HAIN CELESTIAL GROUP INC 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Consolidated Financial Statements and the related Notes thereto for the period ended September 30, 2023 contained in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the fiscal year ended June 30, 2023. Forward-looking statements in this Form 10-Q are qualified by the cautionary statement included in this Form 10-Q under the sub-heading “Forward-Looking Statements” in the introduction of this Form 10-Q. Overview The Hain Celestial Group, Inc., a Delaware corporation (collectively, along with its subsidiaries, the “Company,” and herein referred to as “Hain Celestial,” “we,” “us” and “our”), was founded in 1993. 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 ® . Hain Reimagined Program During the first quarter of fiscal year 2024, we initiated a multi-year growth and transformation program (the “Hain Reimagined Program”) to drive shareholder returns. The savings initiatives are expected to impact our reportable segments and Corporate and Other. The program is intended to optimize our portfolio, improve underlying profitability and increase our flexibility to invest in targeted growth initiatives, brand building and other capabilities critical to delivering future growth. Hain Reimagined is grounded on four strategic pillars: • Focus ▪ Concentrate our portfolio in five consumer-centric Better-For-You (“BFY”) platforms: Snacks, Baby & Kids, Beverages, Meal Preparation, and Personal Care. ▪ Simplify our footprint, maintaining direct presence in five key markets – United States, Canada, UK, Ireland, and Europe – and align our global operating model and footprint, leveraging scale and realizing synergies across the business. • Grow ▪ Deliver share gain in key platforms where we have the most compelling right to win, through expanded channel reach and acceleration in its innovation pipeline. • Build ▪ Enhance critical capabilities in brand building and effectiveness of marketing spend; expand reach across under-penetrated margin-accretive channels such as away-from-home and omni-channel e-commerce; and enhance our innovation capability to be more leading edge in BFY. • Fuel ▪ Drive revenue growth management, working capital management and operational efficiency to fund growth and enhance margins. Cumulative pretax charges are expected to be $115 million - $125 million inclusive of potential inventory reductions of approximately $25 million related to brand/category exits. The balance of cumulative pretax restructuring charges is expected to be $90 million - $100 million comprised of contract termination costs, asset write-downs, employee-related costs and other transformation-related expenses. Annualized pretax savings are expected to be $130 million - $150 million. 30 Table of Contents Global Economic Environment The duration and intensity of inflation fluctuations, the possibility of an impending recession, alterations in consumer shopping and consumption patterns, and shifts in geopolitical events, such as the ongoing Russia-Ukraine conflict and the recent Gaza Strip conflict, may lead to increased supply chain expenses, higher inflation, and other business impacts. We continually assess the nature and extent of these potential and evolving impacts on our business, consolidated operational results, liquidity, and capital resources. Comparison of Three Months Ended September 30, 2023 to Three Months Ended September 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 three months ended September 30, 2023 and 2022 (amounts in thousands, other than per share data and percentages, which may not add due to rounding): Three Months Ended Change in September 30, 2023 September 30, 2022 Dollars Percentage Net sales $ 425,029 100.0% $ 439,351 100.0% $ (14,322) (3.3)% Cost of sales 341,086 80.3% 345,016 78.5% (3,930) (1.1)% Gross profit 83,943 19.7% 94,335 21.5% (10,392) (11.0)% Selling, general and administrative expenses 77,169 18.2% 74,951 17.1% 2,218 3.0% Productivity and transformation costs 6,403 1.5% 773 0.2% 5,630 728.3% Amortization of acquired intangible assets 1,955 0.5% 2,788 0.6% (833) (29.9)% Long-lived asset impairment 694 0.2% — —% 694 100.0% Operating (loss) income (2,278) (0.5)% 15,823 3.6% (18,101) * Interest and other financing expense, net 13,244 3.1% 7,677 1.7% 5,567 72.5% Other income, net (265) (0.1)% (1,790) (0.4)% 1,525 (85.2)% (Loss) income from operations before income taxes and equity in net loss (income) of equity-method investees (15,257) (3.6)% 9,936 2.3% (25,193) * (Benefit) provision for income taxes (5,379) (1.3)% 2,631 0.6% (8,010) * Equity in net loss of equity-method investees 498 0.1% 382 0.1% 116 30.4% Net (loss) income $ (10,376) (2.4)% $ 6,923 1.6% $ (17,299) * Adjusted EBITDA $ 24,090 5.7% $ 36,029 8.2% $ (11,939) (33.1)% Diluted net (loss) income per common share $ (0.12) $ 0.08 $ (0.20) * * Percentage is not meaningful due to one or more numbers being negative. Net Sales Net sales for the three months ended September 30, 2023 were $425.0 million, a decrease of $14.3 million, or 3.3%, as compared to $439.4 million in the three months ended September 30, 2022. Net sales, adjusted for the impact of divestitures and discontinued brands, decreased approximately $12.6 million, or 2.9%, from the prior year quarter due to a decline in the North America reportable segment, partially offset by growth in the International reportable segment. Further details of changes in net sales by segment are provided below in the Segment Results section. 