Schiff Nutrition International Management Discusses Q4 2012 Results - Earnings Call Transcript

Schiff Nutrition International (SHF)

Q4 2012 Earnings Call

July 31, 2012 11:00 am ET

Executives

Rebecca Herrick - Assistant Vice President of San Francisco Office

Tarang P. Amin - Chief Executive Officer, President, Director and Member of Executive Committee

Joseph W. Baty - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

Analysts

Michael W. Gallo - CL King & Associates, Inc.

Lee J. Giordano - Imperial Capital, LLC, Research Division

Frank A. Camma - Sidoti & Company, LLC

Damian Witkowski - Gabelli & Company, Inc.

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Fiscal Year 2012 Fourth Quarter and Year-end Schiff Nutrition International Earnings Conference Call. My name is Deana, and I'll be the operator for today. [Operator Instructions] As a reminder, today's conference is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, Ms. Becky Herrick of LHA. Please go ahead.

Rebecca Herrick

Thank you, Deana, and thank you, all, for joining us this morning for the Schiff Nutrition Fiscal 2012 Fourth Quarter and Year-end Results Conference Call.

By now, you should have received a copy of the press release. But if you have not, please contact LHA at (415) 433-3777, and we will forward you a copy.

As a reminder, this call contains forward-looking statements that are based on management's beliefs and assumptions, expectations, estimates and projections. These statements, including those relating to the company's fiscal year 2013 outlook, are subject to known and unknown risks and uncertainties, and therefore, actual results may differ materially. Important factors that may cause actual results to differ from those expressed or implied by such forward-looking statements are detailed in today's press release and the company's SEC filings.

In addition, the company's presentation today includes information presented on a non-GAAP basis. The company defines adjusted EBITDA as income from operations exclusive of completed acquisition-related costs and non-cash charges for depreciation, amortization and stock-based compensation. The company believes these non-GAAP financial measures provide meaningful supplemental information regarding its operations. We refer you to the press release the company issued this morning, which is available on the company's website, for a reconciliation of the differences between the non-GAAP presentations and the most directly comparable GAAP measures.

With us from management today are Tarang Amin, President and Chief Executive Officer; and Joe Baty, Executive Vice President and Chief Financial Officer. It's now my pleasure to turn the call over to Tarang. Please go ahead, sir.

Tarang P. Amin

Thank you, Becky, and good morning, everyone. We're pleased with our fourth quarter and fiscal year 2012 performance as it reflects strong execution against our growth strategy. In the fourth quarter, net sales grew 30%, driven by a 59% increase in our branded business. Gross profit margin grew 1,100 basis points to 49.5% and adjusted EBITDA increased 66%, reflecting progress building premium brands, leading innovation, expanding the channel and geographic footprint of the company, pursuing acquisitions and driving world-class operations. Our probiotics and Airborne acquisitions added to the strong contribution of our core brands, MegaRed and Move Free.

For fiscal 2013, we are committed to growing our portfolio of leading brands through continued innovation and excellent execution. Now I'll provide a brief update on our recent progress.

Our first strategy is building premium brands. At the beginning of fiscal 2012, we significantly increased our investment in selling and marketing. We believe that the category and our leading brands are better served to advertising innovation rather than by the deep price discounts, which are prevalent in our industry. Throughout the year, this strategy drove strong growth in our business. The fourth quarter continued this trend with our branded business up 59% versus a year ago. We grew all key brands, and we can see the correlation between our brand-building efforts and business results.

This quarter, we started a new Move Free marketing campaign, Healthy Joints Move Free. We've integrated the campaign across multiple consumer touch points, including television, print, digital, in-store and any website. Early results from this effort are promising. Similar to Move Free, we will continue to refresh each of our key brands. We've also integrated Airborne, which we acquired March 30, into our existing brand infrastructure. We're gearing up the marketing for Airborne and look forward to apply the same brand-building capabilities that we've used with our other brands.

Our second strategy is leading innovation. The best way that I know to build premium brands is to lead the innovation in our categories. In fiscal 2012, we did just that. MegaRed Extra Strength, which provides 500 milligrams of our MSC-certified krill oil and Move Free Ultra, which provides joint care in the smallest pill available on the market, both led innovation in their categories. Progress continued in the fourth quarter. For example, we expanded distribution for MegaRed Extra Strength to all Costco Club stores. Our innovation team continues to build and expand a robust product pipeline across each of our brands.

In addition to product advances, we continue to augment our industry-leading Scientific Advisory Board. When we announced the Airborne acquisition, we set the goal to bring on a leading expert in immunity. During the quarter, Dr. Martin Blaser, Chairman of the Department of Medicine at New York University Medical Center during their SAB [ph]. Dr. Blaser is one of the world's leading experts on immune support, and we look forward to collaborating with him.

Our third strategy is expanding the channel and geographic footprint of the company. Our most important focus is to help grow the category for our retail partners. This fiscal year, we achieved significant expansion of distribution at many of our customers. We also participated for the first time in many of their key theme promotions, securing better display and feature support. Our efforts resulted in accelerated sales growth for our brands, with lower levels of price discounting.

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