Q3 2021 Oatly Group AB Earnings Call

Greetings and welcome to <unk> third quarter 2021 earnings Conference call.

At this time all participants are in a listen only mode.

A question and answer session will follow the formal presentation.

If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.

As a reminder, this conference is being recorded I would now like to turn the call over to Katie Turner for opening remarks. Thank you you may begin.

Good morning, and thank you for joining us on <unk> third quarter 2021 earnings conference call and webcast.

As color, Tony Peterson, Chief Executive Officer, Peter Berg, Chief Operating Officer, and Christian Hunky, Chief Financial Officer before we begin please remember that during the course of this call management may make forward looking statements within the meaning of the federal Securities laws. These statements are based on management's current expectations and beliefs and involve risks and uncertainties.

That could differ materially from actual events or those described in these forward looking statements. Please refer to the company's final prospectus filed pursuant to rule 424 P. Three on May 20, <unk> 2021 and other reports filed from time to time with the Securities and Exchange Commission for a detailed discussion of the risks that could cause actual results to differ materially from those expressed.

Or implied in any forward looking statements made today.

Please note on today's call management, all furniture, and non I O R S financial measures, including EBITDA, adjusted EBITDA and adjusted EBITDA margin.

And he believes these non <unk> financial measures provide useful information for investors. The presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with I forget.

Refer to today's release for a reconciliation of non <unk> financial.

Financial measures.

Comparable measures prepared in accordance with IRS. In addition, only supposed to be a supplemental presentation on its website for reference.

I'd now like to turn the call over to Tony Peterson.

Thanks, Katie and good morning, we appreciate you joining us to discuss our third quarter financial results on today's call I will briefly review our third quarter financial highlights provide an overview of our business performance included the continued strong consumer demand broadly in the old category in our key markets.

And reiterate the key reasons, we believe <unk> is well positioned for strong growth over the next several years as we benefit from an acceleration to dairy alternatives globally, and we scale operation to meet this growing demand Peter will provide an update on the progress we're making to build out our global manufacturing capacity footprint think Kristian will review.

Our financial results.

In more detail before we open up the call to take your questions.

But those that'd be following <unk> since our IPO you know that 'twenty 'twenty. One is the most transformational year in our company's history ready new production capacity at an unprecedented pace for our company on three continents to meet the robust consumer demand for our market, leading brands and working to execute this during a global pandemic.

It's no small feat.

We are continuing to prioritize growth investments over profitability to best position <unk> to serve customers and consumers alike took focused on taste and nutrition sustainability transparency and trust with the strong emotional connection to our brand when.

We believe these priorities are critical for accelerating conversion from the global dairy market, which we estimate to be worth approximately $600 billion in the retail channel alone with a large foodservice foot printing growing e-commerce opportunity.

We continue to see tremendous consumer demand for our products across each of our regions as we convert dairy users to plant based milk consumers.

2019 plans basically penetration dairy category has increased anywhere between 35% to 135% core markets based on volumes. These figures highlight the transformation that is taking place in the dairy category.

However, even with these significant growth rates the overall penetration of plant based milk in the dairy category is still very low ranges between 9% to 11% and our key western markets, which highlights the tremendous upside still ahead of us.

Whilst the Derrick consume is converted to plant based milk. We also see very strong repeat purchase behaviors. According to our consumer insight study.

You get to 70% of the consumers use plant based milk at least every two to three days and nearly 80% consume it at least once per week. This highlights how quickly consumers switch over to incorporating plant based milk into the daily routines.

The syndicated scattered data also continues to show that the old category continues to prevailing gained share over that well the other dairy alternatives across our key markets and we are driving this growth. This.

This is clear from our market shares in our leading velocity performance, even with a limited shelf space footprint to date.

Year to date, we have invested heavily in our business establishing infrastructure personnel in our basic capabilities and partnerships to meet consumer demand and maintain and grow our category leadership position.

We've opened two new facilities in all of the Utah in Singapore, and we expect to open a second manufacturing facility in Asia later this month.

We are incredibly proud of our global production supply chain and procurement teams efforts to open both the Singapore and China facilities in line with our stated timelines.

We believe that adding these two new local production facilities in Asia will supports Otis trajectory of strong future growth in the region, 80% of the population in Asia is lactose intolerant and we believe old kicking gain a larger share of the dairy alternatives market.

Region over the next several years.

But having a localized production in the region, we expect to achieve much of the production economics that operating efficiencies reduce the environmental impact and increased profitability in Asia will be able to reduce production reliance on EMEA for the first time.

In the first half of this year, we also doubled production capacity at our facility in Michigan. Nevertheless, the production output in this facility was in line with our expectations in the third quarter and this output will help to facilitate our offensive positioning in EMEA, where over the last 18 months our commercials.

Sales and marketing teams have consistently faced growth constrained space our capacity limitations.

In total we produced finished goods volume of 131 million liters compared to 74 million liters for the same period last year, an increase of 77% is also an increase of 24% from the 106 million liters, we produced in the second quarter 2021.

Now to dive into our financial highlights in more detail for the third quarter, we reported record revenue of $171 1 million us dollars, a 49% increase compared to the third quarter last year, our strong growth was broad based across geographies and sales channels and product offerings.

Now most companies would be thrilled with this level of growth and execution in any operating environment.

We hold ourselves to a higher standard of execution based on a bottoms up view of our business and frankly, we expect it to deliver approximately 107 to 8 million U S. Dollar revenue representing a year over year growth of 55%. We believe this is primarily a timing issue and I would take you through some of the.

Specific events that have delayed either our production output or product availability in certain geographies.

So no we're not satisfied with our revenue growth, even though we grew tremendously in the global marketplace, where many companies are experiencing the impacts from COVID-19, and temporary supply chain pressures.

Like to provide more details about the specific factors impacted our growth in the third quarter.

First in the Americas region, we were approximately 3 million U S. Dollar below our plan for quarter. Three this was primarily due to lower than expected production output at our Ogden, Utah self manufacturing facility, we experienced mechanical and optimization issued in August during our production ramp up which slowed our production.

Progress versus our plan. This was further access related due to COVID-19 related supply chain disruptions.

Which led to a delay in our team's ability to receive the required equipment to fix the issues in a timely manner.

Based on these events our sales trajectory in the region was pushed out.

As a result, our sold volume was 37 million liters per month on average for the third quarter. Instead of our expectations was sold volume of 40 million liters per month on average for the quarter.

Second in Asia, we were approximately 3 million U S dollar below our plan for quarter three.

Approximately 75% of our third quarter revenue in Asia was generated from the foodservice channel.

And we experienced a heightened level of COVID-19 that very unrelated foodservice location closures in Asia.

We continue to monitor the situation closely it's heightened restrictions remain in effect throughout the region, the health and safety of our team consumers and our partners in the region remain a priority.

And finally, EMEA was approximately $1 million lower than expected for the third quarter due to a truck driver shortage in the United Kingdom temporarily delayed distribution of product.

In addition, during the third quarter, we experienced a noticeable uplift in the foodservice channel as a share of total EMEA revenue compared to the second quarter of 2021 from 13, 8% to 17, 7%. We believe this is a result of highest share of out of home consumption within the company.

These key EMEA markets.

S pandemic restrictions have been further lifted.

And the summer holiday season extended into the fall.

Yeah.

We expect these key factors that delayed even stronger growth in the third quarter will abate as we head into 2022.

And going forward, while we may experience certain reliability, and a strong growth rate quarter to quarter as we scale, our global operations, our confidence in the size and long term trajectory of our business is stronger than ever.

I'd like to share a few highlights across our key markets support why we believe <unk> will continue to win a significant share of the conversion to dairy alternatives globally and maintain our market leading position.

Our brand has continued to excel on the global scale as evidenced by the following market statistics.

According to Nielsen and IRI data for the <unk>.

52 weeks ended October 2021.

In all our key markets only has the number one selling open excuse me in terms of sales value and the highest velocity skus representing sales per store per week.

At the brand level only continues to be our primary growth driver of the total plant based milk category in.

In the U K a brand contributed the highest amount of sales growth to the dairy alternative drinks category and it was the second highest brand driving growth in Sweden, Germany and the U S.

In both Germany, and the U K, a brisk edition item has at least.

Two times the unit velocity levels versus the.

Second and third highest selling SKU in the old category.

Our brand accomplish this with a limited SKU range and a fraction of the total distribution points versus competitors.

In the Americas.

For Oaktree products continues to be incredibly strong. According to the Nielsen for 24 weeks ended October 16th Oatley remains the number one fastest turning branding total dairy plant based dairy and oatmeal.

Hopefully, it's the number two dollar sales oatmeal branding X Aoc.

And we also reclaim the number two spot in total U S food spend in the latest period.

Hopefully, it's the number one dollar sales chilled ultimate brand in the U S natural channel and the major retailers, including whole foods and target as you see on slide 13 of our earnings presentation.

Walmart totally original is the number one a lot with the old new SKU.

And the number two velocity plant based milk SKU.

And an additional 1200 stores planned in April of 2022.

If you look at slide 13 in our earnings presentation. You will also notice the velocities nearly returned to pre distributions search levels normally the last he gets diluted when increasing distribution.

We expect to see this continue to improve as more cases answered the system. It has certainly been proven that the demand from existing customers is there to absorb incremental cases.

Oh, two weeks with dollar sales have increased more than 25% since July 10th three months ago and continues the upward momentum each week.

Oatmeal category has increased only 15% during that same period.

Okay velocities have increased more than 21% since July 10th far more than any competitive brand and oatmeal category grew only 3%.

Unfortunately year to date.

Three represents approximately 6% of Americas revenue.

This is an area we continue to be excited about for example in the plant based ice cream category excluding sorbet.

Frozen desserts are number one in dollar growth.

And number three out of the top 10 highest dollar velocity flavors in the U S food.

We'll be launching frozen novelties desserts, which are expected to arrive on shelves beginning mid December and into the spring.

The U S. Commercial teams are in the midst of a growing distribution acceptance with over 8000 points of distribution confirmed so far in foodservice or at least the brand partner of Starbucks in the U S and growth of Oakley and oatmeal exceeded both of our expectations to date.

Current projections from Starbucks continues to escalate based on the success of Otis Oatmeal and we have aligned with them on an ongoing supply plan continue bringing our products to the broadest possible audience.

Starbucks is a strong collaborative partner and we look forward to growing with them across existing and new geographies.

Our partnership we're able to reach many more people with beverages and in doing so we can continue to do great things for the planet together and.

And finally in Asia, our growth in this region demonstrates the effectiveness of our proven multi channel expansion strategy.

Wariness and trial achieved in the specialty coffee and teach out is critical to educate the market about plant based dairy and establish our leadership in Asia.

We continue to maintain our market leading position on Tmall, which demonstrates <unk> ability to consistently outperform in a highly competitive marketplace.

In foodservice, we're not fully distributed in Starbucks in mainland China and KFC.

We also have great opportunities to expand with existing customers. Mcdonald's is just one example of where we can expand distribution as we are approximately 40% of their locations to date.

Yeah.

Last week, we launched in our Yoki top two modern tea brand in China with the markets first old cap T Dream. This product will be available in more than 700 stores nationwide.

At retail because it can be found in anywhere from 10% to 60% of total available to existing customers doors. For example, we are presently in 800 1500 towards the stores with young way one of China's largest retail chains.

Significant group of distribution expansion in retail once we scale capacity.

Just existing retail customers alone dutra.

Do you trust supply constraints, we have not prioritized the retail channel in Asia, So far but still have been able to make significant progress.

Our successes across the U S Europe, and Asia demonstrates the strength of our product portfolio across multiple categories and the increasing consumer appetite for opening and all brands ability to travel with consumers choose to shop, our mission accordingly, and driving societal shifts towards plant based.

Food system Unifies, our company and our quest for purpose driven growth.

S humanity faces massive challenges of climate change in lifestyle disease, our mission is even more relevant and powerful.

We aim to inspire people to make small changes in their lives there are beneficial to themselves and the planet.

Our in house creative teams create waste for Oakley to have an emotional bond with consumers, who are already becoming more health conscious and more environmentally conscious.

And we have a proven disciplined and thoughtful multichannel strategy that we believe set us apart from the competition because we're already building our brand successfully across three continents with a tremendous amount of white space to add new markets.

In summary, I'd like to thank our global team for their efforts in achieving our growth.

We believe our strong foundation and business fundamentals will help us capture a disproportionate amount of growth over the next several years as consumer demand continues to accelerate with plant based alternatives.

Now I'll turn the call over to Peter.

