Q4 2021 Sunopta Inc Earnings Call
Good morning, and welcome to Sun off this fourth quarter fiscal and full fiscal year 2021 earnings conference call.
Now everyone should have access to the earnings press release that was issued this morning and is available on the Investor Relations page on <unk> website at Www Sun after dot com.
This call is being webcast and its transcription will also be available on the company's website.
As a reminder, please note that the prepared remarks, which will follow contain forward looking statements and management may make additional forward looking statements in response to your questions.
These statements do not guarantee future performance and therefore undue reliance should not be placed upon them.
We refer you all to risks.
All risk factors contained in some of this press release issued this morning.
The company's annual report filed from Form 10-K .
And other filings with the Securities and Exchange Commission for more detailed discussion of the factors that could cause actual results to differ materially from those projections and any forward looking statements.
The company undertakes no obligation to publicly correct or update the following.
The forward looking statements made during the presentation to reflect future events or circumstances, except as may be required under applicable securities laws.
Finally.
We would like to remind listeners that the company may refer to certain non <unk> financial measures. During this teleconference. A reconciliation of these non GAA financial measures was included in the company's press release issued earlier today.
Also please note that unless otherwise stated all figures discussed today are in U S dollars and occasionally rounded to the nearest million.
And now I'd like to turn the conference call over to son of the CEO John <unk>.
Good morning, and thank you for joining us today with me on the call is Scott.
Chief Financial Officer.
Wanted to start by saying, while we are disappointed in the fourth quarter results.
These results are at a point in time and do not reflect the current or future earnings potential of the company.
Causes are clear and are not unique.
The supply chain issues and labor market shortages are broadly felt and well publicized.
Now, let me share some key takeaways from the fourth quarter.
Q4, consolidated gross margin was impacted by three headwinds.
Most significant with higher costs in our plants without a corresponding increase in output.
We were also impacted to a lesser extent by unrecovered inflation and yield related issues in freight.
Let me share a bit more.
I think Q4 challenges in our production facilities and provided an update on progress in Q1.
First 70% of the decline in plant based gross margin was due to increased plant expense and lower utilization higher expenses were driven by hiring and training approximately 92 employees fueled by the great recognition for the stock however that the infusion of new employees did not immediately produce.
Jason production output, partially as a result of significant omnicom related absences across the network. Additionally.
Additionally, our client based facility are sophisticated and complex clients and employees require weeks and even months of training to become proficient. Additionally, we incurred cost to improve overall equipment effectiveness, which disproportionately hit us in Q4.
In total these Q4 investments are paying dividends in Q1, we adapt our plans and ended the year 73 employees, we are deep into training, our new employees and retention of the new hires is consistent with our expectations. We have seen material improvement in our manufacturing output in the first seven weeks of Q1.
We are currently forecasting Q1 production to be approximately 15% above Q4 levels and are tracking to this level of improvement halfway through the quarter beyond.
Beyond Labor, let me comment on what is happening in the macro environment, which you are all very familiar with that the factors are impacting nearly every CPG company.
Raw material availability in Q4 was tight but we saw sequential improvement.
There were a couple of exceptions in the fastest growing segments of our business one being fruit puree from South America for our fruit snacks business and for our client base business.
We still grew our health business of 120% in Q4, but we could grow even more and the same goes for our fruit snack business.
The effort to support growth, we have added incremental suppliers have improved safety stock on both ingredients and we are working to secure additional volumes for anticipated growth in 2022.
As it relates to raw material inflation all of the currently known raw material cost inflation has been presented to customers accepted and implemented.
Always a delay between cost increases and price increases.
Typically a 90 day process from realized cost inflation to the new price being on an invoice to the customer.
Lastly, let me comment on freight.
The back half of Q4 saw even more inflation on the run rate and this impacted Q4 by approximately $2 million.
Actually the availability of trucks with very tight.
In our plant based business unit almost every customer and remember these are some of the biggest CPG companies in the world had difficulty lining up trucks to pick up their product, which impacted our revenue.
And through where we are generally responsible for the freight we also saw availability issues and cost inflation.
Pricing, reflecting the new freight costs will be fully passed on to customers by the end of Q1.
The revenue impact of the production shortfalls and transportation availability challenges with estimated to be at least $10 million in the quarter.
While Q4 was a challenging quarter. It is important to recognize the long term core earnings power of the <unk>.
<unk> base business remains strong.
Industry supply is still very tight demand is very strong and our manufacturing network remains strategic and will further improve with the new Texas plant.
Despite our temporary production challenges we continue to win in the fastest growing segment of the market, which is so we are aggressively adding capacity and we are aggressively adding on inflation through price increases.
