Neptune Insurance Holdings, Inc. Q3 FY2021 earnings call

Employee Safety

• Injury rate reduced by 40% since the start of the year, an all-time record, but aiming for zero incidents.

Business Performance

• Q3 net sales $268 million, up 40% y-o-y. Itasa had third record revenue month in September. Margins challenged by escalating input costs, supply chain disruptions, labor issues, and Hurricane Ida flood damage.

Actions Taken

• Multiple price increases, R&D team reformulated over $200 million of annual sales, streamlined product portfolio, initiatives to improve operating labor.

Growth Platforms

• Focus on filtration, specialty coatings, engineered materials, imaging & packaging. Filtration demand strong, Itasa performing well, engineered materials launched new sustainable products, packaging had record quarter.

Neenah Operating System

• Global manufacturing initiative based on lean principles to drive margin improvement.

Technical Products: Sales were $173 million, up 46% from 2020 and 15% excluding Itasa. Adjusted earnings were $10.8 million, down from $13.3 million last year due to raw material cost increases, labor, and availability issues. Fine Paper and Packaging: Sales were $95 million, up 32% from last year. Adjusted earnings were $6.6 million, up from $6 million, with pricing offsetting about 75% of input cost increases.

2021 Input Costs

• Expected to be up over $40 million, with about half offset by pricing.

2022 Expectations

• Margins to improve as pricing actions, volume, and efficiency initiatives offset input costs. Target 5% top-line growth, 10% earnings growth, and EBITDA margins over 15%.

Q4 Expectations

• Input cost impact over $20 million, expect to offset two-thirds with pricing, margins expected to improve from Q3.

• Input Costs: Continued volatility in energy, chemicals, and transportation costs.
• Supply Chain: Congestion at ports and shortages of certain materials causing availability issues.
• Labor: Operating labor availability issues impacting manufacturing inefficiencies.

Q: How did sequential input costs compare to forecast?

A: Came in at $11 million vs expected $7-8 million, higher due to continued escalation. Offset half with pricing.

Q: Impact of Pennsylvania facility closure?

A: $0.06 per share impact, absent that would have been at or slightly ahead of consensus.

Q: Tech products margins and Itasa impact?

A: Expect mid-teen EBITDA margins, $30 million impact from Itasa, Appleton closure, and filtration pricing.

Q: Fine Paper recovery and sales momentum?

A: Expect full pricing recovery in Q4, sales driven by volume and price, diversified business.

Q: Itasa organic rate and end markets?

A: Itasa integration going well, record revenue in three months, diverse end markets including hygiene, roofing, medical.

Q: Reformulation impact on margins?

A: Minimal impact, provides options and flexibility for customers.

Q: Guidance for 2022 and long-term goals?

A: Long-term goal of 5% top-line, 10% earnings, and >15% EBITDA margins, with actions like pricing, Itasa, and Appleton closure driving 2022 impact.