Thanks, Tony.

We'll focus on our global production and capacity build out.

As we have previously communicated production capacity has been a major constraint on our growth and.

And we have made substantial investments to scale, our production capacity and address supply shortages due to the massive demand for our products globally.

In the third quarter, our consistent production output in EMEA enabled us to begin to build supply to meet the consumer demand across the regions for our product.

Our expanded listening and hybrid facility, which started production in July is progressing well and the facility generated production in line with our expectations for the quarter.

As Tony discussed the main reason for our lower than expected total production output was related to mechanical and automation delays at our new self manufacturing facility in Ogden, Utah beginning in late August as we continue to scale up leaders produce.

As we discussed on our quarter two call in July we opened our Singapore hybrid manufacturing facility, representing our first local production available in the region.

This is an important corporate milestone.

The facility will have 75 million liters of annual finished good capacity at full production.

Since 2018, we have been shipping our product from Europe to support the growth in Asia.

And we are excited about the operating and financial efficiency, we expect to gain from our new Singapore facility.

In addition to Singapore. This month, we will open our second facility in Asia.

Sean Shiner will be our first self manufacturing facility in the region, creating the opportunity for a total of 225 million liters of production capacity in Asia.

For the year, we expect little to no financial contribution from my shot as they perform initial task work required before ramping production.

Despite the short term headwinds we have discussed October was our highest production month in the company's history as you can see on slide 21.

We expect our production output to increase again for the month of November and December.

We continue to expand capacity of our existing facility and we are currently in planning stages to open additional facilities in the U S U K and China in 2023.

These three facilities are estimated to add an incremental 450 million liters of finished good by the end of 2023 to support the demand for our products globally.

Like other companies, we are noticing longer lead times for certain require equipment related to our planned capacity investments for 2022 and 2023.

We are seeing some delays in 2022 capacity expansion project.

And are closely monitoring and assessing any potential impacts on projects.

20th suite.

Based on the strong demand we continue to experience across our markets, we expect to strategically prioritize oh space for the production of oat milk versus other food products to drive growth and conversion.

We believe this speaks to the growth potential we have and makes the painful or growth trajectory even longer.

But the revenue mix from these items could slightly impact our revenue and gross margin in 2022, if we sell less food products and rely more on co packer than Platt.

For the first nine months of 2021 self manufacturing, what 21% of total bogey.

<unk> two co packing up 47% and hybrid at 32%.

Demonstrating continued progress toward our production goals.

As we grow we believe owning and controlling our global operating footprint is paramount to addressing the significant consumer demand for OTT product.

Our goal is to have 50% to 60% of our total volumes come from self manufacturing, reducing co packing to 10% to 20% with 30% to 40% from hybrid manufacturing.

We expect to drive profit growth through increasing our self and hybrid manufacturing model, that's well that's localizing our production footprint.

Which will improve our production.

And supply chain economics, and economies of scale and service level.

Going forward, we intend to continue to invest in our innovation capabilities.

Build our manufacturing footprint.

And expand our consumer base.

Supporting our growth trajectory.

Now ill turn the call over to Christine to review our financials.

Thanks, Peter and good morning, everyone.

Nice to speak with you today.

Turning to the financial revenue for the third quarter of 2021 was 171 $1 million, an increase of 56 $4 million or 49, 2% compared to revenue of $114 $7 million.

In the third quarter of 2020.

Tony described short term headwind impacts the rate of growth we delivered in the quarter.

There was a minimal foreign exchange benefit to revenue of approximately $4 $4 million in quarter. However, excluding foreign exchange on a current quarter versus the prior year quarter comparison, we grew at a faster rate in the third quarter compared to.

The second quarter of 2021 on a consolidated level in Americas, but also in EMEA.

The foodservice channel continues to increase in the third quarter of 2021 compared to the prior year period with the reopening of on premise outlets from the relaxation of COVID-19 restrictions in our key market, partially offset by certain COVID-19 related foodservice located.

<unk> closure in Asia.

For the third quarter of 2021, the foodservice channel accounted for five 8% of revenue compared to 27, 3% in the same period last year.

The retail channel accounted for 59, 4% of third quarter 'twenty, one revenue compared to nine 4% in the third quarter of Clinton fund it.

Consolidated net sales per liter was $1 five compared to $1.

<unk> and the <unk>.

Third quarter of 2020, primarily driven by positive foreign exchange effect in EMEA and Asia close to the customer and channel mix in Asia.

By customer and channel effect in EMEA and America.

Our highest regional leader information, followed by the America and EMEA.

Sales per liter was in line with our expectation except for in Asia, where it exceeded our expectation driven by channel and customer mix.

Gross profit in the third quarter was $4 to $4 9 million compared to $36 million into prior year period gross margin decreased by 510 basis points to 26, 2% compared to 31, 3% in the prior year period.

The gross margin decline in the third quarter of 2021 compared to the prior year period was primarily due to higher logistics expenses in EMEA.

The America.

Well as higher container rate for shipments from EMEA and Asia.

Each segment channel and customer mix, primarily in America short term challenges related to scaling up our production capacity at our Ogden, Utah facility, resulting in a higher share of co packing production.

Partially offset by positive channel and customer mix in Asia, and the minor positive impact from foreign exchange.

We have experienced an increase in freight costs driven by the effects of the pandemic and the shortage in capacity primarily in the Americas and EMEA, but also related to our shipment from EMEA Asia, you continue to expect that the localization and expansion of our production capacity.

Within the region will help to offset some of these trade coal headwinds.

Going into 'twenty to 'twenty, two we expect inflationary pressure to impact our cost of goods sold more broadly.

With the old prices and other commodity prices as well.

Packaging materials, increasing as a result of a number of different factors.

Harvest in Canada, as well as supply chain disruption more broadly.

As a reminder, <unk> accounts for 8% to 9% of our total cost of goods sold.

Even with the old dropped condition, we are well positioned with adequate.

To meet our anticipated growth this year.

For financial year 'twenty two.

Rapeseed oil, which accounts for approximately three to four percentage points of our total cost of goods sold.

<unk> used to be higher versus second quarter in the third quarter of last year.

We expect the geographical localization of our production capacity.

<unk>, bringing more of the production in house to provide some of the inflationary pressures. We also expect increased price on certain products in certain regions, where necessary to help promote the commodity.

Just the inflationary headwinds.

We continue to expect variability in our gross margin quarter to quarter based primarily on the mix of revenue by geography, and sales channel as well as the mix of our manufacturing output.

On an annualized basis, we expect to continue to see improvement in our gross margin year over year, starting in 2022 with a long term goal of 40%.

Now focusing on our balance sheet and cash flow.

As of September 32021, we had cash and cash equivalents of $403 $1 million.

$305 $2 million and short term investment and total outstanding debt the credit institutions.

Millions of dollars.

Net cash used in operating activities was $148 6 million for the nine months ended September 32021, compared to $24 million during the prior year period.

Capital expenditures were $106 7 million for the nine months ended September 32021, compared to $85 1 million in the prior year period.

Cash flow from financing activities.

<unk> $958 $7 million.

Reflecting the proceeds from the IPO net repayments of viability, the credit institution and repayment of the shareholder loan.

Company invested a portion of the IPO proceeds and secure short term.

Turning to the guidance.

For fiscal year 2021, we now expect revenue to exceed $635 million, an increase of greater than 51% compared to fiscal year 2020.

Strong growth across medium and contribution from each of them.

It is important to note that.

Based on our previous annual revenue outlook.

<unk> hundred $78 million in revenue for Q3 of Tony mentioned.

226 million for Q4.

Two to 619 million revenue.

The primary reason for revenue of $178 million or growth of 40%, which is now the implied revenue for the fourth quarter are due to reduction in our forecasted revenue $48 million and business broken down by region.

All of those.

First in EMEA.

We are starting to build supply to meet consumer demand.

The pace at which we expected to increase revenue and new.

This thing retailer and to open up new market is slower than we anticipated as we navigate dynamic COVID-19 operating environment, we believe.

This is primarily a timing issue.

Lowering our revenue in EMEA.

Approximately $31 million.

In the first half of 2022, we expect to have an increased share of shelf space at retail given our strong velocity and current supply levels.

Our greater context on EMEA, it's important to remember, but during this time last year, our commercial sales team working with our recent partners one show.

Abuse from China for 'twenty one.

In which our business was incredibly supply constraint.

As a result.

<unk> 2021, with no shelf space than prior years.

And our lack of inventory and the fact that we have historically sold all that we produce.

Further evidence of our supply constrained last fall is the fact that for 2021.

The scaled back distribution of our CRO.

<unk> 12 countries in EMEA.

We are excited about the discussions we're having with our retail partners in EMEA and we expect to have a better share of the shelf resets are complete we are entering new countries.

<unk> continued to drive industry, leading velocities across the region all of which we expect to benefit from in 2020.

In the America.

We are pleased with the weekly production output improvement at our Ogden, Utah facility today.

In the fourth quarter.

Though we are navigating a challenging supply chain environment, and we expect that over production sales volume versus our prior outlook, reducing revenue by approximately $13 million and finally in Asia.

Big Health measures remain in effect due to an increase in cases of the COVID-19 belt rebellion.

We're closely monitoring the situation and remain focused on the health and safety of our team. However, given the ongoing restrictions we are taking a more conservative view on our growth for the fourth quarter, reducing our revenue by $4 million.

Assuming no significant changes from where we are today, we expect the fourth quarter exchange rates to be a single digit tailwind compared to the second half of 2021.

We expect capital expenditures to be between 280 million to $320 million decrease from our previous estimate of $350 million all due to timing of cash flow.

We expect production capacity to be approximately 600 million liters of finished goods by the end of the fiscal 'twenty.

One.

<unk> the amount of capacity to reach our annual revenue outlook.

Long term, we continue to expect to generate gross margin greater than 40%.

And then just the EBITDA margin approaching 20% as we benefit from a much larger manufacturing footprint globally greater economies of scale.

<unk> strong revenue growth.

With that review told me will now provide a few closing remarks.

Thanks Christian.

I want to reiterate that our long term outlook and objectives remain unchanged. Although from time to time, we will experience variability in our top line growth based on our pace of new production coming online.

What remains clear is the tremendous opportunity still ahead of us to continue converting dairy users seem to Ot consumers.

All of the syndicated scanner data continues to highlight a clear velocity outperformance on shelf when we have the supply and the distribution.

Although we are currently navigating a more turbulent and COVID-19 driven operating environments. We continue to expect to capture a disproportionate amount of the category growth going forward.

I'd like to thank our global employees for the efforts and dedication that continues to advance the reach and impact of Otis mission on a global scale.

With that overview, Peter Christian and I are now available for your questions.

Operator.

Thank you we will now be conducting a question and answer session.

Like to ask a question. Please press star one on your telephone keypad comp.

A confirmation tone will indicate your line is in the question queue you.

You May press Star two if you would like to remove your question from the queue for participants using speaker equipment may be necessary to pick up your handset before pressing the star keys.

Please while we poll for your questions.

Our first questions come from the line of Andrew Lazar with Barclays. Please proceed with your questions.

Great. Thanks, very much everybody.

I guess I'll just start off you're still looking for capacity next year of one point over 75 billion liters.

As a run rate for 'twenty, two so first off I'm trying to get a sense of how much leeway you are building into that expectation just given some of the some of the challenges that you've highlighted in getting capacity up and running on the on the timeframe that you all would like.

And then secondly, if you reach that level.

What I'm getting still a little confused by how many how much of what you've highlighted in terms of impacting the third quarter and the fourth quarter of this year do you anticipate.

Start to flow into next year.

Some of these shelf resets and in EMEA. It sounds like there have been delayed a bit.

Does that impact along with some other things your expectation for revenues in 'twenty two based on versus let's say your initial expectations a little while back thanks, so much.

Peter Please maybe you can address <unk> question.

Hi, Andrew by the way Yeah, Hi.

Hi, Andrew.

Yeah.

Yeah in terms of the.

2022.

I want to reiterate that our long term outlook and objectives remains unchanged, although from time to time, we experience variability in our top line growth.

Our pace of new production coming online.

What remains constant is the robust industry tailwind, we have globally as consumers increasingly you see plant based meal kits and Oakley.

Also bear in mind, we are moving from a transition year, we have significantly more volume in 2022 compared to 2021.

In terms of 2022 coming back to what I said earlier, we expect to strategically prioritize.

Thanks.

For the production of oat milk versus other preventive products to drive growth and conversion.

So we believe this purpose speaks to our growth potential when we have it makes the tail for our growth trajectory even longer.

