The Hain Celestial Group, Inc. (NASDAQ:HAIN) Q3 2022 Earnings Conference Call May 5, 2022 8:30 AM ET Company Participants Anna Kate Heller - Investor Relations Mark Schiller - President and Chief Executive Officer Chris Bellairs - Executive Vice President and Chief Financial Officer Conference Call Participants David Palmer - Evercore ISI Michael Lavery - Piper Sandler Alexia Howard - Bernstein Ken Goldman - JPMorgan Eric Larson - Seaport Research Partners Anthony Vendetti - Maxim Group John Baumgartner - M ...

Table of Contents 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 December 31, 2021 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 No. 0-22818 __________________ ...

Second Quarter Fiscal Year 2022 Earnings Call February 3, 2022 Forward-Looking Statements This presentation contains forward-looking statements within the meaning of safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements involve risks, uncertainties and assumptions. If the risks or uncertainties ever materialize or the assumptions prove incorrect, our results may differ materially from those expressed or implied by such forward-looking statements. The words "believe, ...

Financial Data and Key Metrics Changes - The company reported a consolidated net sales decrease of 10% year-over-year to $477 million, with adjusted net sales down 2% compared to the prior year [39] - Adjusted EBITDA decreased 5% year-over-year to $59.3 million, while adjusted EBITDA margin increased by 66 basis points to 12.4% [43] - Adjusted EPS increased to $0.36 from $0.34 in the prior year period, benefiting from a lower adjusted tax rate of 19% compared to 24% [43] Business Line Data and Key Metrics Changes - North American net sales decreased about 3% year-over-year to $275 million, but adjusted for foreign exchange and divestitures, net sales increased about 1% [44] - The snacks category delivered close to 20% net sales growth versus the prior year, while tea and yogurt products grew close to 10% compared to two years ago [46] - International net sales decreased 18% on a reported basis, but adjusted net sales growth increased around 9% compared to two years ago, driven by growth brands [49][50] Market Data and Key Metrics Changes - In the U.S., consumption for all brands in measured channels was up over 10% compared to last year and 16% versus two years ago [14] - Internationally, adjusted net sales were impacted by Brexit-related stocking and increased regulations on baby food imports in China, but overall growth was seen in specific categories like baby and soup [17][18] Company Strategy and Development Direction - The company is focused on its Hain 3.0 strategy, emphasizing distribution expansion and innovation as key drivers for top-line acceleration [29] - Recent acquisition of ParmCrisps is expected to enhance the snacks business and provide significant distribution expansion opportunities [31][93] - The company plans to invest in marketing to drive awareness and household penetration across growth brands, with a focus on long-term growth despite short-term cost pressures [29][30] Management's Comments on Operating Environment and Future Outlook - Management acknowledged ongoing supply chain and labor challenges but expressed confidence in achieving significant EBITDA growth in the second half of the year due to productivity improvements and pricing actions [68][69] - The company expects low single-digit net sales growth for the year, with mid- to high single-digit growth anticipated in the second half, driven by North America [25][56] - Management noted that while inflationary pressures are expected to continue, they anticipate a normalization of costs as supply chain issues abate [108] Other Important Information - The company repurchased 2 million shares for approximately $90 million and announced an additional $200 million share repurchase authorization [55] - Operating cash flow for Q2 was $30 million, with capital spending at $10.2 million, reflecting lower spending due to supply chain challenges [52][53] Q&A Session Summary Question: Guidance for EBITDA growth and assumptions - Management indicated confidence in productivity and volume acceleration driving EBITDA growth, with visibility on cost of goods for the second half [68][69] Question: Inventory status and assumptions for the back half - Management reported strong inventories but acknowledged some supply disruptions, expecting improvements in the second half [70][71] Question: EU energy costs and implications - Management clarified that energy costs are locked in and significantly