Q1 2022 Sunopta Inc Earnings Call

Good afternoon, and welcome to sum up this first quarter 'twenty to 'twenty two earnings conference call.

Good afternoon and welcome to Sunopta's first quarter 2022 earnings conference call.

By now, everyone should have access to the earnings press release that was issued this afternoon and is available on the Investor Relations page on Sunopta's website at www.sunopta.com.

By now everyone should have access to the earnings press release that was issued this afternoon and is available on the Investor Relations page on <unk> website at Www Dot Dot dot com.

This call is being webcast and its transcription will also be available on the company's website.

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 question.

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.

statements do not guarantee future performance and therefore undue reliance should not be placed upon

These statements do not guarantee future performance and therefore undue reliance should not be placed upon them.

We refer you to all risk factors contained in <unk> press release issued this afternoon.

refer you to all risk factors contained in Sunopta's press release issued this afternoon, the company's annual report filed on 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's annual report filed on Form 10-K, and other filings with the Securities and Exchange Commission for a 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 forward-looking statements made during the presentation to reflect future events or circumstances, except as may be required under applicable laws.

The company undertakes no obligation to publicly correct or update the forward looking statements made during the presentation to reflect future events or circumstances.

Just may be required under applicable laws.

Finally, we would like to remind listeners that the company may refer to certain non-GAAP financial measures. During this teleconference.

Finally, we would like to remind listeners that the company may refer to certain non-GAAP financial measures during this teleconference.

A reconciliation of these non-GAAP financial measures was included with the company's press release issued earlier today.

A reconciliation of these non-GAAP financial measures was included with the company's press release issued earlier today.

Also note please.

Note that unless otherwise stated all figures discussed today are in U S dollars and are occasionally rounded to the nearest million.

Note that unless otherwise stated, all figures discussed today are in U.S. dollars and are occasionally rounded up to the nearest million.

And now I'd like to turn the conference call over to Sun up to CEO , Joe and then please go ahead.

And now I'd like to turn the conference call over to Sunopta's CEO , Joe Ennin. Please go ahead.

Good afternoon, and thank you for joining us today with me on the call is Scott Huckins our.

Good afternoon and thank you for joining us today with me on the call that Scott Puckins, our chief Samantha.

Our Chief Financial Officer, we are pleased with our first quarter results, which exceeded our expectations.

We are pleased with the 1st quarter results, which exceeded our expectations. We are especially pleased with the strong rebound in top line growth as we made solid progress working through the various constraints that negatively impacted Q4.

We are especially pleased with the strong rebound in top line growth as we made solid progress working through the various constraints that negatively impacted Q4.

Before we begin unpacking the Q1 results, let me offer some takeaways from the quarter.

Before we begin impacting the Q1 result, let me offer some takeaway from the quarter.

We saw a significant sequential improvement versus Q4, up and down the P&L and across the business.

We saw significant sequential improvement versus Q4 up and down the P&L and across the business.

Revenue plus 18%, gross profit plus 52%, and EBITDA plus 46%.

Revenue, plus 80% gross profit plus 52% and EBITDA plus 46%.

Topline was strong across the portfolio, fueled by pricing, but also supported by volume.

Top line was strong across the portfolio fueled by pricing, but also supported by volume growth.

We had record production in our plant-based manufacturing facilities, which drove growth margin improvement versus Q4. Production was plus 19% versus Q4, and plus 8% versus Q1 2021, which was the previous best quarter ever. This record output allowed us to improve service levels, and importantly, rebuild depleted safety stuff.

<unk> had record production in our plant based manufacturing facility, which drove gross margin improvement versus Q4 production with plus 19% versus Q4, and plus 8% versus Q1, 2021, which was our previous best quarter ever this rash.

<unk> output allowed us to improve service levels, and importantly, rebuild depleted safety stocks.

Although sales continued to be very well with sales of plus 59% versus Q1 2021 led by strong growth from Dream, Oh belt, and our largest foodservice customer along with our partner brands the.

Oat milk sales continue to be very robust, with sales plus 59% versus Q1 2021, led by strong growth from Dream Oat Milk in our largest food service customer, along with our partner.

The brands we support, in part or in full, are now roughly one-third of the U.S. oat milk market and are gaining share every week.

The brands, we support in part or in full are now roughly one third of the U S wholesale market and are gaining share every week.

We are firing on all cylinders and notes from the supply of those to extraction to customer development. We are selling every drop we can make and we are producing volume above the projections from our original capital project underwriting.

We are firing on all cylinders.

From the supply of both to extraction to customer development.

Knowing every Jonathan can be.

And we are producing volume above the projections from our original capital project underwriting.

In fruit, very strong demand for fruit snacks and better alignment of costs and prices in frozen delivered a better than expected Q1 in our fruit business.

And fruit very strong demand for fruit that and better alignment of cost and prices in frozen delivered better than expected Q1, and our fruit business unit.

We are on track with plant expansion projects, including our Greenfield plant in Texas, and we are making real progress in pre-selling capacity. We are tightly managing.

We are on track with plant expansion projects, including Greenfield plant in Texas, and we are making real progress and pre selling capacity.

We are tightly managing inflationary environment, despite double digit inflation in Q1, we only had $2 million of inflation.

Despite double-digit inflation in Q1, we only had $2 million of inflation that wasn't covered by increased customer prices.

<unk> covered by increased customer pricing.

Given macro in 30s and how early we are in the calendar, we are not updating our financial outlook today. That said, we are increasingly optimistic about our ability to manage the controllable and enhance execution in our plan.

Given background and.

And how early we are in the calendar, we are not updating our financial outlook. Today that said, we are increasingly optimistic about our ability to manage the controllable and enhance execution in our plants.

Now, let me share some highlights from the first quarter. Total revenue was up 16% to $240 million, including solid increases in both plant-based and fruit-based.

Now, let me share some highlights from the first quarter total revenue was up 16% to $240 million, including solid increases in both plant and fruit base driven by a combination of pricing and broad based volume and mix gains across our portfolio.

driven by a combination of pricing and broad-based volume and mix gains across our portfolio.

This 16% approximately two thirds came from pricing and one third from volume gain and the 2021 acquisition of Dream and WAF hilly gross.

Up to 16% growth, approximately two-thirds came from pricing and one-third from volume gains and the 2021 acquisition of Dream and Webtoy. Gross margin declined 270 basis points to 11.7% on a consolidated basis, but was up from the 9% we reported in the fourth quarter.

Gross margin declined 270 basis points to 11, 7% on a consolidated basis, but was up from the 9% we reported in the fourth quarter.

There were several puts and takes, which Scott will cover in more detail, and we continue to take steps to mitigate the impact of inflationary factors, remaining firmly on track for further margin improvements. Adjusted EBITDA was down $2.7 million versus prior year to $15.6 million, primarily due to the slight reduction in gross profit.

There were several puts and takes but Scott will cover in more detail and we continued to take steps to mitigate the impact of inflationary factors remaining firmly on track for further margin improvement.

Adjusted EBITDA was down $2 7 million versus the prior year to $15 6 million, primarily due to the slight reduction in gross profit. We also incurred higher labor costs related to a one time bonus but.

We also incurred higher labor costs related to a one-time bonus to recognize the outstanding turnaround in our plan in Q1.

The outstanding turnaround and our plan in Q1.

Importantly, adjusted EBITDA was up 46% from the fourth quarter of 2021, reflecting the anticipated improvement and strong execution in the business we discussed on the Q4 call-in phase.

Importantly, adjusted EBITDA was up 46% from the fourth quarter of 2021.

I see the anticipated improvement and strong execution in our business. We discussed on the Q4 call in February .

Inflation is probably the leading topic on everyone's mind, so I'd like to provide some additional context for you on how key inflationary factors are impacting our business and how we have successfully addressed these items in the quarter and beyond. This sets up well for margins over the balance of 2022 as well as our longer-term view.

Inflation is probably the leading topic on everyone's mind, so I'd like to provide some additional context for you on how key inflationary factors are impacting our business and how we are successfully address these items in the quarter and beyond.

Well for margins over the balance of 2022.

Well as our longer term view.

We incurred $23 million of COGS inflation versus last year.

We incurred $23 million of Cogs inflation versus last year.

These costs were covered by $21 million of customer pricing actions.

These costs were covered by $21 billion of customer pricing.

We also have additional pricing being executed in Q2.

We also have additional pricing being executed in Q2. There is obviously inflation impacting other cost areas, such as SG&A. But overall, we are keeping pace with the unprecedented inflationary increase.

There is obviously inflation impacting other cost area.

But overall, we are keeping pace with the unprecedented inflationary increases.

