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spk00: Good morning and welcome to Whole Earth Brands' fourth quarter and full year 2020 conference call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please also note that today's events are being recorded. At this time, I would like to turn the conference over to Jeff Sonick, Investor Relations at ICR. Sir, please go ahead.
spk01: Thank you and good morning. Today's presentation will be hosted by Albert Manzoni, Chief Executive Officer, and Andy Ruzzi, Chief Financial Officer. Executive Chairman Erwin Simon is also participating on the call today 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. or 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 the most directly comparable GAAP measures. With that, I'd now like to turn the call over to Albert Manzoni, CEO.
spk06: Thank you, Jeff, and good morning, everyone. Reflecting on our 2020 performance, I am extremely proud of our team and the pace of execution since our business combination at the end of June 2020. We delivered a strong finish to 2020 with fourth quarter consolidated net product revenue growing 8.5% on a constant currency basis. A brand new TPG business at a particularly strong quarter growing 12% on a pro forma constant currency basis. basis with market share gains in the natural category across the world. With two significant acquisitions in our first seven months since going public, we have already reached $500 million in run rate revenue and significantly strengthened our market position. Looking ahead, we're making great strides toward our vision of enabling healthier lifestyles and providing access to high-quality plant-based sweeteners, flavor enhancers, and other foods to our diverse portfolio of trusted brands and delicious products in a $13 billion addressable market of sweeteners and natural baking mixes. We believe we are well positioned to compete in this growing market thanks to the following key drivers. First, our addressable market in the better-for-you sweetener category has sustainable, secular tailwinds that our branded CPG portfolio is distinctly able to take advantage of given our innovative products, distribution strengths, and global scale. Second, the additions of Swerve and Wholesome significantly strengthen our leadership position and integration of both is proceeding as planned. Third, with a healthy balance sheet, clear vision for our future, and an exceptional team, we believe we can achieve sustainable growth through brand building, innovation, increased market penetration in the U.S. and globally, a world-class supply chain, and an exceptional team. Starting with our addressable market, our business is aligned with powerful long-term secular forces around health and wellness. as people identify solutions that help them achieve their goals. In fact, nearly half of consumers are looking for ways to cook healthier. With our broad assortment of leading brands, coupled with innovation that allows sugar substitutes for beverage consumption and baking, the laser accounts for 50% of sugar consumption globally. We believe strong consumption growth will continue for years and decades to come. Our ability to address these powerful trends was further bolstered by our recent acquisition of Swerve and Wholesome, which have transformed our presence in the market, doubling our North American market share and enhancing our mix of natural sweeteners, which now makes up 88% of our North American branded CPG segment revenue. Each of our key North American natural sweetener brands, Holher Sweeteners, a newly acquired Swerve, and Wholesome Brands, all realized significant consumption growth in 2020. Holher and Swerve grew more than 40%, while Wholesome grew nearly 21%. all of which significantly outpaced the category average of 12%. Additionally, our equal brand outperformed its respective category average as well, with 10.9% consumption growth. We believe our advantage-branded CPG portfolio will continue to deliver high-quality growth. Our integrations of the Swerve and Wholesome acquisitions are proceeding on plan. We have brought key personnel on board from those organizations to maintain continuity and help build out our organizational capabilities. We have already actioned key commercial, supply chain, and back office initiatives, including significant wins and ACV expansions at key retailers with existing products and innovations. Moving now to our vision for the future, IBZS will have put together a deliberate portfolio of quality assets and brands in attractive categories and growth geographies to form the foundation from which we will grow to create a significantly larger enterprise. For that, we will deliver on our key growth pillar, Our first pillar is brand building. We're leveraging our world-class consumer insights and marketing team to continue to drive awareness for our brands and increase household penetration in the US and around the world. You will see several initiatives targeted at those very objectives in the months ahead. Our second pillar is innovation. We plan to continue to deliver above 15% of our product revenues from innovation on a three-year rolling basis. We have a competitive advantage with six R&D centers focused on enhancing innovation and development across the globe in natural, baking, added benefits, and adjacencies. For example, we're excited by the launch of our new baking ingredients, utilizing innovative ingredients such as a rifle tool, long fruit, and aloes. In 