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, 2024 contained in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the fiscal year ended June 30, 2024. 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 with its subsidiaries, the “Company,” “Hain Celestial,” “we,” “us” or “our”), is a leading global health and wellness company whose purpose is to inspire healthier living for people, communities and the planet through better-for-you brands. For more than 30 years, Hain Celestial has intentionally focused on delivering nutrition and well-being that positively impacts today and tomorrow. Headquartered in Hoboken, N.J., Hain Celestial’s products across snacks, baby & kids, beverages, meal preparation, and personal care, are marketed and sold in over 70 countries around the world. The Company operates under two reportable segments: North America and International. The Company’s leading brands include Garden Veggie Snacks ™ , Terra ® chips, Garden of Eatin’ ® snacks, Hartley’s ® Jelly, Earth’s Best ® and Ella’s Kitchen ® baby and kids foods, Celestial Seasonings ® teas, Joya ® and Natumi ® plant-based beverages, Greek Gods ® yogurt, Cully & Sully ® , Yorkshire Provender ® , New Covent Garden ® and Imagine ® soups, Yves ® and Linda McCartney’s ® (under license) meat-free, and Avalon Organics ® personal care, among others. Hain Reimagined Program During the first quarter of fiscal year 2024, we initiated a multi-year growth, transformation and restructuring program (the “Hain Reimagined Program”) intended to drive shareholder returns. The savings initiatives 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. The Hain Reimagined Program is grounded on four strategic pillars: • Focus o Concentrate our portfolio in five consumer-centric Better-For-You (“BFY”) platforms: Snacks, Baby & Kids, Beverages, Meal Preparation, and Personal Care. o Simplify our footprint, maintaining direct presence in five key markets – United States (“U.S.”), Canada, United Kingdom (“U.K.”), Ireland, and Western Europe – and align our global operating model and footprint, leveraging scale and realizing synergies across the business. • Grow o Deliver share gain in key platforms where we have the most compelling right to win, through expanded channel reach and acceleration in our innovation pipeline. • Build o 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 o Drive revenue growth management, working capital management and operational efficiency to fund growth and enhance margins. Implementation of the Hain Reimagined Program is expected to be completed by the end of the 2027 fiscal year. Cumulative pretax charges associated with the Hain Reimagined Program are expected to be $115 million - $125 million inclusive of potential inventory write-downs 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. For the three months ended September 30, 2024, we incurred approximately $5 million of expenses associated with the Hain Reimagined Program, compared to $10 million in the prior year 29 Table of Contents quarter. Annualized pretax savings are expected to be $130 million - $150 million. As part of the Hain Reimagined Program, the Company completed the sale of three non-core brands during the fourth quarter of fiscal 2024 and first quarter of fiscal 2025. We initiated actions to consolidate our personal care manufacturing footprint, which were substantially completed in the first quarter of fiscal 2025. The Company also initiated actions to: (i) simplify its distribution footprint in the U.S.; (ii) rationalize certain product categories for greater capacity utilization, cost reduction and margin expansion; (iii) reduce office space; and (iv) exit its non-strategic joint venture in India as part of the Focus and Fuel pillars of the Hain Reimagined Program. 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, may lead to increased supply chain expenses, 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, 2024 to Three Months Ended September 30, 2023 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, 2024 and 2023 (dollars in thousands, other than per share amounts and percentages, which may not add due to rounding): Three Months Ended Change in September 30, 2024 September 30, 2023 Dollars Percentage Net sales $ 394,596 100.0 % $ 425,029 100.0 % $ (30,433 ) (7.2 )% Cost of sales 312,986 79.3 % 341,086 80.3 % (28,100 ) (8.2 )% Gross profit 81,610 20.7 % 83,943 19.7 % (2,333 ) (2.8 )% Selling, general and administrative expenses 71,328 18.1 % 77,169 18.2 % (5,841 ) (7.6 )% Productivity and transformation costs 5,018 1.3 % 6,403 1.5 % (1,385 ) (21.6 )% Amortization of acquired intangible assets 2,180 0.6 % 1,955 0.5 % 225 11.5 % Long-lived asset impairment 31 0.0 % 694 0.2 % (663 ) (95.5 )% Operating income (loss) 3,053 0.8 % (2,278 ) (0.5 )% 5,331 * Interest and other financing expense, net 