Good day and thank you for standing by. Welcome to the Sealed Air Fourth Quarter and Full Year 2021 Earnings Conference Call. At this time, all participant lines are in listen-only mode. After the presentation, there will be a question-and-answer session. Please be advised today’s conference may be recorded. I’d now like to hand the conference over to Lori Chaitman, Vice President of Investor Relations.

Thank you, and good morning, everyone. With me today are Ted Doheny, our CEO; and Chris Stephens, our CFO. Before we begin our call, I would like to note that we have provided a slide presentation to help guide our discussion. In addition to our results and outlook, Ted will go through a deep dive on SEE Automation. Please visit our website where today’s webcast and presentation can be downloaded from our IR website at sealedair.com. Statements made during this call stating management’s outlook or predictions for future periods are forward-looking statements. These statements are based solely on information that is now available to us. We encourage you to review the information in the section entitled Forward Looking Statements in our earnings release and slide presentation which applies to this call. Additionally, our future performance may differ due to a number of factors. Many of these factors are listed in our most recent annual report on Form 10-K and as revised and updated on our quarterly reports on Form 10-Q and current reports on Form 8-K, which you can also find on our website or on the SEC’s website. We discussed financial measures that do not conform to U.S. GAAP. You will find important information on our use of these measures and their reconciliation to U.S. GAAP in our earnings release. Including the appendix of today’s presentation, you will find U.S. GAAP financial results that correspond to the non-U.S. GAAP measures we referenced throughout the presentation. I will now turn the call over to Ted. Operator, please turn to slide three. Ted?

