# HAIN CELESTIAL GROUP INC (HAIN) FY 2024 MD&A

Verbatim Item 7 Management's Discussion and Analysis from HAIN CELESTIAL GROUP INC's 10-K for fiscal year 2024.

SEC filing source: https://www.sec.gov/Archives/edgar/data/910406/000095017024100992/hain-20240630.htm
Accession: 0000950170-24-100992
Filing date: 2024-08-27
Report date: 2024-06-30
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/HAIN/
All MD&A years: /company/HAIN/mda/
Previous year: /company/HAIN/mda/fy2023/ (FY 2023)
Next year: /company/HAIN/mda/fy2025/ (FY 2025)

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, 2024 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 2024 and fiscal 2023 items and year-to-year comparisons between fiscal 2024 and fiscal 2023. Discussions of fiscal 2022 items and year-to-year comparisons between fiscal 2023 and fiscal 2022 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, 2023, which was filed with the SEC on August 24, 2023 and is available on the SEC’s website at www.sec.gov.

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 fiscal year ended June 30, 2024, we incurred approximately $63 million of expenses associated with the Hain Reimagined Program, comprised of $60 million of restructuring

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charges and $3 million of expenses associated with inventory write-downs. Annualized pretax savings are expected to be $130 million - $150 million. As part of the Hain Reimagined Program, we initiated actions to consolidate our personal care manufacturing footprint and rationalize certain product categories for greater capacity utilization, cost reduction and margin expansion. The Company also simplified its distribution footprint in the U.S., completed the sale of two non-core brands and initiated actions to rationalize office space and 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 and the continuing conflict in the Middle East, 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.

Results of Operations

Comparison of Fiscal Year Ended June 30, 2024 to Fiscal Year Ended June 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 fiscal years ended June 30, 2024 and 2023 (dollars in thousands, other than per share amounts and percentages, which may not add due to rounding):

[[GREPCENT_TABLE]]
[["","","Fiscal Year Ended June 30,","","","Change in"],["","","2024","","","2023","","","Dollars","","","Percentage"],["Net sales","","$","1,736,286","","","","100.0","%","","$","1,796,643","","","","100.0","%","","$","(60,357",")","","","(3.4",")%"],["Cost of sales","","","1,355,454","","","","78.1","%","","","1,400,229","","","","77.9","%","","","(44,775",")","","","(3.2",")%"],["Gross profit","","","380,832","","","","21.9","%","","","396,414","","","","22.1","%","","","(15,582",")","","","(3.9",")%"],["Selling, general and administrative expenses","","","290,116","","","","16.7","%","","","289,233","","","","16.1","%","","","883","","","","0.3","%"],["Intangibles and long-lived asset impairment","","","76,143","","","","4.4","%","","","175,501","","","","9.8","%","","","(99,358",")","","","(56.6",")%"],["Productivity and transformation costs","","","27,741","","","","1.6","%","","","7,284","","","","0.4","%","","","20,457","","","","280.8","%"],["Amortization of acquired intangible assets","","","5,780","","","","0.3","%","","","10,016","","","","0.6","%","","","(4,236",")","","","(42.3",")%"],["Operating loss","","","(18,948",")","","","(1.1",")%","","","(85,620",")","","","(4.8",")%","","","66,672","","","","(77.9",")%"],["Interest and other financing expense, net","","","57,213","","","","3.3","%","","","45,783","","","","2.5","%","","","11,430","","","","25.0","%"],["Other expense (income), net","","","4,120","","","","0.2","%","","","(1,822",")","","","(0.1",")%","","","5,942","","","*"],["Loss before income taxes and equity in net loss of equity-method investees","","","(80,281",")","","","(4.6",")%","","","(129,581",")","","","(7.2",")%","","","49,300","","","","(38.0",")%"],["Benefit for income taxes","","","(7,820",")","","","(0.5",")%","","","(14,178",")","","","(0.8",")%","","","6,358","","","","(44.8",")%"],["Equity in net loss of equity-method investees","","","2,581","","","","0.1","%","","","1,134","","","","0.1","%","","","1,447","","","","127.6","%"],["Net loss","","$","(75,042",")","","","(4.3",")%","","$","(116,537",")","","","(6.5",")%","","$","41,495","","","","(35.6",")%"],["Adjusted EBITDA","","$","154,522","","","","8.9","%","","$","166,622","","","","9.3","%","","$","(12,100",")","","","(7.3",")%"],["Basic and diluted net loss per common share","","$","(0.84",")","","","","","$","(1.30",")","","","","","$","0.46","","","","(35.4",")%"]]
[[/GREPCENT_TABLE]]

* Percentage is not meaningful due to one or more amounts being negative.

