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Diamond Foods (NASDAQ:DMND)

Q3 2013 Earnings Call

June 10, 2013 5:45 pm ET

Executives

Linda B. Segre - Senior Vice President of Corporate Strategy and Human Resources

Brian J. Driscoll - Chief Executive Officer, President and Non-Independent Director

Michael Murphy - Interim Chief Financial Officer and Principal Accounting Officer

Analysts

William B. Chappell - SunTrust Robinson Humphrey, Inc., Research Division

Thilo Wrede - Jefferies & Company, Inc., Research Division

Brett M. Hundley - BB&T Capital Markets, Research Division

Kenneth B. Zaslow - BMO Capital Markets U.S.

Timothy S. Ramey - D.A. Davidson & Co., Research Division

Operator

Good day, ladies and gentlemen, and welcome to the Diamond Foods Third Quarter Fiscal Year 2013 Earnings Conference Call. Today's conference is being recorded. [Operator Instructions] At this time, I'd like to turn the conference over to Miss Linda Segre. You may begin.

Linda B. Segre

Thank you, Keith. Good afternoon and welcome to the Diamond Foods investor conference call and webcast to review our financial results for the third quarter of fiscal 2013. We had a technical glitch with the uploading of our press release and apologize for the delay of our call. On today's call are President and CEO, Brian Driscoll; and Interim CFO, Mike Murphy of AlixPartners.

Before we begin, please remember that during the course of this call, we will make forward-looking statements within the meaning of the federal securities laws. These forward-looking statements involve risks and uncertainties regarding the operations and future results of Diamond Foods.

In addition to the company's periodic, current and annual reports filed with the Securities and Exchange Commission, please refer to the text of our press release for discussion of the risks associated with such forward-looking statements.

Finally, please note that on today's call, we will refer to certain non-GAAP financial measures, in which we exclude from our GAAP financial results certain items such as plant closure expenses, impairment of an intangible asset, consulting fees and legal expenses. We will also refer to adjusted EBITDA on today's call. For a calculation of this measure, please refer to our press release. We believe these non-GAAP measures will provide useful information for investors. Please refer to today's press release.

Now I'd like to turn the call over to Brian Driscoll, our President and Chief Executive Officer.

Brian J. Driscoll

Thank you, Linda, and good afternoon, everyone. Before commenting on our third quarter performance, I wanted to remind you of our 4 key strategic initiatives, which are: Sustainable organic brand growth and innovation over time; fixing Emerald with emphasis on our more premium competitively insulated items; reducing our cost structure while optimizing our operational effectiveness; and rebuilding Walnut supply. We remain focused on these initiatives and we'll touch on each during this call.

Our third quarter financial results reflects significant increases in gross profit, gross margin and EBITDA versus last year and demonstrate continued progress against our cost reduction and net price realization efforts. While we still have difficult and important challenges to tackle, we continue to track towards an operating model that enables sufficient investments in innovation, brand development and consumer support, investments necessary to fuel profitable brand growth over time.

Now turning to our segment performance beginning with snacks. We achieved a solid 780-basis point margin expansion driven primarily by processing cost savings and continued improvement in net price realization. More specifically, Snacks segment gross profit increased 31% to $36.7 million or 35.2% in net sales for the quarter compared to $28.1 million or 27.4% of net sales in the prior year. Snacks segment net sales increased 1.6% to $104.2 million on a 5.5% volume decrease. This performance includes: Continued planned reductions, promotional spending and commensurate increases in net price realization on both Pop Secret and Kettle.

Regarding our U.S. Kettle business, although mainstream retail market share was down about 50 basis points, the brand has exhibited strong growth in the natural channel, gaining 260 basis points of market share in the past 12 weeks as measured by spend scanner data, improving to a 60.1% market share level. We view this growth as an encouraging sign, especially considering how mature the brand is in the natural channel. Going forward, we believe the momentum we have experienced in the natural channel can extend to mainstream retail channels as well when supported by a more robust innovation pipeline and a proved consumer support activity. Also, we estimate that most of the historical, inefficient promotional spending will be cycled through by October of this year.

In the U.K., we have also been focusing on cost reduction and improved net price realization. As a result, we've begun increasing our brand equity support and our innovation pipeline. Our market share remains steady in a growing category despite heavy competitive spending.

