosimilar application.
Note, we believe we will be the first glargine outpatient to take advantage of new biosimilar insulin rules published in November of 2019, which have helped speed our progression.
In the related positive development, our partner HEC has completed virtually all the required process development scale of work required to producing insulin glargine at commercial scale at the new insulin facility, which is an important next step.
Production of clinical trial materials should occur in the upcoming quarter.
On a further positive related note, in February, we announced we have expanded our agreement with HEC to include the biosimilar insulin aspart, a fast-acting insulin, separate and distinct from longer acting insulin glargine.
Similar to the two asthma product opportunities, the experience, knowledge, dedicated infection infrastructure and investment supporting insulin glargine can be directly leveraged from the development of insulin aspart.
Accordingly, while we still need to get FDA feedback on the development plan, we currently anticipate a potential launch of the aspart product in calendar 2024.
As you can see, and I think our investors understand, we are now advancing for within our overall launch parade, a steady stream of significant new product launches in the not too distant future.
To sum up today's remarks.
We completed our refinancing transaction where we retired our Term Loan B and extended the maturity of our debt beyond the expected launch dates of our larger pipeline assets.
Moreover, the structure of the new debt substantially increased our free cash flow potential around $50 million in the first year alone that will allow us to further invest in growth opportunities.
The ANDA for our generic ADVAIR DISKUS product was submitted on April 1, 2021 and pending FDA feedback, we believe this product is tracking to a launch in calendar year 2022.
The clinical development of our other large opportunity assets including generic flovent and biosimilar insulin glargine continues to advance the launch of insulin glargine possible in 2023.
And in February, we added to our pipeline another large opportunity product biosimilar insulin aspart.
That biosimilar development should track perhaps the year behind insulin glargine and potentially launch in 2024, along with generic flovent, setting up a series of potentially significant product launches in the not too distant future.
I will begin with our financial results on a non-GAAP adjusted basis.
For the 2021 third quarter, net sales were $112.4 million, compared with $144.4 million for the third quarter of last year.
Gross profit was $30.4 million or 27% of net sales, compared with $52.3 million or 36% of net sales for the prior year third quarter.
Our gross margin for the quarter grew from the previous quarter largely due to improved manufacturing efficiencies, and to a lesser extent sales mix.
More specifically, increased sales of certain higher margin products.
Net sales for the quarter were lower than expected, primarily due to the competitive market pressure for both Levothyroxine tablets and capsules.
Research and development expenses declined to $6.0 million from $7.4 million.
SG&A expenses declined to $14.4 million from $17.7 million.
Interest expense decreased to $9.8 million from $12.7 million in last year's third quarter.
Net income was $1.0 million or $0.02 per diluted share, compared with $11.7 million or $0.27 per diluted share.
Adjusted EBITDA was $17.0 million, which was positively impacted by lower R&D expenses in the quarter due to timing.
We expect some of that R&D spend to move to our fourth quarter.
Turning to our balance sheet.
At March 31, 2021, cash and cash equivalents totaled approximately $81 million, up significantly from $34 million at December 31.
The increase was due to the receipt of income tax refunds, as well as benefits derived from initiatives to improve our working capital.
With that, I would like to provide additional details on our recently completed refinancing transaction, which was leverage neutral and as Tim mentioned, extended the maturity of our debt and enhances our cash flow.
For background, in November 2015, we acquired Kremers Urban Pharmaceuticals, primarily using debt to finance the transaction.
For the last six plus years, we have made excellent progress paying down this debt reducing by more than half the original outstanding debt balance of approximately $1.3 billion.
With the Term B loan scheduled to mature in November 2022, we made the strategic decision to refinance our debt.
The refinancing included two new debt instruments, specifically, $350 million of first lien senior secured notes and $190 million of second lien loans, which were used to retire the approximately $540 million outstanding balance of our Term B loan.
As part of the transaction, we also upsized our revolving credit facility to $45 million from $30 million.
The new first lien secured notes will mature in five years that will be secured on a first lien basis by all non-ABL collateral and a second lien basis on ABL collateral.
The second lien facility is junior in priority to the new first lien senior secured notes and included 8.28 million warrants exercisable into the company's common equity at a strike price of $6.88.
The second lien facility also matures in 2026.
The refinancing improved our financial flexibility in a couple of ways.
First, neither of the two new debt instruments include financial maintenance covenants.
And second, with no principal payments due until maturity, it considerably increases our cash flow.
Now, moving to our outlook, we made minor revisions to our guidance for the fiscal 2021 full year which were largely due to the refinancing.
