Neptune Insurance Holdings, Inc. Q4 FY2021 earnings call

Employee Safety

• Recordable rate decreased by 30% in 2021, with incidents at an all-time low, though work continues toward zero injuries.

Fourth Quarter Results

• Net sales were $264 million, up 28% year-over-year. Total volume increased by 22%, with fine paper and packaging up 16% and technical products up 25%.

Margins

• Margins improved from Q3 to Q4 but were challenged by input costs, energy volatility, and supply chain disruptions. Adjusted operating profit margin increased in Q4.

Actions Taken

• Aggressively implemented pricing actions, increased staffing to address labor shortages, accelerated automation efforts, and had R&D teams work with customers to qualify alternate products. The fine paper and packaging portfolio was streamlined, reducing grades by over 30%.

ESG Efforts

• Continued reduction in energy usage, water consumption, and greenhouse gases; received EcoVadis Gold Medal in Spain and Silver Medal in other locations.

Consolidated net sales reached $264 million in the fourth quarter, a 28% increase from the prior year. Fine paper and packaging sales were $98 million, accounting for 37.1% of total sales, with an adjusted earnings of $12 million. Technical products sales totaled $167 million, making up 63.3% of total sales, and had adjusted earnings of $6 million. Itasa contributed $38 million to sales in the quarter. Volume growth was 22% overall, with fine paper and packaging up 16% and technical products up 25%.

2022 Outlook

• Q1 expected to be impacted by the Brownville fire and ongoing input cost/supply chain issues. Margin improvement is anticipated in the back half of 2022 as pricing momentum and supply availability expand. Aim to offset 2021 unrecovered input costs and 2022 inflationary pressures.

Investments

• €25 million investment in German filtration meltblown capacity, with startup expected in early 2024; $13 million investment in Mexico specialty coating capacity, on track to start up mid-2023.

Strategy Focus

• Focus on four growth platforms (filtration, specialty coatings, engineered materials, image and package), leveraging innovation, the Neenah operating system, organic capital investments, and M&A.

Risks

• Input Cost Volatility: Continued increase in raw materials, energy, and labor costs beyond initial expectations.
• Supply Chain Disruptions: Shortages of specialty chemicals, labor availability challenges, and ongoing COVID impacts on suppliers.
• Brownville Fire: Unfavorable profit impact in Q1, with ongoing assessment of restart timing.
• Energy Cost Volatility: Especially in Europe, with aggressive increases seen in late 2021.

Q: Jonathan Tanwanteng asked about the $3 million impact of the Brownville fire on EBIT and how pricing is recovering from inflation.

A: Julie Schertell stated it's a bottom line impact, covered by insurance, and Paul Desantis discussed pricing of $60 million vs. costs of $35 million in 2022, with a net $25 million benefit expected.

Q: Chris McGinnis inquired about customer acceptance of price increases and Itasa's growth rate.

A: Julie Schertell said customers understand pricing due to industry-wide inflation, and Itasa is growing in low double digits. Paul Desantis mentioned Itasa's record performance despite supply chain issues.

Q: Dan Berlin asked about pro-forma EBITDA and net pricing impact.

A: Paul Desantis and Julie Schertell discussed component pieces of pricing, input costs, and volatility, stating they won't tie components into a single number due to uncertainty.