DIVERSEY HOLDINGS, LTD.
This management discussion and analysis ("MD&A") provides information we believe
is useful in understanding our operating results, cash flows and financial
condition. We provide quantitative and qualitative information about key drivers
behind revenue and earnings performance, including the impact of foreign
currency, acquisitions as well as changes in volume and pricing.
The MD&A should be read together with our Condensed Consolidated Financial
Statements for the nine months ended September 30, 2022 and the related Notes
thereto, which are prepared in accordance with U.S. GAAP, and included in Item 1
of Part I of this Quarterly Report on Form 10-Q, and our audited Consolidated
Financial Statements for the year ended December 31, 2021 and the related Notes
thereto, which are included in the Company's Annual Report on Form 10-K. The
statements in this MD&A regarding industry outlook, our expectations regarding
our future performance, liquidity and capital resources and other non-historical
statements are forward-looking statements. These forward-looking statements are
subject to numerous risks and uncertainties, including, but not limited to, the
risks and uncertainties described in the "Risk Factors" section of the Company's
Annual Report on Form 10-K and in the "Cautionary Statement Regarding
Forward-Looking Information" section of this Quarterly Report on Form 10-Q. Our
actual results may differ materially from those contained in or implied by any
forward-looking statements.
Management Overview
Diversey Holdings, Ltd. (hereafter the "Company", "we," "us," and "our"), is a
leading provider of hygiene, infection prevention and cleaning solutions. We
develop mission-critical products, services and technologies that save lives and
protect our environment. We were formed as an exempted company incorporated
under the laws of the Cayman Islands with limited liability on November 3, 2020
for the purpose of completing a public offering and related transactions and in
order to carry on the business of our indirect wholly-owned operating
subsidiaries.
On March 29, 2021 , we completed an initial public offering of 46,153,846
Ordinary Shares at a public offering price of $15.00 per share, receiving $654.3
million in net proceeds, after deducting the underwriting discount and offering
expenses. On April 9, 2021 , we issued and sold an additional 5,000,000 Ordinary
Shares pursuant to the underwriters' partial exercise of their option to
purchase additional shares, receiving an incremental $71.4 million in net
proceeds. Our Ordinary Shares trade on The Nasdaq Global Select Market under the
ticker symbol "DSEY".
On November 15, 2021 , we issued and sold 15,000,000 Ordinary Shares at a public
offering price of $15.00 per Ordinary Share, receiving $214.4 million in net
proceeds, after deducting the underwriting discount and offering expenses.
Bain Capital beneficially owned approximately 72.9% our outstanding ordinary
shares as of September 30, 2022 . As a result, we are a "controlled company"
within the meaning of the corporate governance standards of The Nasdaq Stock
Market LLC ("Nasdaq"). Under Nasdaq listing rules, a company of which more than
50% of the voting power for the election of directors is held by an individual,
group or another company is a "controlled company" and may elect not to comply
with certain Nasdaq corporate governance requirements. We are currently relying
on certain of these exemptions.
Reportable Segments
We report our results of operations in two segments: Institutional and Food & Beverage.
•Institutional segment - Our Institutional solutions are designed to enhance
cleanliness, safety, environmental sustainability, and efficiency for our
customers. We offer a broad range of products, services, solutions, equipment
and machines, including infection prevention and personal care, products, floor
and building care chemicals, kitchen and mechanical warewash chemicals and
machines, dosing and dispensing equipment, and floor care machines. We also
offer a range of engineering, consulting and training services related to
productivity management, water and energy management, and risk management,
supported by data provided through our digital solutions. We deliver these
solutions to customers in the
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--------------------------------------------------------------------------------healthcare, education, food service, retail and grocery, hospitality, and building service contractors industries.
•Food & Beverage segment - Our Food & Beverage products are designed to maximize the hygiene, safety, and efficiency of our customers' production and cleaning processes while minimizing their impact on the natural resources they consume. We offer a broad range of products, solutions, equipment and machines including chemical products, engineering and equipment solutions, knowledge-based services, training through ourDiversey Hygiene Academy , and water treatment. We deliver these solutions to enhance food safety, operational excellence, and sustainability for customers in the brewing, beverage, dairy, processed foods, pharmaceutical, and agriculture industries. The Company evaluates the performance of each reportable segment based on the results of each segment. In addition, corporate reflects indirect costs that support all segments, but are not allocated or monitored by segment management, and include executive and administrative functions, finance and accounting, procurement, information technology and human resources. For additional information regarding key factors and measures used to evaluate our business, see "Non-GAAP Financial Measures" and "Net Sales by Segment".
Recent Trends and Events
Russia-Ukraine War. The geopolitical situation inEastern Europe intensified onFebruary 24, 2022 , withRussia's invasion ofUkraine . The war between the two countries continues to evolve as military activity proceeds and additional economic sanctions are imposed onRussia by numerous countries throughout the world. In addition to the human toll and impact of the war locally inRussia ,Ukraine , or neighboring countries that conduct business with their counterparties, the war is increasingly affecting economic and global financial markets and exacerbating ongoing economic challenges, including issues such as rising inflation and global supply-chain disruption. TheRussia -Ukraine war has exacerbated the current inflationary environment both inRussia , as a result of economic sanctions that devalue its currency, and in other countries as their businesses and currencies react to the war's implications worldwide. It is possible that foreign currency restrictions or the development of multiple exchange rates could arise in certain countries. In addition, if there are inflationary pressures inRussia and the neighboring countries, we may be required to assess whether the economies of those countries have become highly inflationary, in which theU.S. dollar would replace the Russian ruble as the functional currency for our subsidiaries inRussia .
Our business in
Impact of COVID-19. In 2020, governmental agencies around the world, including federal, state and local governments inthe United States , implemented varying degrees of restrictions on social and commercial activities to promote social distancing in an effort to slow the spread of COVID-19. These measures, as well as future measures, have had and will continue to create a significant adverse impact upon many sectors of the global economy.
We continue to monitor the impact that COVID-19 has on all aspects of our business and geographies, including the impact on our employees, customers, suppliers, business partners and distribution channels. We continually assess the evolving situation and implement business continuity plans across all operations.
Markets We Serve. The COVID-19 pandemic has had a meaningful impact on our
business, especially within our Institutional segment. In the first quarter of
2021, strong demand for our infection prevention products and services offset
volume related declines in sales to restaurants, hotels and entertainment
facilities. In the remainder of 2021 and into 2022, we saw restrictions and
lock-downs start to ease in some markets, resulting in stronger than anticipated
sales in those markets, except for infection prevention products. Conversely, as
expected, demand for infection prevention products and services slowed to levels
below the peak demand from 2020, but continuing above pre-COVID-19 levels.
The disruption to global markets that has occurred has adversely impacted the
demand for our goods and services particularly in the hotel, restaurant, office
cleaning and travel industries. The outbreak and spread of COVID-19 has
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caused an economic slowdown. Currently, there is a significant degree of
uncertainty and lack of visibility as to the extent and duration of any such
slowdown. Given the significant economic uncertainty and volatility created by
the COVID-19 pandemic, it is difficult to predict the nature and extent of
impacts on demand for our products. These expectations are subject to change
without warning and investors are cautioned not to place undue reliance on them.