Our revenue mix as I said.

From D. That's item could impact the revenue in terms of net sales per liter and gross margin in 2022, if we sell less food products and rely more on co Packers and plant.

So we are still monitoring.

The situation.

Because there are many supply chain disruption right now.

For example, we are seeing longer lead times for certain equipment.

And we are closely monitoring the situation and we're working hard to make the impact athlete less possible.

So.

We will have much more volumes in 2022 compared to Q2 2021, we just need to monitor our expansion plan for next year, when expanding Ogden mail deal.

And the last CUNA facilities, it's a matter of months, maybe delays, but but we are still monitoring it so not a huge impact.

And we also look at possibilities to bring co packers because to mitigate the risks.

Okay.

Great. Okay. So it sounds like.

The $1 billion 75 million liters is still sort of a target, but you've got to monitor things as you go could.

Could be somewhat volatile just based on all the issues are but many are facing around the supply chain and then and then just the second part would just be.

My second part of my question was just how many of the issues that you highlighted in <unk>.

Terms of the revenue shortfall do you think flow into next year or are those will those be behind you by the time, we get to next year like how late are the shelf resets in EMEA and does that give you some.

Yes.

And sort of revenue versus your expectations aside.

Aside from the shift to oat milk versus other.

Products.

My question.

Absolutely Andrea we'd do.

So looking at the performance, we feel very very confident with our business fundamentals and that is recognized by all the retail partners. It's a very very dynamic environment that we're working out right now.

But based on the discussions we're having with our retailers across Europe, we feel optimistic about resets and expansion in our in the first half of 2022.

So we do feel that this is a timing shift.

And that we feel good about entering 2022, but again it is a dynamic environment, we have to monitor.

There's nothing called normal anymore, but we feel confident we see the performance solid across all our markets right.

Thank you.

Yeah.

Thank you. Our next question is come from the line of <unk> <unk> with Oppenheimer. Please proceed with your questions.

Good morning, this is actually Erica eiler on sort of Paas. Thanks for taking our question. So.

So firstly I just wanted to touch on pricing. So obviously in light of the inflationary pressures. It sounds like pricing is now a lever you know you're putting on the table. So maybe you could just talk a little bit about you know how youre thinking about pricing power for your business and what you're seeing from competitors.

So pricing debate.

Sure I mean, and maybe I'll speak a bit about inflation first you know that.

Currently that's it.

Hitting all our markets.

But to.

To date, we only see moderate impact on our results for 2021, but we do expect stepped up levels of inflationary pressures in 'twenty to 'twenty two.

So in terms of outlook for for the fourth quarter.

We see our oats.

Oats and rapeseed oil.

Relatively flat versus Q3, except for the U S, where we see a 20% increase in rapeseed oil. We also see some increase in packaging material for the fourth quarter in Europe of $4 four.

Four to five percentage points still very moderate and manageable level in the fourth quarter for us at the company now turning to next year in total we do expect inflation to hit our total Cogs by an increase in the range of five to six percentage points in 2022.

And so we see that any impact on several of our key ingredients and cost components.

By a major increase in the cost of votes in the range of 10% to 35% depending on the region side.

You'll see a further increase for rapeseed, all of 2025% and also packaging material between 4% to 10%.

In total core for material.

Input material inflation.

It will impact our Cogs of 3% to 40 percentage points in total 2022 versus 'twenty to 'twenty. One and then we also expect to add another percentage point related to freight.

And then the remaining Cogs another 1% so that adds to the $5.

Two six percentage points. So most of the inflation effect, we expect to compensate by price increases in EMEA and the U S.

Together with optimization of channel and product mix.

And also including savings initiatives within the supply chain. It is important to highlight that we do expect gross margin to improve quarter by quarter in 2022, despite the inflationary headwinds and this is driven by the ramp up of our new facilities, the localization or production.

We have discussed in the past.

I don't know if that.

But the response to your questions.

Level.

Yeah I was just curious what you're seeing from competitors in regards to pricing debate as well and if there's just any thoughts in terms of how you're thinking about pricing power for your business or have you pushed that price increases.

Yeah.

Yes.

We still believe we're in a premium.

The premium brand and that we expect our premium.

To be a premium brand going forward and we expect to maintain price position because I think that's what you're asking for so.

So that's not going to change.

Okay, great. Thank you guys so much.

Thank you.

Thank you. Our next question is coming from the line of Carl Mill Gosh for Waller with Credit Suisse. Please proceed with your questions.

Hi, guys. Good morning, or good afternoon, I guess, depending on where you are.

I want to make sure I understood something from the prepared remarks properly it sounded like there was some shelf space.

Losses, and while I understand that production may not be ramping up at the pace at which you had anticipated.

It almost sounded like unless I heard it wrong that maybe shelf space went the other way and that.

Maybe there are some areas and I think this might be specific to EMEA.

Where production actually has gone has declined as opposed to not growing at the rate at which you had expected. So can you just clarify that for me a little bit.

Yes, so we did not lose shelf space.

We did expect to.

Had the greatest space and more distribution.

Entering Q4.

And that is due to many many different reasons.

And if I just let me just walk you through through what's happened here.

Q1 to Q4 to better give you better color on what's going on here. So during Q1 Q2, we were under great pressure due to supply constraints, leading to lower growth rate lower fill rates train relationship with retailers lost market shares consequences for losing 12 markets in 2020 during.

During Q3, the supply was greater leading to higher sales and growth, we're gaining velocity market shares.

And in Q4, you know this being very turbulent retail environment is really really turbine turbulent here in Europe.

So we've seen pandemic related events such as <unk>.

Such as general softer food at home.

More consumption out of home.

And we had a trucker shortage in UA in UK with pandemic in the U K.

So going into Q4.

We're not getting the facing distribution as expected post salt post summer.

And.

It's because we tell us on navigating these turbine COVID-19 environment. They are not able to make material changes to the grocery shelves for the reminder of this year, even though our velocity levels clearly significantly are better than competitors.

And just as an example in one of the premium retailers in the UK, we dropped 27% sales from 7% shelf space.

And that was negotiated back in 2020, when we were under really really heavy constraints in terms of supply.

So normally.

You do see changes after summer in.

In Europe that we did not see so it's all pushed its a timing thing that is happening here right now.

Got it. Thank you that's useful and then if I could ask at least you your best guess on.

What your supply condition in the United States looks like versus the competition.

Are some of these some of the domestic folks maybe just to know.

Better position or.

Are they suffering from similar sort of constraints can you just your best guess on what you're seeing competitively in terms of your ability to supply versus their ability to supply.

Well as far as we know we haven't heard about supply issues. We do note that we are balancing our system of demand building across multiple channels.

And Thats, all we know and we know that we ship every case that we produced in the U S. We even though the demand is stronger than ever and it's growing and that we are bringing in more capacity on board here.

The coming months and especially in 2022.

Okay, great. Thank you.

Thanks.

Thank you. Our next question is coming from the line of Bryan Spillane with Bank of America. Please proceed with your questions Hi.

Hi, Thanks for taking the question and good afternoon morning to everyone.

So my question is just around co manufacturing capacity and maybe could you talk a little bit about.

It sounds like you may be wanting to.

Retain a little bit more co packing manufacturing capacity than you than you originally expected and so I guess my.

This is two fold one is theyre actually enough is there actually co man capacity out there to to retain.

And then second is it becoming more competitive.

To retain co man capacity, because there are certainly competitors come into the market. So just trying to understand.

How how viable that that pathway is and how much of that capacity has been soaked up by competitors and maybe if you could add to that just are co mans, adding more capacity.

Capacity.

Nature is dancing.

Yeah, Hi.

Hi, Brian I've said before librarian yet.

Safety is our core technology, and we will all with produce in house. So it's about.

Formulation and filling co packing.

That we are looking at and we are constantly reviewing our co packing network.

Our supply chain operations team constantly evaluate new opportunities in all regions.

And we will most likely enter new partnership deals linked to mostly linked to we are opening new facilities.

And then we get oat base in other areas and that open up new <unk>.

Co packing.

<unk>. So this is something we constantly reviewing what's the most efficient how do we get the fastest way to market.

Okay and then just is there more available capacity I guess, what's underneath my question is we just.

Hear a lot from investors about the concern about just how many entrants coming into the market, especially in EMEA and the U S and.

Third party capacity ramping up and I just.

I guess I guess the question is really just is that actually true is there more capacity coming into the market that present a risk.

Yeah. It's more is that we know for example, the U S based production both on the West Coast and East Coast and that open up co packing opportunities on the West coast as we now have Ogden.

And in China, now, we have oat based production.

In China, and then we can utilize more co packing, if we want to and need to so it's mainly about that.

We have been constrained.

I'm an old space capacity.

So where its localized now we open up new facilities and get into more regions.

Understood understood and then just one clarification on the.

A reduction in Capex for this year.

Did you say that it is.

It's down because of cash flow or or I didn't quite.

Not quite understand or maybe here.

Lately why the reason for capital spending to come down in 'twenty one.

Hey, Brian It's Christian here so.

So just to clarify that point, you know on a full year basis.

The range to be between 280 and $320 million compared to the previously communicated low end of the range of 350 to 400 million so that is.

Cash flow timing effect of the actually cash outflow shifting to 'twenty to 'twenty two and this is mainly due to timing of payments related to our 'twenty to 'twenty three capacity expansion projects in the UK. The third plant in EBITDA weapons, a third plant in Asia, but overall on an overall level compared to.

To what we communicated to you too as part of the Roadshow process.

That total is still remains.

Okay understood. Thank you.

Brian can I just clarify also within our network today that we have in the U S. For instance, we know that our co packing network in the ecosystem capacity built out and that is something we're going to benefit from going forward.

Understood. Thanks, Tony Thanks, guys.

Thanks.

Thank you. Our next question is come from the line of Ken Goldman with Jpmorgan. Please proceed with your questions.

Hi, Thank you I wanted to build a little bit on one of the first question is from Andrew I. Appreciate that visibility is limited I think you used the word <unk>.

<unk>, which is of course totally understandable given.

The situation right now.

The Street is currently looking for <unk> sales of next year.

With over $250 million I think it's safe to say that will come down but.

I'm trying to get a sense for how far down that needs to go and again I realize your visibility is limited, but you are almost at 2022 already I guess the specific question I would ask is do you think it's smart.

Prudent whatever word you want to use for investors to kind of model below $200 million in that first quarter of next year, just given that a lot of these headwinds are not going to sort of dissipate maybe until you know.

Closer to the back half of the year. So I'm, just trying to get a sense for where that number needs to go.

So Ken I. Appreciate your question, so we can't give quarterly guidance.

We don't do that.

We are really really we feel positive about 2022, I want to say that and we're focused on really really do what we can control which is to bring more product.

On the market work with velocity work with distribution.

And right now we.

Feel good where we are humming cathedral, considering the circumstances right.

But we can't give any guidance quarterly.

And I think the one thing that Peter just said he said that we might have more milk drinks.

<unk> done done will be originally communicated and that might have any impact on the top line for 2022. So I think that is out there.

Okay. You know some companies are electing even though it's our policy long term not to give quarterly guidance to sort of make an exception or at least give some directional activity right now just given the situation, but I respect that.

And then my second question very quickly I think you said you expect to increase price.

Certain products and regions I assume that means not all products and regions, so which products, which regions are you not taking pricing in and why.

No I mean, I think if this is something that we have to evaluate strategically.

Across EMEA and the U S.

By the regional finance teams.

With the with the purpose of offsetting the inflationary headwinds that we're seeing on our Cogs level to neutralize that impact for FY 'twenty to 'twenty two.

Thank you.

Thanks, Ken.

Thank you our next questions come from the line of Michael elaborate with Piper Sandler. Please proceed with your questions.

Good morning, Thank you.

I just wanted to come back to the shelf resets in EMEA and understand that a little bit better and I know, you're clearly, saying that you had ones you thought would've happened by now or in the fourth quarter that are getting pushed out but are those now specifically set do.

Do you have confirmation.

On timing or is it just indefinitely sometime.

No.

To be determined still.

Hi, Michael Hope you're doing well.

No well, we have we have ongoing.

The discussions with our retailers across Europe for resets.

I mean January and May.

But what you can see I mean, all of these performance data is available for everybody to see and would drive significant growth from.

Disproportionate less shelf space in all our key markets in Europe for instance.

And definitely they got you're going to see some changes there on the shelf.

In the beginning of next year.

So it's an ongoing discussion.

Nobody's favor that we have less shelf space than what we deserve given how much growth we are driving across these regions.