2021, we're planning to launch over 45 new products in our branded CPG segment. Our third pillar is growing distribution. Our expanded portfolio of brands significantly improves our shelf presence and visibility with retail customers. Today, our ACV for wholers, sweeteners, and wholesome is only in the 20s. while Swerve is at approximately 55%. We are already bringing the power of our portfolio to bear in the marketplace with our retail relationships to increase distribution. Each brand has inherent advantages in the natural channel, traditional grocery retailers, mass, club, and e-commerce. Through those inherent brand advantages, we can leverage our power of one to the benefit of our overbrands. In addition, we see opportunities for swerve and wholesome in key developed international markets, leveraging our existing organization. We also see an opportunity to enter new international markets, including India and China. We have hired top talent in each of those markets in our intent to capture a share of the 2.7 billion consumers leveraging our already well-known brands across various distribution channels. Our fourth pillar is manufacturing and distribution. Our supply chain is set to be a competitive advantage for all our brands. and will allow us to drive top-line revenue growth, margin expansion, and generate cash flow. Our priorities are to complete the flavors and ingredients manufacturing footprint optimization in 2021 and begin the reinvention of our branded CPG North America supply chain to leverage the combined assets of all our brands, Swerve and Wholesome. Our fifth And last, Pilar is our world-class team. The team has strong operational competencies, agility, and passion across all brands, all regions, and all functions. Moreover, this is a highly scalable organization with global resources in place to expand our presence in new and existing markets. Turning to our flavors and ingredients segment, Despite certain COVID-19 headwinds that impacted our flavors and ingredients segment in 2020, we expect the business to continue to produce strong operating income driven by our diverse end markets. As I mentioned last quarter, we have new leadership structure in place that is establishing a growth-oriented focus to drive the segment's future performance. We recently launched 15 new products under our MACNA funding that better address the unique needs of our customers across the diverse end markets that we serve. This includes consumer packaged goods, over-the-counter health care, as well as beauty and personal care products. We're enthusiastic about the broadening of our existing portfolio and about the customer-centric innovations that we're bringing to the market, to rejuvenate growth of the segment that commands a significant global leadership position. We also continue to make progress on the footprint optimization project that is underway. This initiative will provide us with significant operational advantages for our platform, and we look forward to delivering the planned financial benefits in 2021 and 2022. As we pursue our growth objectives to reach one billion of revenue, we intend to continue our penetration of the better-for-you sweetener category. Over time, we intend to expand into adjacencies in the sweetener and over-sweet categories, which includes verticals such as chocolates, bars, jams, and spreads. M&A remains an important component of our long-term growth strategy. but in the near term, we're focused on our organic growth efforts, integration plans, and generating free cash flow to reduce our balance sheet leverage. With that, Andy will talk you through the financial details, our outlook for 2021, and provide some additional details on our long-term growth framework.
spk11: 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 fourth quarter results that I'll discuss compare the successor's 2020 fourth quarter results ended December 31, 2020 to the predecessor's 2019 fourth quarter results. As a result, our reported GAAP financials may not be comparable to the predecessor 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. Additionally, we completed the acquisition of Swerve on November 10, 2020. I will speak to reported results including Swerve and to results excluding Swerve. For the fourth quarter ended December 31, 2020, consolidated product revenues were $75.7 million, representing a 10.1% increase from the $68.8 million for the comparable period last year. Included in the fourth quarter 2020 product revenue was $4.3 million related to the acquisition of Swerve. Excluding Swerve, organic product revenue grew 3.8% compared to the prior year fourth quarter, or increased 2.2% on a constant currency basis. Reported gross profit was $25.2 million, down from $26.2 million in the prior year period, and gross profit margin was 33.3% in the fourth quarter of 2020, down from 38.1% in the prior year period. Results were negatively influenced by a $3.9 million non-cash purchase accounting charge. Adjusted gross profit margin when adjusting for all non-cash and cash adjustments was 41.8%, up from 41.1% in the prior year, given by favorable product mix in the branded CPG segment and productivity. Operating loss was $6.9 million compared to operating income of $5.5 million in the prior year period, and consolidated net loss was $5.1 million in the fourth quarter of 2020 compared to net income of $12.9 million in the prior year. These two figures reflect $5 million of M&A transaction costs. $4.4 million of one-time and ongoing