Whole Earth Brands, Inc.

Good morning and welcome to the Whole Earth Brand's first quarter 2021 conference call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note, today's event is being recorded. At this time, I'd like to turn the conference call 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, and Andy Rusi, 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 those 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 the non-GAAP financial measures to their most directly comparable GAAP measures. I'd now like to turn the call over to Albert Manzoni, EO.

Thank you, Jeff, and thanks to everyone for joining the call today. Our business is off to a strong start in 2021. We delivered organic constant currency product revenue growth of 10% for our branded CPG segment and 6% for whole earth brands. This is our second consecutive quarter of double-digit growth for our branded CPG segment, demonstrating the strength of our Better For You brand and the impact it is having on our portfolio to generate long-term sustainable growth. We delivered 17.5 million of adjusted EBITDA in the first quarter, driven by strong branded CPG top line growth and improved the margins as a result of successful cost productivity initiatives. Sales in all our key geographical markets around the world grew double digits versus prior year, as did our portfolio of natural brands, All Earth, Swerve, and Wholesome. I'm also happy to report to you that the integration of the swerve and wholesome acquisitions is complete. A testament to our people's competency, agility, and focus. We're further encouraged by the pace of the economic recovery and the positive implications for the food service industry in North America. We are reiterating our fiscal 2021 guidance. Since going public over the past 10 months, we have been very deliberate in our vision to grow all our friends to a 1 billion revenue global food and beverage company that plays in attractive categories and geographies and delivers sustainable growth. We're achieving our vision by building a portfolio of trusted brands and delicious products and ingredients focused on the consumer preference shift towards plant-based natural alternatives and clean label products. Our mission, simply put, is to open up a world of goodness for consumers around the world. We started our journey as a public company in June 2020 with an attractive global portfolio of brands and ingredients. Swerve and Wholesome, which we acquired in less than eight months after going public, helped us double the size of our branded CPG segment. and build upon our existing strengths and also added new capabilities. The swerve and wholesome integrations are now complete within a very short period of time since those acquisitions, and we could not be more excited by the growth prospects of each of our brands, the talent of our combined teams, and the significant breadth this provides in North America as well as in our international markets. in the near term were focused on our organic growth efforts and generating strong free cash flow towards reducing our balance of 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 adjacent sweets categories for organic and M&A initiatives. These categories include baking mixes, chocolates, bars, gems, and spreads, to name a few, and represents over $30 billion in addressable market with a projected 8% CAGR in the coming years. Our ability to complete the integrations of Swerve and Wholesome at a fast pace is evidence of the M&A being a core competency of all our brands. Till, what excites me the most is the durable nature of the wellness opportunities we're serving for. What we're experiencing is more than a positive trend. It is a lifestyle shift where food plays a central role in our health and wellness goals, helps manage various health problems, or fits a range of lifestyle choices, including keto, gluten-free, low-calorie, low-carb, or vegan, to name a few. All of these trends provide our business with near-term and long-term tailwinds to support sustainable growth. We're addressing this from our presence in the market as our North American market share has doubled and revenues from natural sweeteners are now approximately 70% of our... ...is the fastest growing stevia brand and one of the fastest growing natural brands in North America. organic sweetener brand in Mudo, a natural channel to deliver sustainable growth in this growing market thanks to our relentless execution within our five key strategic pillars of growth and marketing teams to drive awareness for our brands and increase household penetration. Our North American team has developed a power of one brand portfolio with a clear and differentiated brand promise and consumer use for whole-earth, wholesome, swerve, and equal brands. The complementary attributes of each brand bodes well for our innovation pipeline and power of 1G at retail shelves. You can find more details on how each brand fits into our portfolio in