13,746 3.5 % 13,244 3.1 % 502 3.8 % Other expense (income), net 5,292 1.3 % (265 ) (0.1 )% 5,557 * Loss before income taxes and equity in net loss of equity-method investees (15,985 ) (4.1 )% (15,257 ) (3.6 )% (728 ) 4.8 % Provision (benefit) for income taxes 3,523 0.9 % (5,379 ) (1.3 )% 8,902 * Equity in net loss of equity-method investees 155 0.0 % 498 0.1 % (343 ) (68.9 )% Net loss $ (19,663 ) (5.0 )% $ (10,376 ) (2.4 )% $ (9,287 ) 89.5 % Adjusted EBITDA $ 22,375 5.7 % $ 24,090 5.7 % $ (1,715 ) (7.1 )% Diluted net loss per common share $ (0.22 ) $ (0.12 ) $ (0.10 ) 88.8 % * Percentage is not meaningful due to one or more numbers being negative. Net Sales Net sales for the three months ended September 30, 2024 were $394.6 million, a decrease of $30.4 million, or 7.2%, including an unfavorable impact of $13.1 million or 2.9% related to divestitures, discontinued brands and exited product categories and a favorable impact of $3.3 million or 0.8% from foreign exchange, as compared to the prior year quarter. Organic net sales, defined as net sales adjusted to exclude the impact of foreign exchange, acquisitions, divestitures, discontinued brands and exited product categories, decreased $20.6 million, or 5.1%, from the prior year quarter. Additionally, the decrease in organic net sales was comprised of a 4% decrease in volume/mix and a 1% decrease in price. The decrease in each of net sales and organic net sales was primarily due to declines in both the North America and International reportable segments. Further details of changes in net sales by segment are provided below in the Segment Results section. 30 Table of Contents Gross Profit Gross profit for the three months ended September 30, 2024 was $81.6 million, a decrease of $2.3 million, or 2.8%, as compared to the prior year quarter. However, gross profit margin of 20.7% for the three months ended September 30, 2024 was higher when compared with 19.7% 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, partially offset by favorable product mix and productivity improvements. The International reportable segment had an increase in gross profit mainly driven by higher margin due to productivity and improved promotional efficiency, partially offset by lower volume. Selling, General and Administrative Expenses Selling, general and administrative expenses were $71.3 million for the three months ended September 30, 2024, a decrease of $5.8 million, or 7.6%, from $77.2 million for the prior year quarter. The decrease was primarily due to lower marketing and advertising expense and employee-related expenses. Productivity and Transformation Costs Productivity and transformation costs were $5.0 million for the three months ended September 30, 2024, a decrease of $1.4 million, or 21.6%, from $6.4 million in the prior year quarter. The decrease was primarily due to lower restructuring costs incurred in connection with the Hain Reimagined Program. Amortization of Acquired Intangible Assets Amortization of acquired intangibles was $2.2 million for the three months ended September 30, 2024, an increase of $0.2 million from $2.0 million in the prior year quarter. 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 Income (Loss) Operating income for the three months ended September 30, 2024 was $3.1 million compared to an operating loss of $2.3 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 $13.7 million for the three months ended September 30, 2024, an increase of $0.5 million, or 3.8%, from $13.2 million in the prior year quarter. The increase resulted primarily from higher borrowing rates, partially offset by a lower outstanding debt balance compared to the prior year quarter. See Note 9, Debt and Borrowings , in the Notes to the Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q. Other Expense (Income), Net Other expense, net totaled $5.3 million for the three months ended September 30, 2024, compared to $0.3 million of other income, net in the prior year quarter. The change primarily reflected the recognition of a $3.9 million pretax loss on the sale of the ParmCrisps ® business in the first quarter of 2024 and higher net unrealized foreign currency losses. Loss Before Income Taxes and Equity in Net Loss of Equity-Method Investees Loss before income taxes and equity in net loss of our equity-method investees for the three months ended September 30, 2024 was $16.0 million compared to $15.3 million in the prior year quarter. The increase in the loss before income taxes and equity in net loss of our equity-method investees was due to the items discussed above. 