Specifically, changes to our guidance were in the interest expense line and the income tax line.
Otherwise, our adjusted guidance range remains unchanged from the guidance we provided on February 3.
I would note that, given the sales pressure on our Levothyroxine products, combined with an expected delay to our zolmitriptan launch due to an API matter, we would anticipate to be at the lower end of our sales guidance range.
I would also add that an API issue surrounding our thalidomide product has still not yet been resolved.
The launch for the product was most recently expected for late in calendar 2022.
But as of now, we are not estimating a launch timeframe.
With that context, the revised guidance items are as follows: adjusted interest expense of approximately $44 million, up from $41 million to $42 million.
And income tax in the range of $1 million of expense to $1 million of benefit.
Please note we replaced in the income tax line of our adjusted guidance the dollar amount to provide additional clarity.
With that overview, we would now like to address any questions you may have.
 Assistant:

Chosen response:
q3 adjusted earnings per share $0.02.
q3 sales $112.4 million versus $144.4 million.


Prompt:
Human: On the call today are Tim Crew, Chief Executive Officer; John Kozlowski, the company's Chief Financial Officer, Maureen Cavanaugh, our Chief Commercial Operations Officer; and Steve Lehrer, who leads our insulin biosimilar initiatives.
A playback will be available for at least three months on Lannett's website.
In a moment, Tim will provide brief remarks on the company's financial results, as well as recent developments and initiatives.
Then John will discuss the financial results in more detail.
We hope you remain safe and well as we all manage through the persistency of the pandemic.
I'll start today reviewing some of the highlights of the past year that are relevant to our future before turning to the key elements we see in that future.
First and foremost, in 2021, we continued to launch products and build our future portfolio.
We launched about a dozen new products, highlighted by a few significant contributors, including Levothyroxine tablets, Levothyroxine capsules and Clarithromycin.
The products we launched last year added new revenue streams and further diversified offerings, reducing our exposure and reliance on key products.
We also grew our base product pipeline with continued investment in a robust internal product development program.
For example, our recent Mycophenolate approval was achieved in just under 10 months, the third such product we developed to achieve so called first cycle approval in the past few years.
We have made great strides in our internal efforts including significant changes to our portfolio selection.
Such changes take time to be fully reflected in our financials, but we believe meaningful value is being built.
Further, we are working on our existing strategic alliance partners to expand our agreements to include new products.
For example, this past year Insulin Aspart was added to our HEC agreement, and more recently, generic Spiriva, Handihaler was added to our Respirent agreements.
Together these products represent multi-billion dollar markets with relatively few competitors expected.
We also formed a new strategic alliance partnership to launch Sevoflurane, a product with relatively few competitors and a market size of about $190 million based on IQVIA data.
We look to launch Sevoflurane in the back half of the fiscal year.
The second key accomplishment last year was even while we launched new products and grew our pipeline, we also maintained firm control over expenses and exhibited operating discipline.
We implemented and completed the cost reduction plan that included consolidating our R&D functions to a single location and lowered operating costs by approximately $15 million annually.
The third key accomplishment was that we significantly improved our capital structure.
This last year, we paid off our Term A loans with cash on hand and later successfully completed a full refinancing transaction of the Term B loans.
The refinancing transaction as we have often highlighted was significant for several reasons.
First, we extended the maturity of our debt to 2026 from 2022, which is now after several of our larger and more meaningful pipeline assets are expected to launch and contributed to a reduction in our debt.
Second, we upsize our credit facility and substantially freed up cash flow, primarily due to the elimination of mandatory principal payments until maturity.
Third, the new debt does not have any leverage covenants.
Fourth, as a result of this refinancing, in combination with working capital initiatives, we have improved our cash position.
Thus, we now have more ready resources to invest in growth opportunities.
Of course, another accomplishment to note was in our teams, particularly in our plants and labs, showed up to work every day throughout the pandemic and maintained a reliable supply of our affordable medicines.
This, of course, despite all the extra challenges we have been doing so this past year.
We are quite proud of all of these accomplishments.
Of course, there are also real challenges.
Well, competition is a fact of life in the generic industry.
The competitive environment we encountered last year was particularly impactful because it involved some of our most profitable products.
We offset some of these pressures with the aforementioned new product launches and cost reductions, but the decline significantly exceeded the offsets.
On top of a particularly competitive environment, COVID-19 continued to impact our financial performance with more downstream influences.
