The Hain Celestial Group, Inc.

Greetings and welcome to the Hain Celestial Group second quarter 2020 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Rachel Perkins from ICR. Thank you. You may begin.

Thank you. Good morning and thank you for joining us on Hain Celestial's second quarter fiscal year 2020 earnings conference call. On the call today are Mark Schiller, President and Chief Executive Officer, and Javier Ardrogo, Executive Vice President and Chief Financial Officer. During the course of this call, management may make forward-looking statements within the meaning of the federal securities laws. These statements are based on management's current expectations and involve risks and uncertainties that could differ materially from actual events and those described in these forward-looking statements. Please refer to Hain Celestial's annual report on Form 10-K and other reports filed from time to time with the Securities and Exchange Commission and its press release issued this morning for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today. Please note management's remarks today will focus on non-GAAP or adjusted financial measures. A reconciliation of GAAP results to non-GAAP financial measures is available in the earnings release. As a reminder, beginning in Q1 of this year, the company changed its segment reporting to focus on North America, international, and corporate, which had previously been reported as the U.S., U.K., and rest of world segments. The company has also prepared a few presentation slides and additional supplemental financial information, which are posted on Hain Celestial's website under the Investor Relations heading. This call is being webcast, and an archive of it will also be available on the website. And now, I'd like to turn the call over to Mark Schiller.

