Q1 2022 Whole Earth Brands Inc Earnings Call
[music].
Good morning, and welcome to the whole Earth brands first quarter 2022 results conference call. All participants will be on a listen only mode. After today's presentation. There will be an opportunity to ask questions. Please also note today's event is being recorded.
At this time I'd like to turn the conference over to Jeff stomach Investor Relations at ICR. Thank you. Sir. Please go ahead. Thank you and good morning, today's presentation will be hosted by Albert Man zoning, Chief Executive Officer, and Duane Portwood, Chief Financial Officer.
<unk> Chairman Irwin Simon is also participating on the call and will be available for Q&A. The comments during today's call and the accompanying presentation contain forward looking statements within the meaning of the safe Harbor provisions of the private Securities Litigation Reform Act of $19 95, all statements other than statements of historical facts.
Are considered forward looking statements. These statements are based on management's current expectations and beliefs as well as a number of assumptions concerning future events such forward looking statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from the results discussed in forward looking statements.
Some of these risks and uncertainties are identified and discussed in the company's filings with the SEC.
We will also refer to certain non-GAAP financial measures today. Please refer to the tables included in the earnings release, which can be found on the Investor Relations website investor whole Earth brands Dot com for reconciliations of non-GAAP financial measures to their most directly comparable GAAP measures. Additionally, we've provided a supplemental earnings presentation.
On the IR website that may be useful.
Your analysis of the company's performance.
I'd now like to turn the call over to Albert <unk> CEO .
Thank you, Jeff and thanks to everyone for joining the call today.
We're pleased to report our first quarter earnings results, we delivered consolidated product revenues of 100, and searching 6 billion, which represents a pro forma organic constant currency growth of four 9%.
And we generated adjusted EBITDA of $18 2 million at constant currency, I mean, the fluid geopolitical economic and supply chain backdrop.
Since we last spoke in March the environment has been further complicated by geopolitical events that prompted an extra duration the new input prices.
As we have shared previously our focus on our global supply chain prior to the pandemic has provided us with an ability to remain in the proactive stance with a sound plan of action to ensure that we have the tools to defend our business and our margin profile.
We believe we have strong foundation with an advantaged supply chain strong global diversification across our business segments brands channels, and geographies and strong innovation and distribution engines to drive growth.
During the first quarter, our primary focus was the ongoing execution of our North American supply chain reinvention project.
We significantly ramped up production at our new Alabama facility that services, our branded CPG business March production was at its highest level in over a year and was nearly three times our January production rates.
As a reminder, we exited rates at our North America supply chain reinvention projects in fourth quarter 2021 to help us all for supply constraints.
The primary refresh the strategy was focused on taking control of select production.
From a co packing partner.
Transition of these operations and improvement in production run rates in the first quarter was critical to increasing our fuel rates with customers and restore customer service levels.
This is most of BZ bought into sequential step up in growth from our fourth quarter, where growth was constrained by supply shortages to the three 3% organic constant currency growth in branded CPG, we achieved in the first quarter.
Why the transition to a higher throughput pressured margin in the first quarter.
NAMIC wasn't dissipated and importantly, we entered the second quarter, we've confidence in our full year guidance that we are reiterating today.
Beyond the supply chain well also come bad thing inflationary forces for a combination of tools, including price gross to net optimization productivity and prudent expense management.
We're committed to defending our margins and would be using this tools to ensure that we continue to deliver on our commitments to the market.
And Delever, our balance sheet this year through organic means.
Both of which are key priorities for us in 2022.
First an update on our pricing actions.
Our retail partners implemented our price increase which was reflected in store in March.
This amounted to an average increase mid single digits across our branded CPG portfolio.
Then an approximate 3% positive influence on revenue growth in the first quarter.
Elasticity is something we're watching carefully.
Alongside the rest of the CPG industry.
Given the ongoing intensity on the inflation and you Daria boats, such as accelerating diesel prices well reserved their right to implement additional price actions as necessary.
Second productivity.
As we discussed last quarter and another element of our supply chain Reinvention project U S SKU Russian H.
Essentially we're trying to better align our production to demand and where appropriate where eliminating underperforming skus and reallocating those resources to work innovation.
This is an excellent complement to our price strategy and something that we can control in response to external forces.
<unk> expense management, we're already a third of the leading global organization and we're being vigilant about adding expenses in the environment.
For us we have pose some head count additions and are selectively reducing spending on discrete projects.
Whereas they are not revenue generating in nature.
Again this is all geared toward a goal of ensuring that our business using a nimble position to react to market dynamics and still deliver on our financial goals.