public company costs, and $3.9 million of non-cash purchase accounting adjustments, which were not incurred in the prior year. Adjusted EBITDA increased 5.8% to $14 million, compared to $13.2 million in the prior year period. This increase was primarily driven by revenue growth and productivity actions, partially offset by higher ongoing public company costs. Now let me take you through the segment results for Q4. Branded CPG product revenues increased $10.5 million, or 24.6 percent, to $53.3 million for the fourth quarter of 2020, compared to $42.8 million for the same period in the prior year. On a constant currency basis, Product revenues increased 22.1%, driven by strong retail and e-commerce growth in our North American business, and the addition of Swerve partially offset by food service softness. Excluding Swerve, segment organic product revenue grew 14.5% compared to the prior year fourth quarter, an increase of 12% on a constant currency basis. Operating loss for the branded CPG segment was $4.9 million in the fourth quarter of 2020 compared to operating income of $2.6 million for the same period in the prior year. The decrease was driven primarily by $5 million of M&A transaction costs and $4.4 million of one-time and ongoing public company costs that are included in the company's branded CPG segment. Flavors and ingredients product segment revenues were $22.4 million, a decrease of 13.9% compared to the same period in the prior year. The decrease was primarily driven by timing of shipments within 2020 and COVID-19 impact on customer orders. Operating loss for the flavors and ingredients segment was $2 million in the fourth quarter of 2020 compared to operating income of $2.9 million in the prior year period. The decrease was driven by a $3.4 million non-cash purchase accounting adjustment related to inventory revaluations and a $1.4 million amortization of intangible assets resulting from the June 25, 2020 business combination. Now, shifting to a brief review of our four-year performance for the 12 months ended December 31, 2020. Consolidated product revenues were $275.5 million, an increase of 1.2% compared to full year 2019 on both a reported and constant currency basis. Included in 2020 product revenues were $4.3 million related to the Swerve acquisition. Excluding Swerve, organic product revenue decreased 0.3% compared to the full year 2019. Branded CPG segment product revenues were $177.6 million, an increase of 7.1% on both a reported and constant currency basis. Excludings for segment organic product revenue grew 4.5% compared to the prior year on both a reported and constant currency basis. Growth was driven by strong retail and e-commerce category growth, as well as share gains globally, partially offset by softness in the food service channel. Growth was led by North America and Western Europe. Flavors and ingredients segment product revenues were $97.9 million, a decrease of 7.9% compared to the prior year. The decline was primarily driven by lower revenues in our international business. Reported gross profit was $96.3 million, a decrease of $12.2 million from $108.5 million in the prior year, and gross profit margin was 34.9% in 2020, down from 39.9% in the prior year. Results were negatively influenced by a $12.6 million non-cash purchase accounting charge. Adjusted gross profit margin when adjusting for all non-cash and cash adjustments was 42% down from 42.6% in the prior year by product mix. Consolidated operating loss was $44.3 million compared to $29.7 million of operating income in the prior year, and consolidated net loss was $42.6 million for the full year 2020 compared to net income of $30.8 million in the prior year. The decreases reflect non-cash asset impairment charges, purchase accounting adjustments, business combination transaction-related costs, and ongoing and one-time public company expenses, which are not comparable to the prior year period. Consolidated adjusted EBITDA was $54.5 million, a decrease of 4.2% versus prior year, driven by new ongoing public company costs and lower product revenues in our flavors and ingredients international business, partially offset by increased product revenues within the branded CPG segment and productivity actions. Now, moving to cash flow and the balance sheet. We generated consolidated cash flow from operations of $10.5 million for the full year 2020. That is net of $11.7 million of business combination transaction-related expenses that were funded by the seller, McCanders & Forbes, and $18.3 million of one-time cash ad-back costs. our 2020 capital expenditures were $8 million. Precash flow when excluding cash-related add-backs and transaction expenses was $32.4 million. As of December 31st, 2020, we had cash and cash equivalents of $16.9 million and $179.7 million in debt net of issuance costs. Subsequent to the end of fourth quarter on February 5th, 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 five-year revolving credit facility and a $375 million seven-year senior secured first lien term loan fee. 