Whole Earth Brands, Inc.

Good morning, and welcome to the Whole Earth Brand's third quarter 2020 conference call. All participants are in a listen-only mode. After today's presentation, there will be the opportunity to ask questions. Please note, today's event is also being recorded. At this time, I'd like to turn the conference over to Jeff Sonick, Investor Relations at ICR. Sir, please go ahead.

Thank you, and good morning. Today's presentation will be hosted by Albert Manzoni, Chief Executive Officer of and Andy Ruzzi, Chief Financial Officer. Executive Chairman Erwin 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 today. 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 like to now turn the call over to Albert Manzoni, CEO.

Thank you, Jeff, and good morning, everyone. I am excited to present our first full quarter as a public company today. I will start by providing some color around the performance of our two business segments, and then discuss the strategic merits of our Swerve acquisition, which closed this past Tuesday, November 10. In addition to the M&A strategy that you are starting to see unfold, I want to reiterate our commitment to driving organic growth through brand building, innovation, and marketplace execution. We have a demonstrated track record of innovation success within our branded CPG segments. In fact, approximately 16% of our 2019 sales were driven by innovation for new product launches and product extensions. This is especially apparent in areas such as baking, which accounts for approximately 50% of our sugar consumption globally. Additionally, our future organic growth would be driven by geographic penetration of North America within our sweetener portfolio. which represents a significant opportunity for our business. We're also positioned to support category growth in our key international markets and entering to new geographies such as India and China. Increasing awareness within emerging markets will continue to drive expansion across all our sweetener stops. During the third quarter, all our brands grew consolidated product revenues by 4.6%, versus comparable quarter last year, while growing adjusted EBITDA 6.7% during the quarter. Within our branded CPG segment, we experienced continued momentum within the sweetener category across the retail and e-commerce channels in all of our key markets. Additionally, we realized year-over-year natural share gains in all our top seven markets, underscoring our ability to innovate and execute. This positive momentum within the retail channel was offset by food service softness, which includes lower sales at Starbucks and some reduction of retailer and distributor inventories in certain emerging market geographies due to COVID uncertainty, resulting in stable revenue growth for the quarter for this segment. Looking forward, We're excited about the continued secular strides in growing our natural business. Our whole-earth sweetener brand grew 75% during the quarter. Within our flavors and ingredients segment, our derivatives and domestic tobacco business drove our strong performance. This segment grew by 9.4% versus comparable quarter last year. Our organic growth strategy is primarily focused within our derivatives business. Our new global head of sales and R&D has hit the ground running and is establishing a growth-oriented focus to drive the segment's future performance. We continue to make solid progress on the footprint optimization projects that's underway. Our team is working diligently to execute this project on time and on budget. This has significant operational advantages for our platform, and we look forward to delivering the associated financial benefits in 2021 and 2022. Now, I'll take a few moments to reinforce the strategic and financial merits of the Swerve transaction and provide some direction on where we're headed. is a rapidly growing manufacturer and marketeer of the ultimate sugar replacement with a portfolio specializing in natural zero sugar, zero calorie, and gluten-free sugar replacements and baking mixes, which are sold through various retail channels, including conventional, mass, online, and natural, among others to include e-commerce. Swerve is the fastest-growing shelf-stable sweetener brand across conventional grocery, generating compound annual revenue growth of 150% since 2016. The brand is expected to generate net sales of approximately $36 million and adjusted EBITDA of approximately $5 million in 2020. This transaction offers several compelling strategic attributes for a whole lot of brands and represents a significant value creation opportunity. First, Swerve strengthens our position in the natural sweeteners category with its focus on baking, which is a segment of the market that we find especially attractive with its approximate $6 billion addressable market. Second, Swerve enhances our scale and growth in the key North American market by 50%. with this key geography representing pro forma branded CPG revenues of approximately $100 million, equating to a 10% market share of old sweeteners. Third, Swerve products provide portfolio diversification. We enhance our penetration of the natural sweetener category from 45% to approximately 65% of our estimated 2020 North American branded CPG segment revenues. And our portfolio of natural products within our branded CPG segment now represents approximately 46% of segment revenue compared to approximately 35% previously. And fourth, Swerve leverages our established business model, which affords us the opportunity to extract expected savings in the range of 2.5 million to 3 million by the second full fiscal year following the closing of the transaction, driven by supply chain and overhead savings. When fully integrated, we expect Swerve to generate similar adjusted EBITDA margins to what we're producing today within our branded CPG segments. The purchase price of 80 million represents an attractive multiple of 2.25 times 2020 estimated net sales and 9.5 times run rate synergized estimated adjusted EBITDA. It is important to note that given Swerve's asset-light business model, we believe that this acquisition represents minimal integration or synergies achievement risk. Our business, is aligned with powerful secular forces around health and wellness, which is increasingly becoming a necessity due to the burdens created by the global trend toward Western diets, such as obesity and diabetes. As we look to the future, we intend to continue our penetration of the sweetener category. Over time, we intend to expand into adjacent categories within the broader free-from marketplace. as we pursue our long-term growth objectives to reach one billion of revenue. The Anonymous Free From category represents an addressable market with nearly 30 billion in revenue and includes categories such as clean label, organic, GMO-free, plant-based, dairy-free, low-carbon, gluten-free among others. We continue to engage with additional prospective M&A targets and are seeing great opportunities in the market. In summary, we are energized by the strong market performance of our brands within our CPG segment, the continued growth of our derivatives business within our flavors and ingredients segment, and the execution of our M&A strategy with the Swerve transaction. I believe that we have the right assets in the right categories in the right geographies to form the foundation from which we would grow to create a significantly larger enterprise. I am confident that our experienced leadership team can drive a corresponding growth in shareholder value. Before I turn the call over to Andy, I'd like to thank my colleagues. In the four and a half months since we went public, our team has worked hard to operate and grow the business. hire leaders in key functions and geographies to drive future growth, put the necessary public company infrastructure in place, and complete a highly strategic acquisition. With this execution-oriented team, I am excited for the fourth quarter and for 2021 and beyond. With that, Andy will take you through the financial details and our outlook for 2020.