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, 2023 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 2023 and fiscal 2022 items and year-to-year comparisons between fiscal 2023 and fiscal 2022. Discussions of fiscal 2021 items and year-to-year comparisons between fiscal 2022 and fiscal 2021 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, 2022, which was filed with the SEC on August 25, 2022 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. The Company is a leading manufacturer, marketer, and seller of better-for-you brands that inspire healthier living. 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 worldwide. 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’ ® , Garden Veggie™, 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 Cuisine ® . The Company’s personal care brands include Alba Botanica ® , Avalon Organics ® , JASON ® , Live Clean ® and Queen Helene ® . Global Economic Environment Economic conditions during fiscal year 2022 and fiscal year 2023 have been marked by inflationary pressures, rising interest rates and shifts in consumer demand. • Inflation – The inflationary environment has led to higher costs for ingredients, packaging, energy, transportation and other supply chain components. We expect this higher than normal cost environment to continue, although we expect these higher costs to be partially mitigated by pricing actions we have implemented to date and further pricing actions that we may implement. • Interest Rates – Loans under our credit agreement bear interest at a variable rate, and the interest rate on our outstanding indebtedness has increased as market interest rates have risen significantly starting in the second half of fiscal year 2022. These higher interest rates, together with a higher outstanding debt balance, have led to an increase in our interest expense, and we expect this high rate environment to continue. • Consumer Demand – Recent economic conditions have resulted in changes in consumer spending patterns, which have adversely impacted our sales. During an economic downturn, factors such as increased unemployment, decreases in disposable income and declines in consumer confidence can cause changes in consumer spending behavior. In particular, economic conditions have prompted some consumers, particularly in Europe, to shift to lower-priced products. 26 Table of Contents CEO Succession On November 22, 2022, the Board of Directors (the “Board”) of the Company approved a succession plan pursuant to which the Board appointed Wendy P. Davidson to the role of President and Chief Executive Officer and as a director on the Board, in each case effective as of January 1, 2023. As part of the succession plan, Mark L. Schiller transitioned from his position as President and Chief Executive Officer of the Company effective as of December 31, 2022 (the “Transition Date”). Mr. Schiller remains as a director on the Board following the Transition Date. New Global Headquarters We have selected Hoboken, N.J. to serve as the hub of our global operations. With Hoboken as the hub, our offices and manufacturing locations in the United States, Canada, Europe, and other international locations will serve as the “spokes” for team members to come together and collaborate for moments that matter. Our hub and spoke work model enables broader team collaboration and greater connectivity as a global enterprise. It also provides us the ability to recruit the very best talent, regardless of where they are located. Hoboken will also serve as the home of our Innovation Experience Center, where team members, customers, and consumers will immerse themselves in our products, explore consumer insights, and create innovative opportunities for the future. Russia-Ukraine War The Russia-Ukraine war has disrupted our supply chain and increased costs due to higher energy and raw material prices, impacting our operations by leading to labor challenges and supply chain issues. Although we have found alternative materials, we have incurred increased costs in doing so. The war also lowered consumer sentiment in Europe, affecting demand. 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 in the future remains uncertain. 