Spectrum Brands Holdings, Inc.

Good day and thank you for standing by. Welcome to the fourth quarter 2023 Spectrum Brands Holdings, Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star 11 on your telephone. You will then hear an automated message advising you that your hand is raised. To withdraw your question, please press star 11 again. Please advise that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Faisal Khawater. Please go ahead.

Welcome to Spectrum Brands Holdings Q4 and full year 2023 earnings conference call and webcast. I'm Faisal Khawater, Vice President of Strategic Finance and Enterprise Reporting, and I will moderate today's call. To help you follow our comments, we have placed a slide presentation on the events calendar page in the investor relations sections 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, our Chairman and Chief Executive Officer, and Jeremy Smeltzer, our Chief Financial Officer. After opening remarks, we will conduct the Q&A. Turning to slide 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 17, 2023, 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. Reconciliation 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. 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 reports on Form 10K once it is filed with the SEC. Now I'll turn the call over to David.

Hey, thank you, Faisal. Good morning, everybody, and thank you guys for joining us today. As we wrap up a very challenging and rewarding year for our company, I'd like to start this call by expressing my gratitude to every member of our global team for helping navigate our business through some very difficult times in fiscal 23. I would also like to thank our investor base for their confidence and trust over the past two years as we battled through and overcame operational and M&A regulatory challenges. Moving to slide six, we started fiscal 23 with a challenging macroeconomic environment. with consumer demand declining from the heights of the pandemic, and our retail customers' inventory strategies driving significant demand volatility. Our margin structure was still under pressure from the inflation hangover in our inventory that was acquired in fiscal 22, and our leverage ratio was very high, with declining EBITDA and high working capital commitments at the same time. We were also facing the legal challenge of the DOJ that was trying to bar the sale of our HHI business. In the face of these challenges, our company has not just successfully navigated these obstacles, but we're now also beginning to turn a corner. We have successfully defended against the legal challenge, and we closed the HHI deal for $4.3 billion in cash. With the close of this transaction, we have now become a net debt-free company as we ended the year with $1.9 billion of cash and short-term investments against a total debt position of $1.6 billion. On the working capital side, we've made great progress and we reduced our inventory by over $300 million since the beginning of the fiscal year, while also importantly improving our fill rates across all businesses. We have also been now unwinding any early pay and factoring programs across North America, which used approximately $250 million of our cash during the year. We have now completed the exit of all early pay and factoring programs in North America, with the remaining cash flow impact from those exits extending into the first quarter of this fiscal year, fiscal 24. We have also improved the margin structure of our businesses and have started to invest back in our brands. Our most recent quarter marks the beginning of a strategic pivot from defending against the various headwinds that were presented to us in fiscal 23 to now leaning into the opportunities that our strong balance sheet and improving margins present for us as we enter fiscal 24. Our retail partners are enthusiastic about the partnership potential in the future and the team is energized to embrace this new reality. We have recently hosted fireside chats, sales and marketing meetings, and product relaunches around the globe to re-energize our teams and to play more aggressively ahead of what we perceive to be deteriorating global macroeconomic conditions. With that context, I'll have you now turn your attention to slide number seven for a quick overview of fiscal 23's results. As I mentioned earlier, this was a challenging year for the business. We faced a variety of headwinds. The difficult consumer environment and retailers' focus on excess inventory reduction impacted our results across the board, and our net sales declined by 6.8% compared to fiscal 22. We continue to experience these pressures in the fourth quarter, but the pace of the sales decline has slowed down considerably, with fourth quarter net sales decreasing by just 1.2%. Fortunately, we were proactive with our countermeasures earlier in the fiscal year and we initiated further cost savings, following some cost-out actions during the second half of fiscal 22, including fixed cost reduction through the elimination of permanently salaried headcount, as well as a reduction in our advertising and promotional spend. All these actions were mitigating some of the EBITDA decline from the various economic headwinds. With the HHI transaction now closed and our balance sheet strengthened, we have started to invest back in our businesses during the fourth quarter, and we expect to continue this investment throughout fiscal 24. Our fourth quarter saw increases in our OpEx driven by renewed advertising and promotional spend. Jeremy will cover the fourth quarter results, including business unit performance, in more detail in his section. Moving now to slide eight. The actions we've taken in fiscal 23 have put us in a great position for this fiscal year. We are now operating from a position of strength with a strong balance sheet, healthier margins, and a much better inventory profile. During our fourth quarter, we have started the pivot of our business from managing this company for cash to now focusing on driving long-term growth of all of our business units, driving operational efficiencies at the very same time. Our plan for fiscal 24 will build on this strategic shift and focus on three key elements. One, we're investing behind our people to improve our commercial capabilities and drive a culture of accountability. Two, we're investing behind our brands and our new product roadmaps as we continue to focus on bringing fewer but bigger and better innovations to the market. Three, we're investing in our operations to drive efficiency and to reduce costs. Starting with the first element, we recently made a number of key hire in senior sales roles and marketing positions across the company as we are leaning into investing in our people and upgrading our talent. We are making a conscious effort to materially bolster our commercial operations, innovation, sales, and marketing capabilities. We are being intentional post the sale of HHI to invest in our culture and our people with the goal of shifting the mindset of our organization from one of defense to one of offense. Coming to our second key area of focus, we are investing behind our brands and products. We have materially increased our advertising and marketing spend in the fourth quarter, and we're going to continue to invest behind our brands and new innovations going forward. This includes expanding into adjacent categories as was recently demonstrated with our patented Meowie and Good and Tasty Cat Treats launched during fiscal 23. Expanding new innovations across several products as we have done with our Spectracide OneShot platform and getting behind new products in a big way as we've just done with our first ever global Remington launch earlier this week in New York City with our innovative Remington One range of products. Third, we're investing in our operations. We want to drive efficiencies and reduce costs. These investments will come in the form of new equipment, better tools, and improved capabilities with a focus on speed and automation. That will allow us to drive manufacturing and supply chain efficiencies. The goal is simple, to lower our costs so we can continue to remain competitive in the marketplace of today. Moving to slide nine in our high-level fiscal 24 earnings framework, We expect continued suppressed demand in our home and personal care appliance segment, particularly within kitchen appliances. With the outlook for home appliances and our decision to rationalize our product portfolio, we expect the top line to decline low single digits. From an operating EBITDA perspective, however, we are targeting growth in the high single digits, driven primarily from lower-cost inventory as compared to fiscal 23, offset by increased investments in our brands, as I described earlier, as well as increased investments in our people to help us build a stronger, faster, higher-growth company. We expect the cost environment to continue to ease mainly from lower ocean freight costs, but these are offset somewhat by other inflation inputs, including labor, material, and FX. We also expect some pricing pressure in the home and personal care space as the competition for shelf space there is going to remain fierce. As we set the earnings framework for fiscal 24, we are keenly aware of our need to regain investor confidence and to deliver on our commitments. We believe the fiscal 24 earnings framework provides for challenging but achievable financial goals as we head into a time of greater economic uncertainty. Now you'll hear more from Jeremy on the financials and the business units updates, and I'll be back for closing remarks. Over to you, Jeremy.