HAIN CELESTIAL GROUP INC 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Consolidated Financial Statements and the related Notes thereto for the period ended December 31, 2020 contained in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the fiscal year ended June 30, 2020. Forward looking statements in this Form 10-Q are qualified by the cautionary statement included in this Form 10-Q under the sub-heading “Cautionary Note Regarding Forward Looking Information” in the introduction of this Form 10-Q. Overview The Hain Celestial Group, Inc., a Delaware corporation (collectively, along with its subsidiaries, the “Company,” and herein referred to as “Hain Celestial,” “we,” “us” and “our”), was founded in 1993 and is headquartered in Lake Success, New York. The Company’s mission has continued to evolve since its founding, with health and wellness being the core tenet — To Create and Inspire A Healthier Way of Life TM and be the leading marketer, manufacturer and seller of organic and natural products by anticipating and exceeding consumer expectations in providing quality, innovation, value and convenience. The Company is committed to growing sustainably while continuing to implement environmentally sound business practices and manufacturing processes. Hain Celestial sells its products through specialty and natural food distributors, supermarkets, natural food stores, mass-market and e-commerce retailers, food service channels and club, drug and convenience stores in over 75 countries worldwide. The Company manufactures, markets, distributes and sells organic and natural products under brand names, with ma ny recognized brands in the various market categories it serves, including Celestial Seasonings ® , Clarks™, Cully & Sully ® , Dream ® , Earth’s Best ® , Ella’s Kitchen ® , Farmhouse Fare™, Frank Cooper’s ® , GG UniqueFiber ® , Gale’s ® , Garden of Eatin’ ® , Hain Pure Foods ® , Hartley’s ® , Health Valley ® , Imagine ® , Joya ® , Lima ® , Linda McCartney's ® ™ (under license), MaraNatha ® , Natumi ® , New Covent Garden Soup Co. ® , Robertson’s ® , Sensible Portions ® , Spectrum ® , Sun-Pat ® , Terra ® , The Greek Gods ® , William’s™, Yorkshire Provender ® and Yves Veggie Cuisine ® . The Company’s personal care products are marketed under the Alba Botanica ® , Avalon Organics ® , Earth’s Best ® , JASON ® , Live Clean ® , One Step ® and Queen Helene ® brands. The Company continues to execute the four key pillars of its strategy to: (1) simplify its portfolio; (2) strengthen its capabilities; (3) expand profit margins and cash flow; and (4) reinvigorate profitable topline growth. The Company has executed this strategy, with a focus on discontinuing uneconomic investment, realigning resources to coincide with brand importance, reducing unproductive stock-keeping units (“SKUs”) and brands and reassessing current pricing architecture. As part of this initiative, the Company reviewed its product portfolio within North America and d ivided it into “Get Bigger” and “Get Better” brand categories. • The Company’s “Get Bigger” brands represent its strongest brands with higher margins, which compete in categories with strong growth potential. The Company has concentrated its investment in marketing, innovation and other resources to prioritize spending for these brands, in an effort to reinvigorate profitable topline growth, optimize assortment and increase share of distribution. • The Company’s “Get Better” brands are the brands in which the Company is primarily focused on simplification and expansion of profit margin. Some of these brands have historically been low margin, non-strategic brands that added complexity with minimal benefit to the Company’s operations. In addition, as part of the Company’s overall strategy, the Company may seek to dispose of businesses and brands that are less profitable or are otherwise less of a strategic fit within its core portfolio. During fiscal 2019, for example, the Company divested its Hain Pure Protein reportable segment and its WestSoy ® tofu, seitan and tempeh businesses. In fiscal 2020, the Company divested its Tilda business and its Arrowhead Mills ® , SunSpire ® , Europe's Best ® , Casbah ® , Rudi’s Gluten-Free Bakery ™ , Rudi’s Organic Bakery ® and Fountain of Truth ™ brands. During the first quarter of fiscal 2021, the Company divested its Danival ® business. Additionally, in January 2021, subsequent to the end of the second quarter of fiscal 2021, the Company completed the sale of its U.K. fruit business, primarily consisting of the Orchard House ® Foods Limited business and associated brands ("Fruit"). Assets and liabilities of this business are classified as held for sale in the Company's Consolidated Balance Sheet as of December 31, 2020. See Note 4, Assets Held for Sale and Discontinued Operations , for additional information. COVID-19 The COVID-19 pandemic continues to create challenging and unprecedented conditions, and we continue our commitment to supporting the global response to the crisis. Although there are effective vaccines for COVID-19 that have been approved for 39 Table of Contents use, distribution of the vaccines did not begin until late 2020, and a majority of the public will likely not have access to a vaccination until sometime in 2021. Accordingly, there remains significant uncertainty about the duration and extent of the impact from the COVID-19 pandemic. We are proud of our employees who are giving extraordinary effort under difficult circumstances to ensure that we can supply the products our consumers depend on. We have been pleased with our preparation and efforts through the pandemic and believe we remain well positioned for the future as we continue to navigate the crisis and prepare for an eventual return to a more normal operating environment. To date, we have successfully implemented contingency plans overseen by crisis management teams to monitor the evolving needs of our business. Employee and Consumer Health and Safety Precautions From the outset of the pandemic, our first priority has been the well-being of our employees and consumers. We were early adopters of guidance from global health authorities for preventing the spread of COVID-19, and we have consistently met or exceeded government guidelines for addressing the health and safety of our employees, including global travel restrictions, prohibitions against visitors, social distancing requirements, the use of thermal temperature scanners, and the provision of personal protective equipment to our employees. We have also enabled the use of new technology to allow many of our office-based employees to work from home effectively. Manufacturing Facilities and Supply Chain Challenges As we navigate a new wave of COVID-19 outbreaks with the cooler weather and the resulting increase of indoor gatherings, w e continue to monitor and comply with applicable government orders, as some of the jurisdictions in which we do business re-introduced lockdowns and restrictions. We may face additional operational challenges as well as increased operating costs in manufacturing our products and making them available to customers and consumers as a result of the COVID-19 pandemic. Shelter-in-place and social distancing behaviors, which are being mandated or encouraged by governments and practiced