Q4 2020 Whole Earth Brands Inc Earnings Call
Good morning, and welcome to you all Earth brands fourth quarter, and full year 2020.
Conference call all participants will be in a listen only mode.
After todays presentation, there will be an opportunity to ask questions.
Please also note that today's events are being recorded at this time I would like strength here in the conference over to Jess Sonic Investor Relations at ICR. Sir. Please go ahead.
Thank you and good morning.
Today's presentation will be hosted by Albert Man zoning, Chief Executive Officer, and Andy Rooney, Chief Financial Officer.
Executive Chairman Irwin Simon is also participating on the call today and will be available for Q&A. The comments during today's call and the accompanying presentation contain forward looking statements within the meaning of the safe Harbor provisions of the private Securities Litigation Reform Act of 1995.
All statements other than statements of historical facts are considered forward looking statements.
These statements are based on management's current expectations and beliefs.
Well as a number of assumptions concerning future events.
Such forward looking statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from the results discussed in the forward looking statements.
These risks and uncertainties are identified and discussed in the company's filings with the SEC.
We'll refer to certain non-GAAP financial measures. Please refer to the tables included in the earnings release, which can be found on our Investor Relations website investor that whole Earth brand Dot com for reconciliations from non-GAAP financial measures to their most directly comparable GAAP measures with that I'd now like to turn the call over to Albert <unk>.
CEO.
Thank you, Jeff and good morning, everyone.
Reflecting on our 2020 performance I am extremely proud of our team and the pace of execution since our business combination at the end of June 2020.
We delivered a strong finish to 2020, we for quarter consolidated net product revenue growing eight 5% on a constant currency basis.
Brendan CPG business is a particularly strong quarter growing 12% on a pro forma constant currency basis with market share gains in the natural category across the work.
With two significant acquisitions, nor for seven months since going public.
We have already reached 500 million run rate revenue and significantly strengthen our market position.
Looking ahead, we're making great strides toward our vision of enabling free peer lifestyles and providing access to high quality print based sweeteners.
<unk> sensors and over foods for R&D.
<unk> portfolio of trusted brands and delicious products in a $30 billion addressable market of sweeteners and natural the baking mixes.
We believe we're well positioned to compete in this growing market. Thanks, the following key drivers for.
First our addressable market with the best reported you're sweeping or category are sustainable secular tailwind.
Our branded CPG portfolio.
To be able to take advantage of even though our novelty products distribution strength.
The web scale.
Second.
The additions of squared and hold some significantly strengthened our leadership position in.
Integration of both is proceeding as planned.
Third we said healthy balance sheet, a clear vision for our future and an exceptional team. We believe we can achieve sustainable growth for brand building innovation increased market penetration in the U S and globally I worked cash supply chain and an exceptional team.
Starting from the foreign addressable markets. Our business is in line with powerful long term secular forces around health and wellness as people identifying solutions that helps them achieve circles.
In fact, nearly half of consumers are looking for ways to Cook Elsevier.
We saw broad assortment of leading brands, coupled with innovation that allows sugar substitutes for beverage consumption and baking.
Laser accounts for 50% from sugar consumption globally, we believe strong consumption growth will continue for years and decades to come.
Our ability to address these powerful trends was further bolstered by our recent acquisition of square in whole or something.
Which has transformed our presence in the market doubling our north American market share and enhancing our mix of natural sweeteners, which now makes up.
88% for for North American branded CPG segment revenue.
Each of our key North American natural sweetened your brands whole her sweeteners and newly acquired square and whole some brands.
We'll realize significant consumption growth in 2020.
Whole Hawkins for.
More than 40 per cent whiteboard, some were nearly 21% all of which significantly outpaced the category average of 12%.
Additionally, our equaled brand are performed each respective category average as well with 10, 9% consumption growth.
We believe our advantage branded CPG portfolio will continue to de lever high quality growth.
Our integration from this work and hold some acquisitions are proceeding well.
We have growth key personnel on board from those organizations to maintain continuity and help build out our organizational capabilities.
We have already action, he commercial supply chain and back office initiatives, including significant wins in ACB expansions at key retailers with existing products and innovations.
Moving now to our vision for the future.
We've put together and deliberate portfolio of quality assets and brands in it.
Attractive categories and growth geographies to form the foundation from which we will grow to create a significantly larger and good for us.
