Prompt:
Human: Please visit our website at transdigm.com to obtain a supplemental slide deck and call replay information.
The company would also like to advise you that during the course of the call, we will be referring to EBITDA, specifically EBITDA, as defined, adjusted net income and adjusted earnings per share, all of which are non-GAAP financial measures.
As usual, I'll start off with a quick overview of our strategy, a few comments about the quarter, and then Kevin and Mike will expand and give more color.
To reiterate, we're unique in the industry in both the consistency of our strategy in good and bad times, as well as our steady focus on intrinsic shareholder value creation through all phases of the aerospace cycle.
To summarize, here are some of the reasons why we believe this.
About 90% of our sales are generated by proprietary products, and over [ three-quarters ] of our net sales come from products for which we believe we are the sole source provider.
Most of our EBITDA comes from aftermarket revenues, which generally have significantly higher margins and over any extended period of time have typically provided relative stability in the downturns.
We follow a consistent long-term strategy.
Specifically, we own and operate proprietary aerospace businesses with significant aftermarket content.
Second, we utilize a second -- a simple, well-proven, value-based operating methodology.
Third, we have a decentralized organization structure and a unique compensation system closely aligned with our shareholders.
Fourth, we acquire businesses that fit this strategy and where we see a clear path to PE-like returns.
And lastly, our capital structure and allocation of our capital are key parts of our value-creation methodology.
Our long-standing goal is to give our shareholders private equity-like returns with the liquidity of a public market.
To do this, we have to stay focused on both the details of value creation, as well as careful allocation of our capital.
We see a bit more light at the end of the tunnel but are still in a pretty tough commercial aerospace market environment.
On a positive note, we saw another significant sequential increase in quarterly commercial aftermarket bookings in Q2.
This is the second quarter in a row with a significant step-up.
The stalling of the air travel recovery that concerned us last quarter, though still spotty, looks somewhat better now but may have pushed a ramp-up a quarter or so out.
The two most important operating items we have focused on through this downturn were on the things we can, to some degree, control: one, tightly managing our cost, and I think we have this well in hand; second, assuring substantial liquidity, and this also seems well in hand.
Absent some large additional dislocation or shutdown, we should come out of this with substantial firepower.
We continue to look at possible M&A opportunities and are always attentive to our allocation.
Both the M&A and the capital markets are always difficult to predict and especially so in times like these.
But in Q2, we acquired the Cobham Aero Connectivity business for an enterprise value of $965 million.
On the divestiture front, in the last 60 days, we signed agreements to sell three additional, less proprietary and mostly defense businesses for about $240 million.
Collectively, these businesses have revenues of roughly $180 million and EBITDA margins in the low 20%.
We expect to receive all the proceeds in Q3.
We still have one primarily defense business that we are currently considering for sale.
At this time, I do not anticipate that we will make any significant dividend or share buybacks for the next three or four quarters or at least until the commercial market show stronger signs of a rebound and our leverage level settles down a bit, but we'll keep watching and see if our view changes over time.
We believe we are about as well-positioned as we can be right now, and we'll watch for market developments and react accordingly.
And now let me hand it over to Kevin to review our performance.
Today, I will first provide my regular review of results by key market and profitability of the business for the quarter.
I'll also comment on recent acquisition activity and fiscal 2021 outlook.
During our Q2 fiscal 2021 quarter, there continued to be a significant unfavorable impact on our business as a result of the reduced demand for travel due to the pandemic.
However, the commercial aerospace industry has continued to show signs of recovery in recent months with the distribution of the COVID-19 vaccine and increasing air traffic, especially in certain domestic markets.
In our business, we saw another quarter of sequential improvement in commercial aftermarket revenues with total commercial aftermarket revenues up 12% over Q1.
Additionally, I am very pleased that we continue to sequentially expand our EBITDA as defined margin as a result of careful management of our cost structure and focus on our operating strategy in this challenging commercial environment.
Now we will review our revenue by market category.
For the remainder of the call, I will provide color commentary on a pro forma basis compared to the period -- the prior-year period in 2020.
That is assuming we own the same mix of businesses in both periods.
This market discussion now includes the recent acquisition of Cobham Aero Connectivity and removes the impact of any divestitures completed by the end of Q2.
In the commercial market, which typically makes up close to 65% of our revenue, we will split our discussion into OEM and aftermarket.
Our total commercial OEM market revenue declined approximately 43% in Q2 when compared with Q2 of the prior-year period.
We continue to assume the demand for our commercial OEM products will be significantly reduced throughout the remaining half of 2021 due to reductions in OEM production rates and the airlines deferring or canceling new aircraft orders.
Longer term, the commercial aerospace market is fluid and continues to evolve.
We anticipate a depressed commercial OEM end market for some uncertain period of time when compared to pre-COVID levels.
However, recent commentary from Airbus on potential A320 rate ramps in 2022 and beyond are certainly encouraging.
On a positive note, Q2 bookings demonstrated strong sequential improvement of over 20% compared to Q1 bookings and solidly outpaced sales.
As we mentioned last quarter, the bookings improvement we are seeing is likely an indicator of OEM destocking slowing.
Now moving on to our commercial aftermarket business discussion.
Total commercial aftermarket revenues declined by approximately 39% in Q2 when compared to prior-year Q2.
This quarterly decline was primarily driven by decreased demand in our passenger and interior submarkets.
However, our commercial transport freight market returned to modest growth and slightly offset this decline.
To repeat, sequentially, total commercial aftermarket revenues grew approximately 12% in Q2, another encouraging data point.
Commercial aftermarket bookings were still down this quarter compared to the same prior-year period.
However, the bookings declined less than the observed flight traffic declines with freight and business jet bookings continuing to improve.
Q2 bookings sequentially improved almost 30% and solidly outpaced sales.
This is likely the result of destocking slowing in airlines, increased flight activity and future planning.
To touch on a few key points of consideration, global revenue passenger miles are still low though off the bottom and now recovering.
IATA's most recent forecast expects that calendar-year 2021 revenue passenger miles will be 57% below 2019, but we are cautiously optimistic.
There was an uptick in domestic air traffic in March and April, and the airlines are seeing strength in bookings that will drive summer flight schedules.
Certain airlines have already announced domestic wide-body routes to serve the anticipated demand this summer.
IATA does forecast a strong second half of calendar 2021 with a rebound in domestic travel in the U.S. back at 2019 levels of revenue passenger miles and China well above that level.
There is also potential for international travel openings more as governments consider revising travel restrictions.
For cargo demand, this was weaker prior to the COVID-19 crisis as FTKs have declined from the all-time high in 2017.
However, a loss of passenger belly cargo and the pickup in e-commerce has helped cargo operations to recover quicker than commercial travel.
Business jet utilization data has shown that activity in certain regions has rebounded to pre-pandemic or better levels.
This is due to personal and leisure travel as opposed to business travel at this time.
It remains to be seen if business jet utilization will continue to expand, but current trends are encouraging, We believe there is a global pent-up demand for travel.
We see evidence of this demand through the recovery in domestic travel, specifically in the U.S. and China, and the optimism of airlines for the summer season.
Domestic travel is currently benefiting from international travel restrictions and could offset some lost international travel in the market.
In due time, with vaccine distribution and lifting of travel restrictions, passenger demand across the globe will increase.
Historically, personal travel has accounted for the largest percentage of revenue passenger miles.
And forecasts still indicate a more meaningful pickup in personal travel in the back half of this calendar year, followed later by business travel, and we are hopeful this will be the case.
Now let me speak about our defense market, which, traditionally, is at or below 35% of our total revenue.
The defense market revenue, which includes both OEM and aftermarket revenues, grew by approximately 8% in Q2 when compared with the prior-year period.
Our defense order book remains strong, and we continue to expect our defense business to expand throughout the remainder of the year.
Moving now to profitability.
I'm going to talk primarily about our operating performance or EBITDA as defined.
EBITDA as defined of about $519 million for Q2 was down 23% versus prior Q2.
EBITDA as defined margin in the quarter was approximately 43.5%.
We were able to improve our EBITDA as defined margin approaching 100 basis points sequentially despite the acquisition dilution from the recent Cobham acquisition of about 100 basis points as well.
Next, I will provide a quick update on our recent acquisition.
The Cobham acquisition integration is progressing well under the leadership of one of our experienced EVPs, Joel Reiss.
We have now owned Cobham a little over four months, and we are pleased with the acquisition thus far.
We have split Cobham into two operating unions -- units: Canyon AeroConnect located in Prescott, Arizona; and Chelton Limited, located in Marlow, U.K. Two experienced TransDigm presidents are leading the integration of these two operating units.
Now moving to our outlook for 2021.
We are still not in a position to issue formal fiscal 2021 sales EBITDA as defined in net income guidance at this time.