31 Table of Contents Provision (Benefit) for Income Taxes The provision (benefit) for income taxes includes federal, foreign, state and local income taxes. Our income tax expense was $3.5 million for the three months ended September 30, 2024 compared to benefit of $5.4 million in the prior year quarter. The effective income tax rate was an expense of 22.0% and a benefit of 35.3% for the three months ended September 30, 2024 and 2023, respectively. The income tax expense for the three months ended September 30, 2024 reflected foreign tax expense in certain jurisdictions and an increase in the valuation allowance for both federal and state income taxes. Equity in Net Loss of Equity-Method Investees Equity in net loss from our equity-method investments for the three months ended September 30, 2024 was a loss of $0.2 million compared to a $0.5 million loss in the prior year quarter. Net Loss Net loss for the three months ended September 30, 2024 was $19.7 million, or $0.22 per diluted share, compared to $10.4 million, or $0.12 per diluted share, in the prior year quarter. The increase in net loss was attributable to the factors noted above. Adjusted EBITDA Adjusted EBITDA was $22.4 million and $24.1 million for the three months ended September 30, 2024 and 2023, 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 loss to Adjusted EBITDA. 32 Table of Contents Segment Results The following table provides a summary of net sales and Adjusted EBITDA by reportable segment for the three months ended September 30, 2024 and 2023: (Dollars in thousands) North America International Corporate and Other Consolidated Net sales Three months ended 9/30/24 $ 231,140 $ 163,456 $ — $ 394,596 Three months ended 9/30/23 260,054 164,975 — 425,029 $ change $ (28,914 ) $ (1,519 ) n/a $ (30,433 ) % change (11.1 )% (0.9 )% n/a (7.2 )% Adjusted EBITDA Three months ended 9/30/24 $ 12,459 $ 20,370 $ (10,454 ) $ 22,375 Three months ended 9/30/23 18,727 17,438 (12,075 ) 24,090 $ change $ (6,268 ) $ 2,932 $ 1,621 $ (1,715 ) % change (33.5 )% 16.8 % (13.4 )% (7.1 )% Adjusted EBITDA margin Three months ended 9/30/24 5.4 % 12.5 % n/a 5.7 % Three months ended 9/30/23 7.2 % 10.6 % n/a 5.7 % 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, 2024 were $231.1 million, a decrease of $28.9 million, or 11.1%, including an unfavorable impact of $12.9 million or 4.4% related to divestitures, discontinued brands and exited product categories, as compared to the prior year quarter. Organic net sales decreased $15.5 million, or 6.5% to $223.6 million from $239.1 million in the prior year quarter. The decrease in each of net sales and organic net sales was primarily due to lower sales in the snacks category, as expected, due to the timing shift of a promotional event that was held in the first quarter of last fiscal year into the third quarter of the current fiscal year, as well as by a decline in the meal preparation category, partially offset by growth in the beverages category. Adjusted EBITDA for the three months ended September 30, 2024 was $12.5 million, a decrease of $6.3 million, or 33.5%, from Adjusted EBITDA of $18.7 million in the prior year quarter. The decrease was primarily driven by lower volume and inflation, partially offset by productivity. Adjusted EBITDA margin was 5.4%, a 180-basis point decrease from the prior year period. International Our net sales in the International reportable segment for the three months ended September 30, 2024 were $163.5 million, a decrease of $1.5 million, or 0.9%, including a favorable impact of $3.9 million or 2.3% related to foreign exchange, as compared to the prior year quarter. Organic net sales decreased $5.1 million or 3.1% to $159.4 million from $164.5 million the prior year quarter. The decrease in net sales was primarily due to lower sales in the beverages and baby & kids categories on account of lower branded sales. The decrease in organic net sales was primarily due to lower sales in the meal preparation and baby & kids categories. The decrease in the meal preparation category was due to short-term softness in private label spreads and drizzles, partially offset by strong soup performance across brands. Baby & kids category net sales were lower due to lower branded sales. Adjusted EBITDA for the three months ended September 30, 2024 was $20.4 million, an increase of $2.9 million, or 16.8%, from Adjusted EBITDA of $17.4 million in the prior year quarter. The increase was primarily driven by an increase in gross 33 Table of Contents profit reflecting improved margin associated with productivity improvements and improved promotional efficiency, partially offset by lower volume and a decrease in selling, general and administrative expenses. Adjusted EBITDA margin was 12.5%, a 190-basis point increase from the prior year period. Corporate and Other The decrease in Corporate and Other expenses primarily reflected a decrease 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. 