Net we are making progress since we last spoke with you on our fourth quarter earnings call.
We have production back with <unk>.
Rising in place and we have ongoing productivity measures that are helping us drive a recovery in branded CPG margins that would carry through the year.
Well now our flavors and ingredients.
The team is doing an exceptional job for the first quarter 2022 we drove a 12% increase in segment revenue.
This is the second quarter in a row of strong double digit growth and he is the result of strong volume growth across our diverse product categories.
We're succeeding are driving adoption of natural non GMO flavor enhancing legal risks related ingredients in our end markets across food and beverage cosmetics health care and industrial.
Our new leadership in critical investments in R&D and sales and 2021 had been instrumental in shifting to our commercial approach to the diverse end markets that we serve.
This is a busy body, nor in innovation and product development strategy, which now clearly maps to the bodies applications across our suite of Magnum branded products.
For our use and sales growth.
Our sales team is also focused on enhancing our relationships with direct relationships and having some great successes.
For her our flavors and ingredient team is also benefiting from our footprint optimization projects.
You may recall, we transitioned our north American operation from New Jersey to a state of the art facility in Virginia last year we.
With that has come a significantly improved cost structure, which results in the ability to drive more competitive pricing.
Taken together the team has the tools necessary to drive growth.
And we're very.
But the results they are generating for the business.
We continue to view flavors and ingredients as a strong free cash flow generator with high barriers to entry and global leadership position that would support our broader growth initiatives as we further diversify and grow hoarder of friends.
Perfect flavors and ingredients brings diversification in both revenue and cash flow that is valued in a fluid environment, such as this allowing us to deliver greater consistency.
Our operating results.
In summary, our proactive efforts across whole of friends, creating a stronger foundation, that's what would it be able to pump.
We're pretty easy with our progress to meet our goals for 2022.
Hola friends as the global leader in the bets are 40, you sweetener and reduced sugar categories.
Our team continues to pursue four priorities first.
Disrupt the massive 100 billion total addressable refined sugar market, which is being displaced by fast growing sweeteners.
Second.
Drive category leadership, who best in class innovation and brand building expand our global distribution and leverage our strong supply chain capabilities.
Serge.
<unk> to build out of ESG credentials, and if all of our brands and product portfolio towards becoming a large organic natural plant based food company.
And fourth.
The lever on our balance sheet, we believe we would reduce leverage in 2022 for organic needs as we deliver profitable growth and significant cash flow generation.
With that I will pass the call to Duane for his financial review.
Thank you Albert and good morning to everyone.
As a reminder, we acquired wholesome on February six 2021 I.
I will speak to reported results, which include wholesome for the full first quarter of 2022.
Additionally, we will provide some selected pro forma results as if we had owned wholesome in 2021 to assist in your analysis of the organic growth of the combined portfolio.
Also please refer to our non-GAAP reconciliations at the end of the press release for additional detail and I encourage you to view the supplemental earnings presentation on our Investor Relations website.
For the first quarter ended March 31st 2022, consolidated product revenues grew 23, 4% to $136 million versus the prior year quarter.
On a pro forma basis, including wholesale for the full quarter in both the current and prior year periods organic constant currency product revenue increased four 9% versus the prior year first quarter.
Sure.
Gross profit was $39 6 million compared to $35 $7 million in the prior year first quarter.
The increase was largely driven by contributions from the wholesome acquisition.
Pricing actions and a $3 $2 million favorable change in noncash purchase accounting adjustments related to inventory revaluations, partially offset by cost inflation.
Reported gross profit margin was 33% in the first quarter of 2022 compared to 33, 7% in the prior year period.
Adjusted gross profit margin was 32, 8% down from 36, 9% in the prior year due primarily to the inclusion of wholesome in 2020, one which had lower margins and previously mentioned to cost inflation.
Yeah.
Consolidated operating income was $721 million compared to an operating loss of $3 $1 million in the prior year first quarter and consolidated net income was $2 $7 million compared to a net loss of 12.0 a million dollars in the prior year period.
Consolidated adjusted EBITDA of $17 $8 million increased one 8% driven by the contribution from the wholesome acquisition and revenue growth, partially offset by a zero point $4 million of unfavorable foreign currency.
Now shifting to the segment results for Q1.
Branded CPG segment product revenues increased $22 million or 26, 9% to $103 $8 million for the first quarter of 2022 compared to $81 $8 million for the same period in the prior year driven primarily by the addition of wholesome.
On a pro forma basis organic constant currency product revenue increased three 3%.
They are to the prior year first quarter, primarily due to pricing actions taken throughout the quarter.
