HAIN CELESTIAL GROUP INC 10-K

Item 7. 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 (this “MD&A”) should be read in conjunction with Item 1A and the Consolidated Financial Statements and the related notes thereto for the period ended June 30, 2022 included in Item 8 of this Form 10-K. Forward-looking statements in this Form 10-K are qualified by the cautionary statement included under the heading, “Forward-Looking Statements” at the beginning of this Form 10-K. This MD&A generally discusses fiscal 2022 and fiscal 2021 items and year-to-year comparisons between fiscal 2022 and fiscal 2021. Discussions of fiscal 2020 items and year-to-year comparisons between fiscal 2021 and fiscal 2020 that are not included in this Form 10-K can be found in “Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations” of the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2021, which was filed with the SEC on August 26, 2021 and is available on the SEC’s website at www.sec.gov. 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. The Company continues to be a leading marketer, manufa cturer and seller of organic and natural, “better-for-you” 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, providing consumers with the opportunity to lead A Healthier Way of Life ® . The Company’s food and beverage brands include Celestial Seasonings ® , Clarks™, Cully & Sully ® , Earth’s Best ® , Ella’s Kitchen ® , Frank Cooper’s ® , Garden of Eatin’ ® , Hartley’s ® , Health Valley ® , Imagine ® , Joya ® , Lima ® , Linda McCartney’s ® (under license), MaraNatha ® , Natumi ® , New Covent Garden Soup Co. ® , ParmCrisps ® , Robertson’s ® , Rose’s ® (under license), Sensible Portions ® , Spectrum ® , Sun-Pat ® , Terra ® , The Greek Gods ® , Thinsters ® , Yorkshire Provender ® and Yves Veggie Cuisi ne ® . The Company’s personal care brands include Alba Botanica ® , Avalon Organics ® , JASON ® , Live Clean ® , and Queen Helene ® . Our previous strategy, which we refer to as Hain 2.0, was executed under four key pillars—(1) simplify our portfolio; (2) strengthen our capabilities; (3) expand profit margins and cash flow; and (4) reinvigorate profitable topline growth. This strategy has laid the foundation for Hain 3.0, our vision and strategy for the next several years, which is about building a global healthy food and beverage company with industry-leading top line growth. We believe Hain 3.0 positions us as an advantaged and differentiated company, as compared to others in the food industry, for several reasons: • we are primarily focused on health and wellness, • we are a global company in high-growth categories with opportunities for expansion in existing and new channels and geographies, • we have unique and advantaged brands with strong points of difference, and • given our size, small wins can drive material incremental growth. We have re-segmented the brand portfolio with a more global view to where we have the most growth potential. As a result, we have migrated from a strategy focused on rejuvenating North America behind a construct of “Get Bigger" and "Get Better” brand categories to one that focuses on growing global brands in categories where we think we have the most potential. The categories we have identified are called Turbocharge, Targeted Investment, and Fuel: • The Turbocharge brands are leading-share brands in what we believe to be very high-growth categories. The Turbocharge brands are made up of snacks as well as plant-based meat and non-dairy beverages. Our snacks businesses include brands both within the United States and in International, while our meat and dairy alternatives are concentrated outside the United States. • The Targeted Investment brands are made up of leading-share brands in lower-growth categories. To date, we have demonstrated our ability to drive market share and reinvigorate these categories, and we expect that we can continue to do this in the future. The Targeted Investment brands are made up of tea, baby, yogurt, and personal care products. 27 Table of Contents • The Fuel brands are stable brands that will be leveraged to fuel investment in the Turbocharge and Targeted Investment categories. Fuel brands are made up of premium pantry brands with scale, in categories such as soup, cooking oils and nut butters. We refer to the Turbocharge brands and Targeted Investment brands together as our Growth brands. Additionally, as part of Hain 3.0, we will continue to simplify our brand portfolio as we continue to identify brands that are declining and have low margins, which we refer to as Simplify brands. We view Simplify brands to be subscale declining businesses that have limited long-term potential for the Company, and therefore will manage such brands for profit until they are potentially divested, likely over the course of the next several years. Acquisitions are expected to play a role in Hain 3.0, and part of our capital allocation strategy is focused on actively looking for appropriate targets in the market. As we continue to simplify and stabilize the organization and consolidate sales into fewer priority categories, we believe we are well-positioned and expect to make targeted acquisitions supported by our borrowing capacity to help us further strengthen our position in those categories. Increased Supply Chain Disruptions During fiscal year 2022, we experienced increased disruption in our supply chain network, including the supply of certain ingredients, packaging, and other sourced materials, which has resulted in higher than expected inflation, including escalating transportation and other supply chain costs. We expect these inflationary cost increases to continue, although we expect they will be partially mitigated by pricing actions implemented in fiscal year 2022 and the pricing actions that we plan to implement in fiscal year 2023. It is possible that more significant disruptions to our supply chain could occur. Russia-Ukraine War Although we have no material assets in Russia, Belarus or Ukraine, our supply chain was adversely impacted by the Russia-Ukraine war during the fiscal year ended June 30, 2022, and we continue to face other challenges and risks arising from the war. In particular, the war has added significant costs to existing inflationary pressures through increased fuel and raw material prices and labor costs. Further, beyond increased costs, labor challenges and other factors have led to supply chain disruptions. While, to date, we have been able to identify