Hain Celestial(HAIN) - 2024 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION This section provides detailed financial statements and management's discussion and analysis for the Company's operations ITEM 1. FINANCIAL STATEMENTS This section presents the unaudited consolidated financial statements for The Hain Celestial Group, Inc. and its subsidiaries for the three months ended September 30, 2023 and 2022, including balance sheets, statements of operations, comprehensive loss, stockholders' equity, and cash flows, along with detailed notes explaining business operations, accounting policies, and specific financial line items Consolidated Balance Sheets This section provides a snapshot of the Company's assets, liabilities, and equity at specific points in time Consolidated Balance Sheet Highlights (September 30, 2023 vs. June 30, 2023) | Metric | Sep 30, 2023 (in thousands) | Jun 30, 2023 (in thousands) | | :-------------------------------- | :-------------------------- | :-------------------------- | | Cash and cash equivalents | $38,280 | $53,364 | | Total current assets | $565,753 | $591,031 | | Total assets | $2,216,896 | $2,258,639 | | Total current liabilities | $246,590 | $230,867 | | Total liabilities | $1,235,902 | $1,240,732 | | Total stockholders' equity | $980,994 | $1,017,907 | Consolidated Statements of Operations This section details the Company's revenues, expenses, and net income or loss over a specific period Consolidated Statements of Operations Highlights (Three Months Ended September 30) | Metric (in thousands) | 2023 | 2022 | Change ($) | Change (%) | | :-------------------- | :---------- | :---------- | :---------- | :--------- | | Net sales | $425,029 | $439,351 | $(14,322) | (3.3)% | | Gross profit | $83,943 | $94,335 | $(10,392) | (11.0)% | | Operating (loss) income | $(2,278) | $15,823 | $(18,101) | * | | Net (loss) income | $(10,376) | $6,923 | $(17,299) | * | | Basic EPS | $(0.12) | $0.08 | $(0.20) | * | | Diluted EPS | $(0.12) | $0.08 | $(0.20) | * | * Percentage is not meaningful due to one or more numbers being negative. Consolidated Statements of Comprehensive Loss This section presents the total comprehensive loss, including net loss and other comprehensive loss items Consolidated Statements of Comprehensive Loss Highlights (Three Months Ended September 30) | Metric (in thousands) | 2023 | 2022 | | :-------------------- | :---------- | :---------- | | Net (loss) income | $(10,376) | $6,923 | | Total other comprehensive loss | $(29,407) | $(52,462) | | Total comprehensive loss | $(39,783) | $(45,539) | Consolidated Statement of Stockholders' Equity This section outlines the changes in the Company's equity attributable to stockholders over a period Changes in Stockholders' Equity (Three Months Ended September 30, 2023) | Metric (in thousands) | Balance at Jun 30, 2023 | Net Loss | Other Comprehensive Loss | Stock-based Compensation Expense | Balance at Sep 30, 2023 | | :-------------------- | :---------------------- | :------- | :----------------------- | :------------------------------- | :---------------------- | | Total Stockholders' Equity | $1,017,907 | $(10,376) | $(29,407) | $3,742 | $980,994 | Consolidated Statements of Cash Flows This section summarizes the cash inflows and outflows from operating, investing, and financing activities Consolidated Statements of Cash Flows Highlights (Three Months Ended September 30) | Activity (in thousands) | 2023 | 2022 | | :---------------------- | :---------- | :---------- | | Operating activities | $14,030 | $(5,116) | | Investing activities | $(5,649) | $(6,928) | | Financing activities | $(17,584) | $9,824 | | Net decrease in cash and cash equivalents | $(15,084) | $(13,718) | Notes to Consolidated Financial Statements This section provides detailed explanations and additional information supporting the consolidated financial statements Note 1. Business This note describes the Company's primary business operations and reportable segments - The Hain Celestial Group, Inc. is a leading marketer, manufacturer, and seller of organic and natural, 'better-for-you' products, operating under two reportable segments: North America and International[28] Note 2. Basis of Presentation This note outlines the accounting principles and policies used in preparing the financial statements - The unaudited consolidated financial statements are prepared in accordance with U.S. GAAP for interim financial information and reflect all normal recurring adjustments, with a recently adopted accounting pronouncement having