For that we.
We will deliver on our key growth pillar.
Our first Peter is brand building.
We're leveraging our world class consumer insights and marketing team to continue to drive awareness for our brands and increase household penetration in the U S and around the world.
You will see several initiatives targeted at those very objectives in the months ahead.
Our second pillar is innovation, we plan to continue to the need for about 15% of our product revenues from innovation on a per year loading basis, we have a competitive advantage. We have six new centers focused on advancing innovation and development across the globe.
Natural baking added benefits and Adjacencies.
For example, we're excited by the launch a whole new baking ingredients utilizing innovative ingredients, such as Iran for cool monk fruit and animals.
In 2021, we're planning to launch over 45, new products in our branded CPG segments.
Our third pillar is growing distributions our expanded portfolio of brands significantly improves our shelf presence in D. C. D C. We for retail customers.
They are ECB for whole or sweeteners and wholesome is only in the twenties wife's word is at approximately 55 per cent.
We are already bringing the power of our portfolio to bear in the marketplace, we saw retail relationships to increase distributions.
Each brand is inherent advantages in the natural channel traditional grocery retailers mass club and E Commerce.
For those inherent brand advantages, we can leverage our power of one to the benefit of our older brands.
In addition, we see opportunities for swerve in whole some key debt.
International markets, leveraging our existing organization.
Yeah.
We also see an opportunity to enter new international markets, including India, and China, We have a higher top talent in each of those markets and our intent to capture a share of the $2 7 billion consumers.
Average <unk> are already well known brands across various distribution channels.
Or for Peter is manufacturing and distribution.
Our supply chain.
To be a competitive advantage for all our brands and will allow us to drive topline revenue growth margin expansion and generate cash flow.
Our priorities are to compete for flavors and ingredients for manufacturing footprint optimization in 2021 and begin the reinvention of our branded CPG North America supply chain to leverage the combined assets of Poland ranks square and the whole system.
Our fifth and last pillar is our world class team.
The team has strong operational competencies and Genie team and passion.
Cross all brands all regions and all functions.
Moreover, this is a highly scalable organization with global resources in place to expand our presence in new and existing markets.
Turning to our flavors and ingredients segments.
Despite certain COVID-19 headwinds that impacted our flavors and ingredients segment in 2020, we expect the business to continue to produce strong operating income driven by our diverse end markets.
As I mentioned last quarter, we had new leadership structure in place. It is establishing a growth oriented focus to drive the segment's future performance.
We recently launched 15, new products and there are Mac now family that better interest the unique needs of our customers across the diverse end markets net we survey.
This includes consumer package goods over the counter health care as well as beauty and personal care products.
We're enthusiastic about the broadening of our existing portfolio and the bound of customer centric innovations that we're bringing to the market.
In April of this segment that meant a significant global leadership position.
We also continue to make progress on the footprint optimization project that is underway. This initiative will provide us with significant operational advantages for our platform and we look forward to delivering the planned financially benefit in 2021 and 2022.
As we pursue our growth objectives to reach 1 billion of revenue, we intend to continue our penetration of the base or for use within our category.
Over time, we intend to expand into adjacencies in the sweetener and over sweep categories, which includes vertical such as chocolate bars.
Bars jams and spreads.
M&A remains an important component of our long term growth strategy, but in the near term we're focused on organic growth efforts and integration plans and generating free cash flow to reduce our balance sheet leverage.
With that.
Andy will talk you through the financial details our outlook for 2021 and provide some additional details on our long term growth framework.
Thank you Albert and good morning to everyone. As a reminder, for those new to our company our consolidated financials reflect both predecessor and successor periods indicative of the June 25, 2020 business combination day.
Our fourth quarter results that I'll discuss compare the successors 2024th quarter results ended December 31, 2022, the predecessors 2019 fourth quarter results.
As a result, our reported GAAP financials may not be comparable to the predecessor period.
I'll call out some of the items that impact comparability, where appropriate to enhance your understanding of our financial progress and also point you to our non-GAAP reconciliations at the end of the press release for additional detail also I encourage you to view the supplemental earnings presentation on our Investor Relations website.
Additionally, we completed the acquisition of <unk> on November 10, 2020, I won't speak to reported results, including swerve into results excluding soar.
For the fourth quarter ended December 31, 2020, consolidated product revenues were $75 $7 million.
