The Hain Celestial Group, Inc.

Greetings and welcome to the Hain Celestial Group fourth quarter 2020 earnings 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. I would now like to turn the conference over to your host, Ms. Anna Kate Heller, for opening remarks. Thank you. You may begin.

Thank you. Good morning and thank you for joining us on Hain Celestial's fourth quarter and fiscal year 2020 earnings conference call. On the call today are Mark Schiller, President and Chief Executive Officer, and Javier Adrobo, 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 include expectations and assumptions regarding the company's future operations and financial performance, including expectations and assumptions related to the impact of the COVID-19 pandemic. 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, quarterly reports on Form 10-Q 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. 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. Please note, management's remarks today will focus on non-GAAP or adjusted financial measures. Reconciliations of GAAP results to non-GAAP financial measures are available in the earnings release and the slide presentation accompanying this call. As a reminder, beginning in Q1 of fiscal year 2020, 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. This call is being webcast, and an archive of it will also be available on the website. I'd also like to note that we are conducting our call today from our respective remote locations. As such, there may be brief delays across talk for other minor technical issues during this call. We thank you in advance for your patience and understanding. And now, I'd like to turn the call over to Mark Schiller.

Thank you, Anna Kate, and good morning, everyone. Before we begin, I'd like to thank our global team for their collaboration, agility, and compassion throughout the pandemic. We continue to operate in a very dynamic environment with the health and well-being of our employees, customers, and consumers remaining our top priority. On today's call, I'll discuss our strong fiscal 2020 results, including the impact of COVID-19, explain how we're setting ourselves up for sustainable long-term growth, and provide some color around our fiscal 2021 expectations. Let me start with our full fiscal year 2020 results. For the year, we delivered against all plan metrics that we provided in our beginning of year guidance and ended the year with adjusted EBITDA at the high end of our revised guidance range, which we raised at the end of Q3. For the year, net sales declined 2.4% as reported, but grew 3% in constant currency, excluding divestitures, discontinued brands, and skew rationalizations. We exited the year with two consecutive quarters of total company sales growth after eight quarters of declining top line. Gross profit and margin and adjusted EBITDA margin in dollars grew every quarter, consistent with fiscal 20 guidance that we provided last summer. Importantly, our adjusted EBITDA dollars grew 21% for the year while increasing our marketing spending. The North America business continued its successful transformation, resulting in over 400 basis points of adjusted gross margin improvement and 380 basis points of adjusted EBITDA margin improvement, and adjusted EBITDA dollars grew 43.2%. Within North America, the Get Bigger brands grew 6.4% for the full year in line with our Investor Day guidance. That compares positively to our planned decline in the first half of fiscal 2020 with modest improvement in the second half. The Get Better brands, which are being managed for profit, grew adjusted EBITDA dollars 214% and improved adjusted EBITDA margin a very strong 600 basis points to 8.4%. You'll recall that this set of brands had a collective EBITDA margin of just 2% on Investor Day last year and is now contributing significantly to our overall success. The international business delivered sales that were close to flat in constant currency for fiscal 20, with modest gross margin and adjusted EBITDA margin expansion. We achieved these results despite the significant decline of our large food service-oriented fruit business, which was impacted by COVID in the second half. Adjusted earnings per share increased 40% year-over-year and exceeded our guidance. While the business has performed exceptionally well over delivering our plan, the pandemic did accelerate performance in the second half of the year. COVID-19, which I will discuss more in a few minutes, added an additional $20 million in net sales, mostly in Q3, with about $10 to $12 million of adjusted EBITDA for the year split between Q3 and Q4. The North America business benefited more than that, partially offset by an international fruit business, which was adversely impacted. All in all, it was a great year for Hain with terrific results before the pandemic and great execution during the pandemic, leaving us with tremendous momentum as we head into fiscal 21. Now let me shift to talking about Q4 specifically. While Javier will provide more detail in a few minutes, yet again, our team delivered against all of our key profit metrics and delivered the top end of the raised guidance we gave at the end of Q3. Gross margin and adjusted EBITDA dollars in margin were each up over 200 basis points. That's the seventh straight quarter of adjusted EBITDA dollar improvement and fourth straight quarter of adjusted EBITDA dollar growth. Within the divisions, North America gross profit grew 20% in the quarter and adjusted EBITDA grew 46% versus a year ago. On the Get Bigger brand, which represents two-thirds of our North America sales, Thank you for joining us today. EBITDA margin for the quarter was almost 18% inclusive of an investment in marketing in the quarter. On the Get Better brands, we continue to focus on improving profitability, and in quarter four, our gross margin and adjusted EBITDA margins grew 300 and 360 basis points, respectively. Sales of the Get Better brands also improved to virtually flat after adjusting for divestitures and discontinued brands Thank you very much. However, we did see significant declines in our food service-oriented fruit business, which is 20% of our international sales. Excluding the fruit business, Q4 international net sales would have been up over 10%, so clearly the remainder of our international business is performing well. In addition, the fruit business was a 270-point drag on the international adjusted EBITDA margins in fourth quarter due to significant stranded overhead and input costs. We undertook significant reductions in SG&A during the fourth quarter to mitigate that impact, and the benefit of those changes will be seen in future quarters. We're pleased with much of our results with International, but we believe there is still significant opportunity to focus resources, expand margin, and share best practices. As a result, we are adopting much of the U.S. playbook there and have consolidated down to only two distinct divisions from five when I joined Hain in late 2018. This organizational simplification will create significant opportunities that will begin to impact our financial