We will look to reinstitute guidance when we have a clearer picture of the future.
We, like most aero suppliers, are hopeful that we will realize a more meaningful return of activity in the second half of the calendar year.
For now, we are encouraged by the recovery in our commercial OEM and aftermarket bookings in the first half of our fiscal year, along with the improvement we have seen in our commercial aftermarket revenues.
As for the defense market and an update to our defense revenue growth comments on the Q4 and Q1 earnings calls previously, we now expect defense revenue growth in the mid-single-digit percent range for fiscal 2021 versus prior year.
The previous expectation communicated for fiscal 2021 defense revenue growth was low to mid-single-digit growth.
Additionally, given the continued uncertainty in the commercial market channels and consistent with our past commentary, we are not providing an expected dollar range for fiscal 2021 EBITDA as defined.
We assume a steady increase in commercial aftermarket revenue going forward and expect full-year fiscal 2021 EBITDA margin roughly in the area of 44%, which could be higher or lower based on the rate of commercial aftermarket recovery.
This includes a dilutive effect to our EBITDA margin from Aero -- from the Cobham Aero Connectivity acquisition.
Mike will provide details on other fiscal 2021 financial assumptions and updates.
Let me conclude by stating that I am pleased with the company's performance in this challenging time for the commercial aerospace industry and with our commitment to driving values for our stakeholders.
The commercial aerospace market is -- its recovery is under way, and current trends are encouraging.
There is still uncertainty about the pace of the recovery, but the team remains focused on controlling what we can control.
We are closely monitoring the ongoing developments in the commercial aerospace industry and ensure that we remain ready to meet the demand as it returns.
We look forward to the remaining half of 2021 and expect that our consistent strategy will continue to provide the value you have come to expect from us.
I'm going to quickly hit on a few additional financial matters for the quarter and then also the full fiscal year.
For the quarter, organic growth was negative 20%, driven by the declines in our commercial end markets and despite some healthy defense growth in the quarter.
On taxes, our expectation for the full year is unchanged.
That is, we still anticipate our GAAP cash and adjusted rates to be in the 18% to 22% range.
Regarding tax rates out beyond FY '21, we're monitoring potential changes in the U.S. tax code under the new administration, and we'll provide some guidance on our future rate expectations once any legislation is finalized.
On interest expense, we now expect the full-year charge to be $1.06 billion, reduced from prior guidance, primarily for the refinancing activity completed this year.
Moving over to cash and liquidity.
We had another quarter of positive free cash flow.
Free cash flow, which we traditionally define at TransDigm as our EBITDA as defined less cash interest payments, cash capex and cash taxes, was roughly $146 million.
For the full fiscal year, we expect to continue running free cash flow positive as we define this metric.
In line with our prior November guidance, we still expect this amount to be in the $800 million area, maybe a little better for our fiscal '21.
We ended the second quarter with $4.1 billion of cash, down from $4.9 billion at last quarter's end.
Note that last quarter's $4.9 billion balance was prior to the Cobham acquisition for an enterprise value of $965 million that closed on January 5.
Pro forma for the closing of this acquisition, our Q2 net debt-to-LTM-EBITDA ratio was 8.2 times.
With our last pre-COVID quarter now having rolled out of the LTM EBITDA computation, we believe that the net debt-to-EBITDA ratio as of our second quarter end is at or very close to its peak.
In subsequent quarters, it should, at worst, remain relatively stable but more likely start to show gradual improvement as our commercial end markets rebound.
From an overall cash liquidity and balance sheet standpoint, we think we remain in good position and well prepared to withstand the currently depressed commercial environment for quite some time.
Lastly, and shifting gears from financial matters, I'd like to provide a quick update on our ongoing U.S. DoD IG audit.
We've been actively engaged with the IG office with some ebbs and flows and continue to work through the audit process, and our best assessment and based upon what we see.
This ongoing audit appears to be similar in scope to our prior audits.
While it's difficult to know exactly when a final report could be issued publicly, we expect that this might happen sometime during Q3 or Q4 of our fiscal '21.
 Assistant:

Chosen response: fiscal 2021 financial guidance remains suspended at this time.


Prompt:
Human: I'm joined by John Garrison, Chairman and Chief Executive Officer; and John Duffy Sheehan, Senior Vice President and Chief Financial Officer.
In addition, we will be discussing non-GAAP information that we believe is useful in evaluating the company's operating performance.
Reconciliations for these non-GAAP measures can be found in the conference call materials.
Most importantly, I hope you and your families are remaining safe and healthy.
Throughout these challenging times, we are proud of all Terex team members, who are keeping themselves and others safe, meeting the needs of customers and helping our communities.
Safety remains the top priority of the company, driven by Think Safe, Work Safe, Home Safe.
Our team members remain vigilant by carefully following the COVID-19 safety protocols and continuing to keep their guard up.
Despite a challenging year, we delivered results for all stakeholders.
We prioritize their health and safety while maintaining our Terex Way values.
Globally, team members gave back to their communities with their time and donations.
For our customers, they are the center of our recovery and we have continued to maintain the highest levels of safety and our sales and service operations.
And finally, for our shareholders, we minimize the operational and financial impacts related to the pandemic.
Despite the challenging markets during the fourth quarter, our team continued to meet customer demand, tightly managed all cost, aggressively reduced networking capital, especially AWP inventories, and delivered outstanding free cash flow.
Q4 revenue improved sequentially as end markets continued to recover despite the fourth quarter normally being seasonally slower.
The sequential improvement in revenues was driven by MP whose revenues improved approximately 18%.
Customer bookings in Q4 represented a continued strong improvement from Q3.
Sequentially AWP and MP bookings were up dramatically.
In addition to sequential strength in bookings, AWP bookings were flat with last year's pre-COVID levels and MP's bookings were up 53%.
Year-end customer backlogs increased 25% over prior year pre-COVID levels.
Our stringent cost control and producing the customer demand helped us deliver operating margins in line with prior year on 11% lower revenues, even with $18 million of restructuring and related charges.
AWP recorded near breakeven operating margins, including $11 million of restructuring charges and revenue down 18% from the prior year, representing a decremental margin of 7% or an incremental margin of 3% when excluding restructuring and related charges.
We are driving improvement in AWP's profitability to restore the segment to industry competitive margins and we will continue to take the actions necessary to deliver on that improvement.
Our MP segment achieved outstanding financial results, reporting a 15 % operating margin while revenues were down slightly year-over-year reporting an 82% incremental margin.
Throughout 2020, we right-sized our inventory levels to the customer demand environment, especially in our Genie business.
Their inventory levels remained consistent with 2016, which was the last time there was an industrial downturn.
In 2021, aerial products will manufacturer to customer demand.
Our intense focus on networking capital management drove a $129 million of free cash flow in the fourth quarter, delivering excellent full year cash flow generation.
Overall, our Q4 financial performance demonstrated strong execution by our global team.
We are committed to improving these results in 2021.
In 2020, we evolved from our Focus, Simplify, Execute to Win strategy to execute, innovate and grow.
This transition and strategic priorities has strengthened our business operations.
So we took swift and decisive measures in 2020 to improve, strengthen and position Terex for growth.
On the cost side, we looked at every aspect of the business to ensure we maximize our ability to be globally cost competitive.
We aggressively took out cost, not just manufacturing cost, we also executed on an SG&A cost reduction initiative with a target of SG&A percent of sales for 2021 of approximately 12.5%.
We listen to customers to ensure our products and services offer the features and benefits that provide value.
We also invested in our connected assets and digital capabilities across the enterprise to better serve customers.
We continue to drive global adoption of our products, Genie scissors and booms for working safely at height and mobile crushing and screening products for aggregate production.
Finally, we maintain our resolve to invest in the business for future growth.
Looking ahead to 2021, we recognize that execution is the foundation to deliver on our commitments to team members, customers and shareholders.
The hard work to rescale the company's cost structure will be aggressively managed to achieve our strategy of being globally cost competitive.
We'll continue to invest in innovative products and services to serve our specialized markets.
Terex is well positioned for growth in 2021 because we have strong businesses, strong brands and strong market positions upon which we can grow.
We will continue to invest, including investing in new products and manufacturing capacity where demand calls for it and we're a more focused organization.
I'm confident this will result in Terex being an even stronger company.
Turning to Slide 7.
Let me begin by reviewing our Q4 financial results.
I would like to call your attention to our financial reporting structure as you will notice consistently throughout 2020, we did not report adjusted financial results.
Instead, we are identifying specific financial callouts, which impacted our Q4 reported results.
Looking at the fourth quarter, we achieved net sales slightly higher than our outlook from the beginning of the quarter.
Throughout the quarter, we saw our end markets continue to stabilize and improve.
Overall revenue of $787 million was down 11% year-over-year.