All of this leads me to the deal that the future of the company has never been brighter in 2022, we expect strong top line growth with plant based is growing double digits and we expect the fruit business to return to growth largely via pricing as we have consistently stated during 2021.
At a total company level, we expect at least double digit revenue and adjusted EBITDA growth in 2022.
Our plant based capacity expansion capability additions, such as 330 ml and new business development efforts in plant based indicate adjusted EBITDA will increase significantly in 2023 and 2024 as our new Texas plant comes online.
Based on our success to date pre selling excess capacity, we have line of sight to a $100 million of adjusted EBITDA in 2023, now let me share some of the top line result for the total company.
Total company revenues as reported in Q4 were nearly flat to prior year adjusted.
Adjusted for the extra week in the year earlier period, our topline growth would have been two 5% in the fourth quarter of 2021.
Full year revenue was $813 million with full year plant based revenue growing 13% on an as reported basis or 14% excluding last year's 50 <unk> week.
Gross profit declined 650 basis points on a consolidated basis during the fourth quarter with both plant based and fruit based segments down materially.
For the full year gross profit was $98 million down 10% versus prior year.
We managed SG&A aggressively to offset a portion of the corresponding decline in gross profit, but the net result was still a 48% decline in adjusted EBITDA in the fourth quarter to $11 million.
Full year, adjusted EBITDA was $61 million growing three 4% versus 2020 with three times 2019 adjusted EBITDA.
Now I will turn to our segments starting with plant based.
I would like to remind listeners that we have three strategic priorities and plant based.
One strengthening and fortifying our competitive advantages.
Building, a strong ingredient business focused on out to drive growth in refrigerated beverages and third building a multi pronged go to market business that includes co manufacturing private label and owned brands.
Plastics revenues adjusted for the extra week last year increased nine 2% versus prior year to $125 million in the fourth quarter another record for setup. This.
Presents our 13th consecutive quarter of revenue growth and this was up 18% versus two years ago plant based beverages were the primary driver, reflecting strong demand for oat based offerings, which increased over 120% versus the prior year period out now accounts for 22% of our client base.
<unk> portfolio up from 10% a year ago. We also saw strong gains in T stemming from growth at our two biggest customers.
Production capacity challenges negatively impacted our broth business and partially offset growth in other plant based beverages. However, as I mentioned, we have seen a solid improvement in output so far this year.
As it relates to product category, we continue to focus on out.
<unk> sales were $80 million in 2021, and we expect continued strong acceleration of this business.
Plant based milk continued to see solid overall category growth with the latest 13 weeks showing 5% growth and continues to be the driver with 55% growth.
In 2022, we expect to continue to see strong segment growth.
The National brands, we support continued to lead the market and grow faster than the <unk> segment in total which in part explains why Panoptic grew two times the rate of deal category.
In addition, we see significant upside of note at our largest customer for 2022.
Based on all of these exciting developments, we expect to continue to have strong double digit growth in sales in 2022.
In addition, as previously communicated we are expanding our extraction production to keep pace with demand.
This added capacity will likely come online at the end of Q2 2023.
From a go to market standpoint, the brands, we acquired in 2021 Dream and West So it contributed to growth.
We will be re launching these brands in Q2, Q3, with new packaging, new products and a push to rebuild distribution that had been lost over the last several years.
Several of the people on this call have seen dream oat milk and Starbucks. So I thought it would be worth confirming the go forward approach with both milk that Starbucks is via the Dream brand.
We also launched a brand of organic.
Coffee Creamers last year called sound.
Our focus has been the natural channel and we're seeing great success with this effort at the leading natural channel retailer. So it's now the number two brand in terms of sales velocity for the plant based creamers after less than 15 months end market.
Moving on to our fruit based segment, our three strategic priorities are one derisking the business through geographic diversification customer pricing programs and better grower relations to becoming a low cost operator in frozen fruit through automation footprint reengineering and aggressive.
Cost takeout.
And three evolving the portfolio via innovation towards more value added offerings.
<unk> revenue decreased nine 4% to $79 million in the fourth quarter, reflecting ongoing efforts to rationalize skus and customers along with the impact of supply constraints in certain fruit varieties, partially offset by pass through pricing actions.
Fruit snacks had another strong quarter with growth accelerating to 23, 5%.
As we communicated all of last year, we expect a sharp return to revenue growth in 2022 on the frozen fruit side of the business fueled by aggressive pricing moves and confirmed distribution gains beginning in mid Q2, and our largest frozen fruit.
As it relates to Derisking the business through geographic diversification, we are largely complete on this strategic initiative with Mexico, now representing the largest source of Peru.
Mark geographies Mercury types fewer customers for less complexity, all equal less risk.