performance later this year. For the quarter, COVID had virtually no net impact on top line of the total company, although there was a clear benefit in North America offset by the fruit business decline in the UK. From an adjusted EBITDA standpoint, we delivered a total impact of about $5 to $6 million in the fourth quarter. In Q4, we were also successful in continuing our efforts to simplify our business. We sold or discontinued four brands, including Rudy's, Blueprint, Fountain of Truth, and DuBose. These brands contributed a total of $27 million in sales and a loss of approximately $1 million in adjusted EBITDA. Last month, we also sold our Danaval business in Europe after the quarter ended. This brand had sales of $22 million and adjusted EBITDA of $1 million. So as you can see, we continue to have success selling or exiting small and non-strategic brands that consume a disproportionate share of management time and add supply chain complexity. Without them, we can redeploy and focus our resources on bigger growth opportunities, which will further strengthen our results. Overall, we're proud of the strong quarterly and annual results we just delivered. As laid out on Investor Day, our transformation plan is clearly working and delivering results, particularly in North America. Our strategies of simplification, capability building, cost containment, and profitable growth have enabled exceptional execution during the pandemic. Many initiatives which were underway before the pandemic accelerated performance within the quarter. Innovation, marketing, and assortment optimization have already started delivering top-line accelerations. Initiatives like consolidation of the U.S. and Canada into one North America operating entity, automation in our plants, and the elimination of low-margin SKUs were already lowering our costs. While we, as most CPGs, have benefited from COVID thus far, we have confidence that the improvements made before and during the pandemic will continue going forward. The Get Bigger brands, which are the foundation of our growth agenda, have been particularly strong and have significant momentum that we believe will endure well into the future. Let me provide a few statistics. Since the pandemic began, we've had nearly 2.5 million new households try our Get Bigger portfolio, a 10% increase in household penetration. Velocities and buying rate improved as well, with 18.6% more repeat buyers than a year ago. We've excelled in all four of our priority Get Bigger growth categories. Celestial Seasonings T increased household penetration by 37% and repeat buyers by 25% since the pandemic began, With both metrics outpacing the category. For the most recent 12 weeks, Celestial Seasonings also gained a full share point, with Velocity growing over 40%, again outpacing the category. Our T-Well innovation continues to expand distribution and is performing very well, and we're bringing out 14 new SKUs this fall with new category benefits. In snacks, Hain was growing new buyers and repeat rates before the onset of the virus. During COVID, we continued to add new buyers and repeat purchases improved 8%. Sensible portions led the way, growing shares significantly and delivering double-digit top-line growth on top of double-digit growth last year. Our Screamin' Hot innovation has very strong velocities, and we continue to expand distribution, and we have innovation on Garden of Eden and Terra, which will shift later this year. In yogurt, Greek gods added more buyers and improved repeat rates. More than any other leading yogurt brand in the category, and we also gained share, grew TDPs, and grew up velocity well ahead of the category. Our advertising has been working and strengthens our brand point of difference. Our keto yogurt, which we've just started shipping, addresses one of the big barriers for trial on the brand. Within personal care, which was negatively impacted at the beginning of the pandemic when consumers were self-isolating, we have also had much success. Much of our business skews toward unmeasured channels like e-commerce and parts of club and the natural channel where we have significant sales. When accounting for all channels, our personal care portfolio is growing 30% faster than what you can see in the 12-week MULO data, with Alba and LiveClean consumption for both brands growing more than 40%. We've launched a number of new products, including our hemp line that is also off to a great start. So in summary, we've had significant strength across the Get Bigger portfolio in Q4. Sales, share, velocity, household penetration, new try or repeat rates, and margin are all growing. Consumers have tried our products for the first time during the pandemic and are repeating. Our marketing and innovation are working. We've sharpened our pricing. Our supply chain and in-store execution has delivered. Given the terrific results that we just delivered, our strong execution during the pandemic, and the momentum we have entering 21, we're set up for a great year and have complete confidence in the things we control. That said, as we turn to fiscal 21, consistent with most of our peers, we have decided not to provide specific guidance. On my first day, I committed to you a culture of credibility, and while I have complete confidence in our team, our brands, and our business plans, Thank you for joining us today. Given the current at-home eating trends and the impact it's having on our top line, we are expecting the first half of fiscal 21 to be stronger on both the top line and bottom line in the second half, as we are assuming that the current eating at-home trends moderate throughout the year. Top lines should grow in the first half, adjusted for divestitures and discontinued brands, with the get-bigger brands in North America growing double digits, continuing the momentum delivered in the second half of last year. While we're expecting a slowing of growth in the second half of fiscal 21, in reality, the outlook for the second half of the year is less clear given the macro factors discussed and the need to lap the growth associated with the pandemic. That said, compared to pre-COVID second half of fiscal 19, we expect strong growth in gross profit dollars, gross margin, EBITDA dollars, and EBITDA margins. Normally, we wouldn't give out headlines within the current quarter, but because we aren't giving specific guidance for the year and are already two-thirds of the way through the quarter, we also have some directional information on Q1. For the quarter ending September 30th, we expect mid-single-digit top-line growth after adjusting for divestitures and discontinued brands with margin improvement and adjusted EBITDA growth comparable to what we delivered in the second half of fiscal 2020. When I joined Hain, I committed to provide a new level of transparency, and I also committed to deliver what I promised. So I want to make sure I continue to do both, and I'm providing as much detail as I can reasonably forecast at this time. With that, let me turn it over to Javier, who will give you more details on our financial performance and fiscal 21 expectations.