Okay.

That's helpful. And then just one on the foodservice side you.

But you called out the blue bottle partnership as well and highlighted that on the slides.

It's only Americans page and so I understand that's certainly where it's focused but.

Could that expand outside the United States and at least also work in Hong Kong or potentially springboard.

You give them entry for you into Korea or Japan.

Do you mean blue bottle specifically.

Yes.

Obviously.

Yes, it's a partner that you have in one geography at least.

So no we were working regionally.

With the bigger accounts.

Normally do you have a different organizations across the regions here blue bottle is a premium chain.

We have a very good collaboration with them and we.

We don't have anything that is planned for in 2020, we blue bottle specifically.

Of course, we do have ongoing discussions as we do with all the different partners that we have and of course you know.

Also given that you know coming from supply chain situation full for a long period of time, we are now bringing more capacity on board, which will allow us to open up all these discussions across all the different regions right. So if you look at Europe for instance.

We don't have we haven't been able to approach the <unk>, probably the biggest change in foodservice due to supply constraints right now we're going to be in different situations pursuing an open up opening up those discussions and that goes for Asia as well right two factories in Asia, giving us more volumes to be more broad and.

<unk> be more on the offense going forward.

Okay, Great that's helpful. Thanks.

Thank you. Our next question is coming from the line of low rents Grande with Guggenheim. Please proceed with your question.

Hey, good morning afternoon, everyone I'm sure doing round so.

I'd like to come back to to EMEA.

Two questions. So the first one is despite.

Entering new countries as you mentioned last quarter.

You lowered by about $31 million, if I'm correct I mean, our revenue in the fourth quarter and that's about 30% lower than that's significant. So if you were to bucket the gap would be coming from the shelf set.

Sure shelf set.

Sure.

<unk>.

Packaging supply on potentially liquidity issue you mentioned, so if you were to break it down and then.

In the shelf space.

<unk>.

What are you losing.

Is it you are not getting as many skus expansion as you expected or do you get more out of stock has your own video city. As you mentioned I mean, it's growing so I'd like to understand what is the consequence of a fund.

Not us.

It has much I'm not sure space as you expected.

Yeah, I mean, the shelf space is significant thing again like we do have disproportionate.

Shelf space across all our key regions and again.

The example that I mentioned is quite extreme driving 27% and that is one of the biggest retailers in the UK and UK being our second biggest market right. So it's substantial.

The way, we're driving again, 27% of the SaaS from 7% shelf space you see that you see the same.

Disproportionate numbers in Germany, and other countries.

That has a significant impact so nothing happened during we know that nothing will happen during Q4, right and which will eventually.

Will happen.

During the first half of 2022.

And yes, we do have supply. So we can do we can build.

Put more often behind ourselves in terms of building more velocity continues.

Extremely solid velocity performance that we see we increased from the low seen in the summer in all our key markets very positive performance.

Uh huh.

Summer to where we are today in terms of velocity.

And we will increase branding as well we haven't done anything in terms of branding right.

So that is an opportunity that we have going forward as well and then also.

It's a timing thing with it.

Opening up the new markets that the old markets that we closed back in 2020, which is taking longer due to this.

Environment that the retailers are operating in related to the COVID-19 situation and Thats the reality.

So multiple on multiple levels.

We can bridge, we would consider jumping to due to higher sales.

Okay.

Okay also Lawrence I, just wanted to say a distribution of increased distribution with existing partners as well.

It's also a major point.

Thanks, Tony.

And one more thing you Reed you said in your pre remark I mean, you're investigating a quantity issue.

In a in one of your pressure facility in Europe, you will.

Destroy some inventory so how big it is.

And what it is and is this something that is.

Usually when we should expect I mean time to time.

Yes, we're rounding at food companies things like that.

<unk> presence.

<unk> not not not not too frequently.

Frequently historically, but these things.

It's just part of running a food company right and during a planned maintenance stop in ethanol loans Krona facility. This weekend, we self identified a potential quality issues.

And as you know, we always put safety and product quality first and immediately initiated.

Quality assessment and activated.

The relevant producers procedures.

We have full traceability for all our products and as a precaution are conducting their assessment. There is the potential that this assessment may result in the destruction of inventory and corresponding loss loss sales in EMEA region. However, we do not expect this will limit our ability to achieve our two.

'twenty one outlook.

And we.

We can put we will provide more information when we have more.

Thank you very much thank.

Thank you very much I appreciate it thanks. Thank you.

Yeah.

Thank you. Our next question is coming from the line of Dara <unk> with Morgan Stanley. Please proceed with your questions.

Hey, guys.

So first just a quality issue in EMEA is it is it a significant portion of revenues obviously its early to sort of specifically quantify it but just trying to understand is it across product categories is it more of an isolated issue and are you comfortable that it's related to that one.

Plan and not something that could be an issue elsewhere.

And then the broader question is more just as we look at the implied Q4 guidance.

It does seem like the.

Disappointment sort of versus what you originally expected is much larger than what we saw in Q3.

But conceptually.

Tens in better shape.

Perhaps there's not as much foodservice pressure in Asia is there not is gonna be closures.

It seems like some of these issues should be getting better relative to Q3, So just sort of trying to understand why the magnitude of impact seems greater than in Q4 relative to Q3 as you run through these various issues, where it seems like there might be some progress conceptually.

Yeah, Hi, Dara.

So just on the quality of team here, yes. It's the same it's one facility. So that is clearly identified and we are still assessing the situation.

And we will provide more information as soon as possible if necessary.

We're still in assessing the situation.

But I mean I think currently we can say that we do not expect that this will limit our ability to achieve our 'twenty one outlook, yes, correct that is correct.

In terms of the net.

And in terms of the magnitude for Q4.

Mainly three components here right.

Yes Europe.

Definitely bigger because it's the biggest region with 51% of our sales.

But if you look at the regions here in the U S.

It's related to the Ogden production output and that it was slowed down by the Covid driven delays in delivery of manufacturing equipment.

And for Q4 were being conservative to ensure we deliver on what we've updated you on today.

Until we have more consistent output from Ogden over multiple months, we want to see more stability there.

And in China, we were aware of the Covid situation during the summer, but we werent aware of the magnitude and the journey of the of the Covid related issues.

And it resurfaced again in China.

And remember that foodservice is a major part portion of our business there and we only have one SKU basically in China business to consumer with the boost edition.

Cost of our supply constraints and last year, we were able to redirect sales quickly to E. Commerce during the height of the pandemic, which was less developed for us at that time and now we are quickly shifting to expand our offering with new skus and formats to further develop the E com business in retail both with massive potential for growth.

Starting in 2022.

And I think we mentioned everything we.

Can a bot.

Europe, we saw we see and.

Same thing is that the retail is working in a very dynamic and turbulent.

Environment.

And just trying to navigate what's got what's going on there in terms of out of home consumption in terms of recess.

Rebuilding the plan of grams and all that.

We are relying on our performance we are relying on our velocity and our market share gains and that we are bringing a massive amount of growth into the categories in each of our key markets.

It won't happen until beginning of 2022.

Yeah sort of navigating the pandemic environment, we see shutdowns in Germany, again closing down societies, and Thats kind of what were sort of navigating through as well as a company but fundamentally.

Hi beliefs in our business.

Youre right Christian.

We believe the majority maybe all of our EMEA key markets will continue to have certain level locked down in Netherlands, just recently locked down again, and we know that Germany, Germany is heavily impacted by COVID-19, and we see our neighbors in the Nordics.

And which makes us.

Well it doesn't make us think we note that the recalibration on the retail shelf won't happen until the first half of the half of 2020.

Okay. Thanks.

Thanks Sarah.

Thank you. Our next question is coming from the line of Brian Holland with Cowen. Please proceed with your questions.

Yeah. Thanks Hello.

Also I want to focus on the U S.

A lot of conversation around the distribution dynamics at retail.

But obviously the data points that our investors are looking at every other week.

Our primarily trained in the U S. Again completely appreciate that this is a fairly small part of your business, but you know as you are navigating channel initiatives as you referenced earlier.

Initiatives across multiple channels are you still in a situation, where you're shortening maybe retailers and I'm curious if you think youre going to get back to a better position in the first half of 2022, what's the timing for maybe improving your in stock situation in the U S. Such that we might see some share stabilization.

And in the tracked conventional grocery channels, which mind you exclude spin data.

Yes, so a couple of things here hi.

Hi, Brian.

So.

On the on the fill rate it has improved significantly since the lows we had in pre summer here and we are continuously increasing that volume and we are.

Also see that the velocity is still growing.

Very positive direction. So again, what we said last time like how do we get.

How do we close that gap fill rate gap when demand continues to accelerate but we feel very positive going into 2020 that we can do that.

And also serve.

More broadly to other channels again for us it's about the system of demand they want to build and we need to balance strategically between the various channels here.

But the fill rate we're not fulfill right we're not at the rate anywhere.

But we've proved the fill rates considerably since summer.

Okay I appreciate the color and then last question for me.

You said last quarter, you expect it to be back at 100% supplied Starbucks there.

Commentary a few weeks back suggest that they'll continue to pull on secondary sources. So just curious.

Maybe if anything's changed in the in that relationship is there now an expectation on your end that they will call on secondary sources of supply to meet the full demand and.

Just any update there would be appreciated thanks.

Yes.

Again, the relationship with Starbucks is just excellent and we're both excited and thrilled about the success of our openings last there.

We will serve 100 service, 100% of the Starbucks Network December and January and White label will enter in February and stay through the end of calendar 2022. During 2022, we will serve.

We'll service around approximately <unk> <unk>.

85% to 90% of the total Starbucks network after a lot of white label returning.

That said as we increase production were constantly think about our supply allocation and how we can balance our channel mix to drive our sales growth and profitability, but also to expand our reach and brand awareness. So this is a very strategic topic for us internally since we also generate it.

Economics.

From a retail and coffee channels.

But we feel more confident.

As we bring more capacity in the U S for sure.

Thanks, Tony Best of luck everyone.

Thank you.

Thank you our next questions come from the line of Jon Andersen with William Blair. Please proceed with your questions.

Oh, hi, everybody. Thanks for the question.

I wanted to ask I know you're limited in what you are able to say about 2022 but.

Their work.

Significant or expectations for pretty significant gross margin improvement in 2022, and just hearing some of the commentary.

Today around.

Focusing the production capacity that you have on milk.

More so maybe than other food.

Some manufacturing delays.

Perhaps the use of co packers for a longer period of time.

How should we think about that in the context of the <unk>.

Margin improvement you were originally anticipated in 2022 does that get pushed out is the rate of improvement more moderate than the original plan.

Hi, John It's Christian here, Yeah, So I think I mean.

First of all fundamentally.

We do believe and this is sort of the case as well that gross margin is expected to improve quarter by quarter in 2022, despite the inflationary headwinds. Despite what we were experiencing in Ogden and the ramp up complications over there and that improvement is <unk>.

<unk> bye.

The new facilities to localization of <unk> in the each of the region, making them self sufficient on their own production volumes and sales volumes, increasing the share of self manufacturing.

And a general improvement in freight and distribution costs coming from.

The localization of our production capacity in each of the region.

Now will the gross margin improvement in terms of what we might have indicated before be slightly less.

I would say, that's probably a fair assessment, but we will come back to that when we meet during our first fourth quarter earnings call.

Yeah.

Okay. Thanks.

One quick follow up.

This was I guess kind of addressed earlier, but.

In the U S. Your.

Your <unk> or distribution at retail.

I guess have maybe the.

Yeah.

The number one brand at retail.

Market share and I'm just wondering.

If you have kind of a COVID-19.

Visibility or plan to try and narrow that gap and bring your HCV up from I think high thirties now.

Two.

A much more broader distribution and what that timeframe might look like one of the concerns I hear is that.

This window of time is giving.

Competitors and opportunity to generate trial and perhaps brand preference.

While you're working to kind of scale up so your thoughts there would be helpful. Thanks.

Absolutely so youre absolutely right there.

Hi, Tom.

ACB today in the U S is 34% at the biggest brand has 89% ACB right. If you will.

Total distribution points like 10 ton.

More distribution points so.

The number one priority for US is two to two two close to fill rate gaps or work with the retailers that we have that is the number one.

Because the demand is continues to increase and which is very very positive for us.

And in terms of retail there's always room for the best performing brands like our performance data is so.

So over indexing versus competition.

That I think that we have flexibility in terms of timing of working our distribution in ACD over time as we bring more capacity on board.

So.