31 Table of Contents Gross Profit Gross profit for the three months ended September 30, 2023 was $83.9 million, a decrease of $10.4 million, or 11.0%, as compared to the prior year quarter. Additionally, gross profit margin of 19.7% was lower when compared with 21.5% in the prior year quarter. The decrease in gross profit was driven primarily by the North America reportable segment, mainly due to lower sales volume as well as by inflation, partially offset by pricing and productivity. The International reportable segment had an increase in gross profit mainly driven by higher net sales due to pricing, partially offset by inflation. Selling, General and Administrative Expenses Selling, general and administrative expenses were $77.2 million for the three months ended September 30, 2023, an increase of $2.2 million, or 3.0%, from $75.0 million for the prior year quarter. The increase was due to higher selling expenses and employee-related expenses. Productivity and Transformation Costs Productivity and transformation costs were $6.4 million for the three months ended September 30, 2023, an increase of $5.6 million from $0.8 million in the prior year quarter. The increase was primarily due to restructuring costs incurred in connection with the Hain Reimagined Program. Amortization of Acquired Intangible Assets Amortization of acquired intangibles was $2.0 million for the three months ended September 30, 2023, a decrease of $0.8 million from $2.8 million in the prior year quarter, primarily reflecting reduced amortization expenses due to impairment of the ParmCrisps customer relationships recognized in the third quarter of fiscal 2023. See Note 8, Goodwill and Other Intangible Assets , in the Notes to the Consolidated Financial Statements included in Item 8 of the Form 10-K. Long-Lived Asset Impairment During the three months ended September 30, 2023, the Company recognized a non-cash impairment charge of $0.7 million related to certain equipment in North America. Operating (Loss) Income Operating loss for the three months ended September 30, 2023 was $2.3 million compared to operating income of $15.8 million in the prior year quarter as a result of the items described above. Interest and Other Financing Expense, Net Interest and other financing expense, net totaled $13.2 million for the three months ended September 30, 2023, an increase of $5.6 million, or 72.5%, from $7.7 million in the prior year quarter. The increase resulted primarily due to higher borrowing rates, partially offset by lower outstanding debt balance compared to the prior year quarter. See Note 8, Debt and Borrowings , in the Notes to the Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q. Other Income, Net Other income, net totaled $0.3 million for the three months ended September 30, 2023, compared to $1.8 million in the prior year quarter. The decrease was primarily attributable to lower unrealized foreign currency gains. (Loss) Income from Operations Before Income Taxes and Equity in Net Loss of Equity-Method Investees Loss from operations before income taxes and equity in net loss of our equity-method investees for the three months ended September 30, 2023 was $15.3 million compared to income of $9.9 million in the prior year quarter. The decrease was due to the items discussed above. 32 Table of Contents (Benefit) Provision for Income Taxes The (benefit) provision for income taxes includes federal, foreign, state and local income taxes. Our income tax benefit was $5.4 million for the three months ended September 30, 2023 compared to expense of $2.6 million in the prior year quarter. The effective income tax rate was a benefit of 35.3% and an expense of 26.5% for the three months ended September 30, 2023 and 2022, respectively. The effective income tax rate for the three months ended September 30, 2023 increased due to tax expense related to stock-based compensation, global intangible low-taxed income (“GILTI”), and limitations on the deductibility of executive compensation. The effective income tax rates in each period were also impacted by the geographical mix of earnings and state income taxes. Equity in Net Loss of Equity-Method Investees Our equity in net loss from our equity-method investments for the three months ended September 30, 2023 was a loss of $0.5 million compared to $0.4 million in the prior year quarter. See Note 12, Investments , in the Notes to the Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q. Net (Loss) Income Net loss for the three months ended September 30, 2023 was $10.4 million, or $0.12 per diluted share, compared to net income of $6.9 million, or $0.08 per diluted share, in the prior year quarter. The decrease was attributable to the factors noted above. Adjusted EBITDA Our Adjusted EBITDA was $24.1 million and $36.0 million for the three months ended September 30, 2023 and 2022, respectively, as a result of the factors discussed above and the adjustments described in the Reconciliation of Non-U.S. GAAP Financial Measures to U.S. GAAP Measures presented following the discussion of our results of operations. Segment Results Our organizational structure consists of two geographic based reportable segments: North America and International, which are also the operating segments. This structure is in line with how the Company’s Chief Operating Decision Maker (“CODM”) assesses the Company’s performance and allocates resources. The Company uses segment net sales and segment Adjusted EBITDA in order to analyze segment results and trends. 