I'll offer 1 caveat, which is that at almost any point in time in the last 9 months, our assessment of our business would be that we have passed on all known inflationary cost to customers. But as we have seen, that could change the next day, I would describe the pricing environment with customers that construct.

However, one caveat, which is that at almost at any point in time in the last nine months, our assessment of our business would be that we have passed on all known inflationary cost to customers, but as we are seeing that could change. The next day I will describe the pricing environment with customers that constructed.

While a few companies may be using the current inflationary environment to enhance margins, we have chosen to take a fact-based, long-term view of building and maintaining partnerships with our customers. Now, we'll turn to our second.

While a few companies maybe using the current deflationary environment to enhance margins, we have chosen to take a long term view of building and maintaining partnership with our customers.

Now I will turn to our segments starting with plant based.

I'd like to remind listeners that we have three strategic priorities.

I'd like to remind listeners that we have three strategic priorities.

First, strengthening and fortifying our competitive advantage.

First strengthening and fortifying our competitive advantages.

Second, building a strong ingredient business focused on both to drive growth in refrigerated beverages.

Building, a strong ingredients business focused on code to driving growth in refrigerated beverages.

And third, building a multi-pronged go-to-market business that includes co-manufacturing, private labels, and owned brands.

And third building a multi pronged go to market business that includes co manufacturing private label and owned brands.

Plant-based revenues increased 13% to $136 million in the first quarter, another record, in our 14th consecutive quarter of revenue growth. Of the 13% growth, approximately 60% came from pricing and 40% from volume gains, including the acquisition of Dream and West Soy. Growth was broad-based within the portfolio across sales channels, product types, and customers.

Plant based revenues increased 13% to $136 million in the first quarter, another record and our 14th consecutive quarter of revenue growth.

The 13% growth approximately 60% came from pricing and 40% from volume gains, including the acquisition of Dream and Wessling growth was broad based within the portfolio across sales channels product type and customers' strong demand for <unk> based offering led the segment with it yet.

Strong demand for oat-based offerings led the segment once again, increasing 59% versus the prior year period.

Increasing 59% versus the prior year period.

Ode as a percentage of the plant-based health portfolio has doubled in the last 24 months, approaching one-third of sales, and underscores the value of our innovation focus.

As a percentage of the plant based milk portfolio and doubled in last 24 months approaching one third of sales.

And underscores the value of our innovation focus.

As we have seen for almost a year now, our oat base, derived from Synopton's proprietary oat extraction process, is winning in the marketplace. As I mentioned earlier, brands we support are roughly a third of the oat segment market share, as measured in Nielsen Retail Scan Data.

As we have seen for almost a year now our old base derived <unk> proprietary extraction process is winning in the marketplace as I mentioned earlier brand, we support a roughly a third of the segment market share as measured in Nielsen retail scan data.

Oat has been the big winner, and our plant-based milk sales are up 18%. The total category is seen as a softness of light, but we believe some of this is COVID overlap.

But what has been the big winner in our plant based milk sales are up 18%. The total category are you seeing a bit of thought as of late but we believe some of this is code that overlap as.

As we look at the category on a two-year basis, it is up 10% and has grown steadily for over a decade.

As we look at the category on a two year basis. It is up 10% and has grown steadily for over a decade.

Additional growth drivers for Synopta were our tea business, which rose 26%, and ingredients, principally oat base, which was up 37%.

Additional growth drivers person after where our key business, which rose, 26% and ingredients, principally obey which was up 37%.

From a customer demand perspective, demand was broad-based. Revenue from our top five customers grew 14%, slightly ahead of overall plant-based and reflects significant contribution from new products and a large new plant-based customer.

From a customer demand perspective demand with broad based revenue from our top five customers grew 14% slightly ahead of overall plant based and reflects significant contribution from new products and a large new plant based customer our.

Our ability to develop, innovate, and rapidly scale new products remain the core competitive advantage. In fact, during the first quarter, the majority of our growth came from new products or new customers.

Our ability to develop innovate and rapidly scale new products remains a core competitive advantage in fact during the first quarter. The majority of our growth came from new products or new customers.

We continue to make progress on the development and execution of our branded portfolio.

We continue to make progress on the development and execution of our branded portfolio.

As a percent of overall plant-based business, our own brands represent approximately 9% of the total compared to under 2% a year ago. Private label increased approximately 11% driven by broth sales. And we also had solid similar gains in our command.

The percent of overall plant based business our own brands represent approximately 9% of the total compared to under 2% a year ago private label increased approximately 11% driven by bras sales and.

And we also had solid similar gains in our co man business.

Finally, ingredients continue to show strong growth, up 30% in the cold.

Finally ingredients continued to show strong growth up 30% in the quarter.

We are a growth company and as such business development is a paramount importance to our sustained growth trajectory. We on boarded a significant new plant based milk customer in 2021, which will contribute to growth in 2022 and 2023.

We are a growth company, and as such, business development is of paramount importance to our sustained growth trajectory.

We onboarded a significant new plant-based milk customer in 2021, which will contribute to growth in 2022 and 2020.

We are also working on a contract extension with one of our top three customers that will extend our relationships out to 2027.

We are also working on a contract extension with one of our top three customers that will extend our relationship out to 2027.

Let me share an update on our expansion initiatives, which are foundational in our plan to double the revenue and more than double the gross profit from 2020 to 2025. By the end of 2022, we will have effectively doubled the manufacturing capacity of the business versus 2020. This doubling is achieved through six capital projects, four of which are complete and have added over 150 million of revenue capacity.

Let me share an update on our expansion initiatives, which are foundational in our plan to double the revenue and more than doubled the gross profit from 2020 to 2025 by the end of 2022, we will have effectively doubled the manufacturing capacity of the business versus 2020. This doubling is achieved.

Through six capital projects, all of which are complete and about it over $150 million of revenue capacity.

The fifth project comes online in Q3 of this year in Modesto and is on track. The big one, our Texas Greenfield plant, is impressively still tracking toward the Q4 startup to fight all the macro supply chain challenges.

The fifth project comes online in Q3 of this year in Modesto and is on track the Big one our Texas Greenfield plant is impressively still tracking towards a Q4 startup. Despite all the macro supply chain challenges, while we have a lot of work left to do on taxes, we are with <unk>.

While we have a lot of work left to do in Texas, we are within four weeks of our original schedule and have already hired the majority of the management team. This is a.

Four weeks of our original schedule and have already hired the majority of the management team there.

This is a testimony to our ability to execute.

we broke ground on a 30-acre dirt field September 8, 2021. In the 245 days since then, we've poured 80 million pounds of concrete, stood up walls, the roof, installed HVAC, electrical, plumbing, and believe it or not, this week we started the installation of the processing equipment.

Brown on a 30 acre dirt field September eight 2021, and the 245 days that we reported $80 million on the concrete tilt up wall. The rug installed each that electrical plumbing and believe it or not this week, we started the installation of the processing.

This week alone we have over 165 contractors working on site, while I'm sure we'll face market challenges between now and the end of the year.

This week alone, we have over a hundred and sixty five contractors working on site. Well, I'm sure we'll face more challenges between now and the end of the year. Success always comes down to people executing.

<unk> always comes down to people executing and our ability to execute is fueled by our culture of entrepreneurship passion and accountability.

fueled by our culture of entrepreneurship, passion and accountability.

As I mentioned on the last call, we are making great progress on selling off expats.

As I mentioned on the last call, we are making great progress on selling out the capacity, we will provide a more fulsome update at Investor day, including ASIC usability contributes to our long term growth algorithm I referenced a second own extraction facility on the last call, which is over and above the doubling of capacity.

We will provide a more fulsome update in the tester day, including how this new facility contributes to our long-term growth.

I referenced a second oat extraction facility on the last call, which is over and above this doubling of capacity.

We are currently at capacity on our first oat extraction system, and as I mentioned, our oat base is winning in the market.

We are currently at capacity on our first <unk> extraction system and as I mentioned, our oat base is winning in the marketplace. Our existing old customers continued to grow at a rapid rate and we are confident based on customer discussions that commitment that this new system will be highly utilized this project is now.

Our existing OAT customers continue to grow at a rapid rate, and we are confident, based on customer discussions and commitments, that this new system will be highly utilized.

This project is now underway and will be online in Q3 of 2023, giving us 80% more oak base and taking our oak capacity to nearly $200 million.

Now under way that will be online in Q3 of 2023, giving us 80% more opaque and taking our own capacity to nearly $200 million.

Importantly, this new system will add oak-based capacity to the West Coast, where there is little today.

Importantly, this new system will add capacity.

<unk> to the West coast, where there any little today.

Moving onto our fruit segment, our three strategic priorities are number one derisking the business through geographic diversification customer pricing program and better grower relations to becoming the low cost operator in frozen fruit through automation footprint.

