Whole Earth Brands, Inc.
Q2 2021 Earnings Call Transcript

Published: 9 Aug 2021

[Operator:]

Greetings, and welcome to the Whole Earth Brands Incorporated Second Quarter 2021 Earnings Call. At this time, all participants are in a listen-only mode. A Question-And-Answer Session will follow the formal presentation. As a reminder this conference is being recorded. It is now my pleasure to introduce, Jeff Sonnek of Investor Relations. Thank you. You may begin.

[Jeff Sonnek:]

Thank you, and good morning. Today's presentation will be hosted by Albert Manzone, Chief Executive Officer; and Andy Rusie, Chief Financial Officer. Executive Chairman, Irwin Simon is also participating on the call and will be available for Q&A. The comments during today's call and the accompanying presentation contain forward-looking statements within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts are considered forward-looking statements. These statements are based on management's current expectations and beliefs, as well as a number of assumptions concerning future events. Such forward-looking statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from the results discussed in the forward-looking statements. Some of these risks and uncertainties are identified and discussed in the company's filings with the SEC. We'll also refer to certain non-GAAP financial measures. Please refer to the tables included in the earnings release which can be found on our Investor Relations website investor.wholeearthbrands.com for reconciliations of non-GAAP financial measures to their most directly comparable GAAP measures. With that, I'd now like to call over to Albert Manzone, CEO.

[Albert Manzone:]

