Spectrum Brands Holdings, Inc.

Good day, and thank you for standing by. Welcome to Quarter 4, 2024 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 the session, you will 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 that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Joanne Chomak, Senior Vice President and Treasury. Please go ahead.

Thank you, Gigi. Welcome to Spectrum Brands Holdings Q4 and full year 2024 earnings conference call and webcast. I'm Joanne Chomak, Senior Vice President of Tax and Treasury, and 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 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 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 15, 2024, 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 statements. 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. In response to recent commentary and review, we have updated certain adjustments within our consolidated adjusted EBITDA and adjusted EPS performance metrics. As a result, prior year results have been recast from what was previously published. The updates only affected consolidated numbers and did not impact any business unit specific metrics. In providing comparisons to prior periods, we will use the recast numbers unless otherwise stated. Finally, we encourage you to listen to our remarks today alongside with reading Spectrum Brand's press release in 8K issued today and our annual report on Form 10K once it is filed with the SEC. Now I'll turn the call over to David. David?

Hey, thank you, Joanne. Good morning. Thank you, everybody, for joining us today. On behalf of our company, our management team, and our board of directors, we are really pleased to share with you our fiscal 24 accomplishments and successes. For fiscal 24, we kept the promises that we made to ourselves and to you, and we delivered and exceeded our annual operating plans on virtually every metric. We have restored operational momentum to our businesses with best-in-class operational efficiency fill rates being in the mid-90s now, and we have progressed from a weak working capital position to a company with best-in-class working capital management capabilities today. Our investments in our businesses have returned our company to revenue growth in the third and fourth quarters of fiscal 24 as we upgraded our capabilities in commercial operations, innovation, marketing, and advertising. Adjusted EBITDA grew by over 20% in fiscal 24, and we believe that is the best, if not one of the best, performances in our entire industry. Our 20% EBITDA growth was achieved despite an incremental $62 million that we invested into our brands through new R&D, marketing, and advertising initiatives. If we turn to our balance sheet, we actually have the strongest balance sheet in our peer group, and we ended fiscal 24 with net leverage below 0.6 turns. This balance sheet strength gives us tremendous operational flexibility and, frankly, strategic optionality. We intend to use it to continue to drive our organic operating performance and our shareholder value by buying back our shares. Free cash flow in fiscal 24 was $177 million, and that was despite over $100 million that we invested to unwind AR factoring across our entire company. I am also excited to share that our largest business unit, our North America Global Pet Care Company, is now running on our S4HANA ERP platform, which was implemented in the early part of October. We intend to continue to upgrade talent and build a higher performance culture at Spectrum Brands, which is the precursor to even better financial performance in the future. To summarize, in fiscal 24, we delivered on our promises, we have restored momentum to our operating businesses, we have set standards of excellence, and we have laid the foundation for an even more successful future. As I like to say to the troops internally, We got debt-free in 23, so we could achieve a lot more in 24, and now it's time to thrive in fiscal 25. Let's look at a few highlights in our business units. In GPC, our investments drove growth in adjacencies like cat treats, dog and cat food toppers, and a new species of glowfish. In spite of the approximate $20 million impact from SKU rationalization, GPC's fiscal 24 net sales grew by 1.1%, and adjusted EBITDA increased by a healthy 13.4%. In home and garden, we invested in telling consumers about our new innovation, including our Spectracide OneShot and Cutter Eclipse. And guess what? It paid off. Spectracide and HotShot took share this year, with net sales increasing 7.8%, and adjusted EBITDA grew by an amazing 25.2%. In HPC, we invested in our Remington One campaign and in new innovation for the upcoming holiday season and in driving e-commerce sales. Organic net sales were relatively flat, despite the challenging North America consumer demand in the first half of the year, and adjusted EBITDA increased an incredible 74.7%. I'm really pleased with the EBITDA growth that we experienced in our appliance unit this year. It's truly remarkable. We believe that inventory at retail is now generally back to normalized levels, and we're starting to see the replacement cycle build for small kitchen appliances. On a company-wide basis, growing EBITDA over 20%, while increasing investment in our brands by a further $62 million, as I think is a great testament to the quality of our EBITDA and earnings growth this year. Our investments paid off not only in fiscal 24, but we expect them to continue to pay off as we head into fiscal 25. Our internal teams and advisors continue to pursue the sale of our HPC business, and we are actively engaged with multiple interested parties on the M&A side. with geopolitical factors contributing to a longer timeframe than we originally anticipated. As a result, we continue to simultaneously pursue our dual track sales spend separation strategy, and both tracks remain in motion. As we do with all transactions, we will evaluate and consider