Diversey Holdings, Ltd. (DSEY) on Q1 2021 Results - Earnings Call Transcript
Operator: Greetings. Welcome to Diversey Holdings Limited First Quarter 2021 Earnings Conference Call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. . Please note this conference is being recorded. I would now like to turn the conference over to Grant Graver, Investor Relations. Thank you. You may begin.
Grant Graver: Thank you. Hello, everyone, and welcome to Diversey's first quarter conference call. With me today are Phil Wieland, our CEO; and Todd Herndon, our CFO. Our earnings release and the slides we’ll reference on this call are available on Diversey's website at ir.diversey.com. Please take a moment to read the cautionary statement in these materials, which state that this teleconference and the associated supplemental materials may include estimates of future performance. These are forward-looking statements and actual results could differ materially from those projected. Factors that could cause actual results to differ are described under the risk factors section in our filings with the SEC.
Phil Wieland: Thanks, Grant. It's fantastic to be giving our first earnings update as a public company, having come out of the gate delivering a strong first quarter. Everyone connected with Diversey is proud of our company and its new status as DSEY, and we're driven to see it reach its full potential as a leader in our market. For those of you who invested at IPO, thank you. I hope you've enjoyed the ride so far. What you'll hear today will be consistent with the expectations we set and represent some great progress on our strategic themes. Starting with our first quarter results. We saw 2% top line growth versus the 2019 pre-COVID baseline, despite very heavy lockdowns impacting many of our customers in most parts of the world. Margins continued to expand, delivering very strong adjusted EBITDA growth of over 75% against the 2019 pre-COVID baseline, and even modest growth against the pre-lockdown 2020, which benefited from significant infection prevention sale. We were, of course, impacted by the Texas freeze, resulting in raw material cost pressure, but we didn't experience any supply disruption. Our procurement and commercial teams have been working incredibly hard to mitigate the financial impact. We've seen significant net new customer wins in both our Institutional and F&B segments, importantly, at accretive margins as customers have valued our product and service offerings. We've been rewarded for our extra efforts during the difficult COVID times by extremely low customer churn. This is also reflected in our customer Net Promoter Score, which is at record levels. Our strategic plan is bearing fruit with meaningful progress in all areas. We've seen some important launches from our innovation pipeline. In particular, in Institutional, we've launched a residual efficacy product to complement our infection prevention range. And in F&B, we've launched a system that expands our digital offering by providing real-time insight on both cleaning standards and water and energy usage for our CIP customers. Recognizing that some of you may be new to the Diversey story, I want to cover some information that we shared on the roadshow to ensure everyone has the same baseline, starting on Page 5 of the presentation.
Todd Herndon : Thanks, Phil. I'm excited to speak with everyone today to review our strong results for the first quarter. In Q1, revenue was 2.2% above pre-COVID 2019, while delivering significant adjusted EBITDA improvement of 77.9% or $41 million of growth. This was driven by a combination of growth and our long-term focus on margin improvement. Compared to Q1 2020, our organic sales declined 4.4% due to strict lockdowns that are lasting longer than expected, particularly impacting our Institutional segment.
Phil Wieland : Thanks, Todd. Yes, before Q&A, I'd like to leave you with a quick summary of Diversey’s growth algorithm on Page 18. We look forward to building on the estimated long-term market growth of around 3%, with market share gains on top from the drivers that I discussed earlier in the call. We target to grow another 2% per annum through accretive M&A, and we target to expand adjusted EBITDA margins to 20% at the average rate of 50 basis points to 100 basis points per annum through our improved sourcing, strategic pricing, supply chain improvements and operational excellence through SG&A cost initiatives. This should generate strong free cash flow that we can use to delever over time with a medium-term net debt goal of 3x adjusted EBITDA. That concludes our formal remarks. Operator, please begin the question-and-answer period.
Operator: Our first question is from P.J. Juvekar with Citi.
P.J. Juvekar : A question on your North American share and share gains. What's your share now? And can you distinguish between your efforts to gain share with bigger customers, like what you did with Aramark versus smaller mom-and-pop businesses. What is the bigger opportunity for you?