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Net Sales

Net sales in fiscal 2024 were $1.74 billion, a decrease of $60.4 million, or 3.4%, from net sales of $1.80 billion in fiscal 2023. Net sales, adjusted for the impact of divestitures and discontinued brands, decreased approximately $42.8 million, or 2.4%, from the prior year. The decrease in both net sales and adjusted net sales was due to a decline in the North America reportable segment, partially offset by growth in the International reportable segment. The effect of fluctuations in foreign currency exchange rates increased net sales by $26.4 million. Further details of changes in net sales by segment are provided below in the Segment Results section.

Gross Profit

Gross profit in fiscal 2024 was $380.8 million, a decrease of $15.6 million, or 3.9%, from $396.4 million in fiscal 2023. Gross profit margin was 21.9% of net sales, compared to 22.1% in the prior year. 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 and an increase in plant closure and warehouse consolidation related costs, partially offset by pricing and productivity. Gross profit in the International reportable segment increased during the fiscal year 2024 compared to the prior year, mainly driven by higher net sales due to pricing.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $290.1 million in fiscal 2024, an increase of $0.9 million, or 0.3%, from $289.2 million in fiscal 2023. The modest increase was primarily due to higher employee compensation-related expenses partially offset by a decrease in selling expenses.

Intangibles and Long-Lived Asset Impairment

During the fiscal year ended June 30, 2024, the Company recognized aggregate non-cash impairment charges of $76.1 million, including (i) $44.6 million primarily related to ParmCrisps®, Thinsters®, Joya®, Happy™, and certain North America personal care intangible assets (Alba Botanica®, Avalon Organics®, and JASON®) and (ii) a $20.7 million charge related to our Bell, CA production facility in the North America reportable segment.

During the fiscal year ended June 30, 2023, the Company recognized aggregate non-cash impairment charges 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.

See Note 6, Property, Plant and Equipment, Net, 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.

Productivity and Transformation Costs

Productivity and transformation costs were $27.7 million in fiscal 2024, an increase of $20.5 million or 280.8% from $7.3 million in fiscal 2023. The increase was primarily due to the recognition of restructuring costs incurred in connection with the Hain Reimagined Program, including reorganization of global functions and related personnel resource requirements and rationalizing our sourcing and supply chain processes.

Productivity and transformation costs of $27.7 million in fiscal 2024 are primarily comprised of consultancy and employee-related costs in the amount of $20.7 million and $7.0 million, respectively. Both costs are associated with the Hain Reimagined Program. The consulting fees include managing the mobilization of the restructuring program, redesigning the Company’s operating model, including the reorganization of global functions and related personnel resource requirements, and rationalizing the Company’s sourcing and supply chain processes. See Note 18, Transformation Program, 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 $5.8 million in fiscal 2024, a decrease of $4.2 million, or 42.3%, from $10.0 million in fiscal 2023, 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 this Form 10-K.

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Operating Loss

Operating loss in fiscal 2024 was $18.9 million compared to $85.6 million in fiscal 2023 due to the items described above.

Interest and Other Financing Expense, Net

Interest and other financing expense, net totaled $57.2 million in fiscal 2024, an increase of $11.4 million, or 25.0%, from $45.8 million in the prior year. The increase resulted primarily from higher borrowing rates, partially offset by a lower outstanding debt balance compared to the prior year. See Note 10, Debt and Borrowings, in the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K.

Other Expense (Income), Net

Other expense, net totaled $4.1 million in fiscal 2024 compared to other income, net of $1.8 million in the prior year. Other expense, net primarily reflected the recognition of a loss on sale of the Thinsters® cookie business and Queen Helene® brand and net foreign currency gains during fiscal 2024. Other income, net was primarily comprised of a gain on sale of the Westbrae Natural® brand (“Westbrae”), partially offset by the recognition of net foreign currency losses in the prior year. See Note 4, Dispositions, in the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K.