Overall volume was flat however, excluding the discontinuation of certain certain legacy private label Skus branded CPG volume increased two 1%.
Operating income for the branded CPG segment was $6 $5 million in the first quarter of 2022 compared to operating income of $10 2 million for the same period in the prior year.
The decrease was driven by costs associated with our supply chain reinvention project the impact of cost inflation and an unfavorable impact from a stronger U S. Dollar.
Partially offset by a full quarter of wholesome results and revenue growth in that business.
Flavors and ingredients segment product revenues increased 11, 7% to $26 $8 million for the first quarter of 2022 compared to $24.0 million from the same period in the prior year, primarily due to strong volume growth in liquid extracts and derivatives driven by commercial expansion.
Innovation.
Operating income for the flavors ingredients segment was $7 8 million in the first quarter of 2022 compared to operating income of $1.0 million in the prior year period, primarily due to revenue growth and a $2 3 million favorable change in purchase accounting adjustments related to inventory valuations.
And the $1 7 million favorable change in restructuring and other expenses.
Yeah.
Operating expenses for corporate for the first quarter of 2022, or $7 2 million compared to $14 $2 million of operating expenses in the prior year period the.
The decrease was primarily due to lower M&A transaction fees.
Now moving to cash flow and the balance sheet.
Cash flow provided by operating activities for the quarter ended March 31, 2022 was $4 $4 million.
That is net of $4 $2 million of nonrecurring or unusual items, primarily related to our supply chain reinvention project, along with M&A transaction related costs.
Capital expenditures for the quarter ended March 31, 2022 were $3 3 million.
Free cash flow, excluding the nonrecurring unusual items was $5 $4 million.
Yeah.
As of March 31, 2022 we had cash and cash equivalents of $29 $4 million and $412 $9 million of long term debt net of unamortized debt issuance costs.
Note that our long term debt increased from year end 2021, due to the cash portion of the wholesome right out when we paid $30 million in cash and approximately $25 million in equity to those principles on February 23rd 2022.
Our net debt to adjusted EBITDA ratio at March 31, 2022 was $4 five three times.
Reducing balance sheet leverage continues to be a corporate priority and we anticipate that we can reduce leverage by approximately <unk> two turns through organic means by year end 2022 as implied by the midpoint of our guided adjusted EBITDA range.
Now shifting to our full year outlook, we are reaffirming our 2022 guidance, which includes the full year impact of the wholesome acquisition as a reminder, our outlook represents our expectations for growth on our profile pro forma organic basis.
We define pro forma organic growth to be as if the company own wholesome for the full year 2021.
For 2022, we continue to expect consolidated product revenues to be in the range of $530 million to $545 million, representing reported growth of 7% to 10% and pro forma organic growth of three 6%.
We continue to expect consolidated adjusted EBITDA in the range of $84 million to $87 million.
And we continue to expect total capital expenditures will be approximately $10 million.
That concludes our prepared remarks, operator now back to you. Please open up the call for Q&A.
Thank you ladies and gentlemen, the floor is now open for questions. If he would like to ask a question. Please press star one on your telephone keypad at this time.
Formation tone will indicate your line is in the question queue. You May Press Star two if you would like to move your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys. Once again that is star one to register a question at this time. The first question is coming from Brian Holland of Cowen. Please go ahead.
Yeah. Thanks, Good morning, everyone. If I can just start with I guess two on the topline just curious about the source of the U S share erosion that you called out in your deck. This morning, you know when is that is that all tied back to the supply issues and a win win.
We anticipate an inflection there that would be the first thing and then the second thing is.
How long is if we look at our model should we anticipate that ongoing SKU rat to remain a drag on volume.
Good morning, Brian This is Albert and let me take care of the first question and then that would start to the second one in that are waiting to finish on that if that's okay. So with regard to share and to thank you for referring to the supplemental deck, which we tried to give as much transparency as possible.
As a as you didn't mention.
The reason impact on share. We just started in Q4 continued in Q1.
Essentially for a big part driven by the supply chain disruption.
As we have talked to what that has obviously driven some product shortages on the shelves.
Across all retailers and that has impacted the share across all of most of the brands.
So that's really I would say that the key driver of the good news is as we have reported that our supply chain reinvention, we're very happy with the progress we were steel it's short on the Gen fab in saying that March was our highest production months and we are getting back to.
Two older servicing customers the way, we want to the way they expect and the way we have always done we used that to what you are going to see us restore the sheer I'm too worried that the second half of the year and later in the year. It takes time of course that does had also a compounding effect as you can imagine.