no material impact[30][34] - The Company transferred accounts receivable in their entirety to third-party buyers under non-recourse financing arrangements, with principal amounts sold of $86.5 million and $83.7 million for the three months ended September 30, 2023 and 2022, respectively[33] Note 3. (Loss) Earnings Per Share This note details the calculation of basic and diluted earnings per share Net (Loss) Income Per Common Share (Three Months Ended September 30) | Metric | 2023 | 2022 | | :----- | :---------- | :---------- | | Basic | $(0.12) | $0.08 | | Diluted | $(0.12) | $0.08 | - Due to a net loss in Q1 FY2024, all common stock equivalents were excluded from diluted EPS calculation as their effect would have been anti-dilutive[35] Note 4. Inventories This note provides a breakdown of the Company's inventory components Inventories (in thousands) | Category | Sep 30, 2023 | Jun 30, 2023 | | :-------------------------------- | :----------- | :----------- | | Finished goods | $199,043 | $192,007 | | Raw materials, work-in-progress, and packaging | $114,292 | $118,334 | | Total Inventories | $313,335 | $310,341 | Note 5. Property, Plant and Equipment, Net This note details the Company's property, plant, and equipment, including depreciation and impairment Property, Plant and Equipment, Net (in thousands) | Category | Sep 30, 2023 | Jun 30, 2023 | | :-------------------- | :----------- | :----------- | | Total PP&E (gross) | $529,600 | $537,843 | | Accumulated depreciation and impairment | $243,628 | $241,518 | | Net PP&E | $285,972 | $296,325 | - Depreciation expense for the three months ended September 30, 2023, increased to $9.8 million from $8.1 million in the prior year[38] - The Company completed the sale of a U.S. facility for $1.2 million cash proceeds, resulting in a $68 thousand loss[39] Note 6. Leases This note provides information on the Company's operating and finance lease arrangements Total Lease Expenses (Three Months Ended September 30) | Expense Type (in thousands) | 2023 | 2022 | | :-------------------------- | :---- | :---- | | Operating lease expenses | $4,578 | $4,975 | | Finance lease expenses | $37 | $69 | | Variable lease expenses | $182 | $180 | | Short-term lease expenses | $395 | $496 | | Total lease expenses | $5,192 | $5,720 | Lease Liabilities and ROU Assets (in thousands) | Metric | Sep 30, 2023 | Jun 30, 2023 | | :-------------------------- | :----------- | :----------- | | Operating lease ROU assets, net | $102,540 | $95,894 | | Total lease liabilities | $107,601 | $100,808 | - The weighted average remaining lease term for operating leases is 10.3 years (Sep 30, 2023) and 10.2 years (Sep 30, 2022), with weighted average discount rates of 5.1% and 4.5% respectively[43] Note 7. Goodwill and Other Intangible Assets This note details the Company's goodwill and other intangible assets, including changes and amortization Goodwill by Segment (in thousands) | Segment | Jun 30, 2023 | Translation | Sep 30, 2023 | | :------------ | :----------- | :---------- | :----------- | | North America | $697,053 | $(1,001) | $696,052 | | International | $241,587 | $(9,264) | $232,323 | | Total | $938,640 | $(10,265) | $928,375 | Other Intangible Assets (in thousands) | Category | Sep 30, 2023 | Jun 30, 2023 | | :-------------------------- | :----------- | :----------- | | Non-amortized intangible assets (Trademarks and tradenames) | $246,529 | $250,860 | | Net amortized intangible assets | $44,338 | $47,245 | | Net other intangible assets | $290,867 | $298,105 | - Amortization of acquired intangibles decreased to $2.0 million for the three months ended September 30, 2023, from $2.8 million in the prior year, primarily due to reduced amortization expenses from the impairment of ParmCrisps customer relationships[46][127] Note 8. Debt and Borrowings This note provides information on the Company's debt instruments and borrowing arrangements Debt and Borrowings (in thousands) | Category | Sep 30, 2023 | Jun 30, 2023 | | :-------------------------- | :----------- | :----------- | | Revolving credit facility | $530,000 | $541,000 | | Term loans | $286,875 | $288,750 | | Total debt | $814,969 | $828,748 | | Long-term debt, less current portion | $807,401 | $821,181 | - The Company entered into a Second Amendment to its Credit Agreement on August 22, 2023, providing for $1.1 billion in senior secured financing, consisting of $300 million in term loans and an $800 million revolving credit facility, both maturing on December 22, 2026[48] - As of September 30, 2023, the weighted