The Hain Celestial Group, Inc.

Greetings and welcome to Haynes Celestial fourth quarter 2022 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. I would now like to turn this conference over to your host, Mr. Chris Mandeville, Managing Director of Investor Relations at ICR. Thank you, sir. You may begin your presentation at this time.

Good morning, and thank you for joining us on Haines Celestial's fourth quarter fiscal year 2022 earnings conference call. On the call today are Mark Schiller, President and Chief Executive Officer, and Chris Belairs, Executive Vice President and Chief Financial Officer. During the course of this call, management may make forward-looking statements within the means 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 Haynes-Alessio'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, as well as 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 inclusive of 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 be made available on the website. And now I'd like to turn the call over to Mark Schiller.

Thank you, Chris, and good morning. On today's call, Chris Villers and I will give you some color on the Q4 fiscal year 22 performance and our fiscal 23 plan. Let me start by reflecting on the year we just ended. Without a doubt, it was certainly a difficult business environment. The year began with continued COVID challenges and progressed with extremely high inflation, substantial supply disruptions, and a war that materially impacted the global food industry, especially in Europe. Earlier in the year, we laid out our Hain 3.0 long-term growth strategy. However, as the macro issues emerged, we had to pivot quickly to address the unforeseen obstacles in our path. I want to thank the Hain team for their hard work and resilience over this past year. I also want to reiterate that despite the short-term volatility, we remain confident in our Hain 3.0 strategy, our brands, and our teams. Several weeks ago, we communicated our Q4 results in a pre-announcement, and our final audited financials are in line with that release. We outlined several key drivers of the shortfall. First, in international, softness versus year-ago was driven by forex, macroeconomic issues, and weaker plant-based categories. Second, in North America, we had supply chain disruptions and increased inflation costs. And third, we made a proactive decision to exit some unproductive brands and SKUs. We also highlighted the strength and momentum of our growth brands in the U.S. While we're certainly not content with our Q4 results, we remain confident in the underlying strength of our business. There are numerous examples of brand momentum, stronger customer relationships, a more nimble supply chain, and an intensified focus on productivity agenda, all of which bode well for Hain's future. Let me unpack our results for you starting with North America. Within North America, Bills in the quarter grew a very robust 17% overall compared to the same period in 2021. Excluding acquisitions, divestitures, and the impact of currency, our sales were up a solid 6%, and that's despite some significant supply chain disruptions. Consumption in the U.S. was particularly strong, up 11% in the quarter, well above the food industry average. You'll recall on Investor Day last fall, we identified six categories we're focused on that make up 80% of our company sales and profits, snacks, tea, baby, yogurt, plant-based, and personal care. In Q4, these growth brands and these categories in the U.S. delivered dollar consumption growth of 15% versus a year ago. Velocities for these brands were up 18% in Q4, and we continued to gain significant share on top of share growth last year. Household penetration on these brands grew 5% in the quarter compared to last year, a very important metric given the size of our brand. We also increased our total heme buyer 6% versus just a half a percent increase for the entire categories. Our most loyal consumers of these brands, who purchase more than three times per year, grew 11% in the past quarter. Importantly, buying rate also increased 12%, indicating that as we bring in more consumers to our brands, they're also repeating at a very high rate. Number of buyers and household penetration grew across snacks, personal care, baby, and yogurt, and share grew across many categories. Bottom line, our growth brands continue to perform well in North America and are demonstrating the potential we outlined during our Hain 3.0 Investor Day. Our challenges in North America were in the middle of the P&L, where gross margins compressed, driven primarily by three factors. First, we experienced supply disruptions across many of our brands, including the six largest brands, which left us with increased costs and stranded overhead. The good news here is that many of these supply issues have been resolved, and we expect that most of the remaining material outages will be resolved by the end of Q1. Second, we incurred additional unexpected inflation and cost increases primarily from co-manufacturers and from purchasing ingredients at a premium when below-market contracts expired. To offset these additional costs, we've taken additional pricing in Q1 that's been accepted and is starting to be reflected in our retail prices. Third, we also proactively took the opportunity to write off some aging hand sanitizer that was produced early in the pandemic and to also eliminate skews that incurred material inflation costs and had no clear path back to profitability. Summary, we