The Hain Celestial Group, Inc.

Greetings and welcome to the Hain Celestial first quarter fiscal year 2021 earnings conference call. At this time, all participants are in a listen-only mode. A brief 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, Anna Kate Heller, for my investor relations. Thank you. You may begin.

Thank you. Good morning, and thank you for joining us on Hain Celestial's first quarter fiscal year 2021 earnings conference call. On the call today are Mark Schiller, President and Chief Executive Officer, and Javier Drogo, Executive Vice President and Chief Financial Officer. During the course of this call, management may make forward-looking statements within the meeting 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 can 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 the world segment. 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, crosstalks, or 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. I hope everyone is safe and doing well in these turbulent times. On today's call, I will give some color on our first quarter strong results, explain how we continue to position ourselves for sustainable long-term growth, and provide some context around our expectations for the rest of fiscal 2021. Let me start with our Q1 results. On our last earnings call, I stated that for the first quarter, we expect mid single digit top line growth after adjusting for divestitures and discontinued brands, several hundred basis points of margin improvement and adjusted EBITDA growth comparable to the 25% we delivered in the second half of fiscal 2020. At Barclays investor conference later in the quarter, I told you that adjusted EBITDA would likely come in above that. I'm pleased to report that we have over-delivered on all of these projections and turned in our best quarter in several years. Sales growth for the quarter was 5.2% in constant currency, excluding divestitures and discontinued brands. Gross margin was up 326 basis points from last year, while adjusted EBITDA margin was up a very strong 435 basis points and adjusted EBITDA dollars was up 71% versus last year. That's the fifth straight quarter of double-digit EBITDA dollar growth. Clearly, our transformation strategy continues to work, and as I will discuss, there's plenty of opportunity for growth in our core brands and for further margin improvement. Looking geographically, North America sales, excluding divestitures and discontinued brands, grew 10% versus a year ago. Adjusted gross margin percentage grew almost 350 basis points. Adjusted EBITDA margin percentage grew over 500 basis points. And adjusted EBITDA dollars were up a very strong 63%. That's on top of 55% growth in Q1 last year. Our Get Bigger brands, which represent nearly two-thirds of North America's sales, delivered strong top-line growth of almost 16% this quarter, and we expect continued strong double-digit growth in the current quarter. Our consumption grew double digits in the get bigger category and has been relatively stable at that level over the last eight months after the initial stock upsurge last March. We've picked up market share in tea, snacks, yogurt, and continue to deliver strong double-digit consumption growth and personal care, inclusive of unmeasured channels where it's harder for us to assess market share gains. Within the quarter, sensible portions, celestial seasonings, Greek Gods, Alba, and Live Clean were all particularly strong. Sales on the Get Better brands adjusted for divestitures and discontinuances grew slightly in the quarter. Importantly, as you'll recall, our goal for these brands is to drive increased profitability, and in Q1, adjusted EBITDA dollars and margins doubled versus the previous year. Turning to international, net sales grew 4%, adjusting for the sale of the Donovan business, with several hundred basis points of Forex contributing to our growth. We had strong growth in most of our number one and number two share brands with our non-dairy beverages and plant-based proteins growing more than 20%. As we saw last quarter, our food service-oriented fruit business continued to struggle in Q1 as many offices and restaurants remained closed or had limited service. Excluding the $16 million decline in the fruit business, Q1 international sales delivered solid double-digit top-line growth and constant currency. So clearly the remainder of our international business is performing well. International adjusted gross and EBITDA margins improved almost 300 basis points compared with last year. Those are both significant improvements compared to our second-half performance last year and the largest margin increases in the last several years. Adjusted EBITDA dollars excluding the Danabal divestiture also grew a very strong 33%. As mentioned at the Barclays Conference, we're now executing the North American playbook in our international business. The opportunity is significant and we've already started restructuring and identifying a robust list of productivity initiatives that will continue to drive margin expansion later in 2021 and 2022 as our productivity initiatives come to fruition. Within the quarter, The fruit business was also a 270 basis point drag on total international adjusted EBITDA margins. As we've discussed on previous calls, we're in the process of selling the fruit business. There are many interested parties currently doing due diligence, and we expect to have it sold well before the end of the fiscal year. Excluding fruit, the remaining international businesses delivered 15% adjusted EBITDA margins in the quarter, up 290 basis points versus a year ago. I'm very proud of the strong results the team has delivered in the quarter and the growth momentum of our business. Our transformation plan is clearly working, and we continue