Hain Celestial(US:HAIN)2025-05-07 20:06Part I - Financial Information Financial Statements The company reported a significant increase in net loss for both the three and nine months ended March 31, 2025, primarily driven by substantial goodwill and long-lived asset impairment charges totaling $243.5 million for the nine-month period. Total assets decreased to $1.84 billion from $2.12 billion at June 30, 2024, largely due to the goodwill impairment. Cash provided by operating activities decreased significantly year-over-year, from $77.0 million to $24.8 million for the nine-month period Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2025 | June 30, 2024 | | :--- | :--- | :--- | | Total Current Assets | $552,123 | $557,059 | | Goodwill | $712,727 | $929,304 | | Total Assets | $1,844,055 | $2,117,548 | | Total Current Liabilities | $304,735 | $281,503 | | Long-term Debt, less current portion | $701,401 | $736,523 | | Total Liabilities | $1,147,350 | $1,174,635 | | Total Stockholders' Equity | $696,705 | $942,913 | Consolidated Statement of Operations Highlights (in thousands, except per share data) | Metric | Three Months Ended Mar 31, 2025 | Three Months Ended Mar 31, 2024 | Nine Months Ended Mar 31, 2025 | Nine Months Ended Mar 31, 2024 | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $390,351 | $438,358 | $1,196,432 | $1,317,487 | | Gross Profit | $84,650 | $96,671 | $259,712 | $282,829 | | Goodwill Impairment | $110,251 | $0 | $201,518 | $0 | | Operating Loss | $(121,079) | $(27,901) | $(209,925) | $(30,960) | | Net Loss | $(134,588) | $(48,194) | $(258,226) | $(72,105) | | Diluted Net Loss per Share | $(1.49) | $(0.54) | $(2.87) | $(0.80) | Consolidated Statement of Cash Flows Highlights (in thousands) | Cash Flow Activity | Nine Months Ended Mar 31, 2025 | Nine Months Ended Mar 31, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $24,763 | $76,959 | | Net cash used in investing activities | $(354) | $(23,249) | | Net cash used in financing activities | $(36,475) | $(56,100) | | Net decrease in cash and cash equivalents | $(9,882) | $(3,815) | Notes to Consolidated Financial Statements Key notes to the financial statements reveal significant corporate activities, including exploring strategic alternatives for its Personal Care business, recording a major goodwill impairment, amending its credit agreement, continuing the 'Hain Reimagined' transformation program, and involvement in legal proceedings - The company is exploring strategic alternatives for its Personal Care (PC) business, which has been classified as held for sale. A non-cash charge of $23.1 million was recorded to write down the disposal group's carrying amount to its estimated fair value4142 - On August 30, 2024, the company sold its ParmCrisps® business for $12.0 million in cash, recognizing a pretax loss on the sale of $3.9 million43 - A significant goodwill impairment charge of $201.5 million was recorded for the nine months ended March 31, 2025, entirely within the North America segment, due to reduced performance and a decline in market capitalization. This includes a $110.3 million charge in the third quarter5152 - The company initiated the 'Hain Reimagined Program' in fiscal 2024, a multi-year transformation plan expected to be completed by fiscal 2027. For the nine months ended March 31, 2025, the company incurred $20.4 million in expenses related to this program111115 - The company is a defendant in numerous baby food class action and personal injury lawsuits, which have been consolidated into a multi-district litigation (MDL). The SEC concluded its investigation into the company in February 2025 and does not intend to recommend an enforcement action121126132 Net Sales by Product Category (in thousands) | Product Category | Nine Months Ended Mar 31, 2025 | Nine Months Ended Mar 31, 2024 | | :--- | :--- | :--- | | Snacks | $277,688 | $342,118 | | Baby & Kids | $182,225 | $188,458 | | Beverages | $189,364 | $197,116 | | Meal preparation | $499,311 | $513,004 | | Personal care | $47,844 | $76,791 | | Total | $1,196,432 | $1,317,487 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the 9.2% decline in nine-month net sales to softness in North America, divestitures, and discontinued brands. The significant increase in net loss to $258.2 million was primarily due to a $201.5 million goodwill impairment in the North America segment. The 'Hain Reimagined' program is underway to optimize the portfolio and improve profitability, with expected annualized savings of $130-$150 million. Liquidity