replacement raw materials where necessary, we have incurred increased costs in doing so. For example, the supply of sunflower oil has become constrained, compelling us to identify and procure alternative oils. The war has also negatively impacted consumer sentiment, particularly in Europe, with some consumers shifting to lower-priced products, which has somewhat affected demand for our products. Additionally, we face increased cybersecurity risks, as companies based in the United States and its allied countries have become targets of malicious cyber activity. While we are continuing to monitor and manage the impacts of the war on our business, the extent to which the Russia-Ukraine war and the related economic impact may affect our financial condition or results of operations remains uncertain. COVID-19 The COVID-19 pandemic continues to contribute to challenging and unprecedented conditions. Challenges exacerbated by the ongoing effects of the pandemic include but are not limited to: • manufacturing and supply chain challenges, including labor market shortages; • a shifting demand environment as a result of changing consumer behaviors amid uncertain economic conditions; and • increased costs of operating our business and managing our supply chain. If we are unable to successfully manage our business through the continued challenges and uncertainty related to the COVID-19 pandemic, our business and operating results could be materially adversely affected. Acquisition On December 28, 2021, the Company acquired all outstanding stock of Proven Brands, Inc. (and its subsidiary That's How We Roll LLC) and KTB Foods Inc., collectively doing business as "That's How We Roll" ("THWR"), the producer and marketer of ParmCrisps® and Thinsters®. We believe the acquisit ion of these two fast-growing, better-for-you brands deepens the Company's position in the snacking category and represents a significant step in establishing the Company as a high-growth, global, healthy food company. See Note 4, Acquisitions and Dispositions, in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Form 10-K for additional details. Discontinued Operations 28 Table of Contents On August 27, 2019, the Company and Ebro Foods S.A. (the “Purchaser”) entered into, and consummated the transactions contemplated by, an agreement relating to the sale and purchase of the entities comprising the Company’s Tilda operating segment and certain other assets of the Tilda business. Results of Operations Comparison of Fiscal Yea r E nded June 30, 2022 to Fiscal Ye ar En ded June 30, 2021 Consolidated Results The following table compares our results of operations, including as a percentage of net sales, on a consolidated basis, for the fiscal years ended June 30, 2022 and 2021 (amounts in thousands, other than percentages which may not add due to rounding): Fiscal Year Ended June 30, Change in 2022 2021 Dollars Percentage Net sales $ 1,891,793 100.0 % $ 1,970,302 100.0 % $ (78,509) (4.0) % Cost of sales 1,464,352 77.4 % 1,478,687 75.0 % (14,335) (1.0) % Gross profit 427,441 22.6 % 491,615 25.0 % (64,174) (13.1) % Selling, general and administrative expenses 300,665 15.9 % 302,368 15.3 % (1,703) (0.6) % Amortization of acquired intangible assets 10,214 0.5 % 8,931 0.5 % 1,283 14.4 % Productivity and transformation costs 10,174 0.5 % 15,608 0.8 % (5,434) (34.8) % Proceeds from insurance claims (196) — % (592) — % 396 (66.9)% Long-lived asset and intangibles impairment 1,903 0.1 % 57,920 2.9 % (56,017) (96.7) % Operating income 104,681 5.5 % 107,380 5.4 % (2,699) (2.5) % Interest and other financing expense, net 12,570 0.7 % 8,654 0.4 % 3,916 45.3 % Other income, net (11,380) (0.6) % (10,067) (0.5) % (1,313) 13.0% Income from continuing operations before income taxes and equity in net loss of equity-method investees 103,491 5.5 % 108,793 5.5 % (5,302) (4.9) % Provision for income taxes 22,716 1.2 % 41,093 2.1 % (18,377) (44.7) % Equity in net loss of equity-method investees 2,902 0.2 % 1,591 0.1 % 1,311 82.4 % Net income from continuing operations $ 77,873 4.1 % $ 66,109 3.4 % $ 11,764 17.8 % Net income from discontinued operations, net of tax — — % 11,255 0.6 % (11,255) (100.0)% Net income $ 77,873 4.1 % $ 77,364 3.9 % $ 509 0.7% Adjusted EBITDA $ 200,616 10.6 % $ 258,938 13.1 % $ (58,322) (22.5) % Net Sales Net sales in fiscal 2022 w ere $1.89 billion, a decrease of $78.5 million, or 4.0%, from net sales of $1.97 billion in fiscal 2021 as a result of a decrease in sales in the International reportable segment partially offset by an increase in sales in the North America reportable segment. On a constant currency basis, adjusted for the impact of acquisitions, divestitures and discontinued brands, net sales decreased approximately 0.4% from the prior comparable period. On an adjusted basis, net sales decreased in the International reportable segment, which was partially offset by an increase in the North America reportable segment. Further details of changes in adjusted net sales by segment are provided below in the Segment Results section. 29 Table of Contents Gross Profit Gross profit in fiscal 2022 w as $427.4 million, a decrease of $64.2 million, or 13.1%, from gross profit of $491.6 million in fiscal 2021. Gross profit margin was 22.6% of net sales, compared to 25.0% in the prior year. The decrease in gross profit margin was due to both the North America and International reportable segments. The North America reportable segment had a decrease in gross profit mainly due to inflationary and supply chain challenges, such as continued industry-wide distribution and warehousing cost pressures driven by labor shortages, freight carrier availability and other freight cost issues, as well as lower net sales in the Canada operating segment when compared with the prior year. The decrease in the International reportable segment was mainly due to lower net sales in the United Kingdom and Europe operating segments, coupled with higher energy and supply chain costs when compared to the prior year, partially offset by higher net sales in the Ella's Kitchen UK operating segment. Selling, General and Administrative Expenses Selling, general and administrative expenses were $300.7 million in fiscal 2022, a decrease of $1.7 million, or 0.6%, from $302.4 million in fiscal 2021. The decrease was mainly due to the International reportable segment as a result of lower people-related expenses in the Europe and United Kingdom operating segments, partially offset by higher selling