For example, as we have said, the pandemic resulted in fewer elective medical procedures being performed, this reduction in limited sales and use of our cocaine-based product.
As a branded product, our Numbrino NDA carries a higher than average gross margin for us, so changes up or down in sales have a disproportionate impact on our bottom line.
Fortunately, we believe many of the negative past year are beginning to attenuate while the positive factors continue to foretell meaningful opportunities.
With that as a background and leaving John to note the specific financial results, I will turn to our outlook for the upcoming years.
We expect our overall net sales and gross margin to continue to face pressure by recent and anticipated competitive pricing of certain key products, partially offset again by the benefit of new product launches.
We also expect sales of our Numbrino NDA to be impacted by a continuation of further elective surgeries being performed.
Once the pandemic subsides, we would expect to see an increase in these types of procedures and along with that, an increase in sales.
While we are forecasting a down year in sales and profits, we see fiscal '22 as a trough year.
Our key products have already been impacted by notable competitive pricing pressure, thus, those products have less further downside.
At the same time, the relative future potential of our pipeline continues to increase.
I also want to note that while we believe our generic ADVAIR DISKUS product has the potential to launch in calendar year 2022, we did not include any sales of the product in our FY '22 guidance.
Similarly, zolmitriptan is also not contemplated in our FY 2022 forecast, as a result of ongoing delays from our API supplier.
Nevertheless, we do expect both products to be meaningful contributors in fiscal 2023.
So now let's turn to our pipeline.
We continue to launch products [Indecipherable] approximately 13 ANDAs pending at the FDA including partner products, plus four additional products that are approved and pending launch.
We also have more than 20 products in development and expect to add more from both external and internal efforts.
We continue to target more valuable products than has been our historical average.
With regard to our large durable product pipeline, we currently have five disclosed assets.
First, with our partner HEC, we have two insulin assets, Insulin Aspart, a fast acting insulin product and Insulin Glargine, a long-acting insulin product.
Combined, the two products participate in a double-digit billion dollar US market as reported by IQVIA.
Second, our drug device respiratory portfolio with their partner Respirent now has three assets, generic ADVAIR DISKUS, which is filed with the FDA, along with generic Flovent Diskus, and most recently, generic Spiriva Handihaler.
Combined sales of these products also represent a multi-billion dollar US market as reported by IQVIA.
As we have said, all of these products are differentiated from traditional generic products because of the significant technical expertise required for development and substantial plant investments made by our partners that needed to manufacture them.
So for all of these products, we expect only a handful of competitors.
I will discuss next the significant progress we are making advancing these large durable product opportunities.
With regard to generic ADVAIR DISKUS, we have been in regular contact with the FDA regarding this priority application since it was accepted in May of this year.
We are encouraged by their level of engagement.
We anticipate a mid-cycle review update from the FDA sometime in the next few months.
Thus, we expect to provide a better sense of how the application is progressing on our next investor call in November.
Currently, we continue to participate more than one FDA cycle and believe, as just noted, an approval in US launch of the product is possible in calendar year 2022.
For those new to Lannett story, generic ADVAIR DISKUS is one of the larger assets in our filed pipeline.
It is also currently the closest to expected commercialization in our partnered respiratory portfolio.
The second most advanced product in our respiratory portfolio is generic Flovent Diskus.
The last patient for the pivotal clinical trial for this product has been dosed and we anticipate the analysis of the trial to be completed within a few months.
We are currently planning for an ANDA submission before the end of the current fiscal year and a possible launch in calendar year 2023.
Next, as noted, we recently expanded our opportunities with Respirent to include generic Spiriva Handihaler.
The development arc for this product should be approximately 12 months to 18 months behind the generic Flovent Diskus product.
However, as there were various IP matters involved, we're not commenting today on the specific launch timing expectations.
Finally, as we have previously said, we're evaluating and in negotiations for additional product opportunities in inhalation respiratory space, particularly dry powder inhalers, and metered dose inhalers.
There continues to be additional multi-billion dollar market opportunities to pursue with both current and future partners.
Now turning to our two biologic insulin products, starting with biosimilar Insulin Glargine.
Clinical material for the drug product has now been manufactured in the new dedicated manufacturing site, which is a very significant milestone.
We still expect to submit an IND around the end of the calendar year and commence the pivotal clinical trial early next calendar year.
However, we have recently added a few months to the clinical timeline, due to current COVID-19 restrictions at the study site in South Africa.
We have also added a few more months to our timelines to address interchangeability with the FDA, which I'll discuss in a moment.