Phil Wieland: Sure. Let me start there. So look, it's certainly true that we've taken some nice share over the last couple of years, particularly, I would say, in infection prevention, where we think we've got something like a 20% share of the market in North America, also taking some nice share outside of that too. Thinking about the overall opportunity in terms of larger customers versus smaller, I think honestly, we target all parts of the market. It was great to win those large customers. As you know, that gave us the ability to put in place the infrastructure and the sales and service force right across North America. And we're using that now as we win other customers. But it's also true to say that we're picking up a lot of smaller customers too. And we're not -- we don't discriminate in that respect. We're keen. As long as the customer has the right attributes, we can build a long-term partnership at the right margins, then we work with all customers.
P.J. Juvekar : Okay. And it was good to see you got a new global win in water treatment. Can you talk about this win and what's in the pipeline with your Solenis partnership?
Phil Wieland: Yes. So look, I mean, we were delighted, honestly, we had a number of smaller wins very early. We haven't actually expected to start winning by this point. And then as part of an existing business process, we were able to start a conversation about water treatment with a large customer -- a large existing customer in Africa. And once we explain the proposition, the products and the service, that customer was really excited, and we closed that deal 2 or 3 weeks ago. So yes, look, it's a very promising start. It is only a start. There's a huge amount of more work to do. As Todd said, we're rolling out the training right across our F&B workforce. But look, we're ahead of where we plan to be. And I think to some extent, it sort of validates our approach here, but of course, I feel much better when we've got a few more under our belt.
Operator: Our next question is from Vincent Andrews with Morgan Stanley.
Vincent Andrews: Wondering if you can just provide a little bit more color about the segment margins in the quarter. Obviously, Institutional was down a fair amount, both sequentially and year-over-year, whereas Food & Beverage was up a lot, both sequentially and year-over-year. So what was the divergence there? You mentioned a few things in the prepared remarks, but could you speak a little bit more specifically about what was happening there and how you expect it to progress across the balance of the year that will get you to margin expansion for the total company?
Phil Wieland: Yes. No, let me do that. Let me start with F&B, where, as you said, the margins were particularly strong. I've said before, we had a really great 2020 in Food & Beverage. We won a lot of new business and that has carried on into 2021. We actually were able to implement some of these new wins a bit earlier than we originally anticipated. We also saw a bit of reopening in some of the African markets, and that also helped our top line. And actually, this extra top line from those reopenings and also from implementing these wins earlier, that slowed down very nicely. And that's a critical reason why our margins were particularly strong in F&B. On the other side, on Institutional, the -- obviously impacted by lockdowns, as we said. We did see the infection prevention opportunity in North America, particularly strong. We were able to sell in higher volumes than we originally expected as some of the markets like education, infection prevention, opened a bit faster. And we did incur some additional costs in getting the much higher volumes than anticipated out earlier. So we had to, for example, air freight some product around the world. We had to pay some of our third parties some additional overtime costs, et cetera. So those things had a small impact on the Institutional margin progression. But those things were all short-term in nature. They impacted Q1. We've now been able to grow our supply chain so that we can now manage the higher volume levels on a sustainable basis. So we don't expect any more of those costs going forward. I hope that makes some sense.
Vincent Andrews: Sure. And maybe just as a follow-up, could you give us a little bit of a sense of price versus volume in the segments and what you're anticipating for the balance of the year? And maybe more specifically as it relates to how much price work you think you need to do to offset raw material inflation?
