Spectrum Brands Holdings, Inc.

Hello, thank you for standing by and welcome to the Q4 and full year 2021 Spectrum Brands Holdings, Inc. earnings conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would not like to hand the conference over to your speaker today. Jeremy Smeltzer, please go ahead.

Thank you, Josh. Good morning, everyone. Welcome to Spectrum Brands Holdings Q4 and full year 2021 earnings conference call and webcast. I'm Jeremy Smeltzer, Chief Financial Officer of Spectrum Brands. As many of you know, Kevin Kim left Spectrum for another opportunity at the end of Q4, so I will moderate today's call. To help you follow our comments, we have placed a slide presentation on the event calendar page in the investor relations section of our website at SpectrumBrands.com. This document will remain there following our call. Starting with slide two of the presentation, our call will be led by David Marra, our chairman and chief executive officer, myself, and Randy Lewis, our chief operating officer. After their opening remarks, we will conduct the Q&A. 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 12th, 2021, 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 8K filing, which are both available on our website in the investor relations section. Finally, we encourage you to listen to our remarks today alongside with reading Spectrum Brand's press release and 8K issued today, and our annual report on Form 10-K once it is filed with the SEC. Now I'll turn the call over to David.

Good morning. Thanks, Jeremy. Good morning, everyone. I appreciate everybody joining us today. On behalf of all of us at Spectrum Brands, I'm particularly pleased to report that full-year fiscal 21 total company sales were $4.614 billion, an increase of $650 million over the period a year ago. Adjusted EBITDA was $689.2 million, increasing $109 million over the period a year ago, and our adjusted diluted EPS was $6.53. I'd like to start by thanking our 12,000-plus employee partners and the management team who have delivered for us yet another successful year of top and bottom line growth. If you are part of Spectrum Brands and you're listening to this call, you should be very proud of what we've accomplished together. We have faced significant tariff costs. We've worked through a global pandemic. We have experienced unprecedented global supply chain challenges and inflation. And yet we still succeeded in executing on our strategic playbook and delivering on all our financial goals. Looking back at fiscal 21, we have a lot to be proud of. as we have continued to leverage our developing centers of excellence to allow our business units to focus their efforts on truly knowing our consumers. The focus is on efficiently using data to understand the needs of our end users in each category, meeting those needs through increased investment in new product innovation and telling that story to our consumers through enhanced brand messaging and product promotions. Our fiscal 21 and fourth quarter financial results reflect our continuing trend of delivering on commitments quarter after quarter while navigating the challenging supply chain environment we all face. We are confident in our ability to face these inflationary pressures and supply chain disruption headwinds with the same focus and discipline as we look forward to another successful year in fiscal 2022. Fiscal 21 has also been a transformative year for our company as we have completed a number of strategic transactions. In addition to the tuck-in acquisitions in our global pet carry unit and our home and garden business, as we have previously disclosed, we have entered into an agreement to sell our HHI business for $4.3 billion in cash to Assa Abloy. The transaction is subject to the customary regulatory approvals in the U.S. and abroad, all of which are advancing nicely. Also, from a capital allocation perspective, we did repurchase 1.6 million shares of our common stock for approximately $125.8 million. Turning to slide six, here we have an overview of the pro forma results for total spectrum brands, including HHI, on a comparable basis to last year. consistent with our earnings framework. Total pro forma Spectrum Brands results were in line with our earnings framework of mid-teen top line growth with revenue actually accelerating 16.4%. And we delivered adjusted EBITDA growth in the high teens at 18.8% growth. We also delivered adjusted free cash flow of $273 million as compared to our earnings framework of $260 to $280. We are extremely pleased to report that we grew revenue by $650 million this fiscal year, and we grew our adjusted EBITDA by $109 million. Delivering on the earnings framework, we communicated to our shareholders in a very challenging operating environment. We're extremely proud of the global team for making this happen. We've maintained our strategy of investing in insights, innovation, and advertising, at an elevated level across each of our businesses, despite significant