expenses in the Ella’s Kitchen UK operating segment. The decrease was partially offset by an increase in the North America reportable segment due to the acquisition of THWR in the United States operating segment as well as an increase in Corporate and Other as a result of higher transaction costs incurred in fiscal year 2022 including costs related to the acquisition of THWR, advisory costs related to the divestiture by affiliates of Engaged Capital, LLC of their shares of the Company's common stock, as well as higher litigation expenses related to the baby food litigation described in Note 18, Commitments and Contingencies, in the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K. Selling, general and administrative expenses as a percentage of net sales was 15.9% in the twelve months ended June 30, 2022 compared to 15.3% in the prior year, attributable to the aforementioned items. Amortization of Acquired Intangibles Amortization of acquired intangibles was $10.2 million in fiscal 2022, an increase of $1.3 million, or 14.4%, from $8.9 million in fiscal 2021 due to the acquisition of THWR in the current fiscal year, partially offset by lower amortization expense in the current year as a result of prior year dispositions that occurred in the latter part of fiscal 2021. Productivity and Transformation Costs Productivity and transformation costs were $10.2 million in fiscal 2022, a decrease of $5.4 million or 34.8% from $15.6 million in fiscal 2021. The decrease was d ue to reduced spending related to productivity and transformation initiatives as the current transformation effort approaches its conclusion. Proceeds from Insurance Claims During fiscal 2021, the Company received $0.6 million as payment from an insurance claim related to a litigation described in Note 18, Commitments and Contingencies, in the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K . During fiscal year 2022, the Company received $0.2 million as payment from an insurance claim. Long-Lived Asset and Intangibles Impairment During fiscal 2022, the Company recorded an impairment of $1.6 million related to an indefinite-lived intangible asset as described in Note 8, Goodwill and Other Intangible Assets, in the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K. During fiscal 2021, the Company recorded a pre-tax impairment cha rge of $57.9 million , of which $56.1 million related to the reserve recorded against the assets of the Company's United Kingdom Fruit business (see Note 4, Acquisitions and Dispositions , in the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K) and $1.6 million related to impairment of property, plant and equipment and other non-current assets. Operating Income Operating income in fiscal 2022 was $104.7 million compared to operating income of $107.4 million in fiscal 2021 due to the items described above. Interest and Other Financing Expense, Net 30 Table of Contents Interest and other financing expense , net totaled $12.6 million in fiscal 2022, an increase of $3.9 million, or 45.3%, from $8.7 million in the prior year. The increase resulted primarily from a higher outstanding debt balance driven primarily by the acquisition of THWR in the current fiscal year as well as share repurchase activity and an increase in interest rates. See N ote 10, Deb t and Borrowings , in the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K. Other Income, Net Other income, net totaled $11.4 million in fiscal 2022, an increase of $1.3 million from $10.1 million in the prior year. The change was primarily attributable to a higher gain on sale of assets in the current year than in the prior year. Income from Continuing Operations Before Income Taxes and Equity in Net Loss of Equity-Method Investees Income before income taxes and equity in the net loss of our equity-method investees for fiscal 2022 was $103.5 million compared to $108.8 million in fiscal 2021. The decrease was due to the items discussed above. Provision for Income Taxes The provision f or income taxes includes federal, foreign, state and local income taxes. Our income tax expense from continuing operations was $22.7 million and $41.1 million for fiscal 2022 and 2021, respectively. The effective income tax rate from continuing operations was 21.9% and 37.8% of pre-tax income for the twelve months ended June 30, 2022 and 2021, respectively. The effective income tax rate from continuing operations for the twelve months ended June 30, 2022 was primarily impacted by reversal of uncertain tax position accruals based on filing and approval of certain elections by taxing authorities, deductions related to stock-based compensation, non-deductible transaction costs related to the acquisition of THWR (see Note 4, Acquisitions and Dispositions ), the reversal of a valuation allowance due to the utilization of a capital loss carryover, and the finalization of prior fiscal year income tax returns. The effective income tax rate from continuing operations for the twelve months ended June 30, 2021 was primarily impacted by various discrete items including the tax impact of the Fruit business impairment and disposal, and the enacted change in the United Kingdom’s corporate income tax rate from 19% to 25%. 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. See Note 11, Income Taxes, in the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K for additional information. Equity in Net Loss of Equity-Method Investees Our equity in the net loss from our equity method investments for fiscal 2022 was $2.9 million compared to $1.6 million for fiscal 2021. See Note 14, Investments , in the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K. Net Income from Continuing Operations N et income fro m continuing operations for fiscal 2022 was $77.9 million compared to net income of $66.1 million for fiscal 2021. Net income per diluted share was $0.83 in fiscal 2022 compared to net income per diluted share of $0.65 in fiscal 2021. The increase was attributable to the factors noted above as well as the year-over-year reduction in outstanding shares. Net Income from Discontinued Operations, Net of Tax Net income from discontinued operations, net of tax, was nil for fiscal 2022 and $11.3 million or $0.11 per diluted share for fiscal 2021. During the twelve months ended June 30, 2021, the Company recognized an $11.3 million adjustment to the Tilda business primarily related to the recognition of a deferred tax benefit. See Note 4, Acquisitions and Dispositions , in