Thank you, Jeff, and thanks to everyone for joining the call today. Whole Earth Brands is the global leader in the better-for-you sweetener and reduced sugar categories. Our vision is to grow Whole Earth Brands to a $1 billion plus revenue global food & beverage company by doing three things. One, disrupt the massive $100 billion total addressable market dominated by refined sugar and penetrate large addressing categories on a mission to make sweet healthy. Our diet is leading to a global health problem. Refined sugar is a concern for all generations. Whole Earth Brands is part of the solution by providing consumers with delicious sugar substitutes, baking solutions and over ready to eat no sugar added products. We believe that we're perfectly aligned with the powerful consumer macro trends toward health and wellness that are here to stay and are only accelerating with the shifting demographics in emergence of millennials and GenZ. Two, drive category leadership from best-in-class innovation and brand building; expanding our global distribution, leveraging our exceptional supply chain capabilities, continuing to accelerate our growth through strategic M &A, as well as taking full advantage of the expertise of our world-class team with long experience at large, global food companies. And three, evolve Whole Earth Brands from a mostly sweetener business to a holistic better-for-you food company. In Q2, our business performed above expectations, consistent with our past three quarter performances since becoming a public company. Our branded CPG segment faced some headwinds in Q2 due to a tough prior year comparison, due to the COVID-led pantry loading last year. This resulted in a year-over-year decrease of 8% on an organic constant currency basis. That said, we believe a more appropriate measure of performance is looking through the lenses of our two year stack growth. We're very pleased by our plus 15% increase in revenue on a constant currency basis versus the second quarter of 2019. This demonstrates the strengths and momentum of our portfolio and our ability to generate long-term sustainable revenue growth. We delivered a company record adjusted EBITDA of $22 million, an increase of 9% versus Q2 2020 driven by revenue growth, contributions from the Swerve and Wholesome acquisitions, improve the margins and productivity gains. I am also pleased to report that Swerve and Wholesome acquisitions, which almost doubled our revenue in our first year as a public company has been fully integrated and we are now operating as one business. We are delivering on our synergies as per planned. Our Power of One with our retail partners has also been launched with very positive results to-date. We are fortunate to have already been working on various optimization initiatives in what is now a decisively inflationary environment and we believe that we have several tools to help offset inflation with the implementation in the coming quarters and years. This include the driving supply chain productivity, pricing, trade spend optimization, and overall productivity initiatives. As such, we remain comfortable reiterating our fiscal 2021 full year guidance whether COVID goes away or remain with us a little longer, we have demonstrated over the past four quarters the strength and resilience of our business. As we look ahead, we are confident in our ability to deliver strong sustainable growth and take advantage of the tremendous market opportunities I mentioned earlier. The basis of our confidence lies in our proven operating model built on five strategic pillars; brand building, innovation, distribution, supply chain and our world-class team. Let me provide some Q2 highlights. On brand building. You can now discover new packaging design and campaigns consistent with each brand’s distinct promise for Equal, Wholesome and Whole Earth with each brand also showing up proudly part of Whole Earth Brands' logo. We have already gotten a highly positive response to the changes we have made from consumers and our retail partners. Swerve connects with consumers seeking to reduce or eliminate sugar in their diets with a robust consumer digital marketing campaign, as well as partnership with and the registered dietitian community. Whole Earth is rooted in plant-based sweeteners for beverages, baking and more that open a world of goodness among the wellness community. In our hold some portfolio of our organic fair trade sweeteners encourages consumer across the country to base things better. On innovation, we are on track to meet our goal of 30 product launches this year in Branded CPG and 15 in flavors and ingredients as we focus on delivering on our commitment to having over 15% of our branded CPG segment revenues derived from product innovation on a three year rolling basis. Our innovation in branded CPG is focused on high growth territories, baking, plant-based, Keto-Friendly Zero-Sugar, functional benefits, organic and fair trade in current categories of sugar substitutes and base mixes, as well as expanding into adjacencies. Whole Earth’s recent innovation is anchored in high growth ingredients such as monk fruit, allulose and collagen peptides and incremental usage occasions with success across key retailers. Swerve and Wholesome new base mixes are being rolled out in North America and ready to disrupt the massive $1.8 billion base mix category with new innovation in both card Konscious, Keto and premium scratch facing, capturing multiple locations with offerings ranging from scratch to ready to use. Swerve’s portfolio of base mixes in cake, cookie, brownie and pancake, waffle are keto-friendly, no added sugar, gluten and grain free, low Glycemic, natural, and are sweetable for individuals with diabetes. Wholesome is launching a new line of organic fair trade, scratch quality premium base mixes, capturing the growth terrain of consumer convenience with scratch quality premium ingredients. This base mixes are sweetened with organic fair trade sweeteners, such as honey, agave, coconut sugar, brown sugar, and tin sugar that supports farmer communities. Then we have introduced innovation in better whole new chocolates, cake mixes, jams across our international markets. On growing distribution, as I said in our last earnings call, our expanded portfolio of brands significantly improves our shelf presence and visibility with retail customers. In North America, we had integrated our sales organization to expand our partnership with retailers and lead the category in sweeteners and baking. We quoted the Power of One. This is now underway with retailers and based on early results, we believe it will yield enormous benefits for the category and our business seen to the success it has yielded across most other categories. We're very pleased with our confirmed gains in distribution in North America and our expanding distribution breadth and depth across brands. As products gets on the shelf of retailers in Q3 and Q4, we will share growth in ACV and number of stores in Nielsen and Miro. Our ecommerce platform, which already contributes over 10% of our variable sales, is well positioned to benefit from the consumers’ buying pattern shifts toward ecommerce purchases. And we're are very pleased with the resurgence of the service. We're leveraging the national distribution footprint of Equal to drive placement of our expanded front of the house sweetener portfolio and create lingering solution and programs to capitalize on incremental back of the house opportunities with beverage mixology and bakery ingredients. On manufacturing and supply chain, supply chain is undoubtedly a competitive advantage for all our fronts and continued supply chain improvements will allow us to mitigate inflation and drive top-line revenue growth, margin expansion and free cash flow generation. We are progressing as plan on our branded CPG supply chain reinvention project to provide added scale and leverage our overhead costs beginning in the second half of 2021 through 2023 by optimizing the combined assets of Whole Earth Brands, Swerve and Wholesome. You can find more details about this initiative in our supplemental earnings presentation. Additionally, within our Flavors Ingredient segment, our manufacturing footprint optimization resulted in the closing of our Camden production facility. We expect to deliver approximately $2 million to $3 million savings in 2021 and an additional $2 million to $3 million in 2022 consistent with our plans. With respect to our Flavors and Ingredients segment, we are very pleased with Q2 performance. Aside from favorable comparisons versus the second quarter of 2020 when orders were pulled forward into Q1 to prepare for COVID, our investments in R&D and sales are paying off with good momentum in the business and significant new customer wins, thanks to fifteen product innovations launched in 2021. We expect the business to continue to produce strong free cash flow, driven by our global leadership position in licorice and our diverse end-markets. While in the near term, we're focused on our organic growth efforts and generating strong free cash flow in order to reduce our balance sheet leverage, M&A remains an important part of our growth strategy. We intend to continue to increase penetration in the better-for-you, sweetener and addressing sweets category through organic initiatives and M&A based on the strong pipeline of opportunities. These categories include baking mixes, chocolates, bars, jams and spreads to name a few and represent over $13 billion in addressable market opportunity, we have projected 8% CAGR in the coming years. Our ability to complete the integration of Swerve and Wholesome at the fast base is evidence of M&A being a core competency based on the deep expertise and experience we had in our leadership team. With that, Andy will now take you through our financials and outlook for 2021.

