The Hain Celestial Group, Inc.

Greetings and welcome to the Haines Celestial Group fourth quarter and fiscal year 2021 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'll now turn the conference over to your host, Ms. Anna Kate Heller, Investor Relations for Haines Celestial Group. Thank you. You may begin.

Thank you. Good morning, and thank you for joining us on Haynes Celestial's fourth quarter and fiscal year 2021 earnings conference call. On the call today are Mark Schiller, President and Chief Executive Officer, and Javier Adrogo, 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. These statements are based on management's current expectations and involve risks and uncertainties that could differ materially from actual events in those described in these forward-looking statements. Please refer to Hayne Celestial's annual report on Form 10-K, quarterly reports on Form 10-Q, and other reports filed from time to time with the Futurism 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 Haynes 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. 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, crosstalk, 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 doing well. On today's call, I'll give some color on our fourth quarter results and provide details on the F-22 plan. Starting with Q4, as you've heard from many other companies, the past several months have been filled with challenges, including high inflation, labor shortages, and significant overlaps from the COVID lockdown period a year ago. I'm pleased to report that despite these headwinds, we were able to successfully navigate the choppy waters and deliver both the revenue and adjusted EBITDA guidance that we outlined on our last call. Specifically, first, Top line was expected to be down 11% to 14%. We came in at 11.9%. Second, we said we would deliver at least 100 basis points of margin improvement. We, in fact, delivered significant continued margin expansion with a 296 basis point improvement in adjusted EBITDA margin and continued expansion in adjusted gross margin. This marks the sixth straight quarter of adjusted EBITDA margin improvement of more than 200 basis points. And importantly, for the year, we delivered our investor day targeted EBITDA margin one year ahead of schedule. Third, we told you we'd deliver around 10% adjusted EBITDA dollar growth in Q4. We came in at 9.6% growth again in line with the guidance. When compared to two years ago, which was pre-pandemic, our Q4 results were very solid. Total revenue grew almost 9% when adjusted for divestitures and discontinued brands. and our 10 biggest businesses, which now represent almost 70% of our global sales and 80% of our profits, grew revenue 12.5%. In addition, adjusted gross margin and EBITDA margins were up over 300 and 500 basis points, respectively, and adjusted EBITDA dollars were up almost 40%. In summary, we've delivered another quarter of strong results with significant continued momentum compared to the pre-pandemic periods. This performance reflects the overall strength of our portfolio, that our strategies are working as intended, and that we are executing well. Now let me talk a little bit about the reporting segments. In international, we delivered terrific results in Q4. Adjusted net sales were basically flat versus a year ago and up 13% versus two years ago. That's very strong performance when considering the COVID overlap, Brexit, labor challenges, and higher than normal inflation. We saw significant strength in many of our brands with strong share gains, household penetration growth, and TDP gains. Consumption grew double-digit versus two years ago in meat alternatives, chilled soup, jam, baby food, and toddler snacks. And our non-dairy beverage business, marmalade, and dessert businesses also grew nicely in the quarter. Just the gross margin and EBITDA margins were up more than 500 basis points, and adjusted EBITDA dollars were up almost 28% aided by our aggressive productivity agenda. That's great results, which achieved our investor day targets a year ahead of schedule and also included a marketing investment of almost 100 basis points within the quarter. So clearly we're seeing strength in our international business and have navigated the macro challenges very well. Shifting to North America, we had a more challenging quarter driven by the same issues facing the entire industry. As we discussed on the last call, inflation was significant, and labor shortages throughout the supply chain affected sourcing, internal manufacturing, and distribution of goods to customers. As a result, these headwinds in the COVID overlap impacted margins and profitability within the quarter. While these overall results were below the robust growth we've been consistently delivering, EBITDA was still up 16% versus pre-pandemic Q4F19, with over 300 points of adjusted EBITDA margin expansion. And for the entire year compared to a year ago, our adjusted EBITDA in North America was up 15% on adjusted sales of minus 1%, with adjusted gross margin and EBITDA margins up 155 and 268 basis points, respectively. Shifting to our go-forward outlook for North America, we remain very bullish on our future and our F-22 plan for many reasons. First, we've taken pricing to cover the inflation. Our T pricing has already hit the market and we've seen minimal volume impact thus far. We've also taken increases in virtually every other category as well. And I'm pleased to report the customers have accepted our increases and the pricing will be in effect starting next month. Second, we've made terrific progress on our sourcing, manufacturing and distribution headwinds and expect most of these to be fully behind us over the next few months. As evidence