inflationary, impacting EBITDA guidance [77][78] Question: Pricing discussions with customers - In the U.S., pricing discussions are generally positive due to recognition of inflation, while international pricing discussions are more challenging due to contracts [79][80] Question: Outlook for net sales and supply chain risks - Management expressed high confidence in North American sales momentum, while international sales are expected to normalize as the market stabilizes [87][88] Question: ParmCrisps acquisition and future plans - The acquisition is expected to contribute nominally in the second half, with significant growth potential and distribution opportunities identified [91][93] Question: Expectations for inflation and supply chain costs - Management noted ongoing pricing opportunities and efforts to mitigate supply chain challenges, with expectations for costs to normalize in the fourth quarter [104][108]

Q1 2022 Financial Performance - Net sales decreased by 9% compared to Q1 2021[6] - Adjusted net sales growth was approximately 0%[6,9] - Adjusted EBITDA decreased by 14% compared to Q1 2021[6] - Adjusted gross margin decreased by 24 bps compared to Q1 2021[6] - Adjusted EPS was $025 in Q1 2021 and $008 in Q1 2020, but increased to $027 in Q1 2022[20] Segment Performance - North America net sales decreased by 54%[41] - International net sales decreased by 131%[41] - North America adjusted EBITDA was $24102 thousand[47] - International adjusted EBITDA was $32434 thousand[47] Growth and Strategy - US growth brands experienced strong consumption momentum, with growth of +176% compared to two years ago[16] - The company is reaffirming full year FY22 guidance, expecting mid-to-high single digit sales growth[5,21,25] - The company is actively addressing global supply chain challenges, labor shortages, and a highly inflationary environment with strong productivity and pricing[5]

Financial Data and Key Metrics Changes - Adjusted net sales for Q1 2022 were flat year-over-year, better than the guidance of a low- to mid-single-digit decline [7][25] - Adjusted EBITDA decreased by 14% year-over-year to $47 million, slightly better than the guidance of a mid to high-teens decline [28][39] - Adjusted gross margin saw a slight reduction due to industry-wide distribution and warehousing cost pressures, despite an overall gross margin increase of more than 300 basis points in September [26][27] Business Line Data and Key Metrics Changes - North America adjusted net sales decreased by 1% year-over-year, with a reported net sales decrease of 5% due to the lapping of elevated at-home food consumption and strong hand sanitizer sales in the prior year [8][30] - International adjusted net sales increased by 2% year-over-year, with a 14% increase compared to fiscal 2020, driven by strong performance in baby food and refrigerated soup brands [11][33] - Growth brands, which make up about 70% of North American sales, grew 1% year-over-year and 10% compared to two years ago, with strong double-digit consumption growth [9][13] Market Data and Key Metrics Changes - North American sales increased by 8% compared to Q1 2020 after adjusting for foreign exchange movements and divestitures [30] - International sales decreased by 13% on a reported basis but were up 2% when adjusted for currency movement and divestitures [33] - The turbocharged category in North America delivered close to 9% growth versus the prior year, driven by strong performance in the snacks business [31] Company Strategy and Development Direction - The company is focused on its Hain 3.0 strategy, aiming for consistent near double-digit growth in its growth brands [12][22] - Pricing actions have been implemented across virtually every brand in North America, with an average increase of about 6% to 10% [20][76] - The company plans to achieve close to $50 million in productivity savings this fiscal year through numerous active projects [21] Management Comments on Operating Environment and Future Outlook - Management expects to see accelerating sales momentum this fiscal year, supported by significant distribution gains and merchandising events [22][39] - The company anticipates additional inflation costs of $20 million to $25 million this year, with plans to take further pricing actions to offset these costs [15][39] - Management expressed confidence in the company's ability to deliver adjusted top-line and EBITDA growth despite macro challenges [39][40] Other Important Information - The company repurchased 4.5 million shares during the quarter, totaling $175.6 million, with $207 million remaining under the repurchase authorization [37] - Operating cash flow for Q1 was $38 million, a decrease of 8% year-over-year, but an improvement relative to the adjusted EBITDA decrease [35][36] Q&A Session Summary Question: Can you provide clarity on the EBIT margin in international for the second quarter? - Management expects gross margin improvement for international in Q2, but not to the same level as Q1 due to rising ingredient inflation [45][46] Question: How are you managing pricing and volume in light of inflation? - The company is successfully passing on pricing to retailers, with low elasticities observed, but additional inflation has been more than anticipated [54][76] Question: What is the current situation regarding freight costs? - Freight costs are a significant issue, with both inflation and ancillary costs impacting the business, but the company is making progress in filling trucks to reduce costs [66][70] Question: How is the company handling new product launches amid current challenges? - The company is successfully launching new products in North America, although Europe faces more challenges due to labor shortages and Brexit-related issues [78][79] Question: What percentage of sales is coming from new products in Q1? - New products accounted for about 6.5% of sales in Q1, up from 1% in FY'20 and 3.5% in FY'21 [82] Question: How is the labor situation evolving? - The company has filled about two-thirds of open positions and has made significant progress in staffing distribution and manufacturing facilities [86][87]

Financial Performance - Net sales for the three months ended September 30, 2021 were $454.9 million, a decrease of $43.7 million, or 8.8%, compared to $498.6 million in the same period of 2020[143] - Gross profit for the three months ended September 30, 2021 was $105.4 million, a decrease of $13.7 million, or 11.5%, with a gross profit margin of 23.2% compared to 23.9% in the prior year[144] - Operating income for the three months ended September 30, 2021 was $25.5 million, significantly up from $3.3 million in the prior year quarter, reflecting improved operational efficiency[149] - The company reported net income from continuing operations of $19.4 million, compared to a net loss of $10.8 million in the prior year, marking a significant turnaround[142] - Net income from continuing operations for the three months ended September 30, 2021 was $19.4 million, or $0.20 per diluted share, compared to a net loss of $10.8 million, or $0.11 per diluted share, for the same period in 2020[157] - The company reported a net income of $19.4 million for the three months ended September 30, 2021, compared to a net income of $0.5 million in the same period of 2020[185] Expenses and Costs - Selling, general and administrative expenses decreased to $74.0 million, down $5.5 million, or 7.0%, from $79.5 million in the prior year quarter[145] - Productivity and transformation costs increased to $4.0 million, up $2.6 million from $1.4 million in the prior year quarter, primarily due to consulting fees for supply chain optimization[147] - Adjusted EBITDA for the three months ended September 30, 2021 was $47.3 million, a decrease of $7.6 million, or 13.8%, from $54.9 million in the prior year[142] - Adjusted EBITDA decreased to $47.3 million for the three months ended September 30, 2021, down from $54.9 million in the prior year[161] - Operating Free Cash Flow from continuing operations for the three months ended September 30, 2021, was $19.8 million, compared to $28.5 million for the same period in 2020[188] Sales Performance by Region - Net sales in North America for the three months ended September 30, 2021 were $265.5 million, a decrease of $15.1 million, or 5.4%, from $280.7 million in the prior year[163] - International net sales decreased to $189.4 million, down $28.6 million, or 13.1%, from $218.0 million in the prior year, but increased 1.6% on a constant currency basis[164] - The net sales decline in North America was 5.4%, while the decline in international markets was 13.1% for the three months ended September 30, 2021[181] - The impact of foreign currency exchange on net sales was a negative 2.0% for the three months ended September 30, 2021[181] Cash Flow and Investments - Cash flows provided by operating activities from continuing operations were $37.6 million, a decrease of $3.1 million from $40.7 million in the prior year[171] - Cash used in investing activities increased to $18.1 million, up $10.3 million from $7.7 million in the prior year due to increased capital