As we discussed last quarter, all pricing in support of the higher cost fruit has been passed on and reflects the strength of our customer relationships and our expertise in the industry.
With regard to becoming the low cost producer the automation, we have installed combined with our simpler business and the cost advantages we have in Mexico, along with the 2021 cost takeouts to.
Due to improved performance in 2022.
Recap the totality of the accident is taken in through 2021 to give you a sense of the breadth and depth of work completed.
First we passed on about $40 million of pricing.
We took out an additional $10 million of manufacturing costs, including the closure of two of our six plants in the network in 2021.
Third we took out several million dollars of people costs, creating a leaner simpler business model.
Please note that a significant amount of the pricing actions will be absorbed by higher fruit costs and other forms of inflation. So these numbers are not designed to simply be added to 2021 profitability and.
Instead I share these numbers to give you a sense of what we have undertaken to transform the results in this business.
Lastly, on the innovation front and fruit, we've had great success and the launch of our Smoothie Bowl platform, which is part of our fruit snacks business unit.
We have partnered with three major retailers, who are launching private brand versions of smoothie bowls.
And our CPG leader in frozen foods, we will be launching our smoothie bowls under one of their globally recognized brands. Lastly, we will continue to use our own brand Sunrise growers to lead the innovation and push the edges of what we can develop.
While <unk> has certainly been a challenging business first on October the last five years, the transformation of the business against our three priorities.
Any hope at 2022 will be the year, where you were hearing about positive surprises on freight.
Let me end by updating on the progress we are making in Texas with our new Greenfield plant based manufacturing facility.
If you want to follow our progress please follow us on outbound Linkedin, where we share periodic update we posted an updated photo on Tuesday. So you can see the scale of the plant and the tremendous progress we are making.
As I shared on the last call one of the capabilities, we're putting in Texas is 330, no leader production equipment for those not familiar with the term $3 30 ml. This is the tetra pack carton most associated with on the Gulf protein shakes.
This is a $3 billion segment and is an industry that is short of capacity and we currently have a zero share of this market.
Based on preliminary awards to date, we are confident we will sell out the capacity on this asset in the first year.
In addition to $3, 30% now we are putting in three other capabilities all in phase one.
We are installing T extraction, which had seen huge growth in the last two years, along with two processing packaging lines to.
To support our core business. We are similarly confident that we will have strong utilization of this T extraction capability and one of the two processing and packaging lines in year one.
Progress selling the incremental capacity created by this plant is ahead of our internal expectations and the project is on track to be operational by the end of the year generating saleable product no later than 12 31 2022.
In summary, our strategic growth priorities around portfolio transformation innovation and doubling the plant based business have not changed we continue emphasizing growth in our plant based business and improving profitability and fruit based we remain committed to our long term growth algorithm of annual double digit plant.
Based revenue and profit increases and continued to focus on improving return on invested capital.
Now I will turn the call over to Scott to take us through the rest of the financials Scott.
Thank you very much Joe and good morning, everyone.
Fourth quarter revenues of $204 2 million were down zero, 6% year over year on an as reported basis, reflecting continued demand growth in plant based where revenues increased five 8% offset by a nine 4% decline in fee based revenues due to plan.
The SKU rationalization, along with constraints in certain Creek rights.
Adjusting for the 50 <unk> week in 2024th quarter revenue grew two 5% with plant based delivering nine 2% growth.
Gross profit was $18 4 million for the fourth quarter of 2021, a decrease of $13 4 million compared to the fourth quarter of 2020.
Consolidated gross margin declined 650 basis points to 9%.
The factors that negatively impacted consolidated gross margin during the fourth quarter were.
One plant operations, including higher plant spending and lower than planned production and lost absorption of 340 basis points.
Yield related issues, but raw materials of 210 basis points and three <unk>.
The covenant inflation of 100 basis points.
And plant based segment level gross profit decreased $8 4 million and gross margin was down 770 basis points to 11, 7%.
Let me take you through the major drivers.
First planned spend was up 380 basis points as we hired and trained the 90 positions Joe spoke about earlier.
Second put recovered inflation was 160 basis points, primarily comprised of freight.
Et cetera.
Elevation of our plants was 140 basis points.
Let me provide further detail on the 380 basis point plant spend drivers.
This is comprised of 150 basis points of labor costs, 130 basis points of overhead and 100 basis points of depreciation.
We expect to recover roughly 40% of the margin rate decline in Q1 and expect the business to return to a high teens margin rate on existing capacity in the second half of the year.
And fruit based segment level gross profit declined $5 million and gross margin decreased 530 basis points to four 8%.
The decline in the fruit based gross margin reflected poor raw material yields as a result of excess spoilage, a 350 basis points.
With plant variances, representing on a net basis, the remaining 180 basis points.
