Diamond Foods, Inc. (Nasdaq:DMND) ("Diamond") today reported
financial results for its fiscal 2014 second quarter and six months
ended January 31, 2014.
Second Quarter Fiscal 2014 Highlights
- Net sales were approximately flat year-over-year at $220.6
million
- Snacks sales increased 10.8% to $116.8 million and Nuts sales
decreased 10.1% to $103.8 million
- Gross margin was 25.4% compared to 22.9%
- Net loss was $15.1 million and non-GAAP net income was $2.6
million
- Adjusted EBITDA increased 24.4% to $28.6 million
Year-to-Date Fiscal 2014 Highlights
- Net sales decreased 5.0% to $455.2 million
- Snacks sales increased 5.9% to $229.3 million and Nuts sales
decreased 14.0% to $225.9 million
- Gross margin was 25.0% compared to 22.8%
- Net loss was $57.2 million and non-GAAP net income was $7.6
million
- Adjusted EBITDA increased 6.9% to $57.7 million
(All comparisons above are to the second quarter and first six
months of fiscal year 2013. Non-GAAP financial measures are
reconciled in the tables below)
"Overall we are pleased with our second quarter performance. Our
consolidated gross margin improved 250 basis points reflecting
strong sales growth and gross margin expansion in our Snacks
segment. These results, however, were weighed down by lower sales
and gross margin compression in the Nuts segment due to higher tree
nut costs," said Brian Driscoll, President and CEO. "While we
expect to face further headwinds in the Nuts segment in the second
half of fiscal 2014, our team remains focused on the execution of
our multi-year turnaround strategy and we are confident that we are
taking the right steps to position our business for long-term
sustainable growth."
Second Quarter Fiscal 2014
Net sales were comparable to the prior year at $220.6 million
and gross profit as a percent of net sales was 25.4% compared to
22.9% last year.
Net loss was $15.1 million, or a loss of $0.68 per share on a
fully diluted basis. During the quarter, Diamond incurred an $8.7
million charge for the mark to market adjustment related to shares
issuable in connection with the settlement of the securities class
action lawsuit and a $7.0 million charge related to a change in the
fair value of the Oaktree warrant liability. Excluding these
charges, non-GAAP net income for the second quarter was $2.6
million and non-GAAP fully diluted earnings per share was $0.09.
Adjusted EBITDA was $28.6 million compared to $22.9 million in the
prior year period. Adjusted 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.
Year-to-Date Fiscal 2014
Net sales for the first six months of fiscal 2014 decreased 5.0%
to $455.2 million compared to $479.3 million in the first half of
last year, and gross profit as a percent of net sales was 25.0%
compared to 22.8% last year.
Net loss was $57.2 million, or a loss of $2.60 per share on a
fully diluted basis. Excluding certain charges, non-GAAP net income
for the first six months of fiscal 2014 was $7.6 million and
non-GAAP fully diluted earnings per share was $0.26. Adjusted
EBITDA was $57.7 million, compared to $54.0 million last year.
Adjusted 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.
As of January 31, 2014, net debt outstanding was $551.8 million,
including the Oaktree debt at its carrying value. Cash and
availability on Diamond's bank revolving line of credit on January
31, 2014 was approximately $74.4 million.
Subsequent to the end of the second quarter, on February 19,
2014, the Company refinanced its debt capital structure. The
Company issued $230 million of 7.000% Senior Notes due 2019 and
entered into a $415 million 4.5 year syndicated secured Term
Loan Facility. The proceeds from these offerings, in addition to
the net proceeds from the exercise by Oaktree Capital Management,
L.P. ("Oaktree") of its warrants, were used to prepay outstanding
indebtedness under the Company's existing credit facility and to
redeem its senior unsecured notes due 2020 held by Oaktree,
including a prepayment premium, fees, expenses and original issue
discount in connection with the refinancing.