Representing a 10, 1% increase from the $68 $8 million or the.
Whole period last year.
Included in the fourth quarter 2020 product revenue was $4 $3 million related to the acquisition of <unk>.
Excluding for organic product revenue grew three eight per cent compared to the prior year prior year fourth quarter or increased two 2% on a constant currency basis.
Reported gross profit was $25 $2 million down from $26 2 million in the prior year period and gross profit margin was 33, 3% in the fourth quarter of 2020 down from 38, 1% in the prior year period.
Results were negatively influenced by a $3 $9 million noncash purchase accounting charge.
Adjusted gross profit margin when adjusting for all non cash and cash adjustments.
Was 41, 8% up from 41, 1% in the prior year, driven by favorable product mix and the branded CPG segment and productivity.
Operating loss was $6 $9 million compared to operating income of $5 $5 million from the prior year period, and consolidated net loss was $5 $1 million in the fourth quarter of 2020 compared to net income of $12 9 million in the prior year. These.
These two figures reflect a $5 million of M&A transaction costs.
For $4 million of one time and ongoing public company costs, and $3 9 million of noncash purchase accounting adjustments, which were not incurred in the prior year.
Adjusted EBITDA increased five 8% to $14 million compared to $13 $2 million in the prior year period.
This increase was primarily driven by revenue growth and productivity actions, partially offset by higher ongoing public company costs.
Now let me take you through the segment results for Q4.
CPG product revenues increased $10 $5 million or 24, 6% for $53 3 million for the fourth quarter of 2020 compared to $42 8 million for the same period in the prior year.
On a constant currency basis product revenues increased 22, 1% driven by strong retail and e-commerce growth in our North American business.
And the additions were partially offset by foodservice softness.
Excluding score segment organic product revenue grew 14, 5% compared to the prior year fourth quarter, an increase of 12% on a constant currency basis.
Operating loss for the branded CPG segment was $4 $9 million in the fourth quarter of 2020 compared to operating income of $2 6 million for the same period in the prior year.
The decrease was driven primarily by $5 million of M&A transaction costs, and $4 4 million of onetime and ongoing public company costs that are included in the Companys branded CPG segment.
Flavors and ingredients product segment revenues for $22 4 million a decrease of 13, 9% compared to the same period in the prior year. The decrease was primarily driven by timing of shipments within 2020, and COVID-19 impact on customer orders.
Operating loss for the flavors and ingredients segment was $2 million in the fourth quarter of 2020 compared to operating income of $2 $9 million in the prior year period.
The decrease was driven by a $3 $4 million noncash purchase accounting adjustment related to inventory revaluations and a $1 4 million amortization of intangible assets, resulting from the June 25, 2020 business combination.
Now shifting to a brief review of our full year performance for the 12 months ended December 31 2020.
Consolidated product revenues were $275 5 million, an increase of one 2% compared to full year 2019 on both a reported and constant currency basis.
Alluded in 2012, new product revenues were $4 $3 million related to this for a acquisition.
Excluding for organic product revenue decreased 0.3 per cent compared to the full year 2019.
Branded CPG segment product revenues were $177 6 million, an increase of seven 1% on both a reported and constant currency basis.
Excluding for segment organic product revenue grew four 5% compared to the prior year on both a reported and constant currency basis.
It was driven by strong retail and e-commerce category growth as well as share gains globally, partially partially offset by softness in the foodservice channel.
Growth was led by North America, and Western Europe.
Flavors and ingredients segment product revenues were $97 9 million a decrease of seven 9% compared to the prior year.
The decline was primarily driven by lower revenues in our international business.
Reported gross profit was $96 $3 million, a decrease of $12 2 million from $108 $5 million from the prior year and gross profit margin was 34, 9% in 2020 down from 39, 9% in the prior year.
Results were negatively influenced by a $12.6 million noncash purchase accounting charge.
Adjusted gross profit margin when adjusting for all non cash and cash adjustments was 42% down from 42, 6% in the prior year driven by product mix.
Consolidated operating loss was $44 3 million compared to $29 7 million of operating income in the prior year and consolidated net loss was $42 6 million for the full year 2020, compared to net income of $30 8 million in the prior year.
The decreases reflect noncash asset impairment charges purchase accounting adjustments business combination transaction related costs and ongoing and one time public company expenses, which are not comparable to the prior year period.
