Pactiv Evergreen Inc.

Good day and thank you for standing by. Welcome to the Pact of Evergreen fourth quarter and full year 2023 earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you'll 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 be advised today's conference is being recorded. I would now like to hand the conference over to your speaker today, Kurt Worthington, Vice President of Strategy, Investor Relations. Please go ahead.

Thank you, Operator, and good morning, everyone. Welcome to our fourth quarter and full year 2023 earnings call. With me on the call today, we have Michael King, President and CEO, and John Dock's CFO. Please visit the events section of our Investor Relations website at www.pactofevergreen.com and access our supplemental earnings presentation. Management's remarks today should be heard in tandem with reviewing this presentation. Before we begin our formal remarks, I want to remind everyone that our discussions today will include forward-looking statements, including those regarding our guidance for 2024. These forward-looking statements are not guarantees of future performance, and actual results could differ materially from those contemplated by our forward-looking statements. Therefore, you should not put undue reliance on those statements. 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, including our annual report on Form 10-K for the year ended December 31, 2023, for a more formal detailed discussion of these remarks. The forward-looking statements we make on this call are based on information available to us as of today's date, and we disclaim any obligation to update any forward-looking statements except as required by law. Lastly, during today's call, we will discuss certain GAAP and non-GAAP financial measures, which we believe can be useful at evaluating our performance. Our non-GAAP measures should not be considered in isolation or as a substitute for results prepared in accordance with GAAP, and reconciliation to the most directly comparable GAAP measures are available in our earnings release and in the appendix to today's presentation. Unless otherwise stated, all figures discussed during today's call are for continuing operation zones. With that, let me turn the call over to Pact of Evergreen's president and CEO, Michael Caine. Mike?