expenditures[172] - Cash used in financing activities was $63.5 million, an increase of $27.6 million compared to $36.0 million in the prior year, primarily due to share repurchases[173] - The company repurchased 4.525 million shares for a total of $175.6 million at an average price of $38.80 per share during the three months ended September 30, 2021[175] Strategic Initiatives - The company is focused on simplifying its brand portfolio and identifying declining brands for potential divestiture as part of its Hain 3.0 strategy[138] - The company plans to actively seek acquisitions to strengthen its position in targeted categories, supported by its borrowing capacity[138] Miscellaneous - The COVID-19 pandemic initially increased demand for the company's products, but net sales have since normalized, impacting overall performance[139] - The impact of divestitures and discontinued brands on net sales was a positive contribution of 10.7% for the three months ended September 30, 2021[181] - The company did not have any off-balance sheet arrangements that could materially affect its consolidated financial statements as of September 30, 2021[189] - There were no changes in internal controls over financial reporting that materially affected the company during the three months ended September 30, 2021[196] - The company believes that capital spending is essential for maintaining operational capabilities, impacting the evaluation of cash available for discretionary investments[186]

Part I [Business](index=6&type=section&id=Item%201.%20Business) Hain Celestial Group markets organic and natural products, strategically simplifying its portfolio and expanding margins - The company's strategy is built on **four key pillars**: (1) **simplifying its portfolio**, (2) **strengthening capabilities**, (3) **expanding profit margins and cash flow**, and (4) **reinvigorating profitable topline growth**, including classifying brands into **"Get Bigger"** and **"Get Better"** categories[21](index=21&type=chunk)[22](index=22&type=chunk)[23](index=23&type=chunk) - As part of its portfolio simplification, the company has actively **divested several businesses and brands** in recent fiscal years, including Hain Pure Protein (FY2019), Tilda (FY2020), and Danival, UK fruit businesses, WestSoy, Dream, and GG UniqueFiber brands (FY2021)[24](index=24&type=chunk) Net Sales by Product Category (FY2019-2021) | Product Category | FY2021 % of Net Sales | FY2020 % of Net Sales | FY2019 % of Net Sales | | :--- | :--- | :--- | :--- | | Grocery | 67% | 69% | 72% | | Snacks | 16% | 15% | 14% | | Personal Care | 10% | 10% | 10% | | Tea | 7% | 6% | 5% | Net Sales by Reportable Segment (FY2019-2021) | Segment | 2021 Net Sales ($M) | 2021 % of Total | 2020 Net Sales ($M) | 2020 % of Total | 2019 Net Sales ($M) | 2019 % of Total | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | North America | $1,104.1 | 56% | $1,171.5 | 57% | $1,196.0 | 57% | | International | $866.2 | 44% | $882.4 | 43% | $908.6 | 43% | | **Total** | **$1,970.3** | **100%** | **$2,053.9** | **100%** | **$2,104.6** | **100%** | - The company has significant customer concentration, with Walmart Inc. and its affiliates accounting for approximately **11% of consolidated sales** in fiscal 2021, and United Natural Foods, Inc. accounting for approximately **8%**[66](index=66&type=chunk)[67](index=67&type=chunk) - In fiscal 2021, approximately **61% of revenue** was derived from products manufactured at the company's own facilities, with the remaining **39%** from independent third-party contract manufacturers (co-packers)[73](index=73&type=chunk)[76](index=76&type=chunk) [Risk Factors](index=17&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks from competition, supply chain, customer concentration, international markets, and goodwill impairment - The company operates in a highly competitive market, facing pressure from large multinational corporations with greater resources and smaller, innovative organic and natural brands[101](index=101&type=chunk)[102](index=102&type=chunk) - A significant percentage of sales is concentrated with a small number of customers, with Walmart accounting for **11% of sales** and United Natural Foods, Inc. for **8%** in FY2021, making the loss of a major customer a potential negative impact[112](index=112&type=chunk)[114](index=114&type=chunk)[115](index=115&type=chunk) - Approximately **52% of consolidated sales** in FY2021 were generated outside the United States, exposing the company to risks such as foreign currency fluctuations, tariffs, and complex foreign