It just speaks about the runway we have John more than anything because the cost of the solid performance, we have especially in the U S.

Thank you.

Thank you.

Thank you there are no further questions at this time I would like to turn the call back over to management for closing remarks.

So thank you for your questions. We are really appraise appreciated and I appreciate our discussions with you today and look forward to continuing our dialogue here. So I have a great day everybody.

This does conclude today's teleconference. We appreciate your participation you may disconnect. Your lines at this time have a great day.

[music].

[music].

Good morning, and thank you for joining us on <unk> third quarter 2021 earnings conference call and webcast.

Today's call are Tony Peterson, Chief Executive Officer, Peter Berg, Chief Operating Officer, and Christian Hunky, Chief Financial Officer before we begin please remember that during the course of this call management may make forward looking statements within the meaning of the federal Securities laws. These statements are based on management's current expectations and beliefs and involve risks and uncertainties.

That could differ materially from actual events or those described in these forward looking statements. Please refer to the company's final prospectus filed pursuant to rule 424, B three on May 21st 2021 and other reports filed from time to time with the Securities and Exchange Commission for a detailed discussion of the risks that could cause actual results to differ materially from those expressed.

Or implied in any forward looking statements made today.

During today's call management, all furniture, and non I O R S financial measures, including EBITDA adjusted EBITDA and adjusted EBITDA margin of the company believes these non <unk> financial measures will provide useful information for investors. The presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in the.

And could I forgot.

Today's release for a reconciliation of non <unk> financial.

<unk> financial measures.

Comparable measures prepared in accordance with IRS. In addition, only supposed to be a supplemental presentation on its website for reference I'd now like to turn the call over to Tony Peterson.

Thanks, Katie and good morning, we appreciate you joining us to discuss our third quarter financial results on today's call I will briefly review our third quarter financial highlights.

An overview of our business performance, including the continued strong consumer demand broadly in the old category in our key markets and reiterate the key reasons. We believe <unk> is well positioned for strong growth over the next several years as we benefit from an acceleration to dairy alternatives globally, and we scale operations to meet this growing demand.

Peter will provide an update on the progress, we're making to build out our global manufacturing capacity footprint and Christian will review our financial results.

In more detail before we open up the call to take your questions.

For those that have been following <unk> since our IPO you know that 'twenty 'twenty. One is the most transformational year in our company's history, we're adding new production capacities at an unprecedented pace for our company on three continents to meet the robust consumer demand for our market, leading brand and working to execute this during a global pandemic.

It's no small feat.

We are continuing to prioritize growth investments over profitability at the best position to serve customers and consumers alike took focused on taste and nutrition sustainability transparency and trust with the strong emotional connection to our brand.

Believe these priorities are critical for accelerating conversion from the global dairy market, which we estimate to be worth approximately $600 million in the retail channel alone with a large foodservice foot printing growing e-commerce opportunity.

We continue to see tremendous consumer demand for our products across each of our regions as we convert dairy users to plant based milk consumers.

2019 plant basically penetration dairy category has increased anywhere between 35% to 135%.

Core markets based on volumes. These figures highlight the transformation that is taking place in the dairy category.

However, even with these significant growth rates the overall penetration of plant based milk in the dairy category is still very low ranges between 9% to 11% key western markets, which highlights the tremendous upside still ahead of us.

Whilst the Derrick considering these converted your plant based milk. We also see very strong repeat purchase behavior. According to our consumer insight study.

60% to 70% of the consumers use plant based milk at least.

Every two to three days and nearly 80% consume it at least once per week.

Highlights how quickly consumers switch over to incorporating plant based milk into the daily routines.

The syndicate is scattered data also continues to show that the old category continues to prevailing gained share over all the other dairy alternatives across our key markets and we are driving this growth.

Is clear from our market shares in our leading velocity performance, even with a limited shelf space footprint to date.

Year to date, we have invested heavily in our business establishing infrastructure personnel in the basic capabilities and partnerships to meet consumer demand and maintain and grow our category leadership position.

We've opened two new facilities in Ogden, Utah, and Singapore, and we expect to open a second manufacturing facility in Asia later this month.

We are incredibly proud of our global production supply chain and procurement teams efforts to open both the Singapore and China facilities in line with our stated timelines.

We believe that adding these two new local production facilities in Asia will supports Otis trajectory of strong future growth in the region, 80% of the population in Asia is lactose intolerant and we believe ultra can gain a larger share of the dairy alternatives market in the region over the next several years.

Having a localized production in the region, we expect to achieve much of the production economics and operating efficiencies reduce the environmental impact and increased profitability in Asia will be able to reduce production reliance on EMEA for the first time.

In the first half of this year, we also double production capacity at our facility in Michigan. Nevertheless, the production output in this facility was in line with our expectations in the third quarter and this output will help to facilitate our offensive positioning in EMEA.

Over the last 18 months, our commercial sales and marketing teams have consistently phase growth constrained space our capacity limitations.

In total we produced finished goods volume of 131 million liters compared to 74 million leaders for the same period last year, an increase of 77% is also an increase of 24% from the 106 billion liters. We produced in the second quarter of 2021 now.

Now to dive into our financial highlights in more detail for the third quarter, we reported record revenue of $171 1 million us dollars, a 49% increase compared to the third quarter last year.

Loan growth was broad based across geographies and sales channels and product offerings.

Yes.

Now most companies would be thrilled with this level of growth and execution in any operating environment.

We hold ourselves to a higher standard of execution based on a bottoms up view of our business and frankly, we expect it to deliver approximately 107 to 8 million U S. Dollar revenue representing a year over year growth of 55%. We believe this is primarily a timing issue and I would take you through some of the.

Specific events that have delayed either a production output our product availability in certain geographies.

So no we're not satisfied with our revenue growth, even though we grew tremendously in the global marketplace, where many companies are experiencing the impacts from COVID-19, and temporary supply chain pressures.

I'd like to provide more details about the specific factors impacted our growth in the third quarter.

First in the Americas region, we were approximately 3 million U S. Dollar below our plan for quarter. Three this was primarily due to lower than expected production output at our Ogden, Utah self manufacturing facility.

We experienced mechanical and ornamentation issued in August during our production ramp up which slowed our production progress versus our plan. This was further exacerbated due to COVID-19 related supply chain disruptions.

Which led to a delay in our team's ability to receive their required equipment to fix the issues in a timely manner.

Based on these events our sales trajectory in the region was pushed out.

As a result, our sold volume was 37 million liters per month on average for the third quarter. Instead of our expectations was sold volume of 40 million liters per month on average for the quarter.

Second in Asia, we were approximately $3 million used dollar below our plan for quarter three.

Approximately 75% of our third quarter revenue in Asia was generated from the foodservice channel.

And we experienced a heightened level of COVID-19 that very unrelated foodservice location closures in Asia.

We continue to monitor the situation closely as heightened restrictions remain in effect throughout the region, the health and safety of our team consumers and our partners in the region remain a priority.

And finally, EMEA was approximately $1 million lower than expected for the third quarter due to a truck driver shortage in the United Kingdom temporarily delayed distribution of products.

In addition, during the third quarter, we experienced a noticeable uplift in the foodservice channel. That's a share of total EMEA revenue compared to the second quarter of 2021 from 13, 8% to 17, 7%. We believe this is a result of highest share of out of home consumption within the company.

These key EMEA market as pandemic restrictions have been further lifted.

And the summer holiday season extended into the fall.

Okay.

We expect these key factors that delayed even stronger growth in the third quarter will abate as we head into 2022.

And going forward, while we may experience certain reliability, and a strong growth rate quarter to quarter as we scale, our global operations, our confidence in the size and long term trajectory of our business is stronger than ever.

I'd like to share a few highlights across our key markets support why we believe <unk> will continue to win a significant share of the conversion to dairy alternatives globally and maintain our market leading position.

Our brand has continued to excel on the global scale as evidenced by the following market statistics.

According to Nielsen and IRI data for the <unk>.

52 weeks ended October 2021.

In all our key markets only has the number one selling old excuse me in terms of sales value and the highest velocity skus representing sales per store per week.

At the brand level continues to be our primary growth driver of the total plant based milk category in.

In the U K, our brand contributed the highest amount of sales growth to the dairy alternative drinks category and was the second highest brand driving growth in Sweden, Germany and the U S.

In both Germany, and the UK are brisk edition item has at least.

Two times the unit velocity levels versus the.

Second and third highest selling SKU in the old category.

Our brand accomplish this with a limited SKU range and a fraction of the total distribution points versus competitors.

In the Americas.

For the OTT product continues to be incredibly strong according to the Nielsen for the 24 weeks ended October 16th.

<unk> remains the number one fastest turning branding total dairy plant based dairy and oatmeal.

Hopefully, it's the number two dollar sales oatmeal branding X Aoc.

And we also reclaim the number two spot in total U S food spend in the latest period.

Hopefully, it's the number one dollar sales to ultimate brand in the U S natural channel and in major retailers, including whole foods and target as you see on slide 13 of our earnings presentation.

Walmart poultry original is the number one lots at the old new SKU.

And the number two velocity plant based milk SKU.

And an additional 1200 stores planned in April of 2022.

If you look at slide 13 in our earnings presentation.

<unk> will also noticed the velocity has nearly returned to pre distributions search levels normally the last he gets diluted when increasing distributions.

We expect to see this continue to improve as more cases answered the system. It has certainly been proven that the demand from existing customers is there to absorb incremental cases.

Oh, two weeks with dollar sales have increased more than 25% since July 10th three months ago and continues the upward momentum each week.

The old group category has increased only 15% during that same period.

Okay velocities have increased more than 21% since July 10th far more than any competitive brand and the old new category grew only 3%.

Unfortunately year to date.

Quarter, three represents approximately 6% of Americas revenue.

This is an area we continue to be excited about for example in the plant based ice cream category, excluding the sorbet.

Frozen desserts are number one in dollar growth.

And number three out of the top 10 highest dollar velocity flavors in the U S food.

We'll be launching frozen novelties desserts, which are expected to arrive on shelves beginning mid December and into the spring.

The U S. Commercial teams are in the midst of a growing distribution acceptance with over 8000 points of distribution confirm so far in foodservice or at least the brand partner of Starbucks in the U S and growth of only an oatmeal exceeded both our expectations to date.

Current projections from Starbucks continues to escalate based on the success of Otis Oatmeal and we have aligned with them on an ongoing supply plan continue bringing our products to the broadest possible audience.

Starbucks is a strong collaborative partner and we look forward to growing with them across existing and new geographies.

With their partnership we're able to reach many more people with beverages and in doing so we can continue to do great things for the planet together.

And finally in Asia, our growth in this region demonstrates the effectiveness of our proven multi channel expansion strategy.

Wariness and trial achieved in the specialty coffee and tea channels is critical to educate the market about plant based dairy and establish our leadership in Asia.

We continue to maintain our market leading position on Tmall, which demonstrates <unk> ability to consistently outperform in a highly competitive marketplace.

In foodservice, we're not fully distributed in Starbucks in mainland China and KFC.

We also have great opportunities to expand with existing customers. Mcdonald's is just one example of where we can expand distribution as we are approximately 40% of their locations to date.

Yeah.

Last week, we launched in our Yoki top two modern tea brand in China with the markets first old cap T Dream. This product will be available in more than 700 stores nationwide.

At retail it can be found in anywhere from 10% to 50% of total available to existing customers doors. For example, we are presently in 800 1500 towards the stores with young way one of China's largest retail chains.

Significant group of distribution expansion in retail once we scale capacity.

Just existing retail customers alone dutra.

Do you trust supply constraints, we have not prioritized the retail channel in Asia, So far but still have been able to make significant progress.

Our successes across the U S Europe, and Asia demonstrates the strength of our product portfolio across multiple categories and the increasing consumer appetite for Oakley and all brands ability to travel when consumers choose to shop, our mission and quarterly in driving societal shifts towards plant based.

Food system Unifies, our company and our quest for purpose driven growth.

As humanity faces massive challenges of climate change in lifestyle disease, our mission is even more relevant and powerful.

We aim to inspire people to make small changes in their lives there are beneficial to themselves and the planet.

Our in house creative teams create ways for <unk> to have an emotional bond with consumers, who are already becoming more health conscious and more environmentally conscious.

And we have a proven disciplined and thoughtful multichannel strategy that we believe sets us apart from the competition because we're already building our brand successfully across three continents with a tremendous amount of white space to add new markets.

In summary, I'd like to thank our global team for their efforts in achieving our growth.

We believe our strong foundation and business fundamentals will help us capture disproportionate amount of growth over the next several years as consumer demand continues to accelerate with plant based alternatives.