Thus, we currently think the biologics license application will be filed in the first half of calendar year 2023 and we would expect to launch in the first half of calendar year 2024.
Also note, China's version of the FDA, the NMPA has approved HEC's Insulin Glargine for China.
That product is made in the same new plant, where we have now just made our Insulin Glargine for clinical trials.
[Indecipherable] we have added to the development plan to address the interchangeability with the FDA is related to an important recent FDA approval of the first biosimilar and interchangeable Insulin Glargine, the [Indecipherable].
We believe that interchangeability approval is good news for Lannett and HEC's insulin.
It demonstrates the FDA will approve interchangeable insulin products, which over-time should improve affordable access to these important medications.
Regarding biosimilar Insulin Aspart, the development of the product continues and we currently anticipate a potential launch of the product about 15 months following Insulin Glargine.
Again, Insulin Aspart was produced in the same facilities, working with the same teams and technologies as Insulin Glargine, so we are able to leverage may be earlier Glargine investments in development and manufacturing that have been made by both Lannett and HEC.
Like our respiratory portfolio, we see several opportunities to leverage our insulin assets.
There are other dosage forms of both Glargine and Aspart, such as vials and other distinct insulin products.
These opportunities again represent multi-billion dollar markets, as reported by IQVIA.
We also see opportunities to leverage our USA clinical data, 10 development and related IP, along with the manufacturing capacity at HEC to form a strategic alliance with third parties looking to accelerate their access to insulin products in international markets such as Europe.
Well, discussions on such opportunities are very preliminary, such relationships could yield meaningful value for both ourselves and our partners.
Finally, a few brief comments on Made in America [Phonetic] and ESG.
While we see a future that includes several high technology products from overseas sources, today, we are mainly a US domiciled generic medicines company.
Lannett adheres to strict US laws and US environmental guidelines with regard to development and manufacturing compliance for our US made products.
Most of our large generic competitors are already based overseas and don't face the same set of regulations and ship most of their products from the far side of the globe.
We are proud that today, we serve the US market from the US market and do so with an enviable track record and reputation for being a high quality and reliable manufacturer.
We point out these characteristics that make Lannett increasingly unique as a generic supplier so that our investors and customers think of Lannett when they consider Made in America in various ESG related initiatives.
To sum-up today's remarks, our accomplishments in fiscal 2021 were significant.
We faced head on a highly competitive market environment.
We launched new products and made important advances in the development of key products in our pipeline.
We expanded existing agreements that added three large durable assets to our respiratory and insulin franchises.
We refinanced our debt, improving free cash flow and extended our maturities beyond the expected launch dates of our large pipeline assets.
We continue to believe that the exciting products in our advancing and expanding pipeline still have the potential to transform our firm into $1 billion company by 2025.
I'll begin with our financial results on a non-GAAP adjusted basis.
For the 2021 fourth quarter, net sales were $106.0 million, compared with $137.9 million for the fourth quarter of last year.
Gross profit was $26.4 million or 25% of net sales, compared with $48.9 million or 35% of net sales for the prior year fourth quarter.
R&D expenses declined to $6.0 million from $6.6 million.
SG&A expenses declined to $15.5 million from $15.6 million.
Operating income was $4.9 million, compared with $26.7 million.
Interest expense increased to $12.1 million from $11.3 million in last year's fourth quarter.
Net loss was $7.4 million or $0.19 per share versus net income of $13.4 million or $0.31 per diluted share.
Adjusted EBITDA was $12.1 million.
Turning to our balance sheet.
At June 30, 2021, cash and cash equivalents totaled approximately $93 million, up from $81 million at March 31.
Cash increased during the fourth quarter due to a few factors.
First, as a result of the refinancing, we did not have a principal payment on our debt.
Second, relates to working capital improvements that continued from the third quarter.
And the third, was the receipt of income tax refunds.
Looking ahead, we expect to receive additional income tax refunds continue to benefit from initiatives to improve our working capital and we have no mandatory principal payments on our debt until maturity.
Accordingly, we expect to maintain a healthy cash position throughout the year and end fiscal 2022 with approximately $80 plus million.
As for our liquidity, we also have access to our $45 million credit facility, which today we have not drawn upon.
Turning to our guidance, which as Tim mentioned earlier, does not include sales of generic ADVAIR DISKUS or zolmitriptan.
