Prompt:
Human: I'm Chris Miorin, vice president of investor relations.
Both are available on the Investor Relations section of our website, www.
In addition, a replay of this conference call will be available later today.
In addition, in today's remarks, we will refer to certain non-GAAP financial measures.
Starting on Slide 3.
2021 was a pivotal year for Ingersoll Rand with many accomplishments and new records.
We solidified our compounding growth story as we reshaped our portfolio to focus on mission-critical, flow creation technologies and high-growth, sustainable end markets while establishing a new capital allocation strategy designed to enable us to consistently compound earnings over time.
We continued a strong operational execution where the commercial effectiveness of our team, driven by our IRX process, yielded a backlog at the end of the fourth quarter that was our largest ever and positions us very well for continued strong results in 2022 as demand for our products and services continue to grow.
Moving to Slide 4.
I want to take a moment to recognize some of the accomplishments across each of our five strategic imperatives in 2021.
In deploy talent, our employees think and act like owners because they are.
Shares granted to employees to date have appreciated from $250 million to over $500 million in value, motivating our engaged employee base to make decisions each day that can benefit our value creation and ultimately, their personal wealth.
Furthermore, we implemented a plan to also grant shares to employees who join us as new employees or via acquisitions, yet another factor enabling Ingersoll Rand to be considered an employer and acquirer of choice.
Our employee engagement score, up 17% over the last three years, also shows the power of ownership.
Our current engagement score now ranks in the top quartile of manufacturing organizations.
In expand margins, we have improved the company's adjusted EBITDA margin 370 basis points in 2019, including an improvement of 160 basis points in 2021 alone.
We have realized $215 million in synergies out of the $300 million commitment from the IR merger, with an additional $15 million expected in 2022.
In operate sustainably, we continue to make progress and have received recognition from ESG rating agencies, including S&P Global and MSCI, once again demonstrating how we leverage the power of IRX to drive performance across a multitude of initiatives.
In accelerate growth, our unique growth enablers outlined during our 2021 investor day, strongly contributed to growth in the past year.
Our demand generation engine now generates three times more marketing-qualified leads compared to 2019.
IIoT-enabled assets were up 250% year over year, and new product innovation increased 95% in 2021.
In allocate capital effectively, we secured approximately $2 billion in gross proceeds from the divestitures of Club Car and High Pressure Solutions and redeployed over $1 billion through acquisitions in 2021, which represents over 6% of sales when annualized.
We also repurchased $731 million in shares as part of the KKR's final equity sale, established a new $750 million share repurchase program, and initiated a quarterly dividend of $0.02 per share during the fourth quarter.
We're incredibly proud of our 2021 accomplishments and could not have done it without the dedication of our team.
Turning to Slide 5.
We're committed to executing the strategy we outlined at our 2021 investor day and are confident it will produce the expected results.
This slide outlines how we are already delivering on that strategy and associated commitments.
Our portfolio is now positioned to capitalize on global megatrends, such as digitization, sustainability, and quality of life.
We expect to leverage our organic growth enablers to deliver mid-single-digit organic growth through 2025.
And as you can see, we outperformed on this commitment in 2021, delivering 12% year-over-year organic growth.
When coupled with mid-single-digit annual growth from M&A and technology investments, we expect to deliver total growth of low double digits through 2025.
And in 2021, we delivered 4% in-year growth from M&A and 6% annualized.
Our strong pricing, aftermarket, and I2V initiatives enable us to generate operating leverage and incremental productivity, with an expected 100 basis points of margin improvement per year over the period.
And in 2021, we over delivered on this target, capturing 160 basis points of margin expansion despite several challenges like supply chain constraints and inflationary pressures.
With IRX as our competitive differentiator and over 275 IMPACT Daily Management or IDM meetings across our company each week, our high-performance culture encourages strong execution.
This continues to support our goal of being a premier, high-quality company that consistently compounds earnings by double digits each year, with free cash flow margins in the high teens.
And we feel that we're well on our way, as in 2021, we grew earnings per share by 63% and achieved adjusted free cash flow margin of 16%.
Turning to Slide 6.
We have achieved strong margin improvement across our portfolio since 2019.
Looking at the company, margins improved 370 basis points from 2019 despite COVID impacts and persistent supply chain and inflationary pressures.
In the ITS segment, we improved an impressive 470 basis points since 2019 as we continue to accelerate synergy capture and execute on value creation opportunities from the IR merger.
Incremental operating leverage and productivity should enable ITS to achieve margins in the high 20s over time.
In the PST segment, margins have expanded 170 basis points since 2019 and 290 basis points, excluding M&A.
Continued strong flow-through in the base PST business, coupled with diligent synergy execution as we onboard acquisitions, should yield adjusted EBITDA margins in the mid-30s over time.
It is important to note that as we highlight on the last bullet point, due to the nature of our products, we're mission-critical with premium brands and high quality and reliability, and we have the ability to remain price/cost positive.
We have accomplished this in each quarter since the merger even during these inflationary times and expect to do the same in 2022.
Moving to Slide 7.
We're thrilled to announce the recent validation of Ingersoll Rand's progress as an industry leader in ESG.
Based on demonstrated progress, we received another upgrade from MSCI, which is our second upgrade in the past 18 months, and now have an A rating.
And I'm really excited to announce that S&P Global, in its annual sustainability assessment that was just released a few weeks ago, scored Ingersoll Rand in the top 15% and included us in its Sustainability Yearbook for 2022.
In addition, S&P Global recognized us with the Industry Mover Award, which is given to the most improved company in each sector of the year.
These recognitions exemplify our unwavering commitment to ESG.
In March of 2021, we committed to becoming a top-quartile ESG industrial company in three years.
And we believe we have achieved or are at the cusp of achieving that goal in one year.
And S&P Global agrees as it elected us to its Sustainability Yearbook, which recognizes the top 15% ESG performing companies in each industry sector.
Despite this progress, we're just getting started on our ESG journey, and we're very focused on accelerating progress toward our ESG growth.
I'm incredibly proud of our team for being recognized by the rating agencies already this early in our journey.
Moving to Slide 8.
We continue to be encouraged by the performance of the company in Q4, which saw a strong balance of commercial and operational execution fueled by IRX to overcome persistent inflationary pressures in a challenging supply chain environment.
Through Q4 2021, we have realized $215 million in cost synergies and are on track to deliver on our $300 million commitment.
Total company orders and revenue increased 24% and 16% year over year, respectively, driven by strong double-digit organic orders growth across each segment despite comparisons to a strong Q4 2020.
Our orders and revenue in the quarter were a record for the company, eclipsing Q3 and setting us up well for 2022.
The company delivered fourth quarter adjusted EBITDA of $342 million, a 15% year over year improvement, and adjusted EBITDA margins of 24.1%, a 40-basis-point sequential improvement.
Adjusted free cash flow for the quarter was $225 million after taking into account the unique items as pointed out on the slide.
Total liquidity of $3.2 billion at quarter end was up approximately $400 million from prior year.
This takes our net leverage to 1.1 times, an 0.9 times improvement from prior year.
Turning to Slide 9.
For the total company, Q4 orders grew 25% and revenue increased 18%, both on an FX-adjusted basis.
Overall, we posted a strong book-to-bill of 1.06 for the quarter.
We remain encouraged by the strength of our backlog, which is up over 7% from the end of Q3 and over 50% from the end of 2020.
Total company adjusted EBITDA increased 15% from the prior year.
ITS segment margin declined 40 basis points, while PST segment margin declined 400 basis points, driven largely by the impact of M&A.
When adjusted to exclude the impact of M&A completed in 2021, PST margin declined by 120 basis points.
Finally, corporate costs came in at $26 million for the quarter, down year over year, primarily due to lower incentive compensation costs and general savings and prudency.
We expect corporate cost to normalize back to the low 30s millions per quarter in 2022.
Adjusted earnings per share for the quarter was up 51% to $0.68 per share.
Of note, the adjusted tax rate came in at 5% for the quarter and 12% for full year 2021.
Q4 benefited from our ongoing tax restructuring efforts, specifically some nonrecurring impacts driven most notably by our efforts to manage and minimize the cash taxes associated with the divestitures of SVT and HPS completed earlier in the year.
As we look ahead to 2022, we expect the rate to be back in the low 20s due to the nonrepeat of some of these discrete items.
Turning to Slide 10.
On a full year basis, orders grew 28% and revenue increased 16%, both on an FX-adjusted basis.
The full year book-to-bill was 1.12, and total company adjusted EBITDA was up 28% from 2020.