Phil Wieland: Yes. No, look, I can certainly do that. Maybe let me start, if we were talking about inflation, I'll come back into price. So it's certainly true that we saw real inflation in the market above the long-term averages. We did predict coming into the year, some higher inflation, and therefore, we came out of the gates, implementing pricing more than we might otherwise have done. But as it's turned out, inflation has been even higher than we predicted, and therefore, we had to action additional measures to mitigate that. I think it's also worth remembering, though, that if you're looking at the overall input cost inflation, there is a real geographical spread here. The Americas saw the highest inflation. It was obviously the most impacted by the Texas freeze, with lower inflation in emerging markets and also in Europe. So given our business mix, it's important to remember that the U.S. inflation headlines are not necessarily a good indicator of what we're seeing in our overall global position. Remember, the U.S. is only about 25% of our business. So maybe give you a few more numbers, we saw actually, in the first quarter, somewhere a bit less than 2% on cost. We saw a similar amount on price. That might drift a little bit up in the second quarter. And then we expect to see that moderating before coming down again in the back half of the year. Probably the other thing I would just say on this topic, it's worth noting that our sourcing initiatives have been really helpful here. I think we mentioned in the presentation, we've been consolidating formally, and that's allowed us to bundle volume, which we haven't been able to do before, and therefore, move that volume around between suppliers. And that's helped us significantly improve on input costs. And that, overall, is going to be really helpful as we go through the rest of this year as well.
Operator: Our next question is from Manav Patnaik with Barclays.
Manav Patnaik: Phil, I just wanted to follow-up on the water treatment cross-sell opportunity, you called out in the slide. Just hoping you could size that a bit more and kind of how you cross-sell into that cleaning and hygiene category?
Phil Wieland: Yes. So that win is somewhere between $1.5 million and $2 million once fully rolled out. And to be clear, there's none of that revenue in the Q1 numbers. It takes some time to do that. In terms of how we go about it, I think the beauty of the relationship that we have with Solenis is that we are the single point of contact with the customer. So what we now effectively have is a full range of the water treatment and wastewater treatment products that we can take customers alongside our other cleaning and hygiene products. So it's a real kind of seamless offer with only 1 touch point for the customer with the Diversey sales team to get the full breadth of the new offer. And that seems relevant and significant. And that's certainly been a really interesting dynamic for customers and something that we've had a lot of early positive feedback about.
Manav Patnaik: Okay. Got it. And Todd, I just want to follow-up. It sounds like the organic growth was slightly worse, driven by Institutional, but then FX and M&A were better. So I was just hoping you could help us what we should be assuming for the M&A contribution for the rest of the year? And perhaps how you're thinking about FX as well.
Todd Herndon: Yes. Let me start with FX. I think, clearly, in the year-to-date, we have favorable FX for the total business. And at spot rates, we would expect that trend to continue as we look out into the year. In the first quarter, FX had, and you can see in the Q1, I think, Page 46, on a consolidated basis, roughly 2.4% impact favorable on the business in the quarter. And I think as we think about M&A going forward, we're excited about the opportunity in M&A. It probably should first start with, we're pleased with how our recent acquisitions are progressing. In particular, we closed on SaneChem at the end of the year, roughly 5 months ago. That's developing as expected, both in terms of underlying performance and synergies. As a reminder, for those that may be new to Diversey, we look for a number of things in an acquisition beyond the financials. First, strategic control of supply chain for a market, so we can deliver with excellence for our customers, also product or technology additions for the whole Group, strengthening of a core geography and/or acquiring talent. SaneChem checked the box there on geographical objective. As you've heard, Poland is 1 of our 7 target growth geographies for F&B. In terms of our funnel, we're really happy about where it is right now. We would expect to do some reasonable M&A this year. In our road show we called out long-term that we wanted roughly a couple of points of growth coming out of M&A annually. We're ramping that up as we speak. This is probably the hardest year to do that because we're ramping. We're extremely excited about the implication of the profile of those types of deals going forward and how they can be extremely shareholder value-accretive on a tuck-in basis. So we expect to have some positive news in the very near future with respect to M&A. But I wouldn't want to comment on those before we close those deals.
Operator: Our next question is from George Tong with Goldman Sachs.
George Tong: In your Food & Beverage segment, you mentioned record net new business wins in the quarter. Can you elaborate on what's driving the new wins and how much is coming from water treatment?