Our Pop Secret brand has continued to perform well. Increased investments in consumer support coupled with surgical distribution gains have helped drive market share improvement of 140 basis points in the latest 12-week Nielsen reporting period. We intend to continue strengthening our brand development efforts on the Pop Secret base business while simultaneously developing new platforms to launch in faster growing and adjacent segments.

Transitioning to our Nut segment. Net sales versus last year decreased 23.2% to $80.7 million on a 40.3% volume decline. This decline was driven primarily by the continuing effects of our Emerald SKU rationalization effort and the planned reductions in Emerald promotional spending. Gross profit increased 9% to $6.7 million or 8.3% of net sales compared to $6.1 million or 5.8% in the prior year. This improvement is primarily a result of Emerald net price realization and continued manufacturing productivity. It's important to note that our nut margin results in the quarter were negatively impacted by walnut commodity cost increases for which our year-to-date cost estimate adjustment was made in Quarter 3.

Getting back to Emerald. Our transformation efforts are still in the early stages. While we've improved net price realization, eliminated the least profitable SKUs and effectively transitioned production to our Stockton plant, the critical next step of relaunching the brand has not yet occurred but is fast approaching. With the development of a new and impactful brand positioning approach, new packaging, new offerings and a pricing architecture that is not discounting dependent, we are gearing up for a relaunch this summer. It's difficult to predict the timing of Emerald's change in trajectory, however, we have now lapped most of the significant promotional spending and we'll begin cycling our SKU reduction work in November. All told, while challenges remain, we believe the Emerald relaunch is promising.

Turning to walnut supply. The contracting process with growers will continue till the end of July. We are seeing positive signs from the grower community, but it's difficult at this stage to determine if these positive sentiments will translate into an increase in supply in the short term. That said, the work we have done to provide contract terms, services and pricing to growers that are competitive with alternatives they may have appears to be resonating. We continue to take the long view on walnut supply. As I've indicated before, it will take time to rebuild our position but doing so can produce attractive long-term economic benefits to Diamond.

Additionally, like other nut varietals, we believe that there's strong snacking potential to be exploited with walnuts and that we'd like to improve our supply position to give us flexibility to develop product innovations outside of our core culinary line.

The road to quality growth for this company is through investment in innovation and brand support, enabled by a strengthened growth margin profile. To that end, our cost reduction efforts have delivered approximately $15 million of improvement fiscal year-to-date. And we are on track to see another $20 million to $25 million in the next 12 to 15 months. The cost savings have allowed investments in advertising and critical resources across our category, innovation and R&D teams. Our new product pipeline is not ready for prime time yet, but I'm encouraged by the development progress.

Let me now take a few moments to give you our view of Diamond's financial performance for the final quarter of this fiscal year. As we described in our second quarter call, we expect the top line to be down more in the back half than in the first half as compared to prior year. We still believe that so expect sales to be down more comparably than we saw in this quarter driven primarily by expected declines in the Nuts segment. Our gross margin has been fairly consistent this year and we expect the fourth quarter to be roughly in line with our performance so far.

We also expect to see an increase in advertising spending in the fourth quarter as compared to the same period last year as we begin to execute against our targeted Kettle consumer acquisition effort, and continue to support Pop Secret.

Before I turn the call over to Mike, I want to mark another important step for the company -- the hiring of a permanent CFO. Ray Silcock will be joining Diamond Foods effective tomorrow. Ray brings over 30 years of financial experience in the food and consumer packaged goods sector with 13 of those years as a CFO. Ray has a great sense of Diamond with strong and relevant experiences to help drive our company forward. We are very pleased to have him on our team.

I'd also like to thank Mike Murphy of AlixPartners for his service over the past 16 months in his capacity as Interim CFO. Mike and his team have been terrific partners, helping us affect the revitalization of the company.

With that, I will turn it over to Mike to discuss our financial results in more detail. Mike?

Michael Murphy

Thanks, Brian. As Brian mentioned, our net sales, margin and profitability expansion this quarter reflects progress we are making in increasing net price realization due to cost reduction. The company has increased both gross profit and adjusted EBITDA in dollar terms and as a percentage of net sales.

So with that overview, I'll go through our consolidated financials in more detail. Consolidated net sales during the quarter decreased by 11% to $184.9 million compared to the same quarter of the prior year driven by the decline in our Culinary Nuts segment. Consolidated gross profit increased 27% to $43.4 million this quarter or 23.4% of net sales as compared to $34.2 million or 16.5% of net sales in the prior year. The 690-basis point expansion in gross margin was primarily due to improved net price realization and reduced processing cost.