On how many promos you can run and those type of activities. When you compare year over year with what you were able to do on the prior year, which by the way in Q1 was a heavy steel COVID-19.
Period, So I would say this is really what did you use what we I can also tell us that we're very excited about our innovation very excited into customers are very excited about what we've seen in terms of innovation wings getting into the second house into brand building initiatives. So again.
If you look at our.
Supplemental deck, you will see that we are gaining share across all our markets, except the U S. That's also the one place where we do have a supply chain constraints and never had them until the months of fed, but so that bodes well for the second part of the of this year.
With regard to your question on the private label. This is as a as we explained last year an opportunity also considering the environment. We are in it to remove the poor performing skus are from a gross margin standpoint, and make place for innovation. So you are going to see.
That effect throughout the year on a on a balanced way Duane anything you want to add on that.
No that's exactly right and good morning, Bryan but.
As we had as we had discussed previously it's about a $10 million impact year on year and that's.
That is spread pretty evenly across the four quarters, including Q1.
Got it I appreciate the color.
Just curious here excuse me on demand elasticity.
Just kind of any early reads, obviously theres a lot of moving parts in your numbers, but if we just kind of drill down on the consumption. You you have a portfolio that plays across pricing tiers.
So just kind of curious what the interplay looks like as you start to roll pricing through.
Right great questions. So we have taken price globally.
Cross all of our markets the percentages will vary depending on the type of installation you are in any given market. If you look at the U S. Our price increase on average is a mid single digit that price has really as you know customers have a 60 to 90 day window, so those prices, which.
We're communicated early Gen really went into effect, the boring to March, which which ease goings into impact differ from a margin standpoint.
Q2, and he did impacted really one month out of our Q1 from a pricing elasticity I would say that we have assumed some of that.
In our <unk> calculation. So we have assumed pricing elasticity, how much will happen I think the inflationary environment how are you.
Brian This is unheard of so for the last few decades. So I think we will all being very prudent and making sure that as you say and I think that's one of the great benefits uphold our brands, making sure that we have a portfolio that can play across all price points. So I would remind you that.
You know with which the U S. We are plus you shouldn't into premium.
Natural brands were positioning the main stream natural brands, we're positioning our artificial which tend to be on a more on the value side from a pricing standpoint, we have a strong presence withhold some into private label, which again is he's a great place to.
B in those times. So we have reflected we know our pricing we have taken into account some elasticity from all that you still recorded Modelings I don't know how good the surgical models are going to be for the future, but we have a very resilient portfolio and right now.
We're happy with how that addresses.
Our cost.
We will continue to monitor the environment very carefully both in terms of pricing and that's D. C T and our activities with consumer as well as our pricing.
Inflation going forward.
I appreciate the color again, Albert I'll leave it there best of luck.
Thank you thanks, Brian right.
Thank you. The next question is coming from Scott My skin of our five capital. Please go ahead.
Hey, good morning, everybody.
So my first question is on flavors and ingredients I mean, obviously, you're seeing some pretty heady growth in what I always modeled out or is it a pretty slow good cash flow business. So I was wondering are you thinking a little differently about this business long term that it could grow perhaps just a little bit faster so.
I kind of get your thoughts there.
Yeah. Good morning, Scott first of all I want to congratulate the whole team at our flavors and ingredients, which I'm sure are at least being underscored in.
Fantastic job from them in Q4, as we have seen in Q1 the business for from our standpoint is essentially on track, we're very happy with the payback investing into the business as we have talked about previously both from an R&D standpoint, and you can see our new applications coming across.
Food and beverage cosmetics pharmaceuticals, industrial and also from Salesforce that allow us to go direct to some of the key customers versus at times going through distributors in the past and we continue to see momentum and we expect momentum going in Q2 and Ford at the same time.
Very similar to what we're doing with supply chain reinvention in you know a branded CPG right now in the U S and we just talked about you know the short term impact of it but let's remember that our flavors and ingredient went through a very similar exercise in our twin.
T twin in 2021 and we're also overlapping that are that are manufacturing fruit brings optimization, which was the closing of our Camden, New Jersey plant and opening guests Molder state of the art facility in Virginia, and I think we're reaping now the benefits.
Has good overlaps and Dubiousness is on track and very happy about.
About what the team has done there.
Okay and then my second question.
Goes to the to the inflation I know you gave some color already on.
You put through and when it's going to be in the marketplace or is in the marketplace. What are you seeing right now on input costs.
Most of the companies I'm talking to say, there's going to have to be another round.
Of price and how are you thinking about that what's going on with your input cost is that something that you guys are contemplating as you go forward.