27 Table of Contents Results of Operations Comparison of Fiscal Yea r E nded June 30, 2023 to Fiscal Ye ar En ded June 30, 2022 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, 2023 and 2022 (amounts in thousands, other than percentages which may not add due to rounding): Fiscal Year Ended June 30, Change in 2023 2022 Dollars Percentage Net sales $ 1,796,643 100.0 % $ 1,891,793 100.0 % $ (95,150) (5.0) % Cost of sales 1,400,229 77.9 % 1,464,352 77.4 % (64,123) (4.4) % Gross profit 396,414 22.1 % 427,441 22.6 % (31,027) (7.3) % Selling, general and administrative expenses 289,233 16.1 % 300,469 15.9 % (11,236) (3.7) % Intangibles and long-lived asset impairment 175,501 9.8 % 1,903 0.1 % 173,598 ** Amortization of acquired intangible assets 10,016 0.6 % 10,214 0.5 % (198) (1.9) % Productivity and transformation costs 7,284 0.4 % 10,174 0.5 % (2,890) (28.4) % Operating (loss) income (85,620) (4.8) % 104,681 5.5 % (190,301) (181.8) % Interest and other financing expense, net 45,783 2.5 % 12,570 0.7 % 33,213 264.2 % Other income, net (1,822) (0.1) % (11,380) (0.6) % 9,558 (84.0) % (Loss) income before income taxes and equity in net loss of equity-method investees (129,581) (7.2) % 103,491 5.5 % (233,072) * (Benefit) provision for income taxes (14,178) (0.8) % 22,716 1.2 % (36,894) * Equity in net loss of equity-method investees 1,134 0.1 % 2,902 0.2 % (1,768) (60.9) % Net (loss) income $ (116,537) (6.5) % $ 77,873 4.1 % $ (194,410) * Adjusted EBITDA $ 166,622 9.3 % $ 200,616 10.6 % $ (33,994) (16.9) % Diluted net (loss) income per common share $ (1.30) $ 0.83 $ (2.13) * * Percentage is not meaningful due to one or more numbers being negative. ** Percentage is not meaningful due to significantly lower number in the comparative period Net Sales Net sales in fiscal 2023 were $1.80 billion, a decrease of $95.2 million, or 5.0%, from net sales of $1.89 billion in fiscal 2022. On a constant currency basis, adjusted for the impact of acquisitions, divestitures and discontinued brands, net sales decreased approximately $51.1 million, or 2.7% from the prior comparable period. The decrease in net sales was primarily driven by the North America reportable segment. Further details of changes in adjusted net sales by segment are provided below in the Segment Results section. Gross Profit Gross profit in fiscal 2023 w as $396.4 million, a decrease of $31.0 million, or 7.3%, from gross profit of $427.4 million in fiscal 2022. Gross profit margin was 22.1% of net sales, compared to 22.6% in the prior year. The decrease in gross profit margin was primarily due to the International reportable segment. The decrease in the International reportable segment gross profit was mainly due to higher energy and supply chain costs when compared to the prior year. The decrease in gross margin was partially offset by higher gross margin in the North America reportable segment driven by greater pricing and productivity, partially offset by higher cost of goods. 28 Table of Contents Selling, General and Administrative Expenses Selling, general and administrative expenses were $289.2 million in fiscal 2023, a decrease of $11.2 million, or 3.7%, from $300.5 million in fiscal 2022. The decrease primarily reflected reduced costs in Corporate and Other and the International reportable segment. The decrease in the International reportable segment was primarily a result of lower employee-related expenses in the Europe and the United Kingdom, partially offset by higher selling expenses in the United Kingdom. The decrease in Corporate and Other costs reflected a reduction in transaction costs, including costs in 2022 related to the acquisition of That's How We Roll (“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 a reduction in litigation expenses related to the baby food litigation described in Note 17, 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 16.1% in the twelve months ended June 30, 2023 compared to 15.9% in the prior year, as the reduction in net sales outpaced the reduction in selling, general and administrative expenses attributable to the aforementioned items. Intangibles and Long-Lived Asset Impairment During fiscal 2023, the Company recognized an aggregate non-cash impairment charge of $175.5 million, primarily related to the ParmCrisps ® , Thinsters ® , Imagine ® , Joya ® , and Queen Helene ® indefinite-lived trademarks and ParmCrisps ® definite lived customer relationships, which reduced the carrying value of such assets to their estimated fair value. During fiscal 2022, the Company recognized non-cash impairment charges of $1.9 million. The fair value of indefinite-lived trademarks and definite-lived customer relationships were determined using the relief from royalty method and multi-period excess earnings method, respectively. See Note 8, Goodwill and Other Intangible Assets and Note 15, Fair Value Measurements , in the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K. Amortization of Acquired Intangible Assets Amortization of acquired intangible assets was $10.0 million in fiscal 2023, a decrease of $0.2 million, or 1.9%, from $10.2 million in fiscal 2022, primarily reflecting reduced amortization expenses due to impairment of the ParmCrisps customer relationships recognized in the third quarter of 2023 (see Note 8, Goodwill and Other Intangible Assets , in the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K), partially