Diamond Foods, Inc. (Nasdaq:DMND) ("Diamond") today reported
financial results for its fiscal 2014 third quarter and nine months
ended April 30, 2014.
Third Quarter Fiscal 2014 Highlights
- Net sales were $190.9 million, up 3.2% year-over-year
- Snacks segment sales increased 9.6% to $114.3 million and Nuts
segment sales decreased 5.0% to $76.6 million
- Gross margin was 23.6% compared to 23.4%
- GAAP loss per share was $3.63 primarily attributable to the
extinguishment of the Oaktree debt; non-GAAP earnings per share
(EPS) was $0.11
- Adjusted EBITDA increased 1.5% to $23.5 million
Year-to-Date Fiscal 2014 Highlights
- Net sales decreased 2.7% to $646.1 million
- Snacks segment sales increased 7.1% to $343.6 million and Nuts
segment sales decreased 11.9% to $302.5 million
- Gross margin was 24.6% compared to 23.0%
- GAAP loss per share was $6.69; non-GAAP EPS was $0.44
- Adjusted EBITDA increased 5.3% to $81.2 million
(All comparisons above are to the third quarter and first nine
months of fiscal year 2013. Non-GAAP financial measures are
reconciled in the tables below.)
"We are very pleased with the overall performance of our Snacks
segment in the third quarter, as we continued to deliver solid
year-over-year sales growth and gross margin expansion," said Brian
J. Driscoll, President and CEO. "While these results reflect strong
progress against our overall turnaround plan, in the Nuts segment a
walnut cost increase this quarter impacted our results by $2.2
million."
Third Quarter Fiscal 2014
Consolidated net sales during the quarter increased 3.2%, to
$190.9 million, compared to the same quarter of the prior year.
Gross profit was $45.1 million, or 23.6% of net sales, for the
third quarter of fiscal 2014, compared to $43.4 million, or 23.4%
of net sales, for the same quarter in the prior year.
GAAP net loss was $105.6 million and GAAP diluted loss per share
("EPS") was ($3.63) in the third quarter of fiscal 2014. On
February 19, 2014, the Company re-financed its outstanding debt,
including the Oaktree notes, and Oaktree exercised their warrant of
4.4 million shares. A charge of $83.0 million relating to the
refinancing transactions was expensed in the quarter including:
$41.6 million representing the difference between the reacquisition
price and the carrying value of the Oaktree debt, $28.7 million of
Oaktree debt call premium, and $12.7 million of refinancing
transaction costs. In addition, we incurred a $15.0 million Oaktree
warrant exercise inducement fee and $2.0 million for the change in
the fair value of the Oaktree warrant liability. Excluding these
items and other adjustments, non-GAAP net income for the third
quarter of fiscal 2014 was $3.5 million and non-GAAP diluted EPS
was $0.11. Adjusted EBITDA was $23.5 million in the third quarter
of fiscal 2014, compared to $23.2 million in the prior year. Please
refer to the table at the end of this press release for a
reconciliation of GAAP to non-GAAP information.
Year-to-Date Fiscal 2014
Net sales for the first nine months of fiscal 2014 decreased
2.7% to $646.1 million compared to $664.2 million during the first
nine months of last year, and gross profit as a percent of net
sales was 24.6% compared to 23.0% last year.
Net loss was $162.8 million, or a loss of $6.69 per share on a
fully diluted basis. Excluding certain charges, non-GAAP net income
for the first nine months of fiscal 2014 was $13.3 million and
non-GAAP fully diluted earnings per share was $0.44. Adjusted
EBITDA was $81.2 million, compared to $77.2 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 April 30, 2014, net debt outstanding was $635.4 million
and the$125 million ABL Revolver was undrawn.
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 third
quarter increased 9.6%, to $114.3 million compared to the prior
year period. Gross profit was $41.7 million, or 36.5% of net sales,
for the third quarter of fiscal 2014, compared to $36.7 million, or
35.2% of net sales, for the same quarter in the prior year.
Net sales during the first nine months of fiscal 2014 were
$343.6 million, a 7.1% increase compared to the first nine months
of last year. Gross profit during the first nine months of fiscal
2014 was $123.7 million, 36.0% of net sales, compared to $109.8
million, 34.2% of net sales, in the prior year period.