The yield issues became known as we pull a work in process to produce finished goods.
The majority of these costs are now behind us.
Segment operating loss was one 6 million in the fourth quarter compared to operating.
Income of $6 8 million in the year earlier period, reflecting lower gross profit of $3 4 million adverse foreign exchange result, and point $5 million.
Amortization expense related to treatment less site.
These factors were partially offset by a reduction in that.
$8 8 million versus a year ago, largely due to lower variable compensation.
Loss from kitchen.
Our <unk> per diluted share compared to a loss of $37 2 million.
At <unk> 41 per diluted share during the fourth quarter of 2020.
On an adjusted basis fourth quarter, 2021 loss was $1 million or one cents per diluted share versus an adjusted loss of $2 5 million or <unk> <unk> per diluted share in the prior year period.
In the fourth quarter, adjusted EBITDA was $10 7 million.
Third to $20 6 million in the prior year.
In addition to the $8 $4 million decline in segment operating income.
Depreciation and amortization increased $1 4 million versus a year ago.
Selected our capacity expansion initiatives and plant based.
Partially offsetting this increase was a $4 7 million reduction in stock based compensation expense.
Finally, adjusted EBITDA included a net increase of $1 8 million and EBITDA adjustments related to business development and start up costs I'd.
I'd like to remind listeners that adjusted EBITDA and adjusted earnings are non-GAAP measures and a reconciliation of these measures to GAAP can be found towards the back of the press release issued earlier this morning.
Turning to the balance sheet and cash flow.
As of January one 2022, total debt was $225 million and reflects $165 million drawn on our asset based credit facility $53 million of capital leases with the balance representing smaller credit facilities.
Average stood at three seven times at the end of the fourth quarter.
From a cash flow perspective cash provided by operating activities during the fourth quarter of 2021 with $19 7 million.
Third to $19 8 million of cash provided by operating activities during the fourth quarter of 2020.
Cash used in investing activities was $23 3 million compared with $11 2 million in last year's fourth quarter, primarily reflecting investments and capacity expansion projects.
Let me close by providing our outlook for 2022, recognizing the environment is very fluid as it relates to inflation supply chain labor and raw materials.
On the top line, we expect revenue in a range of $890 million to $930 million, which translates into growth rates of approximately 10% to over 14% compared with 2021.
Revenue growth will be led by plant based but we do expect to return to growth in 2022, as we have been communicating.
We generally expect the first half of 2022 to be more challenging than the second half of the year.
As such we would expect margins to be stronger in the second half of the year than the first on our existing capacity.
I'd also like to offer commentary around the new plant based facility in Texas and how this is likely to affect 2022 gross margin.
As we have previously stated we expect commercial production to start at the very end of the year.
Order to be ready for year end production, we expect to incur approximately $10 million of startup costs, primarily in the second half of the year roughly evenly distributed between Q3 and Q4.
While these startup costs are added back to adjusted EBITDA, They will affect gross profit and gross margin rate as recorded.
From a profitability standpoint, we expect adjusted EBITDA in the $60 million to $75 million range for 2022.
This represents 10% to 25% growth over 2021.
From a capital standpoint, we expect capital expenditures to be in the $110 million to $115 million range as reported on the cash flow statement, driven primarily by the new Greenfield plant in Texas.
As we have previously communicated these expenditures are largely financed to the company's credit at least facilities. We have no reason to believe that we have the need for equity capital to support these investments.
Finally, while we are a ways away from 2023, we're currently forecasting adjusted EBITDA of 100 billion benefiting from the capacity expansion projects, we have across the network.
Two final items to mention.
We are planning to host an investor day during the second quarter likely in the May June timeframe.
We intend for this to be both an in person events and a webcast available to all investors.
This event will be held at our new headquarters and innovation Center in Eden Prairie, Minnesota, where we can showcase our full range of products and our pilot plant.
A deeper understanding of our business.
Introduce you to the broader management team and map out the financial impacts of the significant progress we've made over the last two years, increasing our capacity and capabilities as a plant based milks manufacture.
More details will be provided as we get closer to this event and we hope you can join us.
The second item is really housekeeping.
Beginning with the first quarter of fiscal 2022, we intend to move our earnings release time to aftermarket close based on feedback we've received from several of you.
Before opening the call for questions. Just a reminder that for competitive reasons, we do not provide detailed commentary regarding customer or SKU level activity and with that operator. Please open up the call for questions.
At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.
We'll pause for just a moment to compile the Q&A roster.
Your first question comes from the line of Brian Holland.
Your line is open.
Yes. Thanks.
Good morning <unk>.
Appreciate all the color that you provided around the factors impacting the mix and how we think about the recovery, particularly the color you gave around some of the gross margin dynamics.