believe that North America's position for a stronger F23 with continued top line growth and improving profitability as more pricing hits the market in Q1, supply disruptions abate, and our renewed productivity agenda comes to fruition. Shifting to international, our top line was soft in Q4, down 9.5% adjusted for currency. To understand it better, let me break down the UK versus the rest of Europe. On the last call, at the end of Q3, we told you that the entire grocery store sales in the UK were declining due to high inflation, eroding consumer confidence, and difficult overlaps from the COVID lockdown the previous year. We expected those trends to improve in Q4, and in fact, they did improve, from down 7% in Q3 to minus 1%. But they were still down in units and did not improve as much as anticipated. Main UK consumption trends also improved six percentage points from minus 9% to minus 3%, ending Q4. Excluding plant-based protein, a category which has softened globally, our UK consumption was up 1%, and net sales were up 4%, growing faster than the total store. Momentum in our remaining brands has improved, and we are seeing improved market share trends. Despite the improved momentum, with pricing still lagging inflation and units down further than revenue, we experienced deleverage in our factories, negatively impacting our gross margins. On the positive side, we've just completed another round of pricing in the UK, which has been accepted without any shipment disruptions and will be implemented by the end of first quarter. We're also aggressively increasing our productivity efforts and right-sizing our manufacturing resources to reflect the total store volume decline. This will result in improving EBITDA as the year progresses. Difting to the rest of Europe, sales were also soft as we continued to operate in a very volatile and highly inflationary environment driven by the Russia-Ukraine war. As you know, our European business is primarily plant-based, non-dairy beverages, and we are a large co-manufacturer to many retailers and brands. We told you last quarter that we lost a significant co-manufacturing contract and that we expected to have new contracts to replace 50% of those sales by the end of Q4. In fact, we did better than that. We now have contracts in place to absorb 65% of the lost sales. However, most of those contracts won't start until first half of fiscal 23, so the future revenue and corresponding plan absorption didn't really benefit the most recent quarter. In addition, with all the macroeconomic challenges and uncertainties, The plant-based beverage category growth rate in Europe has slowed significantly in Q4, resulting in lower sales than expected from our customers. This, in turn, created additional stranded overhead, further eroding our margins in the quarter. We're working diligently to reduce our cost structure, add new customers, but we now anticipate continued declining plant-based trends in fiscal 23, with some improvement as the year progresses. Let me now turn to fiscal 23. As we stated in the pre-announcement several weeks ago, many open questions remain globally around the economy, consumer purchasing behavior, retailer actions, supply chain stability, and the impact of the war. Reflecting the known challenges that we are facing today and what we can reasonably anticipate, we've guided to low single-digit top line and EBITDA growth adjusted for currency. Chris will provide greater detail on all the plan assumptions in a few moments. With regard to our long-term strategy, you'll recall that F22 was a transition year between Hain 2.0, which entailed cost-cutting, capability building, and simplification of our business, and Hain 3.0, which focuses on higher growth predicated on driving distribution, creating category-expanding innovation, and increasing marketing on priority brands. As we enter fiscal year 23, we expect that transition to continue, particularly given the high inflation and continuing supply disruptions. We still have opportunities to simplify our portfolio, build capabilities and reduce costs, while at the same time increasing our momentum toward consistent, stable growth. While the environment is clearly volatile and unprecedented, we believe we are well positioned for a successful year. Here are a few of the reasons why. First, we have strong top-line momentum and brand strength in North America, which we expect will continue. Second, our innovation is performing well, helping us further expand our distribution and share of shelf. Third, we've successfully taken significant pricing in Q1 in the United States and the UK, which should allow our pricing to catch up to inflation as the year progresses. Fourth, we're making solid progress in signing new contracts to replace the lost non-dairy beverage volume in Europe. And lastly, our productivity pipeline is full. In short, we are controlling the controllables and believe we have momentum that sets us up for improved performance in fiscal 2023, weighted toward the back half. In addition, We see early signs that the macro environment is improving. Inflation in North America may begin slowing a bit, gas prices have started to come down, and total store sales in the UK appear to be stabilizing. This gives us further optimism that we may have potential tailwinds later in the year, or at least have upsides to address any continuing volatility that may incur in Europe. Let me now hand it over to Chris, who will provide greater detail on our Q4 performance and fiscal 2023 plans.