by businesses and individuals, create challenges for our manufacturing employees as well as for third parties on which we rely to make our products available to consumers. These third parties include our suppliers, contract manufacturers, distributors, logistics providers and other business partners, as well as the retailers that ultimately sell our products to consumers. We believe our planning has us well positioned to continue to manage these supply chain challenges. We identified our most important products and secondary sources of supply and manufacturing capabilities for those key products. We continue to acquire extra raw materials, supplement our inventory levels and add temporary labor as needed to support our extra manufacturing and health and safety initiatives. We also continue to consolidate product shipping orders to more efficiently meet the increased customer and consumer demand. The framework for these supply chain measures will remain in place for as long as necessary to continue to meet any further surges in demand. Consumer Demand To date, shelter-in-place and social distancing behaviors have resulted in increased overall demand for our products, most notably in our grocery, snacks, tea and certain personal care product categories. Other product offerings, such as sun care products and the United Kingdom Fruit business we disposed of in January2021, have been adversely impacted due to changed consumer behavior and priorities. While we have experienced a net increase in the overall demand for our products during the COVID-19 pandemic, the continued duration of that increased demand environment is uncertain. Additionally, deteriorating economic conditions arising from the COVID-19 pandemic could adversely affect future demand for our products. Factors such as increased unemployment, decreases in disposable income and declines in consumer confidence could cause a decrease in demand for our overall product set, particularly higher priced products. Our Financial Position The COVID-19 pandemic has resulted in a net increase in overall demand for our products. Accordingly, to date, our financial position has benefited from the COVID-19 pandemic, albeit to a limited extent. We finance our operations primarily with the cash flows we generate from our operations and from borrowings available to us under our Third Amended and Restated Credit Agreement (as amended, the “Amended Credit Agreement”). As of December 31, 2020, we had borrowing capacity of $700.6 million available under the Amended Credit Agreement. Business Priorities 40 Table of Contents While the current environment has caused us to delay certain planned innovation and productivity initiatives, our business strategy of simplifying our portfolio and reinvigorating profitable sales growth remains unchanged. Financial Impact on Third Parties and Equity Investments Deteriorating economic conditions could jeopardize the viability of some third parties and our business relationships with them and could cause us to incur losses or increased costs in our dealings with those third parties. We have taken measures to minimize the impact of hardships faced by individual business partners, including by identifying secondary sources of supply and manufacturing capabilities. Productivity and Transformation Costs In fiscal 2019, the Company announced a strategy that includes as one of its key pillars identifying areas of cost savings and operating efficiencies to expand profit margins and cash flow. As part of this overall strategy and the key pillar of realizing savings and efficiencies, during fiscal 2020, the Company began the integration of its United States and Canada operations in alignment with the North America reportable segment structure. In addition, during fiscal 2021, the Company initiated cost reduction programs for its international businesses in the United Kingdom and Europe. The Company will carry out additional productivity initiatives under this strategy in fiscal 2021. Productivity and transformation costs include costs, such as consulting and severance costs, relating to streamlining the Company’s manufacturing plants, co-packers and supply chain, eliminating served categories or brands within those categories, and product rationalization initiatives which are aimed at eliminating slow moving SKUs. Discontinued Operations On August 27, 2019, the Company and Ebro Foods S.A. entered into, and consummated the transactions contemplated by, an agreement relating to the sale and purchase of the Tilda Group Entities and certain other assets. On February 15, 2019, the Company completed the sale of substantially all of the assets used primarily for the Plainville Farms business, a component of the Company’s Hain Pure Protein Corporation (“HPPC”) operating segment. On June 28, 2019, the Company completed the sale of the remainder of HPPC and Empire Kosher which included the FreeBird and Empire Kosher businesses. These dispositions were undertaken to reduce complexity in the Company’s operations and simplify the Company’s brand portfolio, in addition to allowing additional flexibility to focus on opportunities for growth and innovation in the Company’s more profitable and faster growing core businesses. Collectively, these dispositions were reported in the aggregate as the Hain Pure Protein reportable segment. These dispositions represented strategic shifts that had a major impact on the Company’s operations and financial results, and therefore, the Company is presenting the operating results and cash flows of the Tilda operating segment and the Hain Pure Protein reportable segment within discontinued operations in the current and prior peri ods. Se e Note 4, Assets Held for Sale and Discontinued Operations , in the Notes to the Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q for additional information on discontinued operations. 41 Table of Contents Comparison of Three Months Ended December 31, 2020 to Three Months Ended December 31, 2019 Consolidated Results The following table compares our results of operations, including as a percentage of net sales, on a consolidated basis, for the three months ended December 31, 2020 and 2019 (amounts in thousands, other than percentages, which may not add due to rounding): Three Months Ended Change in December 31, 2020 December 31, 2019 Dollars Percentage Net sales $ 528,418 100.0% $ 506,784 100.0% $ 21,634 4.3% Cost of sales 398,453 75.4% 401,177 79.2% (2,724) (0.7)% Gross profit 129,965 24.6% 105,607 20.8% 24,358 23.1% Selling, general and administrative expenses 83,620 15.8% 79,078 15.6% 4,542 5.7% Amortization of acquired intangible assets 2,193 0.4% 3,189 0.6% (996) (31.2)% Productivity and transformation costs 6,016 1.1% 12,260 2.4% (6,244) (50.9)% Long-lived asset and intangibles impairment 25,179 4.8% 1,889 0.4% 23,290 1,232.9% Operating income 12,957 2.5% 9,191 1.8% 3,766 41.0% Interest and other financing expense, net 2,337 0.4% 4,737 0.9% (2,400) (50.7)% Other (income) expense, net (1,045) (0.2)% 1,244 0.2% (2,289) * Income from continuing operations before income taxes and equity in net loss of equity-method investees 11,665 2.2% 3,210 0.6% 8,455 263.4% Provision for income taxes 8,438 1.6% 1,020 0.2% 7,418 727.3% Equity in net loss of equity-method investees 1,076 —% 338 —% 738 