Central Garden & Pet Company (NASDAQ:CENT) Q4 2023 Earnings Conference Call November 20, 2023 4:30 PM ET Company Participants Friederike Edelmann - VP, IR Beth Springer - Interim CEO and Lead Director Niko Lahanas - CFO J.D. Walker - President, Garden Consumer Products John Hanson - President, Pet Consumer Products Conference Call Participants Brad Thomas - KeyBanc Capital Markets Bill Chappell - Truist Securities Jim Chartier - Monness Crespi and Hardt Andrea Teixeira - JPMorgan William Reuter - Bank of Am ...

8 118 CENTRAL G A R D E N | --- | --- | --- | |------------------------|-------|-------| | Q3 FY2023 | | | | Investor Presentation | | | | 8.2.2023 | | | | | | | Business & Industry Update Tim Cofer, CEO | --- | --- | |--------------------------------------------------------------------------------------------------------------------------------|-------| | | | | Forward-looking Statements | | | This presentation includes "forward-looking statements." Forward-looking statements include statements concerning ...

Financial Data and Key Metrics Changes - The company reported record operating income and earnings per share (EPS) for Q3, with GAAP EPS at $1.56 and non-GAAP EPS at $1.75, an increase of $0.36 from the prior year [12][119] - Non-GAAP operating income increased by 20% to a record $137 million, with a non-GAAP operating margin expanding by 220 basis points to 13.4% [36][118] - Cash and cash equivalents increased by $137 million to $333 million, with net cash provided by operations reaching a record $325 million for the quarter [121] Business Line Data and Key Metrics Changes - Pet segment sales were $503 million, essentially flat compared to the prior year, with strong performance in consumables offsetting declines in durable products [37][120] - The Garden segment saw sales grow by 2% to $520 million, driven by live plants, packaged seeds, and wild bird businesses [13][118] - Non-GAAP Pet segment operating income increased by 18% to $74 million, with operating margin expanding by 230 basis points to 14.7% [120] Market Data and Key Metrics Changes - E-commerce sales in the garden segment grew over 20%, now representing more than 5% of total garden sales, indicating a shift towards online purchasing [8][113] - Retail partners have reduced lawn and garden off-shelf display activity, with foot traffic across home centers and mass channels remaining below prior year but improving [7][8] - Pet ownership data indicates a slight decline from the COVID peak, but spending on pets remains resilient, with pet parents less likely to reduce spending in a recessionary environment [7][6] Company Strategy and Development Direction - The company is focused on a multi-year cost and simplicity program aimed at reducing costs and simplifying operations, including the sale of its independent garden center distribution business [5][33] - The strategy includes optimizing procurement, logistics, manufacturing, and administrative costs to drive higher margins and support organic growth and M&A [32][122] - The company plans to close its Portland, Oregon garden distribution facility by the end of the calendar year as part of its simplification efforts [116] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the competitive strength of the company and the long-term growth trends in the pet and garden industries [117][122] - The fourth quarter is off to a good start, with expectations that the focus on cost and cash will continue to yield benefits [10] - Management acknowledged challenges in the pet durables category due to a decline in pet ownership but remains optimistic about the long-term outlook for the pet industry [69][83] Other Important Information - The company incurred $14 million in one-time charges related to the closure of its pet bedding facility, with expected annual benefits of $4 million to $6 million [11] - Total debt remained at $1.2 billion, with a gross leverage ratio of 3.1 times, well within the target range [14] Q&A Session Summary Question: Can you elaborate on the exit from the distribution business? - The company is exiting the independent garden center distribution business, which represents less than 5% of total garden sales and was complex to manage. The focus will shift to core competencies and distribution for larger retailers [21][33] Question: How is the grass seed business performing? - The grass seed business gained share in the first half of the year and held share in Q3, with overall POS growth in the mid-single digits for the full year [25][37] Question: What are the expectations for gross margin going forward? - The majority of gross margin improvement was driven by pricing, with ongoing cost savings initiatives also contributing. The company remains focused on expanding margins [48] Question: How is inventory destocking progressing? - Retail inventories are down high single digits year-over-year, indicating significant destocking. The company feels well-positioned going into fiscal 2024 [54][55] Question: What is the outlook for M&A activity? - The M&A environment has been slow but is showing signs of improvement. The company remains patient and is accumulating cash to pursue the right opportunities [90]

Our business is seasonal and our working capital requirements and capital resources track closely to this seasonal pattern. Generally, during the first fiscal quarter, accounts receivable reach their lowest level while inventory, accounts payable and short-term borrowings begin to increase. During the second fiscal quarter, receivables, accounts payable and short-term borrowings increase, reflecting the build-up of inventory and related payables in anticipation of the peak lawn and garden selling season. Du ...