Margin expanded by 160 basis points, with ITS margin up by 220 basis points and PST declining 50 basis points.
When adjusted to exclude the impact of these acquisitions completed in 2021, PST margins increased by 70 basis points.
ITS posted incremental margins of 38%, with PST at 27% or 36%, excluding the impact of M&A.
Moving on to the next slide.
Free cash flow for the quarter was $224 million on a continuing ops basis, driven by strong operational performance across the business while continuing to invest organically.
Capex during the quarter totaled $23 million, and free cash flow included $4 million of synergy and stand-up costs related to the IR merger.
In addition, free cash flow included a net inflow of $3 million in cash taxes related to the divestitures of the HPS and SVT segments.
Excluding these items, adjusted free cash flow was $225 million in the quarter.
Leverage for the quarter was 1.1 times, which was an 0.9 times improvement versus the prior year.
And total company liquidity now stands at $3.2 billion based on approximately $2.1 billion of cash and over $1 billion of availability on our revolving credit facility.
Liquidity increased by $100 million in the quarter, which included outflows of $165 million toward strategic M&A and $8 million to fund our first quarterly dividend.
Our M&A funnel remains robust and active, up in excess of five times from the close of the IR merger, and we're remaining disciplined in our approach.
Moving to Slide 12.
We'd like to provide an update on synergy delivery and some detail on the impact of price versus cost.
On the left side of the page, we are updating the cost to achieve the $300 million synergy commitment related to the IR merger, as well as the associated stand-up of the new company from a combined $450 million to now $280 million, an aggregate reduction of roughly 40% or $170 million from our original estimates.
This speaks to how we are always heavily focused on high returns on cash investments regardless of the situation.
I am very proud of how our employee ownership culture continues to overdrive our performance.
With everyone thinking like an owner, they think about how every dollar spent generates profit and improvement.
In addition to the $215 million in realized synergies to date, we expect an incremental $50 million in 2022 and $35 million in 2023.
The synergy funnel remains in excess of $350 million.
And while we don't expect our synergy commitment to materially change as we look ahead, we will provide periodic updates on status and execution, particularly as we approach the end of the IR merger-related synergy delivery.
The right side of the slide highlights the ongoing price/cost dynamic.
In 2021, we remain price/cost positive each quarter, and we expect to deliver the same result in 2022.
Note that we are calculating costs, including direct material and logistics, but not direct labor or labor inflation, as labor is mostly offset with internal productivity actions.
In Q4, we delivered an incremental margin of 23% for the total company despite strong inflationary pressures and supply chain challenges.
What I'm most proud of is that even in this environment, our team was able to achieve a sequential margin improvement of 40 basis points.
This highlights the resilience of IRX in very difficult environments.
Looking forward to 2022, we expect to remain price/cost positive each quarter as we continue to leverage IRX to drive commercial execution and productivity initiatives.
Given continued inflationary pressures and a very tough comparison from Q1 of 2021, we expect Q1 to be the most challenged period on a year-over-year basis, but nonetheless, expect incremental margins for the total year to be approximately 35% and the quarterly EBITDA profile to be well in line with prior-year quarterly phasing.
We know this is not easy, but it just speaks to the commitment of our team to be differentiated and be in the top quartile of performance.
And turning to Slide 13.
In our Industrial Technologies and Services segment, organic revenue was up 11%.
The team delivered strong adjusted EBITDA, which rose 10% year over year and an adjusted EBITDA margin of 25.7%, up 20 basis points sequentially with an incremental margin of 23%.
As a reminder, we're overcoming a very strong comp from Q4 2020 of 400-basis-point margin expansion.
However, important to highlight as well that on a two-year clip, the team has delivered 360-basis-point margin improvement.
Organic orders were up 19%.
Starting with compressors, we saw orders up in the low 20s percent.
And a further breakdown shows orders for oil-free products growing at over 15% and oil-lubricated products growing at over 25%.
The Americas team delivered strong performance with orders in North America up mid-20s, while Latin America was up high 20s.
In Mainland Europe, orders were up high teens, while India and the Middle East were down low single digits.
Asia Pacific continues to perform very well, with orders up approximately 20%, driven by low 20% growth in China and high-teens growth across the rest of Asia Pacific.
In the vacuum and blower product line, orders were up approximately 20% on a global basis.
Moving next to the power tools and lifting, Orders for the total business were up approximately 20% and saw continued positive momentum, driven mainly by our enhanced e-commerce capabilities and improved execution on new product launches.
On our sustainable innovation in action, today, we want to highlight our recently acquired company.
Jorc is a manufacturer of condensate drains, oil and water separators, and air-saving products, which are part of the compressor ecosystem.
These products focus on improving overall system performance and creating energy efficiency through efficient use and recycling of fluids and air, which helps our customers achieve their environmental goals.
We're very excited about this complementary acquisition as we continue to expand our offerings with the compressor ecosystem, as well as the impact that Jorc will have as we scale up and expand geographically.
Moving to Slide 14.
Revenue in the Precision and Science Technologies segment grew 15% organically, which remains encouraging given the tough comps due to COVID-related orders and revenue in Q4 of 2020 for the Medical business.
Additionally, the PST team delivered strong adjusted EBITDA of $78 million, which was up 22% year over year.
Adjusted EBITDA margin was 26.8%, down 400 basis points year over year, primarily driven by the impact of M&A.
Again, the segment was down 120 basis points, excluding the impact of acquisitions in Q4 2021 with an adjusted EBITDA margin of 29.6% ex M&A.
Overall, organic orders were up 40%, driven by the Medical and Dosatron businesses, which were up strong double digits in the quarter and as they serve lab, life sciences, water, and animal health end markets.
Incremental margins were 17% as reported and 21% when excluding the impact of M&A.
Looking at the sustainable innovation in action portion of the slide, we're highlighting our recent Tuthill Pumps acquisition.
Tuthill Pumps manufactures gear and piston pumps for sustainable end markets, such as medical and lab, food and beverage, water, and wastewater.
Tuthill's D Series magnetically coupled pumps are used in lab applications, such as hematology analysis, as well as other chemistry analyzers.
The business is complementary to our existing portfolio, and we are well underway with integration of this business.
Moving to Slide 15.
We're pleased to introduce our 2022 guidance.
In aggregate, we expect total company revenue to be up 11% to 13%, with the first half up 12% to 14% and the second half up 9% to 11%.
We expect organic revenue growth of 7% to 9% for the total company, with 7% to 9% growth expected in ITS and 8% to 10% growth in PST. FX is expected to contribute a headwind of approximately 1%, with 1% to 2% coming in the first half of 2022 and 0% to 1% in the second half.
M&A announced and closed to date is expected to contribute an incremental $225 million in revenue.
This outlook reflects normal seasonality in the business, which is typically lightest in Q1, similarly stronger in both Q2 and Q3 on an absolute basis, and strongest in the fourth quarter.
We do not see quarterly phasing to be materially different from 2021.
We expect total adjusted EBITDA for the company to be $1.375 billion to $1.415 billion, including corporate cost of approximately $135 million spread evenly over each quarter.
This yields an incremental margin of approximately 35% for the total company, with positive margin expansion expected sequentially from Q1 through Q4 of 2022.
Free cash flow conversion to adjusted net income is expected to be greater than 100%.
We anticipate our adjusted tax rate to normalize in the low 20s for the reasons Vik mentioned earlier, with capex representing approximately 2% of revenue.
Looking at Q1 specifically.
We expect double-digit revenue growth year over year with ITS growing high single digits organically and PST growing low double digits.
We also expect flat to slightly positive margin expansion due to the tough year-over-year comparison, ongoing supply chain constraints, and inflationary pressures.
Turning to Slide 16.
As we wrap up today's call, I want to reiterate that Ingersoll Rand is in an outstanding position.
2022 is poised to be a strong year despite the challenging environment.
We accomplished an incredible amount together, and we move into 2022 as an even stronger action-oriented team.
We continue to invest for growth, both organically and inorganically with a focus on increasing the quality of our total portfolio, while serving as an industry-leading sustainable company.
IRX is truly our backbone and drives every process in our company, enabling outperformance and ensuring our global team is speaking one language, focused on capturing growth opportunities, driving innovation and efficiencies, and acting boldly to win in the marketplace.
Our balance sheet is very strong.
And with our disciplined and comprehensive capital allocation strategy, we have significant ability to redeploy capital to compound earnings and continue our track record of market outperformance.
 Assistant:

Chosen response:
q4 adjusted earnings per share $0.68 from continuing operations.
sees full-year 2022 revenue growth to be 11% to 13%.