Loss 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 2024 was $80.3 million compared to $129.6 million in fiscal 2023. The decrease was due to the items discussed above.

Benefit for Income Taxes

The benefit for income taxes includes federal, foreign, state and local income taxes. Our income tax benefit was $7.8 million for fiscal 2024 compared to $14.2 million for fiscal 2023.

The effective income tax rate was 9.7% and 10.9% of pre-tax income for the fiscal year ended June 30, 2024 and 2023, respectively. The effective income tax rate for the year ended June 30, 2024 was primarily impacted by the recognition of a valuation allowance as a result of the reduction in deferred tax liabilities due to the above-noted impairment charges on intangible assets, offset by increased foreign earnings.

The effective income tax rate for the twelve months ended June 30, 2023 was primarily impacted by the establishment of federal valuation allowances against the Company's deferred tax assets offset by foreign earnings.

Our effective tax rate may change from period-to-period based on recurring and nonrecurring 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 2024 was $2.6 million compared to $1.1 million for fiscal 2023. The change was attributable to higher investee losses. See Note 14, Investments, in the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K.

Net Loss

Net loss for fiscal 2024 was $75.0 million, or $0.84 per diluted share, compared to $116.5 million, or $1.30 per diluted share, in fiscal 2023. The change was attributable to the factors noted above.

Adjusted EBITDA

Our consolidated Adjusted EBITDA was $154.5 million and $166.6 million for fiscal 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 income to Adjusted EBITDA.

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Segment Results

The following table provides a summary of net sales and Adjusted EBITDA by reportable segment for the fiscal years ended June 30, 2024 and 2023:

[[GREPCENT_TABLE]]
[["(Dollars in thousands)","","North America","","","International","","","Corporate and Other","","","Consolidated"],["Net Sales"],["Fiscal 2024","","$","1,055,527","","","$","680,759","","","$","\u2014","","","$","1,736,286"],["Fiscal 2023","","$","1,139,162","","","$","657,481","","","$","\u2014","","","$","1,796,643"],["$ change","","$","(83,635",")","","$","23,278","","","n/a","","","$","(60,357",")"],["% change","","","(7.3",")%","","","3.5","%","","n/a","","","","(3.4",")%"],["Adjusted EBITDA"],["Fiscal 2024","","$","98,728","","","$","94,974","","","$","(39,180",")","","$","154,522"],["Fiscal 2023","","$","123,443","","","$","82,945","","","$","(39,766",")","","$","166,622"],["$ change","","$","(24,715",")","","$","12,029","","","$","586","","","$","(12,100",")"],["% change","","","(20.0",")%","","","14.5","%","","","1.5","%","","","(7.3",")%"],["Adjusted EBITDA margin"],["Fiscal 2024","","","9.4","%","","","14.0","%","","n/a","","","","8.9","%"],["Fiscal 2023","","","10.8","%","","","12.6","%","","n/a","","","","9.3","%"]]
[[/GREPCENT_TABLE]]

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 20, 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 2024 were $1.1 billion, a decrease of $83.6 million, or 7.3%, from net sales of $1.1 billion in fiscal 2023. The decrease in net sales was primarily due to lower sales in the baby & kids category on account of continued industry-wide challenges in organic formula supply as well as decline in the personal care category. The decrease was partially offset by growth in the beverage category.

Adjusted EBITDA in fiscal 2024 was $98.7 million, a decrease of $24.7 million from $123.4 million in fiscal 2023. The decrease was primarily driven by lower volume and inflation, partially offset by pricing. Adjusted EBITDA margin was 9.4%, a 148-basis point decrease from the prior year.

International

Net sales in the International reportable segment for fiscal 2024 were $680.8 million, an increase of $23.3 million, or 3.5%, from net sales of $657.5 million in fiscal 2023. The increase reflected 4.2% of growth from the favorable impact of foreign currency exchange rates. Excluding the favorable impact of foreign currency exchange rates, net sales decreased slightly due to lower sales in the snack category, partially offset by growth in the meal preparation and beverages categories due to strong private label performance.