laws like GDPR[120](index=120&type=chunk) - The company is exposed to continued uncertainty following Brexit, as approximately **31% of FY2021 consolidated sales** were generated in the U.K., potentially disrupting relationships and adding administrative costs[139](index=139&type=chunk) - The company faces pending litigation, including securities class actions related to a prior internal accounting review and consumer class actions alleging unsafe levels of heavy metals in its Earth's Best baby food products[148](index=148&type=chunk)[152](index=152&type=chunk) - As of June 30, 2021, goodwill and other intangible assets represented **54% of total consolidated assets**, meaning an impairment could materially and adversely affect financial results and net worth[162](index=162&type=chunk)[163](index=163&type=chunk) [Properties](index=29&type=section&id=Item%202.%20Properties) The company operates numerous owned and leased facilities across North America and internationally for manufacturing and distribution Principal Facilities | Primary Use | Location | Ownership | Approximate Square Feet | | :--- | :--- | :--- | :--- | | Headquarters | Lake Success, NY | Leased | 86,000 | | Manufacturing (Tea) | Boulder, CO | Owned | 158,000 | | Manufacturing (Snacks) | Mountville, PA | Leased | 160,000 | | Manufacturing (Personal Care) | Bell, CA | Leased | 125,000 | | Manufacturing (Ambient Grocery) | Histon, England | Owned | 303,000 | | Manufacturing (Plant-based) | Schwerin, Germany | Owned | 527,000 | [Legal Proceedings](index=29&type=section&id=Item%203.%20Legal%20Proceedings) The company is involved in securities class actions and consumer lawsuits alleging unsafe heavy metals in baby food products - Information regarding legal proceedings is incorporated by reference from Note 19 of the financial statements[169](index=169&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=31&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity,%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Common stock trades on Nasdaq, no cash dividends, with active share repurchases under authorized programs - The company has not paid any cash dividends on its common stock to date, and future payments are at the discretion of the Board of Directors[175](index=175&type=chunk) Share Repurchases (Q4 FY2021) | Period | Total Shares Purchased | Average Price Paid | Value ($M) | | :--- | :--- | :--- | :--- | | April 2021 | 242,040 | $41.39 | ~$10.0 | | May 2021 | 178,061 | $39.86 | ~$7.1 | | June 2021 | 252,317 | $39.88 | ~$10.1 | | **Total Q4** | **672,418** | **$40.41** | **$27.2** | - As of June 30, 2021, **$82.4 million** remained under the 2017 share repurchase authorization, and an additional **$300 million** authorization was approved in August 2021[180](index=180&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=33&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) FY2021 net sales decreased, but gross margin improved to 25.0% and operating income surged 91.6% due to productivity [Results of Operations](index=35&type=section&id=Results%20of%20Operations) FY2021 net sales decreased 4.1% to $1.97 billion, while gross profit increased 5.5% and operating income surged 91.6% Consolidated Results of Operations (FY2021 vs. FY2020) | Metric | FY 2021 ($M) | FY 2020 ($M) | Change ($M) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net Sales | 1,970.3 | 2,053.9 | (83.6) | (4.1)% | | Gross Profit | 491.6 | 465.8 | 25.8 | 5.5% | | *Gross Margin* | *25.0%* | *22.7%* | *N/A* | *+230 bps* | | Operating Income | 107.4 | 56.0 | 51.3 | 91.6% | | Net Income from Continuing Ops | 66.1 | 25.6 | 40.5 | 157.9% | | Adjusted EBITDA | 258.9 | 200.0 | 58.9 | 29.5% | - On a constant currency basis, adjusted for divestitures and discontinued brands, net sales decreased approximately **0.6%** in FY2021 compared to FY2020[198](index=198&type=chunk) - The increase in gross profit margin in FY2021 was driven by lower costs from the Fruit business divestiture, reduced trade spend, supply chain efficiencies, and benefits from productivity initiatives in North America[199](index=199&type=chunk) - SG&A expenses decreased by **7.8%** in FY2021 due to lower broker trade expense, reduced salaries and benefits from reorganization and divestitures, and lower marketing and bonus expenses[200](index=200&type=chunk) Consolidated Results of Operations (FY2020 vs. FY2019) | Metric | FY 2020 ($M) | FY 2019 ($M) | Change ($M) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net Sales | 2,053.9 | 2,104.6 | (50.7) | (2.4)% | | Gross Profit | 465.8 | 398.5 | 67.3 | 16.9% | | *Gross