The prolonged permanence of COVID-19 has resulted in a significant downturn in
the food service, hospitality, office cleaning, and travel industries and a
significant drop in demand for some of our products and services, which could
materially adversely affect our business.
Supply Chain and Operations. Our global operations have continued to operate and
serve the needs of our customers through the global COVID-19 pandemic. We
experienced minimal facility closures due to government orders. While we have
introduced social distancing, health monitoring and any necessary quarantining
into our global operations, this work has been done with limited impact to
overall production capacity.
We cannot predict the impact on our operations of future spread or worsening of
the COVID-19 pandemic or future restrictions on commercial activities by
governmental agencies to limit the spread of the virus. The health of our
workforce, and our ability to meet staffing needs in our manufacturing
facilities, distribution of our products and other critical functions are key to
our operations. The health of our third-party suppliers' employees that are
linked to our supply chain (contract manufacturers, third-party logistics
providers and freight carriers) is also critical to support our operations.
In addition, as economies around the world have now reopened, increases in
demand have created significant disruptions to the global supply chain, which
have affected our ability to receive goods on a timely basis and at anticipated
costs. These supply chain disruptions have been caused and compounded by many
factors, including changes in supply and demand, industry capacity constraints,
raw material shortages and labor shortages. Global logistics network challenges
have resulted in delays, shortages of certain materials, and increased
transportation costs. We have materially mitigated to date the impact of these
disruptions through the work of our procurement and supply chain teams, but
there continues to be significant uncertainties regarding the future impact of
supply chain disruptions, which we cannot predict. Additionally, we are in the
process of consolidating certain facilities within North America , which includes
opening a new manufacturing and warehousing facility, which could present
short-term operational challenges and supply chain disruptions.
Capital Investments. To support the expansion of our North American
Institutional business, our new manufacturing and warehouse facility site
located in northern Kentucky began warehouse operations in the second quarter of
2022 and manufacturing operations in the third quarter of 2022. This facility
will help us better serve our institutional customers, strengthen our business
and market position, and better manage our inventory and supply chain.
On January 24, 2022 , we acquired Shorrock Trichem Ltd , a distributor of cleaning
and hygiene solutions and services based in northwest England . This acquisition
increases our capabilities in providing an enhanced value proposition to our
customers, delivering access to mechanical ware washing, laundry machine leasing
and washroom solutions which complement the market leading products that
Diversey provides for these areas.
Employee Health and Safety and Business Continuity. The health and safety of our
employees, suppliers and customers continues to be our top priority. Safety
measures remain in place at each of our facilities, including: enhanced cleaning
procedures, employee temperature checks, use of personal protective equipment
for location-dependent workers, social distancing measures within operating
sites, remote work arrangements for non-location dependent employees, visitor
access restrictions and limitations on travel, particularly in regions with high
transmission of COVID-19.
Remote work arrangements will remain in place for some of our non-location
dependent employees as appropriate. In a remote working environment, we continue
our efforts to mitigate information technology risks including failures in the
physical infrastructure or operating systems that support our businesses and
customers, and cyber-attacks and security breaches of our networks or systems.
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While we continue to practice enhanced employee safety and other precautionary
measures during this pandemic, there continues to be significant uncertainties
regarding the future impact of COVID-19, which we cannot predict.
Impact of Inflation. Inflation affects our manufacturing, distribution and
operating costs. We have experienced unprecedented inflation in 2022, which
impacted the cost of our raw materials, packaging and transportation. We are
committed to maintaining our margins, and have taken actions to mitigate
inflation through price increases, cost control, raw material substitutions, and
more efficient logistics practices. However, our success is dependent on
competitive pressures and market conditions, and we cannot guarantee the
negative impacts of inflation can be fully recovered. In periods of significant
inflation, we may experience a lag between our ability to recover both the cost
and margin in the short term.
Other Factors Affecting Our Operating Results
Our operating results have been, and will likely continue to be, affected by
numerous factors, including the increasing worldwide demand for our products and
services, increasing regulatory compliance costs, macroeconomic and political
conditions, the introduction of new and upgraded products, recent acquisitions
and foreign currency exchange rates. Each of these factors is briefly discussed
below.
Increasing Demand for Our Products and Services. Governmental regulations for
food safety and disease control, and consumer focus on hygiene and cleanliness
have increased significantly across the world in recent years. Climate change,
water scarcity and environmental concerns have combined to create further demand
for products, services and solutions designed to minimize waste and support
broader sustainability. In addition, many of our customers require tailored
cleaning solutions that can assist in reducing labor, energy, water-use and the
costs related to cleaning, sanitation and hygiene activities. We help our
customers realize efficiencies throughout the operation of their facilities by
developing customized solutions. We believe that our value-added customer
service approach and proven commitment to providing cost-savings and sustainable
solutions position us well to address these and other critical demand drivers in
order to drive revenue growth.
Increasing Regulatory Compliance Costs. Although our industry has always been
highly regulated, it is becoming more regulated with the introduction of, among
other things, the Environmental Protection Agency Biocidal Product Regulation
and the Globally Harmonized System of Classification and Labelling of Chemicals.
Compliance costs associated with these new regulations have impacted our cost of
doing business, and we expect these regulations and other existing and new
regulations to continue to affect our cost of doing business in the future.
International Operations. We have significant international operations with
81.2% of our net sales for the nine months ended
We present our Condensed Consolidated Financial Statements inU.S. dollars. As a result, we must translate the assets, liabilities, revenues and expenses of all of our operations intoU.S. dollars at applicable exchange rates. Consequently, increases or decreases in the value of theU.S. dollar may affect the value of these items with respect to our non-U.S. dollar businesses in our Condensed Consolidated Financial Statements, even if their value has not changed in their local currency. For example, a strongerU.S. dollar will reduce the relative value of reported results of non-U.S. dollar operations, and, conversely, a weakerU.S. dollar will increase the relative value of the non-U.S. dollar operations. These translations could significantly affect the comparability of our results between financial periods and/or result in significant changes to the carrying value of our assets, liabilities and stockholders' equity. In addition, many of our operations buy materials and incur expenses in a currency other than their functional currency. As a result, our results of operations are impacted by currency exchange rate fluctuations because we are generally unable to match revenues received in foreign currencies with expenses incurred in the same currency. From time to time, as and when we determine it is appropriate and advisable to do so, we may seek to mitigate the effect of exchange rate fluctuations through the use of derivative financial instruments. 39 --------------------------------------------------------------------------------Argentina .Argentina has been designated a highly inflationary economy underU.S. GAAP effectiveJuly 1, 2018 , and theU.S. dollar replaced the Argentine peso as the functional currency for our subsidiaries inArgentina . For more information, see "Foreign currency gain related to hyperinflationary subsidiaries" below.Turkey .Turkey has been designated a highly inflationary economy underU.S. GAAP effectiveApril 1, 2022 , and theU.S. dollar replaced the Turkish lira as the functional currency for our subsidiaries inTurkey . For more information, see "Foreign currency gain related to hyperinflationary subsidiaries" below. 40 --------------------------------------------------------------------------------
Condensed Consolidated Operating Results
Three Months Ended Three Months Ended
(in millions except per share amounts) September 30, 2022 $ Change % Change September 30, 2021
Net sales $ 689.0 $ 24.1 3.6 % $ 664.9
Cost of sales 447.3 42.1 10.4 % 405.2
Gross profit 241.7 (18.0) (6.9) % 259.7
Selling, general and administrative expenses 191.3 (1.9) (1.0) % 193.2
Transaction and integration costs 12.5 8.1 184.1 % 4.4
Management fee - - - % -
Amortization of intangible assets 21.5 (2.7) (11.2) % 24.2
Restructuring and exit costs 39.4 17.8 82.4 % 21.6
Operating income (loss) (23.0) (39.3) NM 16.3
Interest expense 25.7 (0.1) (0.4) % 25.8
Foreign currency gain related to
hyperinflationary subsidiaries (2.0) 0.9 (31.0) % (2.9)
Loss on extinguishment of debt - (15.6) (100.0) % 15.6
Other (income) expense, net (11.3) (12.0) NM 0.7
Loss before income tax provision (35.4) (12.5) (54.6) % (22.9)
Income tax provision 1.1 (18.1) 94.3 % 19.2
Net loss $ (36.5) $ 5.6 13.3 % $ (42.1)
Basic and diluted loss per share $ (0.11) $ (0.14)
Basic and diluted weighted average shares
outstanding 320.2 301.6
NM - Not Meaningful, as the amounts are both income and expense in the comparable periods.
