Diamond Foods, Inc. (Nasdaq:DMND) ("Diamond") today reported
financial results for its fiscal 2013 fourth quarter and year ended
July 31, 2013.
Fourth Quarter Fiscal 2013 Highlights
- Net sales decreased 10.8% to $199.8 million
- Snacks sales increased 3.3% to $117.1 million and Nuts sales
decreased 25.2% to $82.7 million
- Gross margin was 26.6% compared to 18.9%
- Net loss was $147.1 million and non-GAAP net income was $2.3
million*
- Adjusted EBITDA increased 12.5% to $24.6 million
Fiscal 2013 Highlights
- Net sales decreased 12.0% to $864.0 million
- Snacks sales increased 3.0% to $438.0 million and Nuts sales
decreased 23.4% to $426.1 million
- Gross margin was 23.8% compared to 18.3%
- Net loss was $163.2 million and non-GAAP net income was $9.7
million*
- Adjusted EBITDA increased 28.2% to $101.7 million
(All comparisons above are to the fourth quarter and fiscal year
2012/* non-GAAP financial measures are reconciled in the table
below)
"Our cost savings and net price realization strategies helped us
generate improved results for the fourth quarter and fiscal year,"
said Brian Driscoll, President and CEO. "We remain intently focused
on these productivity initiatives to help support our future brand
innovation and to address potential commodity headwinds in fiscal
2014. In addition, we believe the proposed settlement of the
securities class action lawsuit is an important first step in our
ability to normalize our capital structure."
Fourth Quarter Fiscal 2013
Net sales decreased 10.8% to $199.8 million compared to $224.0
million in the prior year period and gross profit as a percent of
net sales was 26.6% compared to 18.9% last year.
Net loss was $147.1 million, a loss of $6.71 per share on a
fully diluted basis. During the quarter, Diamond incurred $96.1
million in expenses related to the settlement of the securities
class action lawsuit, a $36.0 million non-cash impairment to Kettle
U.S. other intangible assets, a $20.6 million charge related to a
change in the fair value of the Oaktree warrant liability and $6.6
million for consulting and legal expenses. Excluding these charges,
non-GAAP net income for the fourth quarter was $2.3 million and
non-GAAP fully diluted earnings per share was $0.09. Adjusted
EBITDA was $24.6 million compared to $21.8 million in the prior
year period, an increase of 12.5%. EBITDA is a non-GAAP financial
measure. Please refer to the tables in this press release for a
reconciliation of all non-GAAP financial measures.
Fiscal 2013
Net sales decreased 12.0% to $864.0 million compared to $981.4
million in the prior fiscal year and gross profit as a percent of
net sales was 23.8% compared to 18.3% last year.
Net loss was $163.2 million and fully diluted loss per share was
$7.48. During the fiscal year, Diamond incurred $96.1 million in
expenses to settle the securities class action lawsuit and $35.4
million of adjustments to SG&A expenses primarily including
restatement and related legal costs. The Company also incurred
$37.6 million in non-cash impairment charges and an $11.3 million
charge as a result of the change in the fair value of the Oaktree
warrant liability. Excluding these charges, non-GAAP net income was
$9.7 million and non-GAAP fully diluted earnings per share was
$0.40. Adjusted EBITDA was $101.7 million compared to $79.4 million
in the prior fiscal year, an increase of 28.2%.
As of July 31, 2013, net debt outstanding was $585.1 million,
including the Oaktree debt at its carrying value. Cash and
availability on Diamond's bank revolving line of credit on July 31,
2013 was approximately $74.5 million.
In fiscal 2013, the Company remediated the material weaknesses
first identified in Form 10-K/A filed on November 14, 2012. The
Company currently has outstanding material weaknesses as to complex
and non-routine transactions and IT system access rights for
journal entries. Additional information regarding the Company's
internal controls will be provided in its Annual Report on Form
10-K for fiscal 2013.
Segment Review
The Company has two reportable segments: Snacks and Nuts. The
Snacks segment includes products sold under the Kettle U.S., Kettle
U.K. and Pop Secret brands. The Nuts segment includes products sold
under the Diamond of California and Emerald brands.