Consolidated adjusted EBITDA was $54 5 million a decrease of four 2% versus prior year, driven by new ongoing public company costs, and lower product revenues and our flavors and ingredients international business, partially offset by increased product revenues within the branded CPG segment and productivity actions.
Now moving to cash flow and the balance sheet.
We generated consolidated cash flow from operations of $10 $5 million for the full year 2020 that is net of $11 $7 million of business combination transaction related expenses that were funded by the seller and macandrews <unk> Forbes and $18 3 million of onetime cash add back costs.
Our 2020 capital expenditures were $8 million for.
Cash flow when excluding cash related add backs and transaction expenses was $32 4 million.
As of December 31, 2020, we had cash and cash equivalents of $16 $9 million and $179 7 million in debt net of issuance costs.
Subsequent to the end of fourth quarter on February five 2021, we entered into an amended and restated credit agreement and part to finance the acquisition of wholesome sweeteners. The new agreement provides for a $75 million five year revolving credit facility and a $375 million seven year.
<unk> senior secured first lien term loan b.
Reducing balance sheet leverage as a corporate priority and we estimate that we will achieve a ratio of net debt to adjusted EBITDA of approximately four times by December 31 2021.
Shifting to our outlook, we are introducing full year 2021 guidance, including our recent acquisitions of <unk> and wholesale.
The outlook includes expectations for growth on a pro forma organic basis and margins for the combined business, we define pro forma organic growth to be as if the company owned both sewer and wholesome for the.
Full year 2020 and 2021.
We expect consolidated product revenues to be in the range of $493 million to $505 million.
Representing reported growth of greater than 78% and pro forma organic growth of 3% to 5%.
Consolidated adjusted EBITDA in the range of $82 million to $85 million, representing reported growth of greater than 50% and pro forma organic growth of 3% to 5%. We also expect adjusted EBITDA margins to be approximately 17% of consolidated product revenues.
Adjusted gross profit margin will be 34% to 35% of product revenues, which again reflects the influence of our acquired assets wholesome answer.
Total capital expenditures will be in the range of $10 million to $12 million, which is an increase of $2 million to $4 million from 2020.
The increases associated with our footprint optimization project.
Lastly, we expect a 2021 tax rate of approximately 23%.
We are also raising our long term product revenue growth target, which reflects the continued growth of the category and the impact of our recent acquisitions over the next three to five years.
We expect the following net product revenue growth in the mid single digit range.
Adjusted EBITDA growth in the mid to high single digit range, which implies operating leverage that we foresee as we further integrate the businesses and drive organic growth.
Adjusted gross profit margin is expected to be in the range of 34% to 36%.
Adjusted EBITDA margin is expected to be in the range of 17% to 19%.
Capital expenditures will approximate one 5% of product revenues annually.
And lastly, the tax rate will be approximately 23 for themselves.
That concludes our prepared remarks, operator over to you. Please open the call for Q&A.
Thank you for you would like to ask a question. Please press star one on your telephone keypad.
<unk> tone will indicate your line is in the question queue you.
You May press star two if he would like to remove your question from the queue.
And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question is from Rob Dickerson with Jefferies. Please proceed.
Oh, great. Thank you so much good morning.
So I guess just a couple of quick questions. The first question is.
Just around.
Yes, the three to five year organic sales growth target.
Lifted it to mid single digits from low single digit to mid.
Business is still right in early innings.
Two impressive acquisitions I'm, just curious sort of what gives you confidence to change it to mid single digit relative to kind of longer term guidance. You. Just set you know middle of last year.
Good morning, Rob do you want to start Andy.
Sure Yeah, no happy to take that one for al first I think it reflects like you said the acquisitions the strength of the acquisitions I'd say.
Net.
For one I think that category I would say, we will continue to grow we feel very confident I think Albert alluded to that in his opening remarks about the really the strength of the better for you.
Sugared categories that we're in and the growth that will continue for the foreseeable future for one we feel very confident with that and then the trends.
Better underlying that number one number two we feel very confident with the acquisitions and the commercial synergies that we'll be able to drive across the legacy or the brands portfolio was worth and what wholesome. So we think our ability to execute within a growing category gives us the confidence to get to that mid single digit growth rate from a long term.
Yes.
Okay, Great. That's helpful. And then again I know it is very early.