I'm curious on the topline with the plant based segment.
The last two years, you've grown pretty consistently at about 15%.
Going back to 19, and 20, you on pace for that.
Throughout the first three quarters of 2022.
How soon if we think about the gross margin.
Improvement how soon can we get plant base back to that level of growth is that is that something that happens in the first half of 2022 or are we kind of back half weighted.
Yes, Brian Thanks, and good morning, we would expect continued acceleration through the year I think we will be on that pace in the first half and potentially accelerating past that in the second half, but certainly Q4 was impacted I think we called out.
$10 million of.
Lost revenue or opportunity loss.
That was nearly 100% on the plant based business. So to some extent you can think about that as an add to Q4. It obviously didn't show up that way but.
From a demand standpoint, we continued to experience very strong demand and if we had been.
Operating at a higher level, we certainly would've punched out a larger number.
And then.
I appreciate you may be somewhat limited on what you are willing to say, but you put it out there. So I'll ask about it this 100 million of EBITDA in fiscal 'twenty three.
Yes.
The reason for doing that now.
Given given the issues that.
Our inherent in the supply chain here right now.
Why go out with that number which is obviously over 15% ahead of consensus really whats the construct of that.
How much of that is.
Just revenue flow through from the new facility in contribution there versus anything else on the margins that we should be thinking about.
Yes.
Simple reason, Brian for putting it out now is two underlying our confidence in the number.
When we look at the build of the 2023 number, especially relative to Texas and obviously there are material.
Costs and capital investments coming with that we wanted to frame up for investors the benefits of that investment and our progress in realizing the potential of that investment and so.
When we look at 'twenty three there is a combination of both pretty significant EBITDA contribution from the Texas plant, but certainly we see additional growth.
In our core business that isn't directly linked to new capabilities in Texas. So its a combination of new business in Texas and continued core business growth.
And then maybe just taking a step back strategically on.
Some of the new verticals that youre exploring exploring and building capacity towards I think certainly anyone that's looking at the competitive landscape and some of the commentary from from public companies, especially in the on the go protein nutrition shake sort of segment.
There are certain shortages there so.
On the one hand, frankly, the logic is fairly obvious is straightforward.
As far as the need for that capacity at a high level, but the fact that you are supplying that.
What is that coming from is that coming from customer request I guess, what I'm getting at is.
Presumably youre, adding some layer of execution risk by adding your category exposure. So good to be diversifying but also adding some execution risk at a time of unprecedented challenges.
Manufacturers, such as yourself, so help us understand why.
Capacity towards some of these other categories as opposed to just staying focused on the plant based beverage opportunity.
Yes. So first of all we are and remain incredibly bullish and optimistic about plant based I mean, two thirds of our growth in 2022 will.
Come from plant based.
Core plant based products out and others. So we continue to see very very strong growth in plant based.
The protein shake.
<unk> is really a logical extension of our technical capabilities as well as our operational capabilities while.
While the end consumer.
<unk> might seem quite different in practice producing.
A vanilla.
Protein shake and that Tetra carton is not dramatically different than say, making <unk>.
Almond milk. So we think it's a very very logical extension of our technical and operating capabilities and.
We're confident that we can stand this up with very little interruption and we've already been.
We've already been working with these products here in our new pilot plant and innovation Center.
Given us a head start in terms of starting to formulate and gain expertise in the production of those products.
I appreciate the color I'll hop back in the queue best of luck.
Thanks, Brian .
Your next question comes from the line of Andrew <unk>.
Your line is open.
Good morning. This is Amanda Morley on for Andrew. Thank you for taking the question.
Can you discuss further your expectation for sales growth progression for each segment throughout the year.
Yes, good morning, Scott.
I think as we said in the commentary we would certainly expect.
The core growth driver to be.
Followed by fruit all throughout 2021, we commented on.
<unk> customers and Skus and reset of the manufacturing basin.
Putting the fruit business in a position to grow and I know Joe It is his commentary outlined.
The quantum of pricing we've taken in 2021 that will benefit 2022.
The only callout there is remember we will be lapping quarters as we go through 2022 and through that had what is today rationalized skus to theirs.
Benefit would be the pricing the take away would be the SKU rationalization overlap, but I mean, I think thats. The thats the color in terms of the outlook that you saw that in the range of revenue for FY 2022.
Great. Thank you.
Youre welcome.
Your next question comes from the line of Bobby Burleson.
Your line is open.
Yes, good morning.
Curious about your supply agreements, what kind of visibility to get there in terms of.
The allocation.
Costs going forward.
Yeah.
Good morning, Bobby when you referenced supply agreements, obviously, we have a raw material number you guys are that you guys are procuring.
Yes on the raw material front.
Yes.