Nine Months Ended Nine Months Ended
September 30, September 30,
(in millions except per share amounts) 2022 $ Change % Change 2021
Net sales $ 2,064.3 $ 117.8 6.1 % $ 1,946.5
Cost of sales 1,349.5 174.7 14.9 % 1,174.8
Gross profit 714.8 (56.9) (7.4) % 771.7Selling, general and administrative expenses 614.7 (27.8)
(4.3) % 642.5
Transaction and integration costs 26.1 1.5 6.1 % 24.6
Management fee - (19.4) (100.0) % 19.4
Amortization of intangible assets 68.5 (4.1) (5.6) % 72.6
Restructuring and exit costs 67.6 38.0 128.4 % 29.6
Operating loss (62.1) (45.1) (265.3) % (17.0)
Interest expense 83.0 (14.4) (14.8) % 97.4
Foreign currency gain related to
hyperinflationary subsidiaries (3.6) (0.9) 33.3 % (2.7)
Loss on extinguishment of debt - (15.6) (100.0) % 15.6
Other (income) expense, net (35.2) (40.0) NM 4.8
Loss before income tax provision (106.3) 25.8 19.5 % (132.1)
Income tax provision 3.5 (3.5) 50.0 % 7.0
Net loss $ (109.8) $ 29.3 21.1 % $ (139.1)
Basic and diluted loss per share $ (0.34) $ (0.49)
Basic and diluted weighted average shares
outstanding 319.9 283.4
NM - Not Meaningful, as the amounts are both income and expense in the comparable periods.
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--------------------------------------------------------------------------------Results of Operations
Net sales by Segment. In "Net sales by segment" and in certain of the discussions and tables that follow, we exclude the impact of foreign currency translation when presenting net sales information, which we define as "constant dollar," and we exclude acquisitions in the first year after closing and the impact of foreign currency translation when presenting net sales information, which we define as "organic." Changes in net sales excluding the impact of foreign currency translation is a Non-GAAP financial measure. As a global business, it is important that we take into account the effects of foreign currency translation when we view our results and plan our strategies. Nonetheless, we cannot control changes in foreign currency exchange rates. Consequently, when we look at our financial results to measure the core performance of our business, we may exclude the impact of foreign currency translation by translating our current period results at prior period foreign currency exchange rates. We also may adjust for the impact of foreign currency translation when making incentive compensation determinations. As a result, we believe that these presentations are useful internally and useful to investors in evaluating our performance.
The following table represents net sales by segment:
Three Months Ended September 30, Nine Months Ended September 30,
(in millions) 2022 2021 2022 2021
Institutional $ 479.4 $ 487.2 $ 1,461.2 $ 1,431.5
Food & Beverage 209.6 177.7 603.1 515.0
Total $ 689.0 $ 664.9 $ 2,064.3 $ 1,946.5
(in millions, except
percentages) Institutional Food & Beverage Total
Q3 2021 Net Sales $ 487.2 73.3 % $ 177.7 26.7 % $ 664.9
Organic change (non-GAAP) 43.6 8.9 % 45.1 25.4 % 88.7 13.3 %
Acquisition 12.9 2.6 % 13.4 7.5 % 26.3 4.0 %
Constant dollar change
(non-GAAP) 56.5 11.6 % 58.5 32.9 % 115.0 17.3 %
Foreign currency translation (64.3) (13.2) % (26.6) (15.0) % (90.9) (13.7) %
Total change (7.8) (1.6) % 31.9 18.0 % 24.1 3.6 %
Q3 2022 Net Sales $ 479.4 69.6 % $ 209.6 30.4 % $ 689.0
(in millions, except
percentages) Institutional Food & Beverage Total
Year to date Q3 2021 Net Sales $ 1,431.5 73.5 % $ 515.0 26.5 % $ 1,946.5
Organic change (non-GAAP) 130.9 9.1 % 109.6 21.3 % 240.5 12.4 %
Acquisition 39.2 2.7 % 36.1 7.0 % 75.3 3.9 %
Constant dollar change
(non-GAAP) 170.1 11.9 % 145.7 28.3 % 315.8 16.2 %
Foreign currency translation (140.4) (9.8) % (57.6) (11.2) % (198.0) (10.2) % Total change
29.7 2.1 % 88.1 17.1 % 117.8 6.1 %
Year to date Q3 2022 Net Sales $ 1,461.2 70.8 % $ 603.1 29.2 % $ 2,064.3
Institutional. Net sales decreased $7.8 million , or 1.6%, during the three
months ended September 30, 2022 compared with the three months ended September
30, 2021 , and increased $29.7 million , or 2.1%, during the nine months ended
September 30, 2022 compared with the nine months ended September 30, 2021 .
Foreign currency translation had a negative effect of $64.3 million and $140.4
million for the three and nine months ended September 30, 2022 , respectively. On
a constant dollar basis, net sales increased $56.5 million , or 11.6%, during the
three months ended September 30, 2022 compared with the three months ended
September 30, 2021 , and increased $170.1 million , or 11.9%, during the nine
months ended September 30, 2022 compared with the nine months ended September
30, 2021 .
Our acquisitions contributed
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September 30, 2022 , respectively, primarily due to price increases to cover
inflation, and a combination of new customer wins, innovation, and continued
expansion with our existing customers, as we progress towards a return to
pre-COVID-19 levels. The increase for the nine months ended September 30, 2022
was partially offset by a decrease in sales of Infection Prevention products,
which have returned to a more normalized level, after demand increased
significantly in 2020 and in the first quarter of 2021.
Food & Beverage. Net sales increased $31.9 million , or 18.0%, during the three
months ended September 30, 2022 compared with the three months ended September
30, 2021 , and increased $88.1 million , or 17.1%, during the nine months ended
September 30, 2022 compared with the nine months ended September 30, 2021 .
