Sealed Air Corp (NYSE:SEE) Q3 2022 Earnings Conference Call November 1, 2022 10:00 AM ET Company Participants Brian Sullivan - Executive Director, IR & Assistant Treasurer Edward Doheny - CEO, President & Director Chris Stephens - SVP & CFO Sergio Pupkin - SVP and Chief Growth & Strategy Officer Susan Yang - Corporate Treasurer & Finance Leader, SEE Automation Conference Call Participants George Staphos - Bank of America Merrill Lynch Ghansham Panjabi - Robert W. Baird & Co. Lawrence De Maria - William Blai ...

PART I. FINANCIAL INFORMATION [Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) The company reported increased net sales and earnings for the nine-month period, alongside a significant decrease in cash and operating cash flow Financial Performance | Financial Metric | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | Change (%) | | :--- | :--- | :--- | :--- | | Net Sales | $4,236.0 M | $4,002.3 M | +5.8% | | Gross Profit | $1,348.9 M | $1,205.5 M | +11.9% | | Operating Profit | $716.8 M | $600.7 M | +19.3% | | Net Earnings from Continuing Operations | $396.6 M | $322.2 M | +23.1% | | Diluted EPS from Continuing Operations | $2.68 | $2.10 | +27.6% | Balance Sheet Summary | Balance Sheet Item | Sep 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $248.8 M | $561.0 M | | Inventories, net | $962.4 M | $725.7 M | | Total Assets | $6,075.1 M | $6,229.3 M | | Total Debt (Current + Long-term) | $3,639.1 M | $3,708.1 M | | Total Stockholders' Equity | $218.2 M | $248.7 M | Cash Flow Summary | Cash Flow Item | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $320.8 M | $377.5 M | | Net cash used in investing activities | ($183.8 M) | ($154.3 M) | | Net cash used in financing activities | ($419.0 M) | ($379.2 M) | [Note 3: Revenue Recognition](index=12&type=section&id=Note%203%20Revenue%20Recognition%2C%20Contracts%20with%20Customers) Revenue performance varied by segment, with growth in Food offset by a decline in the Protective segment during Q3 2022 Segment Revenue (In millions) | Segment Revenue (In millions) | Q3 2022 | Q3 2021 | YTD 2022 | YTD 2021 | | :--- | :--- | :--- | :--- | :--- | | **Food** | $829.8 | $797.4 | $2,443.3 | $2,236.3 | | **Protective** | $570.6 | $609.3 | $1,792.7 | $1,766.0 | | **Total** | $1,400.4 | $1,406.7 | $4,236.0 | $4,002.3 | [Note 5: Acquisition and Divestiture Activity](index=16&type=section&id=Note%205%20Acquisition%20and%20Divestiture%20Activity) The company acquired Foxpak Flexibles Ltd for $9.7 million to enhance digital printing capabilities in its Food segment - Acquired Foxpak Flexibles Ltd for **$9.7 million**, adding digital printing capabilities to the Food segment[55](index=55&type=chunk)[56](index=56&type=chunk) [Note 6: Segments](index=17&type=section&id=Note%206%20Segments) Both Food and Protective segments reported year-to-date growth in net sales and improved Adjusted EBITDA margins Segment Performance (YTD 2022 vs YTD 2021) | Segment Performance (YTD 2022 vs YTD 2021) | Food | Protective | | :--- | :--- | :--- | | **Net Sales** | $2,443.3 M (up 9.3%) | $1,792.7 M (up 1.5%) | | **Adjusted EBITDA** | $553.4 M (up 14.2%) | $363.2 M (up 13.5%) | | **Adjusted EBITDA Margin** | 22.6% (from 21.7%) | 20.3% (from 18.1%) | [Note 12: Restructuring Activities](index=22&type=section&id=Note%2012%20Restructuring%20Activities) The 'Reinvent SEE' restructuring program was extended, with total spending approaching its authorized limit - The 'Reinvent SEE' restructuring program has been extended to the end of 2022, with cumulative spend to date of **$208 million** out of a total authorized range of **$210-$220 million**[88](index=88&type=chunk)[89](index=89&type=chunk) - In the first nine months of 2022, total charges related to the program were **$13.1 million**, consisting of $4.6 million in restructuring charges and $8.5 million in other associated costs[87](index=87&type=chunk)[89](index=89&type=chunk) [Note 13: Debt and Credit Facilities](index=23&type=section&id=Note%2013%20Debt%20and%20Credit%20Facilities) The company managed its $3.64 billion debt portfolio through refinancing and new note issuance during the period Debt Composition (In millions) | Debt Component | Sep 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Total current debt | $403.4 M | $488.5 M | | Total long-term debt | $3,235.7 M | $3,219.6 M | | **Total debt** | **$3,639.1 M** | **$3,708.1 M** | - In March 2022, the company amended and restated its senior secured credit facility, extending maturity to 2027 and transitioning from **LIBOR to SOFR**[95](index=95&type=chunk) - In April 2022, issued **$425 million