Now I'll turn the call over to Peter.

Thanks, Tony.

We'll focus on our global production and capacity build out.

As we have previously communicated production capacity have been a major constraint on our growth and.

And we have made substantial investments to scale, our production capacity and address supply shortages due to the massive demand for our products globally.

In the third quarter, our consistent production output in EMEA enabled us to begin to build supply to meet the consumer demand across the regions for our products.

Our expanded listening and hybrid facility, which started production in July is progressing well and the facility generated production in line with our expectations for the quarter.

As Tony discussed the main reason for our lower than expected total production output was related to mechanical and automation delays at our new self manufacturing facility in Ogden, Utah beginning in late August as we continue to scale up leaders produce.

As we discussed on our quarter two call in July we opened our Singapore hybrid manufacturing facility, representing our first local production available in the region.

This is an important corporate milestone.

This facility will have 75 million liters of annual finished good capacity at full production.

Since 2018, we have been shipping our product from Europe to support the growth in Asia.

And we are excited about the operating and financial efficiency, we expect to gain from our new Singapore facility.

In addition to Singapore. This month, we will open our second facility in Asia.

Sean Shiner will be our first self manufacturing facility in the region, creating the opportunity for a total of 225 million liters of production capacity in Asia.

For the year, we expect little to no financial contribution from <unk> as they perform initial task work required before ramping production.

Despite these short term headwinds we have discussed October was our highest production month in the company's history as you can see on slide 21.

We expect our production output to increase again for the month of November and December.

We continue to expand capacity of our existing facility and we are currently in planning stages to open additional facilities in the U S U K and China in 2023.

These three facilities are estimated to add an incremental 450 million liters of finished good by the end of 2023 to support the demand for our products globally.

Like other companies, we are noticing longer lead times for certain require equipment related to our planned capacity investments for 2022 and 2023.

We are seeing some delays in 2022 capacity expansion project.

And are closely monitoring and assessing any potential impacts on projects currently.

<unk> 20th suite.

Based on the strong demand we continue to experience across our markets, we expect to strategically prioritize our own space for the production of oat milk versus other food products to drive growth and conversion.

We believe this speaks to the growth potential we have and makes the painful or growth trajectory even longer.

But the revenue mix from these items could slightly impact our revenue and gross margin in 2022, if we sell less food products and rely more on co packer than planned.

For the first nine months of 2021, South manufacturing, what 21% of total volume.

<unk> two co packing up 47% and hybrid at 32%.

Demonstrating continued progress toward our production goals.

As we grow we believe owning and controlling our global operating footprint is paramount to addressing the significant consumer demand for all three products.

Our goal is to have 50% to 60% of our total volumes come from self manufacturing, reducing co packing to 10% to 20%.

30% to 40% from hybrid manufacturing.

We expect to drive profit growth.

Through increasing our self in hybrid manufacturing model as well as localizing our production footprint.

Which will improve our production and supply chain economics, and economies of scale and service level.

Going forward, we intend to continue to invest in our innovation capability build our manufacturing footprint.

And expand our consumer base.

Supporting our growth trajectory.

Now ill turn the call over to Christine to review our financials.

Thanks, Peter and good morning, everyone.

Nice to speak with you today.

Turning to the financial revenue for the third quarter of 2021 were 171 $1 million, an increase of $56 4 million or 49, 2% compared to revenue of $114 $7 million.

In the third quarter of 2020.

Tony described short term headwind impacts the rate of growth we delivered in the quarter.

There was a minimal foreign exchange benefit to revenue of approximately $4 $4 million in the quarter. However, excluding foreign exchange on a current quarter versus the prior year quarter comparison, we grew at a faster rate in the third quarter compared to.

The second quarter of 2021 on a consolidated level in America, but also in EMEA.

The foodservice channel continued to increase in the third quarter of 2021 compared to the prior year period with the reopening of on premise outlets from the relaxation of COVID-19 restrictions in our key market, partially offset by certain COVID-19 related foodservice located.

<unk> closure in Asia.

For the third quarter 2020.

One the foodservice channel accounted for five 8% of revenue compared to 27, 3% in the same period last year.

The retail channel accounted for 59, 4% of third quarter 2021 revenue compared to nine 4% in the third quarter of 2020.

Consolidated net sales per liter was $1 five.

Compared to $1 <unk> in the third quarter of 2020, primarily driven by positive foreign exchange effect in EMEA and Asia close to the customer and channel mix in Asia.

Customer and channel effect in EMEA and America.

Our highest reads.

Our leader information.

By the America and.

Net sales per liter was in line with our expectation except for in Asia, where it is.

David our expectation driven by channel and customer mix.

Gross profit in the third quarter was $4 to $4 9 million compared to $36 million into prior year period.

<unk> margin decreased by 510 basis points to 26, 2% compared to 31, 3%.

Prior year period.

The gross margin decline in the third quarter of 2021 compared to the prior year period was primarily due to higher logistics expenses in EMEA and the Americas as well as higher container rate for shipment from EMEA or Asia Ashish.

<unk> channel and customer mix, primarily in America.

Short term challenges related to scaling up our production capacity at our Ogden, Utah facility.

<unk> and a higher share of co packing production, partially offset by positive channel and customer mix the nature and the minor positive impact from foreign exchange.

We have experienced an increase in freight costs driven by the effects of the pandemic and the shortage in capacity primarily in the Americas and EMEA, but also related to our shipment from EMEA or Asia.

Continue to expect that the localization and expansion of our production capacity within the region will help to offset some of these grateful headwind.

Going into 2022.

Inflationary pressure to impact our cost of goods sold more broadly.

The old prices and other commodity prices as well as.

Packaging materials, increasing as a result of a number of different factors.

Harvest in Canada, as well as supply chain disruption more broadly.

As a reminder, <unk> account for 8% to 9% of our total cost of goods sold.

Even with the old dropped condition, we are well positioned with adequate votes.

To meet our anticipated growth this year.

For financial year 'twenty two.

Rapeseed oil, which accounts for approximately three to four percentage points of our total cost of goods sold continues to be higher versus second quarter in the third quarter of last year.

We expect the geographical localization of our production capacity, including bringing more of the production in house to provide some of the inflationary pressures.

Also expect increased price.

Product and in certain region, where necessary to help folks that.

Some of the commodity.

The inflationary headwinds.

We continue to expect variability in our gross margin quarter to quarter based primarily on the mix of revenue by geography, and sales channels as well as the mix of our manufacturing output.

On an annualized basis, we expect to continue to see improvement in our gross margin year over year, starting in 2022 with a long term goal of 40%.

Now focusing on our balance sheet and cash flow.

As of September 32021, we had cash and cash equivalents of $403 1 million dollar.

$305 2 million and short term investment and total out then being that the credit institutions.

Millions of dollars.

Net cash used in operating activities was $148 6 million for the nine months ended September 32021, compared to $24 million during the prior year period.

Capital expenditures were $106 7 million for the nine months ended September 32021, compared to $85 1 million in the prior year period.

Cash flow from financing activities.

<unk> $958 7 million, reflecting the proceeds from the IPO net of repayments the viability the credit institution and repayment of the shareholder loan the company invested a portion of the IPO proceeds and secure short term investments.

Yeah.

Turning to the guidance.

Fiscal year 2021, we now expect revenue to exceed $635 million, an increase of greater than 51% compared to fiscal year 2020.

Strong growth across the region.

Contribution from each of them.

It is important to note that.

Based on our previous annual revenue outlook.

We expect that hundred $78 million in revenue for Q3 of Tony mentioned.

$226 million for Q4.

Two to 690 <unk> revenue.

The primary reason for revenue of $178 million or growth of 40%, which is now the implied revenue for the fourth quarter are due to reduction in our forecasted revenue $48 million.

Broken down by region solos.

First in EMEA.

We are starting to build supply to meet consumer demand.

Pace at which we expected to increase revenue and new.

This thing retailer and to open up new market is slower than we anticipated as we navigate dynamic COVID-19 operating environment, we believe.

This is primarily a timing issue.

Lowering our revenue in EMEA.

$31 million.

In the first half of 2022, we expect to have an increased share of shelf space at retail given our strong velocity.

The current supply levels.

Our greater context on EMEA, it's important to remember, but during this time last year, our commercial sales team with working with our recent partners shell.

Debuted sometime for 'twenty one.

In which our business was incredibly supply constraint.

As a result.

<unk> 2021 with less shelf space than prior years based on our lack of inventory and the fact that we have historically sold on that we produce.

Further evidence of our supply constrained last fall is the fact that for 2021, we have scaled back distribution.

12 countries in EMEA.

We are excited about the discussions we're having with our retail partners in EMEA and we expect to have a better share of the shelf.

Our complete we are entering new countries and blue.

To drive industry, leading velocities across the region all of which we expect to benefit from in 2022.

In the America.

We are pleased with the weekly production output improvement at our Ogden, Utah facility to date.

In the fourth quarter, although we are navigating a challenging supply chain environment, and we expect lower production sales volume versus our prior outlook, reducing revenue by approximately $13 million and finally in Asia break the public health measures remain.

In fact due to an increase in cases of the COVID-19 belt rebellion.

Closely monitoring the situation and remain focused on the health.

Our team however, given the ongoing restrictions we are taking a more conservative view on our growth for the fourth quarter, reducing our revenue by $4 million.

Assuming no significant changes from where we are today, we expect the fourth quarter exchange rates to be a single digit tailwind compared to the second half of 2021.

We expect capital expenditures to be between 280 million to $320 million a decrease from our previous estimate of $350 million all due to the timing of cash flow.

We expect production capacity to be approximately 600 million liters of finished goods by the end of the fiscal 2021.

That's efficient.

The capacity to reach our annual revenue outlook.

Long term, we continue to expect to generate gross margin greater than 40%.

And then adjusted EBITDA margin approaching 20% as we benefit from a much larger manufacturing footprint globally greater economies of scale and continued strong revenue growth.

With that review told me will now provide a few closing remarks.

Thanks Christian.

I want to reiterate that our long term outlook and objectives remain unchanged. Although from time to time, we will experience variability in our top line growth based on our pace of new production coming online.

What remains clear is the tremendous opportunity still ahead of us to continue converting dairy users seem to Ot consumers.

All of the syndicated scanner data continues to highlight a clear velocity outperformance on shelf when we have the supply and the distribution.

Although we are currently navigating a more turbulent and COVID-19 driven operating environments. We continue to expect to capture a disproportionate amount of the category growth going forward.

I'd like to thank our global employees for the efforts and dedication that continues to advance the reach and impact of Otis mission on a global scale.

With that overview Pizza Christian and I are now available for your questions.

Operator.

Thank you we will now be conducting a question and answer session.

Like to ask a question. Please press star one on your telephone keypad comp.

A confirmation tone will indicate your line is in the question queue you.

You May press Star two if you would like to remove your question from the queue for participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys.

Please while we poll for your questions.

Our first questions come from the line of Andrew Lazar with Barclays. Please proceed with your questions.

Great. Thanks, very much everybody.

I guess I want to start off you are still looking for capacity next year of one point or <unk> 5 billion liters.

As a run rate for 'twenty, two so first off I'm trying to get a sense of how much leeway you are building into that expectation just given some of the some of the challenges that you've highlighted in getting capacity up and running on the on the timeframe that you all would like.

And then secondly, if you reach that level.

What I'm getting still a little confused by how many how much of what you've highlighted in terms of impacting the third quarter and the fourth quarter of this year do you anticipate.

Start to flow into next year.

Some of these shelf resets in EMEA it sounds like there have been delayed a bit.

Does that impact along with some other things your expectation for revenues in 'twenty two based on versus let's say your initial expectations a little while back thanks, so much.

Peter Please.

Maybe you can address <unk> question.

Hi, Andrew by the way yes.

Hi, Andrew.

Sure.

Yeah in terms of the.

2022.

I want to reiterate that our long term outlook and objectives remains unchanged. Although from time to time, we experience variability in our top line growth based on our pace of new production coming online.

What remains constant is the robust industry tailwind we have globally.

Humorous increasingly using plant based milk I currently planned okay.

Also bear in mind, we are moving from a transition year, we have significantly more volume in 2022 compared to 2021.

In terms of 2022 coming back to what I said earlier, we expect to strategically prioritize pace.

Towards the production of oat milk versus other premium products to drive growth and conversion.

So we believe this speaks to our growth potential when we have it makes the tail for our growth trajectory even longer.

The revenue mix as I said.