the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K. 31 Table of Contents Net Income Net income for fiscal 2022 was $77.9 million compared to $77.4 million for fiscal 2021. Net income per diluted share was $0.83 in fiscal 2022 compared to $0.76 in 2021. The change was attributable to the factors noted above as well as the year-over-year reduction in shares. Adjusted EBITDA Our consolidated Adjusted EBITDA was $200.6 million and $258.9 million for fiscal 2022 and 2021, respectively, as a result of the factors discussed above. See 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 of our net income to Adjusted EBITDA. Segment Results The following table provides a summary of net sales and operating income (loss) by reportable segment for the fiscal years ended June 30, 2022 and 2021: (dollars in thousands) North America International Corporate and Other Consolidated Fiscal 2022 net sales $ 1,163,132 $ 728,661 $ — $ 1,891,793 Fiscal 2021 net sales $ 1,104,128 $ 866,174 $ — $ 1,970,302 $ change $ 59,004 $ (137,513) n/a $ (78,509) % change 5.3 % (15.9) % n/a (4.0) % Fiscal 2022 operating income (loss) $ 93,732 $ 79,076 $ (68,127) $ 104,681 Fiscal 2021 operating income (loss) $ 129,010 $ 38,036 $ (59,666) $ 107,380 $ change $ (35,278) $ 41,040 $ (8,461) $ (2,699) % change (27.3) % 107.9 % (14.2) % (2.5) % Fiscal 2022 operating income margin 8.1 % 10.9 % n/a 5.5 % Fiscal 2021 operating income margin 11.7 % 4.4 % n/a 5.4 % North America Our net sales in the North America reportable segment for fiscal 2022 were $1.16 billion, an increase of $59.0 million, or 5.3%, from net sales of $1.10 billion in fiscal 2021. On a constant currency basis, adjusted for the impact of acquisitions, divestitures and discontinued brands, net sales increased by 3.5%. The increase of 3.5% was mainly due to price increases that occurred in the latter half of the fiscal year as well as stronger sales in snacks, baby, personal care and other product categories in the United States operating segment. In the Canada operating segment, adjusted sales decreased compared to the prior year primarily due to lower sales in personal care and meat-free product categories. O perating income in North America in fiscal 2022 was $93.7 million, a decrease of $35.3 million, or 27.3%, from $129.0 million in fiscal 2021. The decrease was driven by inflationary and supply chain challenges such as continued industry-wide distribution and warehousing cost pressures driven by labor shortages, freight carrier availability and other freight cost issues, as well as lower net sales in the Canada operating segment when compared with the prior year; this is partially offset by incremental operating income generated by THWR, which was acquired in the current fiscal year. International Net sales in the International reportable segment for fiscal 2022 were $728.7 million, a decrease of $137.5 million, or 15.9%, from net sales of $866.2 million in fiscal 2021 . On a constant currency basis, and adjusted for the impact of divestitures and discontinued brands, net sales decreased by 5.6% from fiscal 2021 . The decrease in adjusted net sales was due to a decline in sales in the Europe and United Kingdom operating segments, partially offset by an increase in sales in the Ella's Kitchen UK operating segment. The net sales decrease in the Europe operating segment was primarily due to the loss of a large non-dairy co-manufacturing customer. The net sales decrease in the United Kingdom was due to lower sales volume and the impact of shipment halts during the price increase negotiations with certain customers. The net sales increase in the Ella's Kitchen UK operating segment was due to higher sales coming out of the COVID-19 pandemic, since Ella's Kitchen UK sales were 32 Table of Contents negatively impacted in the prior year due to a slow-down in consumer demand for baby food as a result of the COVID-19 pandemic stay-at-home requirements. Operating income in our International reportable segment in fiscal 2022 was $79.1 million, an increase of $41.0 million from operating income of $38.0 million in fiscal 2021 . The increase mainly reflected non-recurring charges associated with the Fruit business impairment that were recognized in the prior year period. In addition, the International reportable segment incurred lower selling, general and administrative expenses for the reasons noted above. 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, litigation expense and expenses for certain professional fees, facilities, and other items which benefit the Company as a whole. Our Corporate and Other expenses for fiscal 2022 were $68.1 million, an increase of $8.5 million, or 14.2%, from $59.7 million in fiscal 2021. This change was primarily related to higher transaction costs incurred in fiscal year 2022 including costs related to the acquisition of THWR and advisory costs related to the divestiture by affiliates of Engaged Capital, LLC of their shares of the Company's common stock, as well as higher litigation expenses related to the baby food litigation described in Note 18, Commitments and Contingencies , partially offset by lower executive bonus payout related to fiscal 2022. Refer to Note 20, Segm ent Information , in the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K for additional details. 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. See Note 10 , Debt and Borrowings , in the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K. Amended and Restated Credit Agreement On December 22, 2021, the Company refinanced its revolving credit facility by entering into a Fourth Amended and Restated Credit Agreement (the “Credit Agreement”). The Credit Agreement provides for senior secured financing of $1.1 billion in the aggregate, consisting of (1) $300.0 million in aggregate principal amount of term loans (the "Term Loans") and (2) an $800.0 million senior secured revolving credit facility (which includes borrowing capacity available for letters of credit, and is comprised of a $440.0 million U.S. revolving credit facility and $360.0 million global revolving credit facility) (the "Revolver"). Both the Revolver and the Term Loans mature on December 22, 2026. Our cash and cash equivalents balance decreased by $10.4 million at June 30, 2022 to $65.5 million compared to $75.9 million at June 30, 2021. Our working capital, which excludes assets held for sale, was $329.0 million at June 30, 2022, an increase of $44.2 million from $284.7 million at the end of fiscal 2021. 