to believe there is significant upside both in North America and our international businesses. Now let's shift to discussing how we've set ourselves up for continued growth going forward. There's two primary factors that give us confidence in our ability to continue driving robust growth. One, we've strengthened the foundation and made investments in our brands. and two, the consumers made behavioral changes which favor our brands. Starting with our actions, remember that our transformation started well before the pandemic when we made the decision to eliminate money-losing SKUs and poor ROI investments, even if it meant giving up top-line growth. Importantly, those decisions and actions are behind us and we now have a strong foundation to grow from. We also increased marketing spending and readied significant innovation on the Get Bigger brand before the pandemic to accelerate our performance in the second half of the year. Since COVID began, we've continued investments in the Get Bigger brand and have driven 11% increase in household penetration and 17% increase in repeat rate. In Q1 this year, those numbers were even stronger with household penetration up 15% and repeat rate up 20%. Depth of repeat, which is the number of times a buyer makes repeat purchases, also grew materially Thank you for joining us. With sensible portions, celestial seasonings, Greek gods, and live clean, particularly strong. With regards to the second driver of future growth, we believe that macro trends created by this pandemic are permanently driving people toward our brands and categories. First, people are more aware of and concerned about their health. As a result, they're making significant lifestyle changes by exercising more and eating better. Since Hain is clearly focused on healthier eating, we expect to disproportionately benefit. Second, consumers have become less price sensitive during this pandemic. Unlike other recessions, consumers are willing to pay more for brands they know, love, and trust, and are trading up to products that meet their physical and emotional needs. Since our products have many health attributes, like being organic, non-GMO, and preservative-free, our products often cost more. That cost barrier has become less important, resulting in strong trial for our categories and our brands. Third, consumers have significantly increased food purchases online. Given its increased convenience and assortment, we expect this trend to endure even after the pandemic. This, too, should benefit Hain since healthy offerings are highly developed in this channel, and we have a much higher percentage of our sales online than most CPGs. We have a strong understanding of what the consumer wants and how to engage them, and as a result, have delivered consistent online sales growth above 50% throughout the pandemic. In summary, we're doing the right things to drive the top line, and the marketplace trends demonstrate Hain is well positioned for where the consumer is headed. The disruption of the market caused by the pandemic, along with our proactive management focus on what matters to our retailers and consumers, has enabled us to gain shelf space, capture new consumers, and increase market share. As a result, we expect our momentum to continue going forward. Now let's spend a few minutes discussing our margins and why our transformation playbook and productivity culture will continue to drive margin expansion regardless of the macro environment. In North America, where we've delivered several hundred basis points of margin improvement every quarter since we began our transformation journey, we still have plenty of opportunities ahead. For the next two years, we will be focusing on many sizable initiatives, including automation in our plants, rightsizing of our infrastructure, redesigning over-engineered products, Thank you for joining us today. redesigning products, and right-sizing our infrastructure. In Q1 this year, we delivered almost 300 basis points of adjusted gross EBITDA margin improvement in our international business, and we fully expect to see continued strong profit growth as we build capabilities and increase focus and execution around these initiatives. As we turn to look ahead for the remainder of 2021, consistent with most of our peers, we've elected not to provide specific guidance for second half. Given the unprecedented volatility and uncertainty of COVID's impact on consumers, customers, and the economy, as well as Brexit and foreign currency exchange, there are too many unknowns that make it difficult to provide specific guidance. Having said that, I have complete confidence in our team, our brands, and our business plans such that we can provide you with confidence in some additional direction. For the second quarter, we plan to again increase marketing spending and reduce non-working dollars to drive continued mid-single-digit adjusted top-line growth. of note, we do expect some of the third quarter volume to move into second quarter as retailers build inventory in anticipation of the potential COVID resurgence and Brexit disruption in the UK. In Q2, we also expect several hundred basis points of gross margin improvement and adjusted EBITDA growth comparable to what we delivered in the second half of last year. Despite the many unknowns in the second half of the year, we expect to continue to excel at marketing, innovation, supply chain execution, and productivity, and our scrappy entrepreneurial culture is second to none. So for the year, we continue to reaffirm our expectation of strong double-digit EBITDA dollar and double-digit operating free cash flow growth with solid margin expansion. With that, let me turn it over to Javier who will give you more details on our financial performance and fiscal 21 expectations.