Smart Balance, Inc. (SMBL)
Q2 2012 Earnings Call
August 2, 2012 9:30 AM ET
Carole Buyers – SVP, IR and Business Development
Steve Hughes – Chairman and CEO
Chris Sacco – CFO and Treasurer
Scott Van Winkle – Canaccord
Jon Andersen – William Blair
Andrew Wolf – BB&T Capital
Mitchell Pinheiro – Janney Capital
Chris Krueger – Northland Capital
Amit Sharma – BMO Capital Markets
Akshay Jagdale – KeyBanc Capital
Good morning, my name is Kevin. I will be your conference operator today. It’s August 2 and I welcome you to the Smart Balance 2012 Second Quarter Conference Call and Audio Webcast. This call is being recorded for playback purposes and will be available beginning two hours after the conclusion of today’s call. The playback will be available through August 16, 2012. The number for the replay is 1800-753-5479, you may also listen to the broadcast by logging into www.smartbalance.com. and in the Investor Center clicking on the link. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question and answer session. (Operator Instructions)
Some of the statements we’ll make on this conference call including statements about the company’s plans, strategies, beliefs and expectations are forward-looking and subject to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results may differ material from what is expressed in those forward-looking statements for a number of reasons including those risks and uncertainties disclosed in the company’s filing with the SEC and in its earnings release.
Now I’d like to turn the call over to Ms. Carole Buyers, Smart Balance’s, Senior Vice President of Investor Relations and Business Development. Please go ahead, Carole.
Thank you, Kevin and good morning everyone. With me today are Steve Hughes, our Chairman and CEO and Chris Sacco, our CFO and Treasurer. Earlier this morning, we issued our second quarter earnings release. If you have not seen the press release, its available on the investor center page of our website at www.smartbalance.com.
The company uses the terms cash operating income and net income and earnings per share, excluding non-cash and certain items as a non-GAAP measure. The company believes that these measures better explain its profitability and performance consistent with the way the investor’s and security analyst evaluate our company in a competitive environment in which we operate.
Cash operating income is defined as operating income excluding stock-based compensation expense, depreciation and amortization and acquisition and integration related costs. In addition the company uses the term adjusted EBITDA, when referring to Udi’s as management believes that this measure better explains the acquired company’s profitability and performance consistent with the way the investor and security analysts evaluate the performance in the competitive environment in which we operate.
Adjusted EBITDA is defined as operating income or net income excluding interest, taxes, depreciation amortization and other non-cash and one-time items. The company believes that the exclusion of both non-cash and certain items provide a better reflection of the operating profitability of the company and strongly complement the company’s planning and forecasting models used in providing investor and security analyst with important supplemental information regarding the company’s underlying profitability and operating performance.
Finally, the company uses the term cash EPS which is defined as GAAP EPS plus incremental
amortization of intangibles and depreciation related to the Udi’s transaction.
However, non-GAAP financial measures to be viewed in addition to and not as an alternative for the company’s results prepared in accordance with GAAP. In addition, the non-GAAP measures the company views may differ from the non-GAAP measures used by other companies. We have included in our press release reconciliations of cash operating income to operating income and of net income and EPS excluding non-cash and certain items to net income and EPS in each case as calculated in accordance with GAAP.
With that, I’ll turn the call over to Steve.
Thank you, Carol and good morning everyone. Let me provide you the agenda for our call this morning. I’ll begin with a high level highlights for our second quarter results, as well as some specifics on our retail and consumer activity in the quarter.
Chris will then review the second quarter financials, our raised outlook for 2012 and a preliminary outlook for 2013. I’ll then close the call with a review of what look forward to in this back half of 2012, and then take questions. With that, onto the quarter, second quarter results.
We’re pleased with our second quarter results which were in line with our expectations and continue to reflect the impact of our key strategies. Let me review the quarter by highlighting with our key strategies accomplishments. First with our natural growth platform, Glutino and Earth Balance both at strong quarters. A quick comment on Glutino.
Glutino is at a store takeaway remains strong at 31% growth on average for the last 12 weeks period, ending July 7.
Our net sales were just strong at plus 31%. As we completed the transition in our promotional strategy from (inaudible) performance base, inventory to distributors have balanced and order patterns have begun to track retail sales.
We’re approaching the one year anniversary since acquiring Glutino and the work our financial, operations, sales and marketing teams have done on integration, initial changes at Glutino are making good strives. Couple of highlights for the second quarter.
From a sales perspective, the focus is on growing distribution in all three key customer channels, natural grocery and mass in the U.S. and Canada leveraging our strong top relationship. We’re keenly focused on increasing the number of Glutino items, we sell in the conventional channel, which consist of U.S., grocery and mass. A top to top meetings with retailers are intended to establish Glutino as the proven destination grocery brand for the Glutino free shopper. In turn, we’re presenting a merchandizing strategy that focuses on a dedicated Glutino free grocery shelf, anchored by Glutino.
So to embark our distribution drive with Glutino to build on the 8.4 items we average nationally based on Nielsen, over the past six months, we’ve secured 150 incremental items with 20 retail accounts. This is a great outcome from our first round of top of top meetings, most of this distribution will actually begin shipping in Q3 and we expect the number of items we’re averaging nationally to increase approximately 10 items by the of 2012.
From an operational view, we are, we also started production on Pretzels in the US. The Pretzels were previously manufactured overseas. We expect this project to increase gross profit, margins on our Pretzels. In Q2 we also completed the upgrades in consolidating from three buildings to one in Montréal. This project will contribute to improve gross margins in the second half of 2012 and we believe we are on track to significantly improve brand gross profits in 2013.