Prompt:
Human: Today, you'll hear from Endeavor's CEO, Ari Emanuel; and CFO, Jason Lublin.
Our president, Mark Shapiro, will join us for the Q&A session.
The purpose of the call is to provide you with information regarding our second-quarter 2021 performance in addition to our financial outlook for the balance of the year.
Our commentary today will also include non-GAAP financial measures, which we believe provide an additional tool for investors to use in evaluating ongoing operating results and trends.
These measures should not be considered in isolation from or as a substitute for financial information prepared in accordance with GAAP.
With that, I'll hand it over to Ari.
Due to the positive momentum and our continued positive outlook for the balance of the year, we have increased our annual guidance.
Jason will discuss this in more detail when he walks you through our financial results for the quarter.
But first, I want to spend a few minutes on how our role as owner, operator, and representative of premium sports and entertainment IP and content and talent has enabled us to get in front of industry trends and lead new markets, creating new revenue opportunities across the company.
Let's start with the underlying trends in sports media and the incremental opportunities we have to drive growth.
Data shows that the U.S. remains the most valuable sports rights market in the world with an estimated $19.5 billion of annualized rights value last year.
Media companies looking to acquire large D2C audiences continue to aggressively compete for rights, driving fees up to record levels, with some also having to maintain or grow their linear presence.
In the second quarter, we renewed our Wimbledon U.S. media rights agreement with ESPN and its tennis channel until 2035 for a significant increase over the prior term.
And internationally, we guided Football Australia through a landmark domestic media rights deal with ViacomCBS and Paramount+ in Australia, marking the first time the national team and the FFA Cup rights were sold separately from the league.
We're also seeing record media rights deals for the UFC in countries like China and France.
Our last five renewals have yielded, on average, over 100% increases.
Our strength as a curator and distributor of premium sports media rights also allows us to capitalize on new enterprises and consumer businesses, including sports betting and NFTs.
The pandemic further accelerates online betting adoption, which has helped fuel IMG Arena's growth beyond video and data streaming into online betting apps for UFC and golf.
Meanwhile, we continue to sign top-tier operators like BetMGM while adding marquee properties and events like the Ryder Cup to our offerings.
Sports wagering is now legal in 21 states and growing fast.
Internationally, the Netherlands and Germany have reregulated or are in the process of effecting new frameworks that we believe will pave the way for betting markets to open there as early as the fourth quarter of this year.
As it relates to NFTs, we've made a deal with Dapper Labs, who we invested in three years ago when we saw the NFT trend happening to create a UFC NFT platform.
We also closed a deal for UFC and Panini to create NFT trading cards, the first release of which sold out in less than 24 hours.
And now, we're closing countless NFT deals on behalf of clients from Wimbledon to Wayne Gretzky.
Now, turning to television and film content.
The first half of 2021 saw median telecom M&A has reached their highest level in years, $83 billion.
Whether it's Discovery and Warner Brothers Media or Amazon and MGM, they become super competitors alongside the likes of Netflix and Disney, all making big bets on a D2C strategy.
They have deep pockets and need to differentiate their platforms to drive subscriber growth.
The competition for content and talent is at its highest level I've seen in 26 years.
The number of original series and movies commissioned by streaming platforms grew 48% for the past four quarters as compared to prior four quarters.
Netflix alone revealed it will spend $17 billion on content in 2021, up 44%, compared to 2020.
And remember, we remain platform-agnostic and one of the largest representatives of talented independent suppliers of content to the biggest streamers.
Jordan with Amazon or a multi-project deal for Charlize Theron with Netflix and Ryan Reynolds with Paramount.
It also demonstrates the potential of marquee talent to emerge as lifestyle brands, building commercial ecosystems around communities of fans.
We're seeing this more than ever in our equity deals we're closing for our talent ventures group.
We work with talent to monetize their brands through our own channels and elsewhere.
The pandemic has also spurred the growth of new distribution models while creating lasting shifts in consumer behavior, including a surge in demand performance like podcasts, video games, social and marketplace apps.
Our flexible business model allows us to opportunistically expand into and capitalize on these burgeoning growth verticals.
For example, this past quarter alone, we've closed new podcast deals for 40 clients, while four client shows hit No.
1 on the Apple charts.
And now, I want to provide just a few business highlights.
First, we announced during our last earnings call that we expected to pay down $600 million of debt in the third quarter, part of our continued commitment to reduce leverage.
We actually paid that amount down in the second quarter.
We also shared news of two now closed acquisitions: Next College Student Athletes or NCSA, a leading college recruiting business; and FlightScope, a European-based data collection, AV production, and tracking technology specialists.
Both acquisitions bolstered our capabilities while creating large moats around our IMG Academy and IMG Arena businesses.
In July, we announced a series of acquisitions that will further expand our capabilities while opening opportunities in new geographies.
These were Mailman Group, a leading digital agency for sports brands and rights holders.
Mailman will integrate with our IMG Media and 160over90 businesses while bringing new top-tier clients into the fold; ticket software company, Qcue, to elevate our suite of offerings on, On Location, our experiential business.
The addition of the dynamic pricing capabilities will enable us to generate more ticketed revenue across our experiential events.
And finally, 20too, a boutique licensing agency in the Middle East, a region that presents incredible growth opportunity for IMG licensing.
Expanding our reach in this growing region opens the door for further expansions down the road.
With that, I'll hand it over to Jason.
I'll start by walking you through our financial results for the quarter and provide you some additional color around what we're seeing in each of our segments, and then I'll briefly discuss revised guidance for this year.
Please note that all comparisons are to the prior-year period, which was impacted by COVID.
For the quarter ended June 30, 2021, we generated approximately $1.1 billion in revenue, up $648 million or 140%.
Adjusted EBITDA for the quarter was approximately $168 million, up $122 million.
Our Owned Sports Properties segment continued to perform very well, with revenues of $258.9 million, an increase of $106.6 million or 70%.
The increase was primarily driven by higher media rights fees due in part to contractual escalators in our media rights agreements, higher sponsorship fees from the renegotiations of existing deals, coupled with new deals and increased event output.
Adjusted EBITDA for the quarter was $132.3 million, double that of the same period in 2020, primarily driven from the higher revenues I just mentioned.
UFC had a huge second quarter, helping power UFC's biggest first-half ever in terms of revenue and adjusted EBITDA.
The quarter benefited from three incremental live events inclusive of one pay-per-view.
All three pay-per-view events in the quarter were at full capacity and broke local gate records.
More recently, our July UFC 264 event in Las Vegas finished at the second-highest gate in T-Mobile Arena history and the third-highest gate among UFC events of all time.
The event had more than 20,000 fans, the highest attendance ever recorded at a sporting event in T-Mobile.
Beyond ticket sales for these events, we also saw increases in other event-related revenue streams like international and commercial pay-per-view.
UFC continues to have one of the most international, youngest and most engaged fan bases in all of sports, making it highly attractive to partners.
Year over year, we've seen nearly 30% growth in the 18 to 24 demographic, and we're currently ranked third behind the NFL and NBA among millennials.
In addition to what Ari shared on the partnership front, we recently closed new deals with Crypto.com and Jose Cuervo while renewing and expanding our relationship with Monster.
Partnership revenues is up over 25% versus 2020.
Lastly, as relates to viewership, UFC events, which are simulcast across the ESPN family, reached 18.3 million viewers on ESPN TV networks alone in the first half of this year, up 10% over last year.
Meanwhile, in this segment, PBR is on track to have its best year ever across key categories, including media rates fees, sponsorship, merchandise sales, and licensing.
Now, turning to our events, experience and rights segment.
This segment recorded revenue of $528.7 million, an increase of $408.8 million.
Media rights and production revenues increased in the quarter due to the return of a full schedule of European soccer matches and the resumption of other events like the Miami Open in addition to newly secured business.
Adjusted EBITDA for the quarter was $36.8 million, up $79.5 million compared to Q2 2020, where we recorded a loss.
This was primarily due to the increased revenue, partially offset by direct operating costs to support increased business activity, as well as costs associated with our continued investment in the business.
To give you a little color about what we're seeing in this segment, college football and NFL ticket packages for the upcoming season are experiencing double-digit retail price increases versus 2019.
Hyde Park Winter Wonderland, our month-long winter festival that starts in November in London, had its highest-grossing revenue week in its history when tickets went on sale earlier this month.
Lastly, at IMG Academy, it's been a record summer in terms of number of campers.
And at this moment, we have more students enrolled for the fall semester than any prior school year.
Revenue was $328.2 million, an increase of $135.4 million or just over 70%.
This growth was primarily driven by an increase in client commissions and project deliveries at Endeavor Content, including episodes of Season 2 of Truth Be Told for Apple TV, The Wall in NBC and Netflix film Blue Miracle.
While we saw higher year-over-year deliveries from Endeavor Content, some deliveries we have forecasted to occur in the second quarter have either now been delivered or will be in Q3.
That slight timing delay, predominantly from three shows, negatively impacted our revenues in the quarter by approximately $90 million.
Adjusted EBITDA for the quarter was $61.7 million, an increase of $9.6 million or just over 18% as we realized a higher percentage of revenue growth from Endeavor Content versus clients in the quarter.
We also had higher operating expenses as we diligently managed the pace at which we brought back some costs to support increased business activity.
As Ari mentioned, we're pacing ahead as it relates to WME bookings for the second half of the year, and we're booking clients for dates much further into the future.
We're also seeing the beginning of a rebound in live music and country is leading the way, with sold our tours for clients like Garth Brooks and Eric Church.
On the brand side, 160over90 is gaining steam as companies are doubling down and getting back in front of consumers.
We've significantly increased our scope of work with clients, including T-Mobile, Capital One, Visa, Lowe's, Audi, Amazon, and AT&T, while continuing to sign new clients.