our supplemental earnings presentation found on our investor relations website. Starting now, and throughout 2021, you will be able to discover new packaging designs and campaigns for each of our brands, consistent with each brand's distinct promise. The new packaging in North America will also include a proudly part of all our brands' logo. Our second pillar is innovation. We plan to continue to deliver above 15% of our branded CPG segment revenues from innovation on a three-year rolling basis. Our six R&D centers are focused on enhancing innovation and development across the globe in the following areas. Naturals, through the use of innovative ingredients such as Ritratol, monk fruit, and allulose. Baking products, added benefits, such as whole earth with turmeric or whole earth with collagen, and adjacencies such as chocolate, natural sugar-free snack bars, and more. On our last call, I told you we were launching over 45 new products in our branded CPG segment. We have now scored significant wins with retailers in North America, Europe, and Asia in natural baking and added benefits. Those innovations will hit in Q3 and Q4 as soon as retailers reset their shelves. This leads me to our third pillar, growing distribution. Our expanded portfolio of brands significantly improves our shelves presence and visibility with retail customers. In North America, we have integrated our sales organization to elevate our partnership with retailers and lead the category in sweeteners and baking. We call it Power of One. Thus far, retailer feedback has been very positive, resulting in significant new strategic partnership opportunities and ACV gains for Whole Earth, Swerve, and Wholesome. We also have had success in new categories, such as baking mixes, which are expected to hit shelves in the second half of 2021. I'm very excited that Whole Earth will exceed well over 50% ACV in Nielsen across all channels by year end. Our e-commerce platform, which already contributes 10% of our sales, is well positioned to benefit from the consumer buying pattern shifts toward e-commerce purchasing. This enhances accessibility of our portfolio to consumers and allow for high points of distributions. In Q1, our e-commerce business grew by almost 40% in North America, 110% in France, 160% in the UK, and 90% across our Asian markets versus prior year. Our fourth pillar is manufacturing and supply chain. Supply chain is undoubtedly a competitive advantage for all our friends and continued supply chain improvements will allow us to drive top-line growth, margin expansion, and free cash flow generation. I am pleased by the immediate productivity wins our team has generated, leveraging our expanded business across ingredients and packaging. These wins are already helping us contain inflationary pressures. Further, we have started our branded CPG supply chain reinvention project, to provide added scale and leverage our overhead costs in 2022 and 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 and ingredients segment, Our manufacturing footprint optimization, resulting in the closing of our Camden production facility, is proceeding, and we've started delivering benefits in late Q2 of this year. Our fifth and last pillar is our world-class team. I could not be more proud and thankful for the amazing team we have at Waller Friends. They are truly best in class, and bring operational competencies, agility, focus, and passion across all regions, functions, and brands. A perfect example, again, was the team's ability to fully integrate our swerve and wholesome business while delivering on our plan and developing strategies for sustainable growth. What's more, our organization is highly scalable with global resources in place, to expand our presence in existing and new markets. Turning to our flavors and ingredients segment, we expected the business to continue to produce strong cash flow driven by our global leadership position in licorice and our diverse end markets. Our performance in Q1 was as expected, given the spike in Q1 2020 demand as several customers pulled forward sales that would have normally occurred in Q2 2020 ahead of the pandemic-related lockdowns. As I mentioned last quarter, we have a new leadership in place that is providing a growth-oriented focus to drive the segment's future performance. To follow up from last quarter, we're receiving a lot of customer interest from our recently launched 50 new products under our Magna Femini that better address the unique needs of our customers across those diverse end markets that we serve. These markets include consumer packaged goods, over-the-counter healthcare, as well as beauty and personal care products. We're enthusiastic about leveraging our leadership position towards broadening our existing portfolio and about the customer-centric innovations that we're bringing to the market to drive growth in this segment. With that, Andy will now take you through our financials and outlook for 2021.