Our 3 strategic priorities are number 1, de-risking the business through geographic diversification, customer pricing program, and better grower relations.

Two, becoming the low-cost operator in frozen fruit through automation, footprint re-engineering, and aggressive cost takeout.

Reengineering and aggressive cost takeout and three evolving the portfolio via innovation towards more value added offerings. We were very pleased with the performance of our fruit business unit in Q1, as our strategies really took hold.

And three, evolving the portfolio via innovation toward more value-added offers.

We were very pleased with the performance of our free business unit in Q1 as our strategies really took hold.

Fruit-based revenues increased 19% to $105 million in the first quarter, two-thirds of which was driven by prices.

Route based revenues increased 19% to $105 million in the first quarter, two thirds of which was driven by pricing.

Volume and mix accounted for roughly one third of the increase, which also benefited from some one-time volume at our largest customer.

Volume and mix accounted for roughly one third of the increase which also benefited from some one time volume at our largest customer frozen fruit revenue grew 16% and was largely driven by pricing.

Frozen fruit revenue grew 16% and was largely driven by price.

We continued to experience very strong demand for fruit snacks with revenue up 29% in the quarter, which was primarily driven by volume gains on the Bay's business. Along with the smoothie bowl, which we recently launched via a private label offering at one of the largest retailers in the world via a co-manufactured brand with a massive global food company and also via our own brand.

We continued to experience very strong demand for fruit snacks with revenue up 29% in the quarter, which was primarily driven by volume gains on the base business.

One with the Smoothie Bowl, which we've recently launched via a private label offering at one of the largest retailers in the world via a co manufactured brand with a massive global food company and also the our own brands.

Sales to our top five customers in frozen were up 37% year over year and accounted for 80% of the total versus 68% in last year's first quarter.

Sales to our top five customers in frozen were up 37% year-over-year and accounted for 80% of the total versus 68% in last year's first quarter. In snacks, our sales to our top five customers rose 30%. Fruit snacks remain a large and on-trend category that continues to demonstrate strong growth dynamics.

And snap our sales to our top five customers rose, 30% fruit snacks remain a large and on trend category that continues to demonstrate strong growth dynamics.

Nielsen data for the 13 weeks that coincide with our first quarter showed total fruit snacks of 9%, which implies significant share gains for Sunup Denny's.

Nielsen data for the 13 weeks that coincide with our first quarter show, a total fruit snacks up 9%, which implied significant share gains for <unk> customers.

Before closing, I want to touch on our efforts around sustainability.

Before closing I want to touch on our efforts around sustainability.

Last year, we took steps to formalize our environmental, social, and governance framework, harnessing the passion of our employees to move us forward into a new era of awareness, engagement, and responsibility.

Last year, we just got to formalize, our environmental social and governance framework harnessing the passion of our employees to move us forward into a new era of awareness engagement and responsibility.

Our most recent ESG report, which was released roughly two weeks ago.

Our most recent ESG report, which was released roughly two weeks ago summarizes synoptist approach relative to four key areas product planet people and governance.

Summarizes Synoptic's approach relative to four key areas, products, planet, people, and governance.

It highlights our commitment and actions as we continue to advance sustainability and communicate transparently.

It highlights our commitment and actions as we continue to advance sustainability and communicate transparently.

We are proud of our progress so far and we embrace the opportunities that lie ahead as we work to sustainably fuel the future of food in summary, 2020 to adopt to a strong start and we are very confident in our direction and output our strategic growth priorities around portfolio transformation.

We are proud of our progress so far, and we embrace the opportunities that lie ahead as we work to sustainably fuel the future of

In summary, 2022 is off to a strong start, and we are very confident in our direction and outlook. Our strategic growth priorities around portfolio transformation, innovation, and doubling the plant-based business have not changed. We remain committed to our long-term growth algorithm of annual double-digit plant-based revenue and profit income.

Innovation and doubling the plant based business have not changed we remain committed to our long term growth algorithm.

Annual double digit plant based revenue and profit increases and continue to focus on increased return on invested capital.

and continue to focus on increased returns on invested capital.

So NAFTA offers investors interested in plant based foods and beverages. The rare combination of both strong top line growth and profitability today, we expect year over year adjusted EBITDA growth in Q2, and every quarter going forward now I'll turn the call over to Scott to take us through.

Sonata offers investors interested in plant-based foods and beverages, the rare combination of both strong top-line growth and profitability today. We expect year-over-year adjusted EBITDA growth in Q2 and every quarter moving forward. Now I'll turn the call over to Scott to take us through the rest of the financials. Scott. Thank you very much.

The rest of the financials Scott.

Thank you very much Joe and good afternoon, everyone.

First quarter revenues of $240.2 million were up 15.7% year over year with solid gains in both sectors.

First quarter revenues of $242 million were up 15, 7% year over year with solid gains in both segments.

Plant-based revenue increased 13.4%, driven by strong demand for our oat-based offerings and teas, along with pricing actions and the impact of the DREAM and West Soy acquisition.

<unk> based revenue increased 13, 4% driven by strong demand for our oat based offerings and teams along with pricing actions and the impact of the treatment less site acquisition fruit based revenues increased 18, 7% as we benefited from pricing actions implemented in the second half of 2021.

Fruit-based revenues increased 18.7% as we benefited from pricing actions implemented in the second half of 2021, along with strong demand for fruit snacks and smoothie bowls and some one-time orders from our largest frozen customer outside of normal distribution, which represented nearly half of the revenue.

Along with strong demand for fruit snacks, and <unk> and some one time orders from our largest frozen customer outside of thoughtful distribution, which represented nearly half of the revenue growth.

Gross profit was $28 million for the first quarter of 2022, a decrease of $2 million compared to the first quarter of 2021, and consolidated gross margin went down 270 basis points to 11.7%, with most of the decline attributable to temporary factors in our plant-based sector.

Gross profit was $28 million for the first quarter of 2022, a decrease of 2 million.

Compared to the first quarter of 2021, and consolidated gross margin was down 270 basis points to 11, 7% with most of the decline attributable to temporary factors and our client base.

Importantly, Gross Margin expanded 270 basis points from Q4.

Importantly, gross margin expanded 270 basis points from Q4 and plant based segment level gross profit decreased $3 2 million and gross margin was down 470 basis points to 14, 7% versus the prior year.

In plan-based, segment-level gross profit decreased $3.2 million, and gross margin was down 470 basis points to 14.7% versus the prior year.

In 2014, 7% margin rate improved 300 basis points from Q4 and was consistent with what we communicated on our Q4 call. We expect further sequential margin rate improvement in Q2 and significant growth in gross profit dollars.

The 14.7% margin rate improved 300 basis points from Q4 and was consistent with what we communicated on our Q4 call. We expect further sequential margin rate improvement in Q2 and significant growth in gross profit dollars.

Unrecovered inflation represented $2 million, which along with $1 million of increased depreciation expense, accounted for the decline in year-over-year growth.

Covered inflation represented $2 million, which along with $1 million of increased depreciation expense accounted for the decline in year over year gross profit.

These factors were partially offset by higher production volumes and improved utilization at our plant-based beverage ingredient operation.

These factors were partially offset by higher production volumes and improved utilization in our plant based beverage ingredient operations and.

In fact, K1's production in plant-based milks was up 8% over last year and 19% sequentially from Q4 2021, exiting the quarter very soon.

In fact Q1's production in plant based milks was up 8% over last year and 19% sequentially from Q4 2021 exiting the quarter very strong.

On a margin rate basis, we would estimate that the pass-through costs created 150 basis points of margin rate dilution as the pricing gets added to each of revenue and cost on a similar basis.

On a margin rate basis, we would estimate that the pass through of costs created 150 basis points of margin rate dilution as the pricing gets added to each of revenue and Cogs on a similar basis.

Given the transportation availability challenges in the quarter, we would estimate that we left $7 million of revenue and $2 million of gross profit on the table due to the challenging environment, with even some of the global leading CPG companies unable to arrange carriers to pick up their products.

Given the transportation availability challenges in the quarter, we would estimate that $7 million of revenue and $2 million of gross profit on the table due to the challenging environment with even some of the global leading CPG companies unable to arrange carriers to pick up their products.

In April , with some additional focus, we did see some improvement in this transportation dynamic.

In April with some additional focus we did see some improvement in this transportation.

And fruit based segment level gross profit rose $1 2 million and gross margin of seven 7% was flat with the prior year gross profit improved benefited from portfolio rationalization, along with manufacturing efficiencies stemming from our consolidation efforts last year.