[Andy Rusie:]

Thank you, Albert, and good morning, to everyone. As a reminder for those new to our company, our consolidated financials reflect both predecessor and successor periods indicative of the June 25, 2020 business combination date. The second quarter results that I'll discuss compare the successor’s second quarter 2021 results, into June 30, 2021 to the combined second quarter 2020 results, which includes the predecessor’s April 1, 2020 through June 25, 2020 results and the successor’s June 26, 2020 through June 30, 2020 results. As a result, our reported GAAP financials may not be comparable to the prior year period. I'll call out some of the items that impact comparability where appropriate to enhance your understanding of our financial progress and also point you to our non-GAAP reconciliations at the end of the press release for additional detail. Also, I encourage you to view the supplemental earnings presentation, on our Investor Relations website. Of note, we completed the acquisition of Swerve on November 10, 2020 and Wholesome on February 5, 2021. I will speak to reported results, which includes Swerve and Wholesome for the full second quarter period. Additionally, we will provide some select pro forma results as if we own Swerve and Wholesome in 2021, 2020 and 2019 to assist in your analysis of the organic growth of the combined portfolio. For the second quarter ended June 30, 2021, consolidated product revenues were one $126.5 million, representing an 89.3% increase from $66.8 million for the prior year quarter. On a pro form a basis, including Swerve and Wholesome for the full quarter in both the current and prior year periods, organic product revenue declined 1.4%, compared to the prior year second quarter or declined 3.8% on a constant currency basis. Reported gross profit was $41.4 million, compared to $26.6 million in the prior year’s second quarter and gross profit margin of 32.7% in the second quarter of 2021, compared to 39.8% in the prior year period. Results were positively influenced by $11 million of contributions from the Swerve and Wholesome acquisitions, revenue growth from the legacy branded CPG and Flavors & Ingredient segments and productivity gains. Adjusted gross profit margin, when adjusting for all adjustments was 34%, down from 41.2% in the prior year, driven primarily by the inclusion of Wholesome’s private-label business. Consolidated operating income was $6 million, compared to an operating loss of $5.2 million in the prior year and consolidated net income was $3.7 million in the second quarter of 2021, compared to a net loss of $6 million in the prior year. Consolidated adjusted EBITDA increased 94.9% to $22 million driven by contributions from the Swerve and Wholesome acquisitions, revenue growth and productivity gains, partially offset by public company costs. Now, shifting to segment results for Q2. Branded CPG segment product revenues increased $56 million or 130% to $99.1 million for the second quarter of 2021, compared to $43.1 million for the same period in the prior year. On a constant currency basis, product revenues increased 123.1%, driven by the addition of Swerve and Wholesome revenue which was not comparable to the prior year period. Constant currency results reflect the strong growth in our natural brands. On a pro form a basis, including the impact of both acquisitions and the current year and prior year periods, organic constant currency product revenue decreased 8.1%, compared to the prior year second quarter. On a two year stacked basis, when comparing second quarter 2021, to second quarter 2019, Branded CPG segment pro forma organic constant currency revenue increased 14.5%. Operating income for the Branded CPG segment was $10.3 million in the second quarter of 2021, compared to operating income of $1.8 million for the same period in the prior year. The increase of $8.5 million was driven by contributions from the acquired Swerve and Wholesome businesses, revenue growth and productivity gains within the segment. Flavors & Ingredients segment product revenue increased 15.3% to $27.4 million for the second quarter of 2021, compared to $23.8 million for the same period in the prior year. The increase was driven by growth across most of the product line and a favorable comparison in the prior year with the business realized that surge in product orders in March 2020 relate to Covid-19 which reduced revenues in the second quarter of 2020. Operating income for the Flavors & Ingredients segment was $3.7 million in the second quarter of 2021, compared to operating income of $0.1 million in the prior year period. The increase was driven primarily by revenue growth. Operating expenses were flat, as $2.8 million of facility closure and restructuring cost and $0.9 million of amortization expenses were offset by transaction-related expenses of $3.8 million recorded in 2020 that did not reoccur. Finally, beginning with the first quarter of 2021, our corporate office functions are now reported and included under corporate. These associate expenses were previously reported within the company's Branded CPG segment. Corporate is not a reportable or operating segment. Certain prior year amounts have been reclassified to conform to the current presentation. Operating expenses for corporate for the second quarter of 2021 were $8 million, compared to $7 million of operating expenses in the prior year. Operating expenses for corporate increased $1 million, primarily driven by increased public company costs, stock-based compensation partially offset by transaction-related expenses of $4.5 million in 2020. Now, let me briefly cover June year-to-date results. Consolidated product revenues were $232.3 million, representing an increase of 74.9%, compared to June year-to-date 2020. Also, an increase of 71.1% on a constant currency basis. On a pro form a basis, including the impact of both