On a GAAP basis, SG&A increased to $35.3 million in the quarter from $33.3 million last year. On an adjusted basis, SG&A expense declined about 10% compared to last year with adjusted SG&A of $22.5 million this quarter or 12.2% of net sales as compared to $25 million last year or 12% of net sales. These adjusted figures exclude certain expenses, which are outlined in our press release. The company isn't focused on reducing controllable SG&A spending to counter investments in advertising and our innovation and category business teams, some of which are early in their buildup stage.

Advertising expense was $8 million or 4.3% of net sales in the third quarter compared to $7.2 million or 3.5% in the prior year. The increase in advertising expense reflects investments in programs related to Kettle and Pop Secret, as well as the shift in timing of advertising spending from earlier in the fiscal year, which we'll expect will result in higher spend in our fourth quarter. As we have noted previously, the Oaktree warrant is accounted for as a derivative liability and therefore is remeasured at fair value every reporting period. In the third quarter, the company recognized a $1.9 million noncash loss on the warrant due to changes of fair valuable of the warrant between January 31 and April 30, 2013.

Net interest expense was $14.5 million in the third quarter of fiscal 2013 compared to $7.7 million in the same period last year. This interest expense includes certain noncash items such as paid in kind interest on the Oaktree notes and amortization of capitalized fees.

On a GAAP basis, the tax benefit was $840,000 for the third quarter. Because the company continues to be in the cumulative gap loss position, we do not recognize deferred tax benefits thereby creating evaluation allowance. On a non-GAAP basis, the third quarter resulted in a tax benefit of $2.8 million. The third quarter benefit is comparable to the $2.7 million tax benefit in the second quarter because the non-GAAP pre-tax loss was similar in both periods. The 9-month year-to-date non-GAAP tax benefit was $2.5 million.

The company had a GAAP net loss of $15.6 million compared to a net loss of $44 million last year. GAAP-diluted earnings per share was a loss of $0.71 compared to a loss of $2.02 in the prior year. On a non-GAAP basis, Diamond earned $1.1 million of net income or $0.05 per diluted share in the quarter. This compares to a loss of $4.9 million or $0.22 per share in the prior year.

The non-GAAP fully diluted EPS calculation for the third quarter includes 1.6 million shares related to the Oaktree warrants based on the treasury stock method. Based on the performance we discussed, adjusted EBITDA expanded to $23.2 million in the third quarter, up from $11.2 million last year. Adjusted EBITDA margin as a percentage of the net sales was 12.6% compared to 5.4% last year.

Capital expenditures were $2.1 million for the third quarter of fiscal 2013. As of April 30, 2013, net debt outstanding was $577.8 million on a GAAP basis with the Oaktree debt at its carrying value as described in our 10-Q.

Cash and availability on Diamond's bank line of credit on June 7, 2013 was approximately $96 million. As reflected in the credit agreement, our bank revolver capacity will decline from $255 million to $230 million on July 31 and $280 million on January 31, 2014. Our senior leverage ratio, which is calculated by dividing our senior debt by a trailing 12-month EBITDA was approximately 4x as of April 30, 2013. However, due to our grower payments in May and June, we expect this ratio to rise in the next quarter.

As of October 31, 2013, our senior leverage ratio must be below the covenant of 4.7x. As a reminder, this leverage ratio excludes the Oaktree debt but includes all of our other indebted debts including capital leases. Our fixed charge coverage ratio as of April 30 was in excess of the 2x ratio covenant that will begin on October 31.

Switching to the Oaktree debt. The call premium increased from 101% to 112% on May 29. Over the past year, we went through a thorough evaluation of options to refinance the Oaktree debt prior to the increase in call premium. It concluded that the potential options available were not attractive from a shareholder value perspective. And we'll certainly continue to evaluate our capital structure and opportunities to refinance.

I'd like to take a few minutes to discuss the restatement of our Q2 diluted gap EPS from which we'll file a 10-Qa shortly. As we announced in the third quarter, we changed auditors and as part of this transition, an issue was identified related to the treatment of warrant accounting for the non-cash gain and its impact on diluted EPS. It was determined that GAAP requires that the gain on the warrant liability be excluded from net income and the diluted earnings per share calculation. This correction only relates to the 3- and 6-month periods ending January 31, 2013 and does not affect any other periods. This correction of diluted earnings per share has no impact on net income, basic earnings per share, non-GAAP EPS or adjusted EBITDA.