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 9, 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 7, 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, 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. The Company’s obligations under the Credit Agreement are guaranteed by certain existing and future domestic subsidiaries of the Company and are secured by liens on assets of the Company and its material domestic subsidiaries, including the equity interest in each of their direct subsidiaries and intellectual property, subject to agreed-upon exceptions. The Credit Agreement includes financial covenants that require compliance with a consolidated secured leverage ratio, a consolidated leverage ratio and a consolidated interest coverage 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”). 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 Credit Agreement, the Company’s maximum consolidated leverage ratio is 6.00:1.00. Pursuant to the Second Amendment, the Company’s minimum interest coverage ratio was amended to be 2.50:1.00. As of September 30, 2024, the Company’s consolidated secured leverage ratio, consolidated leverage ratio and consolidated interest coverage ratio were 3.87:1.00, 3.87:1.00 and 3.26:1.00, respectively, and the Company was in compliance with all associated covenants. The aforementioned financial covenants are being reported as calculated under the Credit Agreement and not pursuant to U.S. GAAP. Please refer to the Credit Agreement filed as an exhibit to our periodic reports for further information related to the calculation thereof. For risks related to our indebtedness and compliance with these covenants, please refer to the risk factor “Any default under our credit agreement could have significant consequences” set forth in Part I, Item 1A of our most recent annual report on Form 10-K. During the Second Amendment Period, loans under the Credit Agreement 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 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 34 Table of Contents Period is determined in accordance with a leverage-based pricing grid, as set forth in the Credit Agreement as amended by the Second Amendment. Excluding the impact of hedges, the weighted average interest rate on outstanding borrowings under the Credit Agreement at September 30, 2024 was 7.76%. During fiscal 2022, the Company used interest rate swaps to hedge a portion of the interest rate risk related its outstanding variable rate debt. As of September 30, 2024, the notional amount of the interest rate swaps was $400 million with fixed rate payments of 5.60%. Including the impact of hedges, the weighted average interest rate on outstanding borrowings under the Credit Agreement at September 30, 2024 was 6.56%. 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 September 30, 2024, there were $473,000 of loans under the Revolver, $268,675 of Term Loans, and $3,247 of letters of credit outstanding under the Credit Agreement. As of September 30, 2024, $323,753 was available under the Credit Agreement, subject to compliance with the financial covenants. As of September 30, 2024, the Company was in compliance with all associated covenants. Our cash and cash equivalents balance increased by $2.5 million at September 30, 2024 to $56.9 million as compared to $54.3 million at June 30, 2024. Our working capital was $283.3 million at September 30, 2024, an increase of $7.8 million from $275.6 million at the end of fiscal 2024. Additionally, our total debt decreased by $3.7 million at September 30, 2024 to $740.4 million as compared to $744.1 million at June 30, 2024 as a result of net repayments carried out during the period. Our cash balances are held in the U.S., U.K., Canada, Western Europe, the Middle East and India. As of September 30, 2024, substantially all cash was held outside of the U.S. 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 (used in) provided by operating, investing and financing activities is summarized below. Three Months Ended September 30, Change in (Dollars in thousands) 2024 2023 Dollars Cash flows (used in) provided by: Operating activities $ (10,787 ) $ 14,030 $ (24,817 ) Investing activities 6,309 (5,649 ) 11,958 Financing activities (4,198 ) (17,584 ) 13,386 Effect of exchange rate changes on cash 11,222 (5,881 ) 17,103 Net increase (decrease) in cash and cash equivalents $ 2,546 $ (15,084 ) $ 17,630 Cash used in operating activities was $10.8 million for the three months ended September 30, 2024, a decrease of $24.8 million from cash provided by operating activities of $14.0 million in the prior year period. This increase in cash used in operating activities versus the prior year period resulted primarily from higher cash utilization of $28.9 million for our working capital accounts which was mainly due to lower accounts payable and accrued expenses of $22.8 million, primarily reflecting timing of payments to suppliers in North America and cash restructuring charges, partially