The Company also closed a $125 million syndicated secured ABL
Credit Facility. The ABL has a 4.5 year term, during which the
Company may make aggregate drawings not to exceed the lesser of
$125 million and an amount equal to the borrowing base specified in
the ABL Credit Facility. The ABL Credit Facility may be used to
finance working capital and the ongoing general corporate needs of
the Company.
In addition to significantly reducing the Company's interest
expense, this debt restructuring will also increase liquidity.
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 second
quarter increased 10.8% to $116.8 million compared to prior year
period. Gross profit during the second quarter was $42.5 million,
36.4% of net sales, compared to $34.8 million, 33.0% of net sales,
in the prior year period.
Net sales during the first six months of fiscal 2014 were $229.3
million, a 5.9% increase compared to the first half of last year.
Gross profit during the first six months of fiscal 2014 was $82.0
million, 35.7% of net sales, compared to $73.1 million, 33.8% of
sales, in the prior year period.
Nuts Segment: Net sales during the second
quarter decreased 10.1% to $103.8 million compared to the prior
year period. Gross profit during the second quarter was $13.4
million, 12.9% of net sales, compared to $15.7 million, 13.6% of
net sales, in the prior year period.
Net sales during the first six months of fiscal 2014 decreased
14.0% to $225.9 million compared to the prior year period. Gross
profit during the first six months of fiscal 2014 was $31.9
million, 14.1% of net sales, compared to $36.0 million, 13.7% of
net sales, in the prior year period.
Outlook
Despite continued headwinds associated with tree nut commodity
costs in the second half of fiscal 2014 that will adversely impact
the Nuts segment, the Company expects to realize an increase in
Adjusted EBITDA year-over-year.
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 (877) 440-5803 and international
listeners may dial (719) 325-4806.
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
March 25, 2014. A telephonic playback will be available from 7:30
p.m. ET, March 11, 2014, through March 25, 2014. North America
listeners may dial (877) 870-5176 and international listeners may
dial (858) 384-5517; the passcode is 3392096.
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: http://www.diamondfoods.com.
Note Regarding Forward-looking Statements
This press release includes forward-looking statements,
including statements about commodity headwinds, financial
performance for FY 2014 including Adjusted EBITDA and gross margin
projections. These forward-looking statements are based on our
assumptions, expectations and projections about future events only
as of the date of this press release. 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: unexpected delays or increased
costs in implementing our business strategies; changes in consumer
preferences for snack and nut products; risks relating to our
leverage, including the cost of our debt and its effect on our
ability to respond to changes in our business, markets and
industry; the dilutive impact of equity issuances; risks
relating to litigation and regulatory proceedings; uncertainties
relating to our 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 January 31, |
Six Months Ended
January 31, |
|
2014 |
2013 |
2014 |
2013 |
Net sales |
$220,577 |
$220,844 |