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, the United Kingdom, Canada, Europe, the Middle East, and India. The Company continues to reinvest $809.2 million of undistributed earnings of its foreign subsidiaries and may be subject to additional foreign withholding taxes and U.S. state income taxes if it reverses its indefinite reinvestment assertion on these foreign earnings in the future. All other outside basis differences not related to earnings were impractical to account for a t this point in time and are currently considered as being permanent in duration. 33 Table of Contents We maintain our cash and cash equivalents primarily in money market funds or their equivalent. As of June 30, 2022, 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. Fiscal Year Ended June 30, (amounts in thousands) 2022 2021 Cash flows provided by (used in): Operating activities from continuing operations $ 80,241 $ 196,759 Investing activities from continuing operations (288,309) (2,364) Financing activities from continuing operations 212,787 (162,443) Increase in cash from continuing operations 4,719 31,952 Effect of exchange rate changes on cash (15,078) 6,148 Net (decrease) increase in cash and cash equivalents $ (10,359) $ 38,100 Cash provided by operating activities from continuing operations was $80.2 million for the fiscal year ended June 30, 2022, compared to $196.8 million in fiscal 2021. The decrease in cash provided by operating activities in fiscal 2022 compared to fiscal 2021 resulted primarily from a reduction of $49.6 million in net income adjusted for non-cash charges in the current year and lower cash generation of $66.9 million from our working capital accounts which was mainly due to a refund of $53.8 million received by the Company in the prior year from the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"). C ash used in investing activities from continuing operations was $288.3 million for the fiscal year ended June 30, 2022, an increase of $285.9 million from $2.4 million in fiscal 2021 primar ily due to the acquisition of THWR in the current year, partially offset by $12.3 million in proceeds from the sale of assets in the current year, which was primarily related to the sale of undeveloped land plots in Boulder, Colorado . Cash provided by financing activities from continuing operations was $212.8 million for the fiscal year ended June 30, 2022 and included $659.3 million of net borrowings of our Revolver and Term Loans, $410.5 million of share repurchases and $32.7 million of employee shares withheld for taxes. C ash used in financing activities from continuing operations was $162.4 million for fiscal 2021 and primarily included net repayments of $50.0 million on our revolving credit facility, $106.1 million of share repurchases and $4.3 million of employee shares withheld for taxes. Operating Free Cash Flow from Continuing Operations Our operating free cash flow was $40.3 million for fiscal 2022, a decrease of $84.9 million from fiscal 2021. The decrease in operating free cash flow primarily resulted from lower net income adjusted for non-cash items of $49.6 million and cash used within working capital accounts of $66.9 million, due to a tax refund receivable of $52.5 million that was received in fiscal 2021; the receivable resulted from the carryback of net operating losses (“NOLs”) under the CARES Act. This was partially offset by a decrease in our capital expenditures of $31.6 million. Refer to the Reconciliation of Non-U.S. GAAP Financial Measures to U.S. GAAP Measures following the disc ussion of our results of operations for definitions and a reconciliation from our net cash provided by operat ing activities from continuing operations to operating free cash flow from continuing operations. Capital Expenditures During fiscal 2022, our aggre gate capital expenditures used in continuing operations were $40.0 million, which was lower than expected primarily due to supply chain challenges and labor availability. We expect to spend approximat ely 3% of net sales for capital projects in fiscal 2023. Share Repurchase Program In June 2017, August 2021 and January 2022, the Company's Board of Directors authorized the repurchase of up to $250.0 million , $300.0 million and $200.0 million of the Company’s issued and outstanding common stock, respectively. Share repurchases under each of the 2021 and 2022 authorizations commenced after the previous authorizations were fully utilized. Repurchases may be made from time to time in the open market, pursuant to pre-set trading plans, in private transactions or otherwise. The current 2022 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. In 34 Table of Contents November 2021, the Company entered into a share repurchase agreement with affiliates of Engaged Capital, LLC (collectively, the “Selling Stockholders”), pursuant to which the Company repurchased 1.7 million shares directly from the Selling Stockholders at a price of $45.00 per share (see Note 21, Related Party Transactions ). During fiscal 2022, the Company repurchased 10.6 million shares under the repurchase program, inclusive of the shares repurchased from the Selling Stockholders, for a total of $408.9 million, excluding commissions, at an average price of $38.48 per share. As of June 30, 2022, the Company had $173.5 million of remaining authorization under the share repurchase program. During fiscal 2021, the Company repurchased 3.1 million shares under the repurchase program for a total of $107.4 million, excluding commissions, at an average price of $34.87 per share. Of that amount, $1.4 million is included in accrued expenses and other current liabilities on the Company’s Consolidated Balance Sheet as of June 30, 2021 pending settlement of trade. 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. Generally Accepted Accounting Principles (“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 believes the non-U.S. GAAP measure provides useful information to investors and any additional purposes for which our management and Board of Directors uses the non-U.S. GAAP measure. These non-U.S. GAAP measures should be viewed in addition to, and not in lieu of, the comparable U.S. GAAP measure. Net Sales - 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. Net Sales - Acquisitions, Divestitures and Discontinued Brands We also exclude the impact of acquisitions, divestitures and discontinued brands when comparing net sales to prior periods, which results in the presentation of certain non-U.S. GAAP financial measures. The Company's management believes that excluding the impact of acquisitions, divestitures and discontinued brands when presenting period-over-period results of net sales aids in comparability. 