For the quarter, we recorded an operating profit of $32 million compared to adjusted operating profit of $36 million in the fourth quarter of last year.
The overall operating profit resulted from revenues being down, combined with $18 million of severance and restructuring charges primarily in our AWP segment.
We achieved this positive operating result through disciplined cost control and adapting to the market environment.
While lower revenues impacted our gross margins and resulted in elevated SG&A as a percentage of sales, our aggressive cost reduction actions allowed Terex to achieve an approximately 5% decremental margin in Q4.
This decremental margin was achieved despite $5 million of gross profit charges primarily due to restructuring.
In addition, SG&A was adversely impacted by $13 million primarily due to team members' severance and restructuring.
Excluding these charges, operating profit was $49 million and Terex achieved an incremental margin of 13% in the quarter.
The low operating income, interest and other expense was almost $10 million lower than Q4 of 2019 because of several factors, including: first, lower interest rates versus a year ago; second, $4 million of investment income; and third, non-recurrence of $2 million in FX losses recognized in the prior year.
Our 2020 global effective tax rate was approximately 18% compared to our previous estimate of 52%.
During the fourth quarter, there were a few discrete items benefiting our Q4 tax rate.
Finally, our reported earnings per share of $0.21 per share includes the adverse operating impact on gross profit and SG&A, offset by the favorable benefits in other income that I just discussed.
Turning to Slide 8 and our segments' financial results.
AWP sales of $412 million contracted by 18% compared to last year, driven by end markets in North America and Europe due to the impacts from the pandemic.
The aerial products market and our sales in China remain robust.
The utilities market remained stable and improved during the quarter across end markets.
We continue to aggressively manage production levels in aerial products to ensure that we are not building excess inventory.
During Q4, our aerial products production was 16% lower than Q4 2019.
This continued aggressive production control allowed us to achieve almost $180 million reduction in aerial products inventory levels year-over-year.
AWP delivered flat operating margin in the quarter, driven by aggressively rightsizing production and cost to align with end market demand.
AWP achieved strong decremental margin performance of 7% in the quarter, which includes $11 million of charges for severance and restructuring.
AWP fourth quarter bookings of $753 million were flat with pre-COVID Q4 2019 levels, while backlog at quarter end was $826 million, up 10% from the prior year.
Now turning to Materials Processing.
MP had another solid quarter achieving 15% operating margins as markets continue to improve.
It is a testament to the MP team's operational strength to deliver these positive operating margins and revenues down 3%.
Sales were lower at $366 million, driven by cautious yet improving customer sentiment.
The MP team has been aggressively managing all elements of cost in a challenging market environment, resulting in incremental margin performance of 82%.
Backlog of $523 million was 59% higher than last year and up 81% sequentially.
MP saw its businesses strengthen through the quarter with bookings up 53% year-over-year and up 76% sequentially.
Customers sentiment in both segments continues to improve as equipment is being utilized and ordered for 2021.
Turning to Slide 9.
Overall, 2020 demonstrated the resilience of our business and team members to deliver these results against a very challenging backdrop.
Significant cost actions reducing SG&A by $82 million from 2019 helped deliver 21% decremental margin and beat our 25% target.
In addition, strong positive cash flow generation was helped by tightly managing net working capital and aligning production to demand.
Turning to Slide 10.
When the pandemic arose during the first quarter, we quickly refocused our investment initiatives and took decisive action to reduce our overall cost structure through temporary and permanent actions.
And over the course of 2020, we instituted an SG&A cost reduction initiative, not just in corporate but across the entire company.
We always had an SG&A target going back to our 2016 Analyst Day of 12.5% of sales.
As detailed on this slide, we took a variety of actions to reduce our cost base.
Whether it was moving our corporate headquarters, improving productivity and selectively rescaling investments, we scrutinized every possible expense.
The results of these actions is that we were able to reduce our SG&A cost structure by more than $100 million for 2021 versus 2019 and delivered the improved results detailed in my earlier comments.
These actions have enabled Terex to come into 2021 well-positioned to meet the 12.5% target.
Turning to Slide 11.
Now I would like to update you on how we currently anticipate 2021 to develop financially.
It is important to realize we are operating in an unprecedented period and results could change negatively or positively.
Disruptions associated with COVID, whether it is team member absenteeism or supply chain disruptions, could impact our outlook.
With that said, this outlook represents our best estimate as of today.
Also, consistent with 2020, we do not plan to report adjusted financial results in 2021.
The outlook included on this chart includes all known income and cost but does exclude the impact of potential future acquisitions, divestitures, restructuring transformation or other unusual items.
As we identify currently unknown income or costs, we will identify them in our reported results.
As for commercial demand, we have seen our markets stabilize and improve over the course of 2020.
All other things being equal, we do expect to see markets improve due to the global deployment of COVID-19 vaccine and AWP customers' fleet replenishment.
However, our guidance does not include any benefit from potential infrastructure legislation.
We anticipate earnings per share of $1.95 to $2.35 per share based on sales of approximately $3.45 billion.
From a quarterly perspective, we expect revenues for the full year to be relatively evenly split between the first and second half of the year, with the second quarter being the strongest of the year.
We look forward to returning to year-over-year sales growth in the second quarter this year.
Operationally, the absolute amounts of operating profit and operating margins are expected to increase each quarter year-over-year with slightly more operating profit in the second half of the year versus the first half of the year.
Importantly, we are planning for and look forward to reporting incremental, rather than decremental margins, which meet or exceed our 25% target for full year 2021.
Quarterly earnings per share are expected to be generally consistent with the development of operating profits during the year.
Based upon global tax laws, we expect a 2021 tax rate of 19%.
We are monitoring potential changes to tax laws in the United States and around the globe and we will adjust our operational and tax strategies as required.
For full year 2021, we are estimating free cash flow of approximately $100 million, reflecting another year of positive cash generation.
We do expect Q1 cash flow to be negative, which is consistent with historical patterns.
We also estimate capital expenditures, net of asset dispositions, will be approximately $9 million.
Corporate and other costs are planned to occur relatively evenly throughout the year, although Q1 is expected to be slightly lower and Q2 slightly higher than the average.
We continue to monitor developments associated with the UK's exit from the European Union and do not expect any material impact.
Now, let me turn your attention to the operating margin bridge on the slide.
We believe it is important that the investment community understand the key elements of our operating margin improvement in 2021.
First, cost reinstatements represent the restoration of team members' compensation after the reductions we enacted in 2020.
It is important to pay team members competitively to retain our talent.
Next, I would point out that positive volume and improved manufacturing efficiency would drive much of our margin improvement.
Additionally, our SG&A cost reduction effort also provides significant improvement in our 2021 operating margin.
Finally, we did have severance, restructuring and other charges in 2020 that are not expected to reoccur in 2021.
Taking together, these operational improvements drive our 2021 operating margin guidance of approximately 7%.
Turning to Slide 12.
Now I'll review our segment guidance.
We expect the improved customer sentiments demonstrated by our Genie and utility customers to continue into 2021.
AWP margins are expected to be positive each quarter of 2021 with incremental margins well above our targeted 25%.
Materials Processing is expected to continue its consistent operating performance delivering double-digit operating margins each quarter throughout 2021.
Following the run up in steel prices in 2018, we implemented a steel hedging program with respect to our Aerial's North American hot rolled coil, or HRC, steel consumption.
Approximately two-thirds of our Aerial's steel consumption is HRC.
You may be aware that there is not presently any forward market for hedging plate steel.
During 2020, we purchased hedges for the predominant amount of our anticipated 2021 North American Aerial HRC requirements.
The guidance we are providing today takes into account the steel hedging actions we took in 2020 as well as current steel prices for the remainder of our global steel requirements.
Overall, our 2021 guidance represents a dramatic improvement in operating performance when compared to 2020.
The swift and decisive actions taken in 2020 enabled this effort and we will continue to aggressively manage costs of positioning the business for growth.
Turning to Page 13.
I'll review our disciplined capital allocation strategy.
We introduced our strategy back at our 2016 Analyst Day.
It has served the company well during the pandemic and will enable us to grow in 2021.
Our team members remain vigilant and will continue to aggressively manage production, especially within our AWP segment, and scrutinize every expenditure, so we continue to generate strong positive free cash flow.
We have ample liquidity with greater than $1 billion available to us.
With no near-term debt maturities, we can manage and grow the business.
In 2021, we have entered into a partnership with a US bank to provide financing solutions to our Genie customers.
In connection with this arrangement, last week, the bank purchased approximately $100 million of our Terex Financial Services portfolio of receivables.
As a result of our strong liquidity position, including the proceeds from the sale of the TFS on-book portfolio, we initiated this week the repayment of approximately $200 million of term loans, reducing outstanding debt and lowering leverage.