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 25th, 2020 business combination date. The first quarter results that I'll discuss compare the successor's first quarter 2021 results ended March 31st, 2021 to the predecessor's first quarter 2020 results. As a result, our reported gap 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. Of note, we completed the acquisition of Swerve on November 10th, 2020 and Wholesome on February 5th, 2021. I will speak to reported results, which include Swerve for the full first quarter period and Wholesome, which is included on a partial quarter period pro rata from the date of the close. Additionally, we will provide some select pro forma results as if we owned Swerve and Wholesome in both 2021 and 2020 to assist in your analysis of the organic growth of the combined portfolio. For the first quarter ended March 31st, 2021, consolidated product revenues were $105.8 million, representing a 60.4% increase from $66 million for the prior year quarter. On a pro forma basis, including swerve and wholesome for the full quarter in both the current and prior year periods, organic product revenue grew 7.9% compared to the prior year first quarter or increased 6.1% on a constant currency basis. Reported gross profit was $35.7 million, up from $25.9 million in the prior year period, and gross profit margin was 33.7% in the first quarter of 2021, down from 39.2% in the prior year period. Results were positively influenced by the $10.1 million of contributions from Swerve and Wholesome Acquisitions and revenue gains, partially offset by $1.6 million of non-cash purchase accounting charges. Adjusted gross profit margin when adjusting for all non-cash and cash adjustments was 36.9%, down 41.8% in the prior year, driven by the inclusion of wholesome strong private label business, partially offset by productivity and favorable product mix within the business. Consolidated operating loss was $3.1 million compared to an operating loss of $33.2 million in the prior year, and consolidated net loss was $12 million in the first quarter of 2021 compared to a net loss of $28.7 million in the prior year. The change versus prior year is primarily driven by a $40.6 million non-cash asset impairment charge in the prior year predecessor period, contributions from the acquired Swerve and Holson businesses, and revenue growth from the branded CBG segment, partially offset by one-time M&A transaction costs and both reoccurring and non-reoccurring public company costs. Adjusted EBITDA increased 38.2% to $17.5 million compared to $12.6 million in the prior year period. This increase was primarily contributions from the swerve and wholesome acquisitions, revenue growth, and productivity, partially offset by public company costs and increased bonuses. Before shifting to our Q1 segment results, let me briefly update you on the change in our accounting for our private placement warrants based on the consideration of the views expressed in the SEC staff statement on April 12th. And I would also point you to our 12B25 filing last week for some additional detail on this matter. We determined that the private placement warrant should be treated as a derivative liability recorded at fair value rather than as a component of equity as previously presented. Changes in the fair value of these warrants are recognized as a non-cash, non-operating gain or loss in the statement of operations. The change in the fair value of warrant liabilities is presented below operating profit and does not impact any of our non-GAAP operating metrics, including adjusted EBITDA and free cash flow. Moreover, the impact of the error on prior periods was not material to the company's previously filed financial statements. The warrant liability at the end of Q1 2021 was $8 million, and the P&L impact, including the correction of the previous period immaterial error, was a $2.4 million non-cash loss. With that, I'll briefly take you through the segment results for Q1. Branded CPG product revenues increased $39.4 million, or 103.4%, to $81.8 million for the first quarter of 2021, compared to $40.2 million for the same period in the prior year. On a constant currency basis, product revenues increased 98.1%, driven by strong retail and e-commerce growth in our North American businesses and the addition of Swerve and Wholesome, partially offset by food service softness. On a pro forma basis, including swerve and wholesome for the full quarter in both the current and prior year periods, segment organic product revenue grew 12.1% compared to the prior year first quarter, an increase of 9.7% on a constant currency basis. Operating income for the branded CPG segment was $10.2 million in the first quarter of 2021, compared to an operating loss of $6.8 million for the same period in the prior year. The increase of $16.9 million was driven by an $11.1 million non-cash asset impairment charge in the prior year predecessor period, contributions from the acquired Swerve and Holson businesses, and revenue growth within the segment. Flavors and ingredients segment product revenues were $24 million, a decrease of 6.7% compared to the same period in the prior year. The decrease was primarily driven by a difficult comparison in the prior year, where we realized a spike in shipments due to COVID-19 as customers purchased our products ahead of the COVID-19 lockdowns across the world. Operating income for the flavors and ingredients segment was $1 million in the first quarter of 2021, compared to an operating loss of $24 million in the prior year period. The increase was driven by a $29.5 million non-cash asset impairment charge in the prior year predecessor period, offset by $1 million of amortization of intangible assets resulting from the June 25, 2020 business combination, $0.7 million of non-cash purchase accounting charges related to inventory revaluations, and a $1.7 million restructuring charge associated with the upcoming closure of the Camden, New Jersey factory. Finally, beginning with the first quarter of 2021, our corporate office functions are now reported included under corporate. Corporate is not a reportable segment and certain prior year amounts have been reclassified to conform to the current presentation. Corporate had an operating loss for the first quarter of 2021 of $14.2 million. This compares to a $2.6 million loss in the previous year. The additional loss reflects $8.1 million of acquisition expenses, $2.1 million of public company expenses, both one-time and ongoing, $0.8 million of stock-based compensation expense, and $0.5 million of increased bonuses. Now, moving to cash flow and the balance sheet. Net cash used in operating activities was $5.6 million. This is net of $11.2 million of one-time cash add-back costs. Our first quarter capital expenditures were $1.5 million. Free cash flow when excluding cash-related add-backs was $4.1 million. As of March 31st, 2021, we had cash and cash equivalents of $27.8 million and $389 million in debt net of issuance costs. 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 B. Using our forecasted 2021 adjusted EBITDA, our net debt to adjusted EBITDA ratio on March 31st, 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 31st, 2021. 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 if 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 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 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 margin will be 34% to 35% of product revenues, which again reflects the influence of our acquired assets, Wholesome and Swerve. Total capital expenditures will be in the range of $10 to $12 million, which is an increase of approximately $2 to $4 million in 2020. increases associated with our footprint optimization project. Lastly, we expect a 2021 tax rate of approximately 23%. While we are not providing quarterly guidance, in the second quarter, our branded TPG segment will face a tougher comparison to 2020 due to one-time pantry loading in the second quarter of 2020. Alternatively, our flavors and ingredients segment will face a more favorable second quarter comparison as the surge in purchases occurred in Q1 2020 and pulled forward sales that would normally have occurred in Q2, as I described previously. On balance and in relative terms, as you think about the seasonality or cadence for the year with the added contribution from Swerve and Wholesome, we expect a sequential build from second quarter through fourth quarter of 2021 in terms of revenue and adjusted EBITDA dollar contribution. While we don't view our business to be particularly seasonal in nature, we expect that the operational plan that Albert spoke to in his remarks will be visible each quarter as we move through the year, with each sequential quarter being better than the other, beginning in Q2, 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. Thank you.