35 Table of Contents A reconciliation between reported and adjusted net sales increase (decrease) in f iscal 2022 is as follows: (amounts in thousands) North America International Hain Consolidated Net sales - Twelve months ended 6/30/22 $ 1,163,132 $ 728,661 $ 1,891,793 Acquisitions, divestitures and discontinued brands (55,393) — (55,393) Impact of foreign currency exchange (1,454) 17,318 15,864 Net sales on a constant currency basis adjusted for acquisitions, divestitures and discontinued brands - Twelve months ended 6/30/22 $ 1,106,285 $ 745,979 $ 1,852,264 Net sales - Twelve months ended 6/30/21 $ 1,104,128 $ 866,174 $ 1,970,302 Divestitures and discontinued brands (35,314) (75,543) (110,857) Net sales adjusted for divestitures and discontinued brands - Twelve months ended 6/30/21 $ 1,068,814 $ 790,631 $ 1,859,445 Net sales increase (decrease) 5.3 % (15.9) % (4.0) % Impact of acquisitions, divestitures and discontinued brands (1.7) % 8.3 % 2.8 % Impact of foreign currency exchange (0.1) % 2.0 % 0.8 % Net sales increase (decrease) on a constant currency basis adjusted for acquisitions, divestitures and discontinued brands 3.5 % (5.6) % (0.4) % Adjusted EBITDA Adjusted EBITDA is defined as net income (loss) before income taxes, net interest expense, depreciation and amortization, impairment of long-lived and intangible assets, equity in the earnings of equity-method investees, stock-based compensation, productivity and transformation costs, and other non-recurring items such as litigation related to a specific non-recurring matter. 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 included in determining Adjusted EBITDA. In order to compensate for these limitations, management presents Adjusted EBITDA in connection with U.S. GAAP results. 36 Table of Contents A reconciliation of net income (loss) to Adjusted EBITDA is as follows: Fiscal Year Ended June 30, (amounts in thousands) 2022 2021 Net income $ 77,873 $ 77,364 Net income from discontinued operations, net of tax — 11,255 Net income from continuing operations $ 77,873 $ 66,109 Depreciation and amortization 46,849 49,569 Equity in net loss of equity-method investees 2,902 1,591 Interest expense, net 10,226 5,880 Provision for income taxes 22,716 41,093 Stock-based compensation, net 15,611 15,659 Unrealized currency (gains) losses (2,259) 752 Litigation and related costs Litigation expenses 7,883 1,587 Proceeds from insurance claims (196) (592) Restructuring activities Plant closure related costs, net 929 58 Productivity and transformation costs 8,803 12,572 Warehouse/manufacturing consolidation and other costs 2,721 11,374 Acquisitions, divestitures and other Transaction and integration costs, net 14,055 3,291 Gain on sale of assets (9,049) (4,900) Gain on sale of businesses — (2,604) Impairment charges Inventory write-down (351) (421) Long-lived asset and intangible impairments 1,903 57,920 Adjusted EBITDA $ 200,616 $ 258,938 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 capital expenditures. 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. 37 Table of Contents A reconciliation from net cash provided by operating activities to operating free cash flow is as follows: Fiscal Year Ended June 30, (amounts in thousands) 2022 2021 Net cash provided by operating activities $ 80,241 $ 196,759 Purchases of property, plant and equipment (39,965) (71,553) Operating free cash flow $ 40,276 $ 125,206 As of June 30, 2022, we had non-current unrecognized tax benefits of $21.9 million for which we are not able to reasonably estimate the timing of future cash flows. As a result, this amount has not been included in the table above. We believe that our cash on hand of $65.5 million at June 30, 2022 as well as projected cash flows from operations and availability under our Credit Agreement are sufficient to fund our working capital needs in the ordinary course of business, anticipated fiscal 2023 capital expenditures and other expected cash requirements for at least the next 12 months. Contractual Obligations We are party to contractual obligations involving commitments to make payments to third parties, which impact our short-term and long-term liquidity and capital resource needs. Our contractual obligations primarily consist of long-term debt and related interest payments, purchase commitments and operating leases. See Note 7, Leases , and Note 10, Debt and Borrowings , in the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K. Critical Accounting Estimates The discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which are prepared in accordance with accounting principles generally accepted in the United States. Our significant accounting policies are described in Note 2, Summary of Significant Accounting Policies and Practices , in the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K. The policies below have been identified as the critical accounting policies we use which require us to make estimates and assumptions and exercise judgment 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 estimates; however, materially different amounts might be reported under different conditions or using assumptions, estimates or making judgments different from those that we have applied. Our critical accounting policies, including our methodology for estimates made and assumptions used, are as follows: Variable Consideration In addition to fixed contract consideration, many of the Company’s contracts include some form of variable consideration. The Company offers various trade promotions and sales incentive programs to customers and consumers, such as price discounts, slotting fees, in-store display incentives, cooperative advertising programs, new product introduction fees and coupons. The expenses associated with these programs are accounted for as reductions to the transaction price of products and are therefore deducted from sales to determine reported net sales. Trade promotions and sales incentive accruals are subject to significant management estimates and assumptions. The critical assumptions used in estimating the accruals for trade promotions and sales incentives include the Company’s estimate of expected levels of performance and redemption rates. The Company exercises judgment in developing these assumptions. These