Sealed Air Corporation

Good day, and thank you for standing by. Welcome to the fourth quarter and full year 2022 Sealed Air Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. please limit yourself to one question and queue up for any additional follow-ups. Please be advised that today's conference is being recorded. I would now like to hand the conference over to our speaker today, Brian Sullivan. Please go ahead.

Thank you, and good morning, everyone. With me today are Ted Dehaney, our CEO, Emil Shamas, our COO, and Chris Stevens, our CFO. Before we begin our call, I would like to note that we have provided a slide presentation to help guide our discussion. Please visit sealedair.com where today's webcast and presentation can be downloaded from our investors page. Statements made during this call stating management's outlook or predictions for future periods are forward-looking statements. These statements are based solely on information that is now available to us. We encourage you to review the information in the section entitled forward-looking statements in our earnings release and slide presentation which applies to this call. Additionally, our future performance may differ due to a number of factors. Many of these factors are listed on our most recent annual report on Form 10-K and as revised and updated on our quarterly reports on Form 10-Q and current reports on Form 8-K, which you can also find on our website or on the SEC's website. We discussed financial measures that do not conform to U.S. GAAP. You will find important information on our use of these measures and their reconciliation to U.S. GAAP in our earnings release. Included in the appendix of today's presentation, you will find US GAAP financial results that correspond to the non-US GAAP measures we referenced throughout the presentation. I'll now turn the call over to Ted. Operator, please turn to slide three. Ted?