We will now be conducting a question and answer session. 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. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. One moment, please, while we poll for your questions. Our first question has come from the line of Rob Dickerson with Jefferies. Please proceed with your questions.

Great. Thanks so much. Good morning. So, I guess my first question is just around the conversations you've had so far with retailers, right? I mean, obviously, your larger strategic plan, you know, the power of one strategy is kind of a core piece of your go-forward potential. So I'm just curious if you could touch on maybe, you know, reception so far from retailers, even though it's early innings, kind of how conversations are going. I heard you mention maybe some second half product introductions coming. So anything you can kind of elaborate on at this point would be really helpful. Thanks.

Sure. Good morning, Grubb. This is Albert. I'm happy to tell you as much as I can tell you within, as you know, most of our retailers would not appreciate that I mentioned specific names. But what I can tell you is, first of all, we are excited about the fact that all of the key retailers are resetting their mod this year. As you know, last year, some of them took a pass, which obviously, since we are fast growing and have significant innovation and opportunities, we stand to gain this year. Second, to your point, the power of one is very well received. And the reason is that, as you can see on the supplemental deck, we have a clear role and definition, consumer usage, brand promise for each of our four brands. And one of the great things with the integration of Swerve and Wholesome, which is now complete, is that those brands really play each a very significant role, incremental role for the retailers, backed by brand building initiatives. And you are going to see new packaging on all those brands coming into the market at the end of the second quarter, together with new campaigns. And the reception from the retailers could not be more positive from us. You know, keep in mind, as I told you in previous conferences, that throughout all of last year, we had 99% service level. So we have proven to be a very reliable partner. And now adding to it the brand dealings, the innovation, and the the power of one at the shelf, which the stories and the way we can lead this category, which is a great category, as you know, really backed up by strong secular trends, is going very, very well. So as I said, I can tell you that for holders who are probably going to exceed 50% ACV pretty soon, which is a big step, and you can expect similar very strong performance on the other brand I can tell you also that the introduction of the baking mixes, which are taking us into new categories for swerve and wholesome is going very well. So I would tell you that, you know, our distribution is going well. The power of one is going one. And we are therefore very confident for what's to come in the quarters ahead.