what's in the best interest of our stakeholders at each step along the way. And as we have done throughout the year, we'll continue to provide updates on our earnings calls or sooner if there's news to share. As a further sign of confidence in the future performance of our company, we have just increased our quarterly dividend payout by 12% to $0.47 per share per quarter earlier this week. The new quarterly dividend rate represents an annualized dividend yield of 2% based on Wednesday's closing stock price. As the growth wheel gets in motion for our net sales, adjusted EBITDA and cash flow and gains momentum, We believe the time was right for us to increase our dividend payout and to share some of our success with our investors. If I could have you now turn to page seven and the strategic priorities we've set out for fiscal 25, we plan to continue to build on the strong fiscal 24 performance and continue to invest in the future of our businesses. We plan to invest in our brands to drive long-term growth, building on the confidence we've gained in fiscal 24, we will strategically continue our brand-focused investments in fiscal 25. Year on year, we expect to increase investments by a further $10 to $15 million. These investments will primarily be in R&D, marketing, and advertising to drive profitable top-line growth. As we did in fiscal 24, we'll also be prudent in making these investments and we'll gauge their effectiveness along the way. Investments will be made across all of our businesses, and we expect a more consistent rate of spend per quarter. We plan to invest in our inventory to support sales growth this year and further e-commerce expansion. E-commerce was a significant source of growth for us in fiscal 24 as we saw consumers switch to shifting their buying habits even more online. We want to win wherever consumers are buying and shopping. To further enable our success in serving our e-commerce retailers, we expect to make strategic investments to increase our inventory levels by approximately $20 to $25 million to capture incremental growth in sales and to maximize our fill rates. We plan to invest in innovation to expand in our core categories and to enter new adjacencies. We have a very strong portfolio of brands. We have a lot of number one positions in their respective categories. And through investing in these brands and expanding their reach into current and new adjacencies, we expect to drive top-line growth. Just picking one example is our recently launched national ad campaign for our Good & Fun brand. Good & Fun is the number one brand in dog chews, and we believe we can expand it now into treats, food toppers, and other adjacencies. We intend to continue to invest in our operations. We want to continue to drive cost improvement, quality, and safety. Our operational improvements this year have been one of the most important contributors to our success. Nothing runs well in a consumer products company if your operations aren't functioning at a very high level. So we will continue to support our ops teams to ensure they can deliver for the company maintaining a very strong S&OP process, and focusing more on quality and safety across the entire organization. We will continue to invest in our operations for further efficiencies also, wherever possible. We believe that staying lean and approaching every day with a lean mindset is imperative to sustaining the operational improvements we've worked so hard to achieve. In a few minutes, you'll hear from Jeremy about how the recent storms in the southeast have increased consumer demand for some of our H&G products, home and garden. And beyond that, as a home essentials company with a mission to make living better at home, I'm really proud to let you know that our teams jumped into action to help those most affected by these storms. Our donations to affected communities in the western North Carolina area included Spectracide Wasp and Hornet Spray, Repel Insect Repellent, Rejuvenate Mop Kits, Nature's Miracle Pet Products, and yes, our number one good and fun dog treats. I'm proud of our commitment to making a positive impact in the communities in which we serve. If we can now turn our attention to slide eight, and we'll talk about our earnings framework for fiscal 25, Sitting here today, we currently expect net sales to grow low single digits compared to fiscal 24 across all three of our business units. The investments in innovation and brand building we made in fiscal 24 will help drive this top-line growth in fiscal 25, but we continue to expect consumers to be cautious as they face an uncertain geopolitical and economic backdrop We expect the replacement cycle, however, for kitchen appliances to continue to build, driving our top line growth. We generally have assumed that retail inventory levels are healthy, and from an adjusted EBITDA standpoint, we expect adjusted EBITDA to grow mid to high single digits compared to fiscal 24's adjusted EBITDA, excluding investment income. The incremental EBITDA is coming from volume growth and cost improvements, and it'll be partially offset by incremental brand-focused investments and inflation, particularly from ocean freight and tariff exclusion and expiration headwinds. For adjusted free cash flow, we're now targeting another strong year with approximately 50% conversion of our adjusted EBITDA. Our winning playbook has not changed, and we continue to be keenly focused on our need to deliver on our commitments to our investors. Throughout the year, we'll be prudent in making investments and managing challenging economic conditions. We will control what we can control, and we'll continue to focus on earning and maintaining our investors' trust and confidence. You'll now hear more from Jeremy on the financials, and you'll hear updates on additional business unit insights, and then I'll join you back to close out and for Q&A. At this time, I'll turn the call over to you, Jeremy.