Prompt:
Human: I'm joined by our Chairman and CEO, Scott Santi; and Senior Vice President and CFO, Michael Larsen.
During today's call, we will discuss ITW's third quarter 2020 financial results and provide an update on our strategy for managing through the global pandemic.
We saw a solid recovery progress in many of the end markets that we serve in the third quarter as evidenced by our revenue being up 29% sequentially versus the second quarter.
In fact, demand levels returned to rates approximating year ago levels in five of our seven segments.
With two of those, Construction and Polymers & Fluids, delivering meaningful growth in the third quarter.
On the flip side, demand levels in our Food Equipment and Welding segments continue to be materially impacted by the effects of the pandemic, although we did see good sequential improvement in both in Q3 versus Q2.
We talk often about the flexibility and responsiveness inherent in our 80/20 front-to-back operating system, and those attributes were clearly on display in our Q3 performance.
Supported by our decision early on as the pandemic unfolded, to refrain from initiating staffing reductions and to focus on positioning the company to fully participate in the recovery, our people around the world responded to a rapid acceleration in demand by leveraging the ITW business model to provide excellent service to our customers, while keeping themselves and their co-workers safe.
Perhaps the most pronounced example was our Auto OEM segment where our team executed flawlessly from both of quality and delivery standpoint in responding to demand levels that essentially doubled in Q3 versus Q2 and with a demand -- a very demanding customer base.
Across all seven of our segments, our teams can site numerous examples of how our ability to sustain high levels of service in the phase of rapidly accelerating demand resulted in incremental business for the company in Q3.
In addition to leveraging our best-in-class delivery capabilities, our divisions remain laser focused on leveraging our strengths to capture sustainable share gain opportunities that are aligned with our long-term enterprise strategy.
These efforts are just beginning to take hold and I'm confident that they will contribute meaningfully to accelerating our progress toward our long-term organic growth goals.
The operating flexibility that is core to our 80/20 front-to-back operating system also applies to our cost structure, which show through in our operating margin performance in Q3.
Operating margin of 23.8% in the quarter, included meaningfully higher restructuring expenses versus a year ago in Food [Phonetic] segment specific one-time items, which Michael will provide more detail on in a few minutes.
Excluding these factors, operating margin was 25.3% in Q3.
The second highest in the history of the company.
Overall, the pace of recovery in the third quarter exceeded our expectations heading into the quarter, as we delivered revenue of $3.3 billion, operating income of $789 million, free cash flow of $631 million, and GAAP earnings per share of $1.83.
In addition, after-tax return on invested capital improved to 29.6%, an all-time high for the company.
It goes without saying that I cannot be more proud of how the ITW team is managing through this challenging period.
In the face of unprecedented challenges and circumstances, our operational and financial performance over the last few quarters supports our decision to remain fully invested.
And the key initiatives supporting the execution of our long-term enterprise strategy and provides further evidence that ITW is a company that has both the enduring competitive advantages and the resilience necessary to deliver consistent upper tier performance in any economic environments.
Looking forward, we remain focused on delivering strong results, while continuing to execute on our long-term strategy to achieve and sustain ITW's full potential performance.
Since the beginning of the pandemic, maintaining ITW's considerable financial strength, liquidity, and strategic optionality has been a priority.
Our objective was to fully leverage the strong financial foundation and resilient profitability profile that we have built in the last seven years to position ITW for maximum participation in the recovery.
And as the recovery progressed, ahead of our expectations going into the quarter, we were ready to meet customer demand and we delivered strong financial results.
Q3 revenue was up 29% or almost $750 million sequentially versus Q2.
And on a year-over-year basis, organic revenue declined only 4.6% compared to a 27% decline in Q2.
The impact of last year's divestitures was 1% and was essentially offset by 0.7% of favorable currency impact.
Product Line Simplification was 30 basis points in the quarter.
Despite the negative volume leverage and our decision to stay invested in our key strategic priorities, Q3 operating margin was 23.8%, down only 120 basis points compared to prior year.
If you set aside the impact of higher restructuring expenses and two one-time segment items that I will describe in a moment, operating margin would actually have increased year-over-year to 25.3%.
Strong execution on our enterprise initiatives was a big contributor once again at 120 basis points, as all segments delivered benefits in the range of 70 basis points to 190 basis points.
As expected, our decremental margins were a little higher than normal at 46% in the third quarter.
Excluding the two one-time items that I just mentioned and the higher restructuring expense, our decremental margins would have been about 20%, significantly better than our historical decrementals of 35% to 40%.
Operating income was $789 million, and GAAP earnings per share was $1.83, with an effective tax rate of 21.3%, in line with last year's 21.6%.
Solid working capital performance contributed to free cash flow of $631 million and a conversion rate of 108% of net income.
On a year-to-date basis, free cash flow was $1.9 billion, with the conversion rate of 127% compared to 105% last year.
We now expect free cash flow to end the year significantly above $2 billion.
Our balance sheet remains strong.
At quarter end, we had $2.2 billion of cash on hand, no commercial paper, and a $2.5 billion undrawn revolving credit facility, tier 1 credit ratings, and total liquidity of more than $4.7 billion.
In terms of our debt structure, you can see an increase of $350 million in the short-term debt, which is simply a reclassification from long-term to short-term as our 2021 bonds are coming due in less than 12 months.
So in summary, a very good quarter operationally and financially as the recovery progressed well ahead of our previous expectations.
Moving on to Slide 4, for a closer look at the third quarter recovery and response by each segment.
You can see that every segment responded effectively to the increase in demand recovery and improved sequentially on both revenues and operating margin.
I would highlight just a few things that Scott mentioned, including the fact that our Automotive OEM segment was able to essentially double their volumes in a quarter or just 90 days as operating margins went from negative to 20% plus.
In addition, six of seven segments had operating margins, not segment margins, operating margins above 20%.
In fact, Food Equipment was just below 20%, but we expect them to get above 20% in Q4, despite the fact that they are operating in a pretty challenging environment.
Next to Slide 5, starting with a quick look at organic revenue by geography.
As you can see customer demand improved in every region.
North America declined by only 5% in Q3 compared to down 26% in Q2.
Europe also improved significantly down only 8%, a sequential improvement of almost 30 percentage points.
Asia-Pacific turned positive this quarter, up 3% and China was the standout, up 10%, as the recovery continues to take hold.
In China specifically, Automotive OEM, Polymers & Fluids, and Specialty products all grew double-digits.
So in summary, broad-based geographic recovery in the quarter.
Now let's walk through each segment, starting with the one that experienced the most pronounced recovery Automotive OEM.
In a matter of weeks, our customers went from being shutdown to operating close to full capacity and the team responded by leveraging their experienced workforce, local supply chains, and flexible operating system, to quickly ramp up and meet customer demand.
Overall, organic revenue was still down 5% year-over-year, with North America now 10% and Europe down 5%.
China, which had already turned positive last quarter at 6% also improved sequentially and was up 15% this quarter.
Lastly, as we discussed on our last call, we did initiate a few restructuring projects that were part of our 2020 plan pre-pandemic, which will lead to a reduction in operating margins of 150 basis points, to 20.8%.
Turning to Slide 6.
As expected, Food Equipment was the hardest hit segment in the quarter as organic revenue declined 20%, a significant improvement though from being down 38% in Q2.
North America and international organic revenue were both down about 20%.
Equipment sales were down 21% and service was down 17%.
Institutional demand was down about 30% and restaurants, including QSR were down a little bit more than that.
On a positive note, retail, which includes grocery stores, grew more than 30% supported by the rollout of new products.
Despite the significant negative volume leverage and higher restructuring expense, operating margin was still 19.6%.
Excluding the higher restructuring impact, margins would have been 21.4%.
And I think it's worth noting that in this most challenging environment, the segment generated almost $19 million in operating income.
In Test & Measurement and Electronics, organic revenue declined only 2% with Test & Measurement down 6% and Electronics, up 2%.
While demand for capital equipment remains soft, the segment benefited from considerable strength in a number of end markets including semiconductor, healthcare, and clean room technology.
As you can see from the footnote, the reported operating margin of 23.7%, include a 350 basis points of unfavorable impact from removing a potential divestiture from assets held for sale.
Given the current environment, we simply decided to defer this divestiture for now.
Speaking of divestitures, let me make a broader comment on our portfolio management efforts and specifically the 2018 decision to divest seven businesses that we determine no longer fit our enterprise strategy framework, with revenue of approximately $1 billion.