acquisitions for the full six months periods ended June 30, 2021 and 2020, organic product revenue increased 3% or increased 0.9% on a constant currency basis, compared to the prior year. Branded CPG segment product revenues were $180.9 million and increased 117.2%, compared to the prior year period, also an increase of 111% on a constant currency basis. Constant currency results reflect the acquisitions of Wholesome and Swerve and growth in our natural brands. On a pro forma basis, including the impact of both acquisitions, for the full six months period ended June 30, 2021 and June 30, 2020, organic constant currency product revenue increased 0.2%, compared to the prior year period. On a two-year stacked basis, when comparing first half 2021 to first half 2019, Branded CPG segment pro forma organic constant currency revenue was up 11.5%. Operating income was $20.4 million, compared to an operating loss of $5 million in the prior year period. The increase was due to $11.1 million goodwill asset impairment charge in the prior year, $7.9 million of contributions from the acquired Swerve and Wholesome businesses, revenue growth and productivity gains. Flavors & Ingredients segment product revenues were $51.4 million and increased 3.9% as compared to the prior year period. The increase was driven by growth in derivatives. Operating income for the six months ended June 30, 2021 was $4.7 million, compared to an operating loss of $23.9 million in the prior year period. The $28.6 million increase was primarily driven by asset impairment charges totaling $29.5 million recorded in the first quarter of 2020. Transaction-related expenses of $3.8 million also recorded in 2020 and revenue growth, partially offset by $4.5 million of facility closure and restructuring cost and a $1.9 million increase in amortization expense due to purchase accounting revaluations of intangible assets. Reported gross profit was $77 million, an increase of $24.5 million from $52.5 million in the prior year period and gross profit margin was 33.1% in the six months ended June 30, 2021, down from 39.5% in the prior year period. Adjusted gross profit margin when adjusting for all adjustments was 35.3%, down from 41.5% in the prior year, driven primarily by Wholesome’s private-label business. Consolidated operating income was $2.9 million, compared to an operating loss of $38.5 million in the prior year period and consolidated net loss was $8.3 million for the six months ended June 30, 2021, compared to a net loss of $34.6 million in the prior year period. The improvement was largely due to the non-cash asset impairment charges recorded in 2020, the positive impact of acquisitions, and lower transaction-related costs. Consolidated adjusted EBITDA increased 64.9% to $39.4 million, driven by contributions from the acquired Swerve and Wholesome businesses, revenue growth and productivity, partially offset by increased public company costs. Now, moving to cash flow and the balance sheet. Cash used in operating activities for June year-to-date was $9.5 million. That is net of $17 million of one-time cash costs. Our June year-to-date capital expenditures were $4.6 million. Free cash flow, when excluding cash-related adjustments such as M&A transaction costs, restructuring, public company readiness and other one-off items was $3 million. As of June 30, 2021, we had cash and cash equivalents of $24.1 million and $384.7 million of long-term debt, net of unamortized discounts and issuance costs. On February 5, 2021, we entered into an amended and restated credit agreement in part to finance the acquisition of Wholesome Sweeteners. The new agreement provides for a $75 million revolving credit facility and a $375 million seven year senior secured first lien term loan B. Using our forecasted 2021 adjusted EBITDA, our net debt-to-adjusted EBITDA ratio on June 30, 2021 was 4.5 times. Reducing balance sheet leverage is a corporate priority, and we estimate that we will achieve a ratio of net debt-to-adjusted EBITDA of approximately four times by December 31, 2021. Now shifting to our outlook, we are reiterating our full year 2021 guidance, which includes our recent acquisitions of Swerve and Wholesome. The outlook represents our expectations for growth on a pro forma organic basis, and margins for the combined business. We define pro forma organic growth to be as that the company owned both Swerve and Wholesome for the full years 2020 and 2021. We continue to expect consolidated product revenues to be in the range of $493 million to $505 million represented reported growth of greater than 78% and pro forma organic growth of 3% to 5%. Consolidated adjusted EBITDA in the range of $82 million to $85 million representing reported growth of greater than 50% and pro forma organic growth of 3% to 5%. We also expect adjusted EBITDA margins to be approximately 17% of consolidated product revenues. Adjusted gross profit will be 34% to 35% of product revenues, which again reflects the influence of our acquired assets of Wholesome and Swerve. Total capital expenditures will be in the range of $10 million to $12 million. Lastly, we expect a 2021 GAAP tax rate of approximately 7% for the year, reflective of discrete one-time favorable tax items. On balance and in relative terms, as you think about the seasonality or cadence for the year and with the added contribution from Swerve and Wholesome, we expect a sequential build from first half to second half of 2021 in terms of revenue and adjusted EBITDA dollar contributions. We expect the operational plan will be visible each quarter as we move through the year with each sequential quarter being better than the other as we capture the benefits from product innovation, distribution gains and enhanced productivity from our footprint optimization project. That concludes our prepared remarks. Operator, now over to you, please open the call to Q&A

