Diversey Holdings, Ltd.

Greetings. Welcome to Diversity Holdings LTD Third 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. Please note this conference is being recorded. I will now turn the conference over to Grant Graver, Investor Relations. Thank you. You may begin.

Thank you. Hello, everyone, and welcome to Diversi's third 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 future results to differ materially from our projected results are described in this morning's press release and in documents 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 referenced 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, all, and thanks for joining our call. Recognizing the unprecedented environment in which we're operating, we're going to take a more abbreviated approach to our opening remarks to allow ample time for questions. My comments will first focus on our core business and how the team has been executing. I'll then provide an overview of the macro environment and headwinds we're managing and how they are impacting diversity. And then finally, I'll turn the call over to Todd to provide additional details on the quarter and our outlook for the remainder of 2022. So turning to the core business, Whilst our core business results continue to show strength with 13% constant currency organic top line growth, continued new customer wins, and double digit price increases, the reality is that currency is a significant drag on results. Revenues improved by approximately 4% as compared to the prior year, and over 17% on a constant currency basis. We saw strong revenue growth across both our institutional and food and beverage businesses, which increased by 12 and 33% respectively on a constant currency basis. While input costs have continued to rise, we've been implementing price increases across our various geographies and products. Through the first nine months of 2022, we've realized more than 10% revenue growth from pricing, and it's accelerated to more than 12% in the third quarter. I expect this level of pricing to increase further as we continue to combat the various inflationary pressures. In addition to our pricing actions, we've also added a number of new customers, representing more than 3% in annualized net new wins. We continue to be encouraged by our ability to add new customers and retain existing customers. We believe this is a testament to the strength of our product offering and service, especially in this ever-evolving and inflation-sensitive environment. Finally, we continue to improve our adjusted EBITDA margins from quarter to quarter. 12.8% margin in the third quarter is 40 basis points above the second quarter and 370 basis points above the first quarter of this year, reflecting the continued maturity of pricing actions and significant efforts to manage costs in a challenging operating environment. As we stated last time we spoke, we expect our consolidated margins to improve quarter on quarter throughout this year as our pricing and cost initiatives are implemented. Before I move to the macro environment, I'd like to provide a quick update on our supply chain improvement projects. We've completed our warehouse transition in Europe and have now largely completed our North American warehouse consolidation into our new Kentucky facility. Our efforts are now focused on consolidating our manufacturing into the same Kentucky facility, which we expect to be completed in the first quarter of 2023. As a reminder, by co-locating our main warehouse and manufacturing and adding more capacity to bring currently contracted volumes in-house and optimizing freight lanes, We expect this project to bring roughly 100 basis points improvement to total company margin after it's completed. One last item of note as it relates to our warehouse transitions and in-flight manufacturing consolidation. We made a strategic decision to build up additional inventory and utilize higher cost freight solutions to minimize supply disruption with our customers. While this puts some short-term pressure on our cash flows, we believe is the right thing to do for our customers, and such pressures are expected to be temporary. So moving then to the macro environment, we continue to see certain headwinds persist with increased pressure in this global inflationary environment. Specifically, foreign currency exchange rates continue to be our most significant challenge. In the previous quarter, we updated our full year outlook to reflect an additional $30 million in headwinds associated with existing exchange rates. Our assumption was predicated on a strong US dollar persisting for the remainder of the year. While we transact in multiple currencies, as a point of reference, the euro exchange rate to the US dollar was at a two-decade low, and we assumed no improvement remainder of the year when updating our previous items. Since our second quarter call, the US dollar has further strengthened and we now expect this headwind to impact our adjusted EBITDA outlook by an additional $10 to $20 million. Another macro headwind that we continue to watch as we implement our pricing actions relates to input costs. Whilst most items have begun to show signs of stabilizing, albeit at higher levels as compared to the prior year, costs associated with cost it continue to accelerate and have risen by over 100% in the last 12 months. Accordingly, we believe such costs represent an additional $10 to $20 million headwind to our full year 2022 outlook, but should begin to abate in 2023 when our full pricing actions are reflected. Until we see clear evidence that such macro pressures are beginning to subside, we believe it's prudent to lower our full-year adjusted EBITDA outlook to an estimate of at least $330 million. Whilst we're pleased with our pricing and cost containment actions and the core fundamental growth aspects of our business, the current macro environment continues to present difficult but temporary challenges that we need to navigate. We expect the inflationary environment to eventually stabilize and the majority of our pricing actions to remain intact, supporting long-term growth and margin improvement. The underlying trend of the business remains positive, and we're confident that we will exit this unprecedented environment in a much stronger position than when it began. With that, let me now pass the call over to Todd to give you some additional details for the quarter and thoughts on our outlook for the remainder of the year.