Thanks, Kurt. Good morning, everyone, and thanks for joining us today. I'll start with an overview of our key messages on slide four. 2023 was a pivotal year as we continue to reshape the company. First, we set records for our primary financial metrics, including adjusted EBITDA, adjusted EBITDA margin, and free cash flow. Full year adjusted EBITDA increased 7% to $840 million, marking the third consecutive year of growth. Our adjusted EBITDA margin of 15.2% improved 260 basis points compared to the last year. We also generated almost $250 million in free cash flow of 60% year over year. Second, we made significant progress on our transformational journey. by launching new initiatives to drive operational excellence, improving our overall productivity, and achieving a number of important milestones in our beverage merchandising restructure. Third, we achieved one of our top priorities by reducing our net leverage ratio to 4.1 times at year end with line of sight to reach the high threes in 2024. Our performance underscores the resilience of our business, our ability to meet the evolving needs of our customers, and the significant operational improvements we've implemented since 2021. I also want to recognize these accomplishments would not have been possible without the tremendous effort of all of our employees. Our underlying value proposition remains the same. We continue to leverage our broad range of product offering, channel coverage, and distribution network to generate improved margins and free cash flow. We remain focused on our strategy of value over volume, and we continue to make progress emphasizing the higher margin products, focusing on operational excellence and improving our balance sheet. We're confident that concentrating on these strategic priorities will allow us to enhance shareholder value. Turning to the rest of the agenda on slide five, I'll start with an overview of our performance and discuss the progress we made against our strategic priorities during the fourth quarter and the full year for 2023. John will then provide updates on our key financial metrics and discuss our outlook for 2024. At the end of the call, we'll open it up for Q&A. Turning to slide seven, one of the themes we emphasized over the past year is that our company is in the midst of a transformational journey that touches all aspects of our business. This slide includes an overview on the progress we've made during the past year and highlights the path that lies ahead passive evergreen as we strive to unlock further value for our stakeholders first we announced the combination of our food merchandising and beverage merchandising businesses into one segment and completed the closure of our camp mill and converting facility in Olmstead Falls these decisions were a major step forward in becoming a pure play converting operation and support our broader efforts to reduce ongoing capital intensity and fixed cost as well as reduce the volatility associated with our earnings and free cash flow. Beyond restructuring, we have concentrated on fundamental changes in our approach to the marketplace. This past year, you've heard us talk about our approach to value over volume, but it goes beyond simply driving price. It really comes down to being deliberate about how we position our portfolio to create the most value for our customers and our stakeholders. Over the last two years, we completed extensive analysis across the organization with the goal of identifying how we deliver value to our customers and where we could potentially optimize profits. Through this effort, we've allocated resources to our longstanding customer relationships and partnered with category leaders to grow relative to the market. Our customers also look to us to innovate and develop the highest quality sustainable products to help them achieve their own sustainability goals. An important goal in our transformational journey is not just to develop sustainable solutions for our customers that help them meet their goals, but to develop our own solutions that help reduce the mark we leave on the world. Our goal is packaging a better future starts at our operations level, which at Pectors Evergreen, we continuously evaluate for improvement. Early on in our journey, we recognized the need to drive operational excellence. This realization quickly led to us identifying several opportunities that would improve productivity, quality, and reliability, while at the same time taking cost out of the system. This was a top-down, company-wide effort that ultimately led to the implementation of our PEPS, or Pactive Evergreen Production System, with the goal of driving improved operational performance across the entire organization. As a reminder, PEPs isn't just a production system, it's a holistic management philosophy that touches all aspects of our operations. 2023 was the first year of our PEPs rollout, and we set a goal for eight facilities to achieve brand status by the end of the year. I'm pleased to share that 15 facilities achieved brand status during 2023, almost doubling our initial target. Today, in 2024, two additional facilities have already achieved brand status. and we recognized our first silver facility in early February. We expect to have 100% of our locations reach brown status by the end of next year, with an additional two to four locations achieving silver status in 2024 and our first gold facility by 2025. We've seen the velocity pick up across the company. As more facilities become PEP certified, they're able to share their lessons learned with other locations, which helps the remaining facilities get up the curve that much faster. I want to take this opportunity to recognize and applaud our team for their discipline. However, there is more to do as we continue our transformational journey and position our company for long-term sustainable growth. Looking ahead to the rest of 2024 and beyond, we intend to build on these accomplishments and conclude the strategic alternative review of our Pine Bluff paper mill. Continue to roll out of PEPS, drive operational excellence, and generate solid free cash flow. Achieving these important milestones in 2023 has allowed us to pivot to the next phase of the transformational journey through a targeted optimization of our operating footprint. Over the next two years, we intend to rationalize a portion of our physical footprint and shift existing production and warehousing within our network to better match our capacity with the industry demand. We estimate this will yield approximately $35 million in annual run rate cost savings by 2026. We expect these cost improvements will help position the company to continue to meet the unique needs of our customers and compete and win in the markets we serve. We also firmly believe these actions will enhance the long-term margin profile of our business and contribute to improve overall plant utilization and network productivity. Before I turn the call over to John, I want to touch on what we're observing across our end markets, as well as how we continue to win with our key customers. Turn to slide 8. While overall inflation has moderated in recent months, food prices are still elevated compared to historical levels, particularly in restaurants where many prices continue to outstrip inflation. Consumers have responded by trading down and shifting the food budgets towards lower-cost options like quick-serve restaurants instead of dine-in restaurants, or by opting not to dine out in favor of filling their pantries. Within the grocery store, consumers have reduced purchases of more discretionary items like baked goods. This dynamic has persisted for the past several quarters, and we believe the consumer has become more stretched in recent months, which may impact industry demand through 2024. It's also important to note that weather conditions can impact volumes in consumer demand. While this wasn't a headwind during the fourth quarter of 2023, we saw the severe winter weather in January of 2024 reduce restaurant foot traffic, and temporarily restrict our customers' supply chains. This has an unfavorable effect on our volumes during January. We expect the impact of the severe weather will be isolated to our first quarter results. Driving profitable growth and generating consistent returns for our shareholders are top priorities. Like everyone, we have experienced inflation-driven headwinds. However, we believe the underlying business remains resilient. We continue to invest in our customers and strategically allocate resources to those that are well-positioned and taking share in the marketplace. On that front, we've seen limited promotional activity by some of our customers. Although we haven't seen large-scale promotional activity pricing yet, to the extent that overall customer promotional activity picks up, we believe it would be a net positive for the sector as well as for Packet Evergreen. As mentioned in prior calls, we've mostly worked through our customer destocking, and we're confident that that dynamic will have a minimal impact in 2024. From a raw material standpoint, the trend in 2023 was towards lower cost when compared to 2022 as broader inflationary pressures eased. We've seen that trend flow through to overall price levels, which are generally lower than last year due to our contractual pass-throughs. Additionally, we've made a concerted effort to reduce the lag with our contractual pass-through mechanisms. So we don't expect that recent commodity price volatility to have an imperial impact on results in the near future. Separately, we've seen some of our customers attempt to offset consumer price sensitivity by reducing their input costs, including packaging. And we expect that trend to continue through 2024. At the same time, we continue to identify opportunities to leverage our value over volume strategy. which was evident in our food and beverage merchandising segment during the fourth quarter. Overall, we remain uniquely positioned to capitalize on favorable long-term fundamentals across our end markets. These core strengths underpin the base of our transformation, and they're designed to propel profitable growth into the years to come. With that, I would now like to turn the call over to John. John?