Snacks Segment: Net sales during the fourth
quarter increased 3.3% to $117.1 million compared to prior year
period. Gross profit during the fourth quarter was $42.3 million,
36.1% of net sales, compared to $36.6 million, 32.3% of net sales,
in the prior year period.
Net sales for fiscal 2013 increased 3.0% to $438.0 million
compared to the prior fiscal year. Gross profit for fiscal 2013 was
$152.1 million, 34.7% of net sales, compared to $128.1 million,
30.1% of net sales, for the prior fiscal year.
Nuts Segment: Net sales during the fourth
quarter decreased 25.2% to $82.7 million compared to the prior year
period. Gross profit during the fourth quarter was $10.7 million,
13.0% of net sales, compared to $5.7 million, 5.1% of net sales, in
the prior year period.
Net sales for fiscal 2013 decreased 23.4% to $426.1 million
compared to the prior fiscal year. Gross profit for fiscal 2013 was
$53.4 million, 12.5% of net sales, compared to $51.6 million, 9.3%
of net sales, for the prior fiscal year.
Outlook
In the first quarter, the Company expects to face significant
sales and contribution headwinds including costs associated with
the Emerald re-launch and lower walnut supply. Despite expected
increases in tree nut costs, fiscal 2014 is expected to be a year
of earnings improvement as additional benefits from the execution
of the multi-year turnaround strategy are realized.
Conference Call
The Company will host a conference call with members of the
executive management team to discuss these results with additional
comments and details. The conference call is scheduled to begin
today at 4:30 p.m. ET. To participate on the live call listeners in
North America may dial (888) 455-2263 and international listeners
may dial (719) 325-2464.
In addition, the call will be broadcast live over the Internet
hosted at the "Investor Relations" section of the Company's website
at http://www.diamondfoods.com and will be archived online through
October 14, 2013. A telephonic playback will be available from 7:30
p.m. ET, September 30, 2013, through October 14, 2013. North
America listeners may dial (877) 870-5176 and international
listeners may dial (858) 384-5517; the passcode is 9269722.
About Diamond Foods
Diamond Foods is an innovative packaged food company focused on
building and energizing brands including Kettle® Chips, Emerald®
snack nuts, Pop Secret® popcorn, and Diamond of California® nuts.
Diamond's products are distributed in a wide range of stores where
snacks and culinary nuts are sold. For more information, visit the
Company's corporate web site: www.diamondfoods.com.
Note Regarding Forward-looking Statements
This press release includes forward-looking statements,
including statements about our financial filings and results,
future brand innovation, commodity headwinds, prospects for
obtaining required approvals for the proposed class action lawsuit
settlement, normalizing our capital structure, future sales, margin
and earnings and execution of our turnaround strategy. These
forward-looking statements are based on our assumptions,
expectations and projections about future events only as of the
date of this press release, and we make such forward-looking
statements pursuant to the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995. Many of our
forward-looking statements include discussions of trends and
anticipated developments under the "Risk Factors" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" sections of the periodic reports that we file with the
SEC. We use the words "anticipate," "believe," "estimate,"
"expect," "intend," "plan," "seek," "may" and other similar
expressions to identify forward-looking statements that discuss our
future expectations, contain projections of our results of
operations or financial condition or state other "forward-looking"
information. You also should carefully consider other cautionary
statements elsewhere in this press release and in other documents
we file from time to time with the SEC. We do not undertake any
obligation to update forward-looking statements to reflect events
or circumstances occurring after the date of this press release.
Actual results may differ materially from what we currently expect
because of many risks and uncertainties, such as: failure to obtain
necessary approvals for the securities class action litigation
settlement, risks relating to our leverage and its effect on our
ability to respond to changes in our business, markets and
industry; increase in the cost of our debt; ability to raise
additional capital and possible dilutive impact of raising such
capital; risks relating to litigation and regulatory proceedings;
uncertainties relating to relations with growers; availability and
cost of walnuts and other raw materials; increasing competition and
possible loss of key customers; and general economic and capital
markets conditions.