We have covered 100% of our Robert current known raw material exposure through pricing that has all been fully implemented thats true on both the plant based business unit as well as the fruit based business unit. So we do not have any unrecovered inflation on raw material.
As it relates to both business units.
The dynamics of kind of the contract agreements are.
White varied, but some of them are straight contracted pass throughs others are.
Negotiated agreements, whereby we will present to them hey, here's the raw materials literally down to invoices, if they want to see them to outline what happened with the raw material costs and I can confidently share that.
We've had some lively discussions, but no material push backs on.
Fact, based raw material pricing changes and getting those pass through to invoice prices.
Okay, great and it looks like you guys.
Leading to some pretty significant.
Labor disruptions.
They're resolved.
But are there kind of longer term plans to.
Maybe.
Explore implementing automation in places that.
Maybe previously you were using automation I know you've talked about.
Base business, but just maybe more broadly the kind of.
Yes.
Offset these types of disruptions in the future.
Yes.
On the plant based side of the business.
They are already incredibly automated plants I mean, we might only have 35 40 people on a shift of production operating what could be $100 million worth of machinery. So these are incredibly sophisticated plants that are highly automated I mean, the touch points are at the very beginning of the process on that.
The very end of the process. So there's always opportunities for small additional automation case packing automated pelletizing et cetera, but.
Not operating and <unk>.
Relative to some of the manufacturing environments that I've been involved in throughout my career, where youll have literally hundreds and sometimes 1000 people on a on a production line or on the shop floor.
We have a couple of dozen and so we do have I'll never say never and we always look for ways to improve efficiency through automation, but there isn't a big step change for us on automation, because we're already highly automated.
And then just last one on the phone.
One.
You talked about.
Thing number two in velocity.
Sure.
After and Thats, just not that long, obviously, but being in the market.
Are there additional launches.
Contemplate here this year to kind of build on that success.
Yes, we are looking at additional flavors to fill out the product line as well as.
Potentially some small scale opportunities to extend the brand outside of the core plant based milk category into other dairy alternative categories. So we're excited about the consumer response, we're really the only organic player in the category and we've seen great enthusiasm for our organic offering.
That is a core competency of <unk> organic based foods and beverages, and so we're going to take that kind of out organic platform and see what else we can do with it.
But I wanted to kind of underscore.
I want to underscore we are.
Whereas.
A little bit of the little engine that could if you will in terms of how we will approach expanding distribution.
We fully respect and understand then.
Our focused on our core business, which is co manufacturing.
And the degree to which this helps us advance our technical capabilities understanding as well as kind of push the boundaries of innovation.
But we're not going to be spending tens of millions of dollars on advertising to try to grow these brands, where we're really making sure we get the product propositions right.
<unk>.
See if they can see and forge new ground for us.
Great. Thank you.
Your next question comes from the line of Alex Fuhrman. Your line is open.
Open.
Great. Thanks, very much for taking my question.
The $100 million.
For EBITDA in 2023, that's obviously a pretty big number can you help US bridge the gap of how you get there from your 2022 guidance how much of that is coming from the new Texas facility as opposed to other growth elsewhere in the company or just the expectation that supply chain costs are going to get back.
<unk> closer to normalized levels next year.
Yes, Scott Good morning, Alex I. Appreciate the question I think the main driver of that incremental EBITDA profitability is from capacity in topline growth.
As we talked about through the prepared remarks recovery.
Certainly relative to Q4 and margin because remember that in addition to Texas. We have a few other capacity projects that we've commented on throughout 2021 coming online and so I think that.
The way to think about it is that the network collectively including Texas Big contributor is responsible for unlocking capacity and in turn topline growth that flows through to EBITDA.
Okay. That's really helpful. Thank you and then just for 2020 to your EBITDA guidance.
Early wide range, considering it sounds like you have pretty strong visibility into your demand for the year can you give us a sense of what the differences between the high end and the low end of your guidance is that just uncertainty given the volatility of some of the costs that go into your model.
Just any any color on kind of what would cause you to hit the high end or low end of that range would be helpful.
You bet I think what we're trying to do.
Both on the top line and on EBITDA.
Consider a number of factors, including just the potential for a price elasticity Joe talked about the quantum for example of pricing we've taken in fruit and if theres not a lot of comps at least in the last 30 years.
With that level of pricing might manifest itself in terms of consumer demand. So it is probably the biggest thing that runs through my mind.
The fruit business, then I think on plant based its just the progression over the course of the year recognizing we're trying to call a year, it's tough to call are tougher to call the quarter by quarter sequential development, So I would say Alex.
That went through our minds and trying to form the topline and bottomline.
Okay. That's really helpful. Thank you very much.
Youre welcome.