assumptions are based upon historical performance of the retailer or distributor customers with similar types of promotions adjusted for current trends. The Company regularly reviews and revises, when deemed necessary, estimates of costs to the Company for these promotions and incentives based on what has been incurred by the customers. The terms of most of the promotion and incentive arrangements do not exceed a year and therefore do not require highly uncertain long-term estimates. Settlement of these liabilities typically occurs in subsequent periods primarily through an authorization process for deductions taken by a customer from amounts otherwise due to the Company. Differences between estimated expense and actual promotion and incentive costs are recognized in earnings in the period such differences are determined. Actual expenses may differ if the level of redemption rates and performance were to vary from estimates. During the year ended June 30, 2022, the Company revised its estimates for trade promotion expense incurred in the prior year based on new information that was not available at the time that the June 30, 2021 accrual was established. This change in estimate was due to unique circumstances, such as the implementation of bracket pricing in North America and less expense incurred from retail resets, both leading to lower-than-expected customer deductions on the outstanding promotional accrual. This change in estimate caused an increase in net sales of 0.2%. 38 Table of Contents Valuation of Accounts and Chargeback Receivable We perform routine credit evaluations on existing and new customers. We apply reserves for delinquent or uncollectible trade receivables based on a specific identification methodology and also apply an additional reserve based on the experience we have with our trade receivables ag ing categories. As credit losses have been within our expectations in recent years and as only one customer represented more than 10% of accounts receivable, net at June 30, 2022, we believe there is no significant or unusual credit exposure at this time. Based on cash collection history and other statistical analysis, we estimate the amount of unauthorized deductions that our customers have taken that we expect will be collectible and repaid in the near future and record a chargeback receivable. Differences between estimated collectible receivables and actual collections are recognized in earnings in the period such differences are determined. We may not have the same experience with our receivables during different economic conditions, or with changes in business conditions, such as consolidation within the food industry and/or a change in the way we market and sell our products. Valuation of Long-lived Assets Fixed assets and amortizable intangible assets are reviewed for impairment as events or changes in circumstances occur indicating that the carrying value of the asset may not be recoverable. Undiscounted cash flow analyses are used to determine if impairment exists. If impairment is determined to exist, the loss is calculated based on estimated fair value. Goodwill and Intangible Assets Goodwill and intangible assets deemed to have indefinite lives are not amortized but rather are tested at least annually for impairment, or more often if events or changes in circumstances indicate that more likely than not the carrying amount of the asset may not be recoverable. Goodwill is tested for impairment at the reporting unit level. A reporting unit represents an operating segment or a component of an operating segment. Goodwill is tested for impairment by either performing a qualitative evaluation or a two-step quantitative test. The qualitative evaluation is an assessment of factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. We may elect not to perform the qualitative assessment for some or all reporting units and perform a two-step quantitative impairment test. The estimate of the fair values of our reporting units are based on the best information available as of the date of the assessment. We generally use a blended analysis of the present value of discounted cash flows and the market valuation approach. The discounted cash flow model uses the present values of estimated future cash flows. Considerable management judgment is necessary to evaluate the impact of operating and external economic factors in estimating our future cash flows. The assumptions we use in our evaluations include projections of growth rates and profitability, our estimated working capital needs, as well as our weighted average cost of capital. The market valuation approach indicates the fair value of a reporting unit based on a comparison to comparable publicly traded firms in similar businesses. Estimates used in the market value approach include the identification of similar companies with comparable business factors. Changes in economic and operating conditions impacting the assumptions we made could result in additional goodwill impairment in future periods. If the carrying value of the reporting unit exceeds fair value, goodwill is considered impaired. The amount of the impairment is the difference between the carrying value of the goodwill and the “implied” fair value, which is calculated as if the reporting unit had just been acquired and accounted for as a business combination. Indefinite-lived intangible assets consist primarily of acquired tradenames and trademarks. We first assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired. We measure the fair value of these assets using the relief from royalty method. This method assumes that the tradenames and trademarks have value to the extent their owner is relieved from paying royalties for the benefits received. We estimate the future revenues for the associated brands, the appropriate royalty rate and the weighted average cost of capital. The Company completed its annual goodwill impairment analysis in the fourth quarter of fiscal 2022, in conjunction with its budgeting and forecasting process for fiscal year 2023, and concluded that no indicators of impairment existed at any of its reporting units. As of June 30, 2022, the carrying value of goodwill was $933.8 million. For the fiscal 2022 impairment analysis, the Company performed the qualitative assessment for all of its reporting units with the exception of the United Kingdom and Europe 39 Table of Contents reporting units where a quantitative assessment was performed. The estimated