218.3% Net income from continuing operations $ 2,151 0.4% $ 1,852 0.4% $ 299 16.1% Net loss from discontinued operations, net of tax (11) —% (2,816) (0.6)% 2,805 * Net income (loss) $ 2,140 0.4% $ (964) (0.2)% $ 3,104 * Adjusted EBITDA $ 62,191 11.8% $ 45,047 8.9% $ 17,144 38.1% Diluted net income per common share from continuing operations $ 0.02 $ 0.02 $ — —% Diluted net (loss) income per common share from discontinued operations — (0.03) 0.03 * Diluted net income (loss) per common share $ 0.02 $ (0.01) $ 0.03 * * Percentage is not meaningful due to one or more numbers being negative. Net Sales Net sales for the three months ended December 31, 2020 were $528.4 million, an increase of $21.6 million, or 4.3%, as compared to $506.8 million in the three months ended December 31, 2019. On a constant currency basis, net sales increased approximately 2.2% from the prior year quarter. Net sales on a constant currency basis increased in both the North America and International reportable segments. Further details of changes in net sales by segment and on a constant currency basis are provided below. 42 Table of Contents Gross Profit Gross profit for the three months ended December 31, 2020 was $130.0 million, an increase of $24.4 million, or 23.1%, as compared to the prior year quarter. Gross profit margin was 24.6% of net sales, compared to 20.8% in the prior year quarter. The increase was driven by cost savings from the Company's productivity and transformation initiatives, favorable product mix and lower trade promotion costs in both our North America and International reportable segments. Selling, General and Administrative Expenses Selling, general and administrative expenses were $83.6 million for the three months ended December 31, 2020, an increase of $4.5 million, or 5.7%, from $79.1 million for the prior year quar ter. The increase was primarily due to marketing and advertising costs, partially offset by lower selling expenses incurred in fiscal year 2021 due to efficiencies gained from the Company's productivity and transformation initiatives. Selling, general and a dministrative expenses as a percentage of net sales was 15.8% in the three months ended December 31, 2020 compared to 15.6% in the prior year quarter, reflecting an increase of 20 basis points primarily attributable to the aforementioned items. Amortization of Acquired Intangible Assets Amortization of acquired intangibles was $2.2 million for the three months ended December 31, 2020, a decrease of $1.0 million from $3.2 million in the prior year quarter . The decrease was due to no amortization of Fruit business intangibles during the second quarter of fiscal 2021 (which were presented instead as part of assets held for sale) and finite-lived intangibles from historical acquisitions becoming fully amortized or impaired during fiscal year 2020, partially offset by indefinite-lived intangibles being changed to finite-lived intangibles during the first quarter of fiscal 2021. Productivity and Transformation Costs Productivity and transformation costs were $6.0 million for the three months ended December 31, 2020, a decrease of $6.2 million from $12.3 million in the prior year quarter. The decrease was primarily due to higher consulting fees and severance costs incurred in connection with the Company’s productivity and transformation initiatives in the prior year quarter and fewer comparable costs incurred in the current year quarter. Long-lived Asset and Intangibles Impairment During the three months ended December 31, 2020, the Company recognized a pre-tax impairment charge of $23.6 million related to the impairment recorded against the assets of the Company's U.K. Fruit business (see Note 4, Assets Held for Sale and Discontinued Operations , in the Notes to the Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q). There was no impairment charge recorded in the corresponding period for the three months ended December 31, 2019. Operating Income Operating income for the three months ended December 31, 2020 was $13.0 million compared to $9.2 million in the prior year quarter as a result of the items described above. Interest and Other Financing Expense, Net Interest and other financing expense, net totaled $2.3 million for the three months ended December 31, 2020, a decrease of $2.4 million, or 50.7%, from $4.7 million in the prior year quarter. The decrease resulted primarily from lower interest expense related to our revolving credit facility as a result of lower outstanding debt and lower variable interest rates on the portion of the debt not hedged by the derivatives, partially offset by the amount of the debt impacted by the related derivatives. See Note 9, Debt and Borrowings , in the Notes to the Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q. Other (Income) Expense, Net Other income, net totaled $1.0 million for the three months ended December 31, 2020, compared to expense of $1.2 million in the prior year quarter . The change from expense to income was primarily attributable to a loss on the sale of a business which occurred in the prior year quarter and did not occur in the current quarter. 43 Table of Contents Income from Continuing Operations Before Income Taxes and Equity in Net Loss of Equity-Method Investees Income before income taxes and equity in net loss of our equity-method investees for the three months ended December 31, 2020 was income of $11.7 million compared to income of $3.2 million in the prior year quarter. The increase was due to the items discussed above. Provision for Income Taxes The provision for income taxes includes federal, foreign, state and local income taxes. Our income tax expense from continuing operations was $8.4 million for the three months ended December 31, 2020 compared to an income tax expense of $1.0 million in the prior year quarter. The effective income tax rate from continuing operations was an expense of 72.3% and 31.8% for the three months ended December 31, 2020 and December 31, 2019, respectively. The effective income tax rate from continuing operations for the three months ended December 31, 2020 was impacted by the tax impact of the U.K. Fruit business impairment. In addition, the effective income tax rates from continuing operations for the three months ended December 31, 2020 and 2019 were impacted by provisions in the Tax Cuts and Jobs Act, primarily related to Global Intangible Low Taxed Income and limitations on the deductibility of executive compensation. The effective income tax rates in each period were also impacted by the geographical mix of earnings and state valuation allowance. In December 2020, the Company received $28.8 million including $0.1 million of interest from the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") refund claim filed in July 2020. Our effective tax rate may change from period-to-period based on recurring and non-recurring factors including the geographical mix of earnings, enacted tax legislation, state and local income taxes and tax audit settlements. Equity in Net Loss of Equity-Method Investees Our equity in net loss from our equity-method investments for the three months ended December 31, 2020 was $1.1 million and $0.3 million in the prior year quarter. See Note 13, Investments , in the Notes to the Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q. Net