Phil Wieland: Yes, yes, I certainly can. Let me firstly say, water treatment is in the very early days. And as I said, we're ahead of schedule. We've got a number of small wins and one global account win. But that is not yet a significant part of what we're winning. And if you go back to why are we winning? Look, I think it's a combination of great product and service, a service that we deliver consistently day in, day out, week in, week out to customers. The fact that we are there for them whenever they need us and that builds real trust. And customers more and more are seeing the differentiation that Diversey can offer in that space. We're becoming increasingly good at explaining it to potential new customers, making commitments around that. And we're seeing that having a real impact in the market. We're basically delivering on the promises, and that is, I think, increasingly understood in the market. That's been really the key reason.
George Tong: Right. And I guess just a follow-up on that. What specific product areas within Food & Beverage are you seeing the most traction with that's driving the net new business wins?
Phil Wieland: George, the most encouraging thing is that it isn't really specific areas. We're strong in processed food, in dairy, in alcoholic beverage, non-alcoholic beverage we’re strong around the world. And we've really seen a nice breadth of wins. If I was to point to the most pleasing thing, I would say it's the amount of new business we've won in North America because that has traditionally been our weakest marketplace. We're working hard there to build up our infrastructure to make sure that we can deliver the best possible service. And that seems to be working. But it's true to say that we've won in all of our sectors and in all of our regions. So we feel really good about that.
Operator: Our next question is from Gary Bisbee with Bank of America.
Gary Bisbee : So I guess, could you give us a progress update on the global rollout of the infection prevention portfolio? Did all of the capacity you were looking to bring online, is that online for the liquid and the wipes solutions? And how is that going, trying to get that out into the marketplace?
Phil Wieland: Yes, sure. So the short answer is yes. So we're now able to manufacture and sell right around the world. So we've rolled out in addition to what we were already doing in North America. As you know, we added Wypetech last year. We're now manufacturing in Brazil, in Turkey, in the UAE, India and China, and of course, in Europe, in the Netherlands. So we've got the supply chain now that we wanted, and we're starting to see sales happening, too. It's tough launching some of these businesses around the world in a fully locked down environment, particularly in Europe, we see a lot of people you want to be speaking to, the businesses are not operating with people on furlough, et cetera. But we are starting to see some really quite interesting upturns in our sales. So yes, we feel really well positioned actually as the markets reopen to leverage both the selling teams and the manufacturing infrastructure and the regulatory approvals that are actually a significant amount of work went into last year. So yes, we feel quite well set.
Gary Bisbee : And just digging a little deeper into that, is the play really to sell these better offerings into the existing base of customers and relationships and maybe replacing something you were providing or having it be incremental? Or are there other market segments that are the key users of these products, where you need to build new relationships to really drive the goal penetration of that product category?
Phil Wieland: So yes, good question. It's really both. So for example, with existing customers -- so let's take, for example, the business service contracting segment. There, we are helping those customers to further differentiate as they look to compete in their market. So we're able to build new propositions for them to help them win using the AHP technology. But then there are other areas. So we've had some nice success with distributors, for example, in their warehouses as they are using our products increasingly, many of those are new customers to us. But they've been really interested in both the efficacy and the safety of our product as it's being used in a high-intensity environment. So look, it's both, and we're pushing hard on both actually at the moment. And yes, we expect that to continue to accelerate.
Operator: . Our next question is from Andy Wittmann with Baird.
Andy Wittmann: I guess, we're going to want to start. We were just talking about net new in the Food & Beverage side. Maybe, Phil, if you could just touch on what you're seeing on the Institutional side of the business. I heard some comments in your prepared remarks overall about great retention levels. Clearly, that was a factor all through last year. It sounds like the factor here. No comments on the net new on that side. So I thought I'd give you a chance to talk about what you're seeing there.
Phil Wieland: Yes, Andy. Look, thanks for that. So the Institutional has been going strongly on that front, too. If I look at the new wins compared to any losses, there's a very significant ratio there. In fact, I struggle to point at any significant losses that we've been seeing. On the new win side, we've really seen some nice foodservice wins. I don't just mean the North America business, we had a very significant win in Europe, a double-digit million win there that we completed over the first few months. And also, we've been pushing more and more into care homes. We have some nice success there. So again, none of this is in our numbers. As you know, these things take some time to implement. But it does suggest that the proposition is working well, and it does suggest that we're building some really nice momentum.