Thank you, Rachel, and good morning, everyone. Nearly one year ago, shortly after joining Hain Celestial, I introduced our transformational strategic plan and shared key deliverables and milestones aimed at restoring credibility and confidence among our shareholders and customers. As I reflect back on the hard work of our entire organization, I can't help but be proud of the resilience, tenacity, and passion of our employees that has resulted in strong and consistent performance. While we still have a lot of work ahead, I'm extremely pleased to report that we're executing and delivering on the plan we communicated, and our financial and operational results demonstrate that our strategy is working. In fact, since we started our strategy last year, our gross profit dollars, gross margin, EBITDA margin, and EBITDA dollars have all grown considerably. To remind you, at Investor Day last February, I laid out four clear strategies that would guide our journey. They are, one, simplify the portfolio and organization, two, strengthen our core capabilities, three, expand margins and cash flow, and four, reinvigorate profitable top line growth in a core set of high potential brands. While many initiatives have contributed to these results, I'd like to highlight a few that really capture the breadth and depth of the transformation. On simplifying the portfolio, over the last year, Hain has divested non-strategic brands with almost $750 million in sales. In all, we've divested seven businesses and we expect there will be additional non-core brands sold in the future. In addition, as previously stated, we're also likely to shut down other brands if there isn't a clear path to stable profitability or a logical buyer. On simplifying our operations, we've consolidated manufacturing sites, office locations, and shipping locations around the world. We've integrated five sales forces in the United States to one, We've eliminated over 30 brokers in the United States and more than 30 co-manufacturers. On strengthening capabilities, we've hired a new senior leadership team in North America as well as brought on several new directors who bring significant industry experience and expertise to our board. We've improved forecasting, resulting in almost five percentage point improvement in service and an almost 50% reduction in customer fines and penalties in the U.S. We've enhanced the organizational training in areas like project management, customer planning, and innovation processes. On expanding margins and cash flows, we've eliminated almost $50 million of low ROI spending in North America, discontinued approximately 500 SKUs worldwide that had low to negative gross margins, reduced inventory by over $80 million since its peak in August of 2018, reduced our cash conversion cycle more than 14 days, eliminated $380 million of debt resulting in leverage of roughly three times EBITDA. On reinvigorating top line, we filled the innovation pipeline with ideas that solve consumer problems and will expand their categories. We've developed new creative campaigns for a number of brands. We've strengthened consumer insights, selling capabilities, and customer relationships. The impact of these efforts are just beginning to show up in our results, and we will be more evident as the negative sales impact of SKU Rationalization and Spending Reductions abate in the second half this year. In summary, we've made significant progress and we've transformed much of this business in a very short period of time. That said, we continue to see further significant opportunities to simplify the portfolio and organizational structure, reduce costs, and improve capabilities. And our initiatives to reinvigorate top-line growth are just beginning. Our momentum is accelerating, and I truly believe our best days are in front of us. Let me now shift to our Q2 results. When we laid out the plan for F20 this past summer, you'll recall I promised you three things. One, the top line trend for the first half would be similar to what we reported in the second half of last year, and that the negative trends would begin to abate in the second half of F20. Two, gross margins and profits would grow versus year ago in every quarter. Three, EBITDA dollars and margins would grow versus year ago in each quarter as well. I'm pleased to report that our second quarter results delivered on all key metrics and demonstrate another quarter of year-over-year improvement against our strategy and financial commitments. To continue the momentum we started last winter and we remain right on track to achieve our fiscal 2020 operational and financial objectives. Importantly, while delivering a double-digit increase in EBITDA in the quarter, our marketing spending was also up 8.2% as we reinvested some of our profit growth back into our highest potential brands. Now to provide a little more detail on the individual reporting segments, let me start with our North America business. To refresh your memory, we guided that our first half net sales growth would be comparable to the second half growth rate from a year ago when we started eliminating poor ROI spending and reducing unprofitable SKUs. Last year's second half declined 8.7%. Q2 of this year declined 8.1% versus prior year. So the results are right in line with our projections. It's also important to note that the 8.1% decline is not reflective of the underlying health of the ongoing business. Embedded in that number is a 2% decline due to the lost sales from divested assets, a 4% decline due to skew rationalization, and a 1% decline due to the reduction in low ROI investments. So in reality, the ongoing business is down only about 1%. Turning to margins, adjusted gross margin improved 480 basis points versus year ago to 24.7%, driven by continued improvement in our costs and better pricing and mix. This is the highest adjusted gross margin that we've had in any quarter since Q3 of 2018. Adjusted gross profit dollars improved 14% versus year ago. Adjusted EBITDA margin for North America was up 370 basis points from prior year. This was the third consecutive quarter of year-over-year improvement and was the highest EBITDA margin quarter since fiscal 2018. Adjusted EBITDA dollars were also up a very strong 41% versus a year ago. While we're pleased with our progress, we're far from finished and have identified multiple opportunities to continue to improve our margin structure and overall profitability in North America. In fact, we are in the process of consolidating Canada and the United States into one North American operating unit, a move which is expected to generate $5 to $8 million of additional cost savings over the next 12 to 18 months. Breaking the portfolio in North America down further, we delivered continued improvement on the Get Bigger brands. Sales declined 3% in the quarter, which was slightly improved versus the minus 3.5% trend in the second quarter last year. As a reminder, the declines were driven by eliminating uneconomic spending, skew rationalization, and distribution losses in personal care relating to service issues from a year ago. And we didn't expect to overlap them until the second half. Importantly, despite these factors, consumption on the Get Bigger brands was up 1% in measured channels. Get Bigger velocities in the ACV continued to grow, and the average items carried, which was down 5% last quarter, was down only 2% this quarter. So that's another favorable sign that our distribution is stabling and the new innovation coming and the trend should continue to improve. We've gotten questions in the past regarding the margins of the Get Bigger brands and whether our long-term guidance of 16% to 18% was achievable. To that end, in the quarter, one year into our journey, I'm pleased to report that our EBITDA margins for the Get Bigger brands have exceeded 14% in four of the last five quarters. In Q2, we again delivered a mid-teens EBITDA margin, including 150 basis point investment in marketing. This should further reinforce that as we guided on Investor Day, we can drive profit growth and reinvest in these brands at the same time. On the Get Better brands, which are being managed for profit, our gross margin improved 690 basis points from a year ago, and our EBITDA margin improved 750 basis points. That's a huge improvement in a very short period of time. Now let me shift to our international business where our results for the quarter were also very consistent with our expectations. Net sales were down 1% for the quarter and flat in constant currency. Forex represented a $2 million headwind. We saw strong double-digit sales growth in plant-based proteins and beverages, which was offset by skew rationalization and plant consolidation in fruit and increased trade in some competitive segments. Adjusted gross margin percentage and dollars and EBITDA growth margin were also down slightly in the quarter. The results were in line with our plan and include a significant investment in marketing in the quarter. All in all, given the difficult business environment in Europe, unrest in Asia, and uncertainty in the UK surrounding Brexit, our team worked diligently to deliver quarterly results that were in line with our plan. Importantly, we also expect stronger trends in the second half of the year. In a moment, Javier is going to provide detail on the outlook for Hain in the second half of fiscal 2020. Before he does, I wanted to provide some perspective on the top-line expectation for North America. As you'll recall from the Barclays Conference, we told you to expect declining net sales in the first half, with the negative trend abating in the second half as we lapped the elimination of uneconomic spending and skew rationalization, as well as service-related distribution issues and personal care. Today, I want to reiterate that we expect the North America top-line trend to improve as planned. In addition to lapping things that drag down the first-half results, we're also driving growth by launching new innovation in snacks and yogurt, increasing marketing spending, and executing better on key programs like Suncare. While we don't normally give guidance by quarter in the spirit of transparency, I wanted to give you a heads-up that we expect Q3 to be particularly strong on the get-bigger brands. In addition to all things mentioned, which would yield strong results, we also exited some less profitable club programs from H1. And while these programs were dilutive to our first half growth rate, they're being replaced by more profitable events that will occur in the third quarter, helping improve our overall third quarter growth rate. While these programs are more in and out than permanent, they provide further evidence of our momentum and continued strong relationships with our customers. In summary, our quarterly results and expectations for the second half continue to demonstrate that our business transformation is working well. We have a terrific team in place and our confidence continues to grow that we will not only deliver our strategic and financial metrics, but also restore Hain to its rightful place as a premier CPG company. With that, I'd like to turn the call over to new CFO, Javier Hidrovo, to provide more detail on our Q2 financials and fiscal 2020 guidance.