Foreign currency translation had a negative effect of $26.6 million and $57.6
million for the three and nine months ended September 30, 2022 , respectively. On
a constant dollar basis, net sales increased $58.5 million , or 32.9%, during the
three months ended September 30, 2022 compared with the three months ended
September 30, 2021 , and increased $145.7 million , or 28.3%, during the nine
months ended September 30, 2022 compared with the nine months ended September
30, 2021 .
Our acquisitions contributed $13.4 million and $36.1 million of growth for the
three and nine months ended September 30, 2022 , respectively. Organic sales
increased 25.4% and 21.3% for the three and nine months ended September 30,
2022 , respectively, primarily due to price increases, new customer wins, and
success with the rollout of the water treatment solutions.
Cost of sales and gross profit. Cost of sales is primarily comprised of direct
materials and supplies consumed in the production of product, as well as labor
and direct overhead expense necessary to acquire and convert the purchased
materials and supplies into finished products. Also included are expenses
associated with service organizations, quality oversight, warranty costs and
share-based compensation.
Our gross profit was $241.7 million and $259.7 million for the three months
ended September 30, 2022 and 2021, respectively, and $714.8 million and $771.7
million for the nine months ended September 30, 2022 and 2021, respectively. Our
gross margin was 35.1% and 39.1% for the three months ended September 30, 2022
and 2021, respectively, and 34.6% and 39.6% for the nine months ended September
30, 2022 and 2021, respectively.
Gross profit for the three months ended September 30, 2022 was unfavorably
impacted by $14.7 million of foreign currency translation. Excluding this
impact, gross profit decreased by $3.3 million during 2022, and was positively
impacted by price increases and higher sales volumes as described above, which
were offset by increased inflation, additional freight costs, and higher labor
and manufacturing costs.
Gross profit for the nine months ended September 30, 2022 was unfavorably
impacted by $55.3 million of foreign currency translation. Excluding this impact
and $1.3 million of acquisition accounting adjustments, gross profit decreased
by $0.6 million during 2022, and was positively impacted by price increases and
higher sales volumes as described above, which were offset by increased
inflation, additional freight costs, and higher labor and manufacturing costs.
Selling, general and administrative expenses. Selling, general and administrative expenses are comprised primarily of marketing, research and development and administrative costs. Administrative costs, among other things, include share-based compensation, professional consulting expenditures, administrative salaries and wages, certain software and hardware costs and facilities costs.
Selling, general and administrative expenses were$191.3 million and$193.2 million for the three months endedSeptember 30, 2022 and 2021, respectively, and$614.7 million and$642.5 million for the nine months endedSeptember 30, 2022 and 2021, respectively. The decrease of$27.8 million for the nine months endedSeptember 30, 2022 was due in part to a$45.4 million decrease in share-based compensation and$18.0 million of favorable foreign currency translation. These decreases were partially offset by increases in employee compensation and benefit costs due to inflationary labor increases. 43 -------------------------------------------------------------------------------- Transaction and integration costs. Transaction and integration costs were$12.5 million and$4.4 million for the three months endedSeptember 30, 2022 and 2021, respectively and$26.1 million and$24.6 million for the nine months endedSeptember 30, 2022 and 2021, respectively. These costs consist primarily of professional and consulting services which are non-operational in nature, costs related to strategic initiatives, acquisition-related costs, and costs incurred in preparing to become a publicly traded company. Acquisition-related costs were$16.0 million and$2.9 million , and costs incurred in connection with becoming a publicly traded company were$3.5 million and$11.3 million , for the nine months endedSeptember 30, 2022 and 2021, respectively. Management fee. Pursuant to a management agreement withBain Capital , we were obligated to payBain Capital an annual management fee of$7.5 million plus reasonable out-of-pocket expenses incurred in connection with management services provided. The management agreement was terminated inMarch 2021 pursuant to its terms upon the consummation of our IPO, and we recorded a termination fee of$17.5 million during 2021. We paidBain Capital a total of$19.4 million in management fees during 2021. Amortization of intangible assets acquired. In connection with our various business acquisitions, the acquired assets, including separately identifiable intangible assets, and assumed liabilities were recorded as of the acquisition date at their respective fair values. Amortization of intangible assets acquired was$21.5 million and$24.2 million for the three months endedSeptember 30, 2022 and 2021, respectively, and$68.5 million and$72.6 million for the nine months endedSeptember 30, 2022 and 2021, respectively. Restructuring and exit costs. We recorded restructuring and exit costs of$39.4 million and$21.6 million or the three months endedSeptember 30, 2022 and 2021, respectively, and$67.6 million and$29.6 million for the nine months endedSeptember 30, 2022 and 2021, respectively. These charges represent facilities consolidations and employee termination costs related to our initiatives to align our labor resources to our anticipated business needs.
Non-operating results. Our non-operating results were as follows:
Three Months Ended September 30, Nine Months Ended September 30,
(in millions) 2022 2021 2022 2021
Interest expense $ 25.7 $ 25.8 $ 83.0 $ 97.4
Foreign currency gain related to
hyperinflationary subsidiaries (2.0) (2.9) (3.6) (2.7)
Loss on extinguishment of debt - 15.6 - 15.6
Other (income) expense, net (11.3) 0.7 (35.2) 4.8
$ 12.4 $ 39.2 $ 44.2 $ 115.1
Interest Expense. We incurred interest expense of $19.4 million , $5.9 million
and $(1.4) million related to the Senior Secured Credit Facilities, the 2021
Senior Notes and other financial instruments (primarily derivatives),
respectively, during the three months ended September 30, 2022 . We incurred
interest expense of $11.5 million , $7.4 million and $4.6 million related to the
Senior Secured Credit Facilities, the 2017 Senior Notes and other debt,
respectively, during the three months ended September 30, 2021 .
We incurred interest expense of $51.9 million , $17.5 million and $8.2 million
related to the Senior Secured Credit Facilities, the 2021 Senior Notes and other
financial instruments (primarily derivatives), respectively, during the nine
months ended September 30, 2022 . We incurred interest expense of $41.8 million ,
$22.7 million and $11.3 million related to the Senior Secured Credit Facilities,
the 2017 Senior Notes and other debt, respectively, during the nine months ended
September 30, 2021 .
Amortization of deferred financing costs and original issue discount totaling
$1.8 million and $2.3 million or the three months ended September 30, 2022 and
2021, respectively, and $5.4 million and $21.6 million for the nine months ended
September 30, 2022 and 2021, respectively, are included in the interest expense
line item disclosed above. Amortization expense for the nine months ended
September 30, 2021 included $14.0 million of accelerated
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interest amortization related to certain debt facilities that were fully repaid
or paid down significantly in
Foreign currency gain related to hyperinflationary subsidiaries. The economies ofArgentina andTurkey were designated as highly inflationary economies underU.S. GAAP onJuly 1, 2018 andApril 1, 2022 , respectively. Therefore, theU.S. dollar replaced the Argentine peso and the Turkish lira as the functional currency for our subsidiaries in these countries. All local currency denominated monetary assets and liabilities are remeasured intoU.S. dollars using the current exchange rate available to us, and any changes in the exchange rate are reflected in foreign currency gain related to our hyperinflationary subsidiaries. Loss on extinguishment of debt. OnSeptember 29, 2021 , the Company completed the sale of$500.0 million in aggregate principal amount of 4.625% Senior Notes due 2029 (the "2021 Senior Notes") in a private placement to qualified institutional buyers in reliance on Rule 144A under the Securities Act, and to non-U.S. persons (as defined in Regulation S) pursuant to Regulation S under the Securities Act. The Company used the net proceeds from the issuance of the 2021 Senior Notes, together with borrowings under its New Senior Secured Credit Facilities and cash on hand, to redeem all of the €450.0 million aggregate principal amount of 5.625% Senior Notes due 2025 (the "2017 Senior Notes"), pay fees and/or expenses incurred in connection with the issuance of the 2021 Senior Notes and for general corporate purposes. The Company redeemed the 2017 Senior Notes at the redemption price (expressed as percentages of principal amount) of 101.4%, for a total of$536.7 million , which consisted of$529.1 million of principal amount and$7.6 million of redemption premium. The premium cost and the balance of the unamortized deferred financing costs related to the 2017 Senior Notes of$8.0 million were charged to Loss on Extinguishment of Debt during the nine months endedSeptember 30, 2021 .