I mentioned Endeavor Content had a strong performance in the quarter.
I also want to note that we recently began the sale process for that business.
Although we're in the early stages, we've already received a lot of incoming interest.
We plan to divest the required portion of the restricted business and retain the nonrestricted businesses.
When we have more to share, we'll let you know.
Meanwhile, the updated guidance I'll share shortly assumes Endeavor Content is status quo for the balance of the year.
Finally, corporate adjusted EBITDA for the quarter was a loss of $62.7 million, reflecting an increase in costs brought on to support increased activity and investment in the business, as well as those costs associated with being a new public company.
Before I get to annual guidance, I want to briefly discuss our recent debt paydown that Ari mentioned.
We paid down $600 million of our outstanding debt in Q2, which consisted of the repayment of approximately $163 million under the WME IMG revolving credit facility, which now carries a zero balance; $257 million, representing the entirety of the WME IMG term loan issued in May 2020, which was the highest cost paper in our capital structure; and $180 million of the first lien term loan under the UFC facilities.
Because of these moves, we will realize $35 million in annual interest savings going forward.
On to our updated guidance for the full-year 2021.
As Ari mentioned earlier, we have experienced a recovery in our business happening slightly faster than we had originally anticipated.
And although we continue to closely monitor the Delta variant, bookings, ticket sales and other indicators remain positive for the balance of the year.
We are, therefore, raising our revenue guidance from a prior range of $4.76 billion and $4.83 billion to now between $4.8 billion and $4.85 billion.
And on adjusted EBITDA, we're raising the range from $735 million to $745 million to between $765 million and $775 million.
In sum, even though we recognize most activity levels are not yet at historical levels, we are very encouraged with business trends and look forward to what's to come for the balance of 2021 and a more normalized level of activity in 2022.
 Assistant:

Chosen response:
endeavor releases second quarter 2021 results.
q2 revenue $1.1 billion versus refinitiv ibes estimate of $1.14 billion.
2021 revenue is expected to be between $4.8 and $4.85 billion.
2021 adjusted ebitda is expected to be between $765 and $775 million.


Prompt:
Human: Presenting today on the call will be Kathy Antonello, our Chief Executive Officer; and Mike Paquette, our Chief Financial Officer.
These statements are made in reliance on the safe harbor provision of the Private Securities Litigation Reform Act of 1995.
All remarks made during the call are current only at the time of the call and will not be updated to reflect subsequent developments.
The company also uses its website as a means of disclosing material nonpublic information and for complying with disclosure obligation under the SEC's regulation FD.
Such disclosures will be included in the Investors section of the company's website.
Employers has performed well throughout the COVID-19 pandemic and the first quarter of 2021 was no exception.
While our top line was adversely impacted early in the first quarter by a meaningful year-over-year decrease in new business premium, we are very encouraged by the strength of our writings in March and April, including those of Cerity.
The recent improvement in submissions, quotes and binds, is directly correlated with increased hiring and expanded reopenings across most states.
With respect to our renewal book, our policy retention rate remained very strong at 94% for the quarter.
This was offset to some degree by lower average policy sizes and modest rate decreases.
And overall, our renewal premium was down 11% on a year-over-year basis.
We closed the quarter with another record number of policies in force, which demonstrates that our policyholders are enduring the pandemic, and small businesses are shopping for workers' compensation coverage.
As widespread vaccination continues and the labor market improves, we are optimistic that rising payrolls will serve to increase premium.
In support of this anticipated recovery, we have continued to pursue and advance the significant investments we've made in delivering a superior customer experience for our agents.
Due to declines in both frequency and severity for lost time claims, we've lowered our current accident year loss and LAE ratio on voluntary business to 63.6% 63.9%, down from 65.5% a year ago and 64.3% at year-end.
In addition, we continue to experience favorable loss reserve development in nearly every prior accident year.
Regarding our expenses, several first quarter events are worth noting.
We underwent a reduction in force, which impacted approximately 7% of our workforce.
We also said fond farewells to a few of our executives, including our former CEO, and subsequently realigned the organization to increase efficiency and generate cost savings.
As a result, our first quarter underwriting and general and administrative expenses of $46.6 million will be the high watermark for 2021, and you will see immediate and significant expense reductions for the remainder of the year.
With that, Mike will now provide a further discussion of our financial results, and then I will return to provide my closing remarks.
During the quarter, we delivered a 4.8% annualized return on adjusted equity and a combined ratio of 93.9% within our largest operating segment employers.
However, these favorable operating results were somewhat muted by our lower top line and net unrealized investment losses on our fixed maturity investments.
Our net premiums earned were $134 million, a decrease of 20% year-over-year.
The decrease was due to lower written premiums, as Kathy mentioned, as well as a reduction in our estimated final audit accruals to reflect the premium that we expect to return to our policyholders as a result of lower payrolls.
Our losses and loss adjustment expenses were $70 million, a decrease of 33%.
The company recognized $13 million of favorable prior year loss reserve development on its voluntary business during the quarter, which related primarily to accident years 2017 and prior versus $3 million of favorable prior year loss reserve development a year ago.
Commission expenses were $17 million, a decrease of 21%.
That decrease was primarily due to lower earned premiums.
Underwriting and general and administrative expenses were $47 million, largely unchanged from a year ago.
During the first quarter, we recognized a onetime $2.3 million acceleration in share-based compensation in connection with the retirement of our former CEO, Doug Dirks, Also, as Kathy mentioned previously, future quarters will reflect an immediate reduction in expenses from actions taken and completed during the first quarter.
Our other expenses were $2.9 million, representing employee severance costs associated with our first quarter 2021 reduction in force.
This action was taken to better align our expenses with our current levels of revenue.
From a reporting segment perspective, our Employers segment had underwriting income of $8 million for the quarter versus $1 million a year ago, and its combined ratios were 93.9% and 99.5%, respectively.
Our Cerity segment had an underwriting loss of $4 million for the quarter, consistent with its underwriting loss a year ago.
However, Cerity's premium writings have increased in recent months, which Kathy will address in her final remarks.
Our net investment income was $18 million for the quarter, down 8%.
The decrease was primarily due to lower interest rates year-over-year, which impacted bond yields.
At quarter end, our fixed maturities had a duration of 3.8 and an average credit quality of A+, and our equity securities and other investments represented 10% of our total investment portfolio.
Our net income this quarter was favorably impacted by $8 million of after-tax unrealized gains from equity securities and other investments, which are reflected on our income statement.
Conversely, our shareholders' equity and book value per share this quarter were each unfavorably impacted by $36 million of after-tax unrealized losses from fixed maturity securities, which are reflected on our balance sheet.
And finally, during the quarter, we repurchased $10 million of our common stock at an average price of $32.21 per share, and our remaining share repurchase authority currently stands at just under $19 million.
As Mike mentioned, our Cerity operating segment, which offers digital workers' compensation insurance solutions directly to consumers, is gaining traction and has written $0.5 million in premium thus far in 2021.
While the low- to medium-hazard direct-to-consumer market is relatively immature, and Cerity is an early entrant in this space, we believe that its technological and intellectual capabilities will support our future growth initiatives and provide immediate access to workers' compensation insurance for those customers seeking an online experience.
I am excited and proud to lead this remarkable organization.
And my primary goal for the company in 2021 remains unchanged.
As we prepare to fully capitalize on the upcoming labor market improvement, we will continue to maintain underwriting discipline and actively manage our expenses.
Our balance sheet and capital position are very strong and are highly supportive of these initiatives.
Employers is in a unique spot.
As a monoline workers' compensation rider specializing in America's small businesses, we can react to these trends appropriately and efficiently and are confident that we are well positioned for continued success.
And with that, operator, we will now take questions.
 Assistant:

Chosen response: qtrly net premiums earned of $133.9 million, down 20% year-over-year.


Prompt:
Human: I'm Patrick Burke, the company's head of investor relations.
Artie Starrs, Topgolf's CEO; William Davenport, Topgolf's CFO; and Jennifer Thomas, Callaway's chief accounting officer, are also in the room today for Q&A.
generally accepted accounting principles.
Results for the second quarter were nothing short of outstanding, and I'm extremely proud of our entire global team for the work they have put in to build this business to the powerhouse that it is today.
As you will hear throughout the call today, we are experiencing strong momentum across all of our business segments and are delivering exceptional operating results despite a challenging environment.
Revenue for the quarter was up 208% to $914 million and up over 112% to approximately $1.6 billion for the first half of 2021, both new records for our business.
Profitability also reached new highs, with adjusted EBITDA of $164 million for the quarter and $292 million for the first six months of the year.
While headwinds from COVID persist, we have strong conviction in both the long-term strategic position and impressive earnings growth prospects of this unique business.
Before shifting gears to talk specifically about each area of our business, I want to give a personal shout-out to our tour team who's having an exceptional year as well.
Congrats to Phil and John for their wins at the PGA Championship in the U.S. Open earlier this season; to Xander for his gold medal performance in Tokyo; and to Annika for her dominant victory at the U.S. Senior Women's Open.
What a summer for Callaway Golf's tour staff.
I can't tell you how excited I get seeing our players representing Callaway, along with our other brands, including TravisMathew and Topgolf, on the game's biggest stages.
From a business perspective, I'm confident this exposure is very good for our brands and will help us deliver long-term shareholder value.
Looking first at our golf equipment business.
Demand for clubs and balls remains very high as the sport continues to gain interest from both new entrants, which are driving continued unprecedented growth in package sets, junior clubs, and women's clubs, along with core golfers who are playing more than ever and showing strong enthusiasm for the game.
According to Golf Datatech, rounds played in June remained at an all-time high, and retail demand remains elevated.