From D. That's item could impact the revenue in terms of net sales per liter and gross margin in 2022, if we sell less food products and rely more on co Packers and plant.

So.

We are still monitoring.

The situation.

Because there are many supply chain disruption right now.

For example, we are seeing longer lead times for certain equipment.

And we are closely monitoring the situation and we're working hard to make the impact athlete less possible.

So.

We'll have much more volumes in 2022 compared to Q2 2021, we just need to monitor our expansion plan for next year, when expanding Ogden mill deal.

And the last CUNA facilities, it's a matter of months, maybe delays, but but we are still monitoring it so not a huge impact.

And we also look at possibility to bring co Packers because of mystic eight the risks.

Okay great.

Great. Okay. So it sounds like the $1 billion 75 million liters is still sort of a target, but you've got to monitor things as you go.

Could be somewhat volatile just based on all the issues, but many are facing around the supply chain and then and then just the second part would just be.

My second part of my question was just how many of the issues that you highlighted in <unk>.

Terms of the revenue shortfall do you think flow into next year or are those will those be behind you by the time, we get to next year like how late are the shelf resets in EMEA and does that give you some.

Yes.

And sort of revenue versus your expectations aside.

Aside from the shift to oat milk versus other.

Products.

My question.

Absolutely Andrea we do.

No.

So looking at the performance, we feel very very confident with our business fundamentals and that is recognized by all the retail partners. It's a very very dynamic environment that we're working out of right now.

But based on the discussions we're having with our retailers across Europe, we feel optimistic about resets and expansion in.

In the first half of 2022.

So we do feel that this is a timing shift.

And that we feel good about entering 2022, but again it is a dynamic environment, we have to monitor.

There's nothing called normal anymore, but we feel confident we see the performance solid across all our markets right.

Thank you.

Yes.

Thank you. Our next question is come from the line of <unk> <unk> with Oppenheimer. Please proceed with your questions.

Good morning, this is actually Eric I'll answer the Paas. Thanks for taking our question.

So firstly I just wanted to touch on pricing. So obviously in light of the inflationary pressures. It sounds like pricing is now lever youre, putting on the table. So maybe you could just talk a little bit about how you're thinking about pricing power for your business and what you're seeing from competitors.

Regards to pricing debate.

Sure I mean, and maybe I'll speak a bit about inflation first.

<unk> currently does it.

Hitting all our markets.

But to.

To date, we only see moderate impact on our results for 2021, but we do expect stepped up levels of <unk>.

Inflationary pressures in 'twenty to 'twenty two.

So in terms of outlook for for the fourth quarter.

We see.

<unk> and rapeseed oil.

Relatively flat versus Q3, except for the U S where we see.

20% increase in Rapeseed oil, we also see some increase in packaging material for the fourth quarter in Europe of 4%.

Four to five percentage points still very moderate and manageable levels in the fourth quarter for us at the company now turning to next year in total we do expect inflation to hit our total Cogs by an increase in the range of five to six percentage points in 2022.

And so we see that any impact on several of our key ingredients and cost components.

By a major increase in the cost of votes in the range of 10% to 35% depending on the region side.

You'll see a further increase for rapeseed, all of 2025% and also packaging material between 4% to 10%.

In total four four material.

Input material inflation.

That will impact our Cogs of three to four percentage points in total 2022 versus 'twenty to 'twenty. One and then we also expect to add another percentage point related to freight.

And then the remaining Cogs another 1% so that adds to the five.

Six percentage point, so most of the inflation effect, we expect to compensate by price increases in EMEA and the U S.

Together with optimization of channel and product mix.

And also including savings initiatives within the supply chain. It is important to highlight that we do expect gross margin to improve quarter by quarter in 2022, despite the inflationary headwinds and this is driven by the ramp up of our new facilities, the localization or production.

We've discussed in the past.

I don't know if thats.

But the response to your question there but.

The high level view.

Yeah I was just curious what you're seeing from competitors in regards to pricing debate as well and if there's just any thoughts in terms of how youre thinking about pricing power for your businesses as you push those price increases.

Yes.

We still believe we're in a premium.

Heather.

Premium brand and that we expect our premium.

To be a premium brand going forward and we expect to maintain price positions, because I think thats, what youre asking for.

So that's not going to change.

Okay, great. Thank you guys so much.

Thank you.

Thank you. Our next question is coming from the line of call know gosh for Waller with Credit Suisse. Please proceed with your questions.

Hi, guys. Good morning, or good afternoon, I guess, depending on where you are.

I want to make sure I understood something from the prepared remarks properly it sounded like there were some shelf space.

Losses, and while I understand that production may not be ramping up at the pace at which you had anticipated.

It almost sounded like unless I heard it wrong that maybe shelf space went the other way and that.

Maybe there are some areas and I think this might be specific to EMEA.

Where production actually has gone has declined as opposed to not growing at the rate at which you had expected. So can you just clarify that for me a little bit.

Yes, so we did not lose shelf space.

We did expect to.

Had the greatest space and more distribution.

Entering Q4.

And that is due to many many different reasons.

And if I just let me just walk you through through what's happened here.

From Q1 to Q4 to better give you better.

On what's going on here. So during Q1 Q2, we were under great pressure due to supply constraints, leading to lower growth rate lower fill rates train relationship with retailers lost market shares. Consequently, losing 12 markets in 2020 now during Q3, the supply up with with greater leading to higher sales and growth.

We're gaining velocity market shares.

And in Q4.

<unk> been very turbulent retail environment is really re determined a turbulent here in Europe.

So we've seen pandemic related events such as <unk>.

Such as general softer food at home.

More consumption out of home.

And we had a trucker shortage in UA in UK with pandemic in the U K.

So going into Q4.

We're not getting the facing distribution Thats expected post post summer.

And.

It's because we tell us on navigating these turbine COVID-19 environment. They are not able to make material changes to the grocery shelves for the reminder of this year, even though our velocity levels clearly significantly are better than competitors.

And just as an example in one of the premium retailers in the UK, we dropped 27% sales from 7% shelf space.

And that was negotiated back in 2020, when we were on a really really heavy constraint in terms of supply.

So normally.

You do see changes after summer in.

In Europe that we did not see so it's all pushed its a timing thing that is happening here right now.

Got it. Thank you that's useful and then if I could ask at least you your best guess on.

What your supply condition in the United States looks like versus the competition.

Are some of these some of the domestic folks maybe just to know.

Better position or.

Are they suffering from similar sort of constraints can you just your best guess on what you're seeing competitively in terms of your ability to supply versus their ability to supply.

Well as far as we know we haven't heard about supply issues. We do note that we are balancing our system of demand building across multiple channels.

And Thats, all we know and we know that we ship every case that we produced in the U S. We even though the demand is stronger than ever and it's growing and that we are bringing in more capacity on board here.

The coming months and especially in 2022.

Okay, great. Thank you.

Thanks.

Thank you. Our next question is coming from the line of Bryan Spillane with Bank of America. Please proceed with your questions.

Hi, Thanks for taking my question and good afternoon morning to everyone.

So my question is just around co manufacturing capacity and maybe could you talk a little bit about.

It sounds like you may be wanting to.

Retain a little bit more co packing manufacturing capacity than you than you originally expected and so I guess my question is two fold. One is theyre actually enough is there actually co man capacity out there to to retain.

And then second is it becoming more competitive.

To retain co man capacity, because there are certainly competitors come into the market. So just trying to understand.

How how viable that that pathway is and how much of that capacity has been soaked up by competitors and maybe if you could add to that just are co mans, adding more capacity.

Capacity.

<unk> sensing.

Yes, hi.

Hi, Brian I said before a librarian yes.

Safety is our core technology, and we will all with produce in house.

It's about.

Formulation and filling co packing.

That we are looking at and we are constantly reviewing our co packing network.

Our supply chain operations team constantly evaluate new opportunities in all regions.

And we will most likely enter new partnership deals linked to mostly linked to we are opening new facilities.

And then we get oat base in other areas.

That open up new.

Co packing.

Opportunities. So this is something we constantly reviewing what's the most efficient how do we get the fastest way to market.

Okay and then just is there more available capacity I guess, what's underneath my question is we just.

Hear a lot from investors about the concern about just how many entrants coming into the market, especially in EMEA and the U S and.

Third party capacity ramping up and I just.

I guess I guess the question is really just is that actually true is there more capacity coming into the market that present a risk.

Yes, it's more is that we know for example, U S based production both on the West Coast and East Coast and that open up co packing opportunities on the West coast as we now have Ogden.

And in China, now, we have oat based production.

In China, and then we can utilize more co packing, if we want to and need to so it's mainly about that.

We have been constrained from an Ot space capacity.

So where its localized now we open up new facilities and gets into more regions.

Understood understood and then just one clarification on the <unk>.

Reduction in Capex for this year.

Did you say that.

It's down because of cash flow or or I didn't quite.

Quite understand or maybe here.

<unk> why the reason for capital spending to come down in 'twenty one.

Hey, Brian It's Christian here.

So just to clarify that point on a full year basis.

The range to be between 280 and $320 million compared to the previously communicated low end of the range of 350 to 400 million that is.

Cash flow timing effect of the actually cash outflow shifting to 'twenty to 'twenty two and this is mainly due to timing of payments related to our 'twenty to 'twenty three capacity expansion projects in the UK. The third plant in the U S. In the third plant in Asia, but overall on an overall level compared to.

To what we communicated to you too as part of the Roadshow process.

That total is still remains.

Okay understood. Thank you.

Brian can I just clarify also within our network today that we have in the U S. For instance, we know that our co packing network in the ecosystem capacity built out and that is something we're going to benefit from going forward.

Understood. Thanks, Tony Thanks, guys.

Thanks.

Thank you. Our next question is come from the line of Ken Goldman with Jpmorgan. Please proceed with your questions.

Hi, Thank you I wanted to build a little bit on one of the first question is from Andrew I. Appreciate that visibility is limited I think you used the word dynamic which is of course totally understandable given.

The situation right now.

The Street is currently looking for <unk> sales of next year.

Over $250 million I think it's safe to say that will come down but.

I'm trying to get a sense for how far down that needs to go and again I realize your visibility is limited, but you are almost at 2022 already I guess the specific question I would ask is.

It's smart.

Prudent whatever word you want to use for investors to kind of model below $200 million in that first quarter of next year, just given that a lot of these headwinds are not going to sort of dissipate maybe til.

Closer to the back half of the year. So I'm, just trying to get a sense for where that number needs to go.

So Ken I. Appreciate your question, so we can't give quarterly guidance.

We don't do that.

We are really really we feel positive about 2022, I want to say that.

We're focusing on really really do what we can control, which is to bring more product.

On the market work with velocity work with distribution.

And right now we.

Good where we are humming cathedral, considering the circumstances right.

But we can't give any guidance quarterly.

And I think the one thing that Peter just said he said that we might have more milk drinks.

And then Don will be originally communicated and that might have an impact on the top line for 2022. So I think that is out there.

Okay, and you know some companies are electing even though it's our policy long term not to give quarterly guidance to sort of make an exception or at least give some directional activity right now just given the situation, but I respect that.

And then my second question very quickly I think you said you expect to increase price.

Certain products and regions I assume that means not all products and regions, so which products, which regions are you not taking pricing in NY.

No I mean I think it's this is.

Something that we have to evaluate strategically.

Across EMEA and the U S by the regional finance teams.

With the with the purpose of offsetting the inflationary headwinds that we're seeing on our Cogs level to neutralize that impact for FY 'twenty to 'twenty two.

Thank you.

Thanks, Ken.

Thank you. Our next question is come from the line of Michael elaborate with Piper Sandler. Please proceed with your questions.

Good morning, Thank you.

I just wanted to come back to the shelf resets in EMEA and understand that a little bit better and.

No you're clearly, saying that you had once you thought would've happened by now or in the fourth quarter that are getting pushed out but are those now specifically set.

Do you have confirmation.

The timing or is it just indefinitely sometime.

No.

To be determined so.

Hi, Michael Hope you're doing well.

No well we have.

We have ongoing.

Discussions with our retailers across Europe for resets.

In January and May.

But what you can see I mean, all of these performance data is available for everybody to see and we're driving significant growth from.

Disproportionate less shelf space in all our key markets in Europe for instance.

And definitely they got you're going to see some changes there on the shelf.

In the beginning of next year.

So it's an ongoing discussion.

Nobody's favor.

We have less shelf space than what we deserve given how much growth we are driving across these regions.

Okay. That's helpful. And then just one on the foodservice side.

<unk>.

You called out the Blue bottle partnership as well and highlighted that on the slide.