In Q1, we will recognize the corporate and other operating gain of $7 million in connection with the TFS sale and interest and other charge of $2 million related to the repayment of the term loans.
Neither this gain or the charge is included in the financial guidance we are providing today.
We continue to invest in the business in 2020 at reduced levels and we'll continue to invest in 2021 with capital spending, net of assets disposition, of approximately $90 million.
In 2020, we executed a strong and swift actions to rightsize the business so tariffs can profitably grow in the future.
We remain resolute in tightly managing production and SG&A.
Our strong balance sheet and expected 2021 free cash flow generation allowed our Board of Directors to reinstate our quarterly dividend for 2021.
The Board has approved a Q1 dividend of $0.12 per share as we return cash to shareholders.
Our earnings power and healthy capital position provides a strong foundation for us to manage and grow Terex.
Turning to Slide 14.
This quarter's results demonstrated progress, but we have more work to do.
Our Aerial team has stayed in close contact with our customers during this critically important part of the year when customers are planning their 2021 requirements.
Being customer-centric also means developing products that add value for customers at the appropriate price.
We are delivering a new electric drive, or E-Drive scissor, and just recently announced a brand-new Telehandler.
These products demonstrate Genie's strength in listening to customers and responding with innovative industry-leading products.
During 2020, we invested in the expansion of our world-class manufacturing facility in Changzhou, China and completed our Watertown, South Dakota utilities facility.
The utilities businesses in very important growth area for AWP.
The TL shown at the top of the page is a new product to take advantage of the adoption of transmission line work in China.
At the bottom of the page, the photo shows a customer delivery from our Watertown facility.
Terex utilities is well positioned to participate in the increased investment in electrical grid infrastructure.
From an operational perspective, the AWP team executed in Q4 by delivering breakeven operating margins despite $15 million of restructuring charges, aggressively taking cost out of the business to improve the ability to deliver future industry competitive margins and innovating by continuing to bring new products to market.
It is a competitive industry.
So we are controlling what we can control, superior execution and aggressively reducing cost to improve margins and win in the global marketplace.
Turning to Slide 15.
Once again, Materials Processing demonstrate a strong operating performance and positioned the business to benefit from improving market conditions.
MP is a diversified, high performing portfolio of businesses, which continues to invest for future growth.
The investment in our Campsie, Northern Ireland facility, will enable our Ecotec business to grow in waste recycling.
Shown on the slide is the new Ecotec metal shredder, which supports recovery applications for the recycling and waste industries.
It's a new and unique offering demonstrating MP's continued investment in new products and adjacent markets.
In addition, the adoption of MP's innovative products, whether it's mobile crushing and screening in China or Franna pick and carry cranes in India is just starting.
The financial performance of MP relative to market conditions by achieving an operating margin of 15% in Q4 demonstrates the MP team's strong execution.
MP's bookings improved and increased throughout the fourth quarter, resulting in bookings being up 53% year-over-year.
MP benefits from customer, product and geographical diversity and strong execution to consistently deliver outstanding results.
Turning to Slide 16.
To wrap up our remarks, Terex team members around the world are focused on the right things, safety, health, customers and improved productivity.
We are reducing cost to improve margins, especially within AWP.
We are driving positive free cash flow by reducing working capital.
Our businesses have a strong future.
So we are continuing to invest in innovative products and services to be prepared as market demand returns.
As a result of these actions, Terex is well-positioned for an improved 2021.
 Assistant:

Chosen response:
q4 earnings per share $0.21 from continuing operations.
provides financial guidance for 2021.
declared a quarterly dividend of $0.12 per share.
expectations are that 2021 sales will be approximately $3.45 billion, and earnings per share will be approximately $1.95 to $2.35.


Prompt:
Human: Additionally, during this conference call, you will hear management make references to what the estimated positive or negative impacts were as a result of COVID-19 during the second quarter of 2020.
You will also hear management make statements regarding intra-quarter business performance during the month of July.
Management is providing this commentary to provide the investment community with additional insights concerning trends, and these disclosures may not occur in subsequent quarters.
It's a pleasure to speak with you today.
I'd also like to take a moment to recognize the Teleflex employees around the world.
These past few months have been far from normal, and our employees continue to inspire me as they have stepped up in extraordinary ways to ensure that we are able to provide our products to the hospitals, clinicians and patients who need them most.
Now on to our Q2 results.
When you take into consideration the global escalation of the COVID-19 pandemic, we are quite pleased with our second quarter performance as it significantly exceeded our internal expectations and reflected improvements in underlying monthly revenue trends for the product categories most impacted by the postponement of non-emergent procedures, most notably, Interventional Urology, Interventional Access and Surgical.
Q2 revenue was $567 million, which was down 12% as compared to the prior year period on a constant currency basis.
The decline in revenue is due to the negative impact from COVID-19, which we estimate caused a net negative impact of approximately $130 million or approximately 20%.
If we were to normalize for the negative COVID impact, we estimate that we grew our underlying business by approximately 8% on a constant currency basis, or near the high end of our initially provided 2020 full year constant currency revenue growth rate range.
From an earnings per share perspective, like revenue, our adjusted earnings per share of $1.93 in the quarter also significantly exceeded our internal expectations.
This reflects the recovery we saw in monthly procedures as we moved through the quarter, coupled with prudent operating expense management.
Lastly, at the end of the second quarter, we also commenced our workforce reduction plan, which will allow us to capitalize on programs designed to drive further long-term profitability.
This latest effort is primarily focused on streamlining certain sales and marketing functions within EMEA as well as certain manufacturing operations within our OEM segment.
Turning to a more detailed review of our second quarter results.
As I mentioned, quarter two revenue declined 12% on a constant currency basis and 13.1% on an as-reported basis.
The decline in revenue was primarily due to COVID-19, which we estimate had a negative impact of approximately $144 million across several global product categories.
This was somewhat offset by approximately $14 million of additional revenue within our vascular access and other product categories, which experienced higher-than-expected demand as a result of COVID-19.
From a margin perspective, we generated adjusted gross and operating margins of 53.9% and 21.8%, respectively.
This translated into a year-over-year decline of 380 basis points on the gross margin line and 340 basis points on the operating margin line, as reduced sales volumes and unfavorable revenue mix impacted by COVID were major headwinds.
These headwinds were partially offset by our cost containment efforts as we continue to tighten our belts where we deem appropriate in the current environment, balanced with continued investment to sustain our long-term growth aspirations.
Adjusted earnings per share was $1.93, down 27.4% year-over-year, but well ahead of our internal expectations as the business started to recover during the quarter.
And while I never like to see declines in year-over-year revenue and profitability, I am very pleased with our overall financial performance as it demonstrates the resiliency of the diversified global product portfolio we have built over the past few years.
Next, I thought it would be helpful to provide some context regarding how we saw COVID-19 impact our second quarter results.
During the second quarter, we estimate that COVID-19 was a headwind to revenue across Interventional Urology, Surgical, Interventional Access, Anesthesia and OEM.
Somewhat offsetting these headwinds were positive tailwinds within Vascular Access and other, as hospitals continued to have strong demand for those types of products.
Netting these two impacts, we estimate that COVID was a $130 million headwind or an approximate 20% detractor from our 2Q revenue growth.
Importantly, we were encouraged that after a difficult April, the key global business units impacted most negatively by COVID improved sequentially as we moved through May and June.
Specifically, Interventional Urology year-over-year revenue was down approximately 79% in April.
It was down approximately 30% in May and then down approximately 8% in June.
Turning to Interventional Access.
Year-over-year revenue declined approximately 30% in April, approximately 28% in May, and then it was down approximately 2% in June.
And finally, our Surgical business experienced year-over-year revenue declines of approximately 34% in April, 31% in May and then approximately 21% in June.
As we anticipated and stated on our last earnings conference calls, as various states and countries began to reopen, Interventional Urology led the recovery.
But we also saw improving trends within Interventional Access and Surgical as most hospitals have restarted non-emergent procedures in earnest.
And while our business our businesses have not yet to fully return to normal, we are encouraged by our trends into July, which largely reflect further improvement in the business.
That said, while we view the latest trends as encouraging signs of a continued global recovery, we remain cautious as select hospital capacity has come under pressure in certain geographies as COVID-19 cases have reemerged.
As a result of the uncertainty associated with the scope and duration of COVID-19, we made the decision not to reinstate our 2020 financial guidance at this time.
Let's now turn to the quarterly results.
I will begin with a review of our reportable segment revenue.
The Americas delivered revenues of $312.5 million in the second quarter, which represents a 16% decline.
Growth within the Americas was driven by Vascular Access and respiratory products, which both saw elevated demands driven by COVID.
However, this was more than offset by declines in other product categories.
We estimate that the Americas would have grown approximately 8% excluding an estimated 24% impact of COVID on the region.