With that, we'd like to open the call for questions at this time.

Question-and-Answer Session

Operator

[Operator Instructions] We'll take our first question from Bill Chappell with SunTrust.

William B. Chappell - SunTrust Robinson Humphrey, Inc., Research Division

I guess, going to the grower contract and shipments, I think we're 2 out of 3 tranches into it and you've got to be pretty close unless everybody comes to the final day on the third tranche so is there any more color you can give us in terms of what the contracts do look like? Or what percentage you've seen come through? Or anything that kind of gives us a little more comfort?

Brian J. Driscoll

I would say that the first 2 tranches were about what we expected them to be. The third is a rather significant one. It's a large one. We are encouraged by what we're hearing but until I have a contract, Bill, it's just impossible for me to -- I would just be speculating. But we believe our message has been resonating. We believe that we've approached this in a way that our growers have responded well to. And we'll just have to wait it out to see where we land. That's about the best I can give you.

Michael Murphy

I guess the other feedback, though, is the -- now we've gone through our new -- how we price and cost our walnuts to the grower. We've gone through 2 cycles of that, or 2 years. Really good feedback from that, from the growers that we have retained, the growers that have delivered, and the growers we're talking to, to kind of rejoin Diamond, as well. We've seen our positions be very proactive in the market and good feedback from the growers in some of our competitors.

William B. Chappell - SunTrust Robinson Humphrey, Inc., Research Division

Okay. And then switching to Snacks. I guess, trying to understand what gives you or try to give more color on what you're talking about in terms of that Kettle share in the natural organic channel versus the traditional channel? Why there's such a discrepancy? And then maybe, why do you think it will bounce back anytime soon when -- I think you've talked before that it was a ways off before we see meaningful new products in the inventory -- I mean, in the R&D pipeline, really push out stuff?

Brian J. Driscoll

Sure, good question. I think the historical emphasis on promotion was greater in mainstream channels than it was in the natural channels. And so the base from which we're operating in natural channels is different. And I think more reflective of the strength of the base business. The mainstream channels of as you know, and we've reported before, there was a great degree of emphasis placed on expansion and discounting. So we anticipate to be -- for the most part, cycled out of that by October. And so then we'll have more of a level playing field, if you will, or a base from which we think we can grow. But that's really the underlying differential between natural channels and mainstream. Then we believe that the progress we've seen in natural channels is a very good reflection on this brand. And so we -- around the second quarter or so, we hope to see the trajectory begin to change.

Operator

We'll take our next question from Thilo Wrede with Jefferies.

Thilo Wrede - Jefferies & Company, Inc., Research Division

I was hoping that maybe you could provide a little bit more insight on why any options to refinance the Oaktree debt wouldn't have been in the interest of shareholders?

Michael Murphy

Yes. There were some advantages to the Oaktree features of their acquisition in their facility and we were allowed to pick the interest. So we wanted to have something that's comparable especially as the company is going through its restructuring, making sure there's a lot of runway room for the company to rebuild walnut supply and effect the continued improvement in the margin of the brand. We weren't interested in anything that was going to be dilutive to shareholder value. And then, have to have an even -- something that would have tighter covenants for us as we continue to kind of show progress there. The issue was more of a potential view of dilution and we felt we want to give credit for the performance we're putting in place. And we think we'll be able to show as we go-forward in the next couple of quarters.

Thilo Wrede - Jefferies & Company, Inc., Research Division

Okay, and then there seems to be a disagreement between you and the SEC on the level of disclosure. There seems to be pushing back pretty steadily there. Why such a hard pushback? Why not provide more disclosures or more information?

Michael Murphy

I'm not sure I follow you on the SEC part of it.

Thilo Wrede - Jefferies & Company, Inc., Research Division

So the SEC released several letters last week between you and the agency on basically comments on your filings. And reading those letters, to me, it sounds like the SEC just wants more information and more write-down, be it on a revenue or a margin base. And you don't seem to agree with the SEC. So I was just hoping you could maybe shed some light on why providing more information would be confusing to shareholders. Why that wouldn't be in the interest of shareholders?

Michael Murphy

Yes, you have to -- that part, what you're talking about doesn't make sense there. I think the only comment letters we got from the SEC where we previewed them with our segment reporting, there was good feedback and dialogue with them on the answers on the segment reporting, but the other items you're referring to doesn't ring a bell for us.