In fruit-based, segment-level gross profit rose $1.2 million, and gross margin of 7.7% was flat with the prior year. Gross profit in fruit benefited from portfolio rationalization, along with manufacturing efficiencies stemming from our consolidation efforts last year.

While not impacting gross profit dollars on a margin rate basis, we would estimate that the pass through of higher costs represented 100 basis points.

While not impacting gross profit dollars on an urgent rate basis, we would estimate that the pass-through of higher costs represented 100 basis points ahead.

Segment operating income was $3 9 million in the first quarter compared to $6 1 million in the year earlier period.

segment operating income was $3.9 million in the first quarter compared to $6.1 million in the year-earlier period.

The year-over-year decline was attributable to the previously mentioned $2 million of lower gross profit on a consolidated basis.

The year over year decline was attributable to the previously mentioned $2 million of lower gross profit on a consolidated basis.

a $1.1 million increase in SG&A, including a special one-time bonus, recognizing the significant improvement in production.

$1 1 million increase in SG&A, including a special one time bonus recognizing the significant improvement in production in.

and 0.4 million of incremental amortization for Dream and West.

And <unk> 4 million of incremental amortization for dream and Leslie.

Partially offsetting these factors was a $1 $3 million improvement in year over year Foreign exchange results related to our Mexican operations.

Partially offsetting these factors was a $1.3 million improvement in year-over-year foreign exchange results related to our Mexican operations.

Earnings from continuing operations for the first quarter were $0.7 million, which was down from $1.7 million in the prior year period. On an adjusted basis, we get earnings of $0.6 million, or one cent per delivered share, in the first quarter of 2022.

Earnings from continuing operations for the first quarter were <unk> <unk>.

$7 million, which was down from $1 7 million in the prior year period on an adjusted basis, we had earnings of $1 6 million or one or.

Our diluted share in the first quarter of 2022 versus adjusted earnings of $1 3 million or <unk> <unk> per diluted share in the prior year period.

versus adjusted earnings of $1.3 million or $0.01 per diluted share in the prior year period.

In the first quarter adjusted EBITDA was $15 6 million compared to $18 3 million in the prior year and $10 7 million in the fourth quarter of 2021.

In the first quarter, Adjustment EBITDA was $15.6 million compared to $18.3 million in the prior year and $10.7 million in the fourth quarter of 2021.

The primary driver of the year-over-year reduction in adjusted EBITDA was the $2.2 million decline in operating expenses.

The primary driver of the year over year reduction in adjusted EBITDA was the $2 2 million decline in operating income I would 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 afternoon.

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 toward the back of the press release issued earlier this afternoon.

Turning to the balance sheet and cash flow.

As of April 2, 2022, total debt was $250 million and reflects $159 million drawn on our asset-based credit.

As of April two 2022, total debt was $250 million and reflects $159 million drawn on our asset based credit facility.

$84 million of capital leases with the balance representing smaller credit facilities.

84 million of capital leases with the balance representing smaller

Leverage split at 4.3 times at the end of the first quarter, just above our previously communicated.

Leverage stood at four three times at the end of the first quarter just above our previously communicated range. It is important to point out that our current leverage position is largely reflective of the timing and scale of our significant and planned investments in capacity expansion over the last two years as.

It is important to point out that our current leverage position is largely reflective of the timing and scale of our significant and planned investments and capacity expansion over the last two years.

As we have said for many, many quarters, these investments are needed to double the capacity, revenue, and profits of our plant-based.

As we have said for many many quarters. These investments are needed to double the capacity revenue and profits of our plant based business.

As we hit stride with some of the 'twenty, one and 2022 projects in Texas come online at the end of the year, we would expect a reduction of leverage in 2023, and we believe executing this magnitude of capacity expansion in this environment will be rewarding from a cash flow perspective cash provided by operating <unk>.

As we hit stride with some of the 21 and 2022 projects, and Texas comes online at the end of the year, we would expect a reduction of leverage in 2023, and we believe executing this magnitude of capacity expansion in this environment will be.

From a cash flow perspective, cash provided by operating activities of continuing operations during the first quarter of 2022 was a strong $15.5 million, compared to cash used of $7 million during the first quarter of 2021.

<unk> of continuing operations during the first quarter of 2022 was a strong $15 5 million compared to cash used of $7 million during the first quarter of 2021.

This result is essentially a 100% drop through of Q1 even.

This result is essentially a 100% drop through of Q1 EBITDA.

Cash used in investing activities from continuing operations was $24.5 million, compared with $7.9 million in last year's first quarter.

Cash used in investing activities from continuing operations was $24 5 million compared with $7 9 million in last year's first quarter, primarily reflecting investments and capacity expansion projects.

primarily reflecting investments in capacity expansion projects.

Let me close with some comments on our outlook for the balance of 2022, recognizing the environment is very fluid as it relates to inflation supply chain labor and raw materials, we are maintaining our prior guidance first introduced on our Q4 call of revenue in the range of 890 to 930.

Let me close with some comments on our outlook for the balance of 2022, recognizing the environment is very fluid as it relates to inflation, supply chain, labor, and raw material.

We are maintaining our prior guidance, first introduced on our Q4 call, of revenue in the range of $890 to $930 million, which translates into growth rates of approximately 10% to over 14% compared with 2021.

$30 million, which translates into growth rate of approximately 10% to over 14% compared with 2021.

As we have said for several quarters, 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 compared to the first half based on our existing capacity.

As we have said for several quarters, 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 compared to the first half based on our existing capacity.

I'd also like to remind listeners about how we see a plant-based facility in Midlothian, Texas, affecting 2022 gross profit and gross margin.

I'd also like to remind listeners about how we see a plant based facility isn't loyalty in Texas affecting 2022 gross profit and gross margin.

As we have previously stated, we expect commercial production to start at the very end.

As we have previously stated we expect commercial production to start at the very end of the year.

In order to be ready for year-end production, we expect to incur approximately $10 million of startup costs.

In 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.

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 marginal rate as reported.

All these startup costs are added back to adjusted EBITDA, They will affect gross profit and gross margin rate as reported.

From a profitability standpoint, we remain very confident in the previously communicated adjusted EBITDA range of $67 to $75 million for 2022.

From a profitability standpoint, we remain very confident in our previously communicated adjusted EBITDA range of $67 million to $75 million for 2022.

This represents 10% to 25% growth over 2021.

This represents 10 to 25% growth over 2021.

As Joe mentioned, we expect year-over-year improvement in gross profit and adjusted EBITDA for the balance of the year.

As Joe mentioned, we expect year over year improvement in gross profit and adjusted EBITDA for the balance of the year.

We also reiterate our expectations for $100 million from adjusted EBITDA in 2023.

We also reiterate our expectations for $100 million of adjusted EBITDA in 2023.

From a capital standpoint, we continue to expect capital expenditures in the $110 million to $115 million range as reported on the cash flow statement, driven primarily by the new facility in Texas. As a reminder, this facility is being financed through the company's credit and lease facilities and we do not.

We continue to expect capital expenditures in the $110 to $115 million range.

as reported on the cash flow statement, driven primarily by the new facility in Texas.

As a reminder, this facility is being financed through the company's credit and lease facilities, and we do not need equity capital to fund these.

The equity capital to fund these investments.

Finally, I'd like to remind listeners that we are holding an investor day on June 2nd. We plan to unpack the business in detail.

Finally, I'd like to remind listeners that we are holding an investor day on June seven.

We plan to unpack the business in detail further.

Further detect our sources of competitive advantage and share additional financial metrics, including our outlook for performance through 2025.

further depict our sources of competitive advantage, and share additional financial metrics, including our outlook for performance through 2025.

Before opening the call for questions. Just a reminder that for competitive reasons, we do not provide detailed commentary regarding customer SKU level activity.

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.

And with that operator, please open up the call for questions.

At this time, if you would like to ask a question press star followed by the number one on your telephone keypad.

At this time if you would like to ask a question press star followed by the number one on your telephone keypad. Your first question comes from the line of Brian Holland with Cowan and Company. Your line is open.

Your first question comes from the line of Brian Holland with Cowen and company. Your line is open.

Yeah. Thanks, good evening gentlemen.

Yeah, thanks. Good evening, gentlemen. I just looking at gross margins sequentially, you know, considering the ongoing sources of market.

Looking at gross margins sequentially.

Clearly the ongoing service to the market.

Yes.

some of the corrective measures in place. Is it your expectation that 1Q, it sounds like 1Q should be the trough for fiscal 22 gross margin, but you talk about balance of the year, we're gonna grow gross margin. I would suspect that, I would still assume a pretty big jump if you have year over year in Q2. So maybe just frame that out. Is Q2 kind of higher sequentially on gross margin, but still down year over year, and then the back half is up year over year?

The corrective measures in place.