Other (income) expense, net. Our other (income) expense, net was as follows:
Three Months Ended September 30, Nine Months Ended September 30,
(in millions) 2022 2021 2022 2021
Interest income $ (1.4) $ (0.8) $ (2.8) $ (2.9)
Unrealized foreign exchange (gain) loss (3.6) (2.4) (8.9) 5.2
Realized foreign exchange (gain) loss (1.8) 5.5 (2.1) 6.1
Non-cash pension and other post-employment
benefit plan (3.3) (4.3) (10.3) (12.0)
Adjustment for tax indemnification asset 0.3 0.1 0.7 1.4
Factoring and securitization fees 1.7 1.4 3.9 3.6
Tax receivable agreement adjustments (3.7) - (16.7) 4.1
Other, net 0.5 1.2 1.0 (0.7)
Total other (income) expense, net $ (11.3) $ 0.7 $ (35.2) $ 4.8 The change in the interest income was primarily due to the fluctuation of our cash balances.
Unrealized foreign exchange gains and losses were primarily due to the change in the value of the Euro versus theU.S. dollar, which impacts ourU.S. dollar denominated debt held at our Euro functional entity. These were partially offset by an inverse impact on our tax receivable agreement.
The realized foreign exchange gains and losses were primarily due to internal cash-pooling activity.
In accordance with the provisions contained in Accounting Standards Update 2017-07, Compensation - Retirement Benefits, we record net pension income when the expected return on plan assets exceeds the interest costs associated with these plans.
The adjustment of our tax indemnification asset was due to the lapse of statute of limitations for unrecognized tax benefits.
45
--------------------------------------------------------------------------------
The tax receivable agreement adjustments were due to changes in tax laws and
changes in the valuation allowance against the deferred tax assets; therefore
there was a net reduction of the tax benefits under the tax receivable
agreement.
Income tax provision. For the three months ended
For the three months endedSeptember 30, 2021 , the difference in the statutory income tax benefit and the recorded income tax provision was primarily attributable to an increase in the valuation allowance related to limitations on the deductibility of interest expense, non-deductible shared-based compensation, estimated withholding taxes, and a change in our mix of earnings by jurisdiction. For the nine months endedSeptember 30, 2022 , the difference in the statutory income tax benefit and the recorded income tax provision was primarily attributable to an increase in the valuation allowance related to limitations on the deductibility of interest expense. For the nine months endedSeptember 30, 2021 , the difference in the statutory income tax benefit and the recorded income tax provision was primarily attributable to non-deductible share-based compensation, an increase in the valuation allowance related to limitations on the deductibility of interest expense, estimated withholding taxes, and a change in our mix of earnings by jurisdiction.
Adjusted EBITDA by Segment. Adjusted EBITDA for each of our reportable segments is as follows:
Three Months Ended September 30, Nine Months Ended September 30,
(in millions) 2022 2021 2022 2021
Institutional $ 68.8 $ 84.3 $ 196.3 $ 233.5
Food & Beverage 26.9 34.3 72.5 101.3
Total Segment Adjusted EBITDA 95.7 118.6 268.8 334.8
Corporate costs (7.7) (12.0) (32.1) (34.2)
Consolidated Adjusted EBITDA $ 88.0 $ 106.6 $ 236.7 $ 300.6
(in millions, except
percentages) Institutional Food & Beverage Corporate Costs Total
Q3 2021 Adjusted
EBITDA $ 84.3 79.1 % $ 34.3 32.2 % $ (12.0) (11.3) % $ 106.6
Adj EBITDA margin 17.3 % 19.3 % 16.0 %
Organic change
(non-GAAP) (4.5) (5.3) % (6.3) (18.4) % 4.6 38.3 % (6.2) (5.8) %
Acquisition 1.6 1.9 % 1.9 5.5 % - - % 3.5 3.3 %
Constant dollar
change (non-GAAP) (2.9) (3.4) % (4.4) (12.8) % 4.6 38.3 % (2.7) (2.5) %
Foreign currency
translation (12.6) (14.9) % (3.0) (8.7) % (0.3) (2.5) % (15.9) (14.9) %
Total change (15.5) (18.4) % (7.4) (21.6) % 4.3 35.8 % (18.6) (17.4) %
Q3 2022 Adjusted
EBITDA $ 68.8 78.2 % $ 26.9 30.6 % $ (7.7) (8.8) % $ 88.0
Adj EBITDA margin 14.4 % 12.8 % 12.8 %
46-------------------------------------------------------------------------------- (in millions, except percentages) Institutional Food & Beverage Corporate Costs Total Year to date Q3 2021 Adjusted EBITDA$ 233.5 77.7 %$ 101.3 33.7 %$ (34.2) (11.4) %$ 300.6 Adj EBITDA margin 16.3 % 19.7 % 15.4 % Organic change (non-GAAP) (15.5) (6.6) % (24.9) (24.6) % 2.2 6.4 % (38.2) (12.7) % Acquisition 6.1 2.6 % 3.1 3.1 % - - % 9.2 3.1 % Constant dollar change (non-GAAP) (9.4) (4.0) % (21.8) (21.5) % 2.2 6.4 % (29.0) (9.6) % Foreign currency translation (27.8) (11.9) % (7.0) (6.9) % (0.1) (0.3) % (34.9) (11.6) % Total change (37.2) (15.9) % (28.8) (28.4) % 2.1 6.1 % (63.9) (21.3) % Year to date Q3 2022 Adjusted EBITDA$ 196.3 82.9 %$ 72.5 30.6 %$ (32.1) (13.6) %$ 236.7 Adj EBITDA margin 13.4 % 12.0 % 11.5 % Institutional. Adjusted EBITDA decreased$15.5 million , or 18.4%, during the three months endedSeptember 30, 2022 as compared to the three months endedSeptember 30, 2021 , and decreased$37.2 million , or 15.9%, during the nine months endedSeptember 30, 2022 as compared to the nine months endedSeptember 30, 2021 . Foreign currency translation had a negative effect of$12.6 million and$27.8 million for the three and nine months endedSeptember 30, 2022 , respectively. On a constant dollar basis, Adjusted EBITDA decreased$2.9 million , or 3.4%, during the three months endedSeptember 30, 2022 as compared to the three months endedSeptember 30, 2021 , and decreased$9.4 million , or 4.0%, during the nine months endedSeptember 30, 2022 as compared to the nine months endedSeptember 30, 2021 . Adjusted EBITDA margin decreased from 17.3% for the three months endedSeptember 30, 2021 to 14.4% for the three months endedSeptember 30, 2022 , and decreased from 16.3% for the nine months endedSeptember 30, 2021 to 13.4% for the nine months endedSeptember 30, 2022 . The decreases reflected a decline in profit margin due to increased inflation, higher freight costs, higher manufacturing costs and higher labor costs, which were partially offset by price increases. In periods of significant inflation, we may experience a lag between our ability to recover both the cost and margin in the short term. The decrease for the nine months endedSeptember 30, 2022 was also due to a decrease in sales of Infection Prevention products. Food & Beverage. Adjusted EBITDA decreased$7.4 million , or 21.6%, during the three months endedSeptember 30, 2022 as compared to the three months endedSeptember 30, 2021 , and decreased$28.8 million , or 28.4% during the nine months endedSeptember 30, 2022 as compared to the nine months endedSeptember 30, 2021 . Foreign currency translation had a negative effect of$3.0 million and$7.0 million for the three and nine months endedSeptember 30, 2022 , respectively. On a constant dollar basis, Adjusted EBITDA decreased$4.4 million , or 12.8%, during the three months endedSeptember 30, 2022 as compared to the three months endedSeptember 30, 2021 , and decreased$21.8 million , or 21.5%, during the nine months endedSeptember 30, 2022 as compared to the nine months endedSeptember 30, 2021 . Adjusted EBITDA margin decreased from 19.3% for the three months endedSeptember 30, 2021 to 12.8% for the three months endedSeptember 30, 2022 , and decreased from 19.7% for the nine months endedSeptember 30, 2021 to 12.0% for the nine months endedSeptember 30, 2022 . These decreases reflected a