Nuts Segment: Net sales during the third
quarter decreased 5.0% to $76.6 million compared to the prior year
period. Gross profit was $3.4 million, or 4.4% of net sales, in the
third quarter of fiscal 2014, compared to $6.7 million, or 8.3% of
net sales, for the same quarter in the prior year.
Net sales during the first nine months of fiscal 2014 were
$302.5 million, an 11.9% decrease compared to the first nine months
of last year. Gross profit during the first nine months of fiscal
2014 was $35.3 million, 11.7% of net sales, compared to $42.7
million, 12.4% of net sales, in the prior year period.
Outlook
Despite headwinds associated with tree nut commodity costs in
fiscal 2014 that adversely impacted 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 (888) 791-4324 and international
listeners may dial (913) 312-0375.
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
June 19, 2014. A telephonic playback will be available from 7:30
p.m. ET, June 5, 2014, through June 19, 2014. North America
listeners may dial (877) 870-5176 and international listeners may
dial (858) 384-5517; the passcode is 5998359.
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, Adjusted EBITDA
projections, and progress against the Company's turnaround plan.
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 April 30, |
Nine Months Ended
April 30, |
|
2014 |
2013 |
2014 |
2013 |
Net sales |
$ 190,892 |
$ 184,905 |
$ 646,137 |
$ 664,211 |
Cost of sales |
145,796 |
141,555 |
487,180 |
511,746 |
Gross profit |
45,096 |
43,350 |
158,957 |
152,465 |
Operating expenses: |
|
|
|
|
Selling, General and administrative |
30,735 |
35,334 |
121,113 |
105,781 |
Advertising |
8,590 |
8,023 |
32,377 |
29,362 |
(Gain) loss on warrant
liability |
1,995 |
1,873 |
25,933 |
(9,236) |
Warrant exercise fee |
15,000 |
-- |
15,000 |
-- |
Total operating expenses |
56,320 |
45,230 |
194,423 |
125,907 |
Income (loss) from operations |
(11,224) |
(1,880) |
(35,466) |
26,558 |
Loss on debt extinguishment |
83,004 |
-- |
83,004 |
-- |
Interest expense, net |
10,582 |
14,542 |
41,534 |
42,685 |
Loss before income taxes |
(104,810) |
(16,422) |
(160,004) |
(16,127) |
Income taxes (benefit) |
823 |
(840) |
2,842 |
43 |
Net loss |
$ (105,633) |
$ (15,582) |
$ (162,846) |
$ (16,170) |
|
|
|
|
|
Loss per share: |
|
|
|
|
Basic |
$ (3.63) |
$ (0.71) |
$ (6.69) |
$ (0.74) |
Diluted |
$ (3.63) |
$ (0.71) |
$ (6.69) |
$ (1.08) |
Shares used to compute loss per share: |
|
|
|
|
Basic |
29,119 |
21,819 |
24,338 |
21,774 |
Diluted |
29,119 |
21,819 |
24,338 |
23,514 |
|
|
|
|
|
Segment Information:
|
Three Months
Ended |
|
Nine Months
Ended |
|
|
April
30, |
% Change from |
April
30, |
% Change from |
|
2014 |
2013 |
2013 to 2014 |
2014 |
2013 |
2013 to 2014 |
Net sales |
|
|
|
|
|
|
Snacks |
$ 114,255 |
$ 104,201 |
9.6% |
$ 343,601 |
$ 320,865 |
7.1% |
Nuts |
76,637 |
80,704 |
-5.0% |
302,536 |
343,346 |
-11.9% |
Total |
$ 190,892 |
$ 184,905 |
3.2% |
$ 646,137 |
$ 664,211 |
-2.7% |
|
|
|
|
|
|
|
Gross profit |
|
|
|
|
|
|
Snacks |
$ 41,699 |
$ 36,684 |
13.7% |
$ 123,660 |
$ 109,812 |
12.6% |
Nuts |
3,397 |
6,666 |
-49.0% |
35,297 |
42,653 |
-17.2% |
Total |
$ 45,096 |
$ 43,350 |
4.0% |
$ 158,957 |
$ 152,465 |
4.3% |