Adjusted EBITDA in fiscal 2024 was $95.0 million, an increase of $12.0 million from $82.9 million in fiscal 2023. The increase was primarily driven by pricing and deflation, partially offset by lower volumes. Adjusted EBITDA margin was 14.0%, a 134-basis point increase from the prior year.

Corporate and Other

Corporate and Other expenses remained relatively flat compared to fiscal 2023. Refer to Note 20, Segment Information, in the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K for additional details.

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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 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 June 30, 2024, the Company’s consolidated secured leverage ratio, consolidated leverage ratio and consolidated interest coverage ratio were 3.74:1.00, 3.74:1.00 and 3.43:1.00, respectively, and the Company was in compliance with all associated covenants.

During the Second Amendment Period, loans under the Credit Agreement bears 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 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 June 30, 2024 was 7.97%. 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 June 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 June 30, 2024 was 6.83%. 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, 2024, there were $475.0 million of loans under the Revolver, $270.6 million of Term Loans, and $3.2 million of letters of credit outstanding under the Credit Agreement. As of June 30, 2024 and June 30, 2023, $321.8 million and $254.5 million, respectively, was available under the Credit Agreement, subject to compliance with the financial covenants.

Our cash and cash equivalents balance increased $0.9 million at June 30, 2024 to $54.3 million as compared to $53.4 million at June 30, 2023. Our working capital was $275.6 million at June 30, 2024, a decrease of $83.4 million from $358.9 million at the end of fiscal 2023. Additionally, our total debt decreased by $84.7 million at June 30, 2024 to $744.1 million as compared to $828.7 million at June 30, 2023 as a result of net repayments carried out during the year.

Our cash balances are held in the U.S., U.K., Canada, Western Europe, the Middle East and India. As of June 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 provided by (used in) operating, investing and financing activities is summarized below.

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[[GREPCENT_TABLE]]
[["","","Fiscal Year Ended June 30,"],["(Amounts in thousands)","","2024","","","2023","","","Change in Dollars"],["Cash flows provided by (used in):"],["Operating activities","","$","116,355","","","$","66,819","","","$","49,536"],["Investing activities","","","(23,922",")","","","(19,640",")","","","(4,282",")"],["Financing activities","","","(89,729",")","","","(63,060",")","","","(26,669",")"],["Effect of exchange rate changes on cash","","","(1,761",")","","","3,733","","","","(5,494",")"],["Net increase (decrease) in cash and cash equivalents","","$","943","","","$","(12,148",")","","$","13,091"]]
[[/GREPCENT_TABLE]]

Cash provided by operating activities was $116.4 million for the fiscal year ended June 30, 2024, an increase of $49.5 million from $66.8 million in the prior year. This increase versus the prior year resulted primarily from higher cash generation of $101.7 million from our working capital accounts, which was driven by our accounts payable optimization initiatives and focused inventory management, partially offset by a reduction in accounts receivable recovery. The increase was also partially offset by a reduction of $52.1 million in net loss adjusted for non-cash charges in the current year.

Cash used in investing activities was $23.9 million for the fiscal year ended June 30, 2024, an increase of $4.3 million from $19.6 million in the prior year. The increase in cash utilization by investing activities was primarily due to higher capital expenditures in the current year of $5.6 million related to the phasing of capital projects, partially offset by an increase in proceeds from business divestitures of $1.7 million compared to the prior year. See Note 4, Dispositions, in the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K.

Cash used in financing activities was $89.7 million for the fiscal year ended June 30, 2024, an increase of $26.7 million compared to $63.1 million in the prior year. The increase in cash utilization in financing activities was primarily due to higher net debt repayments during fiscal year 2024.

Free Cash Flow

Our Free Cash Flow was $82.9 million for fiscal 2024, an increase of $44.0 million from fiscal 2023. The increase in Free Cash Flow primarily resulted from an increase in cash flow provided by operations of $49.5 million driven by the reasons explained above, partially offset by higher 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 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 fiscal year ended June 30, 2024, the Company did not repurchase any shares under the repurchase program. As of June 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

Our financial statements are prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). 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 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.