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. Shifting to our outlook, we are introducing full-year 2021 guidance, including our recent acquisitions of Swerve and Wholesome. The outlook includes expectations for growth on a pro forma organic basis and margins for the combined business. We define pro forma organic growth to be as if the company owned both Swerve and Wholesome for the full years 2020 and 2021. We expect consolidated product revenues to be in the range of $493 to $505 million, representing reported growth of greater than 78% and pro forma organic growth of 3 to 5%. Consolidated adjusted EBITDA in the range of $82 to $85 million representing reported growth of greater than 50% and proforma organic growth of 3% to 5%. We also expect adjusted EBITDA margins to be approximately 17% of consolidated product revenues. Adjusted gross profit margin will be 34% to 35% of product revenues, which again reflects influence of our acquired assets, Wholesome and Swerve. Total capital expenditures will be in the range of $10 million to $12 million, which is an increase of $2 million to $4 million from 2020. The increase is associated with our footprint optimization project. Lastly, we expect a 2021 tax rate of approximately 23%. We are also raising our long-term product revenue growth target, which reflects the continued growth of the category and the impact of our recent acquisitions over the next three to five years. We expect the following. Net product revenue growth in the mid single-digit range. Adjusted EBITDA growth in the mid to high single-digit range, which implies operating leverage that we foresee as we further integrate the businesses and drive organic growth. Adjusted gross profit margin is expected to be in the range of 34 to 36 percent. Adjusted EBITDA margin is expected to be in the range of 17 to 19 percent. Capital expenditures will approximate 1.5 percent of product revenues annually. And lastly, the tax rate will be approximately 23%. That concludes our prepared remarks. Operator, now over to you. Please open the call to Q&A.
spk00: Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the start keys. Our first question is from Rob Dickerson with Jefferies. Please proceed.
spk10: Great. Thank you so much. Good morning. So I guess just a couple quick questions. The first question is just around, I guess, the three- to five-year organic sales growth target. You know, you lifted it to mid-single-digit from, you know, low single-digit to mid. Business is still in early innings. You've done two impressive acquisitions. I'm just curious what gives you confidence to change it to mid-single digit relative to longer-term guidance you just set in the middle of last year? Good morning, Rob. Do you want to start, Andy?
spk02: Sure. Yeah, no, happy to take that one. First, I think it reflects, like you said, the acquisitions, the strength of the acquisitions. I'd say Number one, I think the category, I would say, will continue to grow. We feel very confident.
spk11: I think Albert alluded to that in his opening remarks about really the strength of the better-for-you sugar categories that we're in and the growth that will continue for the foreseeable future. For one, we feel very confident with that. And then the trends that are underlying that, number one. Number two, we feel very confident with the acquisitions. and the commercial synergies that we'll be able to drive across the legacy whole earth brands portfolio with Swerve and with Wholesome. So we think our ability to execute within a growing category gives us the confidence to get to that mid single digit growth rate from a long-term perspective.
spk10: Okay, great. That's helpful. And then again, you know, I know it is very early, you know, in the revenue synergistic opportunity with the recent acquisitions. Obviously, you know, leveraging your current footprint in all different channels within retail is a large part, you know, of the revenue opportunity. So I'm just curious, you know, have you already had, you know, kind of early stage conversations with retailers that also might give you some confidence in your ability to to successfully increase the ACB that you continue to point to. It's fairly low relative to some other players. Then I have one follow-up.
spk06: Yes, Rob. I'm happy to answer that. The answer about the confidence is absolutely yes. As you pointed out, we do have Are brands natural that are still in the 20s and then you have Swerve that is in the 50s? And just think about the fact that, you know, a 10-point distribution gain across those three brands equals to about $30 million incremental sales. And I would say that the power of one is really about leveraging where those brands are strong today, bringing opportunities for the others, and then leveraging across. I would tell you, and I don't want to disclose too much, but we have had significant wind and expansions across major retailers that have already been confirmed and are going to take place. I would take a less confidential subject to tell you that, for example, You know, if you take e-commerce, we grew with Holder 200% last year. That is best in class compared to Swerve and Wholesome. And we are able to already bring to the front those overbrands into e-commerce. So we see a lot of opportunities. Our sales teams have come together. We call on the customers as one. already since January. And we're very excited because those brands have very strong capabilities in traditional retail grocers, in clubs, in mass, in the natural channel, and as I was saying, in food service. And that's for the top line. We also see Significant synergy opportunities at the bottom line through productivity and through our manufacturing footprint and operations. So we're very excited. The teams are working together. We have also been able to strengthen our organization as a result of this, and I think that's the benefit of having closing M&A opportunities like Swerve and Wholesome.
