Pactiv Evergreen Inc.

Good morning and welcome to Pact of Evergreen's second quarter 2021 earnings conference call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question and answer session. At that time, if you have a question, please press the 1 followed by the 4 on your telephone. If at any time during the conference you need to reach an operator, please press star 0. As a reminder, today's conference call is being recorded. I would like to turn the conference over to Dabal Patel, Senior Vice President of Investor Relations and Strategy. Please go ahead.

Thank you, Operator, and good morning, everyone. Thank you for your interest in Pact of Evergreen, and welcome to our second quarter 2021 earnings call. With me on the call today, we have Michael King, Chief Executive Officer, and Michael Reagan, Chief Operating Officer and Chief Financial Officer. Before we begin, please visit the events section of the company's investor relations website at www.pactofevergreen.com and access the company's supplemental earnings presentation. Management's remarks today should be heard in tandem with reviewing this presentation. Before we begin our formal remarks, I would like to remind everyone that our discussions today may include forward-looking statements. These forward-looking statements are not guarantees of future performance, and therefore you should not put undue reliance on them. These statements are also subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. We refer all of you to our recent SEC filings for a more detailed discussion of the risks that could impact our future operating results and financial condition. Lastly, during today's call, we will discuss non-GAAP financial measures 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, and reconciliation to comparable GAAP measures are available in our earnings release. With that, let me turn the call over to Michael King. Mike.