Importantly, as we progressed throughout the second quarter, Interventional Urology saw sequential improvement from April to May and then from May into June with a positive momentum largely carried forward into July.
While we are encouraged by this recovery, we are cautious due to the recent outbreaks and reduced non-emergent procedure capacity in states, including Texas and Florida.
EMEA reported revenues of $131.6 million in the second quarter, representing an 8% decline.
Like the Americas, growth drivers included vascular and respiratory businesses, which benefited from elevated demand related to COVID-19.
However, like the Americas, growth in these product categories was outweighed by declines elsewhere.
Adjusting for COVID, we estimate approximately 1% underlying growth for the region.
Revenues totaled $67.1 million in the second quarter, which represents a decline of 7.8%.
However, we estimate that we would have had a positive constant currency revenue growth in the low double digits consistent with our long-term outlook for the region if not for the impact of COVID-19.
And lastly, our OEM business reported revenues of $55.8 million in the second quarter, or 70 basis points recurring on a constant currency basis.
As we anticipated, during the second quarter, our OEM business saw a lagged impact related to COVID relative to our other businesses.
Investors familiar with Teleflex will be aware that our OEM business supplies device companies with complex catheters and surgical sutures.
And the 2Q impact reflects reduced orders from these customers whose business is tied to non-emergent procedures.
Excluding the estimated COVID-19 impact, the business grew roughly 25%, which includes a 16% benefit from HPC.
As it relates to the acquisition of HPC, the integration efforts are well under way, and I am very pleased with how the business is performing under our leadership.
Let's now move to a discussion on our revenues by global product categories.
Consistent with my prior comments regarding our reportable segments, commentary on global product category growth will also be on a constant currency basis.
Starting with Vascular Access.
Due to the growth within both our central venous catheter and EZ-IO products, Q2 revenues increased 8.8% to $164.9 million.
We estimate that COVID-19 positively impacted the growth rates of our vascular products during the second quarter by approximately 5%.
Moving to Interventional Access.
Second quarter revenue was $82.6 million, which is lower than the prior year by 20.3%.
The decrease was largely due to the delay in the performance of certain non-emergent procedures because of COVID-19.
We estimate that underlying growth was in the mid-single digits, adjusting for an approximate 24% COVID-19 headwind.
Q2 revenues were $64.9 million, which is lower than the prior year by 23%.
The revenue decline was due to lower sales of laryngeal masks and regional anesthesia products.
We estimate that COVID had an approximate 22% negative impact in the quarter.
Revenue declined by 28.4% to $67.3 million, driven by lower sales of our ligation portfolio and instruments.
We estimate a significant 30% headwind from COVID during 2Q.
However, as we stated earlier, we have seen sequential improvements on a monthly basis since April lows.
Moving to Interventional Urology.
Q2 revenue decreased 40.9% to $40.1 million.
We estimate an approximate $58 million COVID-19-related headwind during 2Q.
Unfortunately, the cancellation of elective procedures impacted this product line more than any other in our portfolio.
That said, because the UroLift procedure is primarily performed in an outpatient lower acuity setting, we envisioned that UroLift will be one of the first types of procedures that would be performed once the United States began to reopen, and that's exactly what we have seen with sequential improvements from April to May, May to June and from June into July.
And finally, our other category, which consists of our respiratory and urology care products grew 5.4%, totaling $91.4 million.
In large part, we estimate the growth during the quarter was due to increased demand for certain humidification and breathing products resulting from COVID-19.
If we were to exclude the estimated benefit from COVID-19, we estimate that the other category would have been down slightly as compared to the prior year period.
That completes my comments on quarter two revenue performance.
Turning to some clinical and commercial updates.
Our body of clinical evidence for UroLift continues to expand during the second quarter with data from two studies presented at the AUA 2020 Virtual Science Event and data from another study published in the Canadian Journal of Urology.
The first study presented at the AUA 2020 Virtual Science Event in May was a meta-analysis of patients' sexual function following treatment with the UroLift System versus medical therapy, while the second study was an analysis comparing patient outcomes from the large Real World Retrospective study to those found in the L.I.F.T.
pivotal trial and the P.U.L.S.A.R. urinary retention trial.
The results from the first study compared sexual function outcomes of 849 sexually active men who received daily treatments with an alpha blocker, 5-alpha-reductase inhibitor, either alone or in combination and 190 men from combined clinical studies of the UroLift System at 12, 24, 36 and 48 months.
Results from the analysis showed that patients treated with the UroLift System experienced significant improvement in ejaculatory function and erectile function at 12 and 24 months post treatment.
Patients also reported significant improvement in overall sexual satisfaction through 48 months post treatment.
In contrast, none of the medical therapies significantly improved patients' erectile or ejaculatory function at any time point and some therapy significantly reduced function.
Additionally, the UroLift System significantly outperformed all three medical therapies across all-time points at preserving patient ejaculatory function.
Only patients who received UroLift System reported significant improvement in overall satisfaction in sexual life.
The second study compared patient outcomes from the large Real World Retrospective study to those found in the L.I.F.T.
pivotal trial and P.U.L.S.A.R. urinary retention trial, which studied catheter-dependent BPH patients.
Results from analysis showed patients from all groups experienced similar absolute IPSS scores at all-time points following treatment with the UroLift System.
Analysis also revealed equivalent safety profiles among non-urinary retention and urinary retention patient groups from the Real World study when compared to corresponding groups in control studies.
Finally, the results indicated that the majority of retention patients became catheter independent at the end of the study.
Lastly, a study comparing patient experience of those treated with the UroLift System to those who received tissue ablation by a steam injection was published in the Canadian Journal of Urology.
The study compared 53 non-retention patients from two U.S. sites.
Early postoperative results showed positive differences for patients treated with the UroLift System compared to resume, including better sexual function outcomes, less interference in daily activities and higher patient satisfaction.
We continue to extend our body of clinical evidence which should help to get the fast followers on board with UroLift, which is quickly becoming the standard of care as the leading minimally invasive surgery to address a massive global market opportunity.
Turning to the next slide on key commercial updates.
We received FDA clearance for the UroLift advanced tissue control or ATC system.
This is an instrument that optimizes UroLift for the treatment of obstructive median lobe.
We plan to hold a market acceptance test for this product in late 2020.
And while we estimate that between only 5% and 10% of the market have an obstructive median lobe, this enhancement demonstrates our commitment to invest in R&D to expand our leadership position in BPH.
In addition, as we began to see a recovery in the performance of non-emergent procedures as the second quarter progressed, we made the decision to launch our pilot national DTC campaign in early July, building on the success of our regional DTC efforts.
The national campaign will run from July to December, and the strategic role of DTC is important, as about half of the 12 million men being treated for BPH believe prescription medications are their only solution.
Our regional digital DTC efforts indicated strong patient engagement in June, along with positive sentiment from clinicians, both of which gave us confidence in the July launch.
While it's still early, the initial patient response is very strong, with significant increases in call volumes and web traffic spikes to urolift.com versus the weeks prior to launch.
Physician feedback has also been very positive.
Indeed, UroLift is leading the way in BPH, and this is the first time in recent years that a BPH brand is reaching patients directly in a meaningful way.
Additionally, we submitted the UroLift two for 510(k) FDA approval at the end of the second quarter.
And lastly, I would like to congratulate the interventional urology team on surpassing 200,000 patients treated with UroLift.
While this is a significant milestone, with DTC in the U.S., approximately 2,700 urologists trained and major market launches scheduled over the next few years, we have only scratched the surface in treating the approximate 100 million men globally estimated to have BPH.
Turning to some clinical updates within our Interventional business unit.
We recently began enrolling for a prospective single-arm IDE study, targeting 150 patients across approximately 15 sites within the U.S. to evaluate the performance of Teleflex coronary guidewires and specialty catheters in chronic total inclusion percutaneous coronary intervention procedures.
The study will evaluate the performance of the entire range of Teleflex complex PCI products in chronic occlusive coronary disease, which is the most demanding PCI environment.
We view PCI as a high-growth space within the Interventional Cardiology segment, and we will continue to invest in areas that will improve our weighted average market growth rates over time.
Overall, we continue to invest in clinical and commercial catalysts that will help to sustain our upper single-digit revenue growth aspirations in a normalized environment.
Given the previous discussion of the company's revenue performance, I'll begin at the gross profit line.
For the quarter, adjusted gross profit was $305.8 million versus $376.6 million in the prior year quarter, or a decrease of approximately 19%.
Adjusted gross margin totaled 53.9% during the quarter, which is a decrease of 380 basis points versus the prior year period.
The decline in gross margin was primarily attributable to COVID-19-related impacts, including unfavorable product mix, lower sales volumes and higher manufacturing costs.