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, plant closure related costs-net, productivity and transformation costs, warehouse and manufacturing consolidation and other costs, costs associated with divestitures and other transactions, loss (gain) on sale of assets, 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 (loss) income to our reportable segments. 33 Table of Contents The following table provides a summary of net sales and Adjusted EBITDA by reportable segment for the three months ended September 30, 2023 and 2022: (dollars in thousands) North America International Corporate and Other Consolidated Net sales Three months ended 9/30/23 $ 260,054 $ 164,975 $ — $ 425,029 Three months ended 9/30/22 288,396 150,955 — 439,351 $ change $ (28,342) $ 14,020 n/a $ (14,322) % change (9.8) % 9.3 % n/a (3.3) % Adjusted EBITDA Three months ended 9/30/23 $ 18,727 $ 17,438 $ (12,075) $ 24,090 Three months ended 9/30/22 30,781 14,947 (9,699) 36,029 $ change $ (12,054) $ 2,491 $ (2,376) $ (11,939) % change (39.2) % 16.7 % 24.5 % (33.1) % Adjusted EBITDA margin Three months ended 9/30/23 7.2 % 10.6 % n/a 5.7 % Three months ended 9/30/22 10.7 % 9.9 % n/a 8.2 % 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 17, Segment Information , in the Notes to the Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q for a reconciliation of segment Adjusted EBITDA. North America Our net sales in the North America reportable segment for the three months ended September 30, 2023 were $260.1 million, a decrease of $28.3 million, or 9.8%, from net sales of $288.4 million in the prior year quarter. The decrease in net sales was primarily due to lower sales in baby/kids category on account of continued industry-wide challenges in organic formula supply, as well as by a decline in personal care primarily reflecting the timing shift of a sun care program and a decline in snacks associated with the optimization of promotional activity for Terra ® . Adjusted EBITDA for the three months ended September 30, 2023 was $18.7 million, a decrease of $12.1 million, or 39.2%, from Adjusted EBITDA of $30.8 million in the prior year quarter. The decrease was primarily driven by reduced gross profit reflecting inflation as well as by lower sales discussed above and an increase in certain inventory obsolescence reserves. Adjusted EBITDA margin was 7.2%, a 350-basis point decrease from the prior year period. International Net sales in the International reportable segment for the three months ended September 30, 2023 were $165.0 million, an increase of $14.0 million, or 9.3%, from net sales of $151.0 million in the prior year quarter. The increase in net sales was mainly driven by growth in meal preparation and beverages categories. Adjusted EBITDA for the three months ended September 30, 2023 was $17.4 million, an increase of $2.5 million, or 16.7%, from Adjusted EBITDA of $14.9 million in the prior year quarter. The increase was primarily driven by an increase in gross profit reflecting higher pricing, partially offset by the above-noted increase in selling, general and administrative expenses. Adjusted EBITDA margin was 10.6%, a 70-basis point increase from the prior year period. Corporate and Other The increase in Corporate and Other expenses primarily reflected an increase in consulting charges. Refer to Note 17, Segment Information , in the Notes to the Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q. 34 Table of Contents 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 will be adequate to meet anticipated operating and other expenditures for the foreseeable future. See Note 8, Debt and Borrowings , in the Notes to the Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q. 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 6, Leases . Amended and Restated Credit Agreement On August 22, 2023, the Company entered into a Second Amendment (the “Second Amendment”) to the 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 million in the aggregate, consisting of (1) $300 million in aggregate principal amount of term loans (the “Term Loans”) and (2) an $800 million senior secured revolving credit facility (which includes borrowing capacity available for letters of credit, and is comprised of a $440 million U.S. revolving credit facility and $360 million global revolving credit facility) (the “Revolver”). Both the Revolver and the Term Loans mature on December 22, 2026. 