So it's got to week regard to inflation first of all we are seeing a high single digit inflation and essentially due to the <unk>, which is consistent with what you will hear rights on the earnings from most of the yogurt CPG, what what I would tell you is a few things.
They are number one.
<unk> is we have taken pricing, which I talked about which is now reflected we had done some last year. So the combination of both and what we're doing in the U S. We feel comfortable at this time I would add to eat to that the work and I want to salute. The again the work that our.
Supply chain global team and U S team are doing.
Started way before and the supply chain reinvention, which we put in motion right at the time of this work in wholesale acquisition in which we accelerated the first out of last year essentially ease.
Dressing some of those inflationary concerns coupled with smart pre buys that have been done a year ago. So those are essentially the actions, we've that's where I'll just be not resting and we're adding further product Davita you were adding good I'd say you have a let's say to just the earlier in <unk>.
Hi, scripted remark productivity in terms of our SG&A. So we're being very attentive it crossed the line. So far we feel good about what we are but obviously, we're in a very fluid and grown maintain we would reserve the right to take further actions if needed based on how the environment.
They've always to make sure that we did you heard what is expected of us and as I say dirty or we feel comfortable at this point in time to reiterate our guidance for the year.
So to interpret that out or do you think you won't need any more with where things stand now, but you know obviously reserve the right is that a good interpretation of what you said.
Correct.
Okay, Alright, I'll yield to have some more but I'll take that offline. Thanks, guys really appreciate it.
Thank you thanks.
Thanks Scott.
Thank you. The next question is coming from Bobby Burleson of Canaccord. Please go ahead.
Yeah good morning.
So I guess the first one is just looking at flavors and ingredients curious.
How broad based the strength is there and maybe if you could kind of revisit that for us in terms of the revenue mix across some of those end markets.
Sure Hi, Bobby the E T as broad based as a as you know what I would what I would tell you is we start with that.
That'd be the advantage supply chain, we start with our market leading share and position globally in one ingredient, which is legal reach so that that's a good place to be number two we did significantly lower our cost of production through the manufacturing footprint, which essentially.
He puts us at the cost advantage across multiple usages and number three we do have a very diversified.
And users base, which are going to be in food and beverage cosmetic healthcare and industrial and we see right now because of the combination of good.
Cost the BTT to work directly with Aaron D of multiple of those end users in terms of providing the benefits and working on their products with the benefits of Leeco Reis.
We do see and the ability then to reach more customers directly through a revamped the sales force and the global level I would say that the momentum is broad based in terms of the intuit users in terms of the type of industries and also globally. You know as an example, we did this.
Step up our sales force in the in all of Asia, and we're seeing significant groups here not because the growth was not there before but because we were not able to access it or we weren't accessing it to indirectly and passively. So those all those efforts have really been put in place we division.
Sure enough or Wiener as soon as we went public and I think this is yielding good results as we speak as we expect.
Great and then.
On the.
Non revenue producing.
Producing projects, where you're selectively reducing spending any examples of the low hanging fruit there in terms of types of projects you could.
Good reduce spending on this year.
Sure Duane do you want to take this one.
Yeah sure.
Good morning, Bobby.
The biggest example is really just a more on the.
More on the technology side in terms of where we're we're we're pretty integrated right now where we're working pretty well there are areas, where we want to explore where we might where we might be better and it's it's items like that that we're just saying, okay. Well 2022 is maybe not the best year to do that so let's.
Let's let's attack that.
<unk>.
After 2022 and for now focus on execution and the like.
Okay great.
And then just last one.
In terms of supply chain disruptions I know you guys are.
Proactive inventory build last year, which turned out to be.
Very timely.
And I'm wondering just with the war in Ukraine et cetera.
Are there areas in your ingredient set that you're maybe a little bit more concerned about where where you could initiate another.
Uh huh.
Pre buying activity this year.
Right. So Bobby one on this I would say first and foremost we are we don't have any ingredients really coming from those two.
From you, Russia, and Ukraine, So we're not.
<unk> impacted directly and obviously lots of people suffering zebra and our thoughts and prayers go to those nations with regard to the indirect impact which is obviously, what what I'm thinking about more also when I was talking earlier with Scott that's where.
We're very vigilant.
One of her muddled says you you started with flavors and ingredients is.
And built it into our model, we have one year of supply on.
The ingredients so we feel comfortable woods here similarly on the wholesome we have supply on hand.
And with regard to two or the rest of the ingredients. We have done a few things as you mentioned not only did we pre buy but we also brought all those key ingredients close to the points of productions and so as you are localized in the right geographies and that.