inflation headwinds within the quarter. We experienced accelerated inflation levels in line with our expectations, and we currently foresee these headwinds continuing throughout our fiscal 2022. The team has done an exceptional job of managing our profitability while continuing to invest in our future growth despite the challenges faced during the quarter. We remain committed to maintaining our focus on long-term sustainable growth, and we will continue to invest in the business. Before we get further into this presentation, I'd like to remind everyone that beginning in the fourth quarter of fiscal 21, we are now classifying HHI's results as discontinued operations due to the sale. Moving on to slide seven, we again delivered top and bottom line growth this quarter, including the impact of acquisitions. Organic sales, excluding the impact of FX and acquisitions, actually decreased 3.4% in the quarter as we compare the results of the fourth quarter of fiscal 2020, which was an exceptionally high sales quarter due to recovery from COVID-driven supply disruptions in the third quarter of fiscal 2020. As a reminder, we did have six fewer shipping days in the fourth quarter versus the same period a year ago, The decrease in shipping days as well as the ongoing pandemic-related global supply chain disruptions adversely impacted our sales this quarter. However, compared to the more normal operating environment of our fourth quarter of fiscal of 2019, these results actually represent double-digit organic sales growth. Turning now to the bottom line. Fourth quarter net income from continuing operations was $6.1 million, compared to a loss of $9.6 million during the fourth quarter of last year. Adjusted EBITDA for the quarter was $79 million, resulting from volume growth, pricing actions, our global productivity improvement program savings, and favorable comparisons to last year's variable compensation change from stock to cash payouts. This was partially offset by pressure from inflation and incremental investments. We remain committed to maintaining our focus on long-term sustainable growth, and we will continue to invest in our businesses going forward. If I could get you to turn to slide eight. Our balance sheet remains strong, and we ended the year with net leverage of about three and a half times. We have over $760 million in total liquidity. We were also able to fund $490 million worth of acquisitions during the past year without substantially increasing our leverage ratio. Also, from a capital allocation perspective, we did repurchase 1.6 million shares of our common stock for approximately $125.8 million. As we discussed on our HHI transaction announcement call in September, We expect to deleverage our balance sheet to approximately two and a half times gross leverage upon the closure of the HHI sale. We have subsequently adjusted our long-term net leverage range to a more conservative two to two and a half times net leverage. Our capital allocation priorities continue to focus first on allocating capital internally to our highest return opportunities. This includes strengthening our brands through consumer insights, innovation, advertising, and marketing to drive vitality and profitable organic growth. Secondly, we plan to return cash to shareholders via dividends and opportunistic share repurchases. Third, we will continue with disciplined strategic M&A transactions that are synergistic and help drive long-term value creation. We believe this strategy will further enhance Spectrum's position as a home essentials company focused on meeting consumer demand through our greatest brands and innovative product offerings. Moving now to slide nine and our high-level fiscal 2022 earnings framework. We will continue to focus on executing our winning playbook, and we expect to grow the top line in the mid to high single digits. Adjusted EBITDA, we plan to grow in the low single digits. This is after absorbing an expected additional level of inflation of around $230 to $250 million. We expect the current step-up in inflationary pressures to continue throughout fiscal 2022, and that the year-over-year impact will be more acute in our first half reporting of the year. We have implemented price increases in fiscal 21, and we have put in place further price actions in the first half of this year to counter these headwinds. Our goal is to achieve approximately 70 to 80 percent price coverage for inflation by the end of fiscal 22, but we do expect our first half margins to be pressured due to the timing of these price increases. One of our key focus areas during fiscal 22 will be improving product availability to meet the continued elevated demand across our business units, as we expect the global supply chain constraints to remain in place. Now you'll hear more from Jeremy on the financials, and then Randy will come and provide you an update on additional business unit insights. So at this point, I'll turn the call back over to you, Jeremy.