remains adequate, supported by cash from operations and the credit facility, which was recently amended to provide more covenant flexibility. Cash from operations decreased significantly due to higher working capital usage Results of Operations For the third quarter, net sales fell 11.0% to $390.4 million, with organic sales down 5.3%. The net loss widened to $134.6 million from $48.2 million a year ago, driven by a $110.3 million goodwill impairment. For the nine-month period, net sales decreased 9.2% to $1.20 billion, with organic sales down 5.2%. The nine-month net loss was $258.2 million, compared to a $72.1 million loss in the prior year, primarily due to a cumulative $201.5 million goodwill impairment charge Q3 FY2025 vs Q3 FY2024 Consolidated Results (in thousands) | Metric | Q3 FY2025 | Q3 FY2024 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net sales | $390,351 | $438,358 | $(48,007) | (11.0)% | | Gross profit | $84,650 | $96,671 | $(12,021) | (12.4)% | | Goodwill impairment | $110,251 | $— | $110,251 | N/A | | Operating loss | $(121,079) | $(27,901) | $(93,178) | N/A | | Net loss | $(134,588) | $(48,194) | $(86,394) | 179.3% | | Adjusted EBITDA | $33,615 | $43,762 | $(10,147) | (23.2)% | Nine Months FY2025 vs FY2024 Consolidated Results (in thousands) | Metric | 9M FY2025 | 9M FY2024 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net sales | $1,196,432 | $1,317,487 | $(121,055) | (9.2)% | | Gross profit | $259,712 | $282,829 | $(23,117) | (8.2)% | | Goodwill impairment | $201,518 | $— | $201,518 | N/A | | Operating loss | $(209,925) | $(30,960) | $(178,965) | N/A | | Net loss | $(258,226) | $(72,105) | $(186,121) | 258.1% | | Adjusted EBITDA | $93,883 | $114,978 | $(21,095) | (18.3)% | - Q3 organic net sales decreased 5.3%, driven by a 2.9% decrease in volume/mix and a 2.5% decrease in price, primarily from promotional activity151 - Nine-month organic net sales decreased 5.2%, comprised of a 3.4% decrease in volume/mix and a 1.9% decrease in price179 Segment Results In Q3, the North America segment's net sales fell 17.0% (9.6% organic) due to lower volumes in snacks and softness in personal care, causing Adjusted EBITDA to drop 37.9%. The International segment's net sales decreased 1.4% but grew 0.5% organically, driven by meal preparation and baby & kids categories; however, Adjusted EBITDA declined 9.7% due to inflation and pricing pressures. For the nine-month period, North America sales were down 14.2% (7.5% organic), while International sales were down 1.5% (2.3% organic) Q3 FY2025 Segment Performance (in thousands) | Segment | Net Sales | % Change | Adjusted EBITDA | % Change | | :--- | :--- | :--- | :--- | :--- | | North America | $222,407 | (17.0)% | $17,306 | (37.9)% | | International | $167,944 | (1.4)% | $22,166 | (9.7)% | - North America Q3 organic net sales decreased 9.6%, primarily due to lower sales in the snacks and baby & kids categories. The snacks category was impacted by lower volume and continued category softness170171 - International Q3 organic net sales increased 0.5%, driven by strong performance in meal preparation (soup) and baby & kids categories, which offset declines in beverages and snacks173174 Nine Months FY2025 Segment Performance (in thousands) | Segment | Net Sales | % Change | Adjusted EBITDA | % Change | | :--- | :--- | :--- | :--- | :--- | | North America | $682,836 | (14.2)% | $55,072 | (29.2)% | | International | $513,596 | (1.5)% | $65,062 | (4.3)% | Liquidity and Capital Resources The company's liquidity is primarily sourced from cash from operations and its credit facility. As of March 31, 2025, total debt was $709.0 million, down from $744.1 million at fiscal year-end 2024. Cash provided by operating activities for the nine months decreased to $24.8 million from $77.0 million in the prior year, mainly due to higher working capital usage. Consequently, free cash flow fell to $5.7 million from $52.2 million. The company amended its credit agreement in May 2025 to increase its maximum consolidated secured leverage ratio and reduce the revolver size to $700 million Cash Flow Summary (Nine Months Ended Mar 31, in thousands) | Activity | 2025 | 2024 | | :--- | :--- | :--- | | Cash from Operating Activities | $24,763 | $76,959 | | Cash from Investing Activities | $(354) | $(23,249) | | Cash from Financing Activities | $(36,475) | $(56,100) | - Free cash flow for the nine months ended March 31, 2025 was $5.7 million, a significant decrease from $52.2 million in the prior-year period, driven by lower cash from operations220230 - On May 5, 2025, the company entered into a Third Amendment to its Credit Agreement, which amended the maximum consolidated secured leverage ratio, increased the interest rate spread, and reduced the revolver size from $800 million to $700 million210211 - As of March 31, 2025, the company was in compliance with all debt covenants, with a consolidated secured leverage ratio of 4.23:1.00208 Critical Accounting Estimates The company identified goodwill valuation as a critical accounting estimate. Due to a significant reduction in performance and a decline in market capitalization, an interim quantitative impairment test was performed for the U.S. and Canada reporting units as of March 31, 2025. This test resulted in a non-cash goodwill impairment charge of $110.3 million for the quarter. The company notes that goodwill for the U.S., Canada, and U.K. reporting units remains at risk of future impairment if performance does not meet projections or market conditions deteriorate - An interim quantitative impairment test for goodwill was conducted for the U.S. and Canada reporting units as of March 31, 2025, due to a significant reduction in actual and projected performance and a continued decline in the company's market capitalization233 - The impairment test resulted in a non-cash charge of $88.7 million for the U.S. reporting unit and $21.5 million for the Canada reporting unit during the third quarter234 - Goodwill related to the U.S., Canada, and U.K. reporting units is at risk of potential future impairment if expected future cash flows are not met or if market factors like discount rates deteriorate235 Quantitative and Qualitative Disclosures About Market Risk There have been no significant changes in the company's market risk exposures from those disclosed in the Annual Report on Form 10-K for the fiscal year ended June 30, 2024 - No significant changes in market risk were reported for the nine months ended March 31, 2025, compared to the fiscal year ended June 30, 2024239 Controls and Procedures The company's Interim CEO and CFO concluded that the disclosure controls and procedures were effective as of March 31, 2025. There were no material changes in internal control over financial reporting during the third quarter of fiscal 2025 - Management, including the Interim CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of March 31, 2025240 - No changes occurred during the quarter ended March 31, 2025, that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting241 Part II - Other Information Legal Proceedings The company incorporates by reference the details of its legal proceedings from Note 17 of the financial statements. These primarily relate to securities class actions and extensive litigation concerning alleged heavy metals in its Earth's Best® baby food products - Information regarding legal proceedings is incorporated by reference from Note 17, Commitments and Contingencies244 Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended June 30, 2024 - No material changes from the risk factors disclosed in the company's most recent Form 10-K have been reported245 Unregistered Sales of Equity Securities and Use of Proceeds During the third quarter of fiscal 2025, the company did not repurchase any of its own shares under its approved repurchase programs. However, 21,820 shares were withheld to satisfy tax obligations related to stock-based compensation - No shares were repurchased under the company's share repurchase programs during the three months ended March 31, 2025246 Other Information On May 5, 2025, the company executed the Third Amendment to its Credit Agreement. This amendment adjusted the maximum consolidated secured leverage ratio covenant, increased the applicable interest rate margins, and reduced the total revolving credit facility from $800 million to $700 million - On May 5, 2025, the company amended its Credit Agreement. The maximum consolidated secured leverage ratio was changed to 4.75:1.00 through March 31, 2026, stepping down thereafter249250 - The interest rate on loans under the amended agreement increased to Term SOFR plus 3.0% or Base Rate plus 2.0%251 - The amendment also reduced the aggregate size of the revolving credit facility from $800 million to $700 million252 Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications by the CEO and CFO, and XBRL data files Signatures The report is duly signed by the Interim President and Chief Executive Officer, the Chief Financial Officer, and the Chief Accounting Officer as of May 7, 2025