|
|
|
|
|
|
|
Summarized Balance Sheet Data:
|
April
30, |
|
2014 |
2013 |
ASSETS |
|
|
Total current assets |
$ 268,118 |
$ 251,269 |
Property, plant and equipment, net |
131,033 |
138,420 |
Goodwill |
410,261 |
401,906 |
Other intangible assets, net |
393,828 |
428,419 |
Other long-term assets |
20,045 |
20,886 |
Total assets |
$ 1,223,285 |
$ 1,240,900 |
|
|
|
LIABILITIES AND STOCKHOLDERS'
EQUITY |
|
|
Total current liabilities |
$ 171,515 |
$ 200,008 |
Long-term obligations |
638,351 |
579,202 |
Deferred income taxes |
108,457 |
127,604 |
Other liabilities |
20,927 |
24,825 |
Total stockholders' equity |
284,035 |
309,261 |
Total liabilities and stockholders'
equity |
$ 1,223,285 |
$ 1,240,900 |
|
|
|
Non-GAAP Financial
Information
Reconciliation of Income
(Loss) Before Income Taxes to Non-GAAP EPS:
|
Three Months
Ended |
|
Nine Months
Ended |
|
|
April
30, |
|
April
30, |
|
|
2014 |
2013 |
|
2014 |
2013 |
|
GAAP income (loss) before income
taxes |
$ (104,810) |
$ (16,422) |
|
$ (160,004) |
$ (16,127) |
|
(Gain) Loss on warrant liability |
1,995 |
1,873 |
|
25,933 |
(9,236) |
|
Warrant exercise fee |
15,000 |
-- |
|
15,000 |
-- |
|
Loss on debt extinguishment |
83,004 |
-- |
|
83,004 |
-- |
|
Reduction of liability due to lease
assignment |
-- |
-- |
|
-- |
(1,319) |
|
(Gain) Loss on Securities settlement
liability |
5,963 |
-- |
|
38,136 |
-- |
|
SEC settlement |
-- |
-- |
|
5,000 |
-- |
|
Amortization of deferred financing costs
and discounts |
1,440 |
1,354 |
(1) |
4,993 |
3,655 |
(1) |
Shareholder derivative suit gain |
-- |
-- |
|
(1,600) |
-- |
|
Legal Expenses |
1,939 |
(10) |
|
4,266 |
2,964 |
|
Adjustments to SG&A |
20 |
12,878 |
(2) |
330 |
28,698 |
(2) |
Non-GAAP income before income
taxes |
4,551 |
(327) |
|
15,058 |
8,635 |
|
GAAP income taxes (benefit) |
823 |
(840) |
|
2,842 |
43 |
|
Tax effect of Non-GAAP adjustments |
252 |
(1,448) |
|
(1,083) |
(1,147) |
|
Non-GAAP income taxes
(benefit) |
1,075 |
(2,288) |
|
1,759 |
(1,104) |
|
Non-GAAP net income (loss) |
$ 3,476 |
$ 1,961 |
|
$ 13,299 |
$ 9,739 |
|
|
|
|
|
|
|
|
Non-GAAP EPS-diluted |
|
|
|
|
|
|
EPS-diluted |
$ 0.11 |
$ 0.08 |
|
$ 0.44 |
$ 0.42 |
|
Shares used in computing Non-GAAP |
31,592 |
23,500 |
|
30,059 |
23,464 |
|
|
|
|
|
|
|
|
(1) These expenses represent
amortization of deferred and capitalized debt issuance costs and
the amortization of original issue discounts on debt that are
included within the interest expense, net line item on the
summarized statement of operations. The exclusion of this item
to calculate non-GAAP income before income taxes was first
established for the three months ended April 30, 2014 and therefore
the Company adjusted all historical periods to exclude this item
for comparative purposes. |
(2) Related primarily to audit
committee investigation, restatement- related expenses, consulting
fees, retention, and severance. |
|
|
|
|
|
|
|
Reconciliation of Income (Loss) Before Income Taxes to
Non-GAAP EPS FY 14 Update:
As a result of the Company's decision to exclude the
amortization of deferred and capitalized debt issuance costs and
the amortization of original issue discounts on debt on a
go-forward basis the Company has updated the previously reported