offset by an increase in amortization expenses associated with the acquisition of THWR in the second quarter of the prior fiscal year. Productivity and Transformation Costs Productivity and transformation costs were $7.3 million in fiscal 2023, a decrease of $2.9 million or 28.4% from $10.2 million in fiscal 2022. The decrease was primarily due to the wind down of prior year restructuring costs partially offset by new spending on our strategic plan update. Operating (Loss) Income Operating loss in fiscal 2023 was $85.6 million compared to operating income of $104.7 million in fiscal 2022 due to the items described above. Interest and Other Financing Expense, Net Interest and other financing expense, net totaled $45.8 million in fiscal 2023, an increase of $33.2 million, or 264.2%, from $12.6 million in the prior year. The increase resulted primarily from rising interest rates and a higher outstanding debt balance driven primarily by the acquisition of THWR and share repurchase activity during fiscal 2022. See Note 10, Debt 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 $1.8 million in fiscal 2023, a decrease of $9.6 million from $11.4 million in the prior year. The decrease in income was primarily attributable to the recognition of an $8.7 million gain on sale of assets in the prior year related to the sale of undeveloped land plots in Boulder, Colorado. 29 Table of Contents (Loss) Income Before Income Taxes and Equity in Net Loss of Equity-Method Investees Loss before income taxes and equity in the net loss of our equity-method investees for fiscal 2023 was $129.6 million compared to income of $103.5 million in fiscal 2022. The decrease was due to the items discussed above. (Benefit) Provision for Income Taxes The (benefit) provision for income taxes includes federal, foreign, state and local income taxes. Our income tax benefit was $14.2 million for fiscal 2023 compared to expense of $22.7 million for fiscal 2022. The effective income tax rate was 10.9% and 21.9% of pre-tax income for year ended June 30, 2023 and 2022, respectively. The effective income tax rate for the year ended June 30, 2023 was primarily impacted by establishment of federal valuation allowance against the Company’s tax losses and credits, an increase in the state valuation allowance related to the Company’s state deferred tax assets and state net operating loss carryforwards, an increase related to the sale of Westbrae Natural ® brand (“Westbrae”) and stock-based compensation. The effective income tax rate for the year ended June 30, 2022 was primarily impacted by the 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, Acquisition 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. 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 2023 was $1.1 million compared to $2.9 million for fiscal 2022. See Note 14, Investments , in the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K. Net (Loss) Income Net loss for fiscal 2023 was $116.5 million compared to net income of $77.9 million for fiscal 2022. Net loss per diluted share was $1.30 in fiscal 2023 compared to net income per diluted share $0.83 in 2022. The change was attributable to the factors noted above. Adjusted EBITDA Our consolidated Adjusted EBITDA was $166.6 million and $200.6 million for fiscal 2023 and 2022, 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. 30 Table of Contents Segment Results During the fourth quarter of 2023, we determined that our measure of segment profitability is Adjusted EBITDA of each reportable segment. Accordingly, our CODM evaluates performance and allocates resources based primarily on Segment Adjusted EBITDA. Segment Adjusted EBITDA excludes: net interest expense, (benefit) provision for income taxes, depreciation and amortization, equity in net loss of equity-method investees, stock-based compensation, net, unrealized currency losses (gains), certain litigation and related costs, CEO succession costs, plant closure related costs-net, productivity and transformation costs, warehouse and manufacturing consolidation and other costs, costs associated with acquisitions, divestitures and other transactions, gains on sales of assets, certain inventory write-downs in 2022, intangibles and long-lived asset impairments and other adjustments. In addition, Segment Adjusted EBITDA does not include Corporate and Other expenses related to the Company’s centralized administrative functions, which do not specifically relate to a reportable 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. We do not allocate amounts below Operating income (loss) to our reportable segments. The following table provides a summary of net sales and Adjusted EBITDA by reportable segment for the fiscal years ended June 30, 2023 and 2022: (Amounts