Income from Continuing Operations Net income from continuing operations for the three months ended December 31, 2020 was $2.2 million, or $0.02 per diluted share, compared to net income of $1.9 million, or $0.02 per diluted share, for the three months ended December 31, 2019. The increase in net income was attributable to the factors noted above. Net Loss from Discontinued Operations, Net of Tax Net loss from discontinued operations, net of tax, for the three months ended December 31, 2020 was $11 thousand, compared to a loss of $2.8 million in the three months ended December 31, 2019 . During the three months ended December 31, 2019, the Company recognized a $3.8 million adjustment to the sale of Tilda entries relating to post-closing adjustments. See Note 4, Assets Held for Sale and Discontinued Operations , in the Notes to the Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q for further discussion. Net Income (Loss) Net income for the three months ended December 31, 2020 was $2.1 million, or $0.02 per diluted share, compared to a net loss of $1.0 million, or $0.01 per diluted share, in the prior year quarter. The change from net loss to net income was attributable to the factors noted above. Adjusted EBITDA Our Adjusted EBITDA was $62.2 million and $45.0 million for the three months ended December 31, 2020 and 2019, respectively, as a result of the factors discussed above and the adjustments described in the Reconciliation of Non-U.S. GAAP Financial Measures to U.S. GAAP Measures presented following the discussion of our results of operations. 44 Table of Contents Segment Results The following table provides a summary of net sales and operating income (loss) by reportable segment for the three months ended December 31, 2020 and 2019: (dollars in thousands) North America International Corporate and Other Consolidated Net sales Three months ended 12/31/20 $ 282,612 $ 245,806 $ — $ 528,418 Three months ended 12/31/19 280,693 226,091 — 506,784 $ change $ 1,919 $ 19,715 n/a $ 21,634 % change 0.7 % 8.7 % n/a 4.3 % Operating income (loss) Three months ended 12/31/20 $ 32,440 $ (2,741) $ (16,742) $ 12,957 Three months ended 12/31/19 20,062 12,899 (23,770) 9,191 $ change $ 12,378 $ (15,640) $ 7,028 $ 3,766 % change 61.7 % * * 41.0 % Operating income (loss) margin Three months ended 12/31/20 11.5 % (1.1) % n/a 2.5 % Three months ended 12/31/19 7.1 % 5.7 % n/a 1.8 % * Percentage is not meaningful due to one or more numbers being negative. North America Our net sales in the North America reportable segment for the three months ended December 31, 2020 were $282.6 million, an increase of $1.9 million, or 0.7%, from net sales of $280.7 million in the prior year quarter. The increase in net sales was primarily driven by an increase in overall demand for our products as a result of increased at-home food consumption, most notably in our snacks, tea, yogurt and certain personal care product categories, partially offset by brand divestitures and the strategic decision to no longer support certain lower margin SKUs in order to reduce complexity and increase gross margins. Operating income in North America for the three months ended December 31, 2020 was $32.4 million, an increase of $12.4 million from $20.1 million in the prior year quarter due to a favorable product mix, lower selling expenses and cost efficiencies gained as a result of the Company's productivity and transformation initiatives. I nternational Our net sales in the International reportable segment for the three months ended December 31, 2020 were $245.8 million, an increase of $19.7 million, or 8.7%, from net sales of $226.1 million in the prior year quarter. On a constant currency basis, net sales increased 4.4% from the prior year quarter primarily due to an increase in overall demand for our products including the growth in our plant based food and beverage products coupled with the overall trend of increased stay-at-home consumption partially offset by a decline in the Fruit business. Operating loss in our International reportable segment for the three months ended December 31, 2020 was $2.7 million, compared to operating income of $12.9 million for the three months ended December 31, 2019. The current quarter loss was primarily due to a reserve of $23.6 million recorded against the U.K. Fruit business, partially offset by the increase in net sales described above. 45 Table of Contents Corporate and Other Our Corporate and Other category consists of expenses related to the Company’s centralized administrative functions, which do not specifically relate to an operating segment. Such Corporate and Other expenses are comprised mainly of compensation and related expenses of certain of the Company’s senior executive officers and other employees who perform duties related to our entire enterprise as well as expenses for certain professional fees, facilities, and other items which benefit the Company as a whole. Our Corporate and Other expenses for the three months ended December 31, 2020 were $16.7 million, a decrease of $7.0 million, from $23.8 million. This change was primarily related to productivity and transformation costs included in Corporate and Other, which for the three months ended December 31, 2020 were $2.7 million, a decrease of $7.1 million, from $9.8 million for the three months ended December 31, 2019. Refer to Note 18, Segment Information , in the Notes to the Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q. 46 Table of Contents Comparison of Six Months Ended December 31, 2020 to Six Months Ended December 31, 2019 Consolidated Results The following table compares our results of operations, including as a percentage of net sales, on a consolidated basis, for the six months ended December 31, 2020 and 2019 (amounts in thousands, other than percentages, which may not add due to rounding): Six Months Ended Change in December 31, 2020 December 31, 2019 Dollars Percentage Net sales $ 1,027,045 100.0% $ 988,860 100.0% $ 38,185 3.9% Cost of sales 777,916 75.7% 785,422 79.4% (7,506) (1.0)% Gross profit 249,129 24.3% 203,438 20.6% 45,691 22.5% Selling, general and administrative expenses 162,772 15.8% 159,758 16.2% 3,014 1.9% Amortization of acquired intangible assets 4,626 0.5% 6,272 0.6% (1,646) (26.2)% Productivity and transformation costs 7,818 0.8% 26,435 2.7% (18,617) (70.4)% Proceeds from insurance claim — —% (2,562) (0.3)% 2,562 * Long-lived asset and intangibles impairment 57,676 5.6% 1,889 0.2% 55,787 2,953.3% Operating income 16,237 1.6% 11,646 1.2% 4,591 39.4% Interest and other financing expense, net 4,790 0.5% 11,031 1.1% (6,241) (56.6)% Other (income) expense, net (2,418) (0.2)% 2,572 0.3% (4,990) * Income (loss) from continuing operations before income taxes and equity in net loss of equity-method investees 13,865 1.3% (1,957) (0.2)% 15,822 * Provision for income taxes 21,400 2.1% 489 —% 20,911 4,276.3% Equity in net loss of equity-method investees 1,095 —% 655 —% 440 67.2% Net loss from continuing operations $ (8,630) (0.8)% $ (3,101) (0.3)% $ (5,529) * Net income (loss) from discontinued operations, net of tax 11,255 1.1% (104,884) (10.6)% 116,139 * Net income (loss) $ 2,625 0.3% $ (107,985) (10.9)% $ 110,610 * Adjusted EBITDA 117,086 11.4% 77,137 7.8% $ 39,949 51.8% Diluted net loss per common share from continuing operations $ (0.09) $ (0.03) $ (0.06) * Diluted net income (loss) per common share from discontinued operations 0.11 (1.01) 1.12 * Diluted net income (loss) per common share $ 0.02 $ (1.04) $ 1.06 * * Percentage is not meaningful due to one or more numbers being negative. Net Sales Net sales for the six months ended December 31, 2020 were $1,027.0 million, an increase of $38.2 million, or 3.9%, as compared to $988.9 million in the six months ended December 31, 2019 as a result of an increase in sales in both the North America and International reportable segments. On a constant currency basis, net sales increased approximately 1.9% from the prior comparable period. Net sales on a constant currency basis increased in both the North America and International reportable segments. Further details of changes in net sales by segment and on a constant currency basis are provided below. 