Premium Brands Holdings Corporation

Good day, ladies and gentlemen. Welcome to the Premium Brands Holding Corporation third quarter 2020 earnings conference call. As a reminder, this conference is being recorded. At this time, all participants are in a listen-only mode. Following the presentation today, we will conduct a question and answer session. And at that time, participants may ask a question by pressing star 1. For assistance during the call, please press star 0 on your touchtone phone. It's now my pleasure to introduce today's host, George Pellilogo, President and CEO of Premium Brands, and our CFO, Will Kaludich. Please go ahead.

Thanks, Carrie, and good morning, everyone. I would like to welcome you to our 2020 third quarter conference call. I'm pleased to report that the momentum we saw in our business in the latter half of the second quarter continued through to the third quarter, resulting in record sales and earnings. This was despite several of our companies continuing to struggle with the impact of COVID-19 related factors on many of their customers. Our success during these volatile times strongly validates our model of risk diversification across sales channels, customers, and product categories, highlights the strength and resilience of our business as a whole, and is a testament to the passion and entrepreneurial spirit of our people. We're especially pleased with progress being made by our U.S.-based sandwich, meat snack, and seafood platforms. All of these generated strong growth during the quarter, driven by the execution of long-term sustainable strategies. Correspondingly, our third quarter U.S. sales as compared to the third quarter of 2019 increased by 16% to a record $432 million. Furthermore, had it not been for significant labour shortages at almost all of our US facilities, this number would have been even higher. Our core values of quality, transparency, innovation, social responsibility and community engagement, which have driven our success in Canada, are resonating equally as well with US consumers, particularly during these challenging times. Looking forward, we remain as excited as ever about the future. With a strong balance sheet, a solid base of core businesses, a robust acquisition pipeline, and a supportive shareholder base, we're ideally positioned to continue to create significant shareholder value, both through organic initiatives and acquisitions. I'm more confident than ever that we will emerge from this pandemic a stronger, larger, and even more resilient company. As a final note, before passing the presentation over to our CFO, Will Kaludich, for an overview of our financial results for the quarter, I would like to mention that we will not be providing any commentary or answering any questions about certain recent media reports on possible acquisition targets. I will now turn the presentation over to Will.

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 presentations, our forecasts and assumptions are subject to change and actual results may vary. Please see our 2019 and third quarter of 2020 MD&A filings, both of which can be found on the CDER website, www.cder.com, for details on some of the factors that could cause our actual results to differ from our current expectations. Turning to our results for the quarter, our revenue grew by approximately $133 million, or 13.7%, to a record $1.1 billion. The biggest driver of this increase was approximately $88 million of organic volume growth. representing an inflation adjustment growth rate of 9.1%. As George mentioned earlier, our strong performance was despite several of our businesses continuing to be negatively impacted by COVID-19 related factors, the effects of which were partially offset by robust sales in our retail and convenience store channel sales. On a net basis, i.e., after taking into account unusual trends in our retail and convenience store sales, we estimate the third quarter sales impact of COVID-19 related factors to be approximately $34 million, which is down significantly from the $132 million estimated for the second quarter. Normalizing for the $34 million impact, our organic growth rate for the third quarter is 12.5%. Our sales growth, both on an actual and on a normalized basis, was well above our long-term targeted volume growth rate range of 4% to 6% due to a variety of factors, such as recent capacity expansions, new customers, and product innovation across a number of product categories, including fresh seafood, meat snacks, artisan sandwiches, dry cured meats, and cooked proteins. The remaining drivers of our third quarter growth were business acquisitions, which accounted for $33 million of the increase, selling price inflation of $8 million, and currency exchange inflation of $4 million. Our adjusted EBITDA for the quarter increased to $93.5 million from $84.1 million in the third quarter of 2019, primarily due to the significant increase in our sales, partially offset by labor wage inflation, higher discretionary compensation accruals, and net COVID-19 related costs of $3.6 million. Normalizing for the impacts of COVID-19 related factors, including lost sales, our third quarter adjusted EBITDA and adjusted EBITDA margin are 105 million and 9.3% respectively. Our adjusted earnings per share for the quarter increased by 21% to a record $1.07 per share from $0.88 per share in the third quarter of 2019, driven mostly by the increase in our adjusted EBITDA. In terms of our outlook for the balance of 2020, assuming that the current situation with respect to the COVID-19 pandemic remains relatively stable, we expect to continue generating year-over-year improvement in our sales and adjusted EBITDA. However, due to the seasonality of many of our businesses, the degree of this improvement will likely not be to the same extent as achieved in the third quarter. Looking further out, we remain bullish on meeting or exceeding our 2023 sales and adjusted EBITDA targets of $6 billion and $600 million, respectively. As George mentioned earlier, the responses of our businesses to the challenges they have faced over the last eight months have expanded, not contracted, our long-term organic growth expectations, while at the same time the uncertainty associated with the current environment is further expanding our acquisitions pipeline. Turning to our financial position, during the quarter we completed a combined common share and convertible to venture offering that resulted in net proceeds of $309 million. We also issued a notice of intention to redeem our convertible to ventures maturing in April 2021 which resulted in $81 million of the debentures being converted to common shares and the balance being repaid. As a result of these transactions, we finished the quarter with a very strong balance sheet and a record level of liquidity. Our senior debt to adjusted EBITDA ratio at the end of the quarter fell to 1.4 to 1. Our total debt to adjusted EBITDA ratio, which incorporates our convertible debentures, fell to 3.0 to 1. and we had approximately $700 million of unutilized credit capacity. In terms of our investing activity during the quarter, we announced the acquisitions of culinary products manufacturer Global Gourmet and seafood distributor All Seas Fisheries. Global Gourmet closed in the quarter, while All Seas Fisheries, which was subject to approval by the Canadian Competition Bureau, closed earlier this week. The combined capital allocated to these two transactions is $127 million. During the quarter, we also allocated $16 million in capital to project CapEx initiatives, which we define as investments with an expected internal rate of return of 15% or greater. These included a 41,000 square foot expansion of our artisan bakery in Langley, BC, several meat snack capacity expansions in Canada and the US, adding incremental charcuterie tray pack capacity at our Reno sandwich plant, and the installation of automated production lines at our Phoenix sandwich plant. We also broke ground in the quarter on a 26,000 square foot expansion of our meat snacks and dry cured products facility in Bradford, Ontario. Looking forward, we are also assessing two additional capital projects with a combined estimated cost of $35 million. Subject to these projects meeting our minimum IRR threshold of 15%, we expect them to commence over the next two quarters and 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 $23.4 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 $177 million, as compared to dividends of $87 million, resulting in a payout ratio of approximately 49%. I will now turn the call over to Carrie for the Q&A segment. Carrie?