We expect that the completion of these divestitures will improve our overall organic growth rate at the enterprise level by approximately 50 basis points and increase enterprise operating margins by 100 basis points.
In 2019, we made good progress completing four divestitures, with revenues of approximately $150 million and we are seeing the benefits in our financials this year including 20 basis points of operating margin impact.
While the pandemic put a hold on our efforts this year, our view regarding the long-term strategy fit of the remaining divestitures has not changed.
Accordingly, we will resume the sale process for these businesses when market conditions normalize.
Okay, turning to Slide 7.
In Welding, demand for capital equipment was down year-over-year as organic revenue declined 10%.
However, the commercial business, which accounts for about 35% of revenue and serves primarily smaller businesses and individual users, was up 11%.
In Industrial, customers were holding back on capital spending and organic revenue was down more than 20% this quarter.
Operating margin, though was remarkably resilient at 27.9%.
On a positive note, Polymers & Fluids reported record organic growth of 6% in the quarter.
The Automotive Aftermarket business benefited from strong retail sales to grow 10%, with double-digit growth in tire and engine repair products.
Fluids was up 6%, strong sales into healthcare and hygiene end markets.
As a result of the volume leverage and strong incremental margins of 78%, operating margin expanded by 250 basis points to a record 26.6%.
Moving to Slide 8, Construction had a remarkable quarter, benefiting from continued strong demand in the home center channel to deliver record organic growth of 8%.
All geographies were positive, with North America up 12%, with double-digit growth in the residential and renovation market offset by commercial construction, down 10%; Europe was up 6%, with double-digit growth in the Nordic region; and Australia/New Zealand revenues grew 3% and were positive for the first time in more than two years.
As a result of the volume leverage and strong incremental margins of 59%, operating margin expanded by 300 basis points to a record 28.1%.
And some of you may remember, when we launched enterprise strategy in 2012, Construction had the lowest operating margins in the company, seemingly stuck right around 12%.
Certainly, good performance in industry, but not really ITW caliber.
The fact that the construction segment delivered the highest margins inside of ITW in Q3 at more than 28% is therefore pretty remarkable.
Specialty organic revenue was down 5%, with North America down 4% and international revenue down 7%.
Demand for consumer packaging remains solid, but was offset by lower demand in the capital equipment businesses.
Operating margin was 25.2% and included a one-time customer cost sharing settlement.
Excluding the impact of this one-time item, operating margins would have been 28%.
Let's move to Slide 9, for an updated outlook at our full-year 2020.
As I mentioned earlier, the demand recovery in Q3 exceeded the high end of our expectations going into the quarter.
And as a result, we're updating our financial outlook for the year.
As we sit here today, we expect organic revenue for the full year to be down 11% to 11.5%, operating margin to be in the range of 22% to 22.5% and operating income in the range of $2.7 billion to $2.8 billion.
As I mentioned free cash flow performance continues to be strong and we expect to end the year well above $2 billion.
As you think about Q4, keep in mind the typical seasonality from Q3 to Q4 and that Q4 has two less shipping days.
Also, please note that we expect a slightly higher tax rate in Q4 versus Q3 and our full-year tax rate is expected to be in the 22% to 23% range.
With respect to our outlook for 2021, we expect to reinstate annual guidance when we release full-year 2020 results early next year.
With that, Karen, back to you.
 Assistant:

Chosen response:
compname reports q3 gaap earnings per share of $1.83.
q3 gaap earnings per share $1.83.
q3 revenue $3.3 billion versus refinitiv ibes estimate of $3 billion.


Prompt:
Human: I'm joined by our Chairman and CEO, Scott Santi; and Senior Vice President and CFO, Michael Larsen.
During today's call, we'll discuss ITW's fourth quarter and full year 2020 financial results and provide guidance for full year 2021.
The ITW team closed out 2020 with another quarter of strong operational execution and financial performance.
From my perspective, the highlights are the Q4 revenues got back to year-ago levels despite food equipment being down 17% and net operating income, operating margin and after-tax ROIC were all Q4 records for the Company.
It was a pretty solid finish to the year that needless to say, provided some unique and unprecedented circumstances and challenges, and indicates good momentum as we head into 2021.
While it was the challenges brought about by the pandemic that dominated our attention in 2020, it was the collection of capabilities and competitive advantages that we have built and honed over the past eight years to the execution of our enterprise strategy that provided us with the options to respond to them as we did.
Early on as the pandemic unfolded, we refocused the entire company on only two core imperatives.
A, to protect the health, safety and well-being of our people, and B, to continue to serve our customers with excellence.
And in my view, we executed extremely well on both.
Our manufacturing, operations and customer service teams around the world deserve special recognition for their extraordinary efforts and leadership in support of these two key pandemic priorities.
Their dedication and commitment to keeping themselves and their colleagues safe while continuing to deliver excellent service to our customers was truly inspiring and there is no question that we differentiate ourselves with many of our key customers, as a result of our ability to sustain our normal rock-solid quality and delivery performance throughout 2020 as a result of their efforts.
We also did our best to take full advantage of ITW's position of strength as we've thought through, how we should manage the Company through the pandemic.
Back in the spring, as we analyzed and stress-tested the Company's performance across a wide range of scenarios, it became clear that the financial and competitive strengths that we had built up over the past eight years have resulted in a very strong and very resilient company.
And as a result, we didn't have to just pull out our old recession playbook and hunker down.
And for ITW, this was a unique opportunity to react smartly and to stay focused on the long-term.
This conclusion led to two key decisions that we made regarding how we're going to manage ITW through the pandemic crisis.
First, we chose to leverage the strong financial foundation that we've built over the last eight years to reinforce our commitment to our people.
First, by providing full compensation and benefits support to all ITW colleagues through the entirety of Q2 when the economic effects of the pandemic were at their most widespread and severe.
And by deciding that we would not initiate any enterprisewide employment reduction mandated programs at any point in 2020.
These were not obvious reason decisions given the unprecedented and uncertain circumstances but we believe that they were the right decisions for our Company.
And I know that our people will remember them.
These decisions also turned out to be the right ones for us operationally, given the pace of demand recovery that we saw beginning in Q3.
Second, we chose to leverage our position of strength by implementing our Win the Recovery agenda in mindset across the Company.
Win the Recovery was not an opportunistic new strategy.
What it was and is a commitment to staying the course and continuing to prioritize the execution of our long-term enterprise strategy despite the unique and unprecedented challenges brought about by the global pandemic.
Win the Recovery for us did not mean ignore the pandemic.
As across the Company, we had to read and react to the realities of the near-term situation as we always do but it does mean that we are committed to protecting key investment supporting the execution of our long-term strategy and that we have from very early on, given our divisional leadership teams to mandate to continue to think long-term and to remain aggressive through the pandemic.
For 2021, our Win the Recovery posture in mindset continues on and serves as the central theme driving the 2021operating plans for every one of our 83 divisions.
The performance that they delivered in 2020 provides another proof point that ITW as a company that has the enduring competitive advantages, resilience and agility necessary to deliver consistent top tier performance in any environment.
Like many of you, I'm sure we are hopeful for a return to somewhere in the vicinity of normal at some point in 2021 and with that getting back to giving our full attention to taking ITW all the way for the Company's full potential.
Between now and whenever that is, we will continue to leverage the full breadth of ITW's capabilities and competitive advantages to keep our people safe, continue to serve our customers with excellence and execute our long-term enterprise strategy.
Michael, over to you.
In the fourth quarter, we continue to see solid recovery progress in many of the end markets that we serve as evidenced by our revenue being up sequentially 5% versus the third quarter.
The increase is 8% when you adjust for equal number of days when historically our revenue per day has increased by 1% from Q3 to Q4.
Overall, we delivered revenue of $3.5 billion, operating income of $883 million, an increase of 7% year-over-year, operating margin of 24.4%, free cash flow of $705 million, and GAAP earnings per share of $2.02.
After-tax return on invested capital improved to 32%.
And as Scott mentioned, operating income, operating margin and after-tax ROIC were fourth quarter records for the Company.
Revenue in all major geographies improved sequentially.
On a year-over-year basis, North America organic revenue declined 3%, International revenue grew 1%, Europe was down 2%.
Similar to Q3, China was the bright spot with 11% growth.
As we've talked about before, the operating flexibility that is core to our 80/20 Front-to-Back operating system also applies to the cost structure, which was on full display through our operating margin performance in Q4.
We improved operating margin by 170 basis points to 25.4%, the second-highest margin rate in a quarter in the history of the Company.
