Diversey Holdings, Ltd.

Greetings and welcome to Diversity Holdings second quarter 2022 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn this conference over to your host, Mr. Grant Graver, Investor Relations. Thank you, sir. You may begin your presentation.

Thank you. Hello, everyone, and welcome to Diversi's second quarter 2022 earnings call. With me today are Phil Wieland, our chief executive officer, and Todd Herndon, our chief financial officer. As a reminder, during this call, we will make forward-looking statements. Some risk factors that may impact these statements and could cause actual future results to differ materially from our projected results are described in this morning's press release and in the reports we file with the SEC. The company does not undertake any duty to update such forward-looking statements. On today's call, the company will discuss certain non-GAAP measures and make reference to supplemental data which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. A reconciliation of these non-GAAP measures and reference to supplemental data can be found on our website at ir.diversity.com and in our most recent annual report. I'll now turn the call over to Phil.

Good morning, everyone. I want to start with the headlines of our Q2 results, about which I'm very proud, and explain why they make me continue to feel so positive about the long term. Firstly, revenue improved by 10% as compared to the prior year and over 20% on a constant currency basis, reflecting strong organic growth in both pricing and new customer wins. Secondly, growth was strong across both our institutional and food and beverage businesses, which increased by 7% and 18% respectively, or 17% and 29% on a constant currency basis. And thirdly, adjusted EBITDA margins improved sequentially by 330 basis points to 12.4%. As we stated last time we spoke, we expect our consolidated margins to improve quarter on quarter throughout the year as our pricing and cost initiatives are implemented. Our second quarter results reflect our commitment to driving revenue growth while improving margins in our $46 billion market where we are one of only two global players. Now, moving to the Matco environment. We're clearly operating in challenging times with COVID, rising inflation, supply chain bottlenecks, and other operating factors, including currency exchange rates. I've been extremely pleased with the resiliency of our business model and our management team's agility in the short term, while maintaining focus on our long-term growth goals. Let me give you a couple of highlights of our current initiative. Firstly, we've been focused on pricing to cover inflation. While input costs have continued to rise, we're implementing price increases across our various geographies and products. In the second quarter, we realized more than 10% revenue growth from pricing, and I expect this level of pricing to increase further as we move through the year. To date, our price increases have been well accepted, as evidenced by our more than 20% constant currency revenue growth in Q2. We expect the majority of these increases to remain intact, reflecting the value diversity provides to its customers. Secondly, we've continued to focus on controlling our fixed costs and leveraging our variable costs. Our second quarter adjusted EBITDA margin, which improved by 330 basis points versus the prior quarter, 12.4%, is still reflective of the nearer-term inflationary environment in which we operate. As our pricing actions continue to be implemented, including additional pricing as needed, we'd expect our margins to continue to improve significantly between now and the fourth quarter of the year. We're also continuing to invest in opportunities to expand margins further next year and beyond, like our plant investment in Kentucky, which remains on track to be completed by the end of this year and is expected to improve total company margins by roughly 100 basis points starting in 2023, as we work to deliver our targeted long-term EBITDA star margin of 20% in the coming years. So in summary, we're pleased with our pricing and cost containment actions. We will maintain pricing and cost discipline so we can drive revenue growth and capture margin expansion opportunities as the year progresses. Now, just as important, I've seen strong progress on our strategic growth drivers. We continue to enhance our value proposition with digital innovation and a focus on service, which is leading to high retention levels and acceleration of net new customer wins and a robust pipeline of additional opportunities. As an example of our innovation, we recently entered into a multi-year global partnership agreement with Gorsium, to collectively disrupt the machines market with robotics technology. The focus of this partnership is to unlock the full potential of cleaning robotics with greater operational efficiency and intelligence for our customers around the world. This is part of our TASKI machines business, which is almost 10% of our institutional business and has grown by over 28% on a constant currency basis in the first half. It's this type of innovation coupled with our strategic focus in U.S. food service, global accounts, and water treatment that leads us to expect strong growth going forward. With that, let me now pass it over to Todd to give you some additional details for the quarter and to also cover our outlook for the remainder of the year.