Margin* | *22.7%* | *18.9%* | *N/A* | *+380 bps* | | Operating Income (Loss) | 56.0 | (32.5) | 88.5 | (272.5)% | | Net Income (Loss) from Continuing Ops | 25.6 | (53.4) | 79.1 | (148.0)% | | Adjusted EBITDA | 200.0 | 165.1 | 34.9 | 21.1% | [Liquidity and Capital Resources](index=47&type=section&id=Liquidity%20and%20Capital%20Resources) FY2021 cash and equivalents increased to $75.9 million, with $196.8 million from operations, funding debt and share repurchases Summary of Cash Flows (FY2019-2021) | (in thousands) | FY 2021 | FY 2020 | FY 2019 | | :--- | :--- | :--- | :--- | | Cash from Operating Activities | $196,759 | $156,914 | $39,333 | | Cash from Investing Activities | $(2,364) | $(45,128) | $(68,647) | | Cash from Financing Activities | $(162,443) | $(104,466) | $(22,846) | | **Net Change in Cash** | **$38,100** | **$(1,755)** | **$(73,491)** | - The increase in cash from operating activities in FY2021 was primarily due to a **$32.8 million** improvement in net income adjusted for non-cash charges and a **$7.0 million** increase in cash provided by working capital[270](index=270&type=chunk) - Cash used in financing activities in FY2021 included **$50.0 million** of net repayments on the revolving credit facility and **$106.1 million** of share repurchases[272](index=272&type=chunk) - During FY2021, the company repurchased **3.1 million shares** for **$107.4 million** at an average price of **$34.87 per share**[276](index=276&type=chunk) [Critical Accounting Estimates](index=53&type=section&id=Critical%20Accounting%20Estimates) Critical accounting estimates include revenue recognition, goodwill impairment testing, and valuation allowances for deferred tax assets - Revenue recognition requires significant estimates for variable consideration, including trade promotions and sales incentives, based on historical performance, redemption rates, and current trends[301](index=301&type=chunk) - Goodwill and indefinite-lived intangible assets are tested for impairment annually, with fair values estimated using discounted cash flows and market valuation approaches, requiring significant management judgment on growth rates, profitability, and discount rates[307](index=307&type=chunk) - In the FY2021 annual goodwill impairment analysis, the estimated fair value of the Hain U.S. reporting unit exceeded its carrying value by **110%**, and the Hain Canada reporting unit's fair value exceeded its carrying value by **230%**, indicating no impairment[310](index=310&type=chunk) - The company must assess the realizability of its deferred tax assets, recording a valuation allowance if it is "more likely than not" that the assets will not be realized, with a valuation allowance of **$37.5 million** as of June 30, 2021[315](index=315&type=chunk)[469](index=469&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=58&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company faces market risks from interest rates, foreign currency, and ingredient prices, managed through swaps and cost adjustments - As of June 30, 2021, the company had **$230 million of variable rate debt**, with the interest rate risk hedged via interest rate swaps for the same notional amount[320](index=320&type=chunk) - In fiscal 2021, **52% of consolidated net sales** were from outside the U.S., and a hypothetical **5% weakening of foreign exchange rates** against the U.S. Dollar would have decreased net sales by approximately **$53.2 million** and operating income by **$3.0 million**[322](index=322&type=chunk) - The company is exposed to price volatility for ingredient inputs like almonds, oils, and grains, and a hypothetical **10% increase** in the cost of primary inputs would have increased cost of sales by approximately **$103 million** in fiscal 2021[324](index=324&type=chunk) [Financial Statements and Supplementary Data](index=59&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents audited consolidated financial statements and notes, with an unqualified auditor's opinion on financials and internal controls [Report of Independent Registered Public Accounting Firm](index=60&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) Ernst & Young LLP issued an unqualified opinion on the financial statements and internal controls, identifying revenue recognition as a critical audit matter - The independent auditor, Ernst & Young LLP, issued an **unqualified (clean) opinion** on the company's consolidated financial statements and its internal control over financial reporting[328](index=328&type=chunk)[329](index=329&type=chunk) - The audit identified