Robert it's synergistic opportunity with the recent acquisitions.
Obviously.
Leveraging your current footprint in all different channels within retail.
A large part of.
Of the revenue opportunity so I'm just curious.
Have you already had kind of early stage conversations with retailers that also might give you some confidence in your ability.
To successfully increase the ACB that you continue to point to it's fairly low relative to some other players that I have one follow up yes, Rob.
I'm happy to answer in debt and the answer about the comprehensive absolutely yes.
As you pointed out we do have.
Our brands natural net our steel in the Twenty's and genuine works thats using the <unk>.
And just think about the fact that 10 point distribution gain across those free brands equals to about <unk> million.
Incremental sales and I would say that the power of one is really about leveraging where newest brands are strong today, bringing opportunities for the overs and leveraging across I would tell you and I don't want to disclose too much but we have had significant wind.
And expansions.
Across major retailers that have already been confirmed.
We're going to take place I would take a less confidential subject it to take for your debt for example.
If you take E Commerce, we grew which holds for 200% last year.
Debt is best in class compared to <unk>.
<unk> and hold some and we are able to already bring to the two day to day from dues over brands into into E. Commerce. So we see a lot of opportunities our sales teams come together.
We call on the customers as with one already.
Since the January.
And we're very excited because those brands are very strong.
Capabilities in traditional retail grocers and clubs maps in the natural channel and as I was saying that.
In foodservice and Thats for the top line, we also see significant synergy opportunities and the bottom line.
Through productivity and through our manufacturing footprint and operations. So we're very excited the teams are working together. We have also been able to strengthen our organization as a result of this and I think that's the benefits of having a closing.
M&A opportunities like square and wholesome.
Okay, Perfect and then just quickly Albert I think I had heard you mentioned.
Appetite to expand a bit more overtime in categories like jams bars in spreads and are you seeing some of that in Europe already.
But cash position is still strong right with the asset light model.
And sales it leverages somewhat rational or expectations into year end 'twenty one itself.
If the right opportunity comes up all that acquisition front.
Are you in a position to act on.
Or.
Is the line essentially we'd rather give it some time to integrate these two other acquisitions net debt.
Yep.
Hey, Rob.
Yeah, Ralph I'm going to jump in for that one.
I think what we're going to do is be acquisitive the strategic accretive.
<unk>.
I think.
For the past.
Great acquisitions and very strategic.
With our free cash that will throw off from the ability to pay down debt.
By no means out of the acquisition market, but on the other hand.
We're going to make sure we integrate what we have but we're not at a business and doing acquisitions.
Okay perfect. Thank you so much Albert you could add to that sorry.
I jumped from.
I think I think you say the NSA from this you know are Rob our priority right now is on organic growth and this is very exciting what we have ahead of us we even have them. They didn't mentioned it before significant international opportunity, where we just have to leverage our existing organization for square of in wholesome and.
We're working on it as we speak we are.
We are pushing the integration as I was saying in bringing the teams together and really leveraging the talent that we have across the organizations and then on the operations supply chain and I'm very excited.
Because we don't see we see some input cost increase for not to the level of over F. M. CPG companies and we have a very deep product pipeline just consider debt. Our total spend went from $19 million in the U S and 46 million. So a net you imagine how exciting it is for our supply chain guidance to capture.
Who's over communities Zane Zane per per week will follow.
Our wind direction.
Okay Super perfect. Thanks for yet.
Our next question is from Brian Holland with D. A Davidson. Please proceed.
Yeah. Thanks, good morning.
Could you just remind us again, the timing issues impacting the flavors and ingredients shipments in 2020.
And the extent to which there may be any carryover into 2021.
Yeah.
Albert Yes, I can say day, one so hey, Brian. This is so thanks. Good morning. Good question. So this is purely between Q3 and Q4 I think you remember the growth rate for flavors and ingredients was was over 9% in the third quarter and simply we get some customers who are who only order once a year and those orders happened more in the <unk>.
Third quarter this year versus happened in the fourth quarter last year, so that that phasing difference or timing difference is purely between Q3 and Q4 I'll.
Pointed to Aes.
Go on our website and look at our supplemental deck, you'll see a bridge on there that debt clearly called that out so that we don't anticipate there's no timing difference into 2021.