Thank you, Lori. And thank all of you for joining our fourth quarter and year-end earnings call. Chris and I will discuss our Q4 and year-end results, our 2022 outlook and we will be introducing a deep dive into our SEE Automation three-year plan. On slide three, you can see our vision to become a world-class, digitally driven company, automating sustainable packaging solutions and we will show you how we are getting it done. Now let’s turn to slide four. In 2021, we delivered strong sales and earnings, overcoming dramatic inflationary supply and COVID challenges. Our results are a testament to our culture, people and powerful SEE Operating Engine. We are building a world-class digitally empowered company acting like a startup to disrupt the markets we serve, our industry and ourselves. These are exciting times for us. We are taking bold steps, investing in our people, operations and customers to create significant value for our stakeholders. You can see how our SEE Operating Engine performed in the fourth quarter. Net sales were up 14% to $1.5 billion and adjusted EBITDA was up 18% to $330 million. For the full year, we generated free cash flow of $497 million. As part of our strategic portfolio realignment, we successfully completed the divestiture of Reflectix, a maker of insulating materials for the construction market and generated additional after-tax proceeds of $65 million. On slide five, we are raising our SEE Operating Model growth goals for sales and adjusted EBITDA by 200 basis points. Our higher above-market growth goals are led by our confidence in our strategy, disruptive innovations and investments, and our execution across markets and geographies. Through M&A and SEE Ventures, we are looking to expand into attractive markets, technologies and disruptive business models to accelerate our speed to market. Under SEE Ventures, we recently completed the acquisition of FoxPak, a pioneer in digital printing. Let’s turn to slide six, where you can see our transition from a materials-driven business to a market and customer-centric company, focusing on automation, digital and sustainability powering our growth. Well, Chris, will give you more detail on our geographic performance, I will focus on activities in our top markets. In proteins and fluids, we experienced strong growth in Automation, with equipment, parts and services, up double digits in the fourth quarter and the year. In 2021, our e-commerce fulfillment portfolio shifted towards automation and sustainable solutions. Sales for Autobag, which is illustrated on this slide and Autobag were up double digits in the quarter and the year, reflecting the increased demands for automated solutions from e-commerce and logistics. You can see an example of our Auto Wrap solution on this slide as well. With Continental Tires and our partnership with UPS, we are enabling a fully automated tire packaging and sorting solution that creates an enhanced customer experience. This is creating significant savings for Continental Tires and new business for UPS. Turning to slide seven, we will take you through a deep dive on SEE Automation. Our plan is to more than double our Automation business to over $1 billion by 2025. Our solutions model starts by identifying savings for our customers and converting those savings into solutions, with a payback of faster than three years. Our Solutions Multiplier, as materials and service flow through the installed base is key to our growth. We are digitally connecting more than 100,000 installed assets. Our SEE Automation Solutions resonate with our customers, as we address their needs to reduce labor dependency, build more resilient operations, increase productivity, reduce costs and deliver flawless quality. SEE Automation Solutions drive margin expansion for SEE as compelling customer savings and operational improvements allow for the best solutions at the right price and we are making them sustainable. We are investing to double our equipment production and service capacity over the next three years to match our ambition. We recognize we have to go faster and we are relentless in this pursuit. The chart to the left shows how customer savings are behind our growth in Automation. The chart to the right illustrates our bookings trends of our fastest growing Automation platforms, giving you transparency into the strength of our business. Solving customer challenges and driving tangible savings are the central pillars of our sustainable competitive advantage, creating an inimitable ecosystem. On slide eight, we are showcasing our SEE Automation Solutions. This is an example of a $7 million automated protein system, with less than a three-year payback, providing a step change improvement for our customers' operations. We start with the most labor-intensive processes in meat-packing facilities. See Auto Load automates the process of loading the meat in the bag. We are integrating cobots, robots and other automated systems to increase line speed, while producing flawless quality with Auto Vac and Auto Pack. We continue to innovate in high-performance Cryovac materials, making them more sustainable, recyclable and effective. Our state-of-the-art vision systems for quality control can see what humans cannot, and artificial intelligence and machine learning continuously make the process smarter. We use our SEE Mark to validate and certify quality. Our advancements in digital printing will enable customers to improve their operations and at the same time, digitally connect with their consumers. A key point of differentiation for SEE is how we leverage our internal Touchless Automation capabilities and our OpEx teams to improve customer operations. Our industry-leading experts are working with customers and their facilities to simplify the process, eliminate waste, remove people from harm’s way and then automate, putting into practice the principle of you get what you measure. Let’s talk about what Automation means for growth. On slide nine, we use the waves of the SEE Mark to illustrate the value of the Solutions Multiplier. We are changing from our past being materials first to leading with an Automation first solutions model. We start with the value of the initial equipment order equaling 1x. We continue with parts and services being 2x over the equipment lifecycle, and the automation and integration opportunities represent 3x, as their high-performance materials such as paper and films, along with digital graphics flow through the system, it takes us well over 10 times the value of the original equipment order. Let me now turn to slide 10. Our strategies to make sustainability an integral part of our business. We continue to make significant progress on our 2025 sustainability pledge with approximately 50% of our solutions already designed for recyclability and we reached approximately 20% recycled and/or renewable content in those solutions. Approximately 15% of our solutions are fiber based. We design our high-performance materials with recyclability in mind, to make sustainability more affordable and to create a pathway for circularity. It starts with our Touchless operations, where we actively measure every touchpoint from pellet to bag, and aggressively work to simplify the process, eliminate waste and millions of touches. We are investing in Automation and robotics to make it happen. We are linking our own Automation to our customers operations and leveraging the same productivity processes we use internally. Our digital initiative is critical to our sustainability and Automation efforts. Next quarter, we plan to feature in detail how our proprietary digital printing technology and SEE Mark connect consumers and customers to build brands and close the loop on the circular economy. I will now pass the call to Chris to review our results in more detail.

