Q1 2022 Sunopta Inc Earnings Call
With record output allowed us to improve service levels, and importantly, rebuild depleted safety stocks.
<unk> sales continued to be very robust with sales plus 59% versus Q1 2021 led by strong growth from three oat milk and our largest foodservice customer along with our partner brands the.
The brands, we support in part or in full are now roughly one third of the U S. Open up market and are gaining share every week.
We are firing on all cylinders or notes from the supplier to extraction to customer development.
Snowing every drop we can bank and we are producing volume above the projections from our original capital project underwriting.
And fruit very strong demand for fruit snacks, and better alignment of cost and prices in frozen delivered a 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 and presale.
<unk> capacity.
We're tightly managing the inflationary environment, despite double digit inflation in Q1, we only had $2 million of inflation that wasn't covered by increased customer pricing.
Given macro uncertainties 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 and our clients.
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 based.
Driven by a combination of pricing and broad based volume and mix gains across our portfolio.
Of the 16% growth approximately two thirds came from pricing and one third from volume gains and the 2021 acquisition of Dream in West Philly.
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 what 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.
We also incurred higher labor costs related to a onetime bonus to recognize the outstanding turnaround in our plant in Q1.
Accordingly, 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 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 that are impacting our business and how we are successfully address 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.
We incurred $23 million of Cogs inflation versus last year.
These costs were covered by $21 million of customer pricing actions.
We also have additional pricing being executed in Q2.
There is obviously inflation impacting other cost areas, such as SG&A, but overall, we're keeping pace with the unprecedented inflationary increases.
However, one caveat, which is that I'd almost at any point in time in the last nine months, our assessment of our business would be that we have packed on all known inflationary cost to customers, but as we have seen that could change the next day I.
I would describe the pricing environment with customers that are constructed.
While a few companies maybe using the current inflationary environment to enhance margins. We have chosen to take a fact based 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.
First strengthening and fortify our competitive advantages.
Building, a strong ingredient business focused on boat to drive growth in refrigerated beverages and.
And third building a multi pronged go to market business that includes co manufacturing private label and owned brand.
Client based revenues increased 13% to $136 million in the first quarter, another record and our 14th consecutive quarter of revenue growth, although 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 types and customers' strong demand for <unk> based offering led the segment once again, increasing 59% versus the prior year period.
<unk> as a percentage of the plant based milk portfolio has doubled in last 24 months approaching one third of sales and.
Scores the value of our innovation focus.
As we have seen for almost a year now are opaque derived <unk> proprietary extraction process is winning in the marketplace. As I mentioned earlier brand, we support a roughly a third of the ups segment market share as measured in Nielsen retail scan data.
But what has been the big winner in our plant based milk sales are up 18%. The total category, you're seeing a bit of softness of late but we believe some of this is cobot 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.
Additional growth drivers person after where our key business, which rose, 26% and ingredients, principally oat base, which was up 37%.
From a customer demand perspective demand with broad based revenue from our top five customers grew 14% slightly ahead of overall plant based and reflect significant contribution from new products and a large new plant based customer.
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 cadence for new products or new customers.
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 bras sales and.
And we also had solid similar gains in our co man business.
Finally ingredients continued to show strong growth up 30% in the quarter.
We are a growth company and as such business development is of 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.
We are also working on a contract extension with one of our top three customers that will extend our relationships 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, all of which are complete and about it over a $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 towards the Q4 startup. Despite all the macro supply chain challenges, while we have a lot of work left to do in Texas, we are with them.
Four weeks of our original schedule and have already hired the majority of the management team.
This is a testimony to our ability to execute we broke ground on a 30 acre field.
<unk> September eight 2021.
And the 245 days since then we deploy to $80 million the concrete tilt up wall. The run installed each back electrical plumbing and believe it or not this we started the installation of the processing equipment.
This week alone we have over 165 contractors working on site, while I'm sure we'll face more challenges between now and the end of the year success always comes down to people executing and our ability to execute is fueled by our culture of entrepreneurship passion and accountability.
As I mentioned on the last call, we are making great progress on selling out the capacity we.
We will provide a more fulsome update at Investor day, including causes usability contributes to our long term growth algorithm I referenced a second oat extraction facility on the last call, which is over and above the doubling of capacity.