Datatech's hardgoods sell-through in Q2 was up an impressive 40% versus 2019, and retail inventory levels remain extremely low, with only 2.2 months on hand at the end of June as industry supply chain strained to keep up with the last 12 months of unprecedented demand.
With more options for activities opened this spring and summer compared to last year, we were cautious that there could have been a potential slowdown in golf participation and/or demand.
However, thus far, we're pleased to report that we're not seeing this from our seat in the market.
We are also monitoring supply chain disruption due to the resurgence of the coronavirus Delta variant.
The resurgence has not had any negative demand implications yet, but it has caused further supply disruptions from factories based in and around Southeast Asia, primarily Vietnam.
The safety of the people working in these regions is top priority, and we're working with suppliers to make sure operating conditions are and remain as safe as possible.
Also, we have become accustomed to adapting to these circumstances over the last 18 months, and thus, we're able to shift some portion of our production to other less-impacted factories.
Still, given how lean inventories are already, the fact that nearly all our factories are running at 100% capacity, and that we'll need to shift production shortly toward next year's launches to protect that supply, these shutdowns will have an estimated $55 million negative impact on second-half revenues, primarily in our golf equipment segment and primarily in Q3.
Although disappointing, I view this disruption as a short-term issue, not one that will have a long-term impact on value for strategy.
On the positive side, and I recognize this is a glass-half-full view, we now believe field inventory levels will almost certainly stay lower than expected through this year, in many ways, a healthy market dynamic that bodes well for 2022.
All in all, we are very pleased with the strength of this category and our position in it.
We expect to deliver record performance for our golf equipment segment this year, and perhaps most importantly, we continue to believe the outlook for the golf equipment category is highly positive, with both a larger total market and a higher embedded growth rate.
Turning now to our apparel and soft goods segment.
The business put up another strong quarter, exceeding our expectations as retail locations reopened across the world and our brands remain top of mind for consumers.
This business strongly overperformed during the quarter and continues to see incredible growth as we move into the back half of the year.
To contextualize, year over year for the second quarter, we saw more than 30% comp store growth in our own retail stores versus 2019, the last period of unaffected by COVID as well as strong growth in sell-through at wholesale accounts and e-commerce.
Another fun fact is that we are not just seeing brand momentum in the target male audience buying for themselves, as approximately 30% of the direct-to-consumer sales that we track are her buying for him.
I'm no expert here, but when women are picking the brand for their men, I think it's a very good sign.
Jack Wolfskin was a strong performer as well this quarter.
The business has faced additional challenges given the longer COVID shutdowns in Europe than here in the U.S., but the team has worked through the issues brilliantly and is on track for a strong year.
As our owned stores in Europe reopened during the quarter, retail picked up nicely, almost reaching 2019 levels of revenue.
Most importantly, we experienced strong sell-through of the spring/summer 2021 line, as well as strong, prebooks for the spring/summer '22 line, two very important indicators for the health of the brand.
Our stores in China also continued to perform well as the brand maintains strong awareness and positioning within the outdoor apparel market there.
The team at Jack Wolfskin has done a fantastic job of revitalizing this business and putting us in a strong position to grow on the top and bottom line as COVID restrictions abate in the brand's key markets of Europe and China and as the brand grows and strengthen appeal.
Lastly, our Callaway-branded soft goods business showed strength as well, particularly in Japan, as popularity for the sport drove consumer spending.
Additionally, toward the end of the quarter, we took back the Korea apparel business, which was being licensed to a third party for several years.
Although that business is just starting up, we are very excited about the long-term opportunity it will provide to our soft goods segment, and the team did an excellent job managing this transition given the COVID travel restrictions and challenges.
With demand levels high across this business segment, we expect to enter 2022 with low retail inventory across all of our soft good brands.
In summary, we are fortunate to be in excellent categories and are on our path to deliver a good 2021 in this segment as well as future growth.
Now on to Topgolf.
Q2 marked the first full quarter of Callaway results with Topgolf included in our numbers, and they delivered beyond our expectations.
While COVID concerns remain a challenging variable for venue operations, the team put up outstanding numbers even as other options for consumers became available.
We continue to be invigorated by the momentum of this business brought to both Callaway's portfolio and to the game of golf.
Same venue sales percentage versus 2019 levels continued encouraging trend of recovery, with Q2 results in the low 90s, up substantially from the low 80s in Q1 of this year.
Results were driven by a mix of strong walk-in sales and continued recovery in the event business.
Looking forward, and this assumes no major restrictions from COVID upticks, we feel same venue sales for Q3 will be above Q2 results, while we expect Q4 sales to be slightly slower than Q2 due to the corporate events mixed in that quarter and that the full year should end at approximately 90%.
To put this in context, this is considerably above our expectations for the year and, we believe, a strong performance.
Domestic venue expansion continued as planned during the quarter, with four new venues opening.
Another venue, Holtsville, Long Island, opened recently, and yet another, Colorado Springs will open later this week.
We then expect to open one more venue in Q4 for a total of nine new domestic venues this year.
At the end of the year, we will have 67 domestic venues in operation across three owned UPA venues for a total of 70 owned venues in operation.
Internationally, our U.K. venues had an excellent quarter as they reopened strongly after COVID induced shutdowns in Q1, and our franchise international venue business continues to build capability and momentum despite various COVID challenges.
Overall, the venue business is very healthy, with profitability exceeding our expectations.
The Toptracer business had a successful quarter as well, with over 2,000 bays installed in Q2, setting a new record as we continue to see strong demand and excellent customer feedback.
While some challenges remain on the installation front due to COVID, we expect to meet or exceed our target of 8,000 new bays for the year.
One of the highlights for the quarter was the successful installation of Toptracer into what we believe is the world's largest driving range, Golf Club Daiju located outside Nagoya in Central Japan.
Lastly, Topgolf's unique position in the market as a gateway to golf is continuing to introduce new players in the sport, and we see excellent long-term potential through our preferential ability to market to these new entrants and drive synergies across a growing consumer base, both on and off course.
Looking ahead to the second half of the year and beyond, I remain excited about the opportunity ahead of us.
We operate in great categories with a unique portfolio of businesses that are all exceeding our expectations.
There are, of course, macroeconomic hurdles that we and many companies are facing, including supply chain constraints, freight costs, staffing challenges, and inflationary pressure, but at the demand level, we are experiencing and expect to experience in the foreseeable future we see these as manageable and expect to still deliver excellent financial results.
On the supply chain side, our guidance assumes an estimated $55 million negative impact to our top-line growth, primarily in Q3, to account for current disruptions.
On the inflationary side, we have already started taking some price and believe we'll largely have the ability to take price as needed.
Given the various moving parts for the remainder of the year, we are providing both third quarter and full-year guidance.
I'll let Brian discuss the numbers in more detail, but the headline is that we expect our full-year 2021 sales to be over $1.3 billion higher than 2019 and adjusted EBITDA to be between $134 million and $149 million higher than 2019.
Our EBITDA for 2021 will be very close to the number we guided to for 2022 when we provided longer-term guidance in the fall of last year.
We are essentially a year ahead of plan.
As Chip mentioned, we are very pleased with our second quarter and first-half results.
Each of our operating segments performed above our expectations, leading to record results despite a challenging operating environment.
There are some continuing challenges from the pandemic that will have effect on our business in the short term, including supply chain constraints, increased freight costs, staffing challenges, and inflationary pressures.
However, we believe that current demand levels, along with actions we can take, will mitigate the impact of these factors, and we expect to have strong financial results for the year and the foreseeable future.
We are energized by the opportunities ahead of us, and we believe we are well situated to handle the prolonged pandemic.
More specifically, each of our operating segments support an outdoor, active and healthy way of life that is compatible with the world of social distancing, and we have a strong liquidity position.
As of June 30, 2021, our available liquidity, which is comprised of cash on hand and availability under our credit facilities, was $877 million, compared to $483 million at June 30, 2020.
In evaluating our results for the second quarter and first half, you should keep in mind the following: First, our non-GAAP results exclude non-cash amortization expense of intangible assets acquired in acquisitions, including fair value adjustments to Topgolf's leases and debt; noncash depreciation expense from the fair value step-up of Topgolf assets; transaction and transition costs from the acquisitions; noncash amortization of the debt discount on the notes issued during the second quarter of 2020; the $174 million pre-tax non-cash impairment charge in the second quarter of 2020 related to the Jack Wolfskin goodwill and trade name; a $253 million non-cash gain related to the write-up of our premerger Topgolf investment; a $33 million benefit in the second quarter of 2021 from the reversal of a portion of the noncash valuation allowance related to certain of our deferred tax assets and certain other nonrecurring items.
We have provided in the tables to this release a reconciliation detailing the impact of these items on second quarter and first-half GAAP results.
Second, this is a reminder that our first-half financial results include Topgolf for four months only as the merger was completed on March 8, 2021.
With those factors in mind, I will now discuss our financial results.
Looking at Slides 10 and 11.
Following record revenues in the first quarter, our revenues continued to be very strong in the second quarter of 2021, setting another record for the company.
The second-quarter 2021 revenues benefited from incremental revenue from the Topgolf merger, and second-quarter 2020 revenues were significantly impacted as much of the company's business in golf retail will shut down then due to the pandemic.
During the second quarter of 2021, sales in all product segments and in all major regions increased compared to both 2020 and 2019.
With that said, consolidated second quarter 2020 revenues were $914 million, compared to $297 million for the same period in 2020, an increase of $617 million or 208%.
This increase was led by a 98% increase in the golf equipment and soft goods businesses as well as an incremental $325 million from the Topgolf business.
Changes in foreign currency rates had an $18 million favorable impact on second-quarter 2021 revenues.