The mix impact was significant for the quarter.
The adverse revenue impact from COVID-19 tended to skew toward higher gross margin products, including UroLift, Surgical and Interventional Access.
In total, we estimate that COVID-19 negatively impacted our adjusted gross profit by approximately $100 million in the quarter.
Because of the reduced revenue and gross profit resulting from COVID-19, we continue to look for opportunities to help mitigate the earnings impact while at the same time, maintaining Teleflex's ability to rapidly rebound once non-emergent procedures recover.
As such, operating expense reductions tend to be focused on categories that are non-revenue-generating and are discretionary in nature, including savings from meetings, travel and management variable and performance-based compensation.
As a result of the efforts, we estimate that operating expenses were reduced in the second quarter by approximately $35 million.
While we expect the actions taken to continue to deliver opex savings through the second half of the year, by far, the largest quarterly benefit will be realized in the second quarter.
Adjusted operating profit was $123.9 million as compared to $164.7 million in the prior year or a decrease of approximately 25%.
Second quarter operating margin was 21.8% or down 340 basis points year-over-year, driven by the gross margin declines and loss of operating leverage, partly offset by the reduction in operating expense.
For the quarter, net interest expense totaled $15.5 million, which is a decrease of approximately 24% versus the prior year quarter.
The decrease in interest expense primarily reflects reduced interest rates associated with our variable rate debt, partly offset by higher average debt balances in the second quarter of 2020 versus the prior year period.
During the quarter, we took steps to further improve our liquidity by issuing $500 million of 8-year senior notes at 4.25%.
The proceeds obtained from the note issuance were used to repay revolver borrowings.
Moving now to taxes.
For the second quarter of 2020, our adjusted tax rate was 15.8% as compared to 13.4% in the prior year period.
The year-over-year increase in our adjusted tax rate is primarily due to less benefit from stock-based compensation as compared to the prior year period.
At the bottom line, second quarter adjusted earnings per share decreased 27.4% to $1.93.
Included in this result is an estimated adverse impact from COVID-19 of $1.18 as well as a foreign exchange headwind of approximately $0.04.
Now I'd like to discuss our recently introduced workforce reduction plan.
During the second quarter of 2020, we committed to a workforce reduction plan, designed to improve the profitability by streamlining certain sales and marketing functions in our EMEA segment and certain manufacturing operations within our OEM segment.
We estimate that we will incur aggregate pre-tax restructuring charges of between $10 million and $13 million, consisting primarily of termination benefits, which will also result in future cash outlays.
We expect that most of these charges will be incurred prior to the end of 2020.
Once the plans are fully implemented, we project annual pre-tax savings of between $11 million and $13 million, and we expect the savings will begin in 2020.
I will also provide a summary of all of our ongoing restructuring and cost savings programs.
Including the latest workforce reduction plan, savings across all programs are expected to be between $59 million and $72 million.
Approximately 1/2 of the savings are expected to be realized in 2020 and 2021 and in the remaining 1/2 over the period 2022 through 2024.
As such, we have good line of sight to non-revenue-dependent margin expansion in the foreseeable future.
This also adds to our confidence that our prior LRP financial targets of 6% to 7% revenue growth, 60% to 61% gross margin and 30% to 31% operating margin remain the right goals for Teleflex.
And the question is only when, not if we achieve them.
Turning quickly to select balance sheet and cash flow highlights.
For the first half of 2020, cash flow from operations totaled $134 million as compared to $157.3 million in the prior year period or a year-over-year decrease of $23.3 million.
The decrease is attributed to a $10 million pension contribution made in the first half of 2020 and was not made in the first half of the prior year and a $54 million increase in first half 2020 contingent consideration payments versus payments made in the first half of 2019.
Overall, the balance sheet remains in good shape.
At the end of the second quarter, our cash balance was $553 million versus $406 million at the end of the first quarter.
Net leverage at quarter end was approximately 2.6 times, providing comfortable headroom when compared to our covenant, which requires that we stay below 4.5 times.
Lastly, we have no near-term debt maturities of material size.
Before closing, I'd like to make you aware of a matter that will be disclosed in our 10-Q filed today.
In June, we began producing documents and information responsive to a civil investigation demand received by one of our subsidiaries, NeoTract from the U.S. Department of Justice through the United States Attorney's Office for the Northern District of Georgia seeking documents and information pertaining to communications with and certain rebate programs offered to a single NeoTract customer in relation to the DOJ's investigation of that customer.
Subsequently, in July, the DOJ advised us that it had opened an investigation under the Civil False Claims Act with respect to NeoTract's operations broadly in addition to the customer investigation.
We maintain policies and procedures to promote compliance with the Anti-Kickback Statute, False Claims Act and other applicable laws and regulations.
And while the company intends to cooperate with the government's investigation and request for information, we will vigorously defend our programs, practices and conduct, which we believe are lawful and in accordance with industry best practices and standards.
We cannot, at this time, reasonably predict the duration, scope or the outcome of this matter.
In closing, we delivered solid second quarter results as our diversified portfolio helped to dampen the impact COVID had during April, and procedures have started to improve month-over-month in May, June and into July.
However, it remains difficult to predict the shape and duration needed to measure the path to recovery.
And while the next several quarters will have elements of uncertainty, we remain confident that our long-term underlying fundamentals remain solid, and we still see great opportunity over the long-term to serve our key constituents.
We, as an organization, will continue to focus on serving the vast majority of hospitals that remain open for procedures while also monitoring closely, those select regions that are temporarily shut down.
We continue to adapt our business and opportunistically shift toward a greater emphasis on digital tools, both internally as well as with our customers.
We will manage the business prudently, while staying focused to capitalize on long-term potential of our global product portfolio.
 Assistant:

Chosen response:
compname reports q2 adjusted earnings per share $1.93 from continuing operations.
q2 adjusted earnings per share $1.93 from continuing operations.
q2 revenue $567 million versus refinitiv ibes estimate of $537.9 million.
new workforce reduction plan to further improve company cost structure announced.
not reinstating 2020 financial guidance due to covid-19 pandemic.
will incur aggregate pre-tax restructuring charges of $10 million to $13 million.
expect to begin realizing plan-related savings in 2020.
expect to achieve annual pre-tax savings of $11 million to $13 million once restructuring plans are fully implemented.


Prompt:
Human: During this conference call, you will hear management make statements regarding intra-quarter business performance.
Management is providing this commentary to provide the investment community with additional insights concerning trends, and these disclosures may not occur in subsequent quarters.
It's a pleasure to speak with you today.
For the third quarter, Teleflex generated double-digit constant currency revenue and 27% adjusted earnings-per-share growth on a year-over-year basis despite a greater-than-expected headwind from increased COVID-19 infections due to the Delta variant.
All of our global product families grew on a constant currency basis year-over-year with the exception of our other category due to the divestiture of the respiratory assets to Medline.
Although we encountered a change in macro trends versus expectations at the time of the second quarter, the solid performance for Teleflex during the third quarter of 2021 reflects the diversified nature of our business and the benefits of the company's broad portfolio of medically necessary products and category leadership.
Our six primary product families and broad global footprint helped offset pressure on product revenues associated with elective surgery that were subject to pauses during the third quarter.
As many investors will be aware, there were restrictions on elective surgical procedures in as many as 28 states during the third quarter.
However, as we have seen since the pandemic began, our broad-based portfolio provides a hedge in periods of increased COVID activity with more than 60% of our business, either benefiting from increased COVID-related treatments or remaining relatively insulated from disruptions due to the pandemic.
Although we do not routinely provide intra-quarter commentary, given the larger-than-expected surge in COVID-19 infections from the delta variant, I will share some details for the third quarter.
Relative to guidance provided at the time of our Q2 earnings report, we saw a greater-than-anticipated pause in elective surgical procedures across select geographies in the U.S., Europe and Asia.
However, as COVID-19 infections trended down, we saw our average daily sales for products most exposed to elective surgical procedures begin to improve as we progressed through September.
During the third quarter, our Americas, EMEA, Asia and OEM segments demonstrated resilience with all regions showing constant currency revenue growth over 2020 despite the headwinds from the delta variant.
As I mentioned earlier, this underscores the benefit of our diversified product portfolio.
For the third quarter, gross and operating margins exceeded levels achieved in 2020 and 2019 in comparable periods.
Our continued progress in margin expansion in 2021 has allowed us to increase directed investments toward growth drivers, which is an important component of our long-term strategy to enhance durable growth.
We remain cognizant of uncertainty around COVID-19 infections as the weather turns colder in the Northern Hemisphere, new variants and healthcare worker shortages.
Accordingly, we believe that it is prudent to assume that COVID-19 will remain a headwind and that a broad-based return to elective surgical procedures to normal volumes is unlikely during the fourth quarter.