in 5.000% senior notes** due 2029 to repurchase existing notes due 2023, recognizing a **$10.5 million pre-tax loss** on the transaction[98](index=98&type=chunk)[101](index=101&type=chunk) [Note 18: Commitments and Contingencies](index=33&type=section&id=Note%2018%20Commitments%20and%20Contingencies) The company faces a significant potential tax liability from an IRS dispute and has settled a class action lawsuit - The IRS is challenging a tax deduction from 2014 related to the Cryovac transaction settlement, potentially resulting in a **$525 million tax liability**[150](index=150&type=chunk)[154](index=154&type=chunk) - A securities class action lawsuit was settled for **$12.5 million**, which will be covered by the company's insurance[158](index=158&type=chunk) [Note 19: Stockholders' Equity](index=35&type=section&id=Note%2019%20Stockholders%27%20Equity) Capital was returned to shareholders through significant share repurchases and consistent quarterly dividends - Repurchased **4.5 million shares for $280.1 million** in the first nine months of 2022[162](index=162&type=chunk) - As of September 30, 2022, **$616.4 million remained** under the current $1.0 billion share repurchase authorization[161](index=161&type=chunk) - Declared and paid quarterly cash dividends of **$0.20 per common share** throughout 2022[165](index=165&type=chunk)[166](index=166&type=chunk) [Note 23: Subsequent Events](index=39&type=section&id=Note%2023%20Subsequent%20Events) The company announced a definitive agreement to acquire Liquibox for $1.15 billion subsequent to the reporting period - Announced the planned acquisition of Liquibox for **$1.15 billion in cash**, expected to close in Q1 2023[183](index=183&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=40&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Sales growth was driven by price realization offsetting volume declines, though free cash flow decreased due to inventory investments [Highlights of Financial Performance](index=45&type=section&id=Highlights%20of%20Financial%20Performance) The company achieved broad growth across key GAAP and non-GAAP metrics, including net sales, operating profit, and Adjusted EPS YTD Performance Summary (In millions, except EPS) | Metric (YTD 2022 vs YTD 2021) | 2022 | 2021 | % Change | | :--- | :--- | :--- | :--- | | Net sales | $4,236.0 M | $4,002.3 M | 5.8% | | Operating profit | $716.8 M | $600.7 M | 19.3% | | Net earnings from continuing operations | $396.6 M | $322.2 M | 23.1% | | Non-U.S. GAAP Adjusted EBITDA | $913.0 M | $801.9 M | 13.9% | | Non-U.S. GAAP Adjusted EPS | $3.11 | $2.43 | 28.0% | [Results of Operations](index=47&type=section&id=Results%20of%20Operations) Price increases drove net sales growth by offsetting volume declines and currency headwinds, improving gross margin YTD 2022 Net Sales Change Contribution | YTD 2022 Net Sales Change Contribution | Percentage | | :--- | :--- | | Price | +14.9% | | Volume | -4.3% | | Acquisition (Divestiture) | -0.8% | | Foreign currency translation | -4.0% | | **Total change (U.S. GAAP)** | **+5.8%** | - Food segment constant dollar sales increased **13.5% YTD**, driven by favorable pricing of $332 million, partially offset by lower volumes of $35 million[217](index=217&type=chunk)[219](index=219&type=chunk) - Protective segment constant dollar sales increased **5.1% YTD**, as favorable pricing of $263 million was partially offset by lower volumes of $137 million due to recessionary pressures[217](index=217&type=chunk)[221](index=221&type=chunk)[226](index=226&type=chunk) [Liquidity and Capital Resources](index=57&type=section&id=Liquidity%20and%20Capital%20Resources) Liquidity remains solid, but operating and free cash flow declined significantly due to increased working capital investment Free Cash Flow (In millions) | Metric (In millions) | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Cash flow provided by operating activities | $320.8 | $377.5 | | Capital expenditures | ($183.5) | ($154.8) | | **Non-U.S. GAAP free cash flow** | **$137.3** | **$222.7** | - The decrease in operating cash flow was primarily driven by unfavorable working capital changes, including a **$120 million higher use of cash for inventory** and **$169 million lower cash generation from accounts payable** compared to 2021[289](index=289&type=chunk) - Net debt increased by **$243.2 million** since year-end 2021 to **$3.39 billion**[285](index=285&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=61&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company manages market risks from foreign currency, particularly in Argentina, and