Thank you, Ted, and good morning, everyone. Let’s start on slide 11 to review our quarterly and year-end net sales growth by segment and by region. In Q4, net sales were up 14% to $1.5 billion. In constant dollars, net sales were up 15%, with 17% growth in food and 13% growth in protective. The Americas and EMEA were both up double digits, with Americas up 19% and EMEA up 13%, while APAC was up 4% versus last year. In 2021 net sales were up 13% to $5.5 billion. In constant dollars, net sales were up 11%, with 9% growth in food and 15% in protective. Growth was led by the Americas and EMEA, which were up 13% and 12%, respectively, with APAC up 6% versus last year. On slide 12 you can see organic sales volumes and pricing trends by segment and by region. In Q4, overall volume growth was up 4%, with favorable price of 12%. In 2021, volume growth and favorable price were both 6%. Let’s start with volume trends and focus on Q4 performance and 2021 trends. In the quarter, food volumes were up 6%, with growth across all regions, Americas up 5%, EMEA up 10% and APAC up 6%. Protective volumes were up 1%, led by EMEA with 7% growth, flattened Americas and APAC declined 4%. We experienced accelerating volume in food in the second half, with higher sales in Automation and growth in materials, as food service continued to recover and retail demand remained strong. Protective volume surged in the first half of 2021 on the heels of 2020 industrial shutdowns, and growth and fulfillment around the world, particularly in EMEA. We face tougher comps in the second half of 2021. However, fulfillment automation sales were up and industrial demand was favorable. Starting in Q2 2021, in response to inflationary pressures, we accelerated pricing actions. Q4 price was favorable 12%, with protective at 13% and food at 11%. For the full year 2021, we realized nearly $300 million in price, of which more than half was realized in Q4, as a result of timing of pricing actions and formula pass-throughs. Given ongoing inflationary environment, we will be announcing additional price increases with care. These increases will vary based on region and product offering, and will average between 5% and 10%. We will work directly with our customers to meet increased demand and help them drive productivity and operational savings. On slide 13, we present our consolidated sales and adjusted EBITDA walk. Having already discussed sales, let me comment on our Q4 and full year adjusted EBITDA performance. Q4 adjusted EBITDA of $330 million, up 18% compared to last year, with margins of 21.5%, up 70 basis points. Full year adjusted EBITDA of $1.132 billion, was up 8% compared to 2020 with margins of 20.4% and up 100 basis points. Higher volume contributed $23 million to Q4 adjusted EBITDA. Full year volume contributed $109 million to adjusted EBITDA. For the first time since Q3 2020, price cost spread was favorable in the quarter, contributing $36 million to earnings. In 2021, price cost spread was unfavorable $37 million. Reinvent SEE benefits totaled $21 million in Q4 and $64 million in 2021. Operating costs include labor and other non-raw material cost inflation of about $20 million in Q4, which compares to $13 million in the same period a year ago, and $69 million for the full year, which is up from $52 million in 2020. Adjusted earnings per diluted share in Q4 was $1.12, compared to $0.89 in Q4 2020 and 2021 we delivered adjusted EPS of $3.55, compared to $3.19 in 2020, an increase of 11%. Our adjusted tax rate was 26%, compared to 24.5% in 2020. Our weighted average diluted shares outstanding in 2021 were $152 million, compared to $156 million, given we were an active buyer of our stock throughout the year, purchasing 7.9 million shares for $403 million or approximately $51 per share. At year end 2021, we had $896 million remaining under our authorized repurchase program. Turning to slide 14, here we provide an update on Reinvent SEE. We achieved $64 million of benefits in 2021, bringing the cumulative benefits of our Reinvent SEE program to $364 million. Cash payments associated with Reinvent SEE were $28 million in 2021 and $193 million since the start of the program. To complete this program, we anticipate $20 million to $25 million in cash payments in 2022, half of which is carryover from 2021. We anticipate $60 million of productivity gains in 2022, of which approximately one-third is coming from Reinvent SEE initiatives, the remaining two-thirds is our SEE Operating Engine, which is designed to drive continuous productivity improvements. With that said, inflationary pressures coupled with costs associated with supply disruptions are expected to continue. The combination of volume growth, pricing and SEE Operating Engine productivity gains are expected to mitigate these headwinds in 2022. Turning to segment results on slide 15, starting with food, my comments will focus on our Q4 results. In Q4, food net sales of $877 million were up 17% in constant dollars, volume growth of 6% was led by double-digit growth in Automation and strong growth in materials. Adjusted EBITDA of $204 million in Q4 increased to 20% compared to last year, with margins at 23.3%, up 90 basis points, higher volumes, pricing and productivity gains offset elevated costs. On slide 16, we highlight protective segment results. Net sales increased 14% on an organic basis to $655 million. Volume in the quarter was up 1%, as we face tougher comps and managed through supply disruptions. Adjusted EBITDA of $126 million increased 10% in Q4, with margins at 19.3%, down 40 basis points versus last year. Now let’s turn to free cash flow on slide 17. In 2021, we generated $497 million of free cash flow relative to the same period last year, higher earnings and lower restructuring and interest payments were offset by working capital needs and incremental CapEx investments to support strong growth. On slide 18, we outline our purpose-driven capital allocation strategy, focused on creating economic value. We maintain a strong balance sheet, while driving attractive returns on invested capital and supporting profitable growth initiatives. We are focusing our CapEx on Touchless Automation, digital and sustainability. We are expanding our capacity and equipment to align with customer demand and support continued growth. We are investing in smart packaging and digital printing and see opportunities to expand our presence in attractive growth markets and geographies. We are managing our portfolio with the discipline to ensure alignment with our growth strategy. Let’s turn to slide 19 to review our 2022 outlook. For net sales we estimate $5.8 billion to $6 billion, an increase of 5% to 8%. Our organic growth forecast is 7% to 11%, of which at the midpoint assumes approximately 3% in volume and approximately 6% in price. We anticipate adjusted EBITDA to be in the range of $1.2 billion to $1.24 billion. Adjusted EBITDA is expected to grow 6% to 10% and implies an EBITDA margin of approximately 21%. For adjusted EPS, we expect to be in the range of $3.95 to $4.15. This assumes depreciation and amortization of approximately $245 million and adjusted effective tax rate of approximately 26%, net interest expense of approximately $150 million and approximately 150 million shares outstanding. And lastly, our outlook for free cash flow is expected to be in the range of $510 million to $550 million. We are increasing CapEx to $240 million to $260 million to increase capacity to support growth initiatives. For cash tax payments, we anticipate to pay to around $205 million to $215 million in 2022, reflecting expected earnings growth, $17 million tax payments on the gain from the sale of Reflectix and approximately $30 million impact related to the R&D provision, requiring R&D expenses to be deducted over five years versus the prior immediate expensing allowance. Additionally, as previously disclosed, our 2021 cash tax payments were reduced by approximately $24 million refund associated with the retroactive application of the revised U.S. GILTI regulations. We are executing on our growth strategy driving productivity and cash generation, and aligning our business around the SEE Operating Model. This is reflected in our 2022 outlook for sales, earnings and cash flow. To fuel our engine and drive accelerated growth beyond 2022, we are increasing our CapEx and R&D investments for innovation and automation. We have a strong balance sheet and we will continue to focus on generating attractive returns on invested capital.