$455,245 |
$479,306 |
Cost of sales |
164,649 |
170,275 |
341,384 |
370,191 |
Gross profit |
55,928 |
50,569 |
113,861 |
109,115 |
Operating expenses: |
-- |
|
-- |
|
Selling, General and administrative |
33,822 |
32,266 |
90,378 |
70,447 |
Advertising |
13,129 |
12,294 |
23,787 |
21,339 |
(Gain) loss on warrant liability |
6,962 |
(18,625) |
23,938 |
(11,109) |
Total operating expenses |
53,913 |
25,935 |
138,103 |
80,677 |
Income (loss) from operations |
2,015 |
24,634 |
(24,242) |
28,438 |
Interest expense, net |
16,104 |
14,231 |
30,952 |
28,143 |
Income (loss) before income taxes |
(14,089) |
10,403 |
(55,194) |
295 |
Income taxes |
971 |
262 |
2,019 |
883 |
Net Income (loss) |
$ (15,060) |
$ 10,141 |
$ (57,213) |
$ (588) |
|
|
|
|
|
Loss per share: |
|
|
|
|
Basic |
$ (0.68) |
$ 0.46 |
$ (2.60) |
$ (0.03) |
Diluted |
$ (0.68) |
$ (0.37) |
$ (2.60) |
$ (0.50) |
Shares used to compute earnings (loss) per
share: |
|
|
|
|
Basic |
22,052 |
21,781 |
22,019 |
21,703 |
Diluted |
22,052 |
23,215 |
22,019 |
23,508 |
|
|
Segment
Information: |
|
|
|
|
|
|
|
|
Three Months
Ended |
|
Six Months
Ended |
|
|
January
31, |
% Change from |
January
31, |
% Change from |
|
2014 |
2013 |
2013 to 2014 |
2014 |
2013 |
2013 to 2014 |
Net sales |
|
|
|
|
|
|
Snacks |
$116,756 |
$105,421 |
11% |
$229,346 |
$216,664 |
6% |
Nuts |
103,821 |
115,423 |
-10% |
225,899 |
262,642 |
-14% |
Total |
$220,577 |
$220,844 |
0% |
$455,245 |
$479,306 |
-5% |
|
|
|
|
|
|
|
Gross profit |
|
|
|
|
|
|
Snacks |
$42,538 |
$34,836 |
22% |
$81,961 |
$73,129 |
12% |
Nuts |
13,390 |
15,733 |
-15% |
31,900 |
35,986 |
-11% |
Total |
$55,928 |
$50,569 |
11% |
$113,861 |
$109,115 |
4% |
|
|
Summarized Balance Sheet
Data: |
|
|
|
January
31, |
|
2014 |
2013 |
ASSETS |
|
|
Total current assets |
280,055 |
276,040 |
Restricted cash |
-- |
-- |
Property, plant and equipment, net |
130,112 |
138,073 |
Deferred income taxes |
-- |
-- |
Goodwill |
408,089 |
404,791 |
Other intangible assets, net |
393,099 |
434,401 |
Other long-term assets |
17,402 |
21,670 |
Total assets |
$1,228,757 |
$1,274,975 |
|
|
|
LIABILITIES AND STOCKHOLDERS'
EQUITY |
|
|
Total current liabilities |
418,885 |
242,228 |
Long-term obligations |
549,390 |
552,555 |
Deferred income taxes |
107,317 |
127,883 |
Other liabilities |
21,862 |
23,732 |
Total stockholders' equity |
131,303 |
328,577 |
Total liabilities and stockholders'
equity |
$1,228,757 |
$1,274,975 |
|
|
Non-GAAP Financial
Information |
|
|
Reconciliation of Income
(Loss) Before Income Taxes to Non-GAAP EPS: |
|
|
|
|
|
|
|
|
|
|
Three Months
Ended |
|
Six Months
Ended |
|
|
January
31, |
|
January
31, |
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
|
GAAP income (loss) before income taxes |
$ (14,089) |
|
$10,403 |
|
$ (55,194) |
|
$295 |
|
(Gain) Loss on warrant liability |
6,962 |
|
(18,625) |
|
23,938 |
|
(11,109) |
|
Reduction of liability due to lease
assignment |
-- |
|
-- |
|
-- |
|
(1,319) |
|
Loss on Securities settlement
liability |
8,678 |
|
-- |
|
32,174 |
|
-- |
|
SEC settlement |
-- |
|
-- |
|
5,000 |
|
-- |
|
Shareholder derivative suit gain |
-- |
|
-- |
|
(1,600) |
|
-- |
|
Legal Expenses |
641 |
|
990 |
|
2,327 |
|
2,974 |
|
|
|
|
|
|
|
|
|
|
Adjustments to SG&A |
310 |
|
5,663 |
(1) |
310 |
|
15,820 |
(1) |
Non-GAAP income (loss) before income
taxes |
2,502 |
|
(1,569) |
|
6,955 |
|
6,661 |
|
GAAP income taxes |
971 |
|
262 |
|
2,019 |
|
883 |
|