We are currently at capacity on our first <unk> extraction system and as I mentioned, our hope 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.
This new system will be highly utilized this project is now underway and will be online in Q3 of 2023, giving us 80% more space and taking our own capacity to nearly $200 million.
Importantly, this new system will add.
<unk> to the west coast, whether it 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 too.
<unk>, becoming the low cost operator in frozen fruit through automation.
Credit 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 strategy is really took hold.
Fruit 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 frozen fruit revenue grew 16% and was largely driven by pricing.
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.
Long 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 via our own brand.
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%.
<unk> 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 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.
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.
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.
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, 2022 is off to a strong start and we are very confident in our direction and then outline our strategic growth priority around portfolio transformation innovation and doubling the plant based business have not changed we remain committed to our long term growth algorithm of annual doubled.
Digit plant based revenue and profit increases.
And continue to focus on increased return 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.
We expect year over year adjusted EBITDA growth in Q2, and every quarter going forward now I will turn the call over to Scott to take us through the rest of the financials Scott.
Thank you very much Joe and good afternoon, everyone.
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 <unk> based offerings and Ts along with pricing actions and the impact of the treatment less soy acquisition fruit based revenues increased 18, 7% as we benefited from pricing actions implemented in the second half of 2020.
One <unk>.
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 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 was down 270 basis points to 11, 7% with most of the decline attributable to temporary factor.
<unk> and our plant based segment.
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.
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 gross profit.
These factors were partially offset by higher production volumes and improved utilization at our plant based beverage ingredient operations in.
In fact Q1's production implant based months 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 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 lost $7 million of revenue and $2 million of gross profit on the cable 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.
And fruit based segment level gross profit rose $1 2 million and gross margin of seven 7% was flat with the prior year.
Profit improved benefited from portfolio rationalization, along with manufacturing efficiencies stemming from our consolidation efforts last year.
A lot of impacting gross profit dollars on a margin rate basis, we would estimate that the pass through of higher costs represented 100 basis points.
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.
A $1 1 million increase in SG&A, including a special one time bonus recognizing the significant improvement in production.
And <unk> 4 million of incremental amortization for dream and Leslie.
Partially offsetting these factors was the $1 3 million improvement in year over year Foreign exchange results related to our Mexican operations.
Earnings from continuing operations for the first quarter.
$7 million, which was down from $1 7 million in the prior year period on an adjusted basis, We had earnings of <unk> 6 million or <unk> per 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.
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.
The primary driver of the year over year reduction in adjusted EBITDA with a $2 2 million decline in operating income.
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.
Turning to the balance sheet and cash flow.
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.
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 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 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 rewarding from a cash flow perspective cash provided by operating them.
<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 was essentially a 100% drop through of Q1 an EBITDA.
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.
Let me close with some comments on our outlook for the balance of 2022, recognizing the environment is very fluid and 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 900.
$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 in 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 the plant based facility isn't lithium, Texas affecting 2022 gross profit and gross margin.
As we 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, primarily in the second half of the year roughly evenly distributed between Q3 and Q4.
While these startup costs are added back to adjusted EBITDA, They will affect gross profit and gross margin rate as reported.
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.
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 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.
Not need 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.
Further detect 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 or SKU level activity.
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.
Your first question comes from the line of Brian Holland with Cowen and company. Your line is open.
Yeah. Thanks, good evening gentlemen.
Just looking at gross margins sequentially.
Clearly.
Okay.
The corrective measures in place.
Our expectation that <unk>. It sounds like you should be the trough for fiscal 'twenty to gross margin.
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 at it could be up year over year in Q2, So maybe just frame that out in.
Q2 kind of higher sequentially on gross margin, but still down year over year in the back half was up year over year.
Yeah.
Hey, Bryan good EBIT, it's Scott So I think <unk> got a generally rate we would expect as we work our way through 2022 sequential.
Improvement in margin.
Again sequential from four to one in Q1 to Q2 et cetera. So that's the core of your question the answer that is yes.
Okay got it.
I wanted to ask more broadly about elasticity.
Okay.
Clearly great rewards and fruit.
Selling benefit or a district distribution benefit <unk>, but.
Obviously took drastic pricing their pricing there, but also on the <unk>.
<unk>.
So I think 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.
Yeah.