Hey, Rob, good morning. I just want to add to that. I got to tell you, if you think about it a year ago, this company was not in existence as a combined company. But if you look at our Wholesome Brands, which is a phenomenal brand, the Swerve brand, and then what Albert, the team, had done with Whole Earth, and even the expansion of Equal around the world, and the new innovation that has come out. And you know I'm about new products are the lifeblood of a company and the categories are It's absolutely amazing with the team that has got, you know, so much R&D on these products. And I come back and I think one thing that he really mentioned is his service levels. I never had those service levels at Hain. So working in those 99% service levels today has been just major considering You know, he's got ingredients coming from all over the world. So, I mean, they're set for new products, new introductions, and just serving the customers' demands as the growth takes place.

Yeah, no, it's a good point. It's impressive. 99%, I think, has been tough for a lot to achieve through the pandemic.

Not many of your other companies you're writing about got those service levels. So, anyway.

Cool. And then, you know, I guess just, you know, kind of touching on what you said on innovation, you know, I know in Europe, right, you have had other products that you, you know, throw out some of the sweet goods and the jam product. I think recently I've seen a new product called, it's through the Wholesome brand, the Organic Delish Fish, right? These are basically you know, kind of like a Swedish fish product. I haven't heard you mention much about that, and I'm just curious, you know, as you think about that new innovation going forward, obviously the focus is on the core portfolio, natural sweeteners, stepping into baking mixes. When you think about other categories and other innovation, how you leverage the brands that you have, do you foresee some of that incremental innovation happening you know, coming out even later this year, or is that a multi-year process and we shouldn't be too excited about it? So just try to kind of gauge that timing and kind of the speed at which you can actually expand the brand.

Thank you. Yeah, that's a great question. And as I did mention in previous quotes, right, we are expanding into adjacencies, and I mentioned them earlier, that are chocolate snacks. candies in over in international markets and actually jams, as you said, and we are getting very strong results in Europe, in Australia, in New Zealand, in Asia. What we like about this, which is aside from those incremental businesses, also the strategic intent behind it, they are really helping you to drive household penetration. because you essentially get users in those over categories that accumulate on top of the ones you already have. So this is a big driver of awareness in the store with multiple touch points. It's a very big driver of household penetration of awareness, which is really, you know, if you think about the brand building, it's really about generating the awareness and then the trial and then the household penetration. So they, they, build a business, and they essentially create a virtuous circle. So we're doing this with Equal, with Candorail, with Pure Via in Europe, in Australia. We are having a lot of success in the U.S., as I told you. And what we can publicly say is that we are starting with Wholesome and Swerve into the baking mixes. Expect to see those products in more places very soon since we got a number of wins. As I told you before, I can tell you that we're winning a number of things, not where it is yet. And we are, the pace of expansion for us is really top of mind. And so I think you are going to see those categories I mentioned this year, and you would start to see more next year. Some of this is going to be done organically. Some of it is going to be done through M&A, as I did mention in my opening remarks. But we're working both fronts because with our own brands, there is a lot to do, and they have the added benefit, as I say, to bring new consumers and increasing household penetration.

Okay, great. And then one last quick one is just on the M&A front. I know you say it is an ongoing part of the strategy. Would you say, you know, armed and ready? If the opportunity is there or, you know, integration on the recent acquisitions is more priority and maybe, you know, forthcoming acquisitions will be something down the road, more of a, you know, next year 23 event. That's all. Thank you so much.

Yeah, as I say, thank you. And as I said in my opening remarks, you know, and as Erwin mentioned, we came a long way from, you know, less than a year. We did acquire two companies in eight months. I'm very happy to say that those businesses have now been integrated, you know, in about 60 days. And we have actually, you know, I was leading those integration meetings weekly, and we actually stopped them. because all of the work streams, and there were many, have been completed very successfully. The teams are working very well together. To your point before on the power of one, we do have one sales organization. We have synergized the brokers. We're very strong. And essentially, we are always looking at the opportunities being our core business of sweeteners being adjacencies that you refer to. And given the right opportunity, we reserve the right to move next year or sooner.