spk10: Okay, perfect. And then just quickly, Albert, I think I had heard you mentioned, you know, appetite to expand a bit more over time in categories like jams, bars, and spreads. I know you did some of that in Europe already. But cash positioning is still strong, right, with the asset-light model. And it sounds like leverage is somewhat rational for expectation in the year end 21. So, you know, if the right opportunity comes up on that acquisition front, you know, are you in a position to act You know, or is the line, you know, essentially we'd rather give it some time to integrate these two other acquisitions. And that's it. Thank you.
spk07: Hey, Rob.
spk10: Yeah.
spk07: Rob, I'm going to jump in for that one. I think what we're going to do is, you know, be acquisitive, be strategic, accretive. And, you know, I think as you know me from the past, if they're great acquisitions and they're strategic, with our free cash that we'll throw off and the ability to pay down debt, you know, we are by no means out of the acquisition market. But on the other hand, we're going to make sure we integrate what we have, but we're not out of business and doing acquisitions.
spk10: Okay, perfect. Thank you so much.
spk07: Albert, you can add to that story.
spk06: I think you say this, and aside from this, you know, our Rob, our priority right now is on organic growth, and this is very exciting what we have ahead of us. We even have, and I didn't mention it before, significant international opportunity where we just have to leverage our existing organization for Swerve and Wholesome, and we're working on it as we speak. We are pushing the integration, as I was saying, and bringing the teams together and really leveraging the talent that we have across the organizations. And then on the operation supply chain, I'm very excited because we see some input costs increase, but not to the level of other FMCG companies, and we have a very deep productivity pipeline. Just consider that our total spend went from $19 million in the U.S. to $46 million. So I let you imagine how exciting it is for our supply chain guys to capture those opportunities. And then per Irwin. we will follow on our wind direction. Okay, super perfect.
spk10: Thanks again.
spk00: Our next question is from Brian Holland with DA Davidson. Please proceed.
spk08: Yeah, thanks. Good morning. Could you just remind us again the timing issues impacting the flavors and ingredients shipments in 2020 and the extent to which there may be any carryover into 2021?
spk02: Yeah, I can take that one. So, hey, Brian, this is – so thanks. Good morning. Good question.
spk11: So this is purely between Q3 and Q4. I think you remember the growth rate for flavors and ingredients was over 9% in the third quarter, and simply we get some customers who only order once a year, and those orders happen more in third quarter this year versus happening in the fourth quarter last year. So that phasing difference or timing difference is purely between Q3 and Q4. I'll point you to a – if you go on our website and look at our supplemental deck, you'll see a bridge on there that clearly calls that out. So that we don't anticipate – there's no timing difference into 2021 there.
spk08: Okay, perfect. So then I've got F&I down 3% year-on-year for the second half of 2020. So I understand there's some COVID-19-related headwinds weighing on that. So I – I guess as I'm looking forward here, you know, would imply to the extent that there's been some impact from COVID-19 that that would make for some easier compares. Obviously, as you referenced earlier today, you have initiatives in place tied to new leadership. Can you provide some framework for whether you expect that segment to grow on the top line in 2021?
spk02: Yeah, Brian, I'll take that one.
spk11: So, again, I'll put you to the same page on the supplemental deck that we posted. It's slide 21, which shows a bridge. there for our flavors and ingredients business. And you'll see on there that the core growth of the business really was about 2% when you exclude the COVID, the annual COVID impact. And then on the international side that we've talked about before, that's behind us. And so we do anticipate the flavors and ingredients business to grow kind of more adjacent to that 2% or similar to that 2% number in 21, you know, driven by those initiatives that we've talked about. If you go to our MAFCO website, you'll see all the products that we've launched recently under our MagnaSuite product, which we're really excited about, which we've already started getting wins on, and, you know, our confidence and our ability to be able to grow the business this year and into the future.