Andy Wittmann: That's helpful. And then just for my follow up, maybe, Todd, this one is for you. We've talked -- you've talked here, there have been questions on the margins. Raw materials, obviously, is focused on people's minds. But I want to go a little bit different direction. Just talk about, given that we're still a little bit under the COVID cloud here, at least in the quarter, was there anything in the margins that would be unusually beneficial? I know the depths of last year had seen some -- sorry, I cut out there for a second. There were some challenges that lots of companies had furloughs and other things like that. I was wondering if there's anything in the quarter this year that you did that would be considered overall unusual that would come back next quarter or maybe next year at this time, just that you had to do because some of the COVID challenges. Certainly, travel has been something lots of companies have called out. But I was wondering if there's anything besides that, that's notable on the margin profile here?
Todd Herndon: Yes. Maybe it's worth talking just for a moment about gross margin. You've heard Phil talk about how we're dealing with raw material inflation and pricing. And actually, I think when you look down at the gross margin mix in the quarter, you'll see some degradation, VPY year-on-year. And that's really driven by mix. Certain sectors like foodservice and hospitality, given the lockdowns, tend to have higher gross margins because they also have some higher service requirements on those applications. And that probably has the most to do with the gross margin challenges in the quarter, along with some of the weather-related and supply-related challenges to get our customer service in North America on infection prevention. Those were the 2 kind of main drivers of gross margin in the quarter. As a result, at times of significant mix changes, it's less informative to look at gross margin because we also then had much more favorable SG&A management, as you'll see, which allowed us to improve 60 basis points year-on-year in Q1 with, I'd say, really good cost discipline. There was one -- there was a charge related to the IPO that had an 80 basis point impact approximately on gross margin negative in the quarter in relation to comp charges related to the IPO. So that's worth noting the other way versus what you're saying. So I think that's probably the color. And I would agree, as that $400 million in the base comes back, we will need to add some discretionary spend like T&E back into the business. But the bulk of the furlough is out of the numbers right now. It was mainly supportive last year in Q2 and some into Q3. And so I just think we had a pretty disciplined quarter that balanced some of that mix change with the cost to serve in those application service intense kind of sectors. Does that make sense?
Andy Wittmann: It does. Very much. Thank you very much for the context there.
Operator: Our next question is from Jeff Zekauskas with JP Morgan.
Jeff Zekauskas : Why are your inventories up so much? That is -- it looks like they went up 12% sequentially and maybe they're 40% up year-over-year. And your volumes are down. What's going on there?
Phil Wieland: Yes, yes, Todd, you got it.
Todd Herndon: Yes. I was going to say, I could take that one. I'd say to you that the uneven demand and extended lockdowns related to COVID have not helped our inventory situation. Our #1 objective is to service our customers. And so we, during this time, have wanted to make sure that we had the right inventory specific to those COVID-related type SKUs. But also, I'll come back to my introductory point on seasonality. Q1 tends to be our lighter quarter. And so, we always have a build quarter-on-quarter. And especially this year as there's some uncertainty to the pace at which markets reopen, we've chosen to invest in inventory, so that as those markets open, we're able to relatively quickly service the demands of those sectors that have been down. So we've made it a priority to be ready, have the right products in the right place at the right time when our customers need it. And so I would also caveat that by also saying by the second half, we would also expect to make progress in bringing that inventory down prior to year and is reflected in how we're thinking about cash flow for the year.
Jeff Zekauskas : Okay. In your outlook you said that your 2021 full year will be in line with your expectations at the time of the IPO. Can you remind me what your expectations were? And what are your expectations for the year in terms of EBITDA?
Phil Wieland: We didn't provide specific guidance on absolute numbers in that respect. We just talked about the fact that what we'd expect on the top line and that we'd expect that margins would continue to expand. I think the point of describing it, as we did, was to explain to you that we are trading in the first quarter above our expectation. And while the lockdowns are going to be tougher in Q2 than we expect it, we think that will balance out, and we'll still be making the progress as we hit the halfway point of the year that we expected. Really to make sure that you understand that overall the lockdown situation we don't think is something that's going to cause us ultimately more pain this year. And the high input costs or Texas freeze isn't something that we can't overcome this year. We feel good about managing through both of those situations. The only thing that we did add was that we grew 18% in 2020 versus 2019, and we expect to see some further growth in '21 of adjusted EBITDA versus '20. And of course, we'll continue to give you updated view on that as we go through the year.