Thanks, Chris. Let’s turn to slide 20, where we have our Purpose Statement. This is how we are making our vision a reality. Our SEE Operating Engine is performing and gaining momentum. We will continue to invest in our four Ps of Reinvent SEE. Next quarter we will provide a deep dive on digital. We are creating long-term value for our stakeholders and making our world better than we find it. With that, I will now open up the call for questions. Operator, we would like to begin the Q&A session.

Our first question comes from Anthony Pettinari with Citi.

Hi. This is actually Bryan Brokmeier sitting in for Anthony. Can you provide some detail on the cost assumptions included in your 2022 guidance such as rising freight and wage inflation? And do you expect to be price cost positive again in 1Q and throughout 2022?

Sure, Bryan. This is Chris. Thanks for your question. So, my opening remarks, we talked about just the inflationary pressures that we are seeing. I think, just to comment in terms of the positive game, we will have to now be favorable on our price cost spread heading into the year. We expect that to continue clearly through the first half of the year. But the inflationary pressures beyond just material from what we are seeing on the non-material side is causing us to take action relative to price. But when you bring it up a level, that cost side, the material side is roughly $200 million in our guidance is the assumption. And on the inflationary being all non-material related items, everything else, if you will, is about $100 million. So we got $300 million that we are managing through at least that we expect to see this year. And again, I will just comment that we feel good about the price cost spread turning positive, we expect that to continue. But we are managing not only our pricing but also the productivity actions across the organization to be able to deliver on our commitments.

Okay. Next question.

Our next question comes from Larry De Maria with William Blair.

Hey. Thanks. Good morning, everybody.

Good morning. Hi, Larry.

Hi, everyone. Regarding Automation, we are noticing significant acceleration in trends, particularly in the food sector. Can you discuss your visibility on backlog and how much emphasis is being placed on your solutions at the end of the line compared to other types of Automation in secondary processing, especially given the ongoing labor challenges? In simpler terms, where do you stand with orders and what does your backlog look like?

Okay. Good. Hi, Larry. And it’s great having an expert on Automation asking me the questions. So, break it up in two parts. So what’s in our backlog? If you look at slide seven, we kind of gave you that picture, and especially as an Automation company talks about their business, they talk about backlog, so you can kind of see what’s out there, the backlog is up pretty significant, much higher than sales. So to your question, we are seeing that much higher. The second part of your question, how does that compare to the other part of the process? I am sure I will get the question, but we put the full detail process and what we are going after on another slide. But for where we are, if you went and looked at a meat plant and/or protein plant, you would see lots of Automation upfront in the processing. But when you get to the actual packaging of actually putting the meat into a package, you see lots of people. You even see it on the news when you have had some of the COVID scares with some of our large customers, that’s where the labor intensity is. So where we fit in the Automation is right now we are actually a key part for our customers to help them right now, with availability, labor, they can’t get it, driving some efficiency. So the direct answer, we are probably first in line and the spot that they are spending money on to get that Automation and to break some bottlenecks. This is the most labor-intensive piece of food packaging plant. Hope that helps with the description there.

