Pactiv Evergreen Inc.

Good day and welcome to the PACT of Evergreen third quarter 2021 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero. After today's presentation, there will be an opportunity to ask questions. To ask questions, you may press star then one on a touch-tone phone. To withdraw your question, press star then two. Please note this event is being recorded. I would now like to turn the conference over to Deval Patel, Senior Vice President of IR 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 third quarter 2021 earnings call. With me on the call today, we have Michael King, Chief Executive Officer, and Michael Reagan, 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 for 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 can 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 gap measures are available in our earnings release and the appendix of today's presentation. With that, let me turn the call over to Michael King. Mike?

Michael King Thank you, Davil. Good morning, everyone, and welcome. Yesterday, after market closed, PactiveEvergreen released its third quarter 2021 results that were broadly in line with the update we provided you on September 8th. Our quarterly results demonstrated the resiliency of our products and our portfolio. Demand recovery remained on track and total volume improvement was 3% in the quarter. Price mix was up 14% in the quarter. In addition to ongoing contractual pass-through of cost increases, we took additional pricing actions across both our contracted and street customers. These pricing actions were necessary because of continued inflationary pressures across not just materials, but also conversion costs and higher rates of transportation. In addition to pricing actions, we are addressing the labor challenges by continuing to focus on recruiting efforts, along with the retention bonuses and wage increases to address the shortage. We are making continued progress and expect a more normal labor market by late next year. We are also mitigating logistic cost pressures through a more focused approach on optimizing inventories and maximizing lane and truck usage. While EBITDA margins remain muted in Q3, We believe they are on track for recovery over the coming quarters. Please now turn to slide four. During this presentation, we will discuss key business takeaways in three Q2021 highlights, provide a business update, go through our third quarter financial performance, and discuss our near-turnout look. We will conclude with questions and answers. Please now turn to slide six. Net sales in the quarter were up 17% due to continued volume recovery and strong price mix. Customer and consumer demand remain strong across our end markets with total volume up 3%, as we have discussed before. EBITDA margins remain pressured because of the continuation of higher raw material, labor, and supply chain costs. In the face of this inflationary pressure, we remain focused on managing the variables that are in our control. Throughout our manufacturing and supply chains, we remain aggressively focused on productivity and efficiency. In addition to the ongoing contractual pass-through of increased costs, we took additional pricing actions in our portfolio. The combination of these factors contribute to price mix being up 14 percent across the system for the quarter. We may continue to see significant inflationary pressure in the near term. If we do, as others expect, we will have to pass through these cost increases through additional pricing as we remain committed to maintaining margins of profitability. While we have made some early strides, there is still some work to be done. Fortunately, I have the team in place to help position the company to manage any challenges while we focus on growth in the future. Byron Racky has been with us for over two months as the president of the beverage merchandising business and is already helping drive a culture of change and urgency. I'm also happy to tell you that the closure of the coated groundwood business, is ahead of schedule, and the majority of the work was completed by October 31st. Byron remains focused on improving the pricing and profitability of the business unit, while also continuing to lead the business review of beverage merchandising. Doug Olmby, our new COO, has been with us for a little over six weeks. He's hit the ground running and is focused on improving productivity and reliability, driving new and better standards across the operations. He will also be focused on an employment retention, and automation opportunities. In addition, we announced a number of actions to better position the company for future growth. On September 8th, we announced our plans to acquire Fabrikal, and the acquisition was completed on October 1st. I'm excited to have Fabrikal join the team and welcome them to the Pact of Evergreen family. A month into the acquisition, I would like to share that we have internally already laid out our integration strategy, We have begun to execute on that plan and remain on track to deliver synergies. Now that we have closed on the transaction and further analyzed the business, we are even more confident and excited about the combined company's breadth of sustainable product offerings, market reach, and the synergies potential. We will provide more information on this transaction in the coming quarters. In Q3, we also announced the pending sale of beverage merchandising's Middle East business in order to remain focused on growth in our core business. If I could turn your attention to slide 7. Let's move to Q3 2021 highlights. Net revenue of $1.394 billion was up 17% from Q3 of 2020 as we saw continued volume recovery from the prior year and strong price mix improvement of up 14%. Net income from continuing operations was $2 million, and earnings per share from continuing operations was $0.01. Adjusted EBITDA was $119 million for the quarter, as raw materials and logistics inflation, along with labor challenges, continue to impact the pace of the EBITDA recovery. Free cash flow, defined as adjusted EBITDA less capex, was $51 million. Finally, we announced and closed our acquisition of Fabrikil. Turning to slide eight, Turning to our year-to-date highlights, net revenue was up 11% to $3.91 billion due to increased pricing and strong volume recovery. Year-to-date adjusted EBITDA was $326 million, which includes a $50 million one-time impact from winter storm URI. Please now turn to page 9. Two years ago, we created a path for the company that included ambitious and measurable ESG commitments. This plan built on our long history of supplying sustainable products and developing responsible manufacturing processes. In 2020, we announced a goal of 100% of our products to be made with recycled, recyclable, and renewable materials by 2030. This year, we are specifically focused on gathering internal data and organizing our reporting on operational metrics related to greenhouse gas emissions, energy, water, and waste. Sustainable innovation is a top priority at PACT of Evergreen to support our customers' goals and our own. Since 2019, the company has introduced over 100 new sustainable products that are specifically designed to improve our customers' and our consumers' experience while reducing the post-use impact on the environment. A major part of this effort is a focus on sustainable material research. Additionally, our commitment to integrity translates to continued improved communications around sustainable claims for packaging. This includes systematic, on-product labeling for third-party certified compostable products. We believe it will contribute to reinforce trust in our company and our industry. From a manufacturing perspective, we are looking to reduce water and energy consumption. We recently undertook a water stress analysis for all company locations. The results indicated that 97% of our water use is in areas with low water stress. We continue to strive to reduce our overall water usage. We also initiated greenhouse gas emissions analysis for our paper mills, our largest source of emissions. To identify improvement opportunities, using these learnings will be incorporated into our goal-setting exercise. Transparency is how we know we are doing what's right. This summer, we published our first public CDP disclosures on climate change and water security. and we are planning on releasing the SASB and GRI disclosures in the coming months. More details on these and other activities may be found at investors.pactiv.com in the ESG section. I will now turn it over to Mike Reagan for a detailed financial review.