[Operator:]

Our first question come from the line of Rob Dickerson with Jefferies. Please proceed with your questions.

[Rob Dickerson:]

Great. Thank you so much. Good morning everyone. I guess, the first question I have, Andy, it’s kind of where you ended just in terms of sequential build, what's implied in the guidance in the back half. Maybe if you could just help. And Albert you end up in fair trade, just kind of provide some color in terms of visibility on potential distribution gains. I guess, in Q3, and kind of as you get through year end, and I kind of circle back to some comments you've made last quarter when you suggested that total distribution or distribution on the core Whole Earth Brand at least seems that should be accelerating through as you get through the back half of the year? That's the first question.

[Albert Manzone:]

Rob, good morning, and since you suggested to start with Andy, I will follow with your request and I am happy to add after that.

[Andy Rusie:]

Sure. Happy to jump in and good morning, Rob. I think, actually we've got a slide in our supplemental, deck, Page 21 of our supplemental deck that kind of walks you through the first half to second half guide and how we bridge from our first half figures in both revenue and adjusted EBITDA. And what you'll see there basically are three defining factors there between the effects of owning Wholesome for the whole period, some of the baking seasonality that exists within Wholesome and Swerve. And then to your point, that you just asked, Rob, on the growth initiatives that we have with distribution and innovation coming to market, here as we speak, as we go into third quarter and the end of the fourth quarter coming into coming into play. Maybe I'll let Albert talk a little bit more about those distribution gains, but the team has done a great job getting distribution. And we feel very, very comfortable. We feel confident about that. So, and I don’t know, Albert you want to add anything else to that?

[Albert Manzone:]

Yes. Thank you, Andy, and Rob I did talked in the last quarter about our Power of One, which as know we consider this to be really a breakthrough initiative to improve the growth of the category even further improve the shoppability on the shelves. With serve retail partners, and we are seeing very strong results coming out of Power of One in the brick-and-mortar’s numbers of distribution are secured and are going to find their way on the shelf in Q3 and Q4. What I'm excited is that, you also see this Power of One, for example, coming through foodservice for example, where we're leveraging the power of Equal to reiterate Power of One on the front of the house providing an alternative and a very broad set of sweeteners, but also on the back of the house with the baking solution that’s our sugar free or organic, as well as mixology. And this is new for us and we coming out of the Power of One. So, expect to see more of that happening in the second half with a number of those wins being already secured and in the bank.

[Rob Dickerson:]

Okay, super. And then, if we kind of fast forward a bit to next year, and obviously I realize you are not providing guidance for next year, but I would assume that some discussions you would be having with retailers as you go through kind of the next few months what the conversation direct t o that potential resets for next year? So, and given, I think some of the distribution gains simply in the back half of this year were delayed, right? So these would have been in conversations at - maybe in 2019. So I am just curious as you are walking into those conversations now kind of with the larger Power of One strategy. Just kind of, what's the general feel here on kind of overall timing of that optimization for - that shelf optimization program for thinking through 2022 and kind of the way I'd ask it more simplistically is just, is it - the hope here is you get little distribution gains in Q3 and then there is some more in Q4. And then kind of as you get to next year, it's the same thing, right? So it's the sequential build? Or kind of is the feel more a little bit of a sequential build, but as we get some of these shelf resets in different parts of the year, there could be more material step up. Just trying to get a sense of kind of how this flows through the next 18 months let’s say?

[Albert Manzone:]

Yes, I would tell you, Rob, that in North America, most of in grocery, you may have, but those would be shelf reset or products making it to the planogram during the year. But by and large, a lot of those major reset do happen. Decisions are made first outs as you say, anything COVID has slow down a little bit the number of shelf resets, which is usually once a year or the timing of it, which is basically more into Q3 and Q4. So, as you look forward and as we move forward to the Power of One, what obviously is going to make to the shelf in Q3 and Q4 is going to be overlappings in Q1 and Q2 of next year. At that time, we we'll be already talking about bringing more innovation. And as you know this year we're are on track to launch our 13 new products on Branded CPG. And we have more innovation coming that will make its way to discussions in the first half of the year with the shelf resets a year on average, which is on the second half. You have slightly different timings, for example in Europe, where Michelle three resets do happen at the end of Q1 and the discussions start in August as we speak. So that the Europe is a bit a bit off balance versus the U.S., North American market, but I would say North America less. And therefore, to your question, you are going to see incremental momentum building of course as we capture a bigger share of the shelf and help importantly the retailers and the consumers to find easy shoppability within the shelf.

[Rob Dickerson:]

Okay. Cool. Makes sense. And then ,maybe just quickly, I just want to clarify on the offsets to cost inflation. It sounds like the way or let's say, what kind of back half implied guidance suggest in the comments that you do have enough levers to it seems like almost fully offset the cost inflation. And I think the commentary is more working to offset. So, I know up until now, I think still now kind of your cost inflation relative to a lot of others CPG companies seems a bit a bit lower. While at the same time, everybody is talking to about labor issues, supply chain, kind of what have you? You seem to be saying, yes, there could be some incremental in there. But just kind of given what we have in the portfolio and the levers that we can pull that it doesn't sound like you're very concerned about that cost inflation at least for now. So, just want to clarify that.

[Andy Rusie:]

Yes. Rob, that's and then I would – we would reiterate, what you just said, yes, we're confident in our ability to offset inflation in 2021 given all the levers that we have to pull. And we've listed that out a little bit to some of those levers in our supplemental deck. But now we feel very confident. We've got a great supply chain team. We've got a great commercial team management as well and our ability to offset, we feel extremely confident in our ability to offset inflation this year.