spk08: Perfect. Appreciate the color there, Andy. So then, you know, another one here, moving forward to the long-term top line and EBITDA growth trajectories, both right in line or left, to better than what I had anticipated. The construct, however, just a bit different than what's in my model. Fully acknowledged there could be some element of user error on my part. But, you know, does your gross margin outlook just – is that just simply accounting for the wholesome mix? Or is there anything else flowing through which reflects an update as to how you're thinking about that line versus, say, a few months ago?
spk02: No, the only difference versus a few months ago, Brian, is the wholesome addition. That's completely it.
spk11: You know, we do have – we believe, again, we'll continue to have margin accretion, I'll call it, on the legacy business driven by, you know, one, the footprint optimization and the flavors and ingredients business. Number two, you know, synergies as we move forward with the three businesses on the branded CPG side. And then just continued productivity. So, no, those were expectations that we had in there previously. It's exclusively driven by Wholesome.
spk08: I appreciate it. Last one for me, you know, we're pretty deep into the first quarter at this point. So any context on how the business is trending vis-a-vis the fourth quarter?
spk04: Andy, you say what can be said. Okay.
spk02: Yeah, I mean, obviously, Brian, we can't talk a lot about the first quarter right now. Obviously, Albert alluded to the fact earlier that, you know, the integrations of the three businesses are going well. You know, we are driving our plans commercially already.
spk11: There's already been commercial wins, so we're very excited about that. You know, and, no, we think it's the businesses, you know, we had a healthy, very good fourth quarter, and, you know, we had good trends as we go into Q1 and into 2021.
spk02: So that gave us the confidence, obviously, within the branded TPG business to drive the guidance of 2021. And so to clarify, somebody –
spk06: I was just going to add, Brian, that if you look at our market share, which to me is always a critical QPI, we have gained market share in our top seven markets that represent 80% of our sales across every single one of them. So I would say that beyond the very positive secular category trends that we do have, we do have a strong performance for our brands really driven by the brand building, the innovation, the market penetration that we talk to in the U.S., but also globally. We're entering China. We're entering India as we speak, a world-class supply chain which is capturing significant opportunities and a great team.
spk08: Yeah, and sorry for stepping in front of you there, Albert. But just to clarify, some of those commercial wins then are indeed flowing through in the first quarter?
spk10: Indeed.
spk02: The commercial ones are coming in the first quarter.
spk11: Yeah, I mean, we're starting to get that distribution already, Brian, you know, whether they're products.
spk02: But, I mean, you're more going to see that performance probably more in the, you know, the second through fourth quarters of stuff that we're actually getting on.
spk08: Yep, understood. Appreciate all the color. Best of luck. Thank you, Brian.
spk00: Our next question is from George Kelly with Roth Capital Partners. Please proceed.
spk09: Hi, everyone. Thanks for taking my questions. So maybe just to start following up on the most recent question that was asked by the prior analyst. So the commercial wins, Elbert, that you alluded to, are those done enough where they're included in your guidance, or are they kind of just nearing completion and so you left them out?
spk06: That's a great question. You know, with regard to our guidance, we put out there a guidance that we can meet and potentially beat. And, you know, as far as the teams, as I said, there is momentum. We do have – we're excited about the business, and our job is to meet or beat the guidance.
spk09: Okay, that's clear. Thank you. Thanks for that. Then second question for me just relates to your longer-term guidance. And so in your EBITDA target, the margin is 17% to 19%, and for this year it was 17%. So my question is, what does the ramp, what is it going to look like? Should it be a pretty steady ramp, or are there investments or anything you can call attention to in the next two years or so that will keep it kind of at the range it is in 2021? Andy?
spk02: Yeah, no, good question, George. You know, so I'd answer maybe in two buckets. I think the first bucket being the flavors and ingredients footprint optimization, you know, we'll get more of a ramp up from that benefit in 2022. You know, we'll get a little bit of some of those benefits starting in the back half of this year, but but then we'll have a four-year effect next year. So that'll be a more maybe accelerated ramp there. But the rest of it, I would say, a pretty linear ramp from the context of leveraging the growth and getting leverage off of our growth, number one. And then number two, as we execute our supply chain kind of productivity that we believe we can drive over the next two, three years with a combination of the three companies,
spk11: you know, that's going to take two to three years to realize that.