decline in gross profit margin due to high input cost inflation, particularly inEurope due to theRussia -Ukraine war, which were partially offset by price increases. In periods of significant inflation, we may experience a lag between our ability to recover both the cost and margin in the short term. Corporate Costs. Corporate costs decreased from$12.0 million for the three months endedSeptember 30, 2021 to$7.7 million for the three months endedSeptember 30, 2022 , and decreased from$34.2 million for the nine months endedSeptember 30, 2021 to$32.1 million for the nine months endedSeptember 30, 2022 . The changes were primarily driven by changes in realized foreign exchange gains and other (income) expense, net. 47 -------------------------------------------------------------------------------- NON-GAAP FINANCIAL MEASURES We present financial information that conforms toU.S. GAAP. We also present financial information that does not conform toU.S. GAAP, as we believe it is useful to investors. In addition, Non-GAAP measures are used by management to review and analyze our operating performance and, along with other data, as internal measures for setting annual budgets and forecasts, assessing financial performance, providing guidance and comparing our financial performance with our peers. Non-GAAP financial measures also provide management with additional means to understand and evaluate the core operating results and trends in our ongoing business by eliminating certain expenses and/or gains (which may not occur in each period presented) and other items that management believes might otherwise make comparisons of our ongoing business with prior periods and peers more difficult, obscure trends in ongoing operations or reduce management's ability to make useful forecasts. Non-GAAP measures do not purport to represent any similarly titledU.S. GAAP information and is not an indicator of our performance underU.S. GAAP. Investors are cautioned against placing undue reliance on these Non-GAAP measures. Further, investors are urged to review and consider carefully the adjustments made by management to the most directly comparableU.S. GAAP financial measure to arrive at these Non-GAAP financial measures, described below. Our Non-GAAP financial measures may also be considered in calculations of our performance measures set by our Board of Directors for purposes of determining incentive compensation. The Non-GAAP financial metrics exclude items that we consider to be certain specified items ("Special Items"), such as restructuring charges, transaction and integration costs, certain transaction and other charges related to acquisitions and divestitures, gains and losses related to acquisitions and divestitures, and certain other items. We evaluate unusual or Special Items on an individual basis. Our evaluation of whether to exclude an unusual or Special Item for purposes of determining our Non-GAAP financial measures considers both the quantitative and qualitative aspects of the item, including among other things (i) its nature, (ii) whether it relates to our ongoing business operations, and (iii) whether we expect it to occur as part of our normal ongoing business on a regular basis. Our calculation of these Non-GAAP measures may not be comparable to similarly titled measures of other companies due to potential differences between companies in the method of calculation. As a result, the use of these Non-GAAP measures has limitations and should not be considered superior to, in isolation from, or as a substitute for, relatedU.S. GAAP measures.
EBITDA and Adjusted EBITDA
We believe that the financial statements and other financial information presented have been prepared in a manner that complies, in all material respects, withU.S. GAAP, and are consistent with current practices with the exception of the presentation of certain Non-GAAP financial measures, including EBITDA and Adjusted EBITDA. EBITDA consists of net income (loss) before income tax provisions (benefit), interest expense, interest income, depreciation and amortization. Adjusted EBITDA consists of EBITDA adjusted to (i) eliminate certain non-operating income or expense items, (ii) eliminate the impact of certain non-cash and other items that are included in net income and EBITDA that we do not consider indicative of our ongoing operating performance, and (iii) eliminate certain unusual and non-recurring items impacting results in a particular period. EBITDA and Adjusted EBITDA are supplemental measures that are not required by, or presented in accordance with,U.S. GAAP. EBITDA and Adjusted EBITDA are not measures of our financial performance underU.S. GAAP and should not be considered as an alternative to revenues, net income (loss), income (loss) before income tax provision or any other performance measures derived in accordance withU.S. GAAP, nor should they be considered as alternatives to cash flows from operating activities as a measure of liquidity in accordance withU.S. GAAP. In addition, our method of calculating EBITDA and Adjusted EBITDA may vary from the methods used by other companies. We consider EBITDA and Adjusted EBITDA to be key indicators of our financial performance. Additionally, we believe EBITDA and Adjusted EBITDA are frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry. We also believe that investors, analysts and rating agencies consider EBITDA and Adjusted EBITDA useful means of measuring our ability to meet our debt service obligations and evaluating our financial performance, and management uses these measures for one or more of these purposes. 48 -------------------------------------------------------------------------------- Our presentation of EBITDA and Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or nonrecurring items. EBITDA and Adjusted EBITDA have important limitations as analytical tools and you should not consider them in isolation or as a substitute for analysis of our results as reported underU.S. GAAP. The use of EBITDA and Adjusted EBITDA instead of net income has limitations as an analytical tool, including the following: •EBITDA and Adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital needs; •EBITDA and Adjusted EBITDA do not reflect our interest expense, or the cash requirements necessary to service interest or principal payments, on our debt; •EBITDA and Adjusted EBITDA do not reflect our income tax expense or the cash requirements to pay our income taxes; •Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements; •EBITDA and Adjusted EBITDA do not reflect historical cash expenditures or future requirements for capital expenditures or contractual commitments; and •Other companies in our industry may calculate these measures differently than we do, limiting their usefulness as a comparative measure. Adjusted EBITDA includes adjustments that represent a cash expense or that represent a non-cash charge that may relate to a future cash expense, and some of these expenses are of a type that we expect to incur in the future, although we cannot predict the amount of any such future charge. Because of these limitations, EBITDA and Adjusted EBITDA should not be considered as a replacement for net income or as a measure of discretionary cash available to us to service our indebtedness or invest in our business. We compensate for these limitations by relying primarily on ourU.S. GAAP results and using EBITDA and Adjusted EBITDA only for supplemental purposes.