Consolidated second-quarter 2020 revenues also increased $467 million or 105% compared to the same period in 2019, including a 37% increase in golf equipment and 21% increase in our soft goods business.
As a result, consolidated revenue for the first half of 2021 increased $826 million or 112% compared to 2020 and increased $602 million or 63% compared to the same period in 2019.
Total cost and expenses were $806 million in the second quarter of 2021, compared to $474 million in the second quarter of 2020.
On a non-GAAP basis, which excludes, among other things, the $174 million non-cash impairment charge in the second quarter of 2020, our total costs and expenses increased $503 million to $796 million for the second quarter of 2021, compared to $293 million in the second quarter of 2020.
Topgolf added $301 million of total costs and expenses.
The remainder includes increased variable expense, the restoration of some expenses that were reduced during the pandemic in 2020, planned investment in the business, increased corporate costs to support a larger organization, and increased freight and inflationary pressures, including labor and commodity prices.
To date, the overperformance of the company's business has generally allowed us to outpace the cost increases.
We are also reporting for the second quarter of 2021 operating income of $107 million, an increase of $285 million, compared to a loss of $177 million for the same period in 2020.
On a non-GAAP basis, which excludes the impairment charge in 2020, operating income for the second quarter of 2021 was $118 million, a $114 million increase, compared to $4 million for the same period in 2020.
The increase in second-quarter non-GAAP operating income was led by a $96 million increase in segment operating income from our golf equipment and soft goods businesses as well as an incremental $24 million from the Topgolf business.
Non-GAAP operating income for the first half of 2021 increased $167 million to $215 million, compared to $47 million for the first half of 2020.
Other expense was $31 million in the second quarter of 2021, compared to other income of $2 million in the same period of the prior year.
On a non-GAAP basis, other expense was $27 million in the second quarter of 2021, compared to other income of $3 million for the comparable period in 2020.
The $30 million decrease was primarily related to $14 million of higher interest expense related to the Topgolf business in the second quarter of 2021 and an $11 million gain from the settlement of a cross-currency swap arrangement in the second quarter of 2020.
Non-GAAP other expense for the first half of 2021, which excludes, among other things, the $253 million non-cash gain related to the write-up of the company's premerger investment in Topgolf, was $33 million of expense, compared to $1 million of income in the first half of 2020.
Earnings per share was $0.47 on approximately 194 million shares in the second quarter of 2021, compared to a loss per share of $1.78 on approximately 94 million shares in the second quarter of 2020.
Non-GAAP earnings per share was $0.36 in the second quarter of 2021, compared to earnings per share of $0.06 for the second quarter of 2020.
Non-GAAP fully diluted shares were 194 million in the second quarter of 2021, compared to 95 million shares for the same period in 2020.
The share increase is primarily related to the issuance of additional shares in connection with the Topgolf merger.
Full-year estimated diluted shares is approximately 178 million shares, which includes the weighted average shares issued in connection with the merger over approximately a 10-month period.
As of June 2021, we had approximately 186 million shares that were issued and outstanding.
Adjusted EBITDA was $164 million in the second quarter of 2021 compared to $29 million in the second quarter of 2020 and $66 million in the second quarter of 2019.
Topgolf contributed adjusted EBITDA of $57 million.
For the first half of 2021, adjusted EBITDA was $292 million compared to $89 million in the first half of 2020 and $159 million in the first half of 2019.
Topgolf contributed adjusted EBITDA of $17 million for the four months.
Turning now to Slide 12.
I will now cover certain key balance sheet and other items.
As of June 30, 2021, available liquidity, which represents availability under our credit facilities, plus cash on hand, was $877 million compared to $483 million at the end of the second quarter of 2020.
This additional liquidity reflects overperformance in all of our business segments and improved liquidity from working capital.
At June 30, 2021, we had total net debt of $1.1 billion, including $652 million of Topgolf-related net debt.
The Topgolf debt includes demand -- I mean, deemed landlord financing of $263 million related to financing of its venue businesses.
Our leverage ratios have improved significantly period over period, and on a funded debt basis, are now under three times.
Our consolidated net accounts receivable was $325 million, an increase of 52% compared to $214 million at the end of the second quarter of 2020.
The legacy business sales outstanding decreased to 58 days on June 30, 2020, compared to 79 days as of June 30, 2020.
The increase in net accounts receivable is primarily attributable to the increase in second-quarter revenue but also includes an incremental $9 million of Topgolf accounts receivable.
We continue to remain very comfortable with the overall quality of our accounts receivable at this time.
Also displayed on Slide 12, our inventory balance decreased by 12% to $335 million at the end of the second quarter of 2021 compared to $379 million at the end of the second quarter of the prior year.
This $44 million decrease was due to the high demand we were experiencing in the golf equipment business and better-than-expected performance in our soft goods business.
Topgolf added approximately $14 million of inventory this quarter.
Capital expenditures for the first six months of 2021 were $96 million, net of expected REIT reimbursements.
This includes $66 million related to Topgolf.
From the full-year 2021 forecast perspective, the golf equipment and soft goods business forecast is $65 million, consistent with our previous forecast.
The 2021 full-year forecast for Callaway and Topgolf is approximately $243 million, net of reimbursements, primarily related to the new venue openings.
The foregoing does not include approximately $33 million in capital expenditures for Topgolf in January and February premerger.
Depreciation and amortization expense was $43 million in the second quarter of 2021.
Non-GAAP depreciation and amortization expense was $36 million in the second quarter of 2021, compared to $8 million in 2020.
This includes $27 million of non-GAAP depreciation and amortization related to Topgolf.
For the full year in 2021, we expect non-GAAP depreciation and amortization expense to be approximately $133 million, which includes $95 million for the Topgolf business.
The foregoing does not include approximately $18 million of Topgolf non-GAAP depreciation and amortization for January and February in the aggregate.
I am now on Slide 13.
As Chip mentioned, we are providing revenue and adjusted EBITDA guidance for the full year and third quarter of 2021.
Please note this guidance only includes the post-merger Topgolf results for 10 months of 2021.
For the full year, we expect revenue to range from $3.025 billion and $3.055 billion.
That compares to $1.590 billion in 2020 and $1.701 billion in 2019.
The company's full-year 2021 net sales estimate assumes continued positive demand fundamentals for our golf equipment and soft goods segment; no further business, supply chain, and retail shutdowns due to COVID; and the Topgolf's 10 months of segment sales approach 2019 full year levels of $1.06 billion.
The outlook also assumes $55 million of supply chain risk due to the current Southeast Asia COVID shutdowns, almost all of which is expected to occur in the third-quarter 2021.
From a cost perspective, full-year 2021 non-GAAP operating expenses for our golf equipment and soft goods businesses are estimated to be approximately $100 million higher than full-year 2019 non-GAAP operating expenses.
This is $20 million to $30 million higher than we previously guided at the beginning of the year, and the increase is related primarily to variable costs associated with the strong performance of the business this year, accelerated investments in the TravisMathew brand to support its faster-than-expected growth and additional corporate infrastructure costs to support a larger organization.
Investors should also note that approximately 85% of the incremental $100 million in expense is expected to be incurred in the second half of 2021 due in part to the Callaway apparel business in Korea that we took over from our licensee in July and a more normalized level of spend in the second half of 2021 to support all of our businesses.
In addition, we are expecting continued cost pressure from increased freight costs and inflationary pressures, including labor and commodity pricing, at least through the first half of 2022.
To date, positive volume variances have outpaced the majority of these increased costs, but they will continue to have some impact.
Full-year adjusted EBITDA is projected to be between $345 million and $360 million.
The company's full-year 2021 adjusted EBITDA estimate assumes the Topgolf segment will deliver over $100 million in adjusted EBITDA for the 10 months beginning March 8, 2021.
This estimate assumes a previously mentioned supply chain revenue risk and continued elevated freight and other cost pressures, which are expected to have an overall greater impact than we originally anticipated for the balance of the year.
From a third-quarter perspective, we expect revenue to range from $775 million to $790 million versus 2020 revenue of $476 million and 2019 revenue of $426 million.
We expect adjusted EBITDA for the third-quarter 2021 to be between $51 million to $58 million versus 2020 of $87 million and 2019 of $57 million.
This projected revenue growth represents the addition of Topgolf revenue as well as growth in the soft goods segment.
Because of the previously mentioned supply constraints in the extraordinary second half the golf equipment business had in the second half of 2020, as interest in golf surge following the relaxation of COVID restrictions, we are forecasting third-quarter revenue for the golf equipment segment to be below 2020 levels but above 2019.
While not optimal, the third quarter supply constraints are not currently forecasted to affect the fourth quarter of 2021 or even 2022 to any significant degree.
In closing, I would like to emphasize a couple of points.
I know we have spent some time today discussing the short-term headwinds from COVID, particularly on the forecasted supply chain constraints in the third quarter.
Although annoying, the short-term disruption will not have a long-term impact on our value or strategy.
Investors should not lose sight of the fact we are having a tremendous year.
And yes, without those headwinds, we would be having an even better year, but this is still a great year.
We're hitting our financial goals essentially a year ahead of what we had planned despite a challenging operating environment.
Each of our segments are performing well.
The Topgolf merger has been wildly successful, and we feel well-positioned for the future, both in a COVID operating environment and after.
We also remain very excited about the opportunities and growth prospects ahead of us.
Operator, over to you.
 Assistant:

Chosen response:
q2 2021 consolidated net revenue increased $617 million (+208%) to $914 million.
qtrly earnings per share $0.47.
qtrly adjusted earnings per share $0.36.
sees q3 net revenue $775 million - $790 million.


Prompt:
Human: Before we begin, I'll cover two items.
Actual events or results could differ materially.