Financial Summary
Summarized Statement of Operations:
| |
Three months
ended |
Twelve months
ended |
| |
July 31, |
July 31, |
| (in thousands, except per share
amounts) |
2013 |
2012 |
2013 |
2012 |
| Net sales |
$ 199,801 |
$ 223,989 |
$ 864,012 |
$ 981,418 |
| Cost of sales |
146,743 |
181,725 |
658,489 |
801,697 |
| Gross profit |
53,058 |
42,264 |
205,523 |
179,721 |
| Operating expenses: |
|
|
|
|
| Selling, general and administrative |
129,152 |
33,580 |
233,373 |
130,599 |
| Advertising |
12,166 |
6,379 |
41,528 |
37,933 |
| Acquisition and integration related
expenses |
-- |
693 |
-- |
41,334 |
| (Gain) loss on warrant liability |
20,562 |
10,360 |
11,326 |
10,360 |
| Asset Impairment |
36,000 |
10,132 |
37,560 |
10,132 |
| Total operating expenses |
197,880 |
61,144 |
323,787 |
230,358 |
| Income (loss) from operations |
(144,822) |
(18,800) |
(118,264) |
(50, 637) |
| Interest expense, net |
15,240 |
14,043 |
57,925 |
33,976 |
| Income (loss) before income taxes |
(160,062) |
(32,923) |
(176,189) |
(84,613) |
| Income taxes (benefit) |
(13,000) |
13 |
(12,957) |
1,723 |
| Net (loss) |
$ (147,062) |
$ (32,936) |
$ (163,232) |
$ (86,336) |
| Earnings (loss) per share (EPS): |
|
|
|
|
| Basic |
$ (6.71) |
$ (1.52) |
$ (7.48) |
$ (3.98) |
| Diluted |
$ (6.71) |
$ (1.52) |
$ (7.48) |
$ (3.98) |
| Shares used to compute EPS: |
|
|
|
|
| Basic |
21,905 |
21,733 |
21,813 |
21,692 |
| Diluted |
21,905 |
21,733 |
21,813 |
21,692 |
Segment Information:
| |
Three months
ended |
% Change |
Twelve months
ended |
% Change |
| |
July, 31 |
From |
July 31, |
From |
| (in thousands) |
2013 |
2012 |
2012 to 2013 |
2013 |
2012 |
2012 to 2013 |
| Net sales |
|
|
|
|
|
|
| Snacks |
$ 117,090 |
$ 113,371 |
3.3% |
$ 437,955 |
$ 425,175 |
3.0% |
| Nuts |
82,711 |
110,618 |
-25.2% |
426,057 |
556,243 |
-23.4% |
| Total |
199,801 |
223,989 |
-10.8% |
864,012 |
981,418 |
-12.0% |
| Gross profit |
|
|
|
|
|
|
| Snacks |
42,321 |
36,569 |
15.7% |
152,133 |
128,122 |
18.7% |
| Nuts |
10,737 |
5,695 |
88.5% |
53,390 |
51,599 |
3.5% |
| Total |
$ 53,058 |
$ 42,264 |
25.5% |
$ 205,523 |
$ 179,721 |
14.4% |
Summarized Balance Sheet Data:
| |
July 31, |
| (in thousands) |
2013 |
2012 |
| Total current assets |
$ 231,105 |
$ 278,196 |
| Restricted cash |
-- |
6,386 |
| Property, plant and equipment, net |
132,225 |
146,944 |
| Goodwill |
401,125 |
403,158 |
| Other intangible assets, net |
388,084 |
437,021 |
| Other long-term assets |
19,776 |
26,537 |
| Total assets |
$ 1,172,315 |
$ 1,299,349 |
| |
|
|
| Total current liabilities |
$ 290,645 |
$ 216,609 |
| Long-term obligations |
585,077 |
599,598 |
| Deferred income taxes |
106,767 |
127,024 |
| Other liabilities |
23,106 |
31,324 |
| Total stockholders' equity |
166,720 |
324,794 |
| Total liabilities and
stockholders' equity |
$ 1,172,315 |
$ 1,299,349 |
Non-GAAP Financial
Information
Reconciliation of Income (Loss) Before Income Taxes to
Non-GAAP EPS:
| |
Three months
ended |
Twelve months
ended |
| |
July 31, |
July 31, |
| (in thousands, except per share
amounts) |
2013 |
2012 |
2013 |
2012 |
| GAAP income (loss) before income taxes |
$ (160,062) |
$ (32,923) |
$ (176,189) |
$ (84,613) |
| (Gain) Loss on warrant liability |
20,562 |
10,360 |
11,326 |
10,360 |
| Asset impairments |
36,000 |
10,132 |
37,560 |
10,132 |
| Reduction of liability due to lease
assignment |
-- |
-- |
(1,319) |
-- |
| Adjustment to exclude forbearance
fee |
-- |
438 |
-- |
1,444 |
| Adjustment to remove costs associated