Adjusted Net Income and Adjusted Earnings (Loss) Per Share
Adjusted Net Income and Adjusted Earnings (Loss) Per Share ("Adjusted EPS") are
also Non-GAAP financial measures. We define Adjusted Net Income as net income
(loss) adjusted to (i) eliminate certain non-operating income or expense items,
(ii) eliminate the impact of certain non-cash and other items that are included
in net income that we do not consider indicative of our ongoing operating
performance, (iii) eliminate certain unusual and non-recurring items impacting
results in a particular period, and (iv) reflect the tax effect of items (i)
through (iii) and other tax special items. We define Adjusted EPS as our
Adjusted Net Income divided by the number of weighted average shares outstanding
in the period.
We believe that, in addition to our results determined in accordance with U.S.
GAAP, Adjusted Net Income and Adjusted EPS are useful in evaluating our
business, results of operations and financial condition. We believe that
Adjusted Net Income and Adjusted EPS may be helpful to investors because they
provide consistency and comparability with past financial performance and
facilitate period to period comparisons of our operations and financial results,
as they eliminate the effects of certain variables from period to period for
reasons that we do not believe reflect our underlying operating performance or
are unusual or infrequent in nature. However, Adjusted Net Income and Adjusted
EPS are presented for supplemental informational purposes only and should not be
considered in isolation or as a substitute or alternative for financial
information presented in accordance with U.S. GAAP.
Adjusted Net Income and Adjusted EPS have limitations as an analytical tool; some of these limitations are:
• Adjusted Net Income and Adjusted EPS do not reflect changes in, or cash
requirements for, our working capital needs;
• other companies, including companies in our industry, may calculate Adjusted
Net Income and Adjusted EPS differently, which reduce their usefulness as
comparative measures; and
• in the future we may incur expenses that are the same as or similar to some of
the adjustments in our calculation of Adjusted Net Income and Adjusted EPS and
our presentation of Adjusted Net Income and Adjusted EPS
49
--------------------------------------------------------------------------------should not be construed as an inference that our future results will be unaffected by the types of items excluded from the calculation of Adjusted Net Income or Adjusted EPS.
Because of these limitations, you should consider Adjusted Net Income and Adjusted EPS alongside other financial performance measures, including net loss, basic and diluted loss per share, and our otherU.S. GAAP results. Adjusted Net Income and Adjusted EPS are not presentations made in accordance withU.S. GAAP and the use of these terms may vary from other companies in our industry. The most directly comparableU.S. GAAP measure to Adjusted Net Income is net loss and the most directly comparableU.S. GAAP measure to Adjusted EPS is basic and diluted loss per share.
The following table reconciles loss before income tax provision to EBITDA and Adjusted EBITDA for the periods presented:
Three Months Ended September 30, Nine Months Ended September 30,
(in millions) 2022 2021 2022 2021
Loss before income tax provision $ (35.4) $ (22.9) $ (106.3) $ (132.1)
Interest expense 25.7 25.8 83.0 97.4
Interest income (1.4) (0.8) (2.8) (2.9)
Amortization expense of intangible assets 21.5 24.2 68.5 72.6
Depreciation expense included in cost of
sales 20.6 20.4 62.1 62.0
Depreciation expense included in selling,
general and administrative expenses 2.2 2.9 7.6 6.9
EBITDA 33.2 49.6 112.1 103.9
Transaction and integration costs(1) 12.5 4.4 26.1 24.6
Restructuring and exit costs(2) 39.4 21.6 67.6 29.6
Foreign currency gain related to
hyperinflationary subsidiaries(3) (2.0) (2.9) (3.6) (2.7)
Adjustment for tax indemnification asset(4) 0.3 0.1 0.7 1.4
Acquisition accounting adjustments(5) - - 1.3 -
Bain Capital management fee(6) - - - 19.4
Non-cash pension and other post-employment
benefit plan(7) (3.3) (4.3) (10.3) (12.0)
Unrealized foreign currency exchange loss
(gain)(8) (3.6) (2.4) (8.9) 5.2
Factoring and securitization fees(9) 1.7 1.4 3.9 3.6
Share-based compensation(10) 13.9 16.0 46.7 99.3
Tax receivable agreement adjustments(11) (3.7) - (16.7) 4.1
Loss on extinguishment of debt(12) - 15.6 - 15.6
Realized foreign currency exchange loss on
debt refinancing(13) - 4.5 - 4.5
COVID-19 inventory charges(14) - - 17.4 -
Other items (0.4) 3.0 0.4 4.1
Consolidated Adjusted EBITDA $ 88.0 $ 106.6 $ 236.7 $ 300.6
50--------------------------------------------------------------------------------
The following table reconciles net loss to Adjusted Net Income and basic and diluted earnings (loss) per share to Adjusted EPS for the periods presented:
Three Months Ended
2022 2021
Basic and Basic and
diluted Net Income diluted
(in millions, except per share amounts) Net Income (Loss) EPS(18) (Loss) EPS(18)
Reported (GAAP) $ (36.5) $ (0.11) $ (42.1) $ (0.14)
Amortization expense of intangible assets acquired 21.5 0.07 24.2 0.08
Transaction and integration costs(1) 12.5 0.04 4.4 0.01
Restructuring and exit costs(2) 39.4 0.12 21.6 0.07
Foreign currency gain related to hyperinflationary subsidiaries(3)
(2.0) (0.01) (2.9) (0.01)
Adjustment for tax indemnification asset(4) 0.3 - 0.1 -
Acquisition accounting adjustments(5) - - - -
Bain Capital management fee(6) - - - -
Non-cash pension and other post-employment benefit plan(7)
(3.3) (0.01) (4.3) (0.01)
Unrealized foreign currency exchange (gain) loss(8) (3.6) (0.01) (2.4) (0.01)
Share-based compensation(10) 13.9 0.04 16.0 0.05
Tax receivable agreement adjustments(11) (3.7) (0.01) - -
Loss on extinguishment of debt(12) - - 15.6 0.05
Realized foreign currency exchange loss on debt
refinancing(13) - - 4.5 0.01
COVID-19 inventory charges(14) - - - -
Accelerated expense of deferred financing and original issue discount costs(15)
- - - -
Other items (0.4) - 3.0 0.01
Tax effects related to non-GAAP adjustments(16) (23.3) (0.07) (18.2) (0.04)
Discrete tax adjustments(17) 12.8 0.04 9.3 0.03
Adjusted (Non-GAAP) $ 27.6 $ 0.09 $ 28.8 $ 0.10
Nine Months Ended September 30,
2022 2021
Basic and Basic and
Net Income diluted Net Income diluted
(in millions, except per share amounts) (Loss) EPS(18) (Loss) EPS(18)
Reported (GAAP) $ (109.8) $ (0.34) $ (139.1) $ (0.49)
Amortization expense of intangible assets acquired 68.5 0.21 72.6 0.26
Transaction and integration costs(1) 26.1 0.08 24.6 0.09
Restructuring and exit costs(2) 67.6 0.21 29.6 0.10
Foreign currency gain related to hyperinflationary subsidiaries(3)
(3.6) (0.01) (2.7) (0.01)
Adjustment for tax indemnification asset(4) 0.7 - 1.4 -
Acquisition accounting adjustments(5) 1.3 - - -
Bain Capital management fee(6) - - 19.4 0.07
Non-cash pension and other post-employment benefit plan(7)
(10.3) (0.03) (12.0) (0.04)
Unrealized foreign currency exchange (gain) loss(8) (8.9) (0.03) 5.2 0.02
Share-based compensation(10) 46.7 0.15 99.3 0.35
Tax receivable agreement adjustments(11) (16.7) (0.05) 4.1 0.01
Loss on extinguishment of debt(12) - - 15.6 0.06
Realized foreign currency exchange loss on debt
refinancing(13) - - 4.5 0.02
COVID-19 inventory charges(14) 17.4 0.05 - -
Accelerated expense of deferred financing and original issue discount costs(15)
- - 14.0 0.05
Other items 0.4 - 4.1 0.01
Tax effects related to non-GAAP adjustments(16) (49.0) (0.14) (42.6) (0.16)
Discrete tax adjustments(17) 29.7 0.09 2.6 0.01
Adjusted (Non-GAAP) $ 60.1 $ 0.19 $ 100.6 $ 0.35
51-------------------------------------------------------------------------------- (1) These costs consist primarily of professional and consulting services which are non-operational in nature, costs related to strategic initiatives, acquisition-related costs, and costs incurred in preparing to become a publicly traded company.