Yes, Hi, Brian It's Joe.
We're certainly keenly watching elasticity as we look at volume growth as a lever obviously, we have to wait for volume to grow.
Aggregating or growing share within existing or new customers.
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.
Unit growth was slightly down, but as I mentioned on a two year basis and any longer timeframe and in plant based you continue to see pretty strong upward momentum, we referenced plus nine on snacks, which is fantastic.
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.
Mentioned.
Several more copper.
For updates here on the plant side.
Just stepping back.
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.
Yeah.
Manufacturing network et cetera et cetera.
Is it I mean, what's happening right now is that all just coming to fruition as this demand outstripping supply and people are just looking anywhere. They can just help us help frame for us.
Whats, what's bringing in this new business right now.
Yes, Brian this is 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 Tucson, offset because we happen to have production output and.
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.
Customer development at 12 to 24 months cycle, and so really we feel 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 but this is something we candidly have been working on.
Nearly the end of <unk>.
<unk> 'twenty.
Understood I'll leave it there congrats.
Got back here.
Yeah.
Okay.
Your next question comes from the line of Andrew <unk> with BMO capital markets. Your line is open.
Hey, good afternoon, thanks for taking my questions.
I guess I wanted to tack onto the question about elasticity just talk generally about plant based demand.
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.
You know.
I don't know if there is some interplay with foodservice to thinking about I'm just I'm just curious how you're thinking about generally speaking the plant based category.
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.
Second is this is a category where many people are in the category.
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 is an available to them. So typically what I've seen in 30 years in food is consumer the consumers are low to trade off.
A product that they are purchasing for our health reason and make a unhealthier choice just to save 50.
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've 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.
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 that we need it and we just weren't getting the output in.
To say that the team rose to the challenge and started knocking the ball out of the park is an understatement.
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 you see that in the numbers I mean were in operation of the company, we're not a marketing company. We're not just a brand where 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.
The motive.
The one time volume contribution maybe you can frame how big that was with the context of that and what was for us a better offer.
Performance in that segment than we were anticipating how should we think about the sustainability of that throughout the rest of the year. Thanks.
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 roughly half of that are approaching half of that was driven by that outside of normal distribution revenue. So.
Again, I think we're pleased with the results in Q1.
Generally bullish about seeds and continued solid progress in through really through 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.
Good afternoon, everybody thanks for the questions.
Maybe just kind of tagging on to that last question.
On the.
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 routes as we think about modeling that.
Yes. Good question John No. It doesn't come out of Q2, it was that customer.
With.
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 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.
But 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.
Yeah.
Hey, John Scott 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.
Well, let me actually stay with fruit for them.
Could you talk a little bit about.
The harvest sourcing fruit availability of fruit costs and how that may have.
What kind of implications that may have on margins for that particular segment.
Yes, John .
So.
The core of our food operations is now baked in Mexico, as we've 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 throughput that we.
We had a very successful berry season availability and pricing of quality. We're all all good that Berry season is wrapping up so.
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 that it's early days there so.
Nothing nothing hitting us.
From a negative standpoint at this point, but as you know for it's a 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.
Yeah, Yeah, so volumes and availabilities, we're 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 dig into the plant based business and talk about capacity because.
Your plan is to double that business.
2000, 22025, it was a 450 $15 million business in 2020 so.
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 capacity that you added in 2021, you have more capacity that you're adding 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.
Midlothian 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 get you.
The capacity you need an aggregate to do north of $800 million or is there more on the come I know theres 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.
Yes, so six projects equal doubling of the revenue potential of the business. So.
<unk> projects add circa $400 million.
Four of the six are already done they're already producing cases are already in our run rate I mean as a reminder, we grew revenue of $100 million from 2019 2021.
We're already realizing the value of the capacity additions this isn't all.
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 the call. It $150 million is what I, what I referenced so those four projects came up with $150 million then we've got another project coming on.
Modesto, we haven't quantified that but between that project and Modesto tax debt that is the balance call. It the remaining $2 50, and as you would expect John .
Texas projected.
A significant majority of the remaining $2 50 to go sure.
Then as it relates to the second extraction facility that is over and above the doubling.
Okay.
And you.
You mentioned it.
Is that.
Tack onto Modesto or is that a wholly new location.
Good question we are.