with acquisitions and integrations |
-- |
694 |
-- |
41,334 |
| Retention stock-based compensation |
|
613 |
|
1,059 |
| Adjustments to SG&A expenses (1) |
102,767 |
10,043 |
132,869 |
30,632 |
| Non-GAAP income before income taxes |
(733) |
(643) |
4,247 |
10,348 |
| GAAP income taxes (benefit) |
(13,000) |
13 |
(12,957) |
1,723 |
| Tax effect of Non-GAAP adjustments |
10,012 |
(1,691) |
7,463 |
(4,111) |
| Non-GAAP income taxes (benefit) |
(2,988) |
(1,678) |
(5,494) |
(2,388) |
| Non-GAAP net income (loss) |
$ 2,255 |
$ 1,035 |
$ 9,741 |
$ 12,736 |
| Non-GAAP EPS-diluted |
$ 0.09 |
$ 0.05 |
$ 0.40 |
$ 0.58 |
| Shares used in computing Non-GAAP
EPS-diluted |
24,486 |
22,116 |
24,096 |
22,078 |
| |
| (1) Adjustments to SG&A
expenses for fourth quarter of fiscal 2013 are related to the $96.1
million settlement of the private securities class action lawsuit,
consulting and legal fees, and Fishers plant closure
costs. Adjustments to SG&A expenses for the fourth quarter
of fiscal 2012 are related to audit committee investigation,
restatement, and related expenses, $0.4 million in forbearance fee,
$2.1 million in stock-based compensation, of which, $0.6 million is
retention stock-based compensation, and $0.7 million primarily due
to the proposed acquisition of Pringles. Adjustments to
SG&A expenses for the full year fiscal 2013 are related to the
$96.1 million settlement of the private securities class action
lawsuit, audit committee investigation, restatement-related
expenses, legal investigation expenses, consulting fees, accrued
contract termination expenses, retention and severance accruals,
and Fishers plant closure costs. These expenses are partially
offset by the clawback of bonuses paid to a former CEO and the
reversal of certain previously recorded stock compensation expenses
associated with former executives. Adjustments to SG&A
expenses for full year fiscal 2012 are related to audit committee
investigation, restatement, related expenses, $1.4 million in
forbearance fee, $9.2 million in stock-based compensation, of
which, $1.1 million is retention stock-based compensation, and
$41.3 million primarily due to the integration of Kettle and the
proposed acquisition of Pringles. |
Reconciliation of Net Income (Loss) to Adjusted
EBITDA:
| |
Three months
ended |
Twelve months
ended |
| |
July 31, |
July 31, |
| (in thousands) |
2013 |
2012 |
2013 |
2012 |
| Net income (loss) |
$ (147,062) |
$ (32,936) |
$ (163,232) |
$ (86,336) |
| Income taxes (benefit) |
(13,000) |
13 |
(12,957) |
1,723 |
| Income (loss) before income taxes |
(160,062) |
(32,923) |
(176,189) |
(84,613) |
| Interest expense, net |
15,240 |
14,043 |
57,925 |
33,976 |
| Income (loss) from operations |
(144,822) |
(18,880) |
(118,264) |
(50,637) |
| Costs associated with acquisitions and
integrations |
-- |
693 |
-- |
41,334 |
| Reduction of liability due to lease
assignment |
-- |
-- |
(1,319) |
-- |
| Asset impairments |
36,000 |
10,132 |
37,560 |
10,132 |
| (Gain) Loss on warrant liability |
20,562 |
10,360 |
11,326 |
10,360 |
| Adjustments to SG&A expenses (1) |
102,767 |
10,043 |
134,664 |
30,632 |
| Stock-based compensation expense (2) |
1,742 |
2,064 |
4,229 |
9,206 |
| Depreciation and amortization |
8,315 |
7,423 |
33,525 |
28,347 |
| Adjusted EBITDA |
$ 24,564 |
$ 21,835 |
$ 101,721 |
$ 79,374 |
| |
| (1) Fiscal 2013 SG&A
expenses includes the $96.1 million to settle the private
securities class action lawsuit which was recorded in