Rob, we are out there in the marketplace always looking for the right strategic accretive deal. And I think, again, it showed that by the swerve and the wholesome deal and just even putting this together. And I think, you know, again, where we're better even positioned, we weren't noticed in June when we did swerve. We weren't noticed when we did wholesome. But I think there's a lot of brands or companies today that are recognizing, you know, it wouldn't be so bad to be part of the whole earth family.

Yeah, and the thing I will add, because I should have said it earlier, but it's just that, as I have mentioned several times, and I'm happy that we could demonstrate this, I just want to salute the team who is doing a fantastic job. And as I mentioned many times, there is a lot of people in our organization that have significant experience having led acquisition and integrated acquisitions. And I think doing those two in 60 days well, embracing the new organization that have joined us successfully, demonstrate that this is a competency that we do have and can leverage, continue to leverage going forward.

Thank you. We ask that you please limit your questions to one question and one follow-up question. Our next questions come from the line of George Kelly with Roth Capital Partners. Please proceed with your questions.

Hi, everybody. Thanks for taking my questions. So if we could start with the synergies that I was reviewing the slide deck you commented in your prepared remarks about the kind of near-term and longer-term opportunity around synergies to supply chain reinvention. So hoping you could tell us more about what's actually happening then in phase one of that plan. And I know phase two, it seems like there's less detail right now, but can you tell us just more generally what that could involve?

Sure. I'm happy to start and then, Andy, if you want maybe to back it with some – I'm happy to take you through the concepts. And as you have mentioned, there is in the supplemental deck, you know, on page eight, there is first of all a phase one. If you look at our supply chain, we essentially expanded significantly the total amount of variable spend to about 150 million. And that represents for us a number of opportunities. Some we're leveraging as we speak. and they are benefiting us this year against any inflationary pressure, which is essentially significant productivity in what we buy, both from a packaging standpoint, from an ingredient standpoint, from a transportational standpoint. And those are synergies that we do right away, including manufacturing. So remember that we're asset light, which means that we have multiple co-manufacturers and co-packers And we are in this phase in the process of optimizing that. So if we do sashay in three places, maybe we could do it in one. If we do bags in two places, maybe we can do it in one. And so we're sorting out and optimizing our asset light network that really benefits us greatly. The second phase is a phase that essentially addresses the total in a more structural way, I would say network, which is, as you can imagine, the next iteration. Think about if you are left centers of productions, if those centers of productions are closer to the harbor of entry, since a lot of our ingredients come from the same locations. If the warehouse is co-located with the center of distributions, If you go into a full truckload versus half truckload, those are things that would take us a little bit more time, and you will see those benefits in 2022-2023, which are a little bit more structural than the first phase that we do right away. So I stop there and happy to have any follow-up on this.

If you were to quantify the impact of both phase one, I don't know if you're prepared to quantify phase two, but could you just generally talk to how big of an impact it could be?

I think we say the phase one on the supplemental deck is three to four, reaching 2023. And I would say phase two is significantly more. I don't think we're prepared to talk to it. But essentially, this is a big driver for us of productivity, which is a big benefit that we do have in the marketplace versus competitors and other companies. Andy, anything to add? No, I think you said it well, Albert.

Okay, that's very helpful. I'll hop back in the queue. Thank you.

Thank you.

Thank you. Our next question has come from the line of Pablo Zunich with Cantor Fitzgerald. Please proceed with your questions.

Pablo Zunich Good morning. Congratulations on the start to the year. Look, I have two questions. Yes, can you hear me?

Pablo Zunich Yes, very well. Good morning, Pablo.