Okay. Perfect. So then I've got F&I down 3% year on year for the second half of 2020. So I understand there is some COVID-19 related headwinds weighing on that.
I guess as I'm looking forward here would imply to the extent that there's been some impact from COVID-19 that that would make for some easier compares you. Obviously as you as you referenced earlier today you have initiatives in place tied to new leadership.
Can you provide some framework for whether you expect that segment to grow on the top line in 2021.
Yes, Brian I'll take that one so you're getting it puts it at the same page on the supplemental deck that we posted at slide 21, which shows a bridge there for flavors and ingredients business and you'll see on there that the core growth of the business really was about 2% when you exclude the COVID-19 the annual Covid impact and then on the.
National side that we've talked about before that's behind us and and so we do anticipate that flavors and ingredients business to grow kind of more adjacent to that are similar to that 2% number in 'twenty, one driven by those initiatives that we've talked about if you go to our mapco.
Website Youll see Youll see all the products that we've launched recently under a magnet suite product, which we're really excited about which we've already started getting wins on and are confident in our ability to be able to grow the business this year and into the future.
Perfect appreciate the color there Andy So then.
Another one here moving forward for the long term topline and EBITDA growth trajectories, both right in line or better than what I had anticipated.
Construct however, just a bit different than what's in my model fully acknowledge there could be some element of user error on my part, but does your gross margin outlook. Just is that just simply accounting for the whole some mix or is there anything else flowing through which reflects an update as to how youre thinking about that line versus say a few months ago.
No the only difference versus a few months ago. Brian is the is the wholesome addition.
That's completely yet, but we know we do have we believe that again, we will continue to have margin accretion and I'll call. It on the on the legacy business.
Driven by one those the footprint optimization and the flavors and ingredients business.
Number two synergies as we move forward with a three three businesses on the branded CPG side, and then discontinued productivity. So no those were expectations that we had in their previous it's exclusively driven by wholesome.
Alright I appreciate it.
Last one for me, we're pretty deep into the first quarter at this point so any context on how the business is trending vis vis the fourth quarter.
Andy Hugh Hugh you see what can be saved.
[laughter], Yeah, I mean, obviously, Brian we can't talk a lot about the first quarter right. Now obviously, you Albert alluded to the fact earlier that you know.
The integrations of the three businesses are going well.
We are driving.
Plans commercially already there's already been commercial wins, so we're very excited about that.
And no we think it's the businesses, we had a healthy very good fourth quarter.
We had good good trends as we go into the end of Q1 and into 2021 so that gave us the confidence obviously.
Within the branded CPG business to drive the guidance range.
Taiwan.
Yes.
Oh I was just I haven't got guidance Brian debt.
If you look at our market share, which to me is always critical to keep the eye. We have gained market share in our top seven markets that represent 80% of our sales across every single one per person. So I would say that beyond the very positive secular category trends that we do have.
We do have a strong performance for our brands.
We need driven volume to brand building innovation for market penetration, but we talked to in the U S. But also globally, where entry China, We're entering India as we speak and World class supply chain, which is capturing significant opportunities and a great team.
Yes.
Sorry for stepping in front of you there Albert but.
Just to clarify some of those commercial wins, then R&D flowing through in the first quarter.
Andy.
The commercial wins in the first quarter.
I mean, we're starting we're starting to get that distribution already Brian.
For products, but I mean more.
For more to us going to see that that performance probably more in the.
Second through fourth quarters of stuff that we're executing on.
Yep understood appreciate all the color best of luck.
Thank you brain.
Our next question is from George Kelly with Roth Capital Partners. Please proceed.
Hi, everyone. Thanks for taking my questions.
So maybe just to start following up on that.
Last the most recent question that was asked by the prior analyst.
So the commercial wins Albert that you alluded to.
Are those done enough for their included in your guidance or are they kind of just getting nearing completion and so you left them out.
Yes, that's a great question.
In regard to our guidance, we put out here a guidance that we can meet.
And potentially beat and you know as far as the teams.
Say that they are because of recent momentum.
We do have.
We're excited about the business and our job is to meet or beat the guidance.
Okay. That's clear thank you.
For that then.
Question for me just.
It relates to your longer term guidance.
So in your EBITDA target margin of 17% to 19% for this year it was 17.
My question is what does the ramp what is it going to look like should it be a pretty steady ramp or are there investments or anything you can call attention to in the next two years or so they don't keep it kind of at the range. It is.