Operator: Our next question is from Laurence Alexander with Jefferies.
Laurence Alexander: Could you just give updated views on how quickly you grow your sales force this year and over the next 3 years? And also how you're thinking about the degree of differentiation you have in chemistry, software or machinery for the water treatment value proposition?
Phil Wieland: Yes. Sure. Let me start. So look, in terms of the sales force, we've had a significant strategic driver on commercial excellence. And that is leading us to really more change the mix of our sales force. So really between what we call farmers and hunters. So that doesn't necessarily result in a significant increase in the number of people in our core business, just a mix in the skills and talent and experience of those people. There are, though, some areas where we do expect to increase the number of salespeople. So in our global accounts area, we would expect to grow a little bit. In some of the emerging markets, we think we have a real opportunity. And also, we've identified 7 geographies in the Food & Beverage business, where we expect to grow. But we're not talking about enormous increases in cost overall. They're pretty targeted and focused where we think we can get a really great return on that. If I come to your second question, which I think was around the differentiation in water treatment. Look, I think we feel really, really well positioned in the whole of the Food & Beverage area in respect of what we bring to customers. I talked about the service a bit earlier. But if I look at the OnGuard system that we have, that we get from Solenis, if I look at the IntelliCIP that Todd mentioned that we launched where we feel really well positioned against all our competitors.
Operator: Our next question is from Arun Viswanathan with RBC Capital Markets.
Arun Viswanathan: Congrats on a good first quarter here. So I guess, I don't know if this has been addressed yet, apologies. But I was just looking at Slide 29, many of the improvement plans you have for margins longer term, I think, going to that 17% range. Could you provide an update on how you're tracking on some of those? I think it was $100 million in total. And if COVID and some of the lockdowns or maybe even the reopenings have affected that trajectory at all?
Phil Wieland: Hey, Todd, do you want to pick that 1 up in the first instance?
Todd Herndon: Sure. Well, first, I'd start with, we're making the margin progression that we hope to. In the first quarter, we saw that improvement at the bottom line to 60 basis points. So this year, starting out in that range of 50 to 100 that we suggested we would target, that's going to change quarter-on-quarter depending on different variables. But we're off to a start there that is in line with what we expect. We do believe that, as we've stated earlier, our long-term EBITDA margin target is 20% or above, which is roughly 500 basis points higher than where we landed in 2020. We have high confidence in making meaningful headway towards our long-term potential in the next 3 to 4 years. We do have strong capabilities in place to drive gross margin expansion through strategic pricing and sourcing. And we also have a detailed plan to drive supply chain savings through additional in-sourcing and optimizing delivery frequency through better order patterns and fulfillment discipline. You're right to reference Page 29, that gives you more detail about some of the specifics that we're working on. With respect to sourcing, Phil mentioned, progress with Formula harmonization in Q1, which is helping us migrate through this time of interesting challenge with some inflation and providing us offset there. I would also suggest that our roughly 70% of that, those 4 buckets will end up supporting improvement in gross margin going forward. With respect to the supply chain, we're making significant progress on looking at our footprint, which is where we see some significant opportunity as the #1 in-source and put things in places where they should be to optimize not just in terms of the product cost, but also logistics optimization around freight and warehousing. That's moving on as planned. And then our earnings improvement program, which is really more focused on general and administrative kind of opportunities is on track versus our plan for this year. The COVID markets haven't affected that at all. We've been able to focus down. COVID is actually presenting some new ideas for us because we're now learning how to operate, honestly, with our customers in a more remote fashion, which going forward should also provide some real opportunities in how we service customers, leveraging some technology that we have to provide remote service, which, over time is another opportunity for us to really improve our efficiency in the business. So overall, I'd say we're on track. We haven't changed our outlook on the opportunity and we hope to deliver, as we said, in the -- an upfront margin accretion this year, consistent with our guidance.