Revenue Recognition as a **Critical Audit Matter**, specifically highlighting the complexity and significant management estimates involved in accounting for trade promotions and sales incentives[332](index=332&type=chunk)[334](index=334&type=chunk)[335](index=335&type=chunk) [Consolidated Financial Statements](index=62&type=section&id=Consolidated%20Financial%20Statements) FY2021 total assets were $2.21 billion, with net income of $77.4 million, reversing a prior year loss, and goodwill at $871.1 million Consolidated Balance Sheet Data (in thousands) | | June 30, 2021 | June 30, 2020 | | :--- | :--- | :--- | | Total Current Assets | $577,055 | $560,934 | | Goodwill | $871,067 | $861,958 | | **Total Assets** | **$2,205,908** | **$2,188,452** | | Total Current Liabilities | $290,434 | $300,277 | | Long-Term Debt | $230,492 | $281,118 | | **Total Liabilities** | **$683,025** | **$744,898** | | **Total Stockholders' Equity** | **$1,522,883** | **$1,443,554** | Consolidated Statement of Operations Data (in thousands) | | FY 2021 | FY 2020 | FY 2019 | | :--- | :--- | :--- | :--- | | Net Sales | $1,970,302 | $2,053,903 | $2,104,606 | | Gross Profit | $491,615 | $465,770 | $398,497 | | Operating Income (Loss) | $107,380 | $56,042 | $(32,493) | | Net Income (Loss) | $77,364 | $(80,407) | $(183,314) | | Diluted EPS | $0.76 | $(0.77) | $(1.76) | [Notes to Consolidated Financial Statements](index=68&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Notes detail FY2021 dispositions, $871.1 million goodwill, $231.0 million debt, tax rate impacts, and ongoing baby food litigation - In FY2021, the company completed the divestiture of its GG UniqueFiber, Dream and WestSoy, and Fruit businesses, recognizing a pre-tax gain on the Dream/WestSoy sale and pre-tax losses on the GG and Fruit sales[408](index=408&type=chunk)[409](index=409&type=chunk)[411](index=411&type=chunk) - The disposition of the Tilda operating segment in FY2020 and the Hain Pure Protein reportable segment in FY2019 were accounted for as discontinued operations due to their significant strategic impact[417](index=417&type=chunk)[421](index=421&type=chunk) - The annual goodwill impairment test for FY2021 concluded that no impairment existed at any reporting units, with the goodwill balance as of June 30, 2021, being **$871.1 million**[438](index=438&type=chunk) - As of June 30, 2021, the company had **$230.0 million** outstanding under its revolving credit facility and was in compliance with all debt covenants[451](index=451&type=chunk)[454](index=454&type=chunk) - The company is facing **29 active consumer class action lawsuits** and **four personal injury lawsuits** alleging its Earth's Best baby food products contain unsafe levels of heavy metals, stemming from a February 2021 U.S. House Subcommittee report[532](index=532&type=chunk)[534](index=534&type=chunk) [Controls and Procedures](index=107&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management and the CEO/CFO concluded disclosure controls and internal control over financial reporting were effective as of June 30, 2021 - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of June 30, 2021[551](index=551&type=chunk) - Management concluded that the company's internal control over financial reporting was effective as of June 30, 2021, based on the criteria established in the COSO framework[555](index=555&type=chunk) - Ernst & Young LLP, the independent auditor, issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of June 30, 2021[556](index=556&type=chunk)[560](index=560&type=chunk) Part III [Directors, Executive Compensation, and Corporate Governance](index=111&type=section&id=Item%2010,%2011,%2012,%2013,%2014) Information on directors, executive compensation, and corporate governance is incorporated by reference from the upcoming Proxy Statement - Information regarding Directors, Executive Officers, Corporate Governance, Executive Compensation, Security Ownership, Certain Relationships and Related Transactions, and Principal Accountant Fees and Services is incorporated by reference from the company's upcoming Proxy Statement[571](index=571&type=chunk)[572](index=572&type=chunk)[573](index=573&type=chunk) Part IV [Exhibits and Financial Statement Schedules](index=111&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists financial statements, schedules, and exhibits, including credit agreements and executive employment contracts - This section contains the list of all financial statements, schedules, and exhibits filed with the Form 10-K, including credit agreements, stock plans, and executive contracts[577](index=577&type=chunk)[581](index=581&type=chunk) Schedule II - Valuation and Qualifying Accounts (FY2021, in thousands) | Description | Beginning Balance | Additions | Deductions | Ending Balance | | :--- | :--- | :--- | :--- | :--- | | Allowance for doubtful accounts | $638 | $348 | $328 | $1,314 | | Valuation allowance for deferred tax assets | $41,941 | $5,601 | $(10,089) | $37,453 |