And next question comes from the line of Brian Meyers Your line is open.
Hey, guys. Thanks for taking my questions.
First one for me so when and I know you talked about this a little bit on the call, but when we think about some of the labor pressures that you guys are seeing.
Much of this was just purely inflationary and then where are these pressures sitting today in relation to the fourth quarter.
Yes, so on the labor front there is there is.
Really a simple way to think about it which is over the summer I think everybody experienced a significant amount of employee turnover and I commented on the Q3 call that we were seeing sequential improvement in labor availability and that in fact.
Turned out to be true for us we on boarded a significant number of new employees.
Actually ended the year net positive 73 employees versus the beginning of the year. So.
We did a great job of bringing people onboard what what surprised us candidly.
Was the productivity of those new employees.
Lagged our expectations and specifically our ability to get our overall production levels. You know think of it as weekly number of cases produced.
We did not see those levels snapped back or return as quickly as we thought they would with the infusion of new people.
And so that is what I referenced on several occasions.
In the prepared remarks was we are seeing a significant step change in Q1 versus Q4 as all of our new employees.
It will become much more proficient we did some much needed catch up on maintenance in the fourth quarter as well and so those two investments in new people.
And taking downtime on our production lines to do.
Maintenance.
Is paying dividends for us in Q1, so we expect in <unk>.
I think we've said consistently that we would expect some first half headwinds so.
Want to make sure I frame my comments as we're seeing material progress but.
The skies are completely blue in tulips are blooming et cetera.
We still have some wood to chop.
Relative to getting everything lined up but we're we're excited and encouraged by the progress we're making in Q1.
Great. That's helpful. And then can you give us some color on the foodservice business I know you guys called that out in the press release, there just kind of looking at where the demand is coming from.
Yes, when we look at 'twenty.
2022.
Based on the customer mix, and where we see new business, we see a bit more sales growth on the retail side than the foodservice side call. It 60 40.
We expect significant growth of oat milk sales in the foodservice channel in 2022, as we continue to find.
Productivity efforts and raising our output in our own extraction facility.
We're able to serve more and more of the foodservice channel and we expect really significant growth in both foodservice and retail.
Great and then last one for me.
<unk> business when do you guys feel like there'll be in a good spot.
And our SKU count and customer count, where we won't see this planned reduction in volumes anymore or is that something that's going to kind of continuously be ongoing.
I would say that probably the shortest answer is <unk>. We are done with that we spent a lot of time and in 2021.
Aligning of realigning customer profile customer profitability with plant capacity, because remember we each have to.
Two of our six plants out of our network, so I would say that as materially behind us.
Always looking for a profit opportunities.
Roots I don't want to suggest that you may never looking at because of course, we do but materially it's behind us.
Great. Thanks, guys.
Your next question comes from the line of Jon Andersen.
Your line is open.
Good morning, everybody.
Good morning, John I wanted to good morning.
I wanted to ask just about raw.
Cereals.
Are there any.
Materials, whether it be <unk> sure.
Another.
Main input.
Availability.
Just the ability to kind of get enough of it if you will.
It has been or.
Or maybe an issue that you are kind of watching closely if you could help us understand that.
Which is separate from kind of the cost related matters.
Yes, John I would tell you that the pinpoints.
<unk> talked about this similarly on the Q3 call. The pinpoints are really in the areas of the fastest growing parts of the business, which if you think about it isn't super surprising when.
If you take Q4 for example, we grew our <unk> business of 120%. So obviously, we were able to secure enough votes to grow 120%, but we also could have.
Punched out an even higher number have there been unlimited and easy availability of votes.
On fruit PRA.
Many of those for us come up from South America, and obviously with all of the log jam in the ports et cetera.
We experienced some production disruptions related to shipping delays with raw materials coming up from from South America, but.
Those those two and I think that's not surprising two of the fastest growing parts of the business, where the two places where we had some pain points. Just because you are trying to ramp up in the receipt of materially larger quantities of our raw material than say the prior year. So we've stood up additional suppliers.
We definitely made progress in Q4 versus Q3 as it relates to getting more raw materials in.
As we look at Q1, I would say sequentially now obviously with what is going on in the world.
It's.
It's obviously impossible for anyone to predict what the world looks like on a go forward, but at least as we stand here today.
In Q1, we've seen sequential easing of the constraints around raw materials. The Q4, So Q4 was better than Q3, and Q1 is better than Q4.
So as the <unk>.
$10 million.
Lost sales or opportunity sales in the fourth quarter.
With some portion of that related to.
Yes.
Lack of availability of certain raw materials versus say.
Internal.
Production constraints or.
Less yields as you pointed out earlier with respect to new.
New labour that you've on boarded.