He is also at Derisking that we did take from a procurement.
Procurement standpoint, I would say that our teams are very.
Aggressive and always looking forward so as we speak now as you're working on.
'twenty 'twenty three and we would do what is right in terms of as you say to ensuring continuity of supply, but we don't see in any disruption risks at this point in time.
Great. Thank you.
Next question.
The next question is coming from George Kelly of Roth Capital. Please go ahead.
Hi, everybody thanks for taking my questions.
So I have a couple for you first.
On your guidance for the year for EBIT.
Just curious.
Yeah.
So I guess with revenue and EBITDA revenue I mean the.
Number you just posted in the first quarter, if I go to your full year.
It looks like there's some modest.
Sequential.
Improvement in versus what you just reported but EBITDA is more substantial.
The improvement is so it sounds like pricing should have a good flow through but what else can you point to that gives you confidence that you can hit on that sequential uptick in EBITDA.
Do you want to take the sum Duane good morning, George.
Morning, George.
Yeah, I think the two.
Two big things to think about George as it relates to that progression would be first of all we did have a price increase.
Versus cost inflation mismatch during the first quarter.
Inflation was was a presence.
That's it.
We started the year and as Albert mentioned and there was commentary prepared and then questions.
Pricing.
It was was in effect throughout the quarter, and then really didn't come into full effect towards the last half of the quarter. So.
Pricing is going to is going to help us from a from an EBITDA perspective.
We did have a little bit of supply disruption in January and February so that'll help from an EBITDA perspective as well. So those are the two the two main drivers in the uptick in EBITDA.
Okay, Okay and then.
Second question for me is on free cash flow.
So wondering if you could help us just in round numbers, a bridge from EBITDA to free cash flow and.
I know you've provided capex, but should there.
Continue to be kind of one time things that will impact free cash flow or where do you expect I mean, if you could just provide a number or a range that would be helpful. I'm not sure you want to do that but anything unique to call attention to.
Duane.
I went on mute sorry about that.
Yeah, George so on free cash flow, if we think about adjusted EBITDA.
In the mid 80 range as you know, we guided an 84 to 87.
The things to consider of course are we a cash taxes, which will be in the high high single digit millions we expect.
Interest expense a load of mid twenties.
Capex in the $10 million range.
And and so then and then from a familiar from our cash related add back perspective, we did have about $4 million in Q1.
I expect that to significantly decrease in Q2 going forward.
Maybe a little bit in Q2, but significantly less than the than what we saw in Q1.
And I expect that to continue throughout the year. So.
I expect cash related add backs on the.
And then the mid single.
Millions.
And then and then the bigs.
They can swing things as networking capital last year net working capital was a use of about $20 million I expect that to be significantly less as well.
This year, there is some seasonality to that and it's different by quarter of course, but you know at the at the end of the day.
Right now I'm expecting free cash free cash flow for the year to be somewhere in the.
Mid to high 30 millions.
Okay, that's really helpful. Thanks.
For that and then last one for me.
Your leverage so.
I think you said in your prepared remarks, you expect something like.
0.2.
Turns of improvement by year end, and so I guess two part question I want to make sure I heard that correctly. So I have you right now at about four seven times just wanted to make sure that I have that right that youre going to end at four five and then the other part of your question is.
Well where did I.
I understand that deleveraging is a real priority right now it's at least that's what it sounds like.
Where do you need to get as far as that debt.
So.
Again become more comfortable considering M&A and am I hearing it right that it's really not a private M&A is really not a priority right now until that until that gets it gets you in a better position.
Yeah. So I'll take the first of all I'll take all of that and then and then the other Caribbean where I.
Or I missed some things.
Okay. So I'm glad you asked on the leverage ratio. So the $4 five three is really based on our current law.
Our current debt balance.
And then using the midpoint of our guidance range.
So that's the 4.53 of the 4.7 is like is on a last 12 months basis was $4 6 million actually.
But the point to terms going back to that it's really based off of that 4.53. So.
In other words, what were saying is you know what.
I would point to terms actually I'm, sorry is based off of where we ended 2021, we ended 2021 at $4 37.
And based on the cash flow there.
Just.
Took you through I would expect that to cause that to come down by about <unk>. Two turns so it will be in the low fours is my expectation by the end of the year.
Okay.
Okay, Great and then the M&A part of that.
Yeah. So I think as are we.
Talked about it at the end of <unk>.
Our Q4 call.
Priority number one is execution.
Across the enterprise, but obviously with particular attention to North America in the supply chain stability there.
We do continue to.
Look at the landscape on the M&A side, but it's the priority really is execution.