Reconciliations to the most directly comparable GAAP financial measures and other associated disclosures, including a description of the excluded and adjusted items, are available in the first quarter 2021 financial results news release, which is available on our website.
We're off with an excellent start to 2021, and I'm proud of the many accomplishments we've achieved in just a few short months.
We've been building momentum, and the strong operational execution of our teams is paying off as the global economy improves.
There are several highlights I want to cover.
First, strong demand from the end of 2020 continued through the first quarter.
In many markets, demand is returning to or exceeding 2019 levels.
We reported 20% higher adjusted earnings per share over '19 and 5% over a very strong first quarter last year before we felt the full impact of the COVID-19 pandemic.
Consistent with our track record of strong free cash flow, we also delivered record free cash flow of $125 million in the first quarter, which was up substantially from a very strong performance a year ago.
We achieved these solid results despite operational logistical headwinds from winter storm Uri.
I'm incredibly proud of our team in Texas who took proactive steps ahead of the storm to avoid a hard shutdown to any of our assets.
Then they worked tirelessly to repair and restart our facilities, which helped ensure supply for our customers.
We had half of our Texas manufacturing facility operational within one week of the storm, and we were more than 95% operational within three weeks.
Moving to other highlights, we've made significant progress with our circular economy efforts, which I'll talk more about in a moment.
And our progress hasn't gone unnoticed with Barron's adding Eastman to its list of the 100 Most Sustainable Companies for 2021, a true honor for us.
And we issued our inclusion and diversity report, which you can find on our website.
At Eastman, we take our environmental, social and governance commitment seriously, and transparency is of the utmost importance.
We also continue to allocate our capital with returns to stockholders in mind.
To that end, we recently completed a small bolt-on acquisition of 3F Feed & Food, a leading animal health and nutrition company with accelerated growth in the animal nutrition business.
And finally, we think the favorable trends in the economy, coupled with our innovation investments and continued disciplined cost management sets us up for strong earnings per share and free cash flow growth this year and next.
On our January call, we gave you an update on the progress we're making to become a leader in the circular economy.
We announced that we're building one of the world's largest plastic-to-plastic molecular recycling facilities at our site in Kingsport, Tennessee.
Since then, we've broken ground on the facility and continue to target mechanical completion by the end of '22.
Even more impressive is the amount of momentum we're building with customers in many different markets around the world.
The demand for our new branded products include Eastman Tritan Renew, Eastman Cristal Renew, is strong.
At this point, demand for our specialty products and the circular economy offerings has been better than we anticipated.
And specific to the new facility we announced, we're ahead of schedule in terms of customer demand for the capacity.
We have a robust pipeline for additional announcements throughout the year and look forward to sharing those with you.
Turning to our outlook.
As we entered the second quarter with strong demand and mix momentum, we also expect to benefit from cost discipline, including lower operating costs from our operational transformation program.
However, there are specific headwinds we face, including maintenance turnaround, supplier reliability and some slowdown in auto production.
In addition, we have price increases that are continuing to catch up to higher raw material, energy and distribution costs in some products.
Despite these headwinds, we expect a sequential increase in EPS, with second quarter adjusted earnings per share expected to be at or above second quarter of 2018 adjusted earnings per share of $2.22.
Moving the full year, we expect strong market growth and product mix improvement to continue.
Our innovation-driven growth model will enable us to grow faster than the underlying market recovery, and we expect a number of markets will be rebuilding inventory.
We also expect much of the capacity constraints, supplier reliability and logistics headwinds to lessen alongside a potential moderation in tight commodity markets.
We expect to continue to benefit from about $100 million of full year tailwind for improved capacity utilization compared to last year when we aggressively managed inventory well below the decline in demand with our focus on cash.
And we're on track to keep our cost structure flat compared with 2020 and well below 2019 and '18 levels.
We, therefore, expect adjusted earnings per share will be about -- be between $8.25 and $8.75 for the full year of '21.
On cash, we expect free cash flow to approach $1.1 billion, which is consistent with our expectations for stronger adjusted EBITDA.
We expect 2021 will be our fifth consecutive year of free cash flow greater than $1 billion, and we will work to grow free cash flow from here.
Putting it all together.
These outstanding results remind me about what gives Eastman this incredible resiliency and strategic advantage.
First and foremost, it's the people at Eastman who continue to persevere and help us win as we saw in Uri and a time of crisis, and this is what we see every day from this good team.
And as I reflect on how we position our company through the global trade disruptions of 2019 and then COVID in '20, I feel confident in our ability to grow earnings per share and cash off this new level of earnings.
Despite a challenging macroeconomic backdrop over the last several years, we have not sacrificed our efforts to innovate and invest in our specialty portfolio and expect those investments to continue to pay off as we finish off '21 and move into '22.
In the meantime, we'll continue to focus on what we can control and remain committed to long-term attractive earnings growth and sustainable value creation for our owners and all our stakeholders.
 Assistant:

Chosen response:
now expect 2021 adjusted earnings per share to be between $8.25 and $8.75.
expect 2021 free cash flow to approach $1.1 billion.


Prompt:
Human: Today, I am joined by President and Chief Executive Officer, Lal Karsanbhai; Chief Financial Officer, Frank Dellaquila; and Chief Operating Officer, Ram Krishnan.
Colleen joins us from the Automation Solutions finance organization and will be your main point of contact going forward as I transition to a new role in the operating business units.
I certainly wish you health and success.
Please join me on slide two.
I certainly have big shoes to fill.
As Pete mentioned, I'm coming into this role from our Automation Solutions finance organization, and I've been with Emerson for over 13 years.
I'm certainly excited and humbled to be joining the Investor Relations team during this dynamic time for our organization.
I look forward to speaking with all our investors and partners very soon.
Now I would like to take a moment to highlight two areas of real ESG impact within Emerson.
First, on slide three, in keeping with environmental sustainability framework of greening of, by and with Emerson that we introduced in February, our first topic is about greening by Emerson.
It is a great example of how Emerson solutions are relevant in enabling our customers' sustainability initiatives.
Emerson recently signed a multiyear agreement with PureCycle Technologies, which has a novel technology and process for fully recycling plastic number five polypropylene back to a clear pellet.
As some of you may know, polypropylene is a common form of plastic that has not had great recycling options.
Emerson is serving as their born digital automation partner going forward with initial plant projects in Ohio, Georgia and a remote operation center in Florida.
Now please join me on slide number four.
Our second topic is the greening with Emerson example.
Leveraging our Helix Innovation Center in Dayton, Ohio, Emerson has collaborated with the Department of Energy and their Oak Ridge National Laboratory to advance next-generation HVACR technology.
Expanding the applicability of heat pump technologies, redesigning refrigeration architectures to maximize efficiency in food retail and working to minimize energy use and leaks in commercial HVAC applications are just a few of the exciting areas of cooperation.
We have a number of collaborations with the Department of Energy and their labs.
We look forward to continuing to build these relationships and support the development of novel solutions and real sustainability road maps going forward.
God speed and have a good luck in your new opportunity.
Great to have you here.
Colleen and I had the opportunity to spend couple of years together in Automation Solutions, and we're very blessed to have her join our Investor Relations team.
And we have a lot of energy and momentum behind us, which was very exciting to see as we executed through the last three months.
I had the opportunity over the last six months to meet many of you, and I look forward to meeting more of you as I go through the next part of the year.
But I appreciate your continued confidence, your challenges and of course, your investment.
A few things just that are not financially related that I want to mention to the team here.
First of all, our cultural work is well underway.
We will be announcing our new Chief People Officer later this month.
We're all very excited about the selection process.
It will be an outside hire and somebody who fundamentally will have the opportunity to come in here and really help us as we navigate some of the challenges and create many of the pathways that we have as we evolve the culture of Emerson into the future.
Secondly, our portfolio work is complete.
We have -- we are now getting ready to review it with the Board, which will occur at the October Board meeting.
We discussed briefly with the Board yesterday.
And essentially, what we have defined is multiple paths for our business to drive higher underlying sales growth and diversification of the portfolio.
We're all very excited about the process that we underwent.
It was very exhaustive, and we have turned over a lot of different stones, defining broad markets with high growth and lots of optionality in terms of M&A and organic activity.
I'll mention on the M&A side that industrial software continues to be critical as we think about share of wallet, as we think about the potential for underlying growth acceleration and our many pathways there.
Our SI acquisition is performing incredibly well and ahead of our internal synergy board plans.
So that's been very, very well done.
But what stands out to me most above all is the execution by the team.
Yes, there were market tailwinds, and we'll talk about those, particularly as they accelerated in Automation Solutions and continued across our Commercial & Residential businesses and they are relevant, but the execution was absolutely phenomenal.
There were a lot of hurdles to overcome through the quarter, material inflation, material availability.
We did a lot of expediting.
We had to get very creative in qualifying suppliers, logistics and management of cargo around the world and of course, labor availability in the United States.
But the team just did a great job.
And we're seeing, despite these operational headwinds, the value of that work being reflected in the incrementals of the company.
The operating leverage -- profit leverage at 34% was very strong and now most importantly, has given us the room to accelerate investment in differentiating technologies and further -- that will further, I think, drive relevance -- increased relevance at our customer base.
So very exciting headroom that's created, and we started those investments.
And I'll share a number of those with you, and we'll talk about that more as we go through the year.
We're especially pleased with the results in the quarter, especially in light of the operations challenges that Lal just described and Ram will talk about a little later in the call.
If you please go to slide six.
So a continued recovery in our end markets, combined with the benefits of the cost reset actions, and it drove strong operating performance and financial results in the third quarter.
Adjusted earnings per share was $1.09, up 36% from the prior year.
Demand continues to strengthen with sales coming in ahead of our expectations with underlying growth of 15%, and June trailing 3-month orders were at 26%.