Our next question comes from Angel Castillo with Morgan Stanley.

Hi. Good morning and thanks for taking my question. Just I was wondering if you could give us a little bit more color as to the EBITDA guide, the low-end and the high-end, you noted volume of 2% and price 6% kind of at the midpoint. But how should we think about kind of the two bookends and what kind of assumptions are embedded in that, if it’s not that? Thank you.

Sure. I want to emphasize that we are facing some challenges on the foreign exchange front, with an approximately 2% impact on our adjusted EBITDA. This is a minor detail, but we previously discussed the divestiture of Reflectix that took place last year, which has had a consistent impact across the company. Additionally, it's important to note the investments we are making in our business, primarily due to capacity requirements and expenses related to research and development as we pursue innovation. We are increasing these investments as we head into 2022, expecting to spend an additional $40 million to $45 million compared to 2021. This investment will not be immediately reflected in our bottom line, as our volume and pricing assumptions for 2022 indicate a focus on long-term growth rather than short-term gains. Looking at the returns from these investments, we expect to achieve an industry-leading ROI, which has increased to 16% by the end of the year. We are committed to these long-term investments and will not take a short-term pause that would allow those benefits to drop to the bottom line. In our guidance, we are projecting those incremental investments of $40 million to $45 million align with our strategic direction moving forward.

As we assess the current state of the business, it's evident that automation is a key driver. While we have seen a significant increase in bookings, we still face operational challenges in the market, particularly related to supply chain disruptions. We are actively working to address these bottlenecks with the aim of enhancing our performance further. We're committed to seizing the opportunities presented and, as highlighted earlier, are making substantial investments in automation, digital solutions, and sustainability to facilitate this progress. Despite wrestling with ongoing supply chain issues, COVID, and inflation over the past three years, we believe that our operations can withstand these challenges. Currently, we see our guidance as achievable, and we are focused on making it happen.

Our next question comes from Phil Ng with Jefferies.

Good morning, Ted. Chris, this is John on for Phil. Hope you are doing well. I wanted to start off with...

Must be something exciting going on and we are getting the...

Nothing more exciting. For the protective volumes. Coming through 2021 protective obviously growth decelerated on the tougher comps in the pandemic restrictions easing. Can you give us your thoughts on how Protective will do through 2022 in terms of volumes? And where you are seeing strength with some of the COVID restrictions easing up?

Sure. And our guidance kind of implies that the organic side, roughly 3% as well as price approximately 6%, and if you break that down between Food and Protective, as it relates to the organic piece of it, roughly 3%. It can be a little bit higher on the Food kind of thinking 3% to 4% on the Protective a little bit lower 2% to 3%. And from a geography point of view, it is certain areas that we would expect to come back better than others, but just low single-digit growth that we are anticipating in our guidance kind of what we are looking at. Hopefully, as things do open up faster things kind of settle the markets are a little bit more favorable than we view it, but for right now that caution is there, to your point specifically on the Protective side. But, Ted, is there anything else to add?

Yeah. A little color focusing on Protective. If you look at slide six, John, we are trying to give you a picture to tell what the story is going on here. Again, we are moving to be market-driven from our products. So the markets in 2021, we had some, Chris, you have been used this language. We had some surge with what was going on in the e-commerce space and actually the COVID-related stuff, we shifted that portfolio really fast. And so we are anticipating that shift in different areas, so one of the areas in 2021 that didn’t grow as fast for us was actually our Mailer business. We are changing that out, driving Automation, so that opportunity was actually down last year. We think is an upside potential and that was driving that lower number there in the fourth quarter was the Mailer business, which we think that is an upside opportunity this year on Protective again driving Automation. Also, if you look at the slide, we are bringing out the example of taking Automation into this industry, this is a whole new market for us. That’s a $2 million piece of equipment there with the tires wrapping that, about the Auto Wrap system that simple. So we are taking Automation that’s taking the Protective business to new areas, and we think we can move that pretty quickly if the markets continue to move pretty significantly. So we feel that will recover that, and Protective, we don’t see as an issue for us in growth in 2022. Okay. Next question, please?