Yes, I would say, it's three things John and the $10 million I would say was a.
Conservative estimate to be honest.
There was a portion of that lost revenue that was related to freight and just the inability to get both our customers, who often pick up their inventory their inability to lineup trucks and arrive at our warehouse to pick up their orders there was a portion attributed to the leg.
There are challenges that I referenced specifically, having orders in excess of our ability to produce.
And then the third piece would just be the raw material.
Put component, where we had orders in the system and we would be delayed a few days on say a receipt of a raw material and obviously its tough to make up those days once you lose them and the production schedule. So really those three factors.
<unk> to what.
What we would loosely articulate is at least $10 million.
Missed opportunity.
Okay. That's helpful and then on the pricing side I just wanted to make sure I understood the commentary there.
Commodity inflation, you have internal wage inflation freight.
Cost et cetera.
Is the pricing that you have communicated and has been accepted.
By customers.
Has that.
Been put in place are accepted to offset all of these elements of inflation.
And at what point.
Will that be.
Will you be fully realizing the benefit of that pricing.
Yes, John I would say from a raw material pricing standpoint than it has been materially pass through I mean.
Probably the easiest is to break it down so we gave the number of the quantum of free pricing.
Every penny of all known raw fruit cost inflation, obviously, the focus today literally today would be really on the transportation side I think Joe mentioned, a little bit in his prepared remarks that we obviously saw some data point diesel fuel Q4, 'twenty one the Q4 'twenty up 55 zero.
Got it got sequentially worse from Q3, so we've got any leaky buckets on freight recovery. Those efforts are underway and I think Julie pointed out those are probably done by the end of the quarter, meaning the end of the first quarter, that's probably the way to think about the quantum of pricing and the drivers.
Great that's helpful.
I wanted to ask because youre seeing such strong growth in Oakville and I'm, assuming a good portion of that is just driven by the extraction capacity that you've put in place.
At the end of 2021.
Where do you see it I think theres another piece of extraction capacity coming on I think you said mid 2023, that's still kind of a ways off so are you.
Constrained in any way at.
At this point from a capacity standpoint on your ability to.
Served the demand that's out there for milk whether that be.
<unk>.
Co pack or or private label.
Ore extraction or finished goods.
And im not talking from a labor standpoint necessarily I'm, just kind of like assuming the labors in place and operating at a high level.
Are you just limited for the time being and how much demand you can satisfy until that that extraction capacity comes on line in mid 2023.
John we shared the number that we.
Had revenue of $80 million in <unk> in 2021.
We can grow.
Up to probably 50% on top of that number.
In 2022 through additional.
I think the team has identified eight productivity projects to increase the output of our extraction. So we are.
Going to move Heaven, and Earth to make more base.
And right now we have line of sight to 50%.
Potential 50% growth in 2022.
After that we.
We will be somewhat constrained to grow beyond that until the new system comes online unless we're able to find the oat base.
Somewhere else in the marketplace to for us to bring in and package but.
We definitely have headroom in front of us in terms of our ability to grow oat milk in 2022.
And the second part of your question was just around demand I mean, if I could wave a wand and <unk>.
Stand up that facility that I referenced coming online at the end of Q2 2023, if I had it today could I sell a good chunk of it yet.
Yes.
That's really helpful. And then last one I had was on.
Fruit.
It sounds like.
The combination of pricing.
I think you mentioned.
Confirmed distribution wins.
It gives me confidence that the business can grow in 2022.
Can you talk a little bit about these these distribution wins in.
Are they fully confirmed.
<unk>.
Yeah.
What part of the fruit business those may begin whether it be the snack side or the frozen et cetera. Thanks.
You bet, Jon maybe two different thoughts I mean, we saw a very very strong demand really accelerating.
2021, and our fruit snacks business.
Posted a 23% plus or minus.
A level of growth in the fourth quarter I think we've seen that continue in the frozen business your question around.
True distribution wins that we mentioned that with our largest frozen customer.
We've generally seen is kind of a whipsaw where.
In the last year or two.
Customers seeking to add a greater variety of suppliers.
In our supply chain challenged environment that probably didn't work as well as maybe they would have hoped and so.
So I think there's maybe a view going the other way, which is to consolidate supply and as I think you know we're one of the largest frozen processors in the United States and I think our improved cost position and frankly credibility with customers around pricing. We spoke about it was helping us so I'd say.
The answer is yes, we have seen firm volume awards, including our largest customer in frozen back to the core about our level of confidence about growth it's very high.
Great. Thanks, so much for the help.
Youre welcome.
There are no further questions at this time.
And then I'll turn the call back over to you.
Great well. Thank you for your time today and look forward to speaking to you again soon thank you.
[music].
Okay.
Okay.
Okay.