Automation Solutions notably turned positive this quarter in both sales and orders, up 9% in sales and 17% on an underlying basis.
Commercial & Residential Solutions continues to experience robust demand across the business and geographies with 29% sales growth and 43% orders growth on an underlying basis.
The cost reset benefits continued to be realized as planned reading through to the margins.
And along with the additional volume and leverage, they drove adjusted segment EBIT growth of 40%, 280 basis points of increased margin to 19.6%.
Cash flow continues to be very strong with operating and free cash flow up approximately 30% year-over-year and free cash flow conversion exceeding 150% of net earnings.
We're continuing to implement the remaining elements of the cost reset program.
In this quarter, we initiated $32 million of restructuring actions.
The program is on schedule and delivering the projected savings as we've planned.
This is a bridge of the earnings per share increase from the prior year.
The operational performance was very strong.
So the noteworthy thing on this chart is the green bar.
Operations added 33% to adjusted EPS, and it was balanced between the platforms.
They both delivered strong profit leverage on the strength of volume increases and cost reduction benefits, as Lal mentioned.
Leverage was 34% across the enterprise.
Tax, currency, pension, stock comp netted to a $0.05 headwind, and there was a minor favorable impact from share repurchase.
Again, in total, adjusted earnings per share was $1.09, up 36%.
Please go to the next chart, Chart number eight.
So as I mentioned, underlying sales is up 15%.
Gross profit increased 90 basis points to 42.4%, driven mainly by the benefits of the cost reduction actions and then the leverage on the volume across the enterprise.
We did offset the impact of price/cost headwinds, which we are beginning to see intensify and which we will see in the next couple of quarters and we will talk about a little later in the call.
Adjusted EBIT margin was 18.4%, up 310 basis points.
Effective tax rate was 19.2% versus 11% in the prior year.
Last year, we had several favorable discrete items, mostly around R&D credits that we described at the time.
This was a $0.10 headwind year-over-year that we overcame.
Adjusted EPS, as mentioned, was $1.09 versus $0.80 last year.
If you go to slide nine, please, we'll talk about earnings and cash flow.
Adjusted segment EBIT again increased 40%, margin up 280 basis points.
The leverage on volume and cost reset benefits offset material cost headwinds in the Climate Technologies business.
Adjusted pre-tax earnings increased 350 basis points to 17.6%.
Operating cash flow was very strong, up 31% at $1.1 billion.
Free cash flow was $977 million, also up a little over 30%, driven by strong earnings growth and effective working capital management.
Lastly, the trade working capital ratio improved to 15.4% of sales.
Turning to slide 10, we'll look at Automation Solutions.
Underlying sales turned positive this quarter at 8%.
Trailing 3-month orders accelerated to 17%.
The improvement in the Americas is particularly encouraging and notable with continued momentum in life sciences, food and beverage and medical markets and a return to growth more broadly across the traditional process automation markets and sustainability-related business.
We're seeing increasing KOB three activity across our process automation customer base mainly driven by shutdown turnaround and outage activity and opex spend.
MRO spend is returning to pre-pandemic levels from pent-up demand and delayed STOs.
capex spending is recovering at a slower rate with tailwinds from site-based emissions and optimization projects.
The platform continues to implement the comprehensive restructuring actions that have been ongoing, and the benefits are flowing through to the financial results.
Adjusted EBIT margin increased 320 basis points and 310 basis points at adjusted EBITDA, driven mainly by the flow-through of the cost reset savings and by the volume leverage.
The integration of OSI continues to go very well.
We're very pleased with the acquisition and the results to date, and we have increasing confidence in the synergy plan that we have.
Backlog increased to $5.5 billion.
It is up 17% year-to-date.
We'll talk a bit about the project funnel and other opportunities later in the call.
Turning to slide 11, we'll review Commercial & Residential Solutions.
Sales were up on an underlying basis 29% versus the prior year.
Orders continue to be strong and very broad-based in their strength.
The June trailing 3-month underlying orders were up 43%, and it was very balanced across both Climate Technologies and Tools & Home products.
All our businesses and geographies showed strong double-digit growth.
Residential markets continue to be strong and growth has accelerated in Cold Chain and Professional Tools.
The Americas were up 29% with continued strength across all end markets.
Europe was up 37%, driven by continued heat pump demand and increasing sales of professional tools.
Asia, Middle East and Africa was up 25%, driven by Cold Chain and various heating technologies.
Margins improved by 170 basis points of adjusted EBIT and 120 basis points of adjusted EBITDA driven by the strong volume leverage and the cost reset savings, which more than offset the price/cost headwinds that we are seeing in the business.
I'm going to pass this over to Ram, and he's going to talk a bit about operations, what we've done in the quarter to deliver the results and some of the challenges that we face.
Clearly, as you can see, our operating environment remains very challenging as commodity inflation, electronic supply and labor availability continues to impact our global operations.
Steel prices are at record highs with 11 months of consecutive increases and in our estimation, have not peaked yet.
Plastic resin prices remain elevated as our global teams have maneuvered expeditiously defined alternatives to maintain supply.
And while copper pricing has receded off record highs, it is still up over $1.40 a pound year-over-year.
Our hedge positions lessened the impact to 2021, but the inflation impact in terms of copper will carry over into most of 2022.
Electronics shortages are proliferating in most of our businesses, impacting both platforms, and supply is expected to remain constrained well into 2022.
Very little component inventory on microprocessors, controllers, linear integrated circuits are available in the open market, and the number of shortages faced by our EMS suppliers is growing, severely impacting lead times.
And finally, labor availability continues to be an issue across many industries in the U.S., and our businesses are impacted as well.
Our V-shaped demand recovery in many of our Commercial & Residential Solutions businesses, local competition driven by tight labor markets in many cities and rolling labor constraints as waves of COVID disruptions impact our sites has added a new level of complexity to our operational plans.
It is important to note that price/cost remains at an unfavorable $75 million as we estimated last quarter.
No change, but we expect the maximum impact of the commodity inflation to be felt in the next two quarters.
Now despite these challenges, turning to slide 13, I'd like to highlight some of the outstanding work by our global supply chain and operations teams to combat these challenges and help deliver phenomenal operational results to date as they remain flexible, creative and nimble in a dynamic environment to serve the needs of our customers.
Our supply chain teams have worked tirelessly in this environment to ensure continuity of material supply to our global plants.
As you can see on the chart, many creative solutions are being implemented on a real-time basis quickly and effectively.
Our regional footprint, both on the manufacturing side as well as supply chain that we spent many years developing, has certainly been an advantage for us in these challenging times.
Many of our global plants are producing at record levels while ramping up capacity to meet surge demand and in many cases, in-sourcing critical elements of the supply chain to address sudden disruptions.
Let's turn now to slide 15.
We are improving our sales outlook for the year based on the continued strength in our orders, the pace of business and the year-to-date profit performance.
We now expect underlying sales growth to be near the top of our May guidance of approximately 5% to 6%, Commercial Residential above their range in May at 15% to 16% and Automation Solutions closer to the top of that range at 0% to 1%.
The strong volume and improved cost base will flow through to margins.
Our estimates are now 50 basis points above the previous guidance, increasing adjusted EBIT margin and adjusted EBITDA by 0.5% to approximately 18% and 23%, respectively.
There's no change to the restructuring, tax rate, capital spend or dividend.
Strong profitability and working capital performance enabled an increase in our operating cash flow and free cash flow estimates, both of which increased by $300 million.
We are also raising our adjusted earnings per share guidance to $4.07, plus or minus $0.01.
Our price/cost headwind for 2021 currently remains as estimated in Q2 and Ram covered at $75 million despite the current challenges that were highlighted.
We continue to manage this through containment, selective price actions, but the recent market developments that Ram described will be challenged through the next two quarters as we navigate them.
Stock compensation impact increases to $125 million.
So now we'll go over to Chart 16, and I'll just frame the order environment that we've experienced through the last three months.
Emerson's trailing 3-month orders continue to be very strong and have momentum from the last update we gave you in the second quarter, with Commercial & Residential Solutions continuing to climb higher in their order run rates and Automation Solutions turned sharply positive to the high teens in June.
Commercial & Residential Solutions continues to see strength in Residential, Cold Chain and the Professional Tools business, and all three very near to that average band of 43%.
Discrete and hybrid end markets in Automation Solutions continue to be very strong, while we see recovery in later cycle process automation markets, especially in North America.
KOB three and KOB two are driving most of the recovery, but we are beginning to see some KOB one activity materialize, particularly in chemicals, power and biofuels.
The Americas really strengthened, up 29% as deferred maintenance demand and site access drove momentum.
Finally, as we have commented in the past quarters, life sciences momentum continues to be extremely strong.
Let's now turn to Chart 17, and I'll review the underlying sales growth outlook.
Q3 underlying sales were up 15% versus prior year, exceeding our management expectations, driven by the strength in Commercial & Residential Solutions as well as the North America recovery just discussed.
Full year expectations on underlying sales are between 5% and 6%, at the top end of our prior guidance of 3% to 6% and sales of approximately $18.4 billion.
The fourth quarter is expected to land in the high single digits to low double-digit range.
For the remainder of the year, we expect to see the North America business continue to recover in Automation Solutions as well as continued broad strength in commercial residential solutions.
However, the impact of supply chain and labor issues will be a challenge.
As Frank mentioned, for the full year, we are expecting Automation Solutions sales to be flat to 1% and Commercial & Residential Solutions to be between 15% and 16%, driving us to our overall 5% to 6% underlying sales expectations.
So starting off in the Americas.
Quarter four is expected to be strong in Automation Solutions at approximately 20% growth, broad-based recovery across all industries, led by continued strength in discrete and increasing strength in hybrid.