We anticipate these elements to be transitory in nature, and we expect a more normalized environment to be established in 2022.
Given our year-to-date results and outlook for the fourth quarter, we are reducing our constant currency revenue growth to a range of 8% to 9% from 8.5% to 9.75% previously.
The revision in the constant currency growth outlook is primarily driven by lower growth expectations for products used in elective surgical procedures.
However, given strength in our operating margin performance and improvements in our balance sheet, we are increasing earnings per share guidance to a range of $13.15 to $13.35 versus our previous range of $12.90 to $13.10, implying growth of 23% to 25% year-over-year.
Turning to a more detailed review of our third quarter results.
Third quarter revenue was $700.3 million, an increase of 10.3% year-over-year on a constant currency basis.
The year-over-year increase reflects the benefit of our diversified portfolio and was driven by contributions from all business segments, offset by the impact of COVID-19 and the divestiture of the respiratory assets to Medline.
In comparison to the comparable period in 2019, third quarter revenue increased 5.8% and demonstrated accelerating quarter-over-quarter growth in our Vascular, OEM and Anesthesia businesses, which offset sequential deceleration in areas of the business more exposed to the surge in COVID-19, including Interventional Urology, Interventional and Surgical.
Third quarter growth and operating margin performance exceeded our expectations reflecting the strength of our diversified portfolio, partially offset by greater-than-anticipated headwinds from COVID-19.
Our year-to-date margin performance is an encouraging sign for our longer-term profitability objectives.
Third quarter adjusted earnings per share of $3.51 increased 26.7% year-over-year and exceeded our internal expectations.
Despite higher-than-anticipated headwinds from COVID-19 on our adjusted earnings per share results in the third quarter, the year-over-year performance reflects growth in our diversified product portfolio, modest price increases, gross margin expansion and better-than-expected operating expense management.
We continue to execute on our strategy to deliver durable growth with investment in organic growth opportunities, product innovation, margin expansion and deployment of capital for deleveraging our balance sheet and M&A.
I am proud of how the team continues to execute in a challenging environment.
Our third quarter financial performance demonstrates the resilience of our diversified global product portfolio, our targeted investment in growth drivers, including UroLift and MANTA while also reflecting progress toward our longer-term margin aspirations.
Turning now to a deeper look at revenue results.
I will begin with a review of our reportable segment revenues.
Americas revenues were $417.3 million in the third quarter, which represents 10.9% growth year-over-year.
Contributors to the year-over-year growth were Surgical, Vascular and Interventional, partially offset by the impact of pauses in elective surgical procedures.
EMEA revenues of $143.9 million increased 3.6% year-over-year with Interventional and Vascular products leading the growth.
EMEA benefited from a favorable COVID-19-related comparison due to improved procedure volumes year-over-year as countries across the region continued to open up despite disruptions related to COVID-19.
Revenues were $75 million, increasing 6.3% year-over-year.
Japan was strong in the third quarter, growing north of 30%, but was partially offset by the impact of COVID-19 in Southeast Asia.
Let's now move to a discussion of our third quarter revenues by global product category.
Consistent with my prior comments regarding our reportable segments, commentary on global product category growth will also be on a constant currency basis and ranked by size of our business units.
As a reminder, there were no meaningful differences in year-over-year selling days in the third quarter.
Starting with Vascular Access.
Third quarter revenue increased 8.5% to $175.5 million.
Our category leadership in central venous catheters and midlines, along with our novel coated PICC portfolio, continues to position us for dependable growth.
Our Vascular Access portfolio remains important in the treatment of COVID-19 patients, driving strength in the third quarter due to increased rates of coronavirus infections.
Our PICC portfolio continues to perform well with 10% growth year-over-year.
We continue to invest behind our differentiated PICC portfolio and are taking market share.
Intraosseous was also solid in the third quarter with growth up 12% year-over-year.
Third quarter revenue was $104.3 million, up 10.4% year-over-year.
We executed well during the third quarter, although increased COVID-19 infections slowed complex PCI and TAVR procedures.
We continue to invest behind our interventional portfolio, including complex catheters and MANTA, our large-bore closure device.
MANTA momentum remains strong, both in the U.S. and in international markets, with over 80% global growth year-over-year in the third quarter.
Given the year-to-date performance for MANTA, we are confident in our ability to achieve 8% share in 2021 of the $200 million to $300 million global market opportunity.
Turning now to Anesthesia.
Third quarter revenue was $97.1 million, up 26.6% year-over-year.
Products from Z-Medica contributed roughly 85% of the growth as the business continues to track to our $60 million to $70 million revenue expectations for 2021, partly offset by lower sales of tracheostomy products.
In our Surgical business, revenue was $92.8 million, representing 10.9% growth year-over-year.
Among our largest product categories, we witnessed robust growth in sales of our ligation clips and instruments as the elective surgical procedure environment was stronger than in the prior year period, partially offset by the impact of the Delta variant in select geographies.
Urology, third quarter revenue was $83.1 million, an increase of 1.5% year-over-year and below our expectations at the time of the quarter two conference call.
The quarter was impacted by elective surgery cancellations due to state restrictions and ICU capacity limitations as delta variant infections rose sharply in certain regions of the U.S. as well as continued business disruption associated with the pandemic.
We are closely monitoring trends in our UroLift business.
Importantly, our analysis of commercial and Medicare billing claims over the past six months indicates that UroLift has not lost market share to competing minimally invasive treatments for BPH and remains the leading procedure.
We continue to see COVID-19 as having the most significant impact on UroLift utilization with physician office staffing shortages also disrupting the business.
We see both of these impacts as transitory in nature and expect a more normalized environment in 2022.
The preference for UroLift continues to be driven by strong clinical results, with studies showing rapid symptom relief and recovery, no new sustained sexual dysfunction and durable results.
Indeed, our analysis shows that very few of our experienced users offer other technologies for the treatment of BPH given their confidence in UroLift.
The UroLift system remains distinct from other device-based BPH treatments, and we intend to maintain our leading market position in day surgery treatments for this condition.
We continue to target patients that are suffering from BPH and have either failed or are not satisfied with drug therapy, a population that is estimated to be 1.5 million men in the United States.
As we look toward the fourth quarter of 2021, we are assuming a relatively stable macro environment as compared to our September trends given lingering COVID-19 headwinds for elective surgical procedures.
When taking into account the softer-than-expected UroLift revenues during the third quarter and our recalibration of the fourth quarter, we are reducing our 2021 Interventional Urology revenue growth guidance to 15% to 17% year-over-year.
We would anticipate a more normal environment for elective surgical procedures to emerge during 2022.
We remain encouraged by the physician engagement as measured by our active users, new physician training, and the ability to perform UroLift procedures in all relevant care settings.
Our OEM business, which accounts for roughly 9% of total sales increased 29.4% year-over-year to $64.1 million in the third quarter.
We continue to see strength in our OEM business as customer ordering normalizes, and we remain well positioned in our markets with customers valuing our design and manufacturing capabilities.
And finally, our other category, which consists of respiratory products that were not included in the divestiture to Medline, manufacturing service agreement revenues and Urology Care products declined by 4.3% to $83.4 million year-over-year.
The decline largely reflects the loss of revenue due to the divestiture of the respiratory products, partially offset by manufacturing service agreement revenues and growth in Urology Care.
We continue to expect manufacturing service agreement revenues to phase out at the end of 2023.
That completes my comments on the third quarter revenue performance.
Turning to some commercial updates and starting with UroLift.
In the third quarter, we trained 124 urologists.
Interest in UroLift remains strong, and with over 355 doctors trained in the year-to-date, we remain positioned to meet our training target of 450 to 500 urologists in 2021.
Turning to our consumer marketing efforts.
We continue to view direct-to-consumer as a multiyear catalyst for UroLift in the United States.
We have continued to fund our DTC campaign to prime the pump for the recovery in elective procedures, and we'll keep investing in the fourth quarter.
We recently won a bronze award for best new branded television campaign from DTC perspective, which is a meaningful accomplishment given 13 finalists.
Search interest for UroLip remains high and well above other minimally invasive BPH treatments with the majority of urologist surveys continuing to report patients asking for the UroLift System.
Moving to UroLift 2.
We remain on a full rollout in the United States.
We've formally launched the product as well as the UroLift ATC to the broad urology community at the AUA meeting in September.
We are well positioned to convert the majority of physician customers to UroLift two by the end of 2022, fueled by advantages in tissue compression, reduced storage space and increased manufacturing capacity.
UroLift two remains an important margin driver as we remain positioned to generate 400 basis points of UroLift gross margin expansion as the revenue base is fully converted.
Regarding Japan, we continue to make progress toward an upcoming commercial launch for UroLift.
Recently, the three major Japanese urology societies agreed on guidelines for UroLift usage, which is a positive development.