For fiscal 2022, we expect net sales in the range of $400 million to $440 million, adjusted gross margin as a percentage of net sales of approximately 23% to 25%, adjusted R&D expense in the range of $26 million to $29 million, adjusted SG&A expense ranging from $58 million to $61 million, adjusted interest expense of approximately $52 million, the full year adjusted effective tax rate in the range of 21% to 22%, adjusted EBITDA in the range of $40 million to $55 million, and lastly, capital expenditures to be approximately $12 million to $18 million.
Regarding the phasing of the quarters, we expect net sales and adjusted EBITDA in Q1 to be lower than Q4, ramping up slightly in Q2 and continue to ramp-up more in the second half of fiscal 2022.
The increase is related to expected new product launches.
Gross margin in the first half of the fiscal year to be in the lower range of our outlook, ramping up to the upper end of the range in the second half of fiscal 2022 and operating expenses to remain relatively consistent throughout the year, though, we expect Q1 to be slightly higher than the other quarters, as they include certain compensation related expenses that are only recorded at the beginning of our fiscal year.
With that overview, we would now like to address any questions you may have.
 Assistant:

Chosen response:
q4 adjusted loss per share $0.19.
completed re-financing transaction, debt maturity extended to 2026.
sees fiscal 2022 gaap net sales $400 million to $440 million.


Prompt:
Human: Before we begin, I have an important reminder.
We appreciate your participation today and invite you to visit Lincoln's website, www.
After their prepared comments, we will move to the question-and-answer portion of the call.
Third quarter operating earnings were reduced by pandemic claims and other charges and helped by strong alternative investment results.
Adjusting out these various items, our underlying earnings and earnings growth potential remains strong.
Our expectation remains to be at the high end or above our 8% to 10% earnings per share growth target in the intermediate and longer term.
Intermediate term expectations are primarily based on recovering sales momentum, strong fees on assets under management, incremental expense management initiatives and the combination of $900 million of buybacks related to our recent block sale and ongoing share repurchases.
Taking each of these in turn.
Sales year-to-date are consistent with our expectations of building off the levels achieved as we exited 2020.
We are also achieving returns in the low- to mid-teens on capital backing sales across all business lines.
Overall, sales growth is reemerging due to our distribution strength, added shelf space, digital capabilities and product innovation.
After introducing 10 new products since the beginning of the year, including the industry's first combined life plus long-term care policy built on a variable chassis, we have more updates planned and additional products in development.
Expense efficiency has long been a key focus for Lincoln.
This quarter, we once again reported a lower expense ratio across most of our businesses.
We also have a track record of delivering on past cost savings initiatives.
We expect Spark, our new cost savings initiative to drive savings well in excess of the impact of spread compression through 2024 and to improve both our operational effectiveness and the customer experience.
Finally, our buyback strategy, as just mentioned, is comprised of two components: first, our ongoing repurchases, which returned to pre-COVID levels this year, driven by the capital efficiency of our products, including the impact of the recently announced VA living benefit flow reinsurance deal, low levels of credit losses and net ratings upgrades in our high-quality investment portfolio and our well-managed hedge strategy.
Second, the buybacks funded by the block deal.
Before turning to the business segments, I want to congratulate Ellen Cooper.
In August, the Board announced that Ellen will succeed me as CEO after our Annual Shareholders Meeting next May.
Since joining Lincoln in 2012, Ellen has worked with me and the rest of our executive team to shape and execute on Lincoln's strategy.
She joined us as Chief Investment Officer, and her responsibilities have grown to include leading our enterprise risk efforts and our annuities business.
Ellen is a gifted leader with a proven track record of empowering high-performing teams and executing effectively in challenging environments.
I know that Lincoln will be in great hands with Ellen at the helm as she moves forward and fully capitalizing on the exciting opportunities ahead for Lincoln.
Ellen will be joining Randy and me on the first quarter's earnings call.
Now turning to the business segments.
In Annuities, we reported sales growth of 7% and over the prior year quarter, driven by our industry-leading product breadth and distribution force plus shelf space added over the last two years.
Sales were down sequentially as we led the industry with weight reductions on indexed variable annuities in response to market conditions as well as typical third quarter seasonality.
We remain pleased with our sales mix of guaranteed and nonguaranteed products, providing us diversification and attractive new business returns.
Looking forward, we are expanding customer choice by adding new investment options and index strategies and have improved the attractiveness of our indexed variable annuity product setting us up for sales growth in the fourth quarter.
Finally, we expect our earnings to continue to benefit from the high-quality and diversified in-force book we have built over the years.
In Retirement Plan Services, we reported another quarter of excellent results and remain well positioned with award-winning digital technology, a competitive cost structure an expanding set of product solutions and scale in our target markets.