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 Second 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. The weighted average interest rate on outstanding borrowings under the Credit Agreement at September 30, 2023 was 7.86%. 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. 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. Pursuant to the Second Amendment, the Company’s maximum consolidated secured leverage ratio was amended to be 5.00:1.00 until September 30, 2023, 5.25:1.00 until December 31, 2023 and 5.00:1.00 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 4.25:1.00, 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 2.50:1.00. As of September 30, 2023, there were $530,000 of loans under the Revolver, $286,875 of Term Loans, and $4,468 of letters of credit outstanding under the Credit Agreement. As of September 30, 2023, $265,532 was available under the Credit Agreement, subject to compliance with the financial covenants. As of September 30, 2023, the Company was in compliance with all associated covenants. 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 6, 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 $15.1 million at September 30, 2023 to $38.3 million as compared to $53.4 million at June 30, 2023. Our working capital was $319.2 million at September 30, 2023, a decrease of $39.8 million from $358.9 million at the end of fiscal 2023. Additionally, our total debt decreased by $13.8 million at September 30, 2023 to $815.0 million as compared to $828.7 million at June 30, 2023 as a result of $12.9 million of net repayments carried out during the period. Our cash balances are held in the United States, United Kingdom, Canada, Europe, the Middle East and India. As of September 30, 2023, substantially all cash was held outside of the United States. 35 Table of Contents 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. Three Months Ended September 30, Change in (amounts in thousands) 2023 2022 Dollars Cash flows provided by (used in): Operating activities $ 14,030 $ (5,116) $ 19,146 Investing activities (5,649) (6,928) 1,279 Financing activities (17,584) 9,824 (27,408) Decrease in cash and cash equivalents (9,203) (2,220) (6,983) Effect of exchange rate changes on cash and cash equivalents (5,881) (11,498) 5,617 Net decrease in cash and cash equivalents $ (15,084) $ (13,718) $ (1,366) Cash provided by operating activities was $14.0 million for the three months ended September 30, 2023, an increase of $19.1 million from cash used in operating activities of $5.1 million in the prior year period. This increase versus the prior year period resulted primarily from higher cash generation of $44.3 million from our working capital accounts which was mainly due to our accounts payable optimization initiatives, focused inventory management, and an improvement in accounts receivable recovery, partially offset by reduction of $25.2 million in net income adjusted for non-cash charges in the current period. Cash used in investing activities was $5.6 million for the three months ended September 30, 2023, a decrease of $1.3 million from $6.9 million in the prior year period primarily due to lower capital expenditures in the current period due to phasing of capital projects. During the three months ended September 30, 2023, $6.9 million of capital expenditures were incurred primarily related to operational improvements in the United States and the United Kingdom segments. We expect capital expenditures to be approximately $50.0 million for fiscal year 2024. Cash used in financing activities was $17.6 million for the three months ended September 30, 2023, a decrease of $27.4 million compared to $9.8 million of cash provided by financing activities in the prior year period. The increase in cash used in financing activities was primarily due to higher net debt repayment during the three months ended September 30, 2023. Free Cash Flow Our free cash flow was $7.1 million for the three months ended September 30, 2023, an increase of $19.5 million from negative free cash flow of $12.3 million in the three months ended September 30, 2022. This increase versus the prior year period resulted primarily from an increase in cash flows from operations of $19.1 million driven by the reasons explained 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 from our net cash provided by operating activities to free cash flow. 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 three months ended September 30, 2023, the Company repurchased no shares under the repurchase program. As of September 30, 2023, the Company had $173.5 million of remaining authorization under the share repurchase program. 