fair value of each reporting unit exceeded its carrying value based on the analysis performed. For the United Kingdom and Europe reporting units, the quantitative analysis was performed. Holding all other assumptions used in the 2022 fair value measurement constant, a 100-basis-point increase in the weighted average cost of capital would not result in the carrying value of the reporting units to be in excess of the fair value. The fair values were based on significant management assumptions including an estimate of future cash flows. If assumptions are not achieved or market conditions decline, potential impairment charges could result. The Company will continue to monitor impairment indicators and financial results in future periods. Indefinite-lived intangible assets are evaluated on an annual basis in conjunction with the Company’s evaluation of goodwill, or on an interim basis if and when events or circumstances change that would more likely than not reduce the fair value of any of its indefinite-life intangible assets below their carrying value. In assessing fair value, the Company utilizes a “relief from royalty payments” methodology. This approach involves two steps: (i) estimating the royalty rates for each trademark and (ii) applying these royalty rates to a projected net sales stream and discounting the resulting cash flows to determine fair value. If the carrying value of the indefinite-lived intangible assets exceeds the fair value of the assets, the carrying value is written down to fair value in the period identified. The result of the annual assessment for the year ended June 30, 2022 indicated that the fair value of the Company’s tradenames exceeded their carrying values and no indicators of impairment with one exception that is discussed in Note 8, Goodwill and Other Intangible Assets , in the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K. See also Note 8, Goodwill and Other Intangible Assets , in the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K, for additional information. Business Combinations During the year ended June 30, 2022, the Company completed the acquisition of THWR for total consideration of $260.4 million, net of cash acquired. The transaction was accounted for under the acquisition method of accounting whereby the total purchase price was allocated to assets acquired and liabilities assumed based on the estimated fair value of such assets and liabilities. Accounting for the acquisition of THWR required estimation in determining the fair value of identified intangible assets for acquired customer relationships and tradenames. Estimation was utilized as it relates to inputs to the valuation techniques used to measure the fair value of these intangible assets as well as the sensitivity of the respective fair values to the underlying assumptions. The significant assumptions used to estimate the fair value of the acquired intangible assets included discount rates, revenue growth rates, and operating margins. These assumptions are forward-looking and could be affected by future economic and market conditions. Stock-based Compensation The Company uses the fair market value of the Company’s common stock on the grant date to measure fair value for service-based and performance-based awards and a Monte Carlo simulation model to determine the fair value of market-based awards. The use of the Monte Carlo simulation model requires the Company to make estimates and assumptions, such as expected volatility, expected term and risk-free interest rate. The fair value of stock-based compensation awards is recognized as an expense over the vesting period using the straight-line method. For awards that contain a market condition, expense is recognized over the defined or derived service period using a Monte Carlo simulation model. For restricted stock awards which include performance criteria, compensation expense is recorded when the achievement of the performance criteria is probable and is recognized over the performance and vesting service periods. Compensation expense is recognized for only that portion of stock-based awards that are expected to vest. 40 Table of Contents Valuation Allowances for Deferred Tax Assets Deferred tax assets arise when we recognize expenses in our financial statements that will be allowed as income tax deductions in future periods. Deferred tax assets also include unused tax net operating losses and tax credits that we are allowed to carry forward to future years. Accounting rules permit us to carry deferred tax assets on the balance sheet at full value as long as it is “more likely than not” that the deductions, losses or credits will be used in the future. A valuation allowance must be recorded against a deferred tax asset if this test cannot be met. Our determination of our valuation allowances is based upon a number of assumptions, judgments and estimates, including forecasted earnings, future taxable income and the relative proportions of revenue and income before taxes in the various jurisdictions in which we operate. Concluding that a valuation allowance is not required is difficult when there is significant negative evidence that is objective and verifiable, such as cumulative losses in recent years. We have deferred tax assets related to foreign net operating losses, primarily in the United Kingdom and to a lesser extent in Belgium, against which we have recorded valuation allowances. Under current tax law in these jurisdictions, our carryforward losses have no expiration. During fiscal 2020, we recorded a valuation allowance against a majority of our state deferred tax assets and state net operating loss carryforwards as it was not more likely than not that the state tax attributes will be realized. In fiscal 2021, the Company had positive results in the United States and, thus, state-level taxable income. This resulted in an expected utilization of certain of the state deferred tax assets which were previously reserved. Valuation allowances reversed were based on this positive evidence, in addition to other positive evidence, which justified the release of an additional amount of the state valuation allowance. Recent Accounting Pronouncements See Note 2, Summary of Significant Accounting Policies and Practices , in the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K for information regarding recent accounting pronouncements. 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 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.