Premium Brands Holdings Corporation

Good day, ladies and gentlemen, and welcome to the Premium Brands Holdings Corporation's second quarter 2020 earnings call. As a reminder, this call is being recorded. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question and answer session. At that time, participants are asked to press star 1 to register for a question. For assistance during the call today, please press star 0 on your telephone. Our speakers will be George Pellilogo, CEO and President of Premium Brands, and Will Kalutich, CFO of Premium Brands. It is now my pleasure to introduce your host, George Pili-Logo. Please go ahead, sir.

Thanks, Lisa, and good morning, everyone. Welcome to our 2020 second quarter conference call. I would like to start today's call by thanking my 9,000 PB associates who continue to do an amazing job every day and every week producing the foods needed to feed and nourish our fellow citizens. I feel very privileged to have such a great and dedicated group. Their commitment to the cause and their hard work and dedication during these uncertain and volatile times is greatly appreciated. Turning to our results, our second quarter numbers are satisfactory given the COVID-19 related disruptions to our business, but do not fully reflect the many reasons we're so excited about our future as they do not tell the full story. Despite the many challenges we faced during the quarter, due to the COVID-19 pandemic, we remain as excited as ever about our business and are encouraged by the momentum we're taking into the third quarter, driven by the reopening of the economy and the return to some level of normalcy. I will now turn the presentation over to our CFO, Will Kaludich, who will review our financial results for the quarter, after which I will make a few brief comments, followed by Q&A. Will?

Thanks George and good morning everyone. Before discussing our results for the quarter, I would like to caution you that to the extent we make forward-looking statements during our presentation, our forecasts and assumptions are subject to change and actual results may vary. Please see our 2019 and second quarter of 2020 MD&A filings, both of which can be found on the Cedar website www.cedar.com for details on some of the factors that could cause our actual results to differ from our current expectations. Turning to our results, our revenue for the quarter grew by $31.2 million or 3.3% to a record $976.6 million despite our company facing the most challenging operating environment in its history. The increase was driven by approximately $93 million of organic volume growth in certain areas of our business, business acquisitions, which accounted for $30 million of the increase, $25 million in selling price inflation, and $15 million in exchange-related inflation. These factors were partially offset by approximately $132 million in COVID-19-related sales impacts. The $93 million in organic volume growth, which was driven by new customer initiatives in the seafood and sandwich categories, as well as successful new product launches, translates to a growth rate of 9.8%. This is in line with the growth rates of 13.8% and 7.4% in the first quarter of this year and the fourth quarter last year, respectively, and above our long-term targeted range of 4% to 6%. The $132 million COVID-19 sales impact related mainly to the partial or full shutdown of a number of our customers operating in the food service and QSR channels, partially offset by unusually high demand for certain products in the retail channel. Our adjusted EBITDA for the quarter fell to $67.1 million from $88.2 million in the second quarter of 2019 due to COVID-19 related issues. namely the $132 million sales impact and $10.9 million of net transitory costs, which is after $3.5 million in COVID-19 related marketing and travel cost savings. These items were partially offset by some general margin expansion resulting from a combination of past selling price increases, inventory strategies used to hedge against commodity cost volatility, and declines in the cost of certain seafood commodities. Overall, the impact of COVID-19 related factors on our adjusted EBITDA was most severe in April with our May and June results each showing substantial sequential improvement. Our adjusted EBITDA margin was 6.9% versus 9.3% in the second quarter of 2019. The decrease of 240 basis points was driven by a variety of factors, including one, the net loss of sales volume associated with the COVID-19 sales impacts, two, the 10.9 million in net transitory COVID-19 related costs, and three, sales mix changes as a portion of the COVID-19 related impact on our food service and QSR channel sales was partially offset by the affected businesses pursuing new but lower margin sales opportunities. The general margin expansion I outlined earlier helped to lessen the impact of these factors. Our adjusted earnings per share for the quarter decreased to $0.57 per share from $1.10 per share in the second quarter of 2019 due to the COVID-19 factors that impacted our adjusted EBITDA. In terms of our outlook for 2020, While we continue to see steady improvement in the performance and stability of our businesses, we are not providing any sales or adjusted EBITDA guidance at this time, based on there still being considerable uncertainty about what the impacts of COVID-19 will be for the remainder of the year. We do, however, based on current circumstances, expect the current trend of improvement to continue, subject to the normal seasonality of our businesses. Despite the near-term uncertainty, we remain confident in meeting or exceeding our 2023 sales and adjusted EBITDA targets of $6 billion and $600 million, respectively. To this end, we expect substantially all of the impacts of COVID-19 to be transitory. Our organic growth initiatives largely remain intact, albeit with some delays, and many of our businesses have developed additional new sales opportunities as well as strengthened customer and supplier relationships as a result of the crisis. Furthermore, we are now resuming our acquisition and CapEx growth strategies, both of which had been temporarily put on hold due to pandemic-related concerns. Turning to our financial position, we went into the COVID-19 crisis with a solid financial position and continue to maintain a conservative balance sheet and strong liquidity. Our senior debt to adjusted EBITDA ratio at the end of the quarter was 2.7 to 1, which is within our long-term targeted range of 2.5 to 1 to 3.0 to 1, and we had approximately $380 million of unutilized credit capacity. Subsequent to the quarter, we completed a combined common share and convertible to venture offering that resulted in net proceeds of $308.7 million. This increased our unutilized credit capacity to approximately $690 million, reduced our pro forma Q2 senior debt to adjust the EBITDA ratio to 1.5 to 1, and positioned us to resume our acquisition and CapEx growth strategies while maintaining a very conservative balance sheet. In terms of capital expenditures, during the quarter we spent $19.5 million on a variety of capital projects that were either relatively small or initiated prior to the COVID-19 crisis, including a 41,000 square foot expansion of our artisan bakery in Langley, BC, several meat snack capacity expansions, adding additional charcuterie tray pack capacity at our Reno sandwich plant, and the installation of automated production lines in our Phoenix Sandwich plant. With the resumption of our CapEx-based growth strategy, we also announced that we are in the process of assessing five major capital projects with a combined preliminary estimated cost of $87 million. Subject to these projects meeting our minimum internal rate of return threshold of 15% on an after-tax, unlevered basis, We expect them to commence over the next two quarters and to be completed between the fourth quarter of 2021 and the fourth quarter of 2022. Turning to dividends, during the quarter we declared a dividend of $21.7 million, or 57.75 cents per share, which on an annualized basis works out to $2.31 per share. Our free cash flow for the trailing 12 months was $161.3 million, as compared to dividends of $82.7 million, resulting in a payout ratio of 51.3%. While our payout ratio was up relative to 38% to 43% range that it has been at in recent years, we were pleased that it was still near our general target of 15% despite facing one of the most challenging economic environments in recent history. I will now pass the presentation back to George.