And like I say, grew operating income 7% to $883 million, the highest fourth quarter ever.
The biggest driver of our margin improvement remains our enterprise initiatives, as the ITW team executed on projects and activities that contributed 130 basis points in Q4.
The impact was broad-based with all segments delivering enterprise initiative benefits in the range of 80 basis points to 170 basis points.
GAAP earnings per share was $2.02 sets, up 2%, but keep in mind, the Q4 last year had $0.11of one-time gains from divestitures.
To exclude those gains, earnings per share was up 7%, the same as operating income.
Working capital performance was excellent and free cash flow of $705 million was solid with a conversion rate of 110% of net income.
Finally, the effective tax rate was 22.1%, down slightly from last year.
In summary, a strong finish to a challenging year and very good momentum as we head into 2021.
Let's move to slide 5 to review fourth quarter's recovery and response by segment.
We updated this slide from our last earnings call with Q4 information and you can see that our segments continue to respond effectively to the increase in demand recovery and improved sequentially on both revenue and operating margin.
I would just highlight a few things to illustrate the resilience and adaptability of our businesses.
You can see the rapid recovery in our end markets, relative to the Q2 bottom, but down 27%.
In Q4, three of our segments experienced demand levels that were higher than a year ago.
The most pronounced recovery has been in automotive OEM, which is more than doubled since Q2 and grew 8% year-over-year in Q4, as did construction products.
Polymers and Fluids grew 7% while demand in three segments, Test & Measurement and electronics, welding and specialty products was only slightly lower year-over-year.
As you would expect food equipment continues to be impacted by the effects of the pandemic, although we are seeing some sequential improvement.
Overall, you can see the benefit of having a high quality diversified portfolio and the fact that we're back to demand levels of a year ago with total revenue essentially flat year-over-year despite one of our core segments being down organically by 19%.
On the right side of the page, you can see the operating flexibility that I just talked about and how to also apply to our cost structure and ultimately shows up in our operating margin performance.
At the bottom, in Q2, we still delivered solid operating margins of 17.5% and only two segments were below 20%.
In Q4, were almost 800 basis points higher at 25.4% despite no volume growth year-over-year and every segment is back about 22% including food equipment and six out of seven segments achieved record fourth quarter operating margins.
Let's move on to slide 6 for a closer look at individual segment performance, starting with automotive OEM.
The team has continued to execute exceptionally well from a quality and delivery standpoint in responding to customer demand levels that have more than doubled since Q2.
In Q4, organic growth of 8% year-over-year was the highest growth rate since the first quarter of 2017.
While North America was flat in Q2, it was more than offset by strong demand in Europe, which grew 10% and China, which grew 20%.
As expected, food equipment end markets remained challenged in Q4, organic revenue was down 19%, a little better than the third quarter, and demand in Q4 was similar to Q3 when you look at it by geography and the end markets.
North America was down 20%, international down 18%, equipment sales were down 20% and service was down 18%.
Institutional demand was down about 30% with restaurants down a little bit more than that.
And not surprisingly, the bright spot throughout the year, continue to be retail with organic growth of 8%.
Moving to slide 7 for Test & Measurement and Electronics.
Q4 organic revenue declined 3% with Test & Measurement down 8% against the tough comparison of plus 6% in Q4 '19.
Electronics was up 3% and while demand for capital equipment remains sluggish, the segment benefited from considerable strength in several end-markets, including semiconductor, healthcare and clean room.
As you may have seen on January 19, we announced that we had entered into an agreement with Amphenol to acquire MTS's Test & Simulation Business.
The Test & Simulation Business is very complementary to our Instron business, which we highlighted during our 2018 Investor Day and some of you may have visited our facility outside of Boston.
MTS's Test & Simulation business has similar organic growth potential and there is substantial opportunity for margin improvement through the application of the ITW business model.
Pre-COVID revenues in fiscal year 2019 were $559 million with operating margin of 6%.
We expect to get the business to generate ITW caliber operating margins by the end of year five and generate after-tax ROIC in the high teens by the end of year 10.
As you saw in the announcement, we expect the acquisition to close in the middle of 2021 and we're very much looking forward to welcoming the MTS Test & Simulation team to the ITW family.
in welding, where we saw a meaningful pickup in demand as organic revenue improved from being down 10% year-over-year in Q3 to only being down 2% in Q4.
Our commercial business which primarily serves smaller businesses and individual users and accounts for 35% of the revenue in this segment remained strong and grew 12% year-over-year.
Our Industrial business showed signs of strong recovery from being down 23% in Q3 to down only 5% in Q4 as customer activity and equipment orders gained strength.
Overall organic revenue for equipment was flat versus prior year and much improved versus a 10% decline in the third quarter.
Polymers & Fluids delivered strong organic growth of 7% with fluids up 16% with continued strong demand in end-markets related to healthcare and hygiene.
The automotive aftermarket business benefited from strong retail sales with organic growth of 5% and polymers grew 4% with solid demand for MRO and automotive applications.
Moving to slide 9.
Construction continue to benefit from strong demand in the home center channel and delivered organic growth of 8% in Q4.
Growth was strong across all geographies with North America up 10%, double-digit growth in the residential renovation market offset by commercial construction, which represents only about 15% of North America revenue down 11%.
Europe grew 9% and Australia/New Zealand grew 5% due to strong retail sales.
Specialty organic revenue was down 3% this quarter with North America down 2% and international revenue down 4%.
Demand for consumer packaging remains solid, but it was offset by lower demand in the capital equipment businesses.
So that concludes the segment commentary and let's move on to the full year 2020 summer results in slide 10.
And in the face of unprecedented challenges that included temporary customer shutdowns across wide swaths of our end markets during the year, organic revenue was down 10%.
we delivered operating income of $2.9 billion and highly resilient operating margin of 22.9%, only down 120 basis points year-over-year despite no major cost takeout initiatives on mandates, and with the strong contribution of 120 basis points from our Enterprise Initiatives.
After-tax ROIC was 26.2% and free cash flow was $2.6 billion.
Throughout the pandemic, one of our priorities was to maintain our financial strength, liquidity, and strategic optionality, and as you can see, we did just that in 2020.
ITW's balance sheet is strong and we have ample liquidity.
We did not have a need to issue any debt or commercial paper in 2020 and we ended the year with total debt to EBITDA leverage of 2.5 times, which is only slightly above our 2.25 times target.
At year-end, we had approximately $2.6 billion of cash and cash equivalents on hand.
With 2020 behind us, let's move to slide 11 for a discussion of our guidance for 2021.
So starting with the caveat that we continue to operate in a fairly uncertain economic environment, we have based our guidance as we always do on the current levels of demand in our businesses.
Per our usual process, we are projecting current levels of demand into the future and adjusting them for typical seasonality.
The outcome of that exercise is a forecast of solid broad-based organic growth of 7% to 10% at the enterprise level.
Foreign currency at today's exchange rates is favorable and has 2 percentage points revenue for total revenue growth forecast of 9% to 12%.
At our typical incremental margins of 35% to 40%, we expect GAAP earnings per share in the range of $7.60 to $8 a share, up 18% at the midpoint.
We're forecasting operating margin in the range of 24% to 25%, which is an improvement of more than 150 basis points year-over-year at the midpoint.
Enterprise Initiatives are a key driver of operating margin expansion in 2021, as are expected to contribute approximately 100 basis points.
Restructuring and price costs are expected to be approximately margin neutral year-over-year.
We're closely monitoring the raw material cost environment and embedded in our 2021 guidance are the known raw material cost increases in commodities such as steel, resins and chemicals.
Given the differentiated nature of our product offerings across the Company, we expect to be able to offset the impact of any incremental raw material cost increases that might arise in 2021 with pricing actions on a dollar for dollar basis.
We expect strong free cash flow in 2021 with a conversion rate greater than 100% of net income.
I wanted to provide a brief update on our capital allocation plans for 2021.
Top priority remains internal investments to support our organic growth efforts and sustain our core businesses.
Second, we recognize the importance of an attractive dividend to our long-term shareholders and we view the dividend as a critical component of ITW's total shareholder return model.
Third priority, our selective high-quality acquisitions to supplement our portfolio and reinforce or further enhance ITW's long-term organic growth potential.
I should point out that the guidance we're providing today is for the core business only.
After the MTS Test & Simulation acquisition closes, we'll provide you with an update, but we do not expect a material impact in 2021.
In line with our capital allocation, we returned surplus capital to shareholders and we are reinstating share repurchases with a plan to invest approximately $1 billion in 2021.