spk02: So that's a little bit more of a linear type of modeling exercise. So I would say from the guide to 17 to 19, you'll see maybe a little bit of a bump next year, but then it's pretty linear after that.
spk09: Okay. Okay. That's helpful. And then I guess last question for me, just on the new credit agreement, not sure if that's, you know, I'm sure we'll see it, I guess, in the, upcoming K. But what was the pricing on that? What are you paying on the revolver and on the secured term loan?
spk02: Yeah, so the term loan has a LIBOR plus 450 with a floor of one and the revolvers at 3.75. Okay.
spk09: Thank you very much. Congrats on the next quarter. Thank you, George.
spk00: Our next question is from Mark Smith with Lake Street Capital. Please proceed.
spk06: Hi, guys. First, can you just give us a little bit more on your thoughts on wholesome gross profit margin, especially now that you're into it and kind of seeing the operations there and what's built into your guidance? Good morning, Mark. Do you want to take it on, Andy? Sure.
spk02: Yeah, sure. Um, you know, first of all, uh, Mark, good morning.
spk11: Um, no, I mean, first of all, I think, you know, and credit to the team, you know, we did obviously a lot of due diligence on, on wholesome and the supply chain and the margins were a significant component of that due diligence. Um, so, you know, the short answer is there's no new news.
spk02: Um, you know, we, we knew the business well before we bought it. And since we've closed it, obviously we're getting to know it more, but, uh, From a margin profile perspective, it's consistent with everything we knew about the business before the closing.
spk06: Okay, perfect. And then the second one for me is just as we look at the e-commerce growth that you guys have thrown off, can you talk about your long-term e-commerce opportunity? Sure. Sure. So e-commerce started from very little and grew to about 10%, 12% of our worldwide mix, which is significant, and we continue to see opportunities to grow. Number one, as I was saying, you do have a gap versus our best practice that we can leverage for work and hold some, and we're doing this in North America. Number two, we still have room to grow in a number of areas, new players that come and think about Instacart or continuing to drive penetration in Walmart.com versus Amazon. And then in international, similarly, I mean, in Europe, our Performance year-to-date on Amazon is staggering because obviously those are companies that are getting to scale in a number of international markets, and we benefit from that because of our relationship in North America. So we continue to see significant opportunity. We see this as a channel that will continue to grow forward as consumers like to shop online, especially millennials and younger generation and now older generation. So we see that as a competitive advantage that we intend to continue to leverage across brands in North America and then in our international markets with the players that are growing there. Okay. And as we look at your consumer, does that give you a little more confidence in the long-term trends in e-commerce? versus maybe the overall income channel perhaps slowing down a little bit as we get through reopening and vaccinations and everything out there? Yeah, that's a great question. Let me answer two things about it. First of all, the secular trends are very strong for our category and are very strong for the consumer occasions. That is going to continue. What may change is going to be the weight of different channels, as you stated. So let me give you the example of food service. We see that as coming back. Not only coming back, but if you think about food service in the U.S., this is really pre-pandemic, except for Starbucks. It's really an artificial play only. So now you have opportunities in that channel as it comes back to bring natural on the front counter and even to play on the back counter with brands like Wholesome. like Swerve. So we see significant opportunities to manage across channels post-pandemic and grow and benefit from it because of the momentum and the strengths we have built into the business. Another example I just want to give you on e-commerce and why it's going to continue to grow. When you go into a retail store, the space is constrained in some ways, right? So especially in some international markets, et cetera. So what you are able to do on e-commerce is to have many more of your products. So if you're interested in whole-herb collagen added benefits or in whole-herb turmeric, you may not find it in all of the stores, but you are going to find it in e-commerce. And that is an additional advantage that we see with e-commerce going forward, is the ability to have the full array of SKUs at all times. Great. Thank you, Gus.
spk00: And our next question is from Alex Arnold with Oden Capital. Please proceed.
spk05: I guess my first question is, I guess Erwin touched on the M&A strategy being on sort of parallel paths of integration and new deals, but has the target ideal changed in what you'd be looking for, you know, after completing two large course sweetener deals?