Doing that inside them, a desktop so much easier to execute.
<unk>.
You would suspect there are a lot of supply chain challenges doing construction right now and 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 to be we're selling every drop of open up 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 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 client base growth.
Yes, I thought you might ask that question.
Yeah.
So just to anchor in 2021, we did $80 million of revenue in oat based products and.
And on the Q4 call. We said, we did $80 million of mode, and we could grow 50% off of that number. So we can grow 50% 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 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 represent pretty significant growth.
Because we can grow 50% for the full year.
Okay.
Okay, and then as it relates and your next question might be what about Q1, and Q2 of 2000 2030 or youre going to be.
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.
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 our crop farms.
Climbing in favor of vote.
Are you still fully expect to be kind of a <unk>.
Permanent <unk>.
Factor in the aerospace business.
Absolutely so the second part of your question.
Yes, we're definitely seeing some mix shift.
Again, we're seeing category growing.
Land based milk within foodservice growing.
And oat milk doing well both growing total kind of category if you will.
I'd also sourcing some volume from the other.
Mats, 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 old milk isn't 100% incremental that we've not seen it be 100% incremental in foodservice.
And we continue to service.
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 a question.
On the.
I'm going to do a couple of more so you are seeing.
You covered it sounds like on the inflation side, you've covered everything but $2 million is that right.
In the quarter.
So.
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 just generically speaking, which businesses what kind of magnitude.
And when does it go in.
Okay.
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.
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.
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.
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 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, you heard that right.
Okay and last one I promise the acquisition contribution in the quarter and dollars.
Okay.
Okay.
Is it around 5 million John .
Great.
Apologize for all the questions, but thank you for the time and see you June 2nd is at it.
Yes, correct.
Thanks Chuck.
Yeah.
Your next question is from the line of Mark Smith with Lake Street Capital markets. Your line is open.
Yes.
Yes.
Okay.
Okay.
Mark Smith your line is open.
Hey can you guys hear me.
Yes.
Hey, guys just wanted to ask first on the kind of 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 as you can give us on oat milk would be great.
So just unclear when you say where has the.
Within the category.
Where has <unk> taking share from other format.
Oh, no I guess it was more so your share.
Milk.
Where that's at today, and where that is kind of come from.
Maybe 12 months ago.
Yes.
We have been partnered with two of the big players in the Alt milk category two of the top five brands and they continue to rip in the marketplace.
Both of them growing faster than the market and so we've really.
The momentum that they have in the marketplace.
We are certainly.
Appreciative and humbled by the consumer response to our own base, which obviously is winning in the marketplace.
Okay.
So that has not us winning.
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 kind of maybe the growth in foodservice.
How that is today maybe versus pre pandemic.
Okay.
Q1 was we saw solid growth in foodservice in total.
And <unk> is obviously, a key driver of that foodservice.
Gain 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 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 its 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 is what we've seen in Q1, continuing its strength in Q2.
Mark I would just I would remind you that.
Raw material inflation.
Is.
Margin gross profit margin rate destroyed.
Because if you add <unk>.
$20 million of ingredient inflation that 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.
The rate goes down.
Yep.
Perfect. Thank you guys.
Okay.
Your next question is from the line of Alex Fuhrman with Craig Hallum. 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.
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 use Expo last 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 has 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 like synoptist step up with some truly consumer grounded.
Insight driven product innovation and.
We would expect distribution gains.
On both of the brands, both dream and Westlake.
Okay. That's really helpful. Thank you.
Yes.
Your next question comes from the line of Brian Holland with Cowen Your line is open.
Can't get rid of me that fast.
One last follow up if I could a bit of a nuance question not bidding down with capacity.
Okay.
Obviously, you've talked about the capacity projects that double you out to 2025.
From just.
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 millions 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 rolled back in a more normalized environment.
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 are correct in that if the pricing we have to date stays where it is some of those.
Capabilities those assets that would be that it would produce more revenue certainly.
Understood.
I can leave it there thanks again for that.
But I think 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.
Great. Thank you operator, and thank you for everyone for participating in our first quarter conference call with hard to speaking and seeing some of you in person soon and.
CAGR and sort of been set up to have a great evening.
Ladies and gentlemen, thank you for participating. This concludes today's call you may now disconnect.
[music].