We expect our tax rate for the year to be in the range of 23% to 24%.
Finally, when it comes to portfolio management, we have decided to defer any divestiture activity until next year.
And instead, focus on our time and efforts on the recovery in 2021.
While our view regarding the long-term strategic fit of the remaining divestitures hasn't changed, we also believe that given their expected performance this year, they will be more valuable in 2022.
With the caveat again and the environment remains fairly uncertain, we are providing an organic growth outlook for each segment and based on current levels of demand, we are forecasting solid broad-based growth as every segment is expected to improve their organic growth rate in 2021.
At the enterprise level, it all adds up to solid organic growth of 7% to 10%.
To wrap it all up, ITW finished a challenging year strong, as we continue to fully leverage the capabilities and competitive advantages that we've built over the past eight years through the execution of our enterprise strategy.
Our strong operational and financial performance in 2020 provided further evidence that ITW is a company that has both the enduring competitive advantages and resilience necessary to deliver consistent upper-tier performance in any environment.
Looking ahead to 2021, we have good momentum from Q4 heading into the year and our solid guidance reflects the fact that we remain focused on delivering strong results while continuing to execute on our long-term strategy to achieve and sustain ITW's full potential performance.
 Assistant:

Chosen response:
q4 revenue $3.5 billion versus refinitiv ibes estimate of $3.33 billion.
sees fy 2021 gaap earnings per share $7.60 to $8.00.
q4 gaap earnings per share $2.02.
sees 2021 organic growth of 7 to 10%.
2021 revenue is expected to grow in range of nine to twelve percent.
plans to repurchase approximately $1 billion of its shares in 2021.


Prompt:
Human: Today we will be reviewing our second quarter 2020 financial results, providing investors with an update on our transformation and our response to the COVID-19 pandemic.
Further information can be found in our SEC filings.
We'll begin on slide 3.
First, I'd like to start today's call by expressing my gratitude for all our associates, who remain so committed keeping our workplace safe and productive in these uncertain times.
As a company whose central focus is to make life's experiences possible, their hard work, creativity and dedication has been inspiring.
Invacare's mission is built on the tenets of integrity leadership accountability and helping everyone be part of an inclusive culture around the world.
We benefit as a company from the diversity of our team, differences of individuals, and the inspiring differences of people who rely on our products in their daily life.
We're pleased with our performance in the second quarter, achieving our 11th consecutive quarter of year-over-year improvement in adjusted EBITDA, as well as sequential improvement in adjusted EBITDA for the first quarter.
We effectively shed costs, but managed cash to offset lower sales.
During the quarter, we also overcame tremendous supply chain challenges, primarily related to our respiratory products, which limited our ability to meet the extremely high demand for these products, which are used for pandemic related care.
Turning to slide 4; we've established a strong track record of enhancing profitability.
This quarter, delivering an 84% improvement in adjusted EBITDA.
Profitability grew, as a result of stronger gross margin from favorable sales mix, cost savings from continuous improvement initiatives, and reduced SG&A expense.
I'm pleased with our strong performance in this challenging environment, which highlights the value of changes, we continue to make.
On slide 5; we saw two distinct patterns driving demand, as a result of the pandemic.
Beginning in late first quarter, we saw strong demand in our respiratory category for both stationary and portable oxygen concentrator.
That elevated demand continues today.
We had a smaller peak in demand for bed systems in our lifestyles category.
At this point for the most part, that peak in bed demand has passed, the timing of the return to more normal sales rates and mix for these product groups are still to be determined, based on the course that the pandemic takes from here.
In Mobility and Seating, the good momentum we had in first quarter begin to slow in the early parts of second quarter, as public health restriction limited access to clinicians for custom fitting, which reduced sales.
Looking ahead, we see encouraging signs that demand for Mobility and Seating products are starting to recover, as third quarter quote and order rates are improving over second quarter run rate.
In summary, we believe the second quarter will be the low point for sales in the year, as it coincided with the most restrictive phases of the global lockdown.
Based on reasonable assumptions around the loosening of public health restriction, and when needing to access the healthcare facilities, we anticipate sales will begin to normalize over the next two to three quarters.
We're confident that our diverse product portfolio, geographic coverage, continuous improvement initiatives and balance sheet will enable us to manage the business through the pandemic and accelerate our return to growth.
Turning to slide 6; second quarter results show that our transformation is working.
Importantly, North America returns to profitability and generated $4.8 million in operating income in an unprecedentedly tough market.
As a reminder, the North American segment has been undergoing in multiyear transformation, after the impact of national competitive bidding and sales restrictions related to the FDA Consent Decree, Craig, which combines with significantly reduced sales and profitability, starting nearly a decade ago.
In terms of our business optimization plans, we continue to make good progress on our IT modernization program in North America and plant consolidation in Germany, both of which are expected to drive significant cost savings in 2021.
As new products are key drivers of sales growth, it's important to have a vibrant R&D pipeline, and we do.
I'm proud of the team staying on track to develop and launch innovative new products at the same pace, in keeping to the pre-pandemic schedule, which highlights our R&D strength.
Over the past few quarters, we have launched three major power wheelchairs, all of which have achieved steady growth in their short time in the market.
This quarter, we launched another.
The MPS Mini Maxx wheelchair with standing capabilities for small drivers, which is eligible for full reimbursement within the U.S. Group-III category.
Our Adaptive Switch Labs division, which produces sophisticated alternative controls for wheelchair drivers with highly unique need, launched a great new head array.
And in July, in North America, we launched the SMOOV one, a terrific power add-on for manual wheelchairs, which has already achieved great success in Europe.
All these products, as well as a very full pipeline of innovation in all categories will continue to support growth, wherever people need durable healthcare solution.
During the pandemic, our team has found creative ways to support our customers and to drive sales, by leveraging telepresence technology.
The LiNX wheelchair control system helps us perform contactless wheelchair delivery, and our Assurance program offers a fit guarantee, giving customers the confidence to choose Invacare power wheelchairs, when clinical visits are restricted.
In Europe, we upgraded our online presence by launching a digital catalog, a Product Visualizer and a new website.
These are just a few of the ways our commercial team has maintained high customer engagement, while complying with safe public health measures.
I am proud of the continued progress we've made on our transformation, and of our ability to execute under challenging circumstances, a well-developed skill over the past many years.
Our powerful innovation culture is enabling adaptation and growth.
Turning to slide 8; reported net sales decreased 16.8% and constant currency net sales decreased 12.9%, primarily driven by growth in respiratory and more than offset by declines in Mobility and Seating and non-bed lifestyle products.
Gross profit increased 130 basis points to 28.9%, primarily due to favorable product mix and lower material and freight costs, partially offset by unfavorable foreign exchange.
Constant currency SG&A decreased 13.2% or $8.8 million, driven by reduced employment costs and lower commercial expenses.
Lower employment costs included the benefit of reduced work hours and furloughs enabled by government-based programs, to mitigate the impact of the pandemic.
Operating loss improved by $2.3 million, driven by reduced SG&A expenses, partially offset by lower net sales and higher restructuring costs.
Adjusted EBITDA was $6.6 million, up nearly 84% driven by reduced SG&A expense and improved gross profit as a percentage of sales.
The company's free cash flow usage was $1.9 million, an increase of $2.1 million, due to higher capital expenditures.
Turning to slide 9; as Matt discussed, consolidated net sales declined due to public health restrictions that limited access to healthcare professionals and elective care, with the greatest impact on Mobility and Seating.
While Mobility and Seating net sales declined, the company expects sequential growth as quotes and orders in the third quarter have been higher than the run rate achieved in the second quarter of 2020.
Within the lifestyles product category, higher sales of pandemic related bed systems sold in the home care market, were offset by lower sales of other lifestyle products as a result of limited access to healthcare institutions, including long-term care facility.
In respiratory, the company realized higher demand for both stationary and portable oxygen concentrators, with sales limited by global supply chain challenges which dampened manufacturing capacity.
The company expects elevated demand for respiratory products to continue through the third quarter, as possible declines from COVID-19 infections lessen.
Turning to slide 10; during the second quarter, net sales were negatively impacted by strict quarantine measures in the company's key European markets, primarily, the U.K., France and Germany.
As a result, reported net sales in Europe decreased 24%, and constant currency net sales decreased 20.7%, driven by declines in sales in Mobility and Seating and non-bed lifestyle product.
Gross profit decreased 90 basis points, driven by unfavorable product mix.