non-GAAP EPS for fiscal 2014. Please refer to the table below
for the updated previously reported fiscal 2014 non-GAAP
calculation:
|
Three Months Ended |
Three Months Ended |
Six Months Ended |
|
|
October 31,
2013 |
January 31,
2014 |
January 31,
2014 |
|
|
|
|
|
|
As previously presented |
|
|
|
|
Non-GAAP income before income taxes |
$ 4,453 |
$ 2,502 |
$ 6,955 |
|
GAAP income taxes (benefit) |
1,048 |
971 |
2,019 |
|
Tax effect of Non-GAAP adjustments |
(1,634) |
(1,056) |
(2,690) |
|
Non-GAAP income taxes
(benefit) |
(586) |
(85) |
(671) |
|
Non-GAAP inet income (loss) |
$ 5,039 |
$ 2,587 |
$ 7,626 |
|
|
|
|
|
|
Non-GAAP EPS-diluted |
|
|
|
|
Shares used in computing Non-GAAP
EPS-diluted |
28,460 |
29,922 |
29,209 |
|
EPS-diluted |
$ 0.18 |
$ 0.09 |
$ 0.26 |
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
Three Months Ended |
Six Months Ended |
Nine Months Ended |
|
October 31, 2013 |
January 31, 2014 |
January 31, 2014 |
April 30, 2014 |
|
Revised |
Revised |
Revised |
|
As revised reflecting amortization of
deferred financing costs and discounts |
|
|
|
|
Non-GAAP income before income taxes |
$ 4,453 |
$ 2,502 |
$ 6,955 |
$ 10,065 |
Amortization of deferred financing costs and
discounts |
1,724 |
1,829 |
3,553 |
4,993 |
Revised Non-GAAP income before income
taxes |
6,177 |
4,331 |
10,508 |
15,058 |
GAAP income taxes (benefit) |
1,048 |
971 |
2,019 |
2,842 |
Tax effect of Non-GAAP adjustments |
(971) |
(364) |
(1,335) |
(1,083) |
Non-GAAP income taxes
(benefit) |
77 |
607 |
684 |
1,759 |
Non-GAAP net income (loss) |
$ 6,100 |
$ 3,724 |
$ 9,824 |
$ 13,299 |
|
|
|
|
|
Non-GAAP EPS-diluted |
|
|
|
|
Shares used in computing Non-GAAP
EPS-diluted |
28,460 |
29,922 |
29,209 |
30,059 |
EPS-diluted |
$ 0.21 |
$ 0.12 |
$ 0.34 |
$ 0.44 |
|
|
|
|
|
Reconciliation of Net Income (Loss) to
Adjusted EBITDA:
|
Three Months
Ended |
|
Nine Months
Ended |
|
|
April
30, |
|
April
30, |
|
|
2014 |
2013 |
|
2014 |
2013 |
|
Net income (loss) |
$ (105,633) |
$ (15,582) |
|
$ (162,846) |
$ (16,170) |
|
Income taxes (benefit) |
823 |
(840) |
|
2,842 |
43 |
|
Income (loss) before income taxes |
(104,810) |
(16,422) |
|
(160,004) |
(16,127) |
|
Interest expense, net |
10,582 |
14,542 |
|
41,534 |
42,685 |
|
Loss on debt extinguishment |
83,004 |
-- |
|
83,004 |
-- |
|
Income (loss) from operations |
(11,224) |
(1,880) |
|
(35,466) |
26,558 |
|
Reduction of liability due to lease
assignment |
-- |
-- |
|
-- |
(1,319) |
|
(Gain) Loss on warrant liability |
1,995 |
1,873 |
|
25,933 |
(9,236) |
|
Warrant exercise fee |
15,000 |
-- |
|
15,000 |
-- |
|
(Gain) Loss on Securities settlement
liability |
5,963 |
-- |
|
38,136 |
-- |
|
SEC settlement |
-- |
-- |
|
5,000 |
-- |
|
Shareholder derivative suit gain |
-- |
-- |
|
(1,600) |
-- |
|
Legal Expenses |
1,939 |
(10) |
|
4,266 |
2,964 |
|
Adjustments to SG&A expenses |
20 |
12,787 |
(1) |
330 |
30,493 |
(1) |
Stock-based compensation expense |
1,994 |
1,365 |
|
5,458 |
2,487 |
|
Depreciation and amortization |
7,859 |
9,072 |
|
24,152 |
25,210 |
|
Adjusted EBITDA |
$ 23,546 |
$ 23,207 |
|
$ 81,209 |
$ 77,157 |
|
|
|
|
|
|
|
|
(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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