Financial Data and Key Metrics Changes - Consolidated net sales decreased 12% year-over-year to $451 million, within guidance range of negative 11% to negative 14% [37] - Adjusted EBITDA increased 10% year-over-year to $68 million, with an adjusted EBITDA margin of 15%, representing a significant improvement of about 300 basis points year-over-year [42] - Adjusted EPS of $0.39 increased by 22% compared to $0.32 in the prior year period [43] Business Line Data and Key Metrics Changes - International business net sales decreased 7% year-over-year but were up 13% compared to Q4 2019, driven by growth in meat-free and non-dairy beverage categories [44][45] - North American net sales decreased 15% year-over-year to $253.3 million, but adjusted EBITDA was still up 16% compared to pre-pandemic Q4 2019 [48][52] - Get Bigger brands represented 71% of North American net sales, showing a 9% decrease in Q4 versus the prior year, but a 6% increase compared to Q4 2019 [52] Market Data and Key Metrics Changes - Adjusted gross margin improved by 49 basis points year-over-year, driven by supply chain productivity initiatives [39] - International adjusted EBITDA margin increased by more than 530 basis points to 19%, exceeding long-term targets [47] - North American adjusted gross margin decreased by 313 basis points year-over-year but was still up compared to Q4 2019 [51] Company Strategy and Development Direction - The company expects low single-digit adjusted net sales growth for fiscal year 2022, with mid to high single-digit adjusted EBITDA growth [61] - The fiscal year 2022 plan is built on assumptions of stable inflation, successful innovation, and minimal short-term impact from COVID variants [26][28] - The company is focusing on productivity initiatives and pricing strategies to offset inflation and drive margin expansion [26][30] Management Comments on Operating Environment and Future Outlook - Management acknowledged challenges from high inflation, labor shortages, and COVID overlaps but expressed optimism about navigating these issues [10][17] - The company anticipates a softer first half of fiscal year 2022, with stronger performance expected in the second half [29][30] - Management highlighted strong underlying business health, with acceleration in consumption and successful innovation [99] Other Important Information - Operating cash flow for Q4 was $50 million, with full-year operating cash flow increasing by 25% year-over-year [55] - The company repurchased $27.2 million of shares during the quarter, with an additional $82 million remaining under the repurchase authorization [59] - The balance sheet remains strong, with cash on hand at $76 million and net debt at $155 million [57] Q&A Session Summary Question: Cost inflation and productivity in fiscal '22 - Management expects higher inflation in fiscal '22 compared to Q4, but robust pricing and productivity initiatives are anticipated to drive margin expansion [73] Question: Supply chain capacity constraints - The main challenge is on the pickup side for distribution, with transportation costs being inflationary [84] Question: Year-over-year EBITDA decline in Q1 - The decline is primarily due to lapping 70% EBITDA growth from the previous year, with lower revenue impacting gross profit dollars [98] Question: Innovation and distribution gains - Innovation has significantly increased, with TDPs up 7% versus a year ago, and management expects continued distribution gains [111] Question: SKU rationalization status - SKU rationalization is largely behind, with minimal ongoing rationalization, focusing on refining the portfolio as new innovations are introduced [117]

Fourth Quarter Fiscal Year 2021 Earnings Call August 26, 2021 0 Safe Harbor Statement 1 Safe Harbor Statement Certain statements contained in this presentation constitute "forward-looking statements" within the meaning of federal securities laws, including the Private Securities Litigation Reform Act of 1995. Forward-looking statements are predictions based on expectations and projections about future events and are not statements of historical fact. You can identify forward-looking statements by the use of ...