Q4:13. The settlement included a cash amount of $11.0 million
and a stock settlement valued at $85.1 million at the close of
market on August 20, 2013 as set forth in the settlement
preliminary approval motion. Other adjustments to SG&A are
provided in footnote 1 to the Reconciliation of Income (Loss)
Before Income Taxes to Non-GAAP EPS. |
| (2) Stock-based compensation for
fiscal 2013 included a $2.5 million reversal of certain previously
recorded stock compensation expenses associated with former
executives. |
About Diamond's Non-GAAP Financial Measures
This release contains non-GAAP financial measures of Diamond's
performance ("non-GAAP measures") for different periods. Non-GAAP
financial measures should not be considered as a substitute for
financial measures prepared in accordance with GAAP. Diamond's
non-GAAP financial measures do not reflect a comprehensive system
of accounting, and differ both from GAAP financial measures and
from non-GAAP financial measures used by other companies. Diamond
urges investors to review its reconciliation of non-GAAP financial
measures to GAAP financial measures, and its financial statements
to evaluate its business.
Diamond believes that its non-GAAP financial measures provide
meaningful information regarding operating results because they do
not include amounts that Diamond excludes when monitoring operating
results and assessing performance of the business. Diamond believes
that its non-GAAP financial measures also facilitate comparison of
results for current periods and business outlook for future
periods.
Adjusted EBITDA is used by management as a measure of operating
performance. Adjusted EBITDA is defined as net income before
interest expense, income taxes, stock-based compensation,
depreciation, amortization, and other non-operating expenses,
including the aforementioned expenses related to the proposed
settlement of the private securities class action case , asset
impairment expense, Oaktree warrant liability expenses, SG&A
expenses primarily related to audit committee investigation,
restatement and related expenses, and Kettle integration and
Pringles acquisition expenses. We believe that Adjusted EBITDA is
useful as an indicator of ongoing operating performance. As a
result, some management reports feature Adjusted EBITDA, in
conjunction with traditional GAAP measures, as part of our overall
assessment of company performance.
Diamond's management uses non-GAAP financial measures in
internal reports used to monitor and make decisions about its
business, such as monthly financial reports prepared for
management. The principal limitation of the non-GAAP measures is
that they exclude significant expenses and other amounts required
under GAAP. They also reflect the exercise of management's
judgments about which adjustments are appropriately made. To
mitigate this limitation, Diamond presents the non-GAAP measures in
connection with GAAP results, and recommends that investors do not
give undue weight to them. Diamond believes that non-GAAP measures
provide useful information to investors by allowing them to view
Diamond's business through the eyes of management, facilitating
comparison of results across historical and future periods, and
providing a focus on the underlying operating performance of the
business.
CONTACT: Investors:
ICR
Katie Turner
Rohan Patkar
415-230-7952
Media:
ICR
Anton Nicholas
Jessica Liddell
415-445-7431
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