Pablo Zunich Good morning. So, I guess one for Andy first. So, the guidance for the full year is 3 to 5 percent perform organic growth. You did 6.1 in the first quarter. easy comp on food ingredients. I hear the comp issue for CPG in the second quarter, but back half, you know, you have the recovery post-COVID. You have the ACV expansion that you've talked about. I would think that there's room for the number to accelerate over that 6.6%. So if you can just give some context to that, it just seems that you should be well ahead of the guidance this year. And the same question in case of EBITDA, the guidance for the year is close to 17%. You did first quarter EBITDA margin 17%. As some of those synergies kick in, I realize there's some dilution from whole, some full quarter now in the second, but you would think that you would also be ahead of that. So just a brief answer on that. It seems to me that the math will imply that you are well on track to beat your guidance. Can you comment on that?

Sure. No, there's a great question, Pablo. And so, first of all, I mean, we're very confident in the year. And, you know, as for the reasons Albert alluded to from the operational plan with the innovation and the distribution opportunities, Pablo, that you just alluded to. So we're very, very confident in that. And we look to see that throughout the balance of the year. You're absolutely right on the math part of it. The second quarter is a tougher comp, you know, so you can expect the growth rates, obviously, for that to be lower than what we've seen in Q1, and then we'd have higher growth rates in the back part of the year. Look, I think as we get through the year, obviously, there is volatility still in the rest of the year, so we're being prudent. And so I would say in the end, you can see with our guidance that we're confident in it, but we're also being prudent as we look for the balance of the year. So But, again, we've got a lot of exciting things that, as Albert alluded to, that you'll see come through from a P&L perspective, both on the top and the bottom line. And, you know, we'll continue to look at it as we get further along in the year, Pablo.

Okay, thank you. That's very helpful. And just a quick follow-up. You know, I was going to ask you, if I look at a 9.7, almost 10% pro forma growth in CPG, excellent growth in the first quarter, Then I look at slide 9, right, whole earth up 33%, North America retail swerved 22%, wholesome 18%. That alone, naturally, 70% of your U.S. business, right? So that gives you like 14 points of growth, equal up 7%. So in total, I'm looking at 16% growth for CPG, and you reported 10%. So is international a drag, or is there something wrong with my math there? It seems that the CPG growth, although 10%, of course, is a great number, could have been even much better than that.

Yeah, no, I'm happy. And Albert, I'm happy to take that one, Albert. You know, so the short of it is obviously when you're showing on slide nine, we've had great performance, you know, especially in those brick and mortar retailers that you see on slide nine, where we've grown above the category and the category is robust, both in measured channels that you see on slide nine, but also in non-measured channels like e-commerce and so forth. The Delta simply is, you know, in the first quarter, we still had a headwind when it comes to food service, right? So food service, you know, was still strong in 2020 in January and February in the first part of March. And so from our U.S. performance, it was overall that was a headwind. So when we think about the category as well as our performance, that food service was definitely a headwind. I will say you mentioned on the international side, our international businesses actually grew very well in line with kind of the North American business. And so we saw actually robust growth across the world in Q1. But generally, it's a channel mix, Pablo, to be able to answer your question, to reconcile the strong brick-and-mortar performance versus, say, food service from a comparison versus first quarter last year.

Got it. Thank you. One last one, if I can squeeze one here. I don't have the data, but your market share in North America for whole earth versus Truvia, where is that? You're showing the ACV numbers there, the growth difference, but just rough numbers on that. Can you comment?

Yeah, I'm happy to take this. The market share is strong. We have gained market share across most of our top markets around the world, and our market share in the U.S. was 11.5, I think, year-to-date. I can come back to you on that.

I guess another way to ask a question, Albert, is Obviously, big ACV opportunity, you're talking about 50%, you're at 28% right now with Whole Earth, so a lot of room for upside there. And to be a benefit in terms of market share from the larger ACV, but I'm just trying to think in terms of velocity, whether you have a sense of whether there are huge differences in growth.

No, I like your question. I like your question a lot. Obviously, as Rob mentioned earlier, those wins that we're scoring, we're scoring them now. So, you know, Walmart is resetting their mod in September, which means that, you know, we're going to ship in August. So you are going to see a lot of that performance coming really going forward. And what I'm happy to say is that the overlap is positive, but essentially you can expect that to continue to grow. We're very happy with the velocity to your point, which points to the expansion I was mentioning for all Earth and the very significant pickup we have on all our innovation with Swerve and Wholesome. So, again, that goes back to what I said before about the power of one.

