Spectrum Brands Holdings, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Q4 2020 Spectrum Brands Holdings, Inc. Earnings Conference Call. All lines have been placed on mute. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you may need to press star 1 on your telephone keypad. I would now like to turn the call over to your speaker today, Mr. Kevin Kim. Thank you. Please go ahead, sir.

Great. Thank you, Lisa. Welcome to Spectrum Brands Holdings Q4 and Full Year 2020 Earnings Conference Call and Webcast. I'm Kevin Kim, Divisional VP of Investor Relations and moderator for today's call. To help you follow our comments, we've placed a slide presentation on the event calendar page in the Investor Relations section of our website at www.spectrumbrands.com. This document will remain there following our call. Starting with slide two of the presentation, our call will be led by David Mora, Chairman and Chief Executive Officer, Jeremy Smelter, Chief Financial Officer, and Randy Lewis, our Chief Operating Officer. After their opening remarks, we will conduct the Q&A, as Lisa outlined. Turning to slides three and four, our comments today include forward-looking statements, which are based upon management's current expectations, projections, and assumptions, and are by nature uncertain. Actual results may differ materially. Due to that risk, Spectrum Brands encourages you to review the risk factors and cautionary statements outlined in our press release dated November 13, 2020, and our most recent SEC filings and Spectrum Brands Holdings' most recent annual report on Form 10-K and quarterly reports on Form 10-Q. We assume no obligation to update any forward-looking statement. Also, please note we will discuss certain non-GAAP financial measures in this call. Reconciliations on a GAAP basis for these measures are included in today's press release and 8-K filing, which are both available on our website in the investor relations section. Now, with that, let me turn the call over to David Mora.

Thank you, Kevin. Good morning, everybody. Thanks for joining us for today's call. With the announcement of this quarter's earnings, I'm pleased to tell you that our efforts to reinvest in and reignite growth our business units are now driving real tangible impressive and most importantly sustainable results since we began these efforts we have freed up investment dollars from our global productivity improvement program and we have thoughtfully invested in our people our research and development activities our innovation capabilities and new marketing initiatives this is now reignited as the flywheel of new product development launches and restored our top-line growth, expanding our margins, and is now driving much greater profitability and free cash flow generation to our bottom lines. These achievements are allowing us to continue to reinvest for even further growth in the future on a sustainable basis as we move our company forward. In short, I am thrilled with the resilience of our people and our businesses, and the financial results we have delivered in fiscal 2020. If I could call your attention to slide six. I'd like to pause to recognize the accomplishments of the Spectrum Brands family, which are impressive on their own, but are even more impressive considering the headwinds we encountered this year. Our teams faced and overcame many challenges. including demand and supply interruptions from the COVID-19 pandemic, gross tariff headwinds of over $120 million, which were about $70 million higher than the prior year, and delivered on our global productivity improvement program, creating a better, faster, and stronger company. Our 12,000-plus employees around the world have really come together this year as a unified team to build an amazing future. We have a lot of momentum now and we're making great strides. In particular, our teams were motivated by our new identity as a home essentials company. We are providing consumers with brands and products that bring security, joy, and happiness worldwide. Whether it's in the kitchen, the yard, around the house, or with your pets, We are delighted to make life better and more enjoyable. Our balance sheet also improved sequentially, ending the year with net leverage of 3.4 times, and we have over $1.1 billion in total liquidity. Our accomplishments this year give us further confidence in our ability to deliver sustainable growth. Moving to slide seven. Our fourth quarter and full year financial results improved with net sales and EBITDA growth. During the quarter, our net sales accelerated as we grew 17.9% with strong growth across all business units. These top line results reflect elevated demand levels, strong POS, and improved output. This is evidence of our team's, our company's quick recovery from the COVID-19 related supply disruptions we encountered earlier in the year. Additionally, our incremental marketing and advertising investments are paying dividends by driving stronger organic top line growth. Operating income and EBITDA growth was driven by strong volumes and improved gross margins. We achieved $190 million in adjusted EBITDA this quarter and $597 million for the year. We reported a reduction of $17 million to those amounts to reflect that starting with this quarter, we have changed our annual incentive compensation program to be paid entirely in cash instead of a mix of equity and cash as we've done in prior years. This change will have a corresponding reduction in our annual equity compensation expense resulting in a net neutral impact on our annual compensation expense. Turning to slide eight, for the fiscal year, our net sales grew 4.3%, and reported EBITDA grew 2.3%, and we grew 5.3% on