average interest rate on outstanding borrowings was 7.86%, and the Company was in compliance with all associated financial covenants[49][51] Note 9. Income Taxes This note explains the Company's income tax expense, deferred taxes, and effective tax rate Effective Income Tax Rate (Three Months Ended September 30) | Period | Effective Income Tax Rate | | :----- | :------------------------ | | 2023 | 35.3% (benefit) | | 2022 | 26.5% (expense) | - The effective income tax rate for Q1 FY2024 increased due to tax expense related to stock-based compensation, GILTI, and limitations on executive compensation deductibility, also impacted by the geographical mix of earnings and state income taxes[56] Note 10. Accumulated Other Comprehensive Loss This note details the components and changes in accumulated other comprehensive loss Changes in Accumulated Other Comprehensive Loss (AOCL) (in thousands) | Metric | Balance at Jun 30, 2023 | Net Change (Q1 FY2024) | Balance at Sep 30, 2023 | | :-------------------------- | :---------------------- | :--------------------- | :---------------------- | | Foreign Currency Translation Adjustment, Net | $(138,028) | $(32,933) | $(170,961) | | Deferred Gains on Cash Flow Hedging Instruments, Net | $10,898 | $2,444 | $13,342 | | Total AOCL | $(126,216) | $(29,407) | $(155,623) | Note 11. Stock-Based Compensation and Incentive Performance Plans This note describes the Company's stock-based compensation programs and related expenses Stock-Based Compensation Expense (Three Months Ended September 30) | Expense Type (in thousands) | 2023 | 2022 | | :-------------------------- | :---- | :---- | | Selling, general and administrative expense | $3,742 | $3,994 | | Related income tax benefit | $456 | $402 | - As of September 30, 2023, there was $13.7 million of unrecognized stock-based compensation expense related to non-vested restricted stock awards, expected to be recognized over a weighted average period of 1.66 years[61] Restricted Stock Activity (Three Months Ended September 30, 2023) | Metric | Number of Shares and Units | | :-------------------------------- | :------------------------- | | Non-vested RSAs, RSUs and PSUs outstanding at June 30, 2023 | 1,288 | | Vested | (239) | | Forfeited | (23) |\ | Non-vested RSAs, RSUs and PSUs outstanding at September 30, 2023 | 1,026 | Note 12. Investments This note provides information on the Company's equity method investments - The Company holds equity method investments in Founders Table Restaurant Group, LLC (carrying value $7.7 million as of Sep 30, 2023) and Hutchison Hain Organic Holdings Limited (carrying value $4.6 million as of Sep 30, 2023)[63][64] Note 13. Financial Instruments Measured at Fair Value This note details financial instruments measured at fair value, including derivative assets and liabilities Derivative Financial Instruments Measured at Fair Value (in thousands) | Category | Sep 30, 2023 | Jun 30, 2023 | | :-------------------------- | :----------- | :----------- | | Asset Derivatives | $20,236 | $16,988 | | Liability Derivatives | $901 | $3,160 | - All derivatives held as of September 30, 2023, and June 30, 2023, were classified as Level 2 of the fair value hierarchy, indicating valuation using observable market-based inputs[68] Note 14. Derivatives and Hedging Activities This note describes the Company's use of derivative instruments for risk management and hedging strategies - The Company uses interest rate swaps to manage interest rate risk (notional amount $400 million as of Sep 30, 2023) and foreign currency derivatives (cross-currency swaps, forward contracts) to manage foreign exchange risk[70][74][75] - Derivatives are designated as cash flow hedges, net investment hedges, or fair value hedges to mitigate risks from variable interest rates and foreign currency fluctuations, not for speculative purposes[71][72][78][80] Fair Value of Designated Hedging Instruments (in thousands, Sep 30, 2023) | Instrument Type | Asset Fair Value | Liability Fair Value | | :---------------- | :--------------- | :------------------- | | Interest rate swaps | $17,819 | $0 | | Cross-currency swaps | $2,376 | $901 | | Foreign currency forward contracts | $41 | $0 | | Total | $20,236 | $901 | Note 15. Transformation Program This note outlines the objectives, costs, and expected savings of the Company's transformation program - The 'Hain Reimagined Program,' initiated in Q1 FY2024, is a multi-year growth and transformation program aimed at optimizing the portfolio, improving profitability, and investing in