Our next question comes from Ghansham Panjabi with Baird.

Hi, guys. Good morning. On your Automation ambitions of one plus -

Ghansham, I am excited that you made our call. This is great.

This was the excitement for the week. This was the excitement. I guess going back to one of the slides where you have the Automation ambitions of one plus billion by 2025 inclusive of acquisitions. Just curious, how do you resource internally to position for that organic growth relative to the baseline for 2022? And I guess the question is that the existing solutions that you are expanding with current and new customers or the incremental technologies which will require some level of outside expertise to complement what you already have? And then the second question related to that on your comment to double equipment production capacity over the next three years, is that investment weighted towards one segment, in particular? Or is it commensurate with the sales split? Thanks.

Let me address the investment first. We previously stated that midway through last year, we increased our capacity, capital expenditures, and earnings per share. We publicly announced a price increase due to rising volumes, and we're set to double our EPS to enhance capacity within three years. We're currently ahead of schedule on that. Our team has been making progress, and while there’s timing involved, that falls within our capital expenditure plans, which includes significantly increasing our internal CapEx to facilitate automation. Now regarding your question about technology, if you refer to slide 10, you’ll see visual representations of our operations where we are integrating automation. I often receive questions about collaborative robots, or cobots, which work alongside humans. Currently, we have hundreds of these in our operations and aim to scale that to thousands over the next five years. This will reduce the number of touchpoints in our facilities by more than 50%, translating to millions of efficiencies and contributing to the 30% productivity growth we’ve discussed. The technological foundation supports this initiative, and digital technology comes in various forms, which we will explore further in our next quarterly deep dive. In addition, we are incorporating technology into our customers’ operations, focusing on both technology and process to eliminate barriers and streamline workflows, which will yield substantial savings. Concerning automation, we’re transforming our installed base to prioritize automation, aiming to connect over 100,000 pieces of equipment efficiently. The third element of our growth strategy involves collaboration with our network, leveraging not only our own products but also partnerships to accelerate our growth targets beyond what we've shared.

Yeah.

Yeah. To the next point of this question.

Our next question comes from Josh Spector with UBS.

Hi everyone, thank you for taking my question. I would like an update on your equipment profitability. Could you provide some context on where you stood a few years ago compared to your expectations for 2022? Additionally, considering the increased investment you have mentioned, do you need to expand further to meet your 2025 objectives for greater profitability, or are you already seeing some incremental improvements reflected in your EBITDA?

Yeah, I will let Ted go ahead. I wanted to jump in because we don’t disclose EBITDA margins at that level. But the good news is that we are clearly focused on profitability in the equipment side, and we are seeing some improvements. It’s part of our overall adjusted EBITDA margin. I will let Ted answer strategically.

Josh, that's a great question, and Chris was eager to emphasize why this is such an exciting moment for us. It's not just about growth; it's also about profitability. Before diving into our performance, I want to reiterate that our focus is on our customers and generating demand. In the slide, particularly slide seven, we highlight customer savings as a key driver of our efforts. As a solutions provider and an automation company, we are committed to delivering substantial savings to our customers and we are aligning our pricing strategy to ensure our solutions yield a three-year payback for them. This is crucial because, as noted on the fourth bullet point of the slide, we are enhancing innovation while also improving our EBITDA margin. We anticipate a few hundred basis points of improvement on the equipment side for various reasons, but primarily, we're shifting the discussion from cost to savings, which are considerable. There is also a significant margin improvement coming from our current equipment offerings, which positions us well for future growth. When modeling our business, it's important to recognize our capacity for over 30% operating leverage throughout our transformation. This growth strategy aligns with our goals for margin expansion. Additionally, regarding our solution strategy discussed in slide nine, we are repositioning our core equipment offerings to ensure they are a profitable part of our business rather than a subsidy. We're also enhancing the service aspect, which is more profitable than equipment, and is what sets us apart in the eyes of our customers. Our service technicians are becoming more integrated into our customers' operations, which is essential as we adopt new technologies. We will fund these initiatives through the savings we generate, and a key part of our model involves incorporating Cryovac and BUBBLE WRAP materials, which enables us to create unique packaging solutions. Overall, this whole model drives our approach—not only are we looking to grow the business at a faster rate, but we are also committed to doing it more profitably.

Our next question comes from Arun Viswanathan with RBC Capital.