Central Garden & Pet Company (NASDAQ:CENT) Q2 2023 Earnings Conference Call May 3, 2023 4:30 PM ET Company Participants Friederike Edelmann - VP of IR Tim Cofer - CEO Niko Lahanas - CFO JD Walker - President of Garden Consumer Products John Hanson - President of Pet Consumer Products Conference Call Participants Bill Chappell - Truist Securities Brad Thomas - KeyBanc Capital Markets Andrea Teixeira - JPMorgan Hale Holden - Barclays Carla Casella - JPMorgan Karru Martinson - Jefferies Operator Ladies ...

PART I. FINANCIAL INFORMATION [Item 1. Financial Statements (Unaudited)](index=5&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) The unaudited condensed consolidated financial statements for the three and six months ended March 25, 2023, reflect a decline in financial performance, with decreased sales and net income, stable assets, and reduced cash [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of March 25, 2023, total assets remained stable at $3.35 billion, while cash decreased significantly to $60.6 million, and total equity increased to $1.37 billion Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 25, 2023 | March 26, 2022 | September 24, 2022 | | :--- | :--- | :--- | :--- | | **Total current assets** | $1,653,875 | $1,623,887 | $1,553,854 | | **Total assets** | $3,350,798 | $3,349,258 | $3,282,002 | | **Total current liabilities** | $475,949 | $570,749 | $465,892 | | **Long-term debt** | $1,212,053 | $1,185,456 | $1,186,245 | | **Total equity** | $1,372,247 | $1,294,333 | $1,334,712 | [Condensed Consolidated Statements of Operations](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) For the second quarter and six months ended March 25, 2023, net sales, net income, and diluted EPS all decreased year-over-year, reflecting a decline in operational profitability Statement of Operations Summary (in thousands, except per share amounts) | Metric | Three Months Ended Mar 25, 2023 | Three Months Ended Mar 26, 2022 | Six Months Ended Mar 25, 2023 | Six Months Ended Mar 26, 2022 | | :--- | :--- | :--- | :--- | :--- | | **Net sales** | $909,004 | $954,370 | $1,536,667 | $1,615,768 | | **Gross profit** | $259,638 | $286,792 | $431,337 | $484,988 | | **Operating income** | $78,041 | $106,845 | $78,447 | $133,059 | | **Net income** | $48,115 | $69,713 | $39,682 | $78,722 | | **Diluted EPS** | $0.90 | $1.27 | $0.74 | $1.44 | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the six months ended March 25, 2023, net cash used in operating activities significantly improved to $97.1 million, while investing activities decreased cash usage, and financing activities provided cash Cash Flow Summary - Six Months Ended (in thousands) | Cash Flow Activity | March 25, 2023 | March 26, 2022 | | :--- | :--- | :--- | | **Net cash used by operating activities** | $(97,072) | $(272,081) | | **Net cash used in investing activities** | $(30,828) | $(77,237) | | **Net cash provided (used) by financing activities** | $8,641 | $(23,014) | | **Net decrease in cash** | $(118,102) | $(372,764) | [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) The notes provide details on accounting policies, long-term debt composition, segment performance, an ongoing legal contingency, and a subsequent event regarding a facility closure - Total inventories increased to **$966.9 million** as of March 25, 2023, up from **$888.1 million** in the prior year, driven by a significant increase in work in progress[41](index=41&type=chunk) Long-Term Debt Composition (in thousands) | Debt Instrument | March 25, 2023 | | :--- | :--- | | 5.125% Senior notes due 2028 | $300,000 | | 4.125% Senior notes due 2030 | $500,000 | | 4.125% Senior notes due 2031 | $400,000 | | Asset-based revolving credit facility | $25,000 | | **Total** | **$1,212,323** | Segment Net Sales (in thousands) | Segment | Three Months Ended Mar 25, 2023 | Three Months Ended Mar 26, 2022 | | :--- | :--- | :--- | | Pet segment | $475,203 | $497,640 | | Garden segment | $433,801 | $456,730 | | **Total net sales** | **$909,004** | **$954,370** | - In April 2023, the company announced the closure of a manufacturing and distribution facility in Athens, Texas, expected to result in a one-time charge of approximately **$15 million** in the third fiscal quarter[59](index=59&type=chunk)[82](index=82&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=28&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes the 4.8% decline in second-quarter net sales to lower volumes in both Pet and Garden segments, leading to gross margin contraction and a significant decrease in operating income Q2 Fiscal 2023 vs Q2 Fiscal 2022 Performance | Metric | Q2 2023 | Q2 2022 | Change | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $909.0M | $954.4M | $(45.4)M | (4.8)% | | Gross Profit | $259.6M | $286.8M | $(27.2)M | (9.5)% | | Gross Margin | 28.6% | 30.1% | (150) bps | N/A | | Operating Income | $78.0M | $106.8M | $(28.8)M | (27.0)% | | Net Income | $48.1M | $69.7M | $(21.6)M | (31.0)% | - The decline in Pet segment sales was primarily due to lower demand for durable products and the exit from some private label pet bed lines[60](index=60&type=chunk) - The Garden segment's sales decline was attributed to adverse weather, unfavorable pre-season retailer ordering, and lighter retail foot traffic[86](index=86&type=chunk) - The company continues to face inflationary pressure on key commodities, labor, and freight, which began in fiscal 2022 and is continuing in fiscal 2023[98](index=98&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=47&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company reported no material changes in its exposure to market risk since the information provided in its Annual Report on Form 10-K for the fiscal year ended September 24, 2022 - There has been no material change in the company's exposure to market risk since the last annual report filing[123](index=123&type=chunk) [Controls and Procedures](index=47&type=section&id=Item%204.