Our expectation that <unk>. It sounds like you should be the trough for fiscal 'twenty to gross margin, but you know.

You talked about balance of the year, we're going to grow gross margin I would suspect that that would still assume a pretty big jump it could be up year over year. In Q2. So maybe just frame that out just as Q2 kind of higher sequentially on gross margin, but still down year over year than the back half was up year over year.

Hey Brian , good evening, it's Scott. So I think you've got it generally right, you know, we would expect as we work our way through 2022, you know, sequential improvement and margin, you know, again, sequential from four to one and Q1 to Q2, etc. So that's the core of your question to answer that.

Hey, Brian Good evening, Scott, So I think you've got a generally rate we would expect as we.

We work our way through 2022.

<unk> improvement in margin.

Sequential.

401 in Q1, and Q2 et cetera. So that's the core of your question to answer that is yes.

Okay got it.

Okay, got it. I wanted to ask more broadly about elasticity on both.

I wanted to it more broadly about elasticity.

Okay.

and clearly great performance in fruit. I know that there was some selling benefit or distribution benefit on Q, but obviously took drastic pricing there, but also on the, you know, oat inflation obviously is significant. So, and if you also have exposure across the pricing tiers, so just kind of curious the interplay you're seeing there on plant-based, but any thoughts on the fruit side as well would be helpful.

Clearly great performance in fruit.

Selling benefit our district distribution benefit <unk>, but obviously it took drastic pricing their pricing there, but also on the replacement obviously.

So and you also have exposure across the pricing tiers. So just kind of curious the interplay youre seeing there.

On plant based but any thoughts on the fruit side as well would be helpful.

Yes, Hi, Brian It's Joe.

Yeah, hi, Brian , it's Joe. You know, we're certainly keenly watching the elasticities, you know, as we look at volume growth as a lever, obviously, we have two ways.

We're certainly keenly watching elasticity as we look at volume growth as a lever obviously, we have to wait for.

for volume to grow, you know, aggregating or growing share within existing or new customers.

<unk> volume to grow.

Aggregating or growing share within existing or new customers and you certainly heard us reference that as the volume growth driver as well as our core underlying category growth. So we did we did see certainly dollar sales growth in plant based.

And you certainly heard us reference that as a volume growth driver, as well as core underlying category growth. So, you know, we did see certainly dollar sales growth in plant-based unit growth was slightly down, but as I mentioned, on a two-year basis.

Unit growth was slightly down, but as I mentioned on a two year basis and any longer time frame and plant based you continue to see pretty strong upward momentum, we referenced plus nine on snacks, which is fantastic.

And, you know, any longer timeframe in plant-based, you continue to see pretty strong upward momentum. We referenced plus nine on snacks, which is fantastic. And then on frozen, you know, it's holding its own in the face of some pretty significant pricing across the category.

And then on frozen.

It's holding its own in the face of some pretty significant pricing across the category.

I appreciate the color Joe last one for me and I'll get back in the queue.

Appreciate the color Joe. Last one for me and I'll get back in the queue. You know, you mentioned several more customer updates here on the plan.

Mentioned.

Several more customer updates here on the planning side.

You know, just stepping back, you know, can you talk about what's driving, I know you don't want to talk about specific customers, et cetera, but can you talk about what's driving the wind right now in this environment? I mean, conceptually, we understand it. You're adding capacity, cost provider with, you know, a broad manufacturing network, et cetera, et cetera.

Just stepping back can.

Can you just talk about what's driving I know you don't want to talk about specific customers et cetera, but can you talk about what's driving the wins right now in this environment I mean conceptually we understand it you are adding capacity cost provider with.

Our broad manufacturing network et cetera et cetera.

But, you know, I mean, what's happening right now? Is that all just coming to fruition? Is this demand outstripping supply? And people are just looking anywhere they can just help help for us.

Is there I mean, what's happening right now is that all just coming to fruition is this demand outstripping supply and people are just looking anywhere. They can just help us help frame for us.

what's bringing in this new business right now?

What's what's bringing in this new business right now.

Yes, Brian this either but what I referenced specifically, which will end up being a very significant customer for us has been in development for a considerable period of time. It wasn't an emergency rush to synopsys, because we happen to have production output.

Yeah, Brian , the one I referenced specifically, which will end up being a very significant customer for us, has been in development for a considerable period of time. It wasn't an emergency rush to Synopta because we happen to have production output. Unfortunately, our business doesn't pivot that quickly. So, you know, this is really long-term customer development. As we've shared many, many times, I mean, in this category, in this industry,

Unfortunately, our business doesn't pivot that quickly. So this is really a long term customer development as we've shared many many times I mean in this category in this industry.

You know, customer development is 12 to 24 month cycle. And so, you know, really, we feel we felt like it was worth referencing today simply because.

Customer development is 12 to 24 month cycle and so really we we felt like it was worth referencing today simply because the efforts are starting to pay dividends in terms of revenue growth and was worth highlighting that this is something we candidly have been working on.

the efforts are starting to pay dividends in terms of revenue growth and was worth highlighting, but this is something we candidly have been working on since probably the end of 2020.

In the end.

'twenty 'twenty.

Understood I'll leave it there congrats.

Understood, I'll leave it there, congrats back here.

<unk> here.

Your next question comes from the line of Andrew <unk> with BMO capital markets. Your line is open.

Your next question comes from the line of Andrew Strelzik with BMO Capital Markets. Your line is open.

Hey, good afternoon, thanks for taking the questions.

Hey, good afternoon, thanks for taking the questions. I guess I wanted to tack on to the question about elasticity and just talk generally about plant-based demand.

I guess I wanted to tack on to the question about elasticity just talk generally about plant based demand.

You know, I guess, what's your sense for how the category holds up in a softer spending environment? I guess, you know, the customer for that category probably just needs more higher income. You know, I don't know if there's an interplay with food service to think about. I'm just curious how you think about, generally speaking, the plant-based category in the event that we get into a type of consumer environment.

I guess whats your sense for how the category holds up.

Softer spending environment I guess.

The customer for that category, probably skews more higher income.

Yeah.

I don't know if there is an interplay with foodservice to thinking about I'm just I'm just curious how you're thinking about generally speaking the plant based category in the event that we get into a tough consumer environment.

Yes, Andrew I think Theres, a couple of things to consider one the category does skew higher income.

Yeah, Andrew, I think there's a couple of things to consider. One, the category does skew higher income. Second is, you know, this is a category where many people are in the category.

Second is this is a category where many people are in the category.

for either health reasons, meaning they believe that these are healthier products to consume versus the alternative, or they have a dairy allergy and the alternative isn't available to them. So typically what I've seen in 30 years in food is consumers are loathe to trade off a product that they're purchasing for a health reason.

Sure either health reasons, meaning they believe that these are healthier products to consume versus the alternative or they have a dairy allergy and.

The alternative has been available to them. So typically what I've seen in 30 years in food is.

Consumer the consumers are loathed to trade off.

A product that they are purchasing for our health reason and make a unhealthy or choice just to save 50.

and make an unhealthier choice just to save 50 cents. You know, they'll cut something else in their overall spending budget before they'll sacrifice their own personal health.

They'll cut something else in their overall spending budget before they will sacrifice their own personal health.

Okay.

Okay, that makes sense. And then on the operational side, some of the strides that you made this quarter really kind of tightened down the execution in some of those things and the productivity. Can you just talk about what drove that? I mean, was that, you know, really getting over the hump from a training perspective and a staffing perspective, or was there, you know, just curious kind of how you think about what drove those dynamics.

Okay that makes sense and then.

On the operational side some of the strides that you made this quarter really kind of talking down the execution and some of those things and the productivity can you just talk about what what drove that I mean was that really getting over the hump from a training perspective, and a staffing perspective or was there.

Just curious kind of how you think about what drove those dynamics.

Yeah, I think, you know, as we referenced on the Q4 call, we were slightly frustrated with our Q4 production simply because we had hired.

Yes, I think as we referenced on the Q4 call we were slightly frustrated with our Q4 production simply because we had hired.

The majority of the people that we need it and we just weren't getting the output.

To say that the team rose to the challenge and started knocking the ball out of the park the understatement.

ball out of the park is an understatement. Almost 20% production growth in Q1 versus Q4. It's worth pointing out, Q1 was not without headwinds. To post those numbers, a record quarter plus 8% versus our best quarter ever in the history of the company, I think really speaks to us as an operations manufacturing-driven company who knows how to run these plants. And, you know, I think

Almost 20% production growth in Q1 versus Q4, and it's worth pointing out I mean Q1 was not without headwinds.

And so to post those numbers are record quarter, plus 8% versus our best quarter ever in the history of the company I think really speaks to us as an operation manufacturing driven company, who knows how to run these plants and.