Thilo Wrede - Jefferies & Company, Inc., Research Division

Okay. And then last question I have for you. Brian, you talked about the robust Kettle innovation pipeline. I haven't seen the new flavors out in the market yet. Can you maybe give us a little bit more idea what the timeline is? And just a little bit more color on the Kettle innovation plan?

Brian J. Driscoll

Yes. So the first ship on the new varieties is in August. But I view that more as normal course innovation and certainly not my definition of robust. We hope to see the more leading edge innovation in the back portion of fiscal '14, but we'll continue to invest against our new marketing campaign strategy, which we believe has legs, we'll continue to refresh the line, which is what this flavor variety innovation does. And believe that the steps we're taking will begin to set the brand in the direction we wanted to go and as we prepare for the launch of a bigger and better things in the back half of the year.

Operator

We'll take our next question from Brett Hundley with BB&T Capital Markets.

Brett M. Hundley - BB&T Capital Markets, Research Division

So back to Kettle. If you can just jump across the water and talk about your U.K. business and you noted innovation there and spending that you're doing behind the brand there. I was wondering if you can talk to profitability in the U.K. and kind of how that's trending or how you see that moving?

Brian J. Driscoll

We don't report Kettle or the U.K. independently but I can say that the business is progressing well. The investment strategy appears to be building some momentum and we're satisfied with the -- or we're pleased with the progress.

Brett M. Hundley - BB&T Capital Markets, Research Division

Okay. And then, I guess, maybe if you can just talk to just broadly, the headway that you've made on margin and that you are making. And again, just broadly, if you can talk to scenarios that you need to see fall into a place to allow normalized margins across your varying brands kind of get in place and continue that way.

Brian J. Driscoll

It's the translation of the improvement in that margin profile and the spending against high traction activity. It's kind of a virtuous cycle. So you improve your net price realization, you cost reduce as we've been discussing, you reinvest in high traction, hopefully, margin accretive activities and then that begins to build on it's self over time. It's a pretty straightforward model. I would say that the areas of risk we've talked about with that of course, is the traction on Emerald is still unknown. We believe that the first phase of that has been quite successful for us but we've not relaunched it yet. So success in reinvesting there is critical. I would say that our ability to take advantage of these cost savings to really improve the trajectory on our snacks line will be critical and, of course, on improvement of walnut supply.

Brett M. Hundley - BB&T Capital Markets, Research Division

Okay, and your commentary on your grower base is good to hear, I know it's still early, it's good to hear. But from an industry standpoint, when you take a look at walnut inventories and where they were on Jan 1, and you look at total shipments that have taken place to date, I would expect that April 1 inventories are going to be in fairly good shape year-on-year and so anyway, I was just curious to get your viewpoint on what you're seeing as potential for bearing acreage coming up here, production coming up here during 2013 and kind of how supplies can shake out from an industry standpoint as we move into calendar '14?

Brian J. Driscoll

Well, it's still early in the growing process as you know. I think there's been some discussion of weather up north, but you're always going to get various incendiary feedback on conditions at this stage, just premature to say. I would expect or believe that we may see comparable levels of the hardest levels this year, but it's really difficult to say at such an early stage.

Brett M. Hundley - BB&T Capital Markets, Research Division

Okay, and then just one more. You noted difficult and important challenges to tackle in the press release. You noted in your prepared remarks and I guess, I'd like -- just like to get an idea of maybe what you place internally on maybe your most difficult or important challenge from here on out? And kind of how you address that?

Brian J. Driscoll

This walnut supply and it's the Emerald relaunch. Those are the 2 most difficult and important challenges we face. Now of course, we face opportunities and challenges across the business system but those 2 would be the most significant.

Operator

Our next question from Ken Zaslow with BMO.

Kenneth B. Zaslow - BMO Capital Markets U.S.

Can you tell me about the relaunch of Emerald? Like, an example, what are you going to do? How are you going to support that? And what the progression is? That's how you look at that?

Brian J. Driscoll

So we're not prepared to give specifics only because I don't want to get too much specifics to my competition. But we are -- we're trying to launch it in a way that is far more consumer equity inspired as opposed to discounting dependent. I think you've heard those words from my mouth before. We're trying to do this in a way that emphasizes those offerings that are most unique in the category and provide us with the best potential for margin improvement on the brand, like any ideas to create an array of items that have some insulation and provide us with the opportunity to, hopefully over time, get more snack-like margins. And -- so that's been the approach. You will see -- hopefully, the effects of this beginning this summer when we relaunch. But we won't be cycling out of the SKU reduction work until November but you'll begin to see signs of it in the market in late summer.