spk07: Yeah, sure. Listen, hi, good morning, how are you? I don't think the target has changed at all, but I think, you know, what we want to build is a complementary and diversified portfolio, but with a common denominator of three out there. And is it to go into other categories? Absolutely, but you heard what Albert said before, the power of one. You know, we're not going to go into 50 different categories, But we will stick to the pillars that Albert talked about and acquisitions that we can integrate into those pillars that are strategic and creative. We can build global and that we can bring innovation to from our ingredients business, our sweetener business from that standpoint. And we're in the plant-based business today. We're in the sweetener business to be carried over into an You know, a non-dairy product, do we carry it into confectionery? Do we carry it into baking like we are? But do we carry it into, you know, a cookie or something like that? There's a possibility, do we carry it into snacks? So there's multiple areas we're looking at. And there's a lot of acquisitions that are coming at us. You know, right in our sweet spot in the $50 million to $75 million area, and how do we double and triple? And I think the big thing, what Albert talked about before, is similar to what we're going to do with Swerve, is great products taken to a certain level by the founders. Now, how do we get the distribution, grow it globally? And I've got to tell you, it reminds me of some of the great products that I had at Hain, and the same with Wholesome. So that's kind of where we are at acquisitions and what's being put to us. Got it.
spk05: Thanks. And then Albert, it sounds like a pretty robust pipeline for product intros this year. Can you sort of take us through timing on new introductions and how we should think about them sort of rolling out and ramping up?
spk06: Yeah, thank you very much. Our innovations for, if you take 2021, our innovations are ready in June 2020. So all the 45 products and the 15 for Magnet Suite are available. And so essentially the rollout is really based on the timing of shelf reset of the major retailers. And so if you look at Europe, that shelf reset usually takes place around March, April. If you look at the U.S., it's anywhere in between March and April. If I take the biggest retailer in North America, it's probably going to be September, October. So those are the meetings that we have, top to top, as I was saying before, in the U.S. with the power of one. And those products are ready to hit the shelf and are going to hit the shelf anytime in between March and September.
spk05: Okay. And I guess I understand why you can't talk about current quarter trends, but Maybe asking a similar question from a different angle, can you speak to demand trends as you see them now and as you see them developing into the reopen for both food service and grocery? Like how are you thinking about that?
spk06: Yeah, so as I was saying, as we're thinking about it is we are – we're doing very well in retail, traditional retail like everything. Everybody else, food service has been declining 50% last year. We see that coming back, even for we have been somewhat conservative. And more importantly, as I was saying, I think even the food service operators are going to have different requests and needs, which I think we are best positioned to answer to. So I see that as a healthy balance. Let's say with some net positives, which are going to be natural channel, because they're, of course, pre-acquisition. We didn't have the strengths of wholesome and the swerve. With net positives in clubs, where we didn't have, again, the positives of wholesome, which is, you know, very strong there. And then, as I say, as an example, because that's the one that is less confidential to talk about, is the strength that we can leverage in e-commerce. So I would say that, again, back to the three foundations that we have, plus our market share gains, plus our 45 new products that you alluded to, which are going to be all in natural, they are going to be in baking, they are going to be in added benefits like whole-earth turmeric, whole-earth collagen, and then in adjacencies, we see that as, you know, we're excited, let's say, about the year 2021.
spk05: All right. Best of luck, guys. Thanks. Thank you so much.
spk00: Ladies and gentlemen, at this time, I'm showing no further questions. I would like to end the question and answer session and turn the conference call back over to management for any closing remarks.
spk06: Yeah, if I may, I just want to make a few closing remarks to say that, you know, this is a company that went public in June, made two acquisitions by December, closing the second one in February. And I just want to salute the team, which I think has proven that they were best in class. And I'm very excited about what they're going to do forward. I would like to thank Erwin, who has been a constant guidance and support in establishing this company and taking it to where it is today and where it's going to be tomorrow and the board. So we're very excited and very thankful to the organization, to Erwin and to the board. And with that, looking forward to have more conversations. Thank you.
spk00: Thank you, ladies and gentlemen. That does conclude today's conference call. We do thank you for attending. You may now disconnect your lines.
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