[Rob Dickerson:]

Alright. Super. Thank you. I’ll pass it on.

[Albert Manzone:]

Thank you, Rob.

[Andy Rusie:]

Thank you, Rob.

[Operator:]

Thank you. Our next questions come from the line of Bobby Burleson with Canaccord. Please proceed with your questions.

[Bobby Burleson:]

Yes. Good morning. Thanks for taking my questions. Yes, I think, just the first one would be going back to the kind of in-house versus foodservice environment and kind of what your distribution partners and retail partners are thinking or seeing given the spike of delta. Whether or not there is any change in terms of - it was sort of big obviously stocking event that last year, that's a tough – it was a tough comparison last quarter year-over-year. Do you anticipate any stocking ahead of concerns over shutdowns or any changes in terms of what you are seeing downstream as it relates to the dynamics in COVID right now?

[Albert Manzone:]

Yes. That's a great question, Bobby. And, what I would tell you is, I think we have demonstrated over the last one year that our business is balanced. And we feel that it's very resilient. And so, I will - as I have said in my opening comments, whether COVID and the new variant stays with that a little longer or less longer, I don't see a big change in trajectory in our business at all. And this is essentially predicated on the very favorable macro trends that are over this, which is, again, if you look at coffee and tea consumption growing high-single-digits that happens anywhere. If you look at baking, which really came to the forefront and it's 50% of sugar consumption with new natural ingredients with Swerve, with Wholesome with Whole Earth, we will see that continuing as we have said. And then we have a very balanced portfolio of brands, very well balanced across channels. Again, conservative 10% of our mix. We're very happy to see the resurgence that we are at 10% in ecommerce that is doing extremely well and 90% in brick-and-mortars. And then, very well diversified geographically depending on where any variants or the health concerns can hit the most, we are also well diversified. So, I would say that, what I takeaway is the revenues and that we consider this to be more or less neutral as far as we're concerned.

[Bobby Burleson:]

Okay, great. And then, just on the inflation topic, if inflation turns out to not be transitory, curious kind of what the relationship is between your currency hedging and currency exposures and strength of the dollar? Just wondering how kind of structurally what that relationship is. And then, timing of you passing along some of these cost increases in the form of your own price increases maybe later this year or early next year, what the plans are or your thoughts are around that topic? Thanks.

[Albert Manzone:]

Andy, do you went to take the first piece? And then, depending I may add to the second piece.

[Andy Rusie:]

Yes. Sure. Absolutely. Bobby, so first on the currency part, roughly a little bit less than 25% of our revenues and ballpark wise are in foreign currencies. There are almost some natural hedges there inherently between currencies, number one. And number two, just across the P&L. So our net exposure as a total company at the bottom-line, I'll call it kind of more internal hedges to help us balance out to not having real significant exposure from an FX perspective at the bottom-line. From the pricing perspective, we are taking pricing now and we are looking at taking pricing into the future. Maybe I’ll let Albert comment on that a little bit further.

[Albert Manzone:]

I would just tell you bobby that, hats off to the team, which as you know is forklift team. Hats off to Irwin who is guiding us in terms of his invaluable experience. But, I would say that we really started on the journey of productivity from the beginning. So, we haven't waited for inflation and I would say that the supply chain productivity and as you know, we have talked previously about the supply chain reinvention on Flavors & Ingredients, we've been talking about supply chain reinvention on the Branded CPG. The synergies that we get from Swerve and Wholesome, together with greater discipline in our trade spending and the pricing that we would say consistently for all of our companies are positioning us very well. Of course, we need to be extremely diligent and that's what we're doing. But I think we have the team, the initiatives, and we started early enough to feel that we can at this point offset in this year and in the year ahead.

[Bobby Burleson:]

Okay great. Thank you.

[Albert Manzone:]

Thank you, Bobby.

[Operator:]

Thank you. Our next questions come from the line of Mark Smith with Lake Street Capital. Please proceed with your questions.

[Mark Smith:]

Hi guys. First question for me. Just wondering if you can give us any more details on the sale of the Camden, New Jersey facility. And it sounds like the savings there are pretty immediate. But any other details you can give us would be great.

[Albert Manzone:]

Good morning, Mark. Thank you. Andy, if you can address that?

[Andy Rusie:]

Yes. Good morning, Mark. And thanks. Obviously, the sale the Camden facility was a big milestone for us. It was the kind of closure of our footprint optimization project on the Flavors & Ingredient segment that we've been speaking about for the past year or two. And so that facility was sold in the second quarter. The production that was there is fully being done in our Richmond, Virginia facility, which is a much smaller footprint and a much more efficient operating structure. And so, to your point, Mark, the gains for that are immediate. You'll see in our supplemental deck and consistent with the kind of pro forma benefits that we talked about a year ago, we'll expect margin accretion in the second half of the year benefits to kick in of $2 million to $3 million in the second half of the year and $2 million to $3 million in the first half of next year on a sequential basis. So, now, that's an immediate savings for us and a real and a pure cash driver too as it goes forward. So, really excited. The team did a great job bringing that facility close, lot of hard work with immediate benefits.