Operating income decreased $3.3 million, due to reduced gross profit from the lower net sales and unfavorable foreign exchange, partially offset by reduced SG&A expenses and a gain recognized on the sale of a German facility.
Lower SG&A expenses included the benefit of furloughs, and reduced work hours implemented at a majority of the European locations.
Moving to slide 11, the company was not as impactful -- I'm sorry the pandemic was not as impactful in North America, as compared to Europe, as the U.S. was never fully shut down.
Reported net sales decreased 3.3% and constant currency net sales decreased 3%, with growth in respiratory products more than offset by declines in Mobility and Seating and non-bed lifestyle products.
Within Mobility and Seating, higher value power mobility products were resilient, only experiencing a slight decline of 1%.
The North America segment realized a favorable mix shift for its higher acuity products, as end users with more severe needs continue to access healthcare, while less urgent elective care was more often delayed.
Gross profit increased 230 basis points or $2.4 million, driven by favorable product mix and lower operational cost, including reduced material and freight costs as a result of previous transformation initiatives.
The North America segment returned to profitability, with operating income of $4.8 million, an improvement of $6.1 million driven primarily by lower SG&A expenses primarily in employment costs and the benefit of reduced operational costs.
Turning to slide 12; All Other, which comprises the sales in the Asia-Pacific region, increased by 8.1% on a constant currency basis, driven by higher sales of lifestyle and Mobility and Seating products.
Operating loss increased by $300,000, driven by higher corporate SG&A expense, primarily related to equity compensation, partially offset by improved operating income in the Asia-Pacific business, attributable to lower SG&A expense.
Moving to slide 13; as of June 30, 2020, the company had total debt of $319 million, excluding operating lease obligations of $15.9 million, capitalized on the balance sheet.
At the end of the quarter, the company had approximately $104 million of cash on its balance sheet.
The increase was primarily the result of cash borrowed on the company's credit facilities, proceeds from the sale of dynamic controls, and government loan programs, partially offset by cash used to fund operations and cash paid to expense a portion of the convertible debt.
In the second quarter, the company extended the maturity of a significant portion of the 2021 convertible note, and a portion of the 2022 convertible notes, to new maturity date of November '24, with terms substantially similar to the existing 2024 notes.
We are very pleased to have executed this transaction during a turbulent market.
On slide 14, we are reintroducing new full-year guidance for 2020.
Based on the loosening of public health restrictions and renewed access to healthcare facilities, the company anticipates reported net sales in the range of $810 million to $840 million.
Adjusted EBITDA, similar to the prior year in the range of $20 million to $30 million, and free cash flow usage, in line with the prior year in the range of $7 million to $10 million.
This guidance assumes consolidated net sales to improve sequentially, staying below the prior year.
Due to the more stringent quarantine programs in the company's key markets in Europe, net sales are expected to recover slowly, staying below the prior year in the range of mid-teen declines.
In North America, net sales are expected to be below the prior year, in the range of low single digit declines.
Adjusted EBITDA is expected to improve sequentially and for the full year, achieve results similar to 2019, despite lower net sales due to the pandemic.
It was a good quarter in tough times.
We acted decisively to ensure the safety of our associates and customers, while protecting our business against the near-term impact of the pandemic.
This resulted in continued improvement in profitability, and a significant achievement in these unprecedented times.
As I look further out, I'm confident that the actions we've taken to improve our competitiveness, reduce our cost structure, and strengthen our balance sheet, has set the foundation for long-term profitable growth.
It was the direct result of the many quarters of hard work that enabled our team to deliver a strong result this quarter, and we plan to unlock additional value for years to come.
We'll now take questions.
 Assistant:

Chosen response:
sees 2020 reported net sales in range of $810 million to $840 million.
sees 2020 free cash flow usage in line with prior year, in range of $7 million to $10 million.
sees fy 2020 adjusted ebitda similar to prior year, in the range of $27 to $30 million.


Prompt:
Human: I think we're all very ready to turn the page and what was a very challenging 2020 and while the global pandemic remains very pervasive, we do all see light at the end of the tunnel and we look forward to 2021 with cautious optimism that conditions will improve.
Throughout 2020, we focused on executing our long-term strategy while recognizing the necessity to focus on employee health and safety, finding ways to work, and serving and delivering expected outcomes for our clients.
Over the past decade, we've been successful investing ahead of shift in client demand, placing us in a strong position to take advantage of key industry tailwinds in the future.
Our investments in these capabilities and our tremendous focus on our clients is now again producing good momentum in our business that became more visible as the year progressed by working better to anticipate, understand, and meet client needs during the challenging times.
We've achieved six straight months of net long-term inflows, totaling nearly $18 billion in the second half of 2020 with progress across channels, geographies, asset classes.
Retail flows improved in the second half significantly.
Our solutions enabled institutional pipeline remain near record levels.
We saw net inflows in Asia Pacific, totaling $17 billion in the second half of the year and improving flows in EMEA within the Americas over this timeframe and net long-term flows in the fixed income remained robust during that period.
All of these factors combined build a strong foundation as we head into 2021 and maybe a few highlights of the 4th quarter.
On slide 4, if you happen to be following along more specifically during the quarter, investment performance for a large portion of our high demand capabilities were in the upper quartile.
We had net long-term inflows and then nearly $10 billion during the quarter, long-term inflows in the fixed income capabilities continued while we saw client demand for equities within ETFs, quantitative and index strategies in particular.
We saw another quarter of strong inflows from Asia-Pacific region and flows in the Americas turn positive.
Alison will provide more information in a few minutes on the flow's strategic evaluation and more details of the quarter.
But I would like to note, we also improved our operating leverage during the period, paid our credit facility to zero, and made progress improving our cash position.
I would like to spend a few minutes on slides 5 and 6 to talk about our competitive strength and key capabilities in areas with high client demand and our focus for 2021.
Slide 5 illustrates the market opportunities we see for these key growth areas and demonstrates the majority of our investment capabilities are aligned with these opportunities.
In these areas, our investment performance is strong.
We're highly competitive and well positioned for growth and as we move into 2021, we plan to further expand our market leading position in ETFs in the US and EMEA in particular and build our passive presence in Asia-Pacific.
We are the fourth largest ETF provider globally, and our capabilities span passive active strategies in establishing and developing a spectrum of ETF-ESG ETFs and building on our 15-year legacy of innovation, we continue to develop the products in this space as demonstrated by the launch of the QQQ innovation suite and our first non-transparent ETFs that we delivered in the 4th quarter.
Strong alternative platform and our focus is growing our private markets business led by our market leading real estate and bank loan businesses, and active fixed income and global equity remain key areas of opportunity for us and our offerings are well positioned with strong investment performance and high client demand.
In addition, we are focused on our solutions efforts and as we have seen by the contribution to the institutional pipeline, clients value the service, the ability to offer solutions that builds the full power of our competitive set of capability and services-services to client continues to be a priority for us during 2021.
We continue to invest in our leadership position in Greater China.
We have been managing dedicated Chinese products for nearly 40 years.
We have already seen the benefits of our early mover[Phonetic] advantage in the China onshore market through our joint venture, which [Technical Issue] our position in the fast-growing China market and further develop our media solutions and asset allocation offerings.
Given our investment in the business over the past decade, our most recent efforts to better align the organization with our strategy, I'm confident that we have the talent, the capabilities, the resources, and momentum to [Technical Issue] future growth and success.
[Technical Issues] happy New year and remain focused on helping our clients achieve their desired outcomes regardless of where the markets take us.
Moving to slide 7, we had 61% and 70% of actively managed funds on the top half of peers on a 5-year and a 10-year basis, reflecting strength in fixed income, global equities, including emerging market equities and Asian equities, all areas where we continue to see demand from clients globally.
Looking at our AUM on slide 8, we ended the quarter with $1.35 trillion in AUM.
Of the $132 billion in AUM growth, approximately $95 billion as a function of increased market values.
Turning to flows on slide 9, our diversified platform generated long-term net inflows in the 4th quarter of $9.8 billion representing 3.9% annualized organic growth, which we generated positive net inflows in active AUM of $400 million and passive AUM of $9.4 billion.
Our ETFs experienced net inflows of $6.1 billion including $4.7 billion in long-term ETF and $1.4 billion in our QQQ.
Our US-listed ETFs excluding the QQQs have their best quarter in their 15-year history.
We saw net long-term ETF flows in the US focused on equities in the 4th quarter including a high level of interest in our S&P 500 equal weight ETF which had $2.7 billion in net inflows in the quarter.
Two of our top 5 end-flowing ETFs were ESG related.