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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:

[[GREPCENT_TABLE]]
[["(Dollars in thousands)","","North America","","","International","","","Hain Consolidated"],["Net sales - Twelve months ended 6/30/24","","$","1,055,527","","","$","680,759","","","$","1,736,286"],["Divestitures and discontinued brands","","","(19,519",")","","","(1,682",")","","","(21,201",")"],["Net sales adjusted for divestitures and discontinued brands - Twelve months ended 6/30/24","","$","1,036,008","","","$","679,077","","","$","1,715,085"],["Net sales - Twelve months ended 6/30/23","","$","1,139,162","","","$","657,481","","","$","1,796,643"],["Divestitures and discontinued brands","","","(36,093",")","","","(2,662",")","","","(38,755",")"],["Net sales adjusted for divestitures and discontinued brands - Twelve months ended 6/30/23","","$","1,103,069","","","$","654,819","","","$","1,757,888"],["Net sales (decline) growth","","","(7.3",")%","","","3.5","%","","","(3.4",")%"],["Impact of divestitures and discontinued brands","","","1.2","%","","","0.2","%","","","1.0","%"],["Net sales (decline) growth adjusted for divestitures and discontinued brands","","","(6.1",")%","","","3.7","%","","","(2.4",")%"]]
[[/GREPCENT_TABLE]]

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 (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, net, costs associated with acquisitions, divestitures and other transactions, losses (gains) on sales of assets, 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 Adjusted EBITDA in connection with U.S. GAAP results. A reconciliation of net loss to Adjusted EBITDA is as follows:

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[[GREPCENT_TABLE]]
[["","","Fiscal Year Ended June 30,"],["(Amounts in thousands)","","2024","","","2023"],["Net loss","","$","(75,042",")","","$","(116,537",")"],["Depreciation and amortization","","","44,665","","","","50,777"],["Equity in net loss of equity-method investees","","","2,581","","","","1,134"],["Interest expense, net","","","54,232","","","","43,936"],["Benefit for income taxes","","","(7,820",")","","","(14,178",")"],["Stock-based compensation, net","","","12,704","","","","14,423"],["Unrealized currency losses","","","17","","","","929"],["Litigation and related costs(a)","","","7,262","","","","(1,369",")"],["Restructuring activities"],["Productivity and transformation costs","","","27,741","","","","7,284"],["Plant closure related costs, net","","","5,251","","","","94"],["Warehouse/manufacturing consolidation and other costs, net","","","995","","","","1,026"],["CEO succession","","","\u2014","","","","5,113"],["Acquisitions, divestitures and other"],["Loss (gain) on sale of assets","","","4,384","","","","(3,529",")"],["Transaction and integration costs, net","","","(34",")","","","2,018"],["Impairment charges"],["Intangibles and long-lived asset impairment","","","76,143","","","","175,501"],["Other","","","1,443","","","","\u2014"],["Adjusted EBITDA","","$","154,522","","","$","166,622"]]
[[/GREPCENT_TABLE]]

(a)
Expenses and items relating to securities class action, 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 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 expenditure). Since capital expenditure 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 expenditure 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 operating activities to Free Cash Flow is as follows:

[[GREPCENT_TABLE]]
[["","","Fiscal Year Ended June 30,"],["(Amounts in thousands)","","2024","","","2023"],["Net cash provided by operating activities","","$","116,355","","","$","66,819"],["Purchases of property, plant and equipment","","","(33,461",")","","","(27,879",")"],["Free Cash Flow","","$","82,894","","","$","38,940"]]
[[/GREPCENT_TABLE]]

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 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.

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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.

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

Goodwill is not amortized but rather is 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 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 instead perform a 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 base our fair value estimates on assumptions we believe to be reasonable, but which are unpredictable and inherently uncertain. We generally use a blended analysis of the Discounted Cash Flow (“DCF”) method income approach and the Guideline Public Company Method (“GPCM”) market approach.

The DCF method estimates the value based on the present value of estimated future cash flows and economic benefits that are expected to be produced. 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 tests include projections of growth rates and profitability, our estimated working capital needs, as well as our weighted average cost of capital (“WACC”).