47 Table of Contents Gross Profit Gross profit for the six months ended December 31, 2020 was $249.1 million, an increase of $45.7 million, or 22.5%, as compared to the prior year comparable period. Gross profit margin was 24.3% of net sales, compared to 20.6% in the prior year comparable period. The increase was driven by cost savings from the Company's productivity and transformation initiatives, favorable product mix and lower trade promotion costs in both our North America and International reportable segments. Selling, General and Administrative Expenses Selling, general and administrative expenses were $162.8 million for the six months ended December 31, 2020, an increase of $3.0 million, or 1.9%, from $159.8 million for the prior year comparable period . The increase was due to higher selling expenses incurred in fiscal year 2021 due to an increase in marketing and advertising costs. Selling, general and a dministrative expenses as a percentage of net sales was 15.8% in the six months ended December 31, 2020 compared to 16.2% in the prior year comparable period, attributable to the aforementioned items described in net sales. Amortization of Acquired Intangible Assets Amortization of acquired intangibles was $4.6 million for the six months ended December 31, 2020, a decrease of $1.6 million from $6.3 million in the prior year comparable period . The decrease was due to no amortization of Fruit business intangibles during the first half of fiscal 2021 (which were presented instead as part of assets held for sale) and finite-lived intangibles from historical acquisitions becoming fully amortized or impaired during fiscal year 2020. Productivity and Transformation Costs Productivity and transformation costs were $7.8 million for the six months ended December 31, 2020, a decrease of $18.6 million from $26.4 million in the prior year comparable period. The decrease was primarily due to higher consulting fees and severance costs incurred in connection with the Company’s productivity and transformation initiatives in the prior year period and fewer comparable costs incurred in the first half of fiscal 2021. Proceeds from Insurance Claim In July of 2019, the Company received $7.0 million as partial payment from an insurance claim relating to business disruption costs associated with a co-packer. Of this amount, $4.5 million was recognized in fiscal 2019 as it related to reimbursement of costs already incurred, with the remaining $2.6 million recognized in the six months ended December 31, 2019. Long-lived Asset and Intangibles Impairment During the six months ended December 31, 2020, the Company recognized a pre-tax impairment charge of $57.7 million. Included in this amount is $56.1 million related to the reserve recorded against the assets of the Company's U.K. Fruit business (see Note 4, Assets Held for Sale and Discontinued Operations , in the Notes to the Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q). The remaining amount of $1.6 million related to impairment of property, plant and equipment and other non-current assets. There was no impairment charge recorded in the corresponding period in the six months ended December 31, 2019. Operating Income Operating income for the six months ended December 31, 2020 was $16.2 million compared to $11.6 million in the prior year comparable period as a result of the items described above. Interest and Other Financing Expense, Net Interest and other financing expense, net totaled $4.8 million for the six months ended December 31, 2020, a decrease of $6.2 million, or 56.6%, from $11.0 million in the prior year comparable period. The decrease resulted primarily from lower interest expense related to our revolving credit facility as a result of lower outstanding debt and lower variable interest rates on the portion of the debt not hedged by the derivatives, partially offset by the amount of the debt impacted by the related derivatives. See Note 9, Debt and Borrowings , in the Notes to the Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q. 48 Table of Contents Other (Income) Expense, Net Other income, net totaled $2.4 million for the six months ended December 31, 2020, compared to expense of $2.6 million in the prior year comparable period . The change from expense to income was primarily attributable to a loss on the sale of a business of $1.8 million which occurred in the prior year comparable period and did not occur in the current year to date period. The remainder of the change from expense to income is a result of net unrealized foreign currency gains in fiscal 2021 principally due to the effect of foreign currency movements on the remeasurement of foreign currency denominated loans compared to net unrealized foreign currency losses incurred in the prior year comparable period. Income (Loss) from Continuing Operations Before Income Taxes and Equity in Net Loss of Equity-Method Investees Income (loss) before income taxes and equity in net loss of our equity-method investees for the six months ended December 31, 2020 was income of $13.9 million compared to a loss of $2.0 million in the prior year comparable period. The increase was due to the items discussed above. Provision for Income Taxes The provision for income taxes includes federal, foreign, state and local income taxes. Our income tax expense from continuing operations was $21.4 million for the six months ended December 31, 2020 compared to $0.5 million in the prior year comparable period. The effective income tax rate from continuing operations was an expense of 154.3% and 25.0% for the six months ended December 31, 2020 and 2019 , respectively. The effective income tax rate from continuing operations for the period ended December 31, 2020 was impacted by various discrete items including the tax impact of the United Kingdom Fruit business reserve, the enacted change in the United Kingdom's corporate income tax rate to 19% and a legal entity reorganization completed during the quarter ended September 30, 2020. In addition, the effective income tax rates from continuing operations for the six months ended December 31, 2020 and 2019 were impacted by provisions in the Tax Cuts and Jobs Act, primarily related to Global Intangible Low Taxed Income and limitations on the deductibility of executive compensation. The effective income tax rates in each period were also impacted by the geographical mix of earnings