Great. Thanks for taking my question. We have seen quite a few declines in resin prices in the last couple of months. Although the tight seems to be switching a little bit in the last couple of weeks. And then we also have increased feedstock costs on the energy side. I guess when you think about all of that, maybe you can just help us understand how the formula price pricing will be affected? And is there any unusual impact on your European operations? Thanks.

Yeah. Thanks for your question. So, yes, I guess the volatility continues. I think we are on top of it relative to the pricing actions we have talked about the best three quarters now. But what we are seeing is, you are right, there are certain improvements in some of that resin pricing, but we get, we have specialty resins. So it’s not just on one, it’s on many. So you are talking about the other resins that are increasing as well as chemicals. So we look at all of the raw material and just get a good sense of what we are anticipating for this year heading into it, making sure our pricing is as close as possible to that. Your point on formula-based pricing is that we are in the middle of that, we would expect that to continue somewhat. And it takes about six months for that to kick in, and the same effect has when it does come down, we will get the benefits over a six-month period. So we consider this year in our guide to be favorable as it relates to pricing cost spread. I think I commented on that earlier. And then maybe the other point I did want to make just thinking about the year is we are roughly looking at just like we entered last year roughly 45%, 55%. This year, we are entering into kind of this 48%, 52%. I just wanted to add some color in terms of our guidance between that first half and the second half. So bottom line, formula-based pricing is intact. We don’t expect an immediate change anytime in the near future as it relates to that even if there is improvement in that resin pricing. And again we buy multiple different grades of that and specialty types of resins that are embedded in our formulas. But, Ted, maybe some other comments?

Yeah. I will just add a little bit of color because obviously now four years with the business, the questions I have trying to guide that we are much more than our resin converter business. So, but, let’s understand what’s going on because this is a major source of our business. So, as Chris said, the resin markets with inflation, resins hit us really hard. So it took us to the end of the year to get ahead of that on the price cost mix, but we still see pressure on that in the first half of the year. Especially on the commodity type resins, we think will go up in the first half but actually down in the first half and maybe down for the whole year. So underneath that, though, the specialty resins and that’s what we do the magic with especially our Cryovac material, we see that still going up year-over-year. So we have that balance going in, where we have the commodities going down a little bit. We see that flattening which is good. The specialty, those are still going up. But we also want to take us a little bit beyond just the resins were also into paper. So the paper, especially in Europe is we are moving our portfolio to be material agnostic. We are seeing that there is significant inflation on the paper. Again, because paper very simply it’s wood plus energy, the energy costs as we all know around the world are driving. So with paper, now with resin this solution is still the same. How do we drive Automation? And how do we drive Automation to power through this with our customers? As Chris said, that we have disciplined pricing actions still in place with care, working with our customers to handle it. And one last comment is beyond resins, beyond it’s everything on this inflation, freight, all the materials, labor, et cetera, et cetera. So we really, really the inflation issue is not over for us but we can handle it and we are attacking it, and we have to do it with care on pricing with our customers.

Our next question comes from Adam Josephson with KeyBanc.

Good morning, everyone. Hope you are well. Chris, on free cash flow, seeing your conversion last year was 44%. It seems like you are expecting something similar maybe a touch lower in 2022. Your target long term is 50% plus. And I know last year working capital was a bit of a drag. And this year CapEx is going to be elevated, cash taxes will be elevated for a couple of reasons. So can you help me think about beyond 2022, perhaps you are expecting CapEx to normalize? Cash taxes to normalize? What gets you back to that algorithm post 2022?

Good question. I’d begin by highlighting the overall improvement in our business performance. This refers to our earnings potential based on our investments and the expected returns. Currently, we have an EBITDA margin of about 21% and we aim to increase this to the mid-20% range over time. Our focus is on maximizing this earnings potential as we continue to invest. Internally, we ensure that capital is not limited where capital expenditures are necessary and where the returns justify that investment. We have increased our CapEx this year, along with investments in the business, especially in R&D. Moving to working capital, this is a significant area where we see efficiencies, and our metrics such as DSO, DPO, and DLH reflect strong performance. However, if inventories are accessible, we will acquire them, especially given the current market conditions. We are addressing supply challenges by building up some inventory to prepare for future demand, which is a positive step. Once supply stabilizes, we expect to reduce our inventory levels significantly and improve the turnover rate. Additionally, regarding income tax payments, I've mentioned an increase of about $100 million year-over-year and explained it previously. We will monitor how this unfolds and are always looking for opportunities to leverage tax incentives in the countries where we operate based on our investments. We will continue to seek ways to manage cash taxes effectively. In summary, I emphasize our earnings potential. We are focused on improving our earnings power to exceed 50%.