The GPCM approach estimates the value of a reporting unit through analysis of recent sales of comparable assets or business entities by comparing it to comparable publicly-disclosed transactions in similar businesses. Estimates used in the guideline public company method include the identification of similar businesses with comparable business factors.

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The key assumptions used in our quantitative impairment tests are inherently uncertain. They require a high degree of estimation and are subject to change based on, among other factors, industry and geopolitical conditions, our ability to navigate changing macroeconomic conditions and trends and the timing and success of strategic initiatives. Changes in economic and operating conditions impacting the assumptions we made could result in goodwill impairment in future periods. If the carrying amount of a reporting unit exceeds its fair value, goodwill is considered impaired. A goodwill impairment loss is recognized for the amount that the carrying amount of a reporting unit exceeds its fair value, limited to the total amount of goodwill allocated to that reporting unit.

As of June 30, 2024, the carrying value of goodwill was $929.3 million, which was ascribed to five reporting units. The Company completed its annual goodwill impairment test on the first day of the fourth quarter of fiscal 2024, in conjunction with its budgeting and forecasting process for fiscal year 2025 and concluded that no impairment existed at any of its reporting units. Such test provided similar results to our interim test performed as of March 31, 2024, as discussed further herein.

During our annual impairment assessment and in subsequent interim quarters, we review events that occur or circumstances that change, including the macroeconomic environment, our business performance and our market capitalization, to determine if an interim impairment test is necessary. If assumptions are not achieved or market conditions decline, potential impairment charges could result. Impairments to goodwill 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.

As a result of indicators of impairment which included a significant decline in the Company’s market capitalization and impairment charges recorded during the three months ended March 31, 2024 within the U.S. reporting unit (see Note 8, Goodwill and Other Intangible Assets and Note 6, Property, Plant and Equipment, Net in the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K), the Company completed an interim impairment test of all reporting units. For the U.K., Western Europe, Canada, and Ella's Kitchen U.K., reporting units, the Company performed a qualitative evaluation to assess factors to determine whether it is more likely than not that the fair value of its reporting unit is less than its carrying amount. The Company concluded that for the reporting units where a qualitative evaluation was performed that the reporting units’ estimated fair values exceeded their carrying amounts. Three of these reporting units (U.K., Western Europe and Canada) were quantitatively tested in fiscal 2023 and as of the last quantitative testing date, their estimated fair values exceeded their respective carrying amounts by more than 17.0%.

For the U.S. reporting unit, we performed a quantitative test as of March 31, 2024 because of the decline in the operating results of the U.S. business. The fair value of the U.S. reporting unit was estimated utilizing a blended approach which included an income approach utilizing a DCF and the GPCM. The estimated fair value of the U.S. reporting unit exceeded its carrying value based on the testing performed. Holding all other assumptions used in the 2024 fair value measurement constant, a 50-basis-point increase in the WACC would not result in the carrying value of the reporting unit to be in excess of the fair value.

[[GREPCENT_TABLE]]
[["(Dollars in thousands)","","","","","","","","Headroom"],["Reporting Unit","","Fair Value","","","Adjusted Carrying Value","","","Dollars","","","Percentage"],["United States (U.S.)","","$","990,000","","","$","932,109","","","$","57,891","","","","6.2","%"]]
[[/GREPCENT_TABLE]]

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.

Should the fair values of any of our reporting units fall below their carrying amount because of reduced operating performance, market declines including a deterioration of the macroeconomic factors, changes in the discount rate, or other adverse conditions, goodwill impairment charges may be necessary in future periods. The calculation of the U.S. reporting unit WACC included a number of subjective inputs, including a company-specific risk premium of 4.0% to account for the riskiness of the assumed revenue growth and margin improvement within the financial forecasts used in the DCF.

We 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 individual reporting units. Such reconciliation often includes both qualitative and quantitative assessments as is the case with the Company’s reporting units as of March 31, 2024. When an entity performs a qualitative assessment for some reporting units but proceeds to a quantitative assessment for others, reconciling the overall market capitalization to the aggregate fair value of reporting units can be challenging and requires significant judgment. There is no requirement to determine the fair value of reporting units for which only a qualitative impairment test is performed. Therefore, when performing an overall comparison of the sum of the fair values of the individual reporting units to the market capitalization, we included the current year fair value for reporting units for which a quantitative test was performed, and we estimated the fair

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values for the reporting units for which qualitative tests were performed using a reasonable methodology. 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.