offset by focused inventory management, which generated year-over-year improvement of $9.7 million as well as a reduction of $4.1 million in net loss adjusted for non-cash charges. Cash provided by investing activities was $6.3 million for the three months ended September 30, 2024, an increase of $12.0 million from cash used in investing activities of $5.6 million in the prior year period primarily due to an increase in proceeds from asset sales of $10.8 million and lower capital expenditures in the current period due to phasing of capital projects. During the three months ended September 30, 2024, $5.8 million of capital expenditures were incurred primarily related to operational improvements in the United States and United Kingdom. We expect capital expenditures to be approximately $50 million for fiscal year 2025. 35 Table of Contents Cash used in financing activities was $4.2 million for the three months ended September 30, 2024, a decrease of $13.4 million compared to $17.6 million in the prior year period. The decrease in cash used in financing activities was primarily due to lower net debt repayment during the three months ended September 30, 2024. Free Cash Flow Our free cash flow was negative $16.5 million for the three months ended September 30, 2024, a decrease of $23.7 million from free cash flow of $7.1 million in the three months ended September 30, 2023. The period-over-period change resulted primarily from a decrease in cash flows from operations of $24.8 million driven by the reasons explained above, partially offset by lower capital expenditures. 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 (used in) 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, 2024, the Company did not repurchase any shares under the repurchase program. As of September 30, 2024, 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. Organic Net Sales As noted above, we define organic net sales as net sales excluding the impact of acquisitions, divestitures, discontinued brands and exited product categories and foreign exchange. To adjust organic net sales 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 adjust organic net sales for the impact of divestitures, discontinued brands and exited product categories, the net sales of a divested business, discontinued brand or exited product category are excluded from all periods. To adjust organic net sales for the impact of foreign exchange, 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. 36 Table of Contents A reconciliation between reported net sales and organic net sales is as follows: (Dollars in thousands) North America International Hain Consolidated Net sales - Three months ended September 30, 2024 $ 231,140 $ 163,456 $ 394,596 Less: Divestitures, discontinued brands and exited product categories 8,110 218 8,328 Less: Impact of foreign currency exchange (529 ) 3,835 3,306 Organic net sales - Three months ended September 30, 2024 $ 223,559 $ 159,403 $ 382,962 Net sales - Three months ended September 30, 2023 $ 260,054 $ 164,975 $ 425,029 Less: Divestitures, discontinued brands and exited product categories 20,973 476 21,449 Organic net sales - Three months ended September 30, 2023 $ 239,081 $ 164,499 $ 403,580 Net sales decline (11.1 )% (0.9 )% (7.2 )% Less: Impact of divestitures, discontinued brands and exited product categories (4.4 )% (0.1 )% (2.9 )% Less: Impact of foreign currency exchange (0.2 )% 2.3 % 0.8 % Organic net sales decline (6.5 )% (3.1 )% (5.1 )% Adjusted EBITDA The Company defines Adjusted EBITDA as net loss before net interest expense, income taxes, depreciation and amortization, equity in net loss of equity-method investees, stock-based compensation, net, unrealized currency losses, certain litigation expenses, net, plant closure related costs, net, productivity and transformation costs, costs associated with acquisitions, divestitures and other transactions, loss on sale 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 to Adjusted EBITDA is as follows: Three Months Ended September 30, (Dollars in thousands) 2024 2023 Net loss $ (19,663 ) $ (10,376 ) Depreciation and amortization 11,427 12,305 Equity in net loss of equity-method investees 155 498 Interest expense, net 12,995 12,623 Provision (benefit) for income taxes 3,523 (5,379 ) Stock-based compensation, net 2,876 3,742 Unrealized currency losses 1,194 35 Certain litigation expenses, net (a) 827 1,524 Restructuring activities Productivity and transformation costs 5,018 6,403 Plant closure related costs, net 376 1,841 Acquisitions, divestitures and other Loss on sale of assets 3,934 62 Transaction and integration costs, net (318 ) 118 Impairment charges Long-lived asset impairment 31 694 Adjusted EBITDA $ 22,375 $ 24,090 (a) Expenses and items relating to securities class action and baby food litigation and SEC investigation. 