Tax effect of Non-GAAP adjustments |
(1,056) |
|
(2,973) |
|
(2,690) |
|
(513) |
|
Non-GAAP income taxes (benefit) |
(85) |
|
(2,711) |
|
(671) |
|
370 |
|
Non-GAAP net income |
2,587 |
|
1,142 |
|
7,626 |
|
6,291 |
|
|
|
|
|
|
|
|
|
|
Non-GAAP EPS-diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing Non-GAAP |
29,922 |
(2) |
23,523 |
|
29,209 |
(3) |
23,882 |
|
|
|
|
|
|
|
|
|
|
EPS-diluted |
$0.09 |
|
$0.05 |
|
$0.26 |
|
$0.26 |
|
|
|
|
|
|
|
|
|
|
(1) Related primarily to audit
committee investigation, restatement-related expenses, consulting
fees, retention, and severance. |
(2) The shares used in computing
Non-GAAP EPS include the 4,450,000 shares that were issued to
settle the securities class action lawsuit. The calculation
also includes 2,654,974 shares related to Oaktree Capital
Management, L.P.'s exercise of their warrant on February 19,
2013. This share amount was calculated utilizing the treasury
stock method. The actual shares issued to Oaktree were
4,420,859. The actual effect of the exercise of the Oaktree warrant
will be accounted for in Q3:14. |
(3) The shares used in computing
Non-GAAP EPS include the weighted average of the 4,450,000 shares
that were issued to settle the securities class action
lawsuit. It was assumed that the shares were issued on August
21st to obtain a weighted average share amount of 3,990,489
utilized in this calculation. The calculation also includes
2,531,474 shares related to Oaktree Capital Management, L.P.'s
exercise of their warrant on February 19, 2013. This share
amount was calculated utilizing the treasury stock method. The
actual shares issued to Oaktree were 4,420,859. The actual
effect of the exercise of the Oaktree warrant will be accounted for
in Q3:14. |
|
|
Reconciliation of Net
Income (Loss) to Adjusted EBITDA: |
|
|
|
|
|
|
|
Three Months
Ended |
|
Six Months
Ended |
|
January
31, |
|
January
31, |
|
2014 |
2013 |
|
2014 |
2013 |
GAAP net income (loss) |
$ (15,060) |
$ 10,141 |
|
$ (57,213) |
$ (588) |
Income taxes |
971 |
262 |
|
2,019 |
883 |
Income (loss) before income taxes |
(14,089) |
10,403 |
|
(55,194) |
295 |
Interest expense, net |
16,104 |
14,231 |
|
30,952 |
28,143 |
Income (loss) from operations |
2,015 |
24,634 |
|
(24,242) |
28,438 |
Reduction of liability due to lease
assignment |
-- |
-- |
|
-- |
(1,319) |
(Gain) Loss on warrant liability |
6,962 |
(18,625) |
|
23,938 |
(11,109) |
(Gain) Loss on Securities settlement
liability |
8,678 |
-- |
|
32,174 |
-- |
SEC settlement |
-- |
-- |
|
5,000 |
-- |
Shareholder derivative suit gain |
-- |
-- |
|
(1,600) |
-- |
Legal Expenses |
641 |
990 |
|
2,327 |
2,974 |
|
|
|
|
|
|
Adjustments to SG&A expenses |
310 |
7,906 |
(1) |
310 |
17,706 |
|
|
|
|
|
|
Stock-based compensation expense |
1,987 |
(128) |
|
3,464 |
1,122 |
|
|
|
|
|
|
Depreciation and amortization |
7,958 |
8,171 |
|
16,293 |
16,138 |
Adjusted EBITDA |
$28,551 |
$22,948 |
|
$57,664 |
$53,950 |
|
|
|
|
|
|
(1) Related primarily to audit
committee investigation, restatement-related expenses, consulting
fees, retention, and severance. |
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, Oaktree
warrant liability gains/losses, SG&A expenses primarily related
to audit committee investigation, and restatement and related
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
415-230-7952
Media:
ICR
Anton Nicholas/Jessica Liddell
415-445-7431
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