Indefinite-Lived Intangible Assets

Indefinite-lived intangible assets consist primarily of acquired tradenames and trademarks. Indefinite-lived intangible assets are evaluated on an annual basis in conjunction with the Company’s evaluation of goodwill, or on an interim basis if and when events or circumstances change that would more likely than not reduce the fair value of any of its indefinite-life intangible assets below their carrying value. In assessing fair value, the Company utilizes a “relief from royalty payments” methodology. This approach involves two steps: (i) estimating the royalty rates for each trademark and (ii) applying these royalty rates to a projected net sales stream and discounting the resulting cash flows to determine fair value. If the carrying value of the indefinite-lived intangible assets exceeds the fair value of the assets, the carrying value is written down to fair value in the period identified.

The Company performs an indefinite-lived asset impairment test annually and more frequently if events or changes in circumstances indicate that it is more likely than not that the asset is impaired. In accordance with ASC 350, we may first perform a qualitative assessment to determine whether it is necessary to perform a quantitative impairment test. If an entity elects to perform a qualitative assessment, it first shall assess qualitative factors to determine whether it is more likely than not (that is, a likelihood of more than 50 percent) that an indefinite-lived intangible asset is impaired. One procedure we perform during interim periods to determine whether indicators of impairment are present includes a comparison of net sales used in the most recent quantitative impairment tests to forecasted net sales for the same fiscal year (or balance of the fiscal year when performing an interim review) in order to identify brands for which the current fiscal year net sales are expected to be lower than the forecasted fiscal year net sales per the latest quantitative test. The performance of these brands is then reviewed by management to determine if the shortfall to forecasted net sales was related to events and circumstances that are expected to be temporary in nature, or if it was caused by a more pervasive issue that could serve as in impairment indicator (e.g., loss of key customers, discontinuance of certain product categories within a brand, etc.). We use this risk-based approach to determine which brands we would quantitatively test for impairment, whether as part of fiscal year annual impairment testing or an interim period test.

During the third quarter of 2024, we performed a qualitative assessment of our indefinite-lived intangible assets for impairment and determined that the indefinite-lived tradenames for certain North America personal care tradenames (namely, Alba Botanica®, Avalon Organics®, and JASON®), ParmCrisps® and Thinsters® should be quantitatively tested. The Company’s 2024 interim impairment testing resulted in the recognition of impairment charges for the following indefinite-lived tradenames, and other intangible assets: ParmCrisps®, Thinsters® and certain North America personal care tradenames. The Company recorded impairment charges and reduced the carrying amount of certain North America personal care tradenames to their estimated fair value of $13,000. During the fourth quarter of 2024, the North America personal care tradenames were reclassified from indefinite to definite-lived and ascribed a useful life of 10 years. 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.

During the fourth quarter of fiscal 2024, the Company recorded a non-cash impairment charge of $2,260 for its plant-based beverage brands: Happy™ and Joya® trademarks in connection with its annual test of such trademarks as discussed in Note 8, Goodwill and Other Intangible Assets. During the fourth quarter of 2024, such tradenames were reclassified from indefinite to definite-lived and ascribed a useful life of 10 years. The assets are part of the International reportable segment and have a remaining aggregate carrying amount of $3,761 as of June 30, 2024.

Stock-based Compensation

The Company utilizes 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. For awards that contain a market condition, expense is recognized over the defined or derived service period using a Monte Carlo simulation model.

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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 after consideration of the four sources of income, namely taxable income in prior year carryback years, the future reversals of existing taxable temporary differences, tax planning strategies, and future taxable income exclusive of reversing temporary differences, to determine if the deferred tax assets are realizable. A valuation allowance must be recorded against a deferred tax asset if they are not realizable after considering the four sources of income. Our determination of our valuation allowances is based upon a number of assumptions, judgments and estimates, including the reversal pattern of existing temporary differences and forecasted earnings.

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. Historically, net sales and diluted earnings per share in the first fiscal quarter have typically been the lowest of our four quarters.

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