36 Table of Contents Reconciliation of Non-U.S. GAAP Financial Measures to U.S. GAAP Measures We have included in this report measures of financial performance that are not defined by U.S. GAAP. We believe that these measures provide useful information to investors and include these measures in other communications to investors. For each of these non-U.S. GAAP financial measures, we are providing below a reconciliation of the differences between the non-U.S. GAAP measure and the most directly comparable U.S. GAAP measure, an explanation of why our management and Board of Directors believe the non-U.S. GAAP measure provides useful information to investors and any additional purposes for which our management and Board of Directors use the non-U.S. GAAP measures. These non-U.S. GAAP measures should be viewed in addition to, and not in lieu of, the comparable U.S. GAAP measures. Net Sales - Adjusted for the Impact of Divestitures and Discontinued Brands We also exclude the impact of 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 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 divestitures and discontinued brands, the net sales of a divested business or discontinued brand are excluded from all periods. A reconciliation between reported net sales and net sales adjusted for the impact of divestitures and discontinued brands is as follows: (amounts in thousands) North America International Hain Consolidated Net sales - Three months ended September 30, 2023 $ 260,054 $ 164,975 $ 425,029 Divestitures and discontinued brands 8 — 8 Net sales adjusted for divestitures and discontinued brands - Three months ended September 30, 2023 $ 260,062 $ 164,975 $ 425,037 Net sales - Three months ended September 30, 2022 $ 288,396 $ 150,955 $ 439,351 Divestitures and discontinued brands (1,762) — (1,762) Net sales adjusted for divestitures and discontinued brands - Three months ended September 30, 2022 $ 286,634 $ 150,955 $ 437,589 Net sales (decline) growth (9.8) % 9.3 % (3.3) % Impact of divestitures and discontinued brands 0.5 % — % 0.4 % Net sales (decline) growth adjusted for divestitures and discontinued brands (9.3) % 9.3 % (2.9) % 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, 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, 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 Adjusted EBITDA in connection with U.S. GAAP results. 37 Table of Contents A reconciliation of net (loss) income to Adjusted EBITDA is as follows: Three Months Ended September 30, (amounts in thousands) 2023 2022 Net (loss) income $ (10,376) $ 6,923 Depreciation and amortization 12,305 11,970 Equity in net loss of equity-method investees 498 382 Interest expense, net 12,623 7,279 (Benefit) provision for income taxes (5,379) 2,631 Stock-based compensation, net 3,742 3,994 Unrealized currency losses (gains) 35 (1,711) Litigation and related costs Litigation expenses (a) 1,524 2,463 Restructuring activities Plant closure related costs, net 1,841 (2) Productivity and transformation costs 6,403 773 Acquisitions, divestitures and other Transaction and integration costs, net 118 1,367 Loss (gain) on sale of assets 62 (40) Impairment charges Long-lived asset impairment 694 — Adjusted EBITDA $ 24,090 $ 36,029 (a) Expenses and items relating to securities class action and baby food litigation. Free Cash Flow In our internal evaluations, we use the non-GAAP financial measure “Free Cash Flow.” The difference between Free Cash Flow and cash flows provided by or used in operating activities, which is the most comparable U.S. GAAP financial measure, is that Free Cash Flow 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 Free Cash Flow as an important measure because it is one factor in evaluating the amount of cash available for discretionary investments. We do not consider Free Cash Flow in isolation or as an alternative to financial measures determined in accordance with U.S. GAAP. A reconciliation from cash flows provided by (used in) operating activities to Free Cash Flow is as follows: Three Months Ended September 30, (amounts in thousands) 2023 2022 Net cash provided by (used in) operating activities $ 14,030 $ (5,116) Purchases of property, plant and equipment (6,906) (7,215) Free cash flow $ 7,124 $ (12,331) 38 Table of Contents Critical Accounting Estimates Our financial statements are prepared in accordance with accounting principles generally accepted in the United States. The accounting principles we use require us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and amounts of income and expenses during the reporting periods presented. We believe in the quality and reasonableness of our critical accounting policies; however, materially different amounts may be reported under different conditions or using assumptions different from those that we have applied. The accounting policies that have been identified as critical to our business operations and to understanding the results of our operations pertain to variable consideration, valuation of long-lived assets, goodwill and intangible assets, stock-based compensation and valuation allowances for deferred tax assets. The application of each of these critical accounting policies and estimates is discussed in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations , of our Annual Report on Form 10-K for the fiscal year ended June 30, 2023, from which there have been no material changes. Recent Accounting Pronouncements There were no recently adopted accounting pronouncements or recently issued accounting pronouncements not yet effective that we believe will have a significant impact on our consolidated financial statements. 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.