As in 2021.
Andy.
Yeah No good question George.
So I'd answer maybe in two buckets I think the first bucket being the flavors and ingredients footprint optimization.
We will get more of a ramp up from that benefit in 2022.
We'll get a little bit of some of those benefits starting in the back half of this year, but.
But then for your effect next year, so that'll be a more maybe accelerated ramp there, but but the rest of it I would say a pretty linear ramp from the context of leveraging the growth and getting.
Leverage off of our growth.
Number one and then number two.
As we execute our supply chain.
Kind of productivity that we believe we can drive over the next two to three years for the combination of the three three companies that's going to take two to three years to realize that so that's a little bit more of a linear type of modeling exercise. So I would say from the guide for 2017 to 19 year, maybe a little bit of a bump next year.
But then it's pretty linear after that.
Okay. Okay. That's helpful. And then I guess last question for me just on debt.
A new credit agreement not sure if that's true.
I'm sure, we'll see it I guess in net.
Upcoming K, but what was the pricing on that what are you paying on the revolver and on the secured term loan.
Yeah. So the term loan has a LIBOR plus $4 50, with a floor of one and the.
The revolvers at three point some volume.
Okay. Thank you very much congrats on a nice quarter.
Thank you George.
Our next question is from Mark Smith with Lake Street Capital. Please proceed.
Hi, guys.
Can you just give us a little bit more on your thoughts on wholesome gross profit margin, especially now that you're into it and kind of seeing the operations there and what's built into your guidance.
Good morning, Mark do you want to take it on endy.
Yes sure.
First of all Mark good morning.
First of all I think.
And credit to the team you know we did there obviously a lot of due diligence on a wholesome.
And the supply chain and the margins were a significant component of that due diligence.
So the short answer is there's no new news.
The business well before we bought it and since we've closed that obviously, we're getting to know it more but.
From a margin profile perspective, it's consistent with everything we knew about the business before the closing.
Okay Perfect and then second one for me is just as.
As we look at the E Commerce growth that you guys are throwing off can you talk about your long term e-commerce opportunity.
Sure.
So E. Commerce is has started from very detailed and grew to about 10% 12%.
Our worldwide mix, which is significant and we continue to see opportunities to grow number one as I was saying.
You do have.
Our GAAP versus our best practice that we can leverage for its work and hold some and we're doing this.
In North America, and number two we still have room to grow.
Number of new players that come in and think about that.
The cart.
Or continuing to drive penetration in Walmart Com vs versus Amazon and then in international I mean in Europe, our performance year to date on the Amazon the staggering because I'm just need those are companies that are getting to scale in a <unk>.
Number of international markets, and we benefit from debt because of our relationship in North America. So we see we see continue to see significant opportunities. We see this as a channel that will continue to grow for word as consumers like to shop online, especially millennials and younger generation are now order generation.
So we see debt as a competitive advantage that we intend to continue to leverage across brands in North America, and then in our international markets with the players that are growing share.
Okay.
As we look at your consumer does that gives you a little more confidence in the long term trends in e-commerce.
Vs.
Maybe the overall income channel, perhaps slowing down a little bit as we get through a reopening union vaccinations and everything out there.
Yes.
That's a great question made me, let me answer two things about it right first of all.
Second our trends are very strong for category.
Strong for the consumer locations that we are going to continue what may change is going to be the weight of different channels. As you stated. So let me give you. The example of foodservice, we see that this coming back not only coming back, but if you think about foodservice in the U S. This is really pre pandemic except for Starbucks.
Sweden architectural play only.
So now you have opportunities in that channel as it comes back to bring natural on the from cancer and even to play on the bank counter with brands like Hudson likes word. So so we see significant opportunities to manage across channels post pandemic and grow and benefit from me to because.
The momentum and the strength, we have built into the business.
So for example, I just wanted to give you on E Commerce and why it's going to continue to grow when you go into a retail store day space constraints in some ways right, so, especially in some international markets etcetera. So what you are what you're able to do on e-commerce.
Maybe more of your products. So if you are interested in whole her collagen.
Added benefits or in whole groups Tumeric you may not find it in all of the stores, but you are going to find it in e-commerce and that sees an additional advantage that we see E. Commerce going forward is the ability to have the full array of skus export volume.