Process is showing some recovery, although uneven with some strength from returning domestic oil demand, offset by reduced midstream investment and continued fiscal restraint in upstream.
For KOB 3, we expect to see continued spend for deferred maintenance and increasing spend for site access that has been pent-up from the pandemic with an expectation that we will see a strong fall shutdown turnaround season.
In Latin America, strength in mining industries particularly are expected to continue.
On the Commercial & Residential side of the business, ongoing momentum in the residential markets, driven by do-it-yourself trends, home starts and HVAC seasonality as well as strength in Professional Tools and Cold Chain are expected to continue.
Europe will continue to see demand in life sciences and biofuels on the automation side.
Project wins in power, midstream, downstream and sustainability will drive low to mid-single-digit growth in Q4.
Commercial & Residential will see robust demand for heat pumps and professional tools as well as the continuation of the refrigeration market recovery in Q4.
Turning to Asia, Middle East and Africa.
Our Asia automation business is seeing healthy project activity in marine, nuclear, life sciences and semiconductors and a positive trend for site-level spending in the Middle East.
On the Commercial & Residential side, we are seeing the commercial recovery across the region, specifically with commercial AC and cold chain solutions.
Ongoing COVID restrictions continue to be a challenge across the organization, particularly in this part of the world.
Let's now turn to Chart 19, and we'll review the business funnel for Automation Solutions.
So back in February, we commented that our traditional large project funnel was $6.4 billion, and this should be something that is very familiar to those of you who watch this carefully.
Since February, we have booked approximately $80 million of projects, some LNG and one most notably in Mexico.
New projects added include clean fuels, hydrogen, renewable diesels, lithium mining and LNG projects, while projects removed from the funnel since February were mostly oil and gas and downstream refining projects.
The August 2021 funnel is now valued at $6.3 billion in approximately 180 projects.
And below in the donut pies, you can see the industry mix of our traditional funnel.
We have identified new decarbonization opportunities.
And though generally smaller than our traditional definition of projects for our funnel classifications, these projects are increasingly relevant to our business.
They're being added into this view because they have the potential to grow in nature over time.
Today, as depicted on the chart, these opportunities are worth $400 million in approximately 120 projects.
The combination of our traditional project funnel and the new sustainability funnel is now valued at $6.7 billion.
And below is the combined industry mix where we are working to diversify our funnel.
On the right side of the chart, we are introducing the business opportunities with our recent OSI acquisition, which gave us an important foothold into the transmission and distribution automation space.
These opportunities have slightly different characteristics from our traditional project funnel definition, and therefore, we are keeping it separate for our discussion purposes today.
Generally, these opportunities are smaller and more numerous compared to our large traditional project funnel, but they are clearly strategically important.
The value of these opportunities is $1.5 billion and are made up of 530 projects.
To give you some perspective on the scale and how differentiated it is, approximately 15% of that $1.5 billion has a value of greater than $5 million, and 50% of it is between $1 million and $5 million.
The funnel is global, although approximately $1 billion of it is in North America and Europe.
Overall, we have strong opportunities ahead, and I'm bullish on overall project outlook as we diversify and expand into new spaces.
Now let's turn to Chart 20.
This is a very important chart.
And as Frank mentioned in our financial results showcase, our robust cost reset plan is being incredibly well executed across the enterprise.
As a reminder, this comprehensive plan began in late 2019 and will be fully realized by 2023.
It involves over $600 million in spend and approximately $650 million in savings.
In February, we also introduced our midrange targets of 24% adjusted EBITDA margins and $4.75 to $5 in adjusted EPS.
We are very much on track to reach those targets by 2023.
Importantly, however, the recent outperformance and momentum through the end of 2021 is creating some headroom for critical investments.
And I'm particularly excited about this, particularly as I think about key technologies that will enable our business to outperform over the long term.
As you can see, revenues, margins and cash flow are all better than February expectations and are enabling this acceleration in technology investments.
I've outlined four examples below and will come out over the next months and in depth in February as to how we're managing and thinking about these very significant investments.
Examples outlined are the Copeland K7 scroll, which is the largest new product investment in the history of our air conditioning business.
This thing drives obviously increased performance and meets the 2023 efficiency regulations and is optimized for 2025 refrigerants.
The Greenlee remote cutters, an award-winning tool on the right-hand side of the chart, which enhances safety for cutting underground cables.
The Gemini, which is our next-generation pressure and temperature device being developed in our Measurement Solutions business, which will have next-generation electronics, unmatched safety and process insight.
And lastly, our Plantweb Optics, our integrated operational performance platform, which unifies data, people and systems to drive operational performance.
 Assistant:

Chosen response:
compname reports q3 adjusted earnings per share of $1.09.
q3 adjusted earnings per share $1.09.
qtrly net sales were $4.7 billion up 20 percent from year prior.
sees 2021 net sales growth 9% - 10%.
sees 2021 gaap earnings per share $3.79 +/- $0.01.
sees 2021 adjusted earnings per share $4.07.
expect overall continued improvement in industrial and commercial demand over remainder of 2021.
expect operational, supply chain, and materials inflation environment to remain challenging through remainder of fiscal year.


Prompt:
Human: In addition, we will also be presenting certain non-GAAP financial measures.
Consistent with our last call, we generated strong results during the period due to rapidly growing demand for our products and services.
We reported fourth quarter fiscal 2021 adjusted earnings of $1.30 per diluted share, a 17% increase over the fourth quarter of last year.
Our Motive Power business saw another quarter of solid revenue and earnings improvement and our Specialty segment continued its positive momentum, bolstered by strong demand for our transportation products.
Energy Systems benefited from telecom driven 5G growth in the Americas, delivering solid revenue, but following short on earnings, which I will soon address.
Cash flow was again strong this quarter, producing a record year and leaving us on very solid financial footing.
Although the world has begun returning to some sense of normalcy, we continue to confront ongoing headwinds created by the COVID-19 pandemic.
We have seen continued availability constraints in recruiting new employees and select raw material shortages, particularly in resins and electronic components.
Prices have been sticky, but always lag rapid cost increases.
Our team is responding to the near-term shortages and hiring challenges and expect steady improvement as the supply chain settles down and the rest of the world accelerate.
I'd now like to provide a little bit more color on some of our key markets.
Let's start with our largest segment, Energy Systems, which faced several input cost pressures during the period, including higher tariffs, increased commodity prices, and expedited freight costs.
In addition, our customers continue to struggle with chip and labor shortages that have slowed their build rates, but we expect improvements from these broad upstream and downstream supply chain issues in the back half of the calendar year.
EnerSys is participating in the mid-spectrum wireless U.S. build-out with batteries and outdoor DC power systems.
While we remain -- while we maintain our strong market position, we believe our results will further accelerate when customers rotate to higher spectrum small cell 5G build-outs and can benefit from our next-generation line powering products.
We are also very excited about U.S. broadband MSOs building out portions of their own wireless networks with their own HFC networks.
Today, these MSOs primarily wholesale lease and voice data minute from other network wireless providers.
We have a full suite of DOCSIS 3.1 gateway products that help the MSOs deploy their wireless networks much faster at a lower total cost.
Recently enacted extended MSO backup power requirements in California for public safety grid shutdown resilience provide an excellent near-term opportunity for EnerSys as well.
If all sites currently identified are deployed, the opportunity is well in excess of $50 million.
In addition to telecom, we are seeing favorable industrial-utility trends as infrastructure improvements, reliability and resiliency are expected to provide another growth driver for Energy Systems.
Renewable markets continue to expand with the legislative and regulatory push for energy storage applications for residential solar plus storage, monetization of distributed energy resources and numerous global climate initiatives aimed at vehicle electrification and renewable generation.
We will capitalize more in this area as our next generation renewable inverters and batteries are released.
We have also made substantial progress on our own battery energy storage system plus DC fast-charging initiative for electric vehicles, which I will speak more about shortly.
Data center markets are also improving as areas lift more COVID-related site access restrictions.
All in all, global mega trends continue to be favorable to Energy Systems growth.
Our Motive Power business performed very well in the quarter.
We are now the only battery producer to offer both lithium and TPPL in maintenance free, along with our traditional flooded products.
This segment generated strong operating earnings from continued market demand recovery, growing maintenance fee revenues and continued opex discipline.
In addition, our Richmond, Kentucky facility has returned to full capacity and efficiency, while our Hagen, Germany, restructuring savings are starting to be realized.
We launched our lithium platform with our four variance this quarter and all of our Motive Power Products passed the internal UO tests.
This month we will be launching two additional variance.
And we continue to collaborate with multiple material handling manufacturers.
While we're only in the early stages of our launch, our customers continue to find this chemistry as best suited for the toughest duty and are actively trialing our offering with excellent results.
The third segment of our business, Specialty, reported another strong quarter despite the ongoing impact of COVID on our capacity ramp.
Our transportation business is performing well as the OEM Class 8 vehicle market recovers.
However, we along with many of our competitors have been dealing with hiring challenges and supply constraints, causing our backlog to remain stubbornly high as demand continues to grow faster than we can supply.
As a result, our focus remains on expanding TPPL production, particularly in our three Missouri factories.
Our Springfield ramp is behind schedule due to COVID, but we added a second shift to the high-speed line and increased oxide and pasting capacity.
High-speed line production doubled in the last three months and continues to improve.
Our Warrensburg facility made a significant improvement from the last two years performance as well.
Lastly, our aerospace and defense team had another great quarter executing on submarine, tactical vehicles and munitions projects.
We won several space contracts with a variety of customers and programs.
I am pleased that we officially kicked off our battery energy storage system plus DC fast charge initiatives during the quarter and we are moving fast.
Early momentum has been driven by two commercial real estate partners and our engineering team has exceeded my expectation by delivering a 285-kilowatt hour prototype, up and running on our tech center, here at corporate in just a few months.