in thousands) North America International Corporate and Other Consolidated Fiscal 2023 net sales $ 1,139,162 $ 657,481 $ — $ 1,796,643 Fiscal 2022 net sales $ 1,163,132 $ 728,661 $ — $ 1,891,793 $ change $ (23,970) $ (71,180) n/a $ (95,150) % change (2.1) % (9.8) % n/a (5.0) % Fiscal 2023 Adjusted EBITDA $ 123,443 $ 82,945 $ (39,766) $ 166,622 Fiscal 2022 Adjusted EBITDA $ 122,235 $ 110,073 $ (31,692) $ 200,616 $ change $ 1,208 $ (27,128) $ (8,074) $ (33,994) % change 1.0 % (24.6) % (25.5) % (16.9) % Fiscal 2023 Adjusted EBITDA margin 10.8 % 12.6 % n/a 9.3 % Fiscal 2022 Adjusted EBITDA margin 10.5 % 15.1 % n/a 10.6 % See the Reconciliation of Non-U.S. GAAP Financial Measures to U.S. GAAP Measures following the discussion of our results of operations and Note 19, Segment Information , in the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K for a reconciliation of segment Adjusted EBITDA. North America Our net sales in the North America reportable segment for fiscal 2023 were $1.14 billion, a decrease of $24.0 million, or 2.1%, from net sales of $1.16 billion in fiscal 2022. On a constant currency basis, adjusted for the impact of acquisitions, divestitures and discontinued brands, net sales decreased by 3.8%. The decrease in net sales was mainly due to lower sales in personal care and tea. Adjusted EBITDA in fiscal 2023 was $123.4 million, an increase of $1.2 million from $122.2 million in fiscal 2022. Fiscal 2023 Adjusted EBITDA on a constant currency basis increased 1.5% from the prior year. The increase was driven by pricing and productivity more than offsetting inflation and volume loss. Adjusted EBITDA margin was 10.8%, a 35-basis point improvement from the prior year. Adjusted EBITDA margin on a constant currency basis was 10.8%, a 30-basis point improvement from the prior year. 31 Table of Contents International Net sales in the International reportable segment for fiscal 2023 were $657.5 million, a decrease of $71.2 million, or 9.8%, from net sales of $728.7 million in fiscal 2022. On a constant currency basis, net sales decreased by 1.0% from fiscal 2022. The decrease was driven by softness in plant-based categories in Europe, which was partially offset by growth in the United Kingdom. Adjusted EBITDA in fiscal 2023 was $82.9 million, a decrease of $27.1 million from $110.1 million in fiscal 2022. Fiscal 2023 Adjusted EBITDA on a constant currency basis decreased 18.3% from the prior year. The decrease was driven by higher energy and supply chain costs, partially offset by pricing and productivity. Adjusted EBITDA margin was 12.6%, a 250-basis point decline from the prior year. Adjusted EBITDA margin on a constant currency basis was 12.5%, a 265-basis point decline from the prior year. Corporate and Other The increase in Corporate and Other expenses primarily reflected an increase in compensation-related expenses. Refer to Note 19, 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 Credit Agreement (as defined below). We believe that our cash flows from operations and borrowing capacity under our Credit Agreement (as defined below) will be adequate to meet anticipated operating and other expenditures for the foreseeable future. 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 (as amended by a First Amendment dated December 16, 2022, the “Credit Agreement”). The Credit Agreement provides for senior secured financing of $1,100.0 million 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. The Credit Agreement includes financial covenants that require compliance with a consolidated interest coverage ratio, a consolidated leverage ratio and a consolidated secured leverage ratio. Prior to the Company entering into the Second Amendment (as defined below), the minimum consolidated interest coverage ratio was 2.75:1.00. The maximum consolidated leverage ratio is 6.00:1.00. Prior to Company entering into the Second Amendment, the maximum consolidated secured leverage ratio was 5.00:1.00 through December 31, 2023 or such earlier date as elected by the Company (the “First Amendment Period”). Following the First Amendment Period, the maximum consolidated secured leverage ratio would have been 4.25:1.00, subject to possible temporary increase following certain corporate acquisitions. During the First Amendment Period, loans under the Credit Agreement bore interest at (a) the Secured Overnight Financing Rate, plus a credit spread adjustment of 0.10% (as adjusted, “Term SOFR”) plus 2.0% per annum or (b) the Base Rate (as defined in the Credit Agreement) plus 1.0% per annum. Following the First Amendment Period, loans would have borne interest at rates based on (a) Term SOFR plus a rate ranging from 0.875% to 1.75% per annum or (b) the Base Rate plus a rate ranging from 0% to 0.75% per annum, the relevant rate in