It's on the Americans page and so I understand that's certainly where it's focused but.

Could that expand outside the United States and at least also work in Hong Kong or potentially springboard.

Give them the entry for you into Korea or Japan.

Do you mean blue bottle specifically.

Yes, because thats obviously.

Yes, it's a partner that you have in one geography at least.

So we were working regionally.

With the bigger accounts.

Normally do you have different organizations across the regions here Blue bottle is a premium chain.

We have a very good collaboration with them and.

We don't have anything that is planned for in 2020, we blue bottle specifically, but.

Of course, we do have ongoing discussions as we do with all the different partners that we have and of course.

Also given that coming from supply chain situation for for a long period of time, we are now bringing more capacity on board, which will allow us to open up all these discussions across all the different regions right. So if you look at Europe for instance.

We don't have we haven't been able to approach the <unk> properly.

Big change in foodservice due to supply constraints right now we're going to be in different situations pursuing an open up opening up those discussions and that goes for Asia as well right two factories in Asia, giving us more volumes to be more broad and go be more on the offense going forward.

Okay, Great that's helpful. Thanks.

Thank you. Our next question is coming from the line of rents Grande with Guggenheim. Please proceed with your question.

Hey, good morning afternoon, everyone I hope you're doing around so.

I'd like to come back to to EMEA.

Two questions. So the first one is despite.

Entering new countries as you mentioned last quarter.

You lowered by about $31 million, if im correct I mean, our revenue in the fourth quarter and that's about 30% lower than.

That's significant so if you were to bucket the gap would be coming from the shifts that shelf.

<unk> set.

Reset.

Packaging supply on potentially liquidity issue you mentioned, so if you were to break it down and then.

In the shelf space.

Research.

What are you losing is it you are not getting as many skus expansion as you expected or do you get more tough stock how does your video city you mentioned I mean, he is growing so I would like to understand what is the consequence of.

Not us.

As much space as you expected.

Yes, I mean, the shelf space is significant thing.

Again, like we do have disproportionate.

Shelf space across all our key regions.

The.

The example that I mentioned is quite extreme driving 27%.

As one of the biggest retailers in the UK and UK being our second biggest market right. So.

It's substantial.

We are driving again, 27% of the SaaS from 7% shelf space you see that you see the same.

Disproportionate numbers in Germany, and other countries that has a significant impact.

Nothing happened during we know that nothing will happen during Q4, right and which will eventually.

Will happen.

During the first half of 2022.

And yes, we do have supply so we can we can build.

More put more often behind ourselves in terms of building more velocity continues.

Extremely solid velocity performance that we see we increased from the lows in the summer in all our key markets very positive performance.

From summer to where we are today in terms of velocity.

And we will increase branding as well we haven't done anything in terms of branding right.

So that is an opportunity that we have going forward as well and then also.

That's a timing thing with it.

Opening up the new markets that the old markets that we closed back in 2020, which is taking longer due to this.

Environment that the retailers are operating in related to the COVID-19 situation and that's the reality.

So multiple on multiple levels.

We can bridge, we would consider jumping to due to higher sales.

Yes.

Okay.

Okay also lower off I, just wanted to say a distribution increase distribution with existing partners as well.

It's also a major point.

Yes.

Thanks, Tony.

And one more thing.

You said in your pre remark I mean, youre investigating a quantity issue.

In one of your pressure facility in Europe.

Destroy.

Destroy some inventory so how big it is.

And what it is and this is something that is.

Usually when we should expect I mean time to time.

Yes, we're running at food companies things like that.

<unk> presence.

Frequently not not not not to frankly frequently historically, but these things.

It's just part of running a food company right and during a planned maintenance stop in at our last krona facility. This weekend, we self identified a potential quality issues.

And as you know, we always put safety and product quality first and immediately initiated.

Quality assessment and activated.

The relevant producers procedures.

We have full traceability for all our products and as pre.

Precaution are conducting their assessment there is the potential that these assessments may result in the destruction of inventory and corresponding loss loss sales in EMEA region. However, we do not expect this will limit our ability to achieve our 2021 outlook.

And as.

We can't we will provide more information when we have more.

Thank you very much.

Thank you David.

Thank you.

Thank you. Our next question is coming from the line of Dara <unk> with Morgan Stanley. Please proceed with your questions.

Hey, guys.

So first just.

The issue in EMEA is it is it a significant portion of revenues obviously its early to sort of specifically quantify it but just trying to understand is it across product categories is it more of an isolated issue and are you comfortable that it's related to that one plan and not something that could be an issue.

Where.

And then the broader question is more just as we look at the implied Q4 guidance.

It does seem like the.

Disappointment sort of versus what you originally expected is much larger than what we saw in Q3.

But conceptually ogden's in better shape.

Perhaps there's not as much foodservice pressure in Asia or not it's gonna be closures.

It seems like some of these issues should be getting better relative to Q3, So just sort of trying to understand why the magnitude of impact seems greater than in Q4 relative to Q3 as you run through these various issues, where it seems like there might be some progress conceptually.

Yeah, Hi, Dara.

So just on the quality team here, yes, it sustained its one facility.

That is clearly identified and we are still assessing the situation.

And we will provide more information as soon as possible if necessary and so we're still in assessing the situation.

<unk>.

But I mean I think currently we can say that we do not expect that this will limit our ability to achieve our 'twenty one outlook, yes, correct that is correct.

Other than that.

In terms of the magnitude for Q4.

Mainly three components right.

Yes Europe.

Definitely bigger because it's the biggest region with 51% of our sales.

But if you look at the regions here in the U S.

It's related to the Ogden production output and that it was slowed down by the Covid driven delays in delivery of manufacturing equipment.

For Q4 were being conservative to ensure we deliver on what we've updated you on today.

Until we have more consistent output from Ogden over multiple months, we want to see more stability there.

And in China, we were aware of the Covid situation during the summer, but we werent aware of the magnitude and the Germans.

The COVID-19 related issues.

And it resurfaced again in China, and remember that foodservice is a major part portion of our business there and we only have one SKU basically in China business to consumer with the burst edition.

Cost of our supply constraints and last year, we were able to redirect sales quickly to E. Com during the height of the pandemic, which was less developed for us at that time and now we are quickly shifting to expand our offering with new skus and formats to further develop the E com business in retail both with massive potential for growth.

Starting in 2022.

And I think we mentioned everything we can.

Can a bot.

Europe, we saw we see and.

Same thing is that the retail is working in a very dynamic and turbulent.

<unk>.

And just trying to navigate what's got what's going on there in terms of out of home consumption in terms of recess.

Rebuilding the plan of grams and all that.

We are relying on our performance we are relying on our velocity and our market share gains and we are bringing a massive amount of growth into the categories in each of our key markets.

It won't happen until beginning of 2022.

Yeah.

Yeah sort of navigating the pandemic environment, we see shutdowns in Germany again, the closing down societies, and that's kind of what were sort of navigating through as well as a company but fundamentally.

Hi beliefs in our business.

Youre right Christian.

We believe the majority maybe all of our EMEA key markets will continue to have certain level locked down in Netherlands, just recently locked down again, and we know that Germany, Germany is heavily impacted by COVID-19, and we see our neighbors in the Nordics.

And which makes us.

Well it doesn't make us think we note that the recalibration on the retail shelf won't happen until the first half of the half of 2020.

Yes.

Okay. Thanks.

Thanks Sarah.

Thank you. Our next question is coming from the line of Brian Holland with Cowen. Please proceed with your questions.

Yeah. Thanks Hello.

Also I want to focus on the U S.

A lot of conversation around the distribution dynamics at retail.

<unk>.

But obviously the data points that investors are looking at every other week.

Our primarily trained in the U S. Again completely appreciate that this is a fairly small part of your business but.

As you are navigating channel initiatives as you referenced earlier.

Initiatives across multiple channels are you still in a situation, where you're shortening maybe retailers and I'm curious if you think youre going to get back to a better position in the first half of 2022, what's the timing for maybe improving your in stock situation in the U S. Such that we might see some share stabilization.

And in the tracked conventional grocery channels, which mind you exclude spin data.

Yes, so a couple of things here.

Hi, Brian.

So.

On the on the fill rate it has improved significantly since the lows we had in pre summer here and we are continuously increasing that volume and with <unk>.

Also see that the velocity is still growing.

A very positive direction. So again, what we said last time like how do we get.

How do we close that gap fill rates GAAP when demand continues to accelerate but we feel very positive going into 2020 that we can do that.

And also serve.

More broadly to other channels again for us it's about the system of demand they want to build and we need to balance strategically between the various channels here.

But the fill rate we're not fulfill right we're not a full.

Anywhere.

But we've proved the fill rates considerably since summer.

Okay I appreciate the color and then last question for me.

You said last quarter, you expect it to be back at 100% supplied Starbucks.

Commentary a few weeks back suggest that they'll continue to pull on secondary sources. So just curious.

Maybe if anything has changed in the in that relationship is there now an expectation on your end that they will call on secondary sources of supply to meet the full demand in.

Just any update there would be appreciated thanks.

Yes.

Again, the relationship with Starbucks is just excellent and we're both excited and thrilled about the success of our openings last there.

We will serve 100 service, 100% of the Starbucks Network December and January and White label will enter in February and stay through the end of calendar 2022. During 2022, you will see we will service around approximately <unk> <unk>.

85% to 90% of the total Starbucks network asked a lot why stable returning.

That said as we increase production were constantly think about our supply allocation and how we can balance our channel mix to drive our sales growth and profitability, but also to expand our reach and brand awareness. So this is a very strategic topic for us internally since we also generate great.

Economics.

From a retail and coffee channels.

But we feel more confident.

Yes, we're being more capacity in the U S for sure.

Thanks, Tony Best of luck everyone.

Thank you.

Thank you our next questions come from the line of Jon Andersen with William Blair. Please proceed with your questions.

Oh, hi, everybody. Thanks for the question.

I wanted to ask I know you're limited in what you are able to say about 2022.

Their work.

Significant or expectations for pretty significant gross margin improvement in 2022, and just hearing some of the commentary.

Today around.

Focusing the production capacity that you have on milk.

More so maybe than other food.

Some manufacturing delays.

Perhaps the use of co packers for a longer period of time.

How should we think about that in the context of the margin improvement you were originally anticipated in 2022 does that get pushed out is the rate of improvement more moderate than the original plan.

Hi, John It's Christian here, Yeah, So I think.

First of all fundamentally.

We do believe and this is sort of the case as well that gross margin is expected to improve quarter by quarter in 2022, despite the inflationary headwinds. Despite what we were experiencing in Ogden and the ramp up complications over there and that improvement is.

Driven by.

The new facility is the localization.

<unk>.

Each of the region, making them self sufficient on their own production volumes and sales volumes, increasing the share of self manufacturing.

And a general improvement in freight and distribution costs coming from.

The localization of our production capacity in each of the region.

Will the gross margin improvement in terms of what we might have indicated before be slightly less.

I would say, that's probably a fair assessment, but we will come back to that when we meet during our first fourth quarter earnings call.

Okay. Thanks.

One quick follow up.

This was I guess kind of addressed earlier, but in.

In the U S.

Sure.

Your <unk> or distribution at retail.

I guess.

Maybe the.

Yeah.

The number one brand at retail by market share and I'm just wondering.

If you have kind of a.

The visibility or plan to try and narrow that gap and bring your HCV up from I think high thirties now.

Two.

Yeah.

Much more broader distribution and what that timeframe might look like one of the concerns I hear is that.

This window of time is giving.

Competitors and opportunity to generate trial and perhaps brand preference.

While you're working to kind of scale up so your thoughts there would be helpful. Thanks.

Absolutely so youre absolutely right there.

Hi, Tom.

ACB today in the U S is 34% at the biggest brand has 89% ACB right. If you look at total distribution points like 10 times more.

More distribution points so.

The number one priority for us is to too close to fill rate gap to work with the retailers that we have that is the number one.

Because the demand is continues to increase and which is very very positive for us.

And in terms of retail there is always room for the best performing brands like our performance data is so.

So over indexing versus competition.

That I think that we have flexibility in terms of timing or working on distribution in ACD over time as we bring more capacity on board.

So.

It just speaks about the runway we have John more than anything because the cost of the solid performance, we have especially in the U S.

Thank you.

Thank you.

Thank you there are no further questions at this time I would like to turn the call back over to management for closing remarks.

So thank you for your questions. We are really appraise appreciated and I appreciate our discussions with you today and look forward to continuing our dialogue here. So I have a great day everybody.