growth initiatives, expected to be completed by the end of fiscal year 2027[90][91] - For the three months ended September 30, 2023, expenses associated with the program totaled $9.7 million, impacting Corporate and Other ($5.8 million), North America ($3.4 million), and International ($0.6 million)[92] - The program is expected to incur cumulative pretax charges of $115 million - $125 million and generate annualized pretax savings of $130 million - $150 million[119] Note 16. Commitments and Contingencies This note describes the Company's legal proceedings and other contingent liabilities - The Company is involved in ongoing legal proceedings, including securities class actions (dismissed by District Court on Sep 29, 2023, with plaintiffs appealing), additional stockholder class action and derivative complaints (stayed pending securities class action appeal), and baby food litigation[93][94][101][102] - Baby food litigation includes consumer class actions and seven personal injury lawsuits alleging neurological development disorders due to heavy metals in Earth's Best® products, with the Company denying allegations and defending vigorously[102][103][104][106] - As of the reporting period, the Company has not recorded a liability for any disclosed matters, as it is not yet probable that a liability has been incurred or the amount cannot be reasonably estimated[108] Note 17. Segment Information This note provides financial data for the Company's reportable segments: North America and International Net Sales by Reportable Segment (Three Months Ended September 30, in thousands) | Segment | 2023 | 2022 | | :------------ | :---------- | :---------- | | North America | $260,054 | $288,396 | | International | $164,975 | $150,955 | | Total | $425,029 | $439,351 | Adjusted EBITDA by Reportable Segment (Three Months Ended September 30, in thousands) | Segment | 2023 | 2022 | | :------------ | :---------- | :---------- | | North America | $18,727 | $30,781 | | International | $17,438 | $14,947 | | Corporate and Other | $(12,075) | $(9,699) | | Total Reportable Segments Adjusted EBITDA | $36,165 | $45,728 | Net Sales by Geographic Region (Three Months Ended September 30, in thousands) | Region | 2023 | 2022 | | :------------ | :---------- | :---------- | | United States | $230,659 | $259,508 | | United Kingdom | $121,051 | $109,160 | | Europe | $43,924 | $41,795 | | All Other | $29,395 | $28,888 | | Total | $425,029 | $439,351 | ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial condition and results of operations for the three months ended September 30, 2023, compared to the prior year. It covers an overview of the business, the 'Hain Reimagined Program,' the global economic environment, detailed consolidated and segment results, liquidity and capital resources, and reconciliations of non-GAAP financial measures Overview This section provides a general introduction to the Company's business and strategic focus - The Hain Celestial Group, Inc. is a leading manufacturer, marketer, and seller of 'better-for-you' brands, committed to sustainable growth and environmentally sound practices[116] - The Company's portfolio includes diverse food and beverage brands (e.g., Celestial Seasonings, Earth's Best, Ella's Kitchen, Terra) and personal care brands (e.g., Alba Botanica, Avalon Organics, JASON)[117] Hain Reimagined Program This section details the Company's multi-year growth and transformation initiative - The 'Hain Reimagined Program' is a multi-year growth and transformation initiative focused on four strategic pillars: Focus (portfolio optimization, simplified footprint), Grow (share gain, innovation), Build (brand building, channel expansion), and Fuel (revenue growth management, operational efficiency)[118][119] - The program expects cumulative pretax charges of $115 million - $125 million (including $25 million for inventory reductions) and annualized pretax savings of $130 million - $150 million[119] Global Economic Environment This section discusses the impact of global economic factors on the Company's operations - The Company continually assesses the impact of global economic factors, including inflation fluctuations, potential recession, changes in consumer patterns, and geopolitical events (e.g., Russia-Ukraine conflict, Gaza Strip conflict), which may lead to increased supply chain expenses and higher inflation[120] Consolidated Results This section provides an analysis of the Company's overall financial performance Consolidated Financial Performance (Three Months Ended September 