(2) Includes costs related to restructuring programs and business exit activities. Refer to Note 16 - Restructuring and Exit Activities in the Notes to our Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q for additional information.
(3)Argentina andTurkey were deemed to have highly inflationary economies and the functional currencies for ourArgentina andTurkey operations were changed from the Argentine peso and Turkish lira tothe United States dollar and remeasurement charges/credits are recorded in our Condensed Consolidated Statements of Operations rather than as a component of Cumulative Translation Adjustment on our Condensed Consolidated Balance Sheets.
(4) In connection with the Diversey Acquisition, the purchase agreement governing the transaction includes indemnification provisions with respect to tax liabilities. The offset to this adjustment is included in income tax provision.
(5) In connection with various acquisitions we recorded fair value increases to our inventory. These amounts represent the amortization of this increase.
(6) Represents fees paid toBain Capital pursuant a management agreement whereby we have received general business consulting services; financial, managerial and operational advice; advisory and consulting services with respect to selection of advisors; advice in different fields; and financial and strategic planning and analysis. The management agreement was terminated inMarch 2021 pursuant to its terms upon the consummation of the IPO, and we recorded a termination fee of$17.5 million during the first quarter of 2021.
(7) Represents the net impact of the expected return on plan assets, interest cost, and settlement cost components of net periodic defined benefit income related to our defined benefit pension plans.
(8) Represents the unrealized foreign currency exchange impact on our
operations, primarily attributed to the valuation of the
(9) Represents the fees to complete the sale of the receivables without recourse under our accounts receivable factoring and securitization agreements. Refer to Note 5 - Financial Statement Details in the Notes to our Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q for additional information. (10) Represents compensation expense associated with our share-based equity and liability awards. See Note 15 - Share-Based Compensation in the Notes to our Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q for additional information. (11) Represents the adjustment to our tax receivable agreement liability due to changes in valuation allowances that impact the realizability of the attributes of the tax receivable agreement.
(12) Represents the costs incurred in connection with the redemption of the 2017
Senior Notes on
(13) During 2021, the Company incurred a realized foreign currency exchange loss related to the refinancing of the Senior Secured Credit Facilities.
(14) Represents a charge in the second quarter of 2022 for excess inventory and estimated disposal costs related to COVID-19.
(15) Represents accelerated non-cash expense of deferred financing costs and original issue discount costs as certain debt facilities were fully repaid or paid down significantly inMarch 2021 using proceeds from the IPO.
(16) The tax rate used to calculate the tax impact of the pre-tax adjustments is based on the jurisdiction in which the charge was recorded.
(17) Represents adjustments related to discrete tax items including uncertain
tax provisions, impacts from rate changes in certain jurisdictions and changes
in our valuation allowance.
(18) For purposes of calculating earnings (loss) per share the Company has
retrospectively presented earnings (loss) per share as if the Reorganization
Transactions had occurred at the beginning of the earliest period presented.
Such retrospective presentation reflects an increase of approximately 47.4
million shares due to the exchange of shares in Constellation for shares in the
Company.
52
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LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of cash are the collection of trade receivables generated
from the sales of our products and services to our customers and amounts
available under our Revolving Credit Facility, factoring and accounts receivable
securitization programs. Our primary uses of cash are payments for operating
expenses, investments in working capital, capital expenditures, interest, taxes,
debt obligations, restructuring expenses and other long-term liabilities. Our
principal source of liquidity, in addition to cash from operating activities,
has been through our Revolving Credit Facility. As of September 30, 2022 , we had
cash and cash equivalents of $249.1 million and unused borrowing capacity of
$442.9 million under our Revolving Credit Facility. We believe that cash flow
from operations, available cash on hand and available borrowing capacity under
our Revolving Credit Facility will be adequate to service our debt, meet our
liquidity needs and fund necessary capital expenditures for the next twelve
months. We also believe these financial resources will allow us to manage our
business operations for the foreseeable future, including mitigating unexpected
reductions in revenues and delays in payments from our customers. Our future
capital requirements will depend on many factors including our growth rate, the
timing and extent of spending to support development efforts, the expansion of
sales and marketing activities and the introduction of new and enhanced products
and services offerings.
Material Cash Requirements. In 2021, we began a strategic initiative to
consolidate certain manufacturing and warehousing facilities within Europe and
North America , which also includes opening a new manufacturing and warehousing
facility in North America . We anticipate that these actions will both expand our
production capacity and allow us to better manage our inventory, supply chain
and workforce. We expect to spend an estimated $153.0 million in total cash for
the initiative through 2023, which consists of $60.0 million of capitalized
expenditures and $93.0 million of expenses. Of these amounts, we paid $63.2
million for expenses during the nine months ended September 30, 2022 . Our
remaining cash requirements for 2022 and 2023 are estimated at $17.0 million for
capital expenditures and $26.0 million for expenses. Cost estimates for these
projects have been impacted by an inflationary macro environment with
constraints around materials, freight and labor. Extraordinary short-term
measures were taken to minimize disruption to customers. These measures include
lengthening warehouse leases, temporarily setting up additional warehouses,
paying higher freight costs during warehouse transitions and paying carriers to
guarantee delivery. We believe that cash flow from operations and available cash
on hand will meet our need to fund this initiative.
Historical Cash Flows. Note that the table and discussion that follows include
restricted cash as part of net cash in accordance with the provisions of ASU
2016-18, Statement of Cash Flows. We include restricted cash from our factoring
arrangements and compensating balance deposits as part of our cash and cash
equivalents and restricted cash for purposes of preparing our Condensed
Consolidated Statements of Cash Flows.
The following table presents a summary of our net cash provided by (used in) operating, investing and financing activities:
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