[Mark Smith:]

Okay. And then, just as we look at new products and launches, it sounds like you're on pace now. But can we talk about kind of the initial consumer response to some these new products?

[Albert Manzone:]

Sure. The consumer products are really 45, as I say, there is about 30 are in our Branded CPG and 15 are in our Flavors & Ingredients. This is really led by marketing and consumer insights, together with R&D, which we do have across North America, Europe and in Asia. And I would tell you that our innovations is really starting from the consumer shift that we see away from sugar. The desire of consumers to really having product that tastes great, because as you know, consumers would never compromise on that that are natural. And we had a number of innovations really coming into all the natural ingredients cellulose, erythritol , xylitol and so on and so forth, as well as consumer negation with a number of products in the baking, as well as bake mixes, which where we launched for doing the bake mixes in keto cookie brownies and wholesome. And I would tell you that the results so far on the Brand CPG are very strong as we say during the year, and refer with Rob, we have secured distribution that is going to appear on shelf in the second half. So I would say that the reception is a strong seeming already I am very pleased by our Flavors & Ingredients performance. We have stepped up the R&D team there. We have stepped up our sales organization, and professionalize it more and I think talking the aside from the favorable comparison, the 15% versus year ago Q2 is indicative of a momentum around our derivatives our magnus suite. And so, I would say that innovation for us is really one thing that I believe really. It's one of our five core operating pillars together with great brands and great distribution. And we have been able to deliver over 15% of our net sales coming from innovation on a three year rolling basis for the last three years. So, we see that continue. We're happy with where we are. And I look forward to see - for you to see those products on the shelves coming in Q3.

[Mark Smith:]

Perfect. And then, as we look at the new products and look at your mix of ecommerce sales, do some of these new products, especially baking mixes and other things gives you more opportunity in your ecommerce or are the products that maybe wouldn't do as well in ecom?

[Albert Manzone:]

That's a great question. The great thing about ecommerce and this is why I invested in it since 2018 and we're very happy to have now 10% of our global mix being ecommerce, is that, the amount of SKU you can put there is limited. And so, you have a matching broader depth - broader and depth of products and you get a very quick return from consumers, which is very helpful in terms of new innovation and very helpful also as we talk to retailers. So I would say that, this is an opportunity, e ecommerce to put up more products and to have more consumer success in them and then has this opportunity to then go forward with the over retail channels.

[Mark Smith:]

Okay. And retail growth is kind of my last question. Just as we look at, it looks like in the quarter, retail growth was maybe down a little bit. Can you talk about new customers and new retail partners that are out there?

[Albert Manzone:]

I assume you are talking about the quarter versus 2020 for Branded CPG?

[Mark Smith:]

Correct? Yes.

[Albert Manzone:]

Right. So, this was really driven by the one-time country pantry loading by and large. And I would say that in our case, further to that, which is something that everybody experienced, you do - we did talk a lot during the COVID about our outstanding customer service. During the whole crisis of COVID we were able to service at the 99%, 98% level. What did happen and that's about $7 million of Q2, what need to happen is that some of our competitors were not able to supply. And therefore, we had in addition to the usual COVID pantry loading, we also had some retailers that came to us and say, competitor B cannot supply, can you please jump in? So, we had this additional one-time, which is essentially driving the year-on-year comparison, which is why the way we like and we think it's more relevant to look at this really looking at the momentum versus Q2 2019 and they were very pleased with the 15$ goal.

[Mark Smith:]

Yes. And as far as your expansion and distribution with the new retail partners, how do you feel how that's moving today?

[Albert Manzone:]

As I said earlier, we happy with where we are at. We have a number of secured distributions that are going to come through, which I cannot, for the obvious reasons disclose, but we are happy in tracking as we plan.

[Mark Smith:]

Perfect. Thank you.

[Operator:]

Thank you. Our next questions come from the line of Scott Mushkin with R5 Capital. Please proceed for your questions.

[Scott Mushkin:]

Hey guys. Thanks for taking my questions. So, I actually had - my first question was around, Andy, your comment about sequentially better EBIT margin each quarter? Did I get that right? Or maybe just a little clarity on what you said, right, when revenue stops?

[Andy Rusie:]

And so, we are expecting, Scott. This is Andy. I can jump in on that and good morning.

[Scott Mushkin:]

Good morning.

[Andy Rusie:]

Yes. We are expecting sequentially incrementally better sales or revenue and EBITDA in absolute figures quarter-on-quarter. So Q3 and Q4. I mean, we do have factors like the Flavors & Ingredients with the closure of the Camden that will help our back half of the year margins. But what we were guiding to more was the absolute sales and EBITDA.