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 used in or provided by 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. 38 Table of Contents A reconciliation from cash flows (used in) provided by operating activities to Free Cash Flow is as follows: Three Months Ended September 30, (Dollars in thousands) 2024 2023 Net cash (used in) provided by operating activities $ (10,787 ) $ 14,030 Purchases of property, plant and equipment (5,757 ) (6,906 ) Free Cash Flow $ (16,544 ) $ 7,124 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, 2024, from which there have been no material changes. We are providing the below update regarding goodwill. Goodwill In each quarter subsequent to our annual impairment assessment, we review events that occur or circumstances that change, including the macroeconomic environment, our business performance and our market capitalization, to determine if a quantitative impairment assessment is necessary. If assumptions are not achieved or market conditions decline, potential impairment charges could result. Impairments to goodwill and other intangible assets may be caused by factors outside our control, such as increasing competitive pricing pressures, changes in discount rates based on changes in cost of capital (i.e., as a result of changes in interest rates or other conditions), lower than expected sales and profit growth rates, changes in industry EBITDA multiples, the inability to quickly replace lost co-manufacturing business, or the bankruptcy of a significant customer, among others. As of September 30, 2024, we performed an assessment of factors to determine whether it was more likely than not that the fair value of our reporting units was less than its carrying amount, including goodwill. We concluded that were no events or circumstances that warranted an interim quantitative impairment test for goodwill during the three months ended September 30, 2024. As of September 30, 2024, goodwill associated with the U.S. reporting unit had a carrying value of $633,774. The U.S. reporting unit is at risk of impairment in the event of unfavorable changes in assumptions, including forecasted future cashflows based on execution of strategic initiatives for increasing revenue, as well as discount rates and other macroeconomic factors. We monitor our reporting units at risk of impairment for interim impairment indicators. As of September 30, 2024, we considered our market capitalization and our net book value and performed a market capitalization reconciliation with the expectation that the market capitalization should reconcile within a reasonable range to the sum of the fair values of the Company's individual reporting units. Upon performing the market capitalization reconciliation, we noted a reasonable reconciliation between the sum of the reporting unit fair values and the Company’s market capitalization once adjusted for the impact of corporate costs not allocated to the reporting units. Refer to the critical accounting policies and estimates section included 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, 2024. 39 Table of Contents Recent Accounting Pronouncements Refer to Note 2, Basis of Presentation, in the Notes to the Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q. Seasonality Certain of our product lines have seasonal fluctuations. Hot tea, hot-eating desserts and soup sales are stronger in colder months, while sales of snack foods, sunscreen and certain of our 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. Historically, net sales and diluted earnings per share in the first fiscal quarter have typically been the lowest of our four quarters. Item 3. Quantitative and Qua litative Disclosures About Market Risk There have been no material changes from the discussion of the material factors contained in the section entitled “Risk Factors” in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2024, filed with the SEC on August 27, 2024. Item 4. Controls an d Procedures Evaluation of Disclosure Controls and Procedures Our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), with the assistance of other members of management, have reviewed the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Our disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is (1) recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and (2) accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. Based on this review, our CEO and CFO have concluded that the disclosure controls and procedures for the Company were effective as of September 30, 2024. Changes in Internal Control Over Financial Reporting There were no changes in our internal controls over financial reporting that occurred during the three months ended September 30, 2024 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 40 Table of Contents PART II - OTHER INFORMATION