each case being the Applicable Rate. The Applicable Rate following the First Amendment Period would be determined in accordance with a leverage-based pricing grid, as set forth in the Credit Agreement. The weighted average interest rate on outstanding borrowings under the Credit Agreement at June 30, 2023 was 5.94%. Additionally, the Credit Agreement contains a Commitment Fee (as defined in the Credit Agreement) on the amount unused under the Credit Agreement ranging from 0.15% to 0.25% per annum, and such Commitment Fee is determined in accordance with a leverage-based pricing grid. As of June 30, 2023, there were $541.0 million of loans under the Revolver, $288.8 million of Term Loans, and $4.5 million letters of credit outstanding under the Credit Agreement. As of June 30, 2023, $254.5 million was available under the Credit 32 Table of Contents Agreement, subject to compliance with the financial covenants, as compared to $204.0 million as of June 30, 2022. As of June 30, 2023, the Company was in compliance with all associated covenants. On August 22, 2023, the Company entered into a Second Amendment (the “Second Amendment”) to the Credit Agreement. Pursuant to the Second Amendment, the Company’s maximum consolidated secured leverage ratio was amended to be 5.00 to 1.00 until September 30, 2023, 5.25 to 1.00 until December 31, 2023 and 5.00 to 1.00 until December 31, 2024 (the period of time during which such maximum consolidated secured leverage ratios are in effect, the “Second Amendment Period,” which the Company may elect to end early). Following the Second Amendment Period, the maximum consolidated secured leverage ratio will be 4.25 to 1.00, subject to possible temporary increase following certain corporate acquisitions. Pursuant to the Second Amendment, the Company’s minimum interest coverage ratio was amended to be 2.50 to 1.00. During the Second Amendment Period, loans under the Credit Agreement will bear interest at (a) Term SOFR plus 2.5% per annum or (b) the Base Rate plus 1.5% per annum. Following the Second Amendment Period, Loans will bear interest at rates based on (a) Term SOFR plus a rate ranging from 1.125% to 2.0% per annum or (b) the Base Rate plus a rate ranging from 0.125% to 1.0% per annum, the relevant rate in each case being the Applicable Rate. The Applicable Rate following the Amendment Period will be determined in accordance with a leverage-based pricing grid, as set forth in the Credit Agreement as amended by the Second Amendment. In addition to obligations under the Credit Agreement, we are party to other contractual obligations involving commitments to make payments to third parties, including purchase commitments and lease obligations, which impact our short-term and long-term liquidity and capital resource needs. See Note 7, Leases , in the Notes to the Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q. Our cash and cash equivalents balance decreased $12.1 million at June 30, 2023 to $53.4 million as compared to $65.5 million at June 30, 2022. Our working capital was $358.9 million at June 30, 2023, an increase of $29.9 million from $329.0 million at the end of fiscal 2022. Additionally, our total debt decreased by $59.9 million at June 30, 2023 to $828.7 million as compared to $888.6 million at June 30, 2022 as a result of $59.5 million of net repayments carried out during the year. Our cash balances are held in the United States, United Kingdom, Canada, Europe, the Middle East and India. As of June 30, 2023, substantially all cash was held outside of the United States. We maintain our cash and cash equivalents primarily in money market funds or their equivalent. 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) 2023 2022 Cash flows provided by (used in): Operating activities $ 66,819 $ 80,241 Investing activities (19,640) (288,309) Financing activities (63,060) 212,787 Effect of exchange rate changes on cash 3,733 (15,078) Net decrease in cash and cash equivalents $ (12,148) $ (10,359) Cash provided by operating activities was $66.8 million for the fiscal year ended June 30, 2023, compared to $80.2 million in fiscal 2022. The decrease in cash provided from operating activities resulted from a $49.4 million reduction in net income adjusted for non-cash charges offset by a $36.0 million reduction in cash used for working capital. In 2023, we used $27.7 million of cash for working capital, as a reduction in customer accounts receivable was more than offset by pay downs in short-term liabilities. In 2022, we used $63.7 million of cash for working capital, as we realized slower customer accounts receivable, increased inventory costs and quantities, and paid down short-term liabilities. C ash used in investing activities was $19.6 million for the fiscal year ended June 30, 2023, a decrease of $268.7 million from $288.3 million in fiscal 2022 primar ily due to the acquisition of THWR in the prior year and lower property, plant and equipment purchases in fiscal 2023 compared to fiscal 2022 due to the completion of certain factory-related productivity enhancements that were placed in service in fiscal 2023. 