and state valuation allowance. In August 2020, the Company received $25.0 million including $1.2 million of interest from the CARES Act refund claim filed in July 2020. In December 2020, the Company received $28.8 million including $0.1 million of interest from the CARES Act refund claim filed in July 2020. Our effective tax rate may change from period-to-period based on recurring and non-recurring factors including the geographical mix of earnings, enacted tax legislation, state and local income taxes and tax audit settlements. Equity in Net Loss of Equity-Method Investees Our equity in net loss from our equity-method investments for the six months ended December 31, 2020 was $1.1 million and $0.7 million in the prior year comparable period. See Note 13, Investments , in the Notes to the Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q. Net Loss from Continuing Operations Net loss from continuing operations for the six months ended December 31, 2020 was $8.6 million, or $0.09 per diluted share, compared to $3.1 million, or $0.03 per diluted share, for the six months ended December 31, 2019. The increase in net loss was attributable to the factors noted above. Net Income (Loss) from Discontinued Operations, Net of Tax Net income (loss) from discontinued operations, net of tax, for the six months ended December 31, 2020 was income of $11.3 million, or $0.11 per diluted share, compared to a loss of $104.9 million, or $1.01 per diluted share, in the six months ended December 31, 2019 . During the six months ended December 31, 2020, the Company recognized a $11.3 million adjustment to the Tilda business primarily related to the recognition of a deferred tax benefit. Net loss from discontinued operations, net of tax, for the six months ended December 31, 2019 included a reclassification of $95.1 million of cumulative translation losses from accumulated other comprehensive loss to the Company's results of the Tilda business' discontinued operations. The income tax 49 Table of Contents expense from discontinued operations of $13.5 million for the six months ended December 31, 2019 was impacted by $15.3 million of tax related to the tax gain on the sale of the Tilda entities. See Note 4, Assets Held for Sale and Discontinued Operations , in the Notes to the Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q for further discussion. Net Income (Loss) Net income for the six months ended December 31, 2020 was $2.6 million, or $0.02 per diluted share, compared to a net loss of $108.0 million, or $1.04 per diluted share, in the prior year comparable period. The change from net loss to net income was attributable to the factors noted above. Adjusted EBITDA Our Adjusted EBITDA was $117.1 million and $77.1 million for the six months ended December 31, 2020 and 2019, respectively, as a result of the factors discussed above and the adjustments described in the Reconciliation of Non-U.S. GAAP Financial Measures to U.S. GAAP Measures presented following the discussion of our results of operations. Segment Results The following table provides a summary of net sales and operating income by reportable segment for the six months ended December 31, 2020 and 2019: (dollars in thousands) North America International Corporate and Other Consolidated Net sales Six months ended 12/31/20 $ 563,280 $ 463,765 $ — $ 1,027,045 Six months ended 12/31/19 552,394 436,466 — 988,860 $ change $ 10,886 $ 27,299 n/a $ 38,185 % change 2.0 % 6.3 % n/a 3.9 % Operating income (loss) Six months ended 12/31/20 $ 65,696 $ (18,630) $ (30,829) $ 16,237 Six months ended 12/31/19 35,194 22,006 (45,554) 11,646 $ change $ 30,502 $ (40,636) $ 14,725 $ 4,591 % change 86.7 % * * 39.4 % Operating income (loss) margin Six months ended 12/31/20 11.7 % (4.0) % n/a 1.6 % Six months ended 12/31/19 6.4 % 5.0 % n/a 1.2 % * Percentage is not meaningful due to one or more numbers being negative. North America Our net sales in the North America reportable segment for the six months ended December 31, 2020 were $563.3 million, an increase of $10.9 million, or 2.0%, from net sales of $552.4 million in the prior year comparable period. The increase in net sales was primarily driven by an increase in overall demand for our products as a result of increased at-home food consumption, most notably in our snacks, tea, yogurt, and certain personal care product categories, partially offset by brand divestitures and the strategic decision to no longer support certain lower margin SKUs in order to reduce complexity and increase gross margins. Operating income in North America for the six months ended December 31, 2020 was $65.7 million, an increase of $30.5 million from $35.2 million in the prior year comparable period. The increase was driven by a favorable product mix, lower selling expenses and cost efficiencies gained with the Company's productivity and transformation initiatives. 50 Table of Contents I nternational Our net sales in the International reportable segment for the six months ended December 31, 2020 were $463.8 million, an increase of $27.3 million, or 6.3%, from net sales of $436.5 million in the prior year comparable period. On a constant currency basis, net sales increased 1.7% from the prior year comparable period primarily due to an increase in overall demand for our products including the growth in our plant based food and beverage products. Operating loss in our International reportable segment for the six months ended December 31, 2020 was $18.6 million, a decrease of $40.6 million from operating income of $22.0 million for the six months ended December 31, 2019. The decrease was primarily due to a reserve of $56.1 million recorded against the United Kingdom's Fruit business. Corporate and Other Our Corporate and Other category consists of expenses related to the Company’s centralized administrative functions, which do not specifically relate to an operating segment. Such Corporate and Other expenses are comprised mainly of compensation and related expenses of certain of the Company’s senior executive officers and other employees who perform duties related to our entire enterprise as well as expenses for certain professional fees, facilities, and other items which benefit the Company as a whole. Our Corporate and Other expenses for the six months ended December 31, 2020 were $30.8 million, a decrease of $14.7 million, from $45.6 million in the prior year period. This change was primarily related to productivity and transformation costs included in Corporate and Other, which for the six months ended December 31, 2020 were $3.5 million, a decrease of $17.0 million, from $20.6 million for the six months ended December 31, 2019. Refer to Note 18, Segment Information , in the Notes to the Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q. Liquidity and Capital Resources We finance our operations and growth primarily with the cash flows we generate from our operations and from borrowings available to us under our Amended Credit Agreement. As of December 31, 2020, $700.6 million was available under the Amended Credit Agreement, and the Company was in compliance with all associated covenants. We believe that our cash flows from operations and borrowing capacity under our Amended Credit Agreement will be adequate to meet anticipated operating and other expenditures for the foreseeable future. Our cash and cash equivalents balance, including those balances classified as held for sale, increased $22.9 million at December 31, 2020 to $60.6 million as compared to $37.8 million at June 30, 2020. Our working capital from continuing operations was $270.8 million at December 31, 2020, an increase of $10.1 million from $260.7 million at the end of fiscal 2020. Liquidity is affected by many factors, some of which are based on normal ongoing operations of the Company’s business and some of which arise from fluctuations related to global economics and markets. Our cash balances are held in the United States, United Kingdom, Canada, Europe and India. As of December 31, 2020, substantially all of the total cash balance from continuing operations was held outside of the United States due to debt repayments made towards our revolving credit facility at the end of the period by the United States operating segment. 