of our progress, Our service has improved quarter to date and last week we had one of the best shipment weeks we've had over the past several years. Third, our Get Bigger brands continue to perform extremely well in Q4 with strong household penetration gains, buying rate, and velocity increases on all four Get Bigger categories versus pre-pandemic. Consumption in the recent quarter was up 14% versus 2019. That's a four-point improvement from the two-year stacked growth rate we delivered in Q3. These brands also grew market share almost a full point in the quarter and measured channels, reinforcing their continued strength and momentum. Fourth, the expected distribution gains under innovation have materialized, driving accelerated consumption. For the get-bigger brands in Q4, total distribution points were up 7% versus a year ago and 10% versus two years ago. The gains were across many brands compared to a year ago, with Celestial Seasonings' T distribution points up 12% in the quarter, Sensible portions up 21%, and ALBA up 16%. Many other Get Bigger brands like Terra, Garden of Eden, and some of the larger Get Better brands like Earth's Best and Maranatha were also up in the quarter. Fifth, on the Get Better brands, where we proactively eliminated a significant number of slow-moving SKUs pre-pandemic, velocities were up 7% versus two years ago, setting us up for stronger top-line trends as we lapped the pandemic. Also noteworthy, Earth's Best, our largest Get Better brand, grew sales, TDPs, velocity, household penetration, and buying rate in the quarter versus a year ago. Sixth and lastly, our total U.S. consumption exceeded shipments by 4% in the quarter, suggesting customer inventories are lower than normal and we will need to be replenished in coming quarters. So in conclusion, despite the challenge macro environment, the North America business has significant underlying momentum and health as we exited the year. Shifting gears, let's now move into F22 and give a brief nod to our investor day. While Javier will give you more details on the algorithm for fiscal 22 in a few minutes, we are expecting another strong year with total adjusted net sales growing low single digit and adjusted EBITDA growing mid to high single digit with continued robust margin expansion even in this challenging environment. Our F-22 plan is built on four key assumptions. First, we're forecasting inflation to stabilize and not increase nor decrease considerably from here. If it does increase, we will price accordingly using the revenue management tools at our disposal. If it drops, we'll evaluate whether to spend some of it back or take it to the bottom line. Second, we expect our pricing and productivity to more than offset inflation, resulting in an algorithm that has both investment and marketing and robust margin growth. As stated, we've taken pricing in almost every category and have built relatively conservative elasticity assumptions into our plan. In addition, we have a robust productivity program, which has delivered over 700 basis points of gross margin improvement since 2019. We have many active projects to continue our momentum in both North America and international. Our third key plan assumption is that our innovation is successful and will continue to gain space on both a relative and absolute basis in our core growth categories. And lastly, we've assumed minimal short-term impact from the COVID Delta variant and that society gradually gravitates back to the pre-pandemic mix of in-home and out-of-home eating occasions by the end of the calendar year. With regard to phasing of the plan, we expect a softer first half and a much more robust second half. First half sales are expected to be below a year ago on an absolute and adjusted basis, but up mid to high single digits on an adjusted basis versus two years ago. And profits in the first half will be flat versus a year ago, but up considerably on a two-year basis. There are three drivers of the H1 performance expectations. First, we're overlapping the peak periods of COVID in the first half of the fiscal year. Remember that last year we delivered 50% plus EBITDA growth in the first half. So while top line and bottom line growth will be muted, the comparison versus pre-pandemic will continue to be strong. Second, while high inflation is hitting us now, the North American pricing we've taken to offset it won't be fully in place until the end of Q1, and international pricing won't hit the market until early Q2. Third, we expect to deliver gradual and steady improvement in labor and supply challenges previously discussed. As we get to the second half, you'll see top line accelerate to mid to high single-digit growth on an adjusted basis. Our plan assumes continued robust distribution gains and strengthening trial on our terrific innovation that continues to hit the market. Several significant incremental volume generating programs that are already confirmed with customers and easier overlaps for COVID and the softer Q4 performance in North America this quarter. So in conclusion, in the face of significant macro challenges, we had a good year and a solid quarter. We exited Q4 with a lot of momentum and are well-positioned to accelerate performance from here. On September 28th, at our investor day, we look forward to elaborating further on the F22 plan and showing you a strategic plan and algorithm that delivers robust top-line and bottom-line growth. We believe we have terrific momentum, the right brands and high-growth categories, and an exceptional team to really unlock the potential of this company. With that said, let me turn it over to Javier, who will provide more color about our Q4 performance. and financial expectations going forward.