I think really speaks to us as an operations manufacturing driven company who knows how to run these plants.

I think you see that in the numbers. I mean, we're an operations company. We're not a marketing company. We're not just a brand. We're operators. This is what we do and it was great to get our mojo back.

I think you see that in the numbers I mean were an operations company, we're not a marketing company. We're not just the brand. We're operators. This is what we do and it was great to get our Mojo back.

Absolutely and then just my last one if I could I guess I'm just trying to understand how to think about the fruit segment going forward and youre talking about sequential margin improvement generally there was the motive.

Absolutely. And then just my last one, if I could, I guess I'm just trying to understand how to think about the fruit segment going forward. And you're talking about sequential margin improvement. Generally, there was the note of the one-time volume contribution. Maybe you can frame how big that was. But in the context of that and what was for us a better performance in that segment than we were anticipating, how should we think about the sustainability of that throughout the rest of the year? Thanks.

The one time volume contribution maybe you can frame how big that was now in the context of that and what was for US a better performance in that segment than we were anticipating how should we think about sustainability of that throughout the rest of the year. Thanks.

Yes.

Hey, Andrew. It's Scott. So, yeah, the reason we called out the so-called one time distribution was just from a go forward standpoint, by definition, we didn't assume that's going to repeat. So, you know, the eighteen, nineteen percent growth in the quarter in roughly half of that or approaching half of that was was driven by that, that outside of normal distribution revenue.

Andrew It's Scott So the reason we called out the so called onetime distribution was just from a go forward standpoint by definition, we didn't assume thats going to repeat so.

The 18, 19% growth in the quarter and roughly half of that are approaching half of that was driven by that outside of normal distribution revenue. So.

So, again, I think we're pleased with the results in Q1. I'm generally bullish about seeing continued solid progress and fruit really for the balance of the year. So, yeah, I think it's consistent with the narrative we offer the company.

Again, I think we're pleased with the results in Q1.

Generally bullish about seems to continued solid progress in fruit really for the balance of the year. So I think it's consistent the narrative of the company.

Great. Okay. Thanks, I'll pass it on.

Your next question is from the line of Jon Andersen with William Blair. Your line is open.

Your next question is from the line of John Anderson with William Blair. Your line is open.

Good afternoon, everybody. Thanks for the questions.

Good afternoon, everybody thanks for the questions.

Maybe just kind of tagging on to that last question on the.

Maybe just kind of tagging on to that last question.

On the.

piece of the fruit-based food and beverage growth in the quarter that was related to that order, one-time order from a large customer, does that

The piece of the fruit based food and beverage growth in the quarter that was related to that order one time order from a large customer.

Does that.

<unk>.

come out of Q2, or was that kind of a pipeline fill or something? Just trying to understand if that's going to have to come out of the Q2 revs as we think about modeling that.

Come out of Q2 or was that kind of a pipeline fill or something just trying to understand if that's going to have to come out of the Q2 reps as we think about modeling that.

Yes. Good question no it doesn't come out of Q2, it was that customer.

Yeah, good question, John . No, it doesn't come out of Q2. It was that customer was

Okay.

They had a shortfall from another supplier and they asked us if we could step in and fill in while they were scrambling and we happened to have the inventory available to help them out. And so we did, but it was outside of kind of the core divisions for that particular customer that we covered.

Had a shortfall from another supplier and they asked us if we could step in and fill in.

While they were scrambling and we happen to have the inventory available to help them out and so we did but it was outside of kind of the core divisions for that particular customer that we cover.

Got it. That's super helpful. And as you think about the fruit-based business for the balance of the year, you know, let's say it grew, you know, 9 or 10 percent, X that order. I mean, are you seeing a similar kind of level of growth through the balance of the year? Or, you know, is it not that simple given maybe some comparison issues or other factors?

Got it that's super helpful and as you think about the fruit based business for the balance of the year.

Let's say it grew 9% or 10%.

X that order.

I mean are you seeing a similar kind of.

Level of growth.

Through the balance of the year or.

Is it not that simple given maybe some comparison issues or other factors.

Hey John and Scott, I think it's a good representation of what I would see from, you know, pews two to four, you know, just keep in mind it's nuanced because we have a bunch of skew rat that we're copying year over year, but put that aside, I think it's representative of what, you know, we would expect to see for the balance of the year.

Hey, John I think it's a good representation of what I would see from Q2 to four.

Keep in mind, it's nuanced because we had a bunch of SKU rat that we're comping year over year, but put that aside I think its representative of what we would expect to see for the balance of the year.

Okay, super helpful. Shifting over to...

Okay Super helpful.

Shifting over to.

the... Well, let me actually stay with fruit for a minute. Could you talk a little bit about the harvest, sourcing, fruit availability, fruit costs, and what kind of implications that may have on margins for that particular segment?

Well, let me actually stay with fruit for me.

Could you talk a little bit about.

The harvest sourcing fruit availability of fruit costs and how that may.

What kind of implications that may have on margins for that particular segment.

Yes, John .

So.

The core of our food operations is now based in Mexico as we've

The core of our fruit operations is now based in Mexico, as we've closed a significant number and taken almost 80% of the square footage out of California. So Mexico has really become kind of the cornerstone of our fruit business we.

closed a significant number and taken almost 80% of the square footage out of California and so Mexico has really become kind of the cornerstone of our fruit business.

We had a very successful berry season, availability and pricing and quality were all good. That berry season is wrapping up.

We had a very successful berry season availability and pricing and quality. We're all good that Berry season is wrapping up so.

uh almost through it in Mexico. The California season is just starting um so very early days but you know no no no major reports either kind of good or bad just it's early it's early days there.

Almost threw it in Mexico, the California season is just starting.

So very early days, but.

No no no no major reports either good or bad just it's early days there so.

Nothing nothing hitting us.

nothing hitting us from a negative standpoint at this point. But as you know, Fruit's a dynamic business.

From a negative standpoint at this point, but as you know fruit the dynamic business.

Right. But it's good to hear because we've had kind of three seasons that have been, let's call it less than normal, right?

Right, but it's good to hear because we've had kind of three seasons that have been let's call it less than normal right.

Yeah, yep. So volumes and availabilities were at or maybe even exceeded our expectations a bit in terms of availability of fruit. And again, pricing was in line with where we were expecting it. So no surprises.

Yes, yes, so volumes and availabilities.

At or maybe even exceeded our expectations a bit in terms of availability of fruit.

And again pricing was in line with where.

We were expecting it so no surprises.

Okay. So the next thing I wanted to do is dig into the plant based business and talk about capacity because.

So the next thing I want to do is dig into the plant-based business and talk about capacity because, you know, your plan is to double that business 2020 to 2025. It was a $415 million business in 2020, so it, you know, implies 830.

Your plan is to double that business.

2000, 22025, it was a 450 $15 million business in 2020, so it implies a 30 it doesn't take a rocket science to get there even I can do that but you talked a little bit about your capacity expansion programs and you had some.

It doesn't take a rocket science to get there, even I can do that. But you talked a little bit about your capacity expansion programs, and you had

some capacity that you added in 2021, you have more capacity that you added, I think, or are adding, you know, in 2022, and then some more in 2023. So can you kind of walk us through, you know, where you are today in terms of total capacity to service the business?

The capacity that you added in 2021, you have more capacity that you added that you added I think are adding in 2022 and then some more in 2023. So can you kind of walk us through.

Where you are today in terms of total capacity.

To service the business and then with the addition of.

with the addition of Midlothian at the end of the year, how does that step up your capacity? And then with the ingredient, I guess another extraction facility in the third quarter out West, where that takes you. I mean, does that get you?

With low fee and at the end of the year, how does that step up your capacity and then with the ingredient I guess another extraction.

Facility in the third quarter out West where that takes you I mean does that gets you. The capacity you need to aggregate to do north of $800 million or is there more on the come I know theres a lot there, but I am really just trying to understand the sequence here and how that build capability and capacity to hit that.

the capacity you need in aggregate to do north of 800 million, or is there more on the come? I know there's a lot there, but I'm really just trying to understand the sequence here and how that builds your capability and capacity to hit that target.

Target.

Yes, so six projects equal doubling.

Yeah, so six projects equal doubling of the revenue potential of the business. So six projects add circa $400 million.

The revenue potential of the business. So six six projects add circa $400 million.

Four of the six are already done. They're already producing cases, they're already in our run rate. I mean, as a reminder, we grew revenue 100 million from 2019 to 2021.

Four of the six are already done they're already producing cases, they're already in our run rate I mean as a reminder, we grew revenue of $100 million from 2019 2021. So we're already realizing the value of the capacity additions this isn't all a.