And then as it relates to kind of what leverage ratios that would make us more comfortable than I guess being.
We're always going to be thoughtful so I hesitate to say more aggressive or anything like that but we're only going to do deals that makes sense.
That's a price that makes sense, but you know I think clearly we have more flexibility when we have a leverage ratio in this room is versus the force.
The way and let me just follow up on that Hi, George its a one time and.
We built this company to grow with that.
To grow with both you know globally and to do M&A and with that I think theres a good plan in place to take cost out we have an incredible infrastructure in place. We are a company today that has the ability to put another half a billion dollars of sales on top of year, but M&A is in.
Portland, but having that right leverage is two.
And I think you know getting the operational right now we've only been public for.
Now two years, but.
We are seeing some interesting stuff out there and.
If the right thing came along where there is some good EBITDA and there's some costs that could be taken out.
M&A would be something we would look at here. So I don't want to rule out total M&A, but I think there's a great plan in place how do we grow this business how do we reduce cost.
Your question in regards to how do you get to that EBITDA in the back end.
It's an important question, but I think M&A.
M&A is something that.
As part of our DNA and our.
You know that's something that I look to build this company on this M&A at the right time and the right company.
Okay.
Okay. Thank you.
Thanks George.
Yeah.
Thank you. The next question is coming from Mark Smith of Lake Street Capital. Please go ahead.
Hi, guys. Most of my questions have been hit but I just want to hit to kind of Big picture things first as we look at distribution you know anything to call out as far as retail partners or shelf expansion.
Sure.
Morning, Mark because I as I say that so let me back up right by saying that the first quarter was was per our expectation. This is an incredible category right. It's 100 billion those are the addressable market and it's not discretionary wherever the economy example, we're down where inflation is up or down so as a result, a lot of.
Communities.
Free its we are very well diversified right across the aisle. So I will tell you and I don't want to disclose too much one not to upset some of the retailers had not to for competitive reasons, but we are.
Excited about what our what we're doing in terms of the power off one in the BDC to Wyndham to shelves. We are seeing good growth and opportunities that you have some of the same and some of them we didn't disclose in the supplemental deck. So we have the dues as cores that.
Would materialize in the second house with the shelf reset. We're also excited about some of the adjustments you work, we're doing right. So we have the baking mixes we have the chocolate chip cookies vis vis where we have the baking mixes.
With.
Some in theory, you have also seen a good distribution wins and one of the things I like about those adjacencies, which we take a page from our international markets. You said take you a few more points of interruption seem to the store. They also do source new users new consumers that didn't discover eventually.
Your sweeteners. So this is a very virtuous circle and so we're we're happy of course, we have a head to mend some in Q1 as I talked to earlier because the first as Irwin say dirty year. The first thing that you want us to be at a 99% customer service level.
Before before you you push a that's where it gets easier with the progress of our supply chain reinvention and we see ourselves in a good place for dose distribution the winds in that word.
That are taking place as we speak for the sector in the house.
Perfect and Al you talked about a little bit about you know my next question was which is just inflationary pressures you'll high gas prices any impact on the mhm trends and if you see any trade down out of your product as we see you know tough inflationary environment.
[laughter].
Right, let me take the opportunity here, we haven't talked about they've done the cord yet, but also to talk about you know a very well diversified channel mix and so we do see continued growth in our E Commerce and a as you know this is a this is a good place to touch a number of our consumers, we do and that.
Now paying 10% of our mix.
In the U S and we still have pockets of opportunities up on square in the wholesome, we do see good growth on the on the foodservice right, which has been coming back and as you know inflationary pressures there has been a decent bit lessors in retail and a zero. We're very happy with you know we grew high single digits in the first quarter.
Order.
In a in that channel, we see obviously good growth in club, where you know you can play value. Both in terms of downsizing packaging also upsizing and providing more value. So we are doing also both.
In terms of band you optimization, so pricing is obviously one aspect.
As you know it gets much more sophisticated than this as you as you play that game into the res opportunities that we are thinking in terms of our packaging optimization, both in larger pack or motor packs and so the important thing is to have this whole library, we have great brands.
We felt for brands, we have great innovation and I heard your first.
First question, scoring Winston distribution, and then we have a very well balanced not only portfolio, but also channels.
We just essentially bodes well that being said we remain extremely vigilant. This is a very fluid didn't drung meant nobody knows you who are going to be in a recession or not a recession.
In the in the Q4 of this year and therefore, we remain extremely vigilant and we work all the angles are constantly.
Perfect. Thank you.
Thank you. The final question today is coming from Alex Arnold of Odeon Capital Group. Please go ahead.