interest rate fluctuations - Recognized a **$6 million net foreign currency exchange loss** in the first nine months of 2022 related to the designation of Argentina as a highly inflationary economy[311](index=311&type=chunk) - A hypothetical **10% increase in interest rates** would result in a **$76 million decrease** in the fair value of the company's total debt balance[309](index=309&type=chunk) - The company's **€400 million senior notes** are designated as a net investment hedge against fluctuations in its investment in a European subsidiary[317](index=317&type=chunk) [Controls and Procedures](index=63&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and internal controls over financial reporting were effective - Management concluded that disclosure controls and procedures were **effective at the 'reasonable assurance' level** as of the end of the reporting period[323](index=323&type=chunk) - **No material changes** to internal control over financial reporting were identified during the quarter ended September 30, 2022[324](index=324&type=chunk) PART II. OTHER INFORMATION [Legal Proceedings](index=64&type=section&id=Item%201.%20Legal%20Proceedings) This section references Note 18 for details on key legal matters, including an IRS dispute and a lawsuit settlement - Refers to Note 18 for details on the Settlement Agreement Tax Deduction dispute with the IRS, the Securities Class Action settlement, and Environmental Matters[325](index=325&type=chunk) [Risk Factors](index=64&type=section&id=Item%201A.%20Risk%20Factors) The conflict between Russia and Ukraine is identified as a significant risk impacting supply chains, costs, and assets - The conflict between Russia and Ukraine poses risks including **supply chain disruptions, increased costs, and currency losses**[327](index=327&type=chunk) - As of September 30, 2022, net assets in Russia were **$79 million** and in Ukraine were **$4 million**[328](index=328&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=64&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company executed share repurchases totaling $30.0 million during the third quarter under its authorized program Share Repurchases in Q3 2022 | Period (2022) | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | July | 0 | N/A | | August | 0 | N/A | | September | 614,190 | $48.81 | | **Q3 Total** | **614,190** | **$48.81** | - As of September 30, 2022, approximately **$616.4 million remained available** for repurchase under the company's authorized plan[330](index=330&type=chunk) [Exhibits](index=66&type=section&id=Item%206.%20Exhibits) This section lists all filed exhibits, including governance documents, executive certifications, and XBRL data - Filed exhibits include CEO and CFO certifications pursuant to Rule 13a-14(a) and 18 U.S.C. § 1350, along with corporate governance documents and XBRL data[333](index=333&type=chunk)

Liquibox Acquisition - SEE will acquire 100% ownership of Liquibox, which is forecasted to have $362 million in revenues and $85 million in Adjusted EBITDA for 2022[19] - The purchase price is $115 billion, resulting in an EV/Adj 2022E EBITDA multiple of 135x, which reduces to 10x after considering cost synergies[19] - The acquisition is expected to generate approximately $30 million in annual run-rate cost synergies, representing 8% of Liquibox's revenues[19] - The acquisition is forecasted to reduce the EV/Adj EBITDA purchase multiple by 5x by Year 3 through organic growth and cost synergies and is expected to be accretive to Adjusted EPS by Year 1, excluding Purchase Accounting[19] - The combined Fluids & Liquids sales are expected to be approximately $600 million[17] Q3 2022 Financial Performance - Net sales were $14 billion, flat as reported but up 5% in constant currency[34, 36] - Adjusted EBITDA was $293 million, up 8% as reported and 12% in constant currency, with a margin of 209%, up 170 bps[34, 36, 44] - Adjusted EPS was $098, up 14% as reported and 19% in constant currency[34, 36] - Free cash flow was $137 million, with capital expenditures up 19% compared to Q3 2021's $223 million[34, 35] 2022 Outlook - Sales are projected to be between $565 billion and $575 billion, with organic growth up 7% to 9%, but impacted by a foreign exchange impact of approximately (4%) and a net acquisition/divestiture impact of approximately ($35 million)[60] - Adjusted EBITDA is expected to be between $121 billion and $123 billion, up 7% to 9%, with a margin of approximately 21%, but impacted by a foreign exchange impact of approximately (4%)[61]

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