Operator: Our next question is from Kevin McVeigh with Credit Suisse.
Kevin McVeigh : Great. Thanks so much. If you kick off to -- I had the numbers right, the potential water opportunities, 20% of the core F&B. Any sense of how that comes in, I guess, number one, the margin impact of that? And then how does the water opportunity impact the Institutional? We hear a little bit about -- if it's 20% of potential F&B, how should we think about that within the context of the Institutional business?
Phil Wieland: Yes. So look, we have an existing water business in Institutional. There's certainly more we could do working with our partner. But we made a very conscious decision to start with F&B, where we thought the opportunity was the most significant. So that's what we've done. So we may well together, come back and push harder into Institutional, but we thought that it was right to side in F&B. So that's what we've done. The first part of your -- just remind me the first part of your question.
Kevin McVeigh : Yes. So how -- any sense as to -- it sounds like it would potentially -- the opportunity, 20% of the existing F&B business, any sense of how that comes in? Is that a 3-year build, a 5-year build, just how should we think about the scale?
Phil Wieland: Yes. Sure. So it's -- as I said earlier, the fact we've won a first global account is a little bit ahead of what we expected. We think this will take time because we're focused initially on existing customers and a significant amount of our business is large global accounts. They tend to be under contract for maybe on average 2 or 3 years. And therefore, it will naturally take some time for us to have the opportunity to win all of our global account business. So I think at the same time as we feel enormously excited about the proposition and what it's going to do for us, I wouldn't be assuming that this is going to be tens of millions in the first year or even the second year. I think this is going to take some time and build somewhat modestly and then really start to accelerate as we get into the third year.
Kevin McVeigh : That's helpful. And then could you put some numbers as to the impact of the Texas freeze in the quarter maybe around revenue or just margin and just any thoughts on that. And if there's any lingering impact that will show over the balance of the year?
Phil Wieland: Yes. So look, as I said earlier, the overall input cost inflation, we're somewhere between 1.5% and 2% in the first quarter. And we think it may go up a little bit from there. It's pretty hard for me to determine the impact of the Texas freeze versus other things going on. And I guess, to some extent, it doesn't matter, but that's what we saw in Q1. I do think it will get a touch more in Q2, which is why we've been out making sure that we're adjusting prices accordingly. And then we think it will abate as we get more into the third and particularly the fourth quarter.
Operator: Our final question is from John Roberts with UBS.
John Roberts: On Slide 25, if I compare the middle renormalization bridge with the left side 2020 surge bridge, it looks like the personal care or hand sanitizer comes down more on a percentage basis as it renormalizes. Is that just because hand sanitizers went up more on a percentage basis? Or maybe in other words, did hard surface and personal care both go up similar percentages in 2020?
Phil Wieland: So look, I think the way to think about this is that in the hard surface space, we have a very differentiated product and it remains, in my view, the market leading product. And therefore, the growth that we saw there, I think, is very sticky. Okay? On the personal care side, I think the products in general are less differentiated. We did a really good job with availability of product last year. We organized our supply chain, adjusted it very quickly. And therefore, we're able to take advantage of that expanding market. I think that it's also harder to retain all of that growth, given the products in general are just less differentiated than what we see on the hard surface side.
Operator: We have reached the end of our question-and-answer session. I would like to turn the conference back over to Phil for closing remarks.
Phil Wieland: Look, thank you. Thank you all for joining us today. I would just say, I know we're slightly over time in conclusion. We feel really good about the quarter that we've posted. We're managing the challenges of COVID and the Texas freeze stroke input costs appropriately. We're really making some nice progress on delivering the strategic plan that we laid out again for you today. And we feel we're really firmly on track to deliver the 2021 plan and to deliver further adjusted EBITDA growth on top of the 18% that we delivered last year. So with that, I'd like to thank you all and wish you all a good day. Thank you.
Operator: Thank you. This does conclude today's conference. You may disconnect your lines at this time and thank you for your participation.
