Neptune Insurance Holdings Inc. Class A

Good morning. My name is David, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the NENA Q4 2021 Earnings Conference Call. Today's conference is being recorded. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press the star key followed by the number one on your telephone keypad. If you'd like to withdraw your question, press star one once again. Thank you, Kyle Anderson, Vice President of Corporate Strategy and Investor Relations. You may begin your conference.

Good morning, and thank you for joining us on NENA's Q4 2021 earnings call. With me today are Julie Chertel, Chief Executive Officer, and Paul DeSantis, Chief Financial Officer. Julie and Paul will discuss recent activities and results, as well as share thoughts on our full year highlights and our strategies we look ahead. We issued a press release covering financial results yesterday afternoon, and hopefully you've had a chance to review that information. Following our prepared remarks, we will open up the call for questions. As a reminder, our comments include forward-looking statements. Actual results could differ from these statements due to risk outlined both on our website and in our SEC filings. As we get started, a few opening highlights. In the fourth quarter, we continued our top-line growth momentum and set another quarterly record with net sales of 28% over last year. Adjusted earnings were $0.45 per share, excluding $0.86 of unusual costs. In Q4 2020, adjusted earnings were $0.87 per share and excluded $0.28 of unusual costs. Details of these adjusting items, along with the reconciliation to gap amounts, can be found in our press release. With that, I'd like to turn it over to Julie.

Thanks, Kyle, and good morning, everyone. I'd like to start with our highest priority, employee safety. Our strategy of proactive risk identification continues to show strong progress. Our recordable rate decreased by 30% during 2021, and I'm pleased to say that incidents are at an all-time low. While great to see this improvement, there's still work to do to get to zero injuries across all of NENA. Fourth quarter results demonstrated continued strong top line growth and margin improvement. Total volume was up 22%, with fine paper and packaging up 16%, and technical products up 25%. We delivered sales of almost $265 million, up 28% from last year. This is our second consecutive quarterly top line record. a clear indication that our growth focus and efforts are being realized. From a bottom line perspective, as expected, margins improved from Q3 to Q4, but continued to be challenged by a number of factors. Input costs continued to increase throughout the quarter and to a greater degree than originally anticipated. Energy costs, particularly in Europe, were volatile and came in higher than expected. Ongoing supply chain disruptions primarily shortages of several specialty chemicals combined with labor availability challenges negatively impacted manufacturing costs. In the fourth quarter, the net impact of selling prices and raw material costs reduced operating margins by over 500 basis points and EPS by over 50 cents per share versus the prior year. We have aggressively taken a number of actions to address these input costs and operational challenges and can clearly see some early improvements in 2022. Adjusted operating profit margin increased in Q4. Although short of our long-term targets, we saw continued meaningful traction and sequential improvement driven by increased volume and price. In signed paper and packaging, we were pleased to see adjusted margin improve from 7% 13%, reflecting the strength of volume growth, strong mix, and pricing initiatives. As expected, margins in technical products declined due to ongoing escalating input prices, but this will be addressed primarily by our annual filtration pricing adjustment that took effect in January. We have also recently taken additional pricing and surcharge actions in most of our categories to address additional inflationary pressures seem late in the year. We've made progress addressing the labor shortage by increasing staffing in our facilities to match the level needed to satisfy the opportunities of our robust top-line growth while accelerating our automation efforts. Our R&D and procurement teams have continued to work closely with customers to qualify alternate products to address the impact of raw material availability. As we mentioned last quarter, we have reformulated or identified alternate sources for approximately $200 million of annual sales. As a result, we can now offer our customers an expanded set of product options. Sales mix, which had been unfavorable over the prior several quarters, primarily driven by raw material availability, was neutral in the fourth quarter. Evidence of the improved raw material availability and substitution improvement. Finally, we've streamlined our fine paper and packaging portfolio to simplify operations and improve our cost position, including over a 30% reduction of grades, and we're seeing early benefits in 2022. So while it's a challenging environment, we've been aggressive in our actions and to position the business for further growth and margin improvement this year. Lastly, in 2021, we saw meaningful progress in our ESG effort, including continued reduction in energy usage, water consumption, and greenhouse gases. We received recognition from leading sustainability rating agencies, including the EcoVedas Gold Medal in Spain and Silver Medal in all other locations. With that, I'll turn it over to Paul to cover financial results And then I'll wrap up with some comments on our strategy.