Kenneth B. Zaslow - BMO Capital Markets U.S.

Okay. My next question is, in terms of -- for a company to get better valuations, the idea is kind of timing the range of variability of earnings outlook. If you look out 2014, the outlook is quite varied among the analysts. So my question to you is, assuming a comparable level of crop next year, can you give us some framework to think about 2014?

Brian J. Driscoll

In terms of crop receipt?

Kenneth B. Zaslow - BMO Capital Markets U.S.

No. In terms of sales outlook, margins, any sort of framework that you could start to think about that we can -- the variance is over $0.70 for next year and obviously, it depends on what you guys are doing internally more than external factors. So you guys probably have a much better idea of what can happen in 2014 than we do. So just trying to think about how we should think about the margin structure. I think I know exactly what it is, but where do you think of the -- what type of sales growth, what are the variabilities with your opportunity to generate the sales growth? Can you just give us some...

Brian J. Driscoll

Yes. I think on snacks, we'll begin to -- hopefully, we'll begin to see some signs of a change in trajectory in the back half of the year. Of course, top line on Nuts is very difficult to predict at this stage of the game because of the success of the Emerald turnaround is critical and we really don't have yet a number on walnut crop receipt. I will tell you from a margin perspective, our view is that we'll continue to make progress and improve upon our margin profile from this year. And that the majority of that will be spent back against the business. We'll also continue to be working on cost reduction and net price realization. I think that's an always continuing process. But as I mentioned, we look to achieve another $20 million to $25 million in savings over the next 12 to 15 months, and we continue to find ways and look for ways to improve our operational effectiveness and efficiencies.

Kenneth B. Zaslow - BMO Capital Markets U.S.

What will you let drop to the bottom line? If you're going to reinvest the margin expansion opportunities, will you lose less than a $25 million drop? What will you let drop to the bottom line?

Brian J. Driscoll

It would be some -- probably, the majority of the $20 million to $25 million we will be putting back into the business. And again, as I said, this is an uneven and imperfect process. A lot depends on the traction we achieve on our new campaign efforts, innovation and new products. So -- and a lot is dependent on the success of Emerald as well. But our going-in view is that we would be reinvesting most of that $20 million to $25 million back into the business. And again, the idea is to create this virtuous cycle, to invest in propositions that are hopefully over time going to be margin accretive, that build on themselves over time to produce the kind of model that will be attractive longer term, as opposed to just taking cost savings to the bottom line and not creating that brand-based traction.

Operator

We'll take our next question from Tim Ramey, Davidson.

Timothy S. Ramey - D.A. Davidson & Co., Research Division

Just a little further on the potential for refinance or the decision not to go ahead with one. I'm assuming when you're talking about dilution, you're talking about equity options that would have included some form of equity or warrants or converts or something. Was there not a junk bond option available to you? And...

Michael Murphy

Let me give you a little perspective. Obviously, a lot of ideas addressed by the company, a lot of ideas or parties were presenting to the company. One item on that is, a lot of them didn't have equity-like features to them. Obviously, we do want to take the Oaktree interest rate out. There's a time to do that, but we didn't want to hit until -- also a cycle where we had to do 2 or 3 potential transactions. So any savings would be eaten up in fees and you'd still have other structure until we remove some of our uncertainties that has a similar rate and feel of the Oaktree facility. So we said, based on all that, we don't want to give up any value for this and we want credit for all the value we're building, and whatever time and place to affect the right capital structure for it.

Thilo Wrede - Jefferies & Company, Inc., Research Division

Okay. I guess, let me just ask the question one more time. Was there a junk bond option available? Or was that option -- was closed?

Michael Murphy

We didn't have a negative implication on the shareholder value.

Operator

At this time, we have no further questions in the queue. I'd like to turn the conference back to Ms. Linda Segre for any additional or closing remarks.

Brian J. Driscoll

This is Brian. I described our 4 key strategic initiatives at the start of the call. We remain committed to these initiatives and view this quarter's performance as a reflection of continuing progress to revitalize the company and get us back in a growth path that is sustainable and profitable. This path must be built on a platform of innovation that delivers distinct value to our consumers and retail partners. We are sharply focused on this direction forward. Thank you again for joining us today. At this time, we'll conclude the call.

Operator

Ladies and gentlemen, this concludes today's conference. You may now disconnect.

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