[Scott Mushkin:]

That's perfect. Thanks for the clarity. The second question really is about the Power of One initiative. And how you guys are approaching it? Are you looking at kind of flagship customers that you're growing obviously in the fresh market? I guess, it was Thursday or Friday and you expect they are just terrific. And I would think maybe the Wholesome baking products and goat be slotted in somewhere like that first or is that not how to look at it?

[Albert Manzone:]

Yes. Good morning, Scott. And that's a great question. Once you have put together your Power of One, the timing on how you roll out really depends on your retailers and that goes really back to the question of Rob, before. Still, this is a year we are doing meetings face-to-face , Zooms and et cetera is all something we're managing with our retailers and different retailers get at it at different times. So, we are active and we are essentially, to your point, putting it forward whenever the opportunity is, whenever the shelf reset this being done, whenever those discussions. We don't control the timing of it, but we also are enabled with the Power of One to proactively reach out and do it. And again, let's remember, all CPG shelves and categories do tend to have some level of category management. This is really probably one of the few I know where you don't have that and therefore, we believe that the benefit to our retail partners and to the category and its shoppability to your point and we spend a lot of time visiting the stores and I thank you for that. I think it is going to carry us for this year, but also for the years to come, because as you know, this is an ongoing process where you work with the retailers, every single mode to making better in the direction that we have now set.

[Scott Mushkin:]

Okay. And then, my final question really goes to put – or I am putting together because it's really kind of two, but I am putting together. So, it looks like we talked about this last quarter, the placements on Amazon. It looks like you guys made a lot of progress there as far as when you do a search, you are coming up quick. And there is an advertisement there. Are you seeing lifts from that? And then in conjunction with that, with all the others things you're getting, this was touched on before. But should we think 2022 is going to just grow faster, because of everything that's going on versus kind of the long-term plan and would that put some pressure on profits or not really if that's correct?

[Albert Manzone:]

I will let Scott, Andy answer the second piece. On the first piece of ecommerce, I will tell you that, we are leveraging best practices and the team that works globally very closely together in Europe, in Asia, where were very strong and in the U.S. And as you know, it’s a funnel. And we are working to bring people in. We are working then to make sure that people do see opportunities to take on more and then we're working on people to come back. And then, we are also working on people going somewhere else to come to us. And as you know, this is a virtual to circle, which cost money, but what we are seeing is that essentially, this is an investment where you have very good return on the investment.

[Irwin Simon:]

Hey, Scott, I am going to jump in there when you ask about pressure on profits in 2022. Growth is a big part of our strategy here. And last year this time, we’re just a $200 million company and you heard, Andy’s forecast between 475 and 505. I mean, the company in regards to public company cost, infrastructure cost and that, I feel with the growth opportunities and where our ACV is today and household iteration and you also heard Andy talk before about the type of job we're doing in regards to controlling inflation not taking pricing where we don't have to. So, I don't see a pressure on profits with our growth. I think as you know from me, white space is a big opportunity for us. So, and also on top of this here, we are not sitting by the sidelines and not looking at acquisitions. So, as the company looks for good organic growth, Albert talked about these new products before and I'll tell you we just recently had a Board Meeting and I saw some fantastic new products, some of the best I've ever seen with the distribution opportunities and just even with our international opportunities. I don't see growth being a new issue that's going to affect our profitability going forward. And Andy, you jump in here from a financial standpoint?

[Andy Rusie:]

Yes. Now I echo go everything that Irwin just said. And I think to your question, Scott, on the mix part of it, no, it would not have an impact on the bottom-line from a mix - channel mix perspective.

[Scott Mushkin:]

And then, as far as the growth goes, should we expect a little faster growth in 2022? Or is that too early to tell?

[Andy Rusie:]

Well, what I would - okay, I am sorry. Go ahead.

[Irwin Simon:]

Hey, Scott, you know me, I will push them. But I think the big thing what I would give in 2022 guidance and that, I think, as I said before, I want to come back and just commend what this team has done in a short period of time. And with that, as I said, we have plenty of new products. We have plenty of white space to go after. Plenty of opportunities in the ecommerce. Ultimately, acquisitions. So, I think there is a lot of runway out there for this company to grow and to grow faster.

[Scott Mushkin:]

Perfect. Thanks. And nice talking with you, Irwin

[Irwin Simon:]

Talking to you too, Scott.

[Operator:]

Thank you. There are no further questions at this time. I would like to turn the call back over to Albert Manzone for any closing remarks.

[Albert Manzone:]

I just would like to thank everybody for joining the call today and we are looking forward to have discussions with all of you. Thank you so much for your time.

[Andy Rusie:]

Thank you.

[Operator:]

Thank you for your participation. This does conclude today's teleconference. You may disconnect your lines at this time. Have a great day.