So we're already realizing the value of the capacity additions. This isn't all a just hold your breath and wait for it. It's coming. So four of the six projects are completed. Those four projects in aggregate.

Just hold your breath and wait for it it's coming so four of the six projects are completed those four projects in aggregate are equal to let's call. It a $150 million is what I, what I referenced so those four projects. The $150 million then we've got another project coming on.

Are equal to call it 150 million is what I what I referenced so those four projects give us 150 million

Then we've got another project coming on in Modesto. We haven't quantified that, but between that project in Modesto plus Texas, that is the balance, call it the remaining $250,000. And as you would expect, John , the Texas project is a significant majority of the remaining $250,000 to go. Sure.

Modesto, we haven't quantified that but between that project and Modesto plus taxes that is the balance call. It the remaining $2 50, and as you would expect John .

The Texas project is.

A significant majority of the remaining $2 50 to go sure.

And then as it relates to the second extraction facility, that is over and above the doubling.

And as it relates to the second extraction facility that is over and above the doubling.

Okay.

And you.

You mentioned, is that a tack on to Modesto or is that a wholly new location?

You mentioned.

Is that.

Tack onto Modesto or is that a wholly new location.

Good question.

Good question. We are doing that inside of Modesto, so much easier to execute. You would suspect there are a lot of supply chain challenges doing construction right now, and we found a way to do it inside of Modesto, so that is expediting that project for us, and we're excited about, as I referenced to me, we're selling every drop of oat milk we can make right now, so we're excited to get that project moving.

Sure.

Doing that inside of Modesto, so much easier to execute.

Yes.

You would suspect there are a lot of supply chain challenges doing construction right now and we.

We've found a way to do it inside of Modesto. So that is expediting that project for us and we're excited about as I referenced I mean, we're selling every drop of oat milk, we can make right now so we're excited to get that project moving.

Okay. And I think, if I heard you right, you said that you're basically sold out of your existing extraction capacity. And that's where I think much of the growth, I mean, you have broad-based growth and plant-based, I think it's been higher within that ingredient portion.

Okay.

I think if I heard you right. You said that you are basically sold out of your existing extraction capacity and that's where I think much of the growth. I mean, you have broad based growth in plant based I think it's been higher within that ingredient portion.

Does that.

Slow you down is that a limiter here on the plant based growth until you can get the second facility up in 2023, how does that work into that the goal of delivering double digit or mid teen plant based growth.

slow you down? Is that a limiter here on the plant-based growth until you can get the second facility up in 2023? How does that work into the goal of delivering double-digit or mid-team plant-based growth?

Yeah, I thought you might ask that question. So just to anchor, in 2021, we did $80 million of revenue in oat-based products.

I thought you might ask that question.

So just to anchor in 2021, we did $80 million of revenue in <unk> based products and on the Q4 call. We said, we did $80 million about and we could grow 50% off of that number. So we can grow 50% in 2022.

And on the Q4 call, we said we did 80 million of oats and we could grow 50% off of that number. So we can grow 50% in 2022. So we can put up, you know, these are estimate numbers, John , but you know, we can grow oat sales 40 million in 2022.

So we can we can put up.

These are estimate numbers, John but we can grow sales $40 million in 2022.

And what we are communicating is we're kind of at that pace, meaning at that $120 million pace in Q1. But if we do that same number in Q2, Q3, Q4, obviously on a year-over-year overlap basis, that represents pretty significant growth. Because we can grow 50%.

And what I, what we are communicating is we're kind of at that pace, meaning at that $120 million pace in Q1, but if we do that same number in Q2 Q3, Q4, obviously on a year over year overlap basis that represents pretty significant growth.

Because we can grow 50% for the full year.

Hey.

Okay, and then as it relates to and your next question might be what about Q1, and Q2 of 2000 2030 or youre going to see.

Okay, and then as it relates to, and your next question might be, what about Q1 and Q2 of 2023? Are you gonna be stuck until Modesto comes online? We are aggressively working to find other sources of oat base from other suppliers to help us bridge. We've got obviously almost a year to figure that out, but we're working that now to identify.

Until <unk> comes online we are aggressively working to find other sources of our base.

From other suppliers to help US bridge, we've got obviously almost a year to figure that out, but we're working that now to identify.

Uh, additional sources of base and how to squeeze more productivity out of our existing facility, which, you know, we try to do every single day. Okay, and then with your.

Additional sources of both base and how to squeeze more productivity out of our existing facility, which we try to do every single day.

Okay.

And then with your largest customer.

Are you seeing mix shifting your business with your largest customer? I mean, are some forms or crop forms, you know, declining in favor of vote? And do you still fully expect to be kind of a permanent factor in their oat based business?

Are you seeing mix shifting your business with your largest customer I mean are some forms our crop farms declining in favor of vote.

Do you still fully expect to be kind of a permanent.

Factor in the aerospace business.

Absolutely. To the second part of your question. Yeah, we're definitely seeing some makeshift, you know, again, we're seeing category growing plant based milks within food service growing and oat milk doing well, both growing.

Absolutely so the second part of your question.

Yes, we're definitely seeing some mix shift.

Again, we're seeing category growing.

Plant based milks within foodservice growing.

And <unk> doing well both growing total kind of category if you will.

total kind of category, if you will, but also sourcing some volume from the other formats. But, you know, there's some promotional impact there, so really it needs to be a kind of longer time base to answer to the question. But, you know, the oat milk isn't 100% incremental. We've not seen it be 100% incremental in food service. And, you know, we continue to service.

I'd also sourcing some volume from the other formats, but.

There is some promotional impact there so really it needs to be a kind of longer time base to answer to the question but.

The oat milk isn't 100% incremental that we've not seen it be a 100% incremental in foodservice.

And we continue to service.

all our customers at a very, very high level, and we expect to be in business for a long, long, long time.

All our customers that are very very high level and.

We expect to be in business for a long long long time.

Okay, I've got so many here. I got to stop and let someone else ask. I'm gonna do a couple more. So you're seeing, you covered, it sounds like on the inflation side, you covered everything but two million, is that right, in the quarter?

Okay I've got so many here I got to stop and let someone else ask question.

I'm going to do a couple more so youre seeing you.

You covered it sounds like on the inflation side, you covered everything but $2 million is that right.

In the quarter.

So <unk>.

Do you only need or do you plan another $2 million in pricing? Or have other commodities moved higher such that, what kind of price, I guess, are you thinking? And just generically speaking, which businesses, what kind of magnitude, and when does it go in?

You only need or do you plan, another $2 million in pricing or have other.

Commodities moved higher such that.

What kind of price I guess are you thinking and just general generically speaking, which businesses what kind of magnitude.

And when does it go in.

You know, it's a customer-by-customer answer to your question, John , so I don't want to kind of go down to that granular level, but yes, as you might expect, I mean, we certainly have pricing in the market that will cover that $2 million and then any other inflationary factors that we've seen subsequently.

It's a customer by customer answered to your question, Jon So I don't want to kind of go down to that granular level, but yes, we are.

As you might expect I mean, we certainly have pricing in the market that will cover that.

$2 million and then any other inflationary factors that we've seen subsequently.

But when you say in the market, you mean you've communicated it and it will be effective at some date in the future?

But when you say in the market you mean, you've communicated it.

It will be effective at some date in the future.

Yes, I mean, thats, what I was saying I mean, we just went through this yesterday with the team I mean, some are effective five one some $5 16, some $6 16 I mean.

Yeah, I mean, that's what I was saying. I mean, you know, we just went through this yesterday with the team. I mean, some are effective 5-1, some 5-16, some 6-16. I mean, you know, there's, it wasn't just one blast of a price increase to everyone. These are handled customer by customer, product by product, plant by plant.

It wasn't just one blast of a price increase to everyone. These are handled customer by customer product by product plant by plant.

Okay, cool. And then two quick ones. So I just want to confirm this, that I've heard this right. Gross margin rate and EBITDA margin rate will improve sequentially throughout the year versus Q1.

Okay Cool and then.

Two quick one so I just want to confirm this that I heard this right gross margin rate and EBITDA margin rate.

It will improve sequentially.

Throughout the year versus Q1.

Correct.

Right.

Okay, and last one, I promise, the acquisition contribution in the quarter in dollars.

Okay and last one I promise the acquisition contribution in the quarter and dollars.

Is around 5 million John .

million. Great. I apologize for all the questions, but thank you for the time and see you June 2nd. Is that it? Yes, correct.

Great.

Apologize for all the questions, but thank you for the time and see you June .

June 2nd is that it.

Yes, correct.

Thanks, Jeff.

Your next question is from the line of Mark Smith with Lake Street Capital markets. Your line is open.