Great. Thank you guys.
And our next question is from Alex Arnold with Odeon Capital. Please proceed.
Okay.
I guess my first question is I.
I guess Irwin touched on the M&A strategy being on sort of parallel paths of integration and new deals, but has the target ideal changed.
What you'd be looking for after completing two large core sweetener deals.
Yeah, sure Hey, listen.
Good morning.
I don't think the target has changed at all but I think.
You know, what we want to build.
As a complementary and diversified portfolio, but with the common denominator or free up there.
And is it to go into other categories, absolutely, but you heard what Albert said before the power of one.
We're not going to go into 50 different categories, but we will stick to the pillars that Albert talked about acquisitions that we can integrate into those pillars that are strategic accretive we can build global.
And that we can bring innovation to from our.
<unk> business, our sweetener business for.
From that standpoint.
<unk>.
We're in the plant based business today.
We're in the sweetener business do we carried over into a.
Non dairy products that we carry in the confectionary do we carried into baking like we are but do we carry into.
Okay.
Cookie or something like that as possibility do we carried into snacks.
So there's multiple areas we're looking at.
And there is a lot of acquisitions that are coming at us.
Right in our sweet spot in the $50 million to $75 million of area and how do we double and triple and I think the big thing with Albert talked about before is similar to what we're going to do which is.
Great products taken to a certain level by the founders.
How do we get the distribution globally.
I'd tell you it's true lives for you some of the great products.
For the pain and the same with wholesale so that's kind of where we are at acquisitions and what's being put to us.
Okay.
Got it thanks, and then Albert it sounded like a pretty robust pipeline for product interest. This year can you sort of take us through timing on new introductions, and how we should think about them sort of rolling out and ramping up.
Yes. Thank you very much our innovations for if you take 2021, our innovations are ready in June 2020, So all of the 45 products from the 15 for my misread are available and so essentially the rollout is really based on the timing of sales.
For the major retailers and so if you look at Europe debt shelf resets usually takes place around March April if you look at the U S. It's anywhere in between March and.
If I take the biggest repaid during no for Medicaid is probably going to be September October. So those are those are day meetings that we had top to top as I was saying before in the U S. With the power of one and those products are ready to hit the shelf and are going to hit the shelf anytime in between March and September.
Okay, and then I guess I understand why you can't talk about current quarter trends, but maybe asking a similar question from a different angle can you can you speak to demand trends as you see them now and as you see them developing into the reopen for both foodservice and grocery like how are you thinking about that.
Yes, so as a as it were.
We're saying as we're thinking about Ts that we are.
With them very well in retail.
Traditional retail like everybody.
Everybody else foodservice has been declining 50% last year, we see debt coming back even for we've been somewhat conservative and more importantly, as I was saying I think the even the foodservice operators are going to have different requests in which I think we are best positioned to two.
To answer to so I see debt as as a healthy balance net.
I'd say we have some.
Net positives, which are going to be natural channel because here of course free acquisition, we've even had the strength of wholesome and.
And this work with net causing Tvs and clubs, where we didn't had again the positives of wholesome, which is very strong there.
As I say it as an example, because that's the one debt.
Confidence from can talk about is is the strength that we can leverage in the E. Commerce. So I would say that again back to the free.
Foundations that we have plus the our market share gains class are 45, new products that you alluded to which are going to be only naturally are going to be in baking. They are going to be in adding benefits like quarter to quarter for collagen and in Adjacencies, we see.
Debt as well.
We're excited and I would say about the year 2021.
Alright best of luck guys. Thanks.
Thank you so much.
Ladies and gentlemen at this time Im showing no further questions.
I'd like to end the question and answer session and during the conference call back over to management for any closing remarks.
Yes, if I may I, just want to make.
Make a few closing remarks to say that.
This is a company that went public in June made two acquisitions by December.
Closing the second one in February and I, just want to salute the team.
Which I think has proven.
Does it where best in class and I'm very excited about what they are going to do forward I would like to thank Irwin, who has been a constant guidance and support.
In establishing this company and taking it to where it is today and where it's going to be tomorrow and the board. So we're very excited I'm very thankful.
To the organization too early into the board and we start looking for to have more conversations. Thank you.
Thank you, ladies and gentlemen that does conclude today's conference call. We do thank you for attending you may now disconnect your lines.