30) | Metric (in thousands) | 2023 | 2022 | Change ($) | Change (%) | | :-------------------- | :---------- | :---------- | :---------- | :--------- | | Net sales | $425,029 | $439,351 | $(14,322) | (3.3)% | | Gross profit | $83,943 | $94,335 | $(10,392) | (11.0)% | | Operating (loss) income | $(2,278) | $15,823 | $(18,101) | * | | Net (loss) income | $(10,376) | $6,923 | $(17,299) | * | | Adjusted EBITDA | $24,090 | $36,029 | $(11,939) | (33.1)% | * Percentage is not meaningful due to one or more numbers being negative. - Net sales decreased by 3.3% to $425.0 million, primarily due to a decline in North America, partially offset by International growth[122][123] - Gross profit margin decreased to 19.7% from 21.5% due to lower sales volume and inflation in North America[124] - Operating loss was $2.3 million (vs. $15.8 million operating income in prior year) and net loss was $10.4 million (vs. $6.9 million net income in prior year), driven by higher productivity and transformation costs ($6.4 million vs. $0.8 million) and increased interest expense ($13.2 million vs. $7.7 million)[126][129][130][136] Segment Results This section analyzes the financial performance of the Company's North America and International segments Segment Net Sales and Adjusted EBITDA (Three Months Ended September 30, in thousands) | Segment | Net Sales 2023 | Net Sales 2022 | Adjusted EBITDA 2023 | Adjusted EBITDA 2022 | | :------------ | :------------- | :------------- | :------------------- | :------------------- | | North America | $260,054 | $288,396 | $18,727 | $30,781 | | International | $164,975 | $150,955 | $17,438 | $14,947 | - North America net sales decreased by 9.8% due to lower sales in baby/kids (organic formula supply challenges), personal care (timing shift of sun care program), and snacks (optimization of promotional activity)[142] - North America Adjusted EBITDA decreased by 39.2% due to reduced gross profit, inflation, and increased inventory obsolescence reserves[142] - International net sales increased by 9.3% driven by growth in meal preparation and beverages categories[143] - International Adjusted EBITDA increased by 16.7% due to higher gross profit from pricing, partially offset by increased SG&A expenses[144] Liquidity and Capital Resources This section discusses the Company's ability to generate and manage cash flows and its capital structure - The Company finances operations primarily through cash flows from operations and borrowings under its $1.1 billion Credit Agreement (Term Loans: $300 million, Revolver: $800 million), maturing December 22, 2026[146][148] - Cash and cash equivalents decreased by $15.1 million to $38.3 million at September 30, 2023[153] - Working capital decreased by $39.8 million to $319.2 million, and total debt decreased by $13.8 million to $815.0 million due to net repayments[153] Cash Flows Summary (Three Months Ended September 30, in thousands) | Activity | 2023 | 2022 | | :---------------------- | :---------- | :---------- | | Operating activities | $14,030 | $(5,116) | | Investing activities | $(5,649) | $(6,928) | | Financing activities | $(17,584) | $9,824 | Reconciliation of Non-U.S. GAAP Financial Measures to U.S. GAAP Measures This section provides reconciliations of non-GAAP financial measures to their most directly comparable GAAP measures Net Sales Adjusted for Divestitures and Discontinued Brands (Three Months Ended September 30, in thousands) | Metric | 2023 | 2022 | | :-------------------------------- | :---------- | :---------- | | Reported Net sales | $425,029 | $439,351 | | Divestitures and discontinued brands | $8 | $(1,762) | | Adjusted Net sales | $425,037 | $437,589 | | Adjusted Net sales (decline) growth | (2.9)% | | Adjusted EBITDA Reconciliation (Three Months Ended September 30, in thousands) | Metric | 2023 | 2022 | | :-------------------------- | :---------- | :---------- | | Net (loss) income | $(10,376) | $6,923 | | Adjustments (e.g., D&A, interest, taxes, stock-based comp, litigation, transformation costs) | $34,466 | $29,106 | | Adjusted EBITDA | $24,090 | $36,029 | Free Cash Flow Reconciliation (Three Months Ended September 30, in thousands) | Metric | 2023 | 2022 | | :-------------------------------- | :---------- | :---------- | | Net cash provided by (used in) operating activities | $14,030 | $(5,116) | | Purchases of property, plant and equipment | $(6,906) | $(7,215) | | Free cash flow | $7,124 | $(12,331) | Critical Accounting Estimates This section highlights the accounting policies that require significant judgment