Our launch real estate partner has identified over $1 billion of multi-year revenue opportunity starting early calendar year ''22 if we hit the reasonable cost and performance targets.
Our goal is to deliver EV charger that charges any electric passenger car as fast as the car can handle, often changing hours into minutes.
By using a large storage battery to quickly charge EVs, we can dramatically reduce system installation costs at many sites, including the size of the AC transformer and high voltage cable from the utility interconnect.
The energy system can also reduce operating costs by lowering peak demand from vehicle charging.
In addition to fast-charging EV's, the bidirectional energy system can also help the host site use electricity more cost effectively for its commercial operations and can provide emergency backup power, down power outages.
The system is solar compatible and largely made from existing EnerSys lithium battery modules in charge and technology.
Our goal from the beginning of our lithium program is to use standardized modular products and use these product -- use these building blocks across all of our lines of business.
This drives the economies of scale and accelerate our time to market.
We are lining up software partners for artificial intelligence and cloud services and reviewed preliminary business plan with our Board last week.
We will provide more color on this excited opportunity over the summer.
With fiscal year 2021 behind us, I wanted to lay out what we're seeing in the market and the opportunities ahead of us.
Despite the challenges of the past year, many caused by the global pandemic, we are well positioned for long-term success.
We are on the precipice of a massive 5G build-out that will provide a strong long-term tailwind for our business.
Recent commentary by the largest telecoms and equipment manufacturers has been unanimous.
5G is gearing up and we should begin seeing the accelerated ramp in the second half of calendar year 2021, with the build-out continuing for five years or many more thereafter.
The factors leading to this 5G growth include T-Mobile's acceleration postpaid [Phonetic], universal and competitive 5G deployments for all carriers, including AT&T, which is expected to spend $24 billion a year on its network.
This gives entry into the marketplace with an FCC requirement to deploy 70% of the U.S. population by June 2023.
And finally, government spending or government sponsored rural fiber broadband initiatives being rolled out at the federal and state levels throughout the U.S. There are some potential hurdles that could slow the ramp-up, including the success of the C-band auction completed in February for more than $81 billion, which could limit some carriers financial resources to deploy it.
The second hurdle relates to supply chain shortages discussed by the 5G manufacturers, particularly a lack of semiconductors.
We will keep a close eye on these developments with the U.S. leading Europe, but remain confident we're at the door of a major 5G expansion in the quarters and years ahead.
In addition, the Biden administration has proposed nearly $2 trillion dollar bill, which includes upgrades to traditional infrastructure like U.S. highways and bridges, and we'll also made significant investments in non-traditional areas that should benefit EnerSys directly, such as the electric grid, EV charging and high-speed broadband.
While it is far from a done deal, there is bipartisan support for several areas of the build that we are prepared to act on.
Our strategic initiatives outlined in our Investor Day nearly two years ago are worth repeating.
One, to accelerate higher margin maintenance free Motive Power sales with NexSys iON and NexSys PURE; two, to grow the portfolio of products in our Energy Systems business, particularly in telecom, with fully integrated DC power systems and small cell site powering solutions which will accelerate our growth from 5G; third, to increase TPPL capacity, particularly for transportation market share and our Specialty business and finally, to reduce waste through the continued rollout of the EnerSys Operating System.
In addition, we are now adding our Energy System plus fast-charging to the above initiatives.
We feel it is a core competency from decades of experience charging electric forklifts, and we believe it represents an immense opportunity.
We will work hard executing each of these areas and to deliver a long-term value our customers and shareholders deserve.
With that, I'll now ask Mike to provide further information on our fourth quarter results and go-forward guidance.
I am starting with Slide 10.
Our fourth quarter net sales increased 4% over the prior year to $814 million due to a 4% increase from volume and 2% from currency gains net of the 2% decrease in pricing.
On a line of business basis, our fourth quarter net sales in Energy Systems were up 11% to $349 million and Specialty was up 16% to $132 million, while Motive Power revenues were down 6% to $333 million.
Motive Power suffered an 8% decline in volume along with a 1% decrease in pricing, net of a 3% increase in FX.
The prior year, Motive Power fourth quarter revenues benefited from our recovery of the September 2019 fire in our Richmond, Kentucky facility.
Energy Systems had a 12% increase from volume and a 2% improvement from currency net of a 3% decrease in pricing.
Specialty had 16% in volume improvements along with 2% offsetting impacts from positive currency and lower pricing.
We had no impact from acquisitions in this quarter.
On a geographical basis, our net sales for the Americas were up 4% year-over-year to $557 million, with a 6% more volume and 2% less pricing.
EMEA was up 2% to $203 million despite 3% volume and pricing declines due to an 8% improvement in currency.
While Asia was up 19% at $55 million on 9% volume and 10% currency improvements.
Please now refer to Slide 11.
On a sequential basis, fourth quarter net sales were up 8% compared to the third quarter, driven by 9% volume improvements, net of a 1% price decline.
On a line of business basis, Specialty increased 21% with our TPPL continuing to provide more capacity for transportation sales, while Motive Power was up 9% as rebounds from the pandemic and Energy Systems was up 3%.
Now a few comments about our adjusted consolidated earnings performance.
As you know, we utilized certain non-GAAP measures in analyzing our company's operating performance, specifically excluding highlighted items.
Accordingly, my following comments concerning operating earnings, my later comments concerning diluted earnings per share exclude all highlighted items.
On a year-over-year basis, adjusted consolidated operating earnings in the fourth quarter increased approximately $7 million to $78 million, with the operating margin up 50 basis points.
On a sequential basis, our fourth quarter operating earnings dollars were flat at $78 million, while our OE margin dropped 80 basis points to 9.6%, primarily due to Energy Systems results, which I will address shortly.
Operating expenses when excluding highlighted items were at 14.6% of sales for the quarter compared to 16.4% in the prior year as we reduced our spending by $9 million year-over-year and by 10 basis points sequentially.
Excluded from operating expenses recorded on a GAAP basis in Q4 are pre-tax charges of $27 million, primarily related to $6 million in Alpha and NorthStar amortization, and $21 million in restructuring charges for the previously announced closure of our flooded Motive Power factory in Hagen, Germany.
Excluding those highlighted charges, our Motive Power business generated operating earnings of 15.6% or 300 basis points higher than the 12.6% in the fourth quarter of last year, due primarily to improvements in manufacturing costs and lower operating expenses.
OE dollars for Motive Power increased over $7 million from the prior year.
On a sequential basis, Motive Power's fourth quarter OE decreased 230 basis points from the 13.3 -- excuse me, increased 230 basis points from the 13.3% margin posted in the third quarter, again due primarily to improved manufacturing and operating costs along with better price mix.
Energy Systems operating earnings percentage of 2.6% was down from last year's 4.1% and from last quarter's 7.4%.
OE dollars decreased $4 million from the prior year and decreased $16 million from the prior quarter despite slightly higher volume on lower margins and higher input costs.
These costs range from higher tariffs, freight, materials and manufacturing costs.
Specialty operating earnings percentage of 13.2% was up from last year's 11.7% and up from last quarter's 11.9%.
OE dollars increased over $4 million from both the prior year and prior quarter on higher volume and lower operating expenses.
Please move to Slide 13.
As previously reflected on Slide 12, our fourth quarter adjusted consolidated operating earnings of $78 million was a increase of $7 million or 10% from the prior year.
Our adjusted consolidated net earnings of $56.5 million was $9 million higher than the prior year.
The improvement in adjusted net earnings reflects primarily the rise in operating earnings along with lower interest expense.
Our adjusted effective income tax rate of 19% for the fourth quarter was slightly higher than the prior year's rate of 18% and higher than the prior quarter's rate of 17%.
Discrete tax items caused most of these variations.
Fiscal 2021 tax rate of 18% was consistent with that of the prior year.
Fourth quarter earnings per share increased 17% to $1.30, which was near the top of our guidance range.
We expect our weighted average shares for the first fiscal quarter of 2022 to remain relatively constant to be approximate $43.5 million of the fourth quarter.
As a reminder, we now have over $75 million of share buybacks authorized and we have made modest purchases recently.
Last week, we announced our quarterly dividend, which remains unchanged from prior levels.
We have included our year-to-date results on Slides 14 and 15 for your information, but I do not intend to cover these details.
Our balance sheet remains strong and positions us well to navigate the current economic environment.
We have $452 million of cash on hand and our credit agreements leverage ratio was 1.7 times, which allows over $600 million in additional borrowing capacity.
We expect our leverage to remain below 2.0 times in fiscal 2022.
We generated a record $288 million of free cash flow in fiscal 2021.
Capital expenditures of $70 million were in line with our prior guidance.
Our capex expectation for fiscal 2022 is $100 million and reflects major investment programs in lithium, battery development, and continued expansion of our TPPL capacity, including the NorthStar integration.
Even with these investments, we have also retained the agility to flex our manufacturing footprint as needed.
Our decision announced last November to close our Hagen, Germany facility has progressed better than our expectation in terms of speed and the cost.
The expected $20 million in annual savings are starting to be felt already with the full benefit arriving by our fourth fiscal quarter of this year.
We anticipate our gross profit rate to remain near 24% in Q1 of fiscal 2022, and we expect expanding margins thereafter.
As Dave just described, we believe all three of our lines of business are well positioned and their diversity provides us with a stable earnings platform.
Despite some concerns over the potential for late arising shortages, we feel we have enough visibility to provide guidance in the range of $1.15 to $1.25 in our first fiscal quarter of year 2022.
Lashana, we will now open the line for any questions.
 Assistant:

Chosen response: adjusted net earnings per diluted share for q4 of fiscal 2021, on a non-gaap basis, were $1.30.