33 Table of Contents C ash used in financing activities was $63.1 million for the fiscal year ended June 30, 2023, a decrease of $275.8 million from $212.8 million of cash provided in fiscal 2022. The decrease in cash provided by financing activities was primarily due to higher borrowings under the Credit Agreement to finance the THWR acquisition, higher share repurchases, and payment of shares withheld for employee payroll taxes during the same period in the prior year. Operating Free Cash Flows Our operating free cash flow was $38.9 million for fiscal 2023, a decrease of $1.3 million from fiscal 2022. The decrease in operating free cash flow primarily resulted a decrease in cash flow from operations of $13.4 million driven by the reasons explained above, partially offset by reduction in capital expenditures. 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 to operating free cash flows. Share Repurchase Program In January 2022, the Company’s Board of Directors authorized the repurchase of up to $200.0 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 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. During the fiscal year ended June 30, 2023 , the Company did not repurchase any shares under the repurchase program. As of June 30, 2023, the Company had $173.5 million of remaining authorization under the share repurchase program. 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. Net Sales - Constant Currency Presentation We believe that net sales adjusted for the impact of foreign currency 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 net sales adjusted for the impact of foreign currency, 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 - Adjusted for the Impact of 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. To present net sales adjusted for the impact of acquisitions, the net sales of an acquired business are excluded from fiscal quarters constituting or falling within the current period and prior period where the applicable fiscal quarter in the prior period did not include the acquired business for the entire quarter. To present net sales adjusted for the impact of divestitures and discontinued brands, the net sales of a divested business or discontinued brand are excluded from all periods. 34 Table of Contents A reconciliation between reported net sales and net sales adjusted for the impact of foreign currency, acquisitions, divestitures and discontinued brands is as follows: (Amounts in thousands) North America International Hain Consolidated Net sales - Twelve months ended 6/30/23 $ 1,139,162 $ 657,481 $ 1,796,643 Acquisitions, divestitures and discontinued brands (34,659) — (34,659) Impact of foreign currency exchange 6,560 64,053 70,613 Net sales on a constant currency basis adjusted for acquisitions, divestitures and discontinued brands - Twelve months ended 6/30/23 $ 1,111,063 $ 721,534 $ 1,832,597 Net sales - Twelve months ended 6/30/22 $ 1,163,132 $ 728,661 $ 1,891,793 Acquisitions, divestitures and discontinued brands (8,109) — (8,109) Net sales adjusted for divestitures and discontinued brands - Twelve months ended 6/30/22 $ 1,155,023 $ 728,661 $ 1,883,684 Net sales decline (2.1) % (9.8) % (5.0) % Impact of acquisitions, divestitures and discontinued brands (2.3) % — % (1.4) % Impact of foreign currency exchange 0.6 % 8.8 % 3.7 % Net sales decline on a constant currency basis adjusted for acquisitions, divestitures and discontinued brands (3.8) % (1.0) % (2.7) % Adjusted EBITDA The Company defines Adjusted EBITDA as net (loss) income before net interest expense, income taxes, depreciation and amortization, equity in net loss of equity-method investees, stock-based compensation, net, unrealized currency losses (gains), certain litigation and related costs, CEO succession costs, plant closure related costs-net, productivity and transformation costs, warehouse and manufacturing consolidation and other costs, costs associated with acquisitions, divestitures and other transactions, gains on sales of assets, certain inventory write-downs, intangibles and long-lived asset impairment 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 included in determining Adjusted EBITDA. In order to compensate for these limitations, management presents. 