%20Controls%20and%20Procedures) The CEO and principal financial officer concluded that disclosure controls and procedures were effective as of March 25, 2023, with no material changes to internal control over financial reporting during the quarter - The CEO and principal financial officer concluded that disclosure controls and procedures were effective as of the end of the period covered by the report[108](index=108&type=chunk) - No material changes to the company's internal control over financial reporting occurred during the second quarter of fiscal 2023[286](index=286&type=chunk) PART II. OTHER INFORMATION [Legal Proceedings](index=48&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in ongoing litigation with Nite Glow Industries, Inc. concerning a misappropriation claim, with a new trial on damages pending, which management believes will not materially impact financial statements - The company is engaged in a legal proceeding with Nite Glow Industries, Inc., where a Federal Circuit Court of Appeals decision ordered a new trial on damages for a single claim of misappropriation of confidential information[57](index=57&type=chunk)[287](index=287&type=chunk) - Management intends to vigorously defend its position and believes the ultimate resolution of the Nite Glow matter will not have a material impact on the company's consolidated financial statements[57](index=57&type=chunk)[287](index=287&type=chunk) [Risk Factors](index=48&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the company's risk factors since those disclosed in its Form 10-K for the fiscal year ended September 24, 2022 - No material changes to risk factors have occurred since the last annual report filing[125](index=125&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=48&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) During the fiscal quarter ended March 25, 2023, the company repurchased **154,430** shares at an average price of **$37.63**, with **$94.6 million** remaining for future repurchases under the 2019 authorization Share Repurchases for Quarter Ended March 25, 2023 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Dec 25, 2022 - Jan 28, 2023 | 76,042 | $35.83 | | Jan 29, 2023 - Feb 25, 2023 | 38,883 | $40.64 | | Feb 26, 2023 - Mar 25, 2023 | 39,505 | $38.12 | | **Total** | **154,430** | **$37.63** | - As of March 25, 2023, the company had **$94.6 million** of authorization remaining under its 2019 Repurchase Authorization program[131](index=131&type=chunk) [Exhibits](index=51&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Quarterly Report on Form 10-Q, including supplemental indentures for senior notes, guarantor subsidiaries, and certifications by the Principal Executive and Financial Officers - Filed exhibits include supplemental indentures for the **5.125% Senior Notes due 2028**, **4.125% Senior Notes due 2030**, and **4.125% Senior Notes due 2031**[238](index=238&type=chunk)[274](index=274&type=chunk) - Certifications by the CEO and CFO pursuant to Section 302 and Section 1350 of the Sarbanes-Oxley Act were filed as exhibits[275](index=275&type=chunk)[292](index=292&type=chunk)[293](index=293&type=chunk)

Q1 FY23 Financials, FY23 Outlook Niko Lahanas, CFO | --- | --- | |--------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------| | Forward-looking Statements | | | This presentation includes "forward-looking statements." Forward | -looking statements include statements concerning our | | plans, objectives, goals, strategies, future events, future revenues or performance, capital ...

There have been no material changes to our critical accounting policies, estimates and assumptions or the judgments affecting the application of those accounting policies since our Annual Report on Form 10-K for the fiscal year ended September 24, 2022. Item 3. Quantitative and Qualitative Disclosures About Market Risk There has been no material change in our exposure to market risk from that discussed in our Annual Report on Form 10-K for the fiscal year ended September 24, 2022. 28 Item 4. Controls and Pr ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ________________________________________________________________________________________ FORM 10-K ☒ ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended September 24, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to ________ Commission File Number 1-33268 Central Garden & Pet Company (Ex ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _____________________________________________________________________________________________ FORM 10-Q (Mark One) ☑ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 25, 2022 or ☐ TRANSITION REPORT PURSUANT OF SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 001-33268 Central Garden & Pet Company ...