Thank you, Brian, and thank you for joining our call today. Today we'll discuss our Q4 and year-end results, our 2023 outlook, re-invent C2.0, and our acquisition of LiquiVox. After that, we'll open up the call for your questions. Starting on slide three, the graphic is showing where we're taking packaging with automation, digital, and sustainability solutions. We start with our purpose. We are in the business to protect, to solve critical packaging challenges, and to make our world better than we find it. This enables our vision to become a world-class company partnering with our customers on automation, digital, and sustainability packaging solutions. Moving to slide four, we're excited to announce that on February 1st, earlier than originally anticipated, we completed our acquisition of LiquiBox, a global leader in sustainable packaging for the fluids and liquids industry, and a pioneer innovator of bag-in-box solutions. Fluids and liquids is our fastest growing and highest margin product line within our Cryovac portfolio. It is a fast growing attractive market for us as flexible packaging is disrupting the rigid container market. LiquiBox brings to see new competitive capabilities and is highly synergistic with our existing business. The combined LiquiBox and Cryovac business in 2023 is expected to exceed $600 million, representing more than 10% of our portfolio. Our plan is to turn the fluids and liquids business into a $1 billion vertical by 2025 with an operating leverage of over 40%. LiquiBox will enable us to open significant new opportunities for growth in areas like ready-to-drink liquids, wine and spirits, consumer packaged goods, quick service restaurants, and other attractive spaces as the best suitable and cost-effective alternative to rigid containers. The combined business will leverage upon cryovac technology for freshness and shelf life extension, broad market access, and global footprint. To the question of why now, we've been investing in this attractive space for quite some time. Our team identified LiquiBox as a prime target in our M&A pipeline and the most coveted asset in the fluids and liquids space. As the window of opportunity was getting closer, we preempted a potential auction process. We quickly closed the transaction within three months, two months earlier than originally anticipated. I've appointed Emil Chamas to lead the fluids and liquids vertical. deploying our proprietary integration playbook, delivering on our target revenue ambitions of greater than a billion dollars, and achieving cost synergies of approximately $30 million before year three. Under Emil's leadership, SEAS and Liquibox cross-functional teams are highly energized to implement the plans they've been jointly developing. Let's turn to slide five, which highlights how we're moving to be a market-driven, customer-first company fueled by our iconic brands. Our solutions focus on automation, digital, and sustainability, create value for our customers by improving their productivity, sustainability, and enhancing their competitive advantages while allowing C to deliver growth faster than the markets we serve. Our digital online sales have now ramped up to 10% of our total sales in Q4, doubling that from Q3. This digital transformation will be a driving force behind the evolution of our go-to-market strategy and source of new innovation, while enabling us to reach more customers effectively and efficiently. Our online sales platform, MySee, empowers us to reach new customers and new geographies for our highly profitable bubble wrap inflatable solutions. In the quarter, we converted two of our largest distributors to online partners to make this happen. Our CryoVac's fluids and liquids business grew over 20% in 2022. Now, with the addition of LiquiBox, we expect this new vertical to be over 10% of our portfolio with a 40% operating leverage. In fresh proteins, we saw retail markets going down in Q4, driven by declining customer spending. Consumers are trading down from premium proteins and customers are working through excess inventory. Leading with C automation, we were able to win with major customer conversions. Fulfillment, industrial, and especially electronic markets were significantly down in Q4. Destocking amplified this trend. The outlook for these markets is to stay challenged in the first half with a rebound in the second half of 2023. We plan gains from new innovations in automation that were constrained over the past 24 months. Following our investments to double capacity, including our new developments in fiber-based solutions, we're well positioned for growth in the second half of 2023. We're excited about the recent launch of our new line of paper bubble wrap mailers and high recycled content bubble wrap fill air solutions. Moving to slide six, following the success of reInvent-C, we now advance to the next phase of our transformation with reInvent-C 2.0, moving from the best in packaging to a digitally driven, world-class automated solutions company. Starting in 2018, reInvent-C built and solidified the foundation for the next phase of C's journey through development of the C operating model and our growth platforms including leading with automation, digital, and sustainability. Reflecting on the last five years, we've met or exceeded our operating model targets. Sales growth has compounded at 5% versus our 5% to 7% target. Adjusted EBITDA has been 8% versus our targeted range of 7% to 9%. Adjusted EPS growth has compounded at 18% versus our goal of over 10%. and we've averaged 89% free cash flow conversion over the last three years. 2022 was challenged on free cash flow with the building of working capital as we fought through supply constraints and volume headwinds. reInvent C2.0 focuses on high quality, profitable growth, and improved productivity. The LiquiBox transaction accelerates our growth platforms, highlighting our transformation from product to customer-first solutions approach. Our digital transformation will empower us to attack new areas of opportunity and will drive profitability through accelerating the use of automation in our own operations. By moving the business online, we'll focus efforts to grow faster than the markets we serve through a simplified, more digitized organization, reducing our cost structure by $35 to $45 million over the next 12 to 18 months. Let's now discuss how reInvent C2.0 will fuel our C operating engine. Turning to slide 7, we've updated the C operating model out to 2027 with reInvent C2.0 targets. On the left side of the slide, we outline the C operating model growth assumptions. In 2023, we expect a flat growth performance despite a 3% market decline. The downturn in the first half will be recovered by a strong second half. Liquibox will add 6% profitable growth to the total C for the full year. We are confident our C operating engine will convert sales at more than 30% operating leverage, resulting in continued margin expansion. The combination of the C operating engine, our high-performance culture, digital transformation, creative acquisitions, and strong free cash flow generation will deliver world-class growth and returns in the next five years. Let's turn to slide eight to discuss Q4 and full-year results. In the quarter, on a constant currency basis, net sales were down 4%, and adjusted EBITDA was down 7%. Despite the tough environment, we maintained adjusted EBITDA margins above 21%. On a full year basis, inconstant currency net sales were up 6% and adjusted EBITDA was up 10%. Our margin expanded by 110 basis points, setting a new record in earnings per C. Adjusted earnings per share in the quarter of 99 cents were down 7% compared to a year ago and up 20% for the full year of 2022 on a constant currency basis. Free cash flow through Q4, though disappointing, was a source of cash of $376 million. We continue to invest in our people and our business as we accelerate our journey to world class. Moving to slide nine, we updated our C automation growth plan. full-year 2022 automation sales were up $475 million, up 10% in constant dollars. In Q4, we had a record quarter with equipment sales of 24% year-over-year, driven by food equipment, which was up 30%. We continue to work with our customers to deploy automation solutions that create savings and fast returns by addressing labor shortages, inflation, safety, and productivity. Our bookings continue to outpace revenue for 2022, and though supply shortages linger, we expect to deliver double-digit growth in 2023 to achieve revenues greater than $525 million. We're aggressively expanding our C automation solutions portfolio and driving faster growth by integrating equipment and technology like robotics, vision systems, digital printing, from our network of strategic suppliers. In 2023, we're expanding our C automation solution and auto bagging, filling, and boxing with their respective fiber-based materials. Now I'll turn it over to Chris, who will review our financial results in more detail.