Total deposits were up 2% despite being negatively impacted by some sales shifting into the fourth quarter.
While we reported slightly negative flows this quarter, trailing 12-month net flows remained strong at positive $1.2 billion, and we expect full year 2021 net flows to be positive.
Sales of YourPath or alternative to target date funds remain strong.
We have continued to innovate, enhancing our in-plan income solution called PathBuilder Income and integrating the solution inside our YourPath investment option.
As a result of the SECURE Act, we also see significant long-term opportunities around in-plan guarantees, pooled employer plan solutions and advisor managed accounts.
Finally, the macro environment continues to provide a tailwind to Retirement Plan Services.
In addition to healthy equity markets, the economic recovery is contributing to better wage growth, higher employee contribution rates and a greater employer deposits.
The retirement business is having an outstanding year as we continue to execute on our strategy.
In life insurance, our focus on expanding both consumer value propositions and distribution shelf space resulted in sequential sales growth of 32% this quarter with sales totaling $166 million and all product categories reporting double-digit increases.
The focus on expanded customer choice aligns with our ongoing efforts to diversify our product risk profile.
As examples, in the life business, our variable MoneyGuard and our principal VUL products offer the customer the choice of lower guarantees and higher upside potential.
Sales of these types of products have been growing faster than segmentwide sales.
The products have less potential tail risk and better capital efficiency.
In addition to the property and casualty distribution partnership we added in the second quarter -- We recently launched our variable MoneyGuard product at two of our largest strategic partners, providing 25,000 more advisors with access to this first-of-its-kind solution.
Complementing our distribution and product expansion efforts, our digital-first focus continues to drive a lower cost per policy and an improved customer experience.
Looking ahead, we are enthusiastic about the future of the life business, we are introducing new solutions that will further expand our customer and distribution reach with more introductions planned for the first half of 2022.
Lastly, our Group Protection business continues to be impacted by the pandemic particularly as the Delta variant affected more individuals under age 65 driving increased claims.
While the pandemic continues to be a headwind, the underlying fundamentals of the business are strong, and we are pleased with the progress we are making.
We achieved 5% premium growth over the prior year which is a result of a stronger persistency rate of nearly 90% and renewal rate increases implemented earlier this year.
Year-over-year sales are flat as we stick to our pricing discipline.
We're seeing more sales from our higher-margin employee-paid products year-to-date.
59% of Group Protection sales have come from these products as more individuals see the value of them.
Within this category, we have begun to quote our new hospital indemnity product rounding out our suite of supplemental health products.
Underlying margins after adjusting primarily for pandemic-related claims or again, in the middle of our target range this quarter.
We will continue to build on our progress and expect margins to grow toward the top end of our 5% to 7% target range.
As we remain disciplined on pricing, new business, reducing costs and managing claims.
Briefly on investment results.
Credit quality remains excellent.
Our general account portfolio is predominantly comprised of fixed income investments, of which 97% are investment-grade equivalent.
We continue to expect a benign credit outlook and have seen favorable credit trends within our portfolio with minimal credit losses and positive net credit migrations.
During the quarter, we invested new money at an average yield of 2.6% with 1/2 in shorter-duration assets versus 1/3 for the full year 2020.
And reflecting the increase in shorter-duration product sales and our disciplined asset liability matching.
Approximately 60% of our purchases were in investments other than public corporates, providing diversification and good relative value and yielding approximately 100 basis points over comparability rated public corporates.
Lastly, our alternative investment performance was once again strong with an 8% return in the quarter, exceeding our long-term targeted quarterly return of 2.5%.
In summary, reported results this quarter continue to reflect ongoing impacts from the pandemic in life insurance and Group Protection.
Our product strategy, distribution strength and ongoing innovation are helping to build sales momentum at attractive returns.
Our new expense savings initiative is expected to more than offset spread compression, improve overall operational effectiveness and drive earnings growth.
And ongoing share buybacks driven by our strong balance sheet and free cash flow generation, combined with the incremental buybacks enabled by our recent block deal will further boost EPS.
In sum, our underlying earnings power is improving, and we remain confident in our ability to grow earnings per share at or above our 8% to 10% target range.
Last night, we reported third quarter adjusted operating income of $307 million or $1.62 per share.
Also, this quarter's results were impacted by pandemic-related claims, which reduced earnings by $180 million or $0.95 per share.
While results benefited from strong performance in the alternative investment portfolio, boosting earnings by $89 million or $0.47 per share above target.