Adam, I want to add to what Chris mentioned, which was a great summary. Chris, congratulations on completing a year with us. As we've been working on this, we’ve increased our goals. Initially, we examined the engine’s past performance at 30, 40, and 50. Now, as we move forward, we see the working capital increasing, and with those rising volumes, there might be some cash consumption. However, we believe that with these growing volumes, we can maintain them. The second key point is to increase earnings, which will help generate more cash, and that’s a crucial part of our strategy. We are confident that this is our model and that we’re on the right path to achieve our goals.

Our next question comes from Anojja Shah with BMO Capital Markets.

Hi. Good morning. I know you are going…

Good morning, Anojja.

… to talk more about digital printing next quarter. But you mentioned the FoxPak acquisition, and I was wondering, do you envision more M&A in digital printing or will it be more of an internally built focus?

Yeah. I will let you go with that.

Yeah. No. It’s a good question. So if you look at slide 10 and you see the digital printing on both sides, It’s a good question. We actually started our digital journey in this part of SEE Ventures, we have had that we have invested some, but we think it’s game-changing technology. So I don’t want to put a little bit of a buzz out there for next quarter, but that technology that we have invested in is exceeding expectations. So it’s right now it’s mostly in the operations, enabling us to get some significant productivity. We are now putting some of the technology out with our customers actually putting the digital printing in our Automation packages and what FoxPak is really is a pioneer in that space. It’s helped us with its European footprint, how do we get to more places faster, especially their expertise on the presentation and the speed to market that they produce the outcomes, really impressive. So, as Chris said, the answer is, yes. We are investing internally because now we have our own internal capability but we are looking at other opportunities on the M&A space to move that faster because the secret to the future, it is digital. And we got to be digitally connected in everything we do, and more coming. We might necessarily have to buy at all because we have some pretty impressive digital partners that are working with us behind the scenes, and we will share some of that with you again in the next quarter when we did the deep dive on digital. Great question and that’s what we are excited about.

And then, the last question please, Operator. Last question.

Our last question comes from Adam Samuelson with Goldman Sachs.

Yeah. Thank you. Good morning, everyone.

Good morning.

I was hoping, maybe dig into this point on the Automation Solutions Multiplier. And I am looking at the materials and hearing kind of the framing properly. This is the first time you have talked about up to 10 times multiplier online some solutions offerings, which is considerably higher than what you framed it previously. And maybe just trying to get a sense of what proportion of the equipment business might be reaching kind of that kind of threshold. And if that’s a big driver of the more optimistic longer-term growth outlook for the company where the equipment growth outlook itself doesn’t seem to change dramatically?

Yes, Adam. The answer is yes, we are making progress. If you refer to the earlier slides, particularly slide 10, which illustrates our model, you can think of it as turning around a large ship in a small space. We are in the process of recharging, rewiring, and re-powering. Moving to the next slide on the Solutions Multiplier, we discussed this in relation to our acquisition of APS. Those in the automation sector understand the Solutions Multiplier very well because it reflects what an automation company does. We provide equipment, but we don’t just give it away; we charge for it and connect it to services. What sets us apart from traditional equipment companies is that we also handle the materials, which is a key part of our model. We have over 100,000 pieces of equipment that we need to get connected and operational quickly. The multiplier effect is significant. One example is our model which shows a potential for more than three times the value. Our equipment, such as an auto pouch system costing around $750,000, when connected with services and materials—including customized boxes created via digital printing—can achieve a multiplier of over 10 times. However, this does not apply uniformly across our entire portfolio; for example, while traditional mailers have lower growth multipliers, we are introducing automation and digital printing into that area as well. The multiplier for mailers is currently below three times. Looking at the meat production example, we can bag beef multiple times before it leaves the customer's facility, and the automation around that process introduces significant potential. Just be mindful that this growth will not happen all at once. We are indeed seeing real growth volumes in equipment, and we are optimistic about future increases. That’s the direction we are heading. Thank you all for joining the call. I look forward to our next quarter’s discussion regarding digital advancements. Stay safe and healthy.

This concludes today’s conference call. Thank you for participating. You may now disconnect.