Hain Celestial (NASDAQ:HAIN) filed a 10-Q late Friday disclosing it will miss the 2-9-17 deadline for filing financials.
Equally or even more damaging, the company also disclosed it is under a formal SEC investigation. See the excerpt from the 10-K below.
Separately, the Company voluntarily contacted the Securities and Exchange Commission (the "SEC") in August to advise it of the Company's delay in the filing of its periodic reports and the performance of the independent review conducted by the Audit Committee. The Company has continued to provide information to the SEC on an ongoing basis, including, among other things, the results of the independent review conducted by the Audit Committee as well as information regarding the matters described above. The SEC has issued a formal order of investigation and, pursuant to such order, the SEC issued a subpoena to the Company seeking relevant documents. The Company is in the process of responding to the SEC's requests for information and intends to cooperate fully with the SEC.
That creates a big problem for investors hoping for a buyout. We could be looking at survival of the company rather than a takeover at a premium.
All bets are off that the problems were contained to "certain distributors" as the company originally framed the problem in August.
You can bet the company knew about this investigation in August or soon thereafter. So disclosing now, one day before the SEC deadline for an extension seems a bit suspect. Not to mention the play on words in the completion of audit press release, which had many investors thinking it had a clean bill of health. The company publishing press releases of random product launches and other initiatives every week or so also helped soothe the minds of the bulls. Bulls then, possible class action lawsuit participants now.
Anyone who has been burned on an earnings delay due to accounting issues knows to never take what a company says at face value. They never ever come out and say our books are cooked. As we mentioned in August, the bad news never comes out all at once.
HAIN faces a default with lenders if it cannot produce financial by 2-27-17.
See the excerpt from the Second Limited Waiver & Extension granted by the lenders.
The Waiver provides that the Required Lenders waive compliance with the affirmative covenants set forth in the Credit Agreement regarding timely delivery of the Company's financial statements, projections and other related documentation (collectively, the " Financial Deliverables ") to the Administrative Agent, until February 27, 2017. Failure by the Company to deliver the Financial Deliverables to the Administrative Agent on or prior to February 27, 2017 shall constitute an immediate event of default under the Credit Agreement.As of June 30, 2016, there were $828 million in borrowings under the credit agreement, which included the Company utilizing its revolving credit facility to redeem its $150 million of senior notes as well as the $114 million acquisition of Orchard House Foods in December, 2015. The $828 million compares to $660 million of revolving credit and $150 million in senior notes in the prior year period. The Company had $128 million in cash from its worldwide operations at June 30, 2016.
In 10 days, the company will have breached the financial covenants (if not already if you read the entire extension) with its lenders. Not a good thing. That is when a company can go from bad to toxic as the credit ratings get slammed.
While having a short position already in place, the feel to this situation is a confident one. Especially when you go back and read years of past conference call transcripts and interviews with the CEO. You can see the tone progressively fade from exuberance to one of more caution.
Could it be having a short position lends itself to comprehending the dataset a bit skewed?
Time will tell.
Disclosure: I am/we are short HAIN.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: Added to existing short position 2-6-17 consisting of puts Feb-April expiry.