Additionally, we experienced some unfavorable nonpandemic mortality in the Life Insurance segment that I will discuss further in the life commentary.
From a reported adjusted operating income standpoint, it was a bit of a noisy quarter, but we have strong underlying earnings power as we exit the quarter.
Net income totaled $318 million or $1.68 per share, boosted by gains in the investment portfolio and strong performance from the variable annuity hedge program.
Moving to the performance of key financial metrics.
Consolidated adjusted operating revenue grew 9% from the prior year, which included growth in each of the four businesses.
Average account values increased 17%, and book value per share, excluding AOCI, grew 8% and stands at $76.96, an all-time high.
Now turning to segment results, starting with Annuities.
Operating income for the quarter was $338 million, which included a $5 million net unfavorable impact from our annual review.
Compared to $196 million in the prior year quarter, which included a $101 million net unfavorable impact from the annual review.
Adjusting for notable items in both periods, operating income increased 15% from the prior year quarter, driven by record average account values of $170 billion, up 17% over the past year.
The current quarter included $10 million of favorable alternative investment income.
The expense ratio improved 80 basis points compared to the prior year period as our focus on expenses continues to benefit the bottom line.
Return metrics remained solid with return on assets coming in at 80 basis points and return on equity at 26%.
Risk metrics on our VA book once again demonstrate the quality of our in-force with a net amount at risk at 63 basis points of account values for living benefits and at 43 basis points for death benefits.
So a great result for the Annuities business with another quarter of high-quality earnings, strong returns and solid risk metrics, leaving us well positioned to finish the year with another excellent quarter.
Retirement Plan Services reported operating income of $60 million compared to $50 million in the prior year quarter, with the increase driven by higher fees and account values, continued expense efficiency and higher alternative investment income, which was $6 million favorable to our expectation in the current quarter.
Our annual review had no impact in the current quarter, but did have a net unfavorable impact of $3 million in the prior year quarter.
Favorable equity markets drove average account values up 21% to $97 billion.
The expense ratio improved 80 basis points over the prior year quarter as revenue growth combined with continued diligent expense management contributed to improved results.
Base spreads, excluding variable investment income, compressed 10 basis points versus the prior year quarter, in line with our stated 10 to 15 basis point range as crediting rate actions continue to take hold.
Overall, the retirement business had an excellent quarter, and continues to be well positioned to drive strong results.
Turning to life Insurance.
Operating income for the quarter was $93 million which included a $26 million net unfavorable impact from our annual review compared to an operating loss of $311 million in the prior year quarter, which included a $440 million net unfavorable impact from the annual review.
Additionally, the current quarter included an unfavorable notable item of $19 million related to a legal expense associated with the reinsurance arbitration award.
Adjusting for notable items in both periods, operating income increased 7% from the prior year quarter, driven by higher alternative investment income, as the current quarter included $65 million compared to $37 million in the prior year quarter.
Elevated mortality related to the pandemic was $60 million in the quarter compared to $70 million in the prior year quarter.
This quarter's impact for 10,000 COVID deaths of $6 million was down year-over-year as expected, but was up sequentially and as the severity of our average COVID claim was elevated.
We believe this elevation is normal volatility as we had a few larger COVID claims in the quarter.
In addition to the impacts of the pandemic, underlying mortality was negatively impacted by $34 million.
We believe this was driven by two factors.
First, over the course of the pandemic, when COVID cases have been increasing, which they did in the third quarter, we have seen elevated non-COVID mortality as well.
And second, normal quarterly volatility.
I'd point out that we experienced favorable underlying mortality in the prior two quarters, and when viewed on a year-to-date basis, our actual to expected mortality ratio remains under 100%, better than expected.
Earnings drivers continue to grow, with average account values up 9% and average life insurance in-force up 7% over the prior year.
Base spreads, excluding variable investment income, declined 13 basis points compared to the prior year quarter, above our five to 10 basis point expectation.
Our expense ratio improved 30 basis points over the prior year quarter as our efficiency efforts continue to benefit margins.
This was a noisy quarter for life earnings, but growth in earnings drivers, long-term mortality results in line with expectations and continued expense discipline keep us confident in our underlying business.
Group Protection reported an operating loss of $32 million which included a $16 million net favorable impact from our annual review of reserve assumptions compared to operating income of $6 million in the prior year quarter, which included a $3 million net unfavorable impact from the annual review.
Adjusting for notable items in both periods, operating income decreased from $9 million to an operating loss of $48 million, driven by higher mortality impact from the pandemic.