and estimation - Key accounting policies requiring significant estimates include variable consideration, valuation of long-lived assets, goodwill and intangible assets, stock-based compensation, and valuation allowances for deferred tax assets, with no material changes from the prior annual report[169] Recent Accounting Pronouncements This section discusses the impact of recently adopted or issued accounting standards - There were no recently adopted or issued accounting pronouncements expected to have a significant impact on the consolidated financial statements[170] Seasonality This section describes the seasonal fluctuations affecting the Company's product lines and financial performance - Certain product lines experience seasonal fluctuations, with hot tea/soup sales stronger in colder months and snack/sunscreen sales stronger in warmer months, and the first fiscal quarter typically has the lowest net sales and diluted earnings per share[171] ITEM 3. Quantitative and Qualitative Disclosures About Market Risk This section states that there have been no significant changes in market risk from those previously disclosed in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2023 - No significant changes in market risk were identified during the three months ended September 30, 2023, compared to the disclosures in the Annual Report on Form 10-K for fiscal year ended June 30, 2023[172] ITEM 4. Controls and Procedures This section details the evaluation of the Company's disclosure controls and procedures by the CEO and CFO, concluding their effectiveness as of September 30, 2023, and reports no material changes in internal control over financial reporting during the period - The CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of September 30, 2023[174] - No changes in internal controls over financial reporting occurred during the three months ended September 30, 2023, that materially affected, or are reasonably likely to materially affect, internal control over financial reporting[176] PART II - OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, other information, exhibits, and official signatures ITEM 1. Legal Proceedings This section incorporates by reference the detailed information on legal proceedings from Note 16, Commitments and Contingencies, in the Notes to the Consolidated Financial Statements - Information regarding legal proceedings is incorporated by reference from Note 16, Commitments and Contingencies[179] ITEM 1A. Risk Factors This section states that there have been no material changes to the risk factors previously discussed in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2023 - There have been no material changes to the risk factors from those discussed in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2023[180] ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds This section reports that no shares were repurchased under the Company's share repurchase program during the quarter, but details shares withheld to satisfy tax withholding obligations related to stock-based compensation - No shares were repurchased under the share repurchase program during the three months ended September 30, 2023[181] - 86,036 shares were withheld by the Company to satisfy tax withholding obligations for stock-based compensation plans, at an average price of $10.17 per share[182] ITEM 5. Other Information This section confirms that none of the Company's directors or officers adopted, terminated, or modified any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the reporting period - None of the Company's directors or officers adopted, terminated, or modified a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the three months ended September 30, 2023[183] ITEM 6. Exhibits This section provides a list of exhibits filed as part of the Form 10-Q, including corporate documents, credit agreements, certifications, and XBRL data files - The exhibits include the Restated Certificate of Incorporation, Amended and Restated By-Laws, Specimen of common stock certificate, Second Amendment to the Credit Agreement, Offer Letter, and various certifications (CEO, CFO, CAO)[185] Signatures This section contains the official signatures of the Company's President and Chief Executive Officer, Executive Vice President and Chief Financial Officer, and Senior Vice President and Chief Accounting Officer, certifying the report - The report is duly signed by Wendy P. Davidson (President and CEO), Lee A. Boyce (EVP and CFO), and Michael J. Ragusa (SVP and CAO) on November 7, 2023[189]