As for reimbursement approval, we remain highly engaged with the MHLW and has been officially notified that UroLift will be reviewed at an expert panel in November.
Although we cannot control the timing of the regulatory pathway, the panel confirmation is an important milestone toward reimbursement in Japan, marking one of the final steps in the process.
There is no change to our baseline assumptions that our commercial ramp will begin in 2022.
Japan remains an important long-term opportunity for UroLift with a $2 billion TAM and we are excited for our upcoming launch.
We continue to expect our sales in the region to ramp in a similar fashion to the U.S. in a market that is 1/3 the size.
Aside from Japan, our international regulatory and commercialization efforts for UroLift remain active.
On another positive note, we are excited about our initial commercial activity in Brazil.
Although we have been expecting to enter Brazil in late 2022, we have been able to shorten our time line with a limited market release late in the third quarter of 2021.
We have made good progress with select key opinion leader training and initial UroLift cases have already been performed in the hospital and office setting.
Although it is early, and the market will take some time to develop, Brazil remains an important geography in our expansion of UroLift outside of the United States, and we are quite encouraged by the early experience.
On the U.S. reimbursement front, and as a reminder, CMS published its proposed physician fee schedule for calendar 2022 on July 13, 2021.
The proposed rule would negatively impact reimbursement for roughly 600 procedures performed in the doctor's office across a broad range of surgical specialties with a disproportionate hit to device-heavy procedures such as UroLift.
Teleflex provided a detailed response to CMS during the public comment period regarding our position on the proposed rule.
We believe that the changes to the physician fee schedule would limit healthcare access for Medicare patients and shift procedures to more costly sites of service.
Teleflex, along with numerous other stakeholders, have urged CMS to postpone the implementation of the proposed physician fee schedule until additional analysis can be performed given the unintended consequences of the current proposed route.
We anticipate that the final rule will be published in November, consistent with historic timing.
We are pleased with the performance of our recently launched Arrow ErgoPack kit, which contributed over $5 million in revenue during the third quarter.
Among other improvements, the new kit configuration for our CVC catheters as a nitinol guidewire which is kink-resistant and an enhancement that clinicians find beneficial.
Given our leading market share in CVCs, the launch is a trade-up strategy that drives incremental gross profit dollars and helps sustain our dominant market leadership position in CVCs.
Lastly, on our acquisition of Z-Medica, which was completed in December of 2020.
The integration of Z-Medica continues to track slightly ahead of our internal milestones, and we are pleased with the progress we are making.
Regarding potential label expansion opportunities for the hemostat portfolio, we have completed patient enrollment in a 231-patient IDE study, evaluating the performance of QuikClot Control+ hemostatic devices from mild-to-moderate bleeding in cardiac procedures as compared to standard goals.
We intend to file a 510(k) for expanded use of QuikClot Control+ following the completion of the study.
Given the previous discussion of the company's revenue performance, I'll begin at the gross profit line.
For the third quarter, adjusted gross margin totaled 59.5%, a 230 basis point increase versus the prior year period.
The year-over-year increase in gross margin was driven by product and regional mix, benefits from cost improvement initiatives, favorable impacts from pricing, M&A and foreign exchange, partly offset by raw material and distribution inflation.
Third quarter adjusted operating margin was 28.5% or a 340 basis point year-over-year increase, driven by the gross margin improvement as well as disciplined expense management and partially offset by planned investment in the business.
For the quarter, net interest expense totaled $11.8 million, a decrease from $16.4 million in the prior year period.
The year-over-year decrease in net interest expense reflects savings from the redemption of the 2026 notes and also includes the impact of debt paydown using the proceeds of the respiratory divestiture and operating cash flows.
Our adjusted tax rate for the third quarter of 2021 was 11.3% compared to 7% in the prior year period.
The year-over-year increase in our adjusted tax rate is primarily due to a lower benefit from stock-based compensation compared to the prior year period.
At the bottom line, third quarter adjusted earnings per share increased 26.7% to $3.51.
Included in this result is an estimated favorable impact from foreign exchange of approximately $0.13 per share versus prior year.
Turning to select balance sheet and cash flow highlights.
Year-to-date, cash flow from operations totaled $450.5 million compared to $241.5 million in the prior year period and represented a year-over-year increase of $209 million.
The increase was primarily attributable to favorable operating results, lower contingent consideration payments, lower payroll and benefit-related payments and proceeds received under the manufacturing supply agreement with Medline.
Moving to the balance sheet.
Our financial position remains sound.
At the end of the third quarter 2021, our cash balance was $481.2 million versus $375.9 million at the end of the fourth quarter of 2020.
As noted previously, we made a $259 million payment in July against our revolving credit facility, using funds primarily generated from the initial close of the respiratory business divestiture.
At the end of the third quarter, we had $342 million drawn on our revolver and net leverage was approximately 2 times.
Now moving on to our 2021 guidance update.
We are adjusting our 2021 constant currency revenue growth guidance to a range of 8% to 9% year-over-year compared to 8.5% to 9.75% previously.
Realized outlook reflects the benefits of our diversified portfolio, offset by lower UroLift revenues due to the recovery in elective surgical procedures progressing at a slower rate than what our prior 2021 financial guidance had assumed.
We continue to assume a 2% tailwind to reported revenue from foreign exchange rates in 2021, which is unchanged from our previous assumption.
As a result, we are reducing our as-reported revenue growth guidance to 10% to 11% year-over-year versus 10.5% to 11.75% previously.
The updated guidance would equate to a dollar range of between $2.791 billion and $2.186 billion.
Now for some commentary on our margin outlook.
We are lowering the top end of our 2021 adjusted gross margin guidance by 25 basis points to a range of between 59.25% and 59.5%.
On a year-over-year basis, we expect gross margin expansion to be driven primarily by a favorable mix of high-margin products, including Interventional Urology, Interventional Access and Surgical as well as from manufacturing productivity improvement programs and benefits from previously announced Footprint restructuring programs, partially offset by inflation.
Relative to our prior guidance, the revised outlook is associated with lower UroLift revenues and the impact of higher inflation than previously assumed.
There is no change to our expectation at Z-Medica, will add approximately 50 basis points to gross margin for 2021.
On the topic of inflation, we continue to experience increased cost pressures in raw materials, freight and to a lesser extent, labor.
Additionally, at the end of 2020, we had entered into contracts for sea freight lanes in order to lock-in pricing at that time.
The majority of those contracts expired at the end of September, with the remainder expiring at the end of the year.
As a result of the expiring shipping contracts and increasing inflation, we now estimate that inflationary costs will be roughly $3 million higher in the fourth quarter than what was incurred in the third quarter.
This impact is reflected in our revised guidance for gross margins.
For adjusted operating margin, we are increasing our 2021 guidance range to 27.5% to 28%, representing an increase of 75 basis points at the low end and 50 basis points at the high end of the range versus prior guidance.
The increase in adjusted operating margin reflects the year-to-date performance, partially offset by the lower gross margin outlook.
Moving down the P&L.
We now expect interest expense to be roughly $57 million versus our previous guidance of $60 million to $62 million.
The decrease in net interest expense for 2021 largely reflects a reduction in debt, funded by proceeds from the respiratory divestiture and our strong cash flow generation.
On taxes, we now expect our adjusted tax rate for 2021 to be roughly 12% to 13% versus the prior range of 13% to 13.5%.
Considering all of these elements, we are raising our adjusted earnings per share outlook for 2021 by $0.25 at the high and low end of the range to $13.15 to $13.35, a 23.2% to 25.1% year-over-year increase.
In closing, I will highlight our three key takeaways from the quarter.
First, our diversified product portfolio enables Teleflex to deliver double-digit constant currency growth in the third quarter, even with greater-than-expected disruption from COVID-19.
Second, we continue to execute on our strategy to drive durable growth across our diversified portfolio with investment in organic growth opportunities, margin expansion and deployment of capital for M&A.
Third, we raised our earnings per share guidance for 2021, reflecting 23% to 25% earnings growth year-over-year.
In closing, we feel good about our overall performance in the quarter, which was anchored by our diversified portfolio of medically necessary products.
Our balance sheet is in a solid position with leverage at 2 times, providing ample financial flexibility for our capital allocation priorities.
We remain confident in our future and our ability to continue to meet commitments to patients, clinicians, communities and shareholders.
 Assistant:

Chosen response:
teleflex q3 adjusted earnings per share $3.51 from continuing operations.
q3 adjusted earnings per share $3.51 from continuing operations.
q3 revenue $700.3 million.
2021 constant currency revenue growth outlook reduced to 8.00% to 9.00% from 8.50% to 9.75% previously.
2021 adjusted earnings per share outlook raised to $13.15 to $13.35 from $12.90 to $13.10 previously.