Your next question is from the line of Mark Smith with Lake Street Capital Markets. Your line is open.

Okay.

Yes.

Mark Smith your line is open.

Okay.

Yeah, Hey can you guys hear me.

Yep. Perfect. Hey guys, I just wanted to ask first on kind of the delta in oat milk share, you know, kind of where it's come from maybe over the last 12 months and then kind of where you think that share goes as well as kind of any industry growth trends that you can give us on oat milk would be great.

Yes.

Hey, guys I just wanted to ask first on the <unk>.

The delta in oat milk share.

Kind of where it's come from maybe over the last 12 months and then kind of where you think that share goes.

As well as kind of any industry growth trends that you can give us on oat milk would be great.

So just unclear when you say where has the.

So just unclear, would you say where has the within the category?

Within the category.

Where has oat milk taken share from other formats? No, I guess it's more so your share of oat milk, you know, where that's at today and where that's kind of come from maybe 12 months ago.

<unk> has taken share from other formats.

No I guess, it's more so your share of milk.

You know, where that's at today and where that is kind of come from.

Maybe 12 months ago.

Yes.

Yeah, I mean, you know, we have been partnered with two of the big players in the oat milk category, two of the top five brands, and they continue to rip in the marketplace.

We have been partnered with two of the big players in the milk category two of the top five brands and they continue to refine the marketplace.

both of them growing faster than the market. And so, you know, we've really rode the momentum that they have in the marketplace. And, you know, we're certainly

Both of them growing faster than the market and so we've really.

The momentum that they have in the marketplace then.

We are certainly.

appreciative and humbled by the consumer's response to our oat base, which obviously is winning in the marketplace.

Appreciative and humbled by the consumer response to our <unk> base, which obviously is winning in the marketplace.

Okay.

Okay. So that has not been us winning.

So that has not us winning.

business away from somebody else. These are existing Oatmeal customers that we've worked with for several years now.

Business away from somebody else. These are existing customers that we've worked with for several years now.

Okay.

And then just catch us up on maybe the growth in food service, you know, and how that is today maybe versus pre-pandemic.

And then just catch us up on kind of maybe the growth in foodservice and.

And how that is today maybe versus pre pandemic.

You know, Q1 was, we saw solid growth in food service in total and, you know, oat milk is obviously a key driver of that food service gain. You know, it is a great product in coffee applications and consumers are discovering that and, you know, we continue to see oat milk driving good growth in the food service channel.

Q1 was we saw solid growth in foodservice in total.

And <unk> is obviously, a key driver of that foodservice.

Again, it is a great product and coffee applications and consumers are discovering that and we continue to see oat milk driving.

Good growth in the foodservice channel.

Okay.

And the last one for me, just as we think about Q2 kind of gross profit margins, you know, as we look at the improvement, is your expectation purely based on the pricing that has gone into effect or have you seen any abatement of the headwinds that are out there?

And the last one for me just as we think about Q2 gross profit margins.

As we look at the improvement is your expectation purely based on the pricing that has gone into effect or have you seen any abatement of the headwinds that are out there.

I guess it's just general improvement in the business, it's not a call, per se, on inflation. I think that's the spirit, I think the environment remains pretty choppy, so I think it's just the continuation mark of what we've seen in Q1, continuing to strengthen in Q2.

I guess this is general improvement in the business, it's not hall per se on inflation I think that's the spirit I think the environment remains pretty choppy. So I think it's just the continuation Mark is what we've seen in Q1, continuing its strength in Q2.

Mark, I would just, I would remind you that raw material inflation

Mark I would just I would remind to that.

Raw material inflation.

Is.

uh margin gross profit margin rate destroy

Margin gross profit margin rate destroyed.

Because if you have $20 million of ingredient inflation the path on $20 million of cost increases that reduces gross margin by indication of our business roughly 100 basis points.

Because if you have $20 million of ingredient inflation, and you pass on $20 million of cost increases, that reduces gross margin by, in the case of our business, roughly 100 basis points.

No change to gross profit dollars.

no change to gross profit dollars, but the rate goes down.

But the rate go down.

Yeah.

Perfect. Thank you guys.

Great.

Your next question is from the line of Alex Fuhrman with Craig Hallum. Your line is open.

Your next question is from the line of Alex Furman with Craig Hallam. Your line is open.

Great. Thanks, very much for taking my question I wanted to ask about the new rebranded West life, what kind of response have you been getting from consumers and retailers from the rebrand and given that this brand has such a strong and consistent supply do you think that this could.

Great. Thanks very much for taking my question. You know, I wanted to ask about the new rebranded West Life. What kind of a response have you been getting from consumers and retailers from the rebrand? And, you know, given that this brand has such a strong and consistent supply, do you think that this could potentially become a major brand in the category over time?

Potentially become a major brand in the category over time.

Yes, so that branding and that product innovation that we showcased at Expo West will start to go in in the second half of Q3. So we used Expo last forum to kind of launch that to the marketplace, but it has not started shipping yet.

Yeah, so that branding and that product innovation that we showcase at Expo West will start to go in in the second half of Q3, so we use Expo West as the forum to kind of launch that to the marketplace, but it has not started shipping yet.

As it relates to the customer response, it's been really good. You know, they're excited. There hasn't been a lot of innovation in shelf-stable plant-based milks. And so, they're excited to see somebody like Synopta step up with some truly consumer-grounded

As it relates to the customer response.

It's been really good they're excited there hasnt been a lot of innovation in shelf stable plant based milk and so they're excited to see somebody likes to adopt a step up with some truly consumer grounded.

uh, insight driven product innovation and um, you know, we would expect distribution gains

Insight driven product innovation and.

We would expect distribution gains.

on both of the brands, both Dream and Westlife.

On both of the brands, both <unk> and Westlake.

Okay. That's really helpful. Thank you.

Your next question comes from the line of Brian Holland with Cowan. Your line is open.

Your next question comes from the line of Brian Holland with Cowen Your line is open.

I can't get rid of me that fast. One last follow-up, if I could, a bit of a nuanced question, not to keep beating down this capacity thing, but you know.

Can't get rid of me that fast.

One last follow up if I could a bit of a nuance question not to keep beating down the capacity.

Okay.

Obviously, you've talked about the capacity project to double you out to 2025.

Obviously, you've talked about the capacity projects that double you out to 2025.

But aside from just, you know, from a volume standpoint, you've taken significant pricing in response. I'm just curious, does the value of the capacity go up as well as you think that out? I mean, because 10 percent on 800 plus million is another 80 million, or are you just kind of working off the assumption that, just given the nature of your business, that you would be – that that pricing would roll back in a more normalized environment?

Just you know.

From a volume standpoint.

You've taken significant pricing in response I'm, just curious does the value of the capacity go up as well that you think that out I mean, because 10% on 800, plus billings another $80 million or are you just kind of working off the assumption that.

Just given the nature of your business that you would be.

Pricing rollback in a more normalized environment.

Okay.

You know, Brian , we have not adjusted the capacity we're adding for current pricing. You know, when we've looked at that, we're really aggregating our internal capital project underwriting and then making sure that that ticks in tight. But we've not gone back and readjusted all those capacity numbers for...

Brian we have not adjusted the capacity, we're adding for.

Current current pricing.

When we've looked at that were really aggregating our internal capital project underwriting.

And then making sure that that takes some time, but we have not gone back and readjusted all those capacity numbers for.

What might be a perpetual new normal pricing environment, but.

you know, what might be a perpetual new normal pricing environment. But you are correct in that.

You are correct in that if the pricing we have to date stays where it is some of those <unk>.

If the pricing we have today stays where it is, you know, some of those.

capabilities, those assets that we've added would produce more revenue, certainly.

Capabilities those assets that would be that it would produce more revenue certainly.

Understood. I can leave it there. Thanks again for that and the follow-up and seeing a couple.

Understood.

I can leave it there thanks again for that follow up.

<unk> seen a couple.

Great.

There are no further questions at this time I will now turn the call back over to Mr. Joe and then for closing remarks.

There are no further questions at this time. I will now turn the call back over to Mr. Joe and then for closing remarks.

Great. Thank you operator, and thank you for everyone for participating in our first quarter conference call with forward to speaking and seeing.

Great. Thank you, Operator, and thank you for everyone for participating in our first quarter conference call. I look forward to speaking and seeing some of you in person soon, and appreciate your interest in Sinopta. Have a great evening.

Some of you in person soon and.

Appreciate your interest in set up that have a great evening.

Ladies and gentlemen, thank you for participating. This concludes today's call you may now disconnect.

Ladies and gentlemen, thank you for participating. This concludes today's call. You may now disconnect.

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Yes.

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Okay.

Okay.

Yes.