Hey, guys good morning.
Albert I think you just answered my question.
But I guess, the other than channel mix and shifts that you're seeing I.
I guess the extension of that is as the wall. It gets squeezed are you seeing because you are so well set across price points are you seeing.
Hmm.
Real signs of cost of trade down and substitution effect yet.
Hi, Alex I would tell you that right now we don't see we don't see any dramatic shifts.
But but we are prepared for any that might happen.
So we haven't seen yet they think consumers I mean, nobody knows right exactly consumers don't exactly know where things are going to go and so right now I think it's the old balance.
But we are prepared for as I say the bulk.
In terms of channels in terms of our products in terms, so far price point in terms of upsizing in downsizing. We are prepared and we continue and that's I wouldn't say dirty or one of our strengths. So far global manufacturing footprint, we continue to take learnings across the word in and in play.
With that which is extremely helpful. As we speak so we saw good growth in the international with some regions more impacted but overall.
We havent seen anything dramatic at this point yet in terms of rebalancing, but I think you've said read something playing out it will play out more than that because we're well balanced that's why we feel comfortable with the year.
Great and then you touched on this one as well.
In terms of products Adjacencies sort of new innovations there now on the shelf are there any specific anecdotes or updates that you can give us as to how uptake spin relative to expectations and sort of timing of when you start seeing additional ones rule.
Right the biggest the anecdotes I I'm not going.
To reveal them for competitive reasons, but I would say I would say that I'm in the same context of the first question you asked I think series growing opportunities for us in the better for you and price points and brands establish across several adjacencies.
And I think we are you are going to see this playing out in the second house in first half of next year.
As we have productive interesting important to talks with different retailers. So as as we always say per minute just didn't see this is already a 20 plus million dollar business.
In international for Us, where our presence in several categories, we're able to source.
New consumers to our brands, we're able to have multiple points.
Points of interruption seem to store and I think we felt with our our team in North America, which is doing a great job across all the brands coming together working together, we do see opportunities in North America too.
Great. Thanks, a lot Albert.
I think thing.
Hey, Josh.
Thank you at this time I'd like to turn the floor back over to management for any additional or closing comments.
If you if you allow me.
First of all thank you all I will let to the closing words too to Irwin, but I I just want to thank you all for being on this call I think our first quarter was as expected and were happy of course with that are we are looking at a category that is extremely resilient and it's not discretionary we have.
A huge addressable market and I think as we have talked multiple times, where we're very well diversified we have great brands innovation and distribution opportunities both in the U S as well as globally. So I I, Duane and I are comfortable with what we see looking forward to the photo op codes.
With you and comfortable reiterating our guidance and with that I will pass it onto where are we.
Thank you Albert.
Good morning, everybody.
Listen, it's it's difficult times out there in times that we've not seen and between.
Between inflation labor.
Supply.
But they're all things that we have to deal with out there I think the exciting thing is <unk>.
Older brands owns today, some great brands and great product lines.
You know lots of good things coming out of Mapco, which is a unique business with tremendous growth opportunities and great margins.
The uniqueness about.
Holder.
Got distribution and ultimately 80 different countries out there and got a good foothold in product.
Products that the consumer wants in regards to see be a organic sugars and sweeteners.
Krish ingredients.
You know in regards to you know.
Building. This company out there is lots of opportunities out there and one of the big things, we don't rely on co Packers.
Gone out there and built out our Birmingham facility.
You know we have a great facility with the Czech Republic.
Public we.
We have a great facility as Albert talked about in regards to you know.
Virginia, which we've.
Doug with Masco, So it's all coming together in a good way, we reconfirm guidance for the year.
Hopefully, we do not have to take pricing. If we have to we will we'll watch what our competition is doing out there we.
We have in place an excellent management team.
The strategies there I've seen a lot of the innovation I know you asked about a lot of the new products.
You know some things have gone right. Some things have gone great and some things are just not worked out.
Regards to some of the new products, but the team continues to work on them. So you.
You know again.
As a company, that's smaller company, but lots of opportunities within the food space.
And you know I've mentioned before there is lots of acquisitions out there. There's a lot of plant based companies today that are looking for partners and opportunities and with that's important for us that are good base a good cash flow.
How do we reduce our debt and I think with that coal will continue to grow its distribution grow its product and ultimate look at acquisition. So with that thank you very much and.
Congratulations to the team and I look forward to speaking to you all soon.
Ladies and gentlemen, thank you for your participation. This concludes today's event you may disconnect your lines or log off the webcast at this time and enjoy the rest of your day.
Yeah.
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