a comparable basis when adjusting for the change to our incentive compensation program. And we generated free cash flow of $254 million, exceeding the midpoint of our initial fiscal 2020 guidance. On slide nine, as I've said before, we have embraced our position as a home essentials company. And instead of pulling back in the face of COVID-19 challenges, we're continuing to lean forward and improve our operating model, add talent, strengthen our brands through marketing and advertising, and drive innovative product introductions. The plans we outlined on our third quarter call to invest an incremental $20 million in advertising and promotion remains on track. We started in the second half of 2020, and we're continuing into the first half of 2021. We firmly believe these incremental dollars have and will continue to produce results that create consumer excitement and awareness for our trusted brand portfolio. While still in the early days, the initial results were very encouraging, as each of our brand campaigns experienced a clear POS lift. In security sales for HHI, our focus on Microbon and SmartKey technology with Kwikset drove tens of millions of impressions. This collaborative work from our comm ops and HHI teams further solidified our market-leading position in the U.S. residential security category with differentiated products. This also drove financial results in the second half with a significant lift in POS and a measured increase in our click-through rates. Next, if we turn to slide 10, I'm also excited to provide you today an update on our Global Productivity Improvement Program. Earlier this morning, we announced an increase to our total gross savings target to $150 million over the life of the program. Additionally, in fiscal 2021, we expect more savings from this program to drop to our bottom line, with less incremental tariff headwinds on a year-over-year basis. We believe we are better positioned today than we have ever been to drive demand as a home essentials company, with consumers needing our brands and products more than ever. Additionally, with the supply chain disruptions from COVID-19 earlier in 2020 largely behind us, we are confident in our ability to deliver sustainable organic growth in 2021. We have tailwinds from continued momentum in consumer demand. We have a strong backlog of orders in HHI. The benefit of early customer orders in our Home and Garden Division continued strong demand for consumables from new pet parents in our global pet care business, and we have a strong holiday lineup for our home and personal care unit. Earlier today, we provided a preliminary outlook of 3% to 5% net sales growth and mid-single-digit adjusted EBITDA growth for fiscal 2021. Due to difficult comparisons from the second half of fiscal 20, we expect our fiscal 2021 growth to be first-half weighted. Jeremy plans to provide incremental details to help you with your model and the phasing of our year in his prepared remarks. If we can turn now to slide 11. Going forward, our capital allocation priorities continue to focus on, one, allocating capital internally to our highest return opportunities. This includes strengthening our brands through research and development, innovation, new products, and advertising and marketing to drive vitality and profitable, sustainable, organic growth. Two, we plan to return cash to shareholders via dividends and opportunistic share repurchases. And finally, number three, a disciplined M&A strategy would tuck in strategic acquisitions that are both synergistic and help drive shareholder value creation. As announced in late October, We're very excited to add Armitage, a UK-based market leader in dog and cat chews and treats, to our highly successful and fast-growing global pet care business unit. Over the last few years, Armitage has grown sales at a 17% compound annual rate, and we expect revenue synergies with our global scale and resources to expand that growth across continental Europe and beyond. We will also strengthen its e-commerce business. I want to extend a big welcome to the Armitage team, to the Spectrum Brands family, and I'm confident in our ability to create tremendous value together. During the fourth quarter, we reduced our company's leverage ratio from 3.9 times adjusted EBITDA to 3.4 times on a net debt basis. Going forward, we plan to continue to deleverage our balance sheet and maintain a high level of liquidity. We are updating our near to medium term target for net leverage ratio to the three to four times area. Before ending my comments, I want to take a moment to acknowledge the passing of Ken Ambrecht and Phil Shuba. Ken served our company as an outstanding director of our board, and he passed away unexpectedly on September 25th. Ken was not only a ten-year member of our board of directors, but he was also a personal friend and a true gentleman's gentleman. Ken was a steady hand and a voice of encouragement to me and the rest of the management team during his tenure with the company. The board and I will miss Ken and his guidance to us going forward. Phil was the president of our HHI business and he passed away unexpectedly on September Phil was a valued member of Specs and Brands and our leadership team for the last 12 years. We will all miss Phil. We are thankful for our time with our friend, and we will continue to honor him as we push forward with his love of HHI, his passion for innovation, caring for people, and his love to win. Now you'll hear more from Jeremy on the financials, and Randy will provide you with updates. additional insights as we update and give you updates on the different business units. I'll now turn the call over to Jeremy. Thanks, David.