35 Table of Contents Adjusted EBITDA in connection with U.S. GAAP results. A reconciliation of net (loss) income to Adjusted EBITDA is as follows: Fiscal Year Ended June 30, (Amounts in thousands) 2023 2022 Net (loss) income $ (116,537) $ 77,873 Depreciation and amortization 50,777 46,849 Equity in net loss of equity-method investees 1,134 2,902 Interest expense, net 43,936 10,226 (Benefit) provision for income taxes (14,178) 22,716 Stock-based compensation, net 14,423 15,611 Unrealized currency losses (gains) 929 (2,259) Litigation and related costs (a) (1,369) 7,687 Restructuring activities CEO succession 5,113 — Plant closure related costs, net 94 929 Productivity and transformation costs 7,284 8,803 Warehouse/manufacturing consolidation and other costs, net 1,026 2,721 Acquisitions, divestitures and other Transaction and integration costs, net 2,018 14,055 Gain on sale of assets (3,529) (9,049) Impairment charges Inventory write-down — (351) Intangibles and long-lived asset impairment 175,501 1,903 Adjusted EBITDA $ 166,622 $ 200,616 (a) Expenses and items relating to securities class action and baby food litigation. Adjusted EBITDA - Constant Currency Presentation The Company provides Adjusted EBITDA and Adjusted EBITDA on a constant currency basis because the Company’s management believes that these presentations provide 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 these measures for reviewing the financial results of the Company as well as a component of performance-based executive compensation. The Company believes presenting Adjusted EBITDA on a constant currency basis provides useful information to investors because it provides transparency to underlying performance in the Company’s Adjusted EBITDA by excluding the effect that foreign currency exchange rate fluctuations have on period-to-period comparability given the volatility in foreign currency exchange markets. Adjusted EBITDA on a constant currency basis is calculated by translating foreign currencies based on the average foreign exchange rate for the prior year, for each currency. A reconciliation between Adjusted EBITDA and Adjusted EBITDA on a constant currency basis for fiscal years 2023 and 2022 is as follows: (Amounts in thousands) Hain Consolidated Adjusted EBITDA - June 30, 2023 $ 166,622 Impact of foreign currency exchange 7,622 Adjusted EBITDA on a constant currency basis - June 30, 2023 $ 174,244 Adjusted EBITDA - June 30, 2022 $ 200,616 36 Table of Contents Operating Free Cash Flows In our internal evaluations, we use the non-GAAP financial measure “Operating Free Cash Flows”. The difference between Operating Free Cash Flows and cash flows provided by or used in operating activities, which is the most comparable U.S. GAAP financial measure, is that Operating Free Cash Flows 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 flows provided by or used in operating activities. We view Operating Free Cash Flows 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 Flows in isolation or as an alternative to financial measures determined in accordance with U.S. GAAP. A reconciliation from cash flows provided by operating activities to Operating Free Cash Flows is as follows: Fiscal Year Ended June 30, (Amounts in thousands) 2023 2022 Net cash provided by operating activities $ 66,819 $ 80,241 Purchases of property, plant and equipment (27,879) (39,965) Operating free cash flows $ 38,940 $ 40,276 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. 37 Table of Contents 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 2023, in conjunction with its budgeting and forecasting process for fiscal year 2024 and concluded that no indicators of impairment existed at any of its reporting units. As of June 30, 2023, the carrying value of goodwill was $938.6 million. For the fiscal 2023 impairment analysis, the Company performed a quantitative assessment for its reporting units in the United Kingdom, US, Canada and Europe. The estimated fair value of each reporting unit exceeded its carrying value based on the analysis performed. Holding all other assumptions used in the 2023 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. During the year ended June 30, 2023, the Company recorded aggregate non-cash impairment charges of $174.9 million related to certain trademarks and intangible assets as 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. 38 Table of Contents Business Combinations During the year ended June 30, 2022, the Company completed the acquisition of THWR for total consideration of $260.2 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. 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. During fiscal 2023, a valuation allowance was recorded against certain of our United States federal attributes and a majority of state deferred tax assets as a result of significant negative evidence in such jurisdictions. 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. 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. 39 Table of Contents