Thank you, Deval. Good morning, everyone, and welcome. Yesterday, after market closed, PACT of Evergreen released its second quarter 2021 results that were broadly in line with the guidance we had provided in the last quarter. We saw a noticeable improvement in our volumes across our business segments, especially in food service as consumers recover from the COVID-19 pandemic. We expect this trend to continue into the second half of 2021. On the cost side, we saw a similar dynamic as across the industry with inflation and raw material and logistics putting pressure on margins as input prices for resin and paper rose substantially. As you know, these input costs are linked to indexes and the lag in pricing recovery impacted Q2. Assuming the rate of increases in input slow or turnaround, we would expect it to recover raw material costs in the second half. In Q2, we began to make progress in turning around our beverage merchandising business. While we are pleased with the progress, there's still more to be done. As part of that plan, we are pleased to announce a new addition to our team. Byron Racky will be joining us as the president of our beverage merchandising unit, effective August 16th. He brings a wealth of knowledge and experience in the paper industry, including a successful turnaround history, and we look forward to having him join our team. I'm very proud of our teams as they remain focused on maximizing our businesses to service our customers and meet our stakeholders' expectations. Please now turn to slide number four. During this presentation, we will discuss key business takeaways and second quarter 2021 highlights. We'll provide a business update. We'll go through our second quarter financial performance and discuss our full year 2021 outlook. We will conclude with questions and answers. Please now turn to slide six. Our second quarter results saw material improvement to the top line when compared to the peak impact of the pandemic in 2Q 2020. In food service, the segment most acutely impacted by COVID-19 in the second quarter of 2020, we saw a healthy recovery with volumes up 33% year over year and within 1% of the second quarter 2019 levels. In food merchandising, we saw volumes improve by 4%, and they were within 1% of the second quarter of 2019 levels. The beverage merchandising segment saw volume improvement of 13 percent, with volumes now reaching above what we saw in the second quarter of 2019 by 3 percent. As we had indicated on the last earnings call, despite the volume improvement, EBITDA margins were pressured in the quarter due to the impacts of inflation and higher material and logistics costs. We increased prices in Q2 to offset some of these cost increases. We will continue to monitor inflation carefully take further price actions as appropriate. We anticipate margin recovery through the remainder of 2021 and beyond. We are encouraged by the healthy recovery and continued improvement in volumes and are taking appropriate steps to navigate the labor shortages, continued escalations in raw material costs, and a possible uncertainty due to the Delta variant around COVID-19. In the past few weeks, we have also made some important announcements. We have provided our first update and plan of action from our beverage merchandising operational review with the decision to exit the coated groundwood paper business by the end of 2021. It was a difficult decision, but necessary to help us focus more on our core competency. We also announced the execution of an agreement that will reduce our gross pension liabilities by $950 million. We funded this transaction using existing plan assets. We believe these actions are in the best long-term interest of the company. Please now turn your attention to slide seven. Now let's move to Q2 2021 highlights. Net revenue of $1.352 billion was up 22% from Q2 of 2020, as we saw a strong volume recovery from the prior year when we experienced the biggest negative impact from COVID-19. Net income from continuing operations was $8 million, and earnings per share from continuing operations was $0.05 per share. Adjusted EBITDA was $130 million for the quarter, up 2% from Q2 of 2020 due to strong volume recovery and better pricing. The quarter was impacted by $11 million from winter storm Yuri. Free cash flow, defined as adjusted EBITDA, less CapEx, was $59 million. Finally, our strategic investment program is on track and delivered 14 million of additional annualized adjusted EBITDA benefit in the second quarter. If I could turn your attention to slide eight. Turning to our year-to-date highlights, net revenue was up 8% to 2.516 billion due to strong volume recovery and increased pricing. Year-to-date adjusted EBITDA was 207 million which includes a $50 million one-time impact from winter storm URI, an estimated $43 million impact from COVID-19, and a $16 million impact from a planned cold mill outage. Please now turn to slide 10. As we have previously discussed, Pactive Evergreen continues to have many EBITDA growth levers that will deliver benefits in 2021 and beyond. We're starting to see the impact from some of these levers as we see strong year-over-year volumes as the economy recovers. We believe that in addition to the economic recovery, the secular themes around sustainability, shift to more online ordering, delivery, and takeout will also help drive our volume growth. We also remain focused on cost reduction initiatives and optimization, especially in the current environment of higher raw materials and logistics costs. if I could turn your attention to slide 11. We are continuing on our ESG journey and remain focused on initiatives around the planet, products, people, and governance. When it comes to essential metrics like greenhouse gas emissions, energy, water, and waste, we know we can't manage what we don't measure. For that reason, we have identified a best-in-class platform that will allow us to better track these key metrics at all of our 60-plus facilities. After this robust data gathering exercise, we plan to be able to set performance targets at both the facility and corporate levels. Related to our products pillar, we continue to build the broadest offering of sustainable packaging in the industry, which helps us reach our goal that by 2030, 100% of our products will be made with recyclable or renewable materials. Our long-standing commitment to the environment and customer choice continued during the second quarter. We launched 13 new product SKUs, which included first-to-market tamper-evident French fry cartons and tamper-evident takeout containers, both made of paperboard, in support of today's growing delivery market. Additionally, we have expanded our meat tray offering with a new version made from recyclable PET. That brings the total number of new items we've introduced to 97 in the last year and a half. Diversity, equity, and inclusion is top of mind for PACT of Evergreen, as it is for a growing number of companies. We've created a new internal DEI team and are undergoing a diversity spend analysis of our suppliers. This will inform our future policy and help us to understand where we can make improvements. Finally, we recognize the critical role our board plays in overseeing our ESG initiatives. The directors recently formalized their responsibilities as they relate to ESG and will continue to receive quarterly updates from our Chief Sustainability Officer. More details on these and other activities may be found at our investors.pactiveevergreen.com in the ESG section. If I could turn your attention to slide 12. We shared this slide in the last quarter to provide an overview of our strategy to return to a more profitable Pactive Evergreen. As an update, we remain on track to complete our strategic investment program in 2021. We've announced our first steps in the beverage merchandising operational review with the exiting of Dakota Groundwood business. We also remain on track with the planning of our next generation Pact of Evergreen waste elimination program. There'll be more to come on these programs later in the year. With that, I'll turn it over to Mike Reagan for a detailed financial review.