The current quarter also included $6 million of favorable alternative investment income.
On a sequential basis, pandemic-related claims in the quarter negatively impacted earnings by $120 million compared to $28 million in the second quarter and included $107 million in life claims and $13 million in disability claims.
In the quarter, U.S. COVID deaths significantly shifted to the working age population, and in our group business, the average claim size for active employees across all ages is consistently three to four times the size of those for retirees.
This significant increase in working age deaths, coupled with the higher average claim size, drove the sequential increase in mortality.
While I've been humbled by trying to predict the impacts of the pandemic, I do believe that this quarter's increased impact reflects the current state of the pandemic, with a higher percentage of deaths occurring in the working-age population.
Excluding the annual review of reserve assumptions, pandemic claims and favorable alternative investment income, the group margin of 5.9% was consistent with the prior quarter and in the middle of our 5% to 7% targeted range.
The loss ratio was 87.8% in the quarter, an 8.5 percentage point sequential increase.
Excluding pandemic-related claims and the impact of the assumption review, the loss ratio improved 20 basis points to 75.9%.
Group's expense ratio remained flat despite ongoing investments in our claims organization to address elevated claim volume from the pandemic.
Despite the tough quarter for group, we are confident that the underlying business fundamentals are solid and the strength of this business will reemerge as the pandemic subsides.
Turning to capital and capital management.
We ended the quarter with $10.9 billion of statutory capital and estimate our RBC ratio at 63%.
As a reminder, our RBC ratio includes 25 percentage points from noneconomic goodwill associated with the Liberty acquisition that we expect will go away by year-end.
Cash at the holding company stands at $754 million, above our $450 million target as we have prefunded our $300 million 2022 debt maturity.
We deployed $200 million toward buybacks in the third quarter.
In line with our goal communicated last quarter to have full year buybacks in line with pre-pandemic levels of approximately $600 million, excluding any incremental buybacks from transactions.
Our block sale with Resolution Life, which we announced in September and closed on October 1, generated approximately $1.2 billion of capital, $900 million of which we plan to use for incremental share repurchases.
We expect these repurchases to be completed by the end of the first quarter of 2022 and began the incremental buybacks in October, via a $500 million accelerated share repurchase program.
Outside of the deployment of proceeds from the block sale, we expect to continue our ongoing buyback program.
Although I'd point out that the timing of ongoing buybacks may be influenced by the accelerated share repurchase program.
We were pleased to have executed both a life block deal and a VA flow deal last quarter, and we continue to be open to additional block and flow reinsurance deals.
Additionally, we announced a 7% increase in our quarterly dividend this quarter.
Now to provide some details on the Spark initiative.
As we have been communicating for the past few quarters, we are excited to be embarking on another meaningful expense savings program.
Teams from across the organization have been hard at work identifying and prioritizing opportunities for us to invest and improve efficiencies through this initiative.
And they have been working with them and across departments to identify the best project to maximize effectiveness as part of Spark.
Because the strategic digital program is nearing its end, we have decided to integrate the balance of that program into this new cost savings initiatives for ease of tracking and communication.
As of the end of 2020, the total net recurring benefit from our strategic digital program is $80 million, on track with our target.
In addition to these savings, we expect to achieve $260 million to $300 million in run rate savings through Spark as we exit 2024, with benefits growing steadily starting this year, and ramping up in the out years.
The total expected onetime investment to achieve the savings is $350 million to $410 million including the $57 million in investments we've made already this year.
We expect investment spend to peak in 2022 and decline in subsequent years.
All numbers that I've just discussed are pre-tax and pre-DAC.
Spark will be focused on driving efficiencies throughout all aspects of our business, from leveraging automation to simplifying and improving process efficiency.
And we will continue to focus on enhancing the customer and employee experiences while modernizing our technology footprint.
We are also targeting benefits beyond cost savings, including improving the way we work by focusing on reskilling and upskilling our valuable employee base.
We will update you on our progress going forward, tying back to this disclosure.
To conclude, the pandemic environment continues to challenge our life Insurance and Group Protection segments.
However, underlying earnings in these businesses remains strong.
Our Annuities and Retirement businesses both delivered excellent results.
In sum, our underlying results and earnings power are both strong and growing.
We will now begin the question-and-answer portion of the call.
 Assistant:

Chosen response:
compname reports q3 earnings per share of $1.68.
q3 adjusted operating earnings per share $1.62.
q3 earnings per share $1.68.