We continue to see momentum in our ETF business and demand for ESG funds and as Marty highlighted, the market opportunity is significant for this key growth area in 2021.
Retail net outflows were $800 million in the quarter, helped by the positive ETF flows.
On the institutional side, we had net inflows of $10.6 billion.
I'll provide a little more color on these flows on the next few slides, but importantly, the growth in our passive AUM and our institutional AUM is meaningful for the firm and contributed to the positive operating leverage we generated in the period.
Also, as Marty noted earlier, we are seeing the mix of ETF inflows being weighted toward higher fee-generating products.
Looking at flows by geography, you will note that the Americas had net inflows of $2.2 billion in the quarter, an improvement of $6.6 billion from the prior quarter.
This improvement was driven by net inflows into ETFs, institutional inflows, various fixed income strategies, and importantly, focused sales efforts and improvement in redemption rates.
Our global equity products improved by over $1 billion or 37% from Q3 driven by our developing market fund, which returned to positive net flows in the 4th quarter following negative net flows in the first three quarters of the year.
The UK experienced net outflows of $100 million in the quarter, as positive flows into our institutional quantitative equity capability were offset by net outflows in multi-asset in UK equities.
EMEA net outflows were $1.4 billion driven by institutional lumpiness and ETF outflows largely in our S&P 500 and Nasdaq-100 use ETF.
And finally, I noted last quarter that Asia Pacific delivered one of its stronger-strongest quarters ever with net inflows of $8 billion.
In the 4th quarter, net inflows were even higher at $9.1 billion.
Net inflows were diversified across the Asia Pacific region.
$4 billion of these net flows were from Japan, $3.8 billion arose from our China JV, and the remaining $1.3 billion was generated from several other countries in the region.
It's worth noting that we continue to see strength in fixed income across all channels and markets in the 4th quarter with net long-term inflows of $8.2 billion.
This following net long-term inflows of $8.8 billion in the 3rd quarter and $6 billion in the second quarter.
It's also important to note that of the $26.1 billion in fixed income net inflows in 2020, $25 billion of these net inflows were from active fixed income capabilities.
Active fixed income has been a growth area for us in 2020 and remains a key investment area in 2021.
Now, moving to slide 10.
Our institutional pipeline remains robust at $30.5 billion on the heels of strong pull through in the institutional pipeline during the 4th quarter.
This pipeline is diversified across asset classes and geographies, and our solutions capability has contributed to meaningful growth across our institutional network warranting our continued investment in this key capability in 2021.
Turning to slide 11, you will note that our revenues increased $135 million or 12.4% from the 3rd quarter, driven by higher average AUM in Q4, as well as a meaningful increase in performance fees.
Net revenue yield at performance fees was 36 basis points flat and flat at the, at the Q3 yield level.
The impact of rising markets on our yield was offset by modest fee rate decline from the mix shift we experienced across products in the quarter as well as the impact of non-management fee earning AUM.
We recorded performance fees of $78 million in the 4th quarter, $48 million of these performance fees arose from our real estate business and $21 million from our institutional business and our China JV, two of our key growth areas.
Seasonally, we tend to see higher performance fees in the 4th quarter.
Total adjusted operating expenses increased 8.3% in Q4.
The $57 million increase in operating expenses was driven by higher variable compensation as a result of both market growth and compensation related to the performance fees in the quarter.
Operating expenses remained at lower than historic activity levels due to pandemic driven impacts to discretionary spending, travel, and other business operations that persisted in the quarter.
That being said, we did see a seasonal increase in marketing expenses as expected.
Moving to slide 12, we wanted to update you on the progress we have made with our strategic evaluation.
As we noted previously, we conducted a strategic evaluation across four key areas of our expense base, our organizational model, our real estate footprint, management of third-party spend, and technology and operations efficiency.
Through this evaluation, we will invest in key areas of growth, including ETF, fixed income, China solutions, alternatives, and global equities while creating permanent net improvement of $200 million in our normalized operating expense base.
As we noted, a large element of the savings will be generated from compensation which includes realigning our client facing workforce to support key areas of growth and repositioning to lower cost locations.
In the 4th quarter, we realized $7.5 million in cost savings, $7 million of these savings were related to compensation expense as depicted on slide 12.
The remaining $500,000 in savings were related to facilities, which are shown in the property, office, and technology category.
The $7.5 million in cost savings were $30 million annualized is 15% of our $200 million net savings expectation.
Of the remaining $170 million in net savings, we anticipate we will realize roughly 50% of the savings through compensation expense.
The remaining 50% would spread across occupancy, tech spends, and G&A.
As it relates to timing, we still expect approximately $150 million or 75% of the run rate savings to be achieved by the end of this year, with the remainder recognized by the end of '22.
We estimate that we will realize roughly 75% of the anticipated compensation reductions in 2021, roughly 50% of the anticipated reduction in occupancy expense also in 2021, and all of the reduction in G&A this year.
The majority of efficiencies identified in our tech spend will not be realized until 2022.
In the 4th quarter, we incurred $104 million of our total estimated $250 million to $275 million in restructuring costs.
We expect the remaining transaction costs for the realization of this program to be in the range of $150 million-$175 million over the next two years, roughly two-thirds of this remaining amount occurring in 2021.
As a reminder, the costs associated with the strategic evaluation are not reflected in our non-GAAP results.
With respect to Q1, after improved market performance and asset inflows in the 4th quarter, we start the year with ever $1.3 trillion in AUM.
Given the market improvement with more back-end weighted toward the end of the quarter, we expect both operating revenues excluding performance fees and the associated variable expenses to be modestly higher in the first quarter.
This reflects the follow through from the market and slow growth that occurred over the course of the 4th quarter, even if we assume no change in markets from year-end.
On the expense side, this will include higher associated variable compensation from the seasonal increase in payroll taxes, partially offset by lower compensation related to the seasonal decline in performance fees and the execution of our targeted cost savings.
Turning to slide 13, adjusted operating income improved $78 million to $485 million for the quarter, driven by the factors we just reviewed.
Adjusted operating margin include 230 basis points as compared to the 3rd quarter to 39.5%, demonstrating the operating leverage in our model.
This helped drive a 19% increase in adjusted earnings per share to $0.72 a share.
In addition, we benefited from higher non-operating income and lower non-operating expenses in the quarter.
Non-operating income included $31.9 million in net gains for the quarter compared to $15.2 million in net gains last quarter.
The increase was driven by unrealized gains primarily in our seed money holdings.
Interest expense of $24.4 million was 28% lower than the prior quarter.
Q3 was the final quarter in which we paid dividends related to our forward purchase agreements, a portion of which we settled in January with the remaining portion to be settled in April 2021.
Our tax rate for the 4th quarter was 21.7%.
The reduction in the rate reflects the lower taxes on unrealized gains in our seed portfolio due to the jurisdiction of our holdings.
We estimate our 2021 non-GAAP effective tax rate to be between 23% and 24%.
The actual effective tax rate may vary from this estimate due to the impact of non-recurring items on pre-tax income and discrete tax items.
A few comments on slide 14.
As Marty mentioned, we reduced revolver balance by $90 million to 0 in the quarter, consistent with our commitment to improve our leverage profile.
In addition to using excess cash to reduce leverage, we seek to improve liquidity and our financial flexibility.
To that end, our balance sheet cash position improved to $1.4 billion in the 4th quarter from $1.1 billion at the end of Q3, $764 million of this cash is held for regulatory requirements.
I will note, we paid $117 million earlier in January to settle a portion of the forward share repurchase liability with the remaining liability of $177 million to be settled in April.
We believe we're making solid progress in our efforts to build financial flexibility.
We remain committed to a sustainable dividend and to returning capital to shareholders longer term through a combination of modestly increasing dividends and share repurchases.
In summary, Marty will walk through our key capabilities through organic growth opportunity each presents and our focus on executing the strategy that aligns with these areas.
We're also focused on our strategic evaluation and reallocating our resources to position us for growth, and we remain prudent and cautious in our approach to capital management.
Our focus on driving greater efficiency and effectiveness into our platform, combined with the work we've done to build a global business with a comprehensive range of capabilities, puts Invesco in a very strong position to meet client needs, run a disciplined business, and to continue to invest in and grow our franchise over the long term.
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quarterly adjusted earnings per share $0.72.
long-term net inflows of $9.8 billion in q4-20 compared to $7.8 billion in q3-20.
qtrly adjusted net revenues $1,228.4 million versus $1,267.8 million.
qtrly operating revenues $1,630.1 million, down 6.5%.