51 Table of Contents We maintain our cash and cash equivalents primarily in money market funds or their equivalent. As of December 31, 2020, all of our investments were expected to mature in less than three months. Accordingly, we do not believe that our investments have significant exposure to interest rate risk. Cash provided by (used in) operating, investing and financing activities is summarized below. Six Months Ended December 31, Change in (amounts in thousands) 2020 2019 Dollars Cash flows provided by (used in): Operating activities from continuing operations $ 104,530 $ 17,148 $ 87,382 Investing activities from continuing operations (25,244) (16,217) (9,027) Financing activities from continuing operations (62,170) 3,694 (65,864) Effect of exchange rate changes on cash from continuing operations 5,734 1,382 4,352 Increase in cash from continuing operations 22,850 6,007 16,843 Decrease in cash from discontinued operations — (8,509) 8,509 Net increase (decrease) in cash and cash equivalents $ 22,850 $ (2,502) $ 25,352 Cash provided by operating activities from continuing operations was $104.5 million for the six months ended December 31, 2020, an increase of $87.4 million from cash provided by operating activities from continuing operations of $17.1 million in the prior year period. This increase resulted primarily from an improvement of $51.7 million in net income adjusted for non-cash charges in the current period and greater cash generation of $35.7 million from our working capital accounts. Cash used in investing activities from continuing operations was $25.2 million for the six months ended December 31, 2020, an increase of $9.0 million from $16.2 million in the prior year period primarily due to lower proceeds received in the prior year period from the sale of businesses. Cash used in financing activities from continuing operations was $62.2 million for the six months ended December 31, 2020, a decrease in cash provided of $65.9 million compared to $3.7 million of cash provided in the prior year period. Cash used in financing activities from continuing operations for the six months ended December 31, 2020 included $13.0 million of net borrowings of our revolving credit facility and $71.7 million of share repurchases. Cash provided by financing activities from continuing operations for the six months ended December 31, 2019 included $309.9 million related to the proceeds from the sale of Tilda, partially offset by $305.3 million of net repayments of our term loan, revolving credit facility and other debt. Operating Free Cash Flow from Continuing Operations Our operating free cash flow from continuing operations was $74.9 million for the six months ended December 31, 2020, an improvement of $87.0 million from negative $12.2 million in the six months ended December 31, 2019. This improvement resulted primarily from an improvement of $51.7 million in net income adjusted for non-cash charges in the current period and greater cash generation of $35.7 million from our working capital accounts. See the Reconciliation of Non-U.S. GAAP Financial Measures to U.S. GAAP Measures following the discussion of our results of operations for definitions and a reconciliation from our net cash provided by operating activities from continuing operations to operating free cash flow from continuing operations. Share Repurchase Program On June 21, 2017, the Company’s Board of Directors authorized the repurchase of up to $250 million of the Company’s issued and outstanding common stock. Repurchases may be made from time to time in the open market, pursuant to pre-set trading plans, in private transactions or otherwise. The authorization does not have a stated expiration date. The extent to which the Company repurchases its shares and the timing of such repurchases will depend upon market conditions and other corporate considerations. During the six months ended December 31, 2020, the Company repurchased 2,204 shares under the program for a total of $71.7 million, excluding commissions, at an average price of $32.53 per share. As of December 31, 2020, the Company had $118.1 million of remaining authorization under the share repurchase program. 52 Table of Contents Reconciliation of Non-U.S. GAAP Financial Measures to U.S. GAAP Measures We have included in this report measures of financial performance that are not defined by U.S. GAAP. We believe that these measures provide useful information to investors and include these measures in other communications to investors. For each of these non-U.S. GAAP financial measures, we are providing below a reconciliation of the differences between the non-U.S. GAAP measure and the most directly comparable U.S. GAAP measure, an explanation of why our management and Board of Directors believe the non-U.S. GAAP measure provides useful information to investors and any additional purposes for which our management and Board of Directors use the non-U.S. GAAP measures. These non-U.S. GAAP measures should be viewed in addition to, and not in lieu of, the comparable U.S. GAAP measures. Constant Currency Presentation We believe that this measure provides useful information to investors because it provides transparency to underlying performance in our consolidated net sales by excluding the effect that foreign currency exchange rate fluctuations have on year-to-year comparability given the volatility in foreign currency exchange markets. To present this information for historical periods, current period net sales for entities reporting in currencies other than the U.S. dollar are translated into U.S. dollars at the average monthly exchange rates in effect during the corresponding period of the prior fiscal year, rather than at the actual average monthly exchange rate in effect during the current period of the current fiscal year. As a result, the foreign currency impact is equal to the current year results in local currencies multiplied by the change in average foreign currency exchange rate between the current fiscal period and the corresponding period of the prior fiscal year. A reconciliation between reported and constant currency net sales increase (decrease) is as follows: (amounts in thousands) North America International Hain Consolidated Net sales - Three Months Ended December 31, 2020 $ 282,612 $ 245,806 $ 528,418 Impact of foreign currency exchange (465) (9,819) (10,284) Net sales on a constant currency basis - Three Months Ended December 31, 2020 $ 282,147 $ 235,987 $ 518,134 Net sales - Three Months Ended December 31, 2019 $ 280,693 $ 226,091 $ 506,784 Net sales growth on a constant currency basis 0.5 % 4.4 % 2.2 % Net sales - Six Months Ended December 31, 2020 $ 563,280 $ 463,765 $ 1,027,045 Impact of foreign currency exchange (101) (19,705) (19,806) Net sales on a constant currency basis - Six Months Ended December 31, 2020 $ 563,179 $ 444,060 $ 1,007,239 Net sales - Six Months Ended December 31, 2019 $ 552,394 $ 436,466 $ 988,860 Net sales growth on a constant currency basis 2.0 % 1.7 % 1.9 % Adjusted EBITDA Adjusted EBITDA is defined as net income (loss) before income taxes, net interest expense, depreciation and amortization, impairment of long-lived assets, equity in net loss of equity-method investees, stock-based compensation, net, productivity and transformation costs, SKU rationalization and certain inventory write-downs, unrealized currency gains and losses and other adjustments. The Company’s management believes that this presentation provides useful information to management, analysts and investors regarding certain additional financial and business trends relating to its results of operations and financial condition. In addition, management uses this measure for reviewing the financial results of the Company and as a component of performance-based executive compensation. Adjusted EBITDA is a non-U.S. GAAP measure and may not be comparable to similarly titled measures reported by other companies. We do not consider Adjusted EBITDA in isolation or as an alternative to financial measures determined in accordance with U.S. GAAP. The principal limitation of Adjusted EBITDA is that it excludes certain expenses and income that are required by U.S. GAAP to be recorded in our consolidated financial statements. In addition, Adjusted EBITDA is subject to inherent limitations as this metric reflects the exercise of judgment by management about which expenses and income are excluded or 53 Table of Contents included in determining Adjusted EBITDA. In order to compensate for these limitations, management presents Adjusted EBITDA in connection with U.S. GAAP results. A reconciliation of net income (loss) to Adjusted EBITDA is as follows: Three Months Ended December 31, Six Months Ended December 31, (amounts in thousands) 2020 2019 2020 2019 Net income (loss) $ 2,140 $ (964) $ 2,625 $ (107,985) Net (loss) income from discontinued operations, net of tax (11) (2,816) 11,255 (104,884) Net income (loss) from continuing operations 2,151 1,852 (8,630) (3,101) Provision for income taxes 8,438 1,020 21,400 489 Interest expense, net 1,300 4,000 3,454 8,552 Depreciation and amortization 11,193 13,219 24,954 27,142 Equity in net loss of equity-method investees 1,076 338 1,095 655 Stock-based compensation, net 3,823 3,083 8,190 5,820 Unrealized currency losses (gains) 225 (485) (977) 1,199 Productivity and transformation costs 5,363 12,260 6,513 26,435 Proceeds from insurance claim — — — (2,562) Long-lived asset and intangibles impairment 25,179 1,889 57,676 1,889 Warehouse/manufacturing consolidation and other costs 3,325 639 3,715 2,518 SKU rationalization and inventory write-down 107 3,927 311 3,916 Loss (gain) on sale of businesses 9 1,783 (611) 1,783 Plant closure related costs 2 1,522 (4) 2,354 Litigation and related expenses — — — 48 Adjusted EBITDA $ 62,191 $ 45,047 $ 117,086 $ 77,137 Operating Free Cash Flow from Continuing Operations In our internal evaluations, we use the non-U.S. GAAP financial measure “Operating Free Cash Flow from continuing operations.” The difference between operating free cash flow from continuing operations and cash flow provided by or used in operating activities from continuing operations, which is the most comparable U.S. GAAP financial measure, is that Operating Free Cash Flow from continuing operations reflects the impact of purchases of property, plant and equipment (capital spending). Since capital spending is essential to maintaining our operational capabilities, we believe that it is a recurring and necessary use of cash. As such, we believe investors should also consider capital spending when evaluating our cash provided by or used in operating activities. We view Operating Free Cash Flow from continuing operations as an important measure because it is one factor in evaluating the amount of cash available for discretionary investments. We do not consider Operating Free Cash Flow from continuing operations in isolation or as an alternative to financial measures determined in accordance with U.S. GAAP. 54 Table of Contents A reconciliation from cash flow provided by operating activities from continuing operations to Operating Free Cash flow from continuing operations is as follows: Six Months Ended December 31, (amounts in thousands) 2020 2019 Cash flow provided by operating activities from continuing operations $ 104,530 $ 17,148 Purchases of property, plant and equipment (29,671) (29,337) Operating free cash flow from continuing operations $ 74,859 $ (12,189) Off Balance Sheet Arrangements At December 31, 2020, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K that have had, or are likely to have, a material current or future effect on our consolidated financial statements. Critical Accounting Estimates Our financial statements are prepared in accordance with accounting principles generally accepted in the United States. The accounting principles we use require us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and amounts of income and expenses during the reporting periods presented. We believe in the quality and reasonableness of our critical accounting policies; however, materially different amounts may be reported under different conditions or using assumptions different from those that we have applied. The accounting policies that have been identified as critical to our business operations and to understanding the results of our operations pertain to revenue recognition, trade promotions and sales incentives, valuation of accounts and chargeback receivable, valuation of long-lived assets, goodwill and intangible assets, stock-based compensation and valuation allowances for deferred tax assets. The application of each of these critical accounting policies and estimates is discussed in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations , of our Annual Report on Form 10-K for the fiscal year ended June 30, 2020. Recent Accounting Pronouncements Refer to Note 2, Basis of Presentation , in the Notes to the Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q. Seasonality Certain of our product lines have seasonal fluctuations. Hot tea, hot-eating desserts and soup sales are stronger in colder months, while sales of snack foods, sunscreen and certain of our prepared food and personal care products are stronger in the warmer months. As such, our results of operations and our cash flows for any particular quarter are not indicative of the results we expect for the full year, and our historical seasonality may not be indicative of future quarterly results of operations. In recent years, net sales and diluted earnings per share in the first fiscal quarter have typically been the lowest of our four quarters.