Got it. Thank you. Thank you. Our next questions come from the line of Bill Newby with DA Davidson. Please proceed with your questions.

Good morning, guys. Thanks for taking the questions and congrats on a great start to the year. Good morning, Bill. Thanks, Bill. Albert, just wanted to start and ask you about kind of the baking category in general. I mean, obviously a lot of momentum there coming out of 2020. And I guess thus far through the year, I'm wondering kind of with mobility picking up, with vaccinations picking up, food service reopening, any impression on how sticky some of that growth that was gained in baking in 2020 has been throughout the first part of this year and kind of expectations moving forward?

That's a great question. And, you know, first of all, as I said, we have the right strategy and the right vision at the right time. So, you know, the move that we have made, the vision we have for our company, the requirements of consumers to want to eat more natural, more plant-based, clean label, know what's in the products. The number of people in the family, in the same household that have different needs, different diets, et cetera, is exponential. So we're in the right place at the right time. And if you look, we just need some checks with a gut check on exactly your questions. And, you know, Today, you have 47% of millennials that follow a special diet. You have 58% of millennials that look for healthy ingredients in food and beverage and clean label. And if you look at the baking specifically, you have 46% of consumers that are looking to bake more, meaning at least one or twice a month. So I think it's with the mobility, which we will benefit by, by the way, because, you know, what is great on the mobility side is we're going to go back in food service. And what is great about food service is consumers are going to ask for natural options, which before were not offered. And with Swerve and Wholesome, we have even the opportunity to play in the back of the kitchen. And those are all things that were not existing before because Swerve and Wholesome didn't have a food service business. So we're going to benefit from that. But at the same time, the consumer's mobility is not going to impact, I think, their desire to eat healthier. And that's 47% of consumers. So this baking war with products like Wholesome, you know, which are really fantastic products, and our new campaign on Wholesome is, you know, let's bake things better, which is going to come out in June. We have five fantastic scratch quality baking mixes, which are getting very positive feedback. Similarly for Swerve, if you want to go into the zero calorie, no added sugar. So I think we are excited. And again, there is opportunity to, it's a huge category, to bring differentiated innovation and healthier options than the one that are being proposed today.

Appreciate that. Very helpful. Thanks for the color there. And then I guess maybe one for Andy, you know, obviously pretty hot topic throughout the running season this quarter is inflation and haven't heard you guys really comment on how maybe your expectations there have changed. I mean, could you maybe just talk about how you think about your coverage there through the rest of this year, and maybe just help remind us, you know, why this model might be a little more inflated than others in terms of handling, you know, the rapid increase in inflation we've seen over the last couple months. Yeah, Bill, great question.

Do you want me to, do you want to start or? Yeah, yeah, I can take it if you want, Albert. And now I'm happy to. So, Bill, you know, I think it's a great question. I think, you know, first and foremost, I don't think we don't have the same inflationary type of pressures that maybe you're seeing in other consumer packaged good companies. We just don't have the same exposure to some of the commodities that you're seeing from probably other companies you cover or what have you. So that's number one. Number two, for what we do have, the team, as Albert alluded to before, we've got a great team and we've been out in front of it. So, you know, we've pre-bought materials where we saw inflation coming to help minimize the impacts. Our productivity has been very robust to be able to offset any inflation. And then third, the team from the commercial side has done a great job managing that with different tools that we have at our disposal from a pricing perspective. So we have taken some price around the world to get ahead of it. And so we've been doing a great job managing that inflation, both from the standpoint of productivity as well as pricing. Albert, I don't know if you want to add anything else to that. No, you've stated.

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

Hi, guys. I just wanted to follow up real quick on new products. Sounds like a good pipeline of products coming later this year. But, Albert, can you update us on kind of how the mix is on current new products or innovative products that are out now?

Yes. The new products essentially, as Erwin alluded to at the beginning, is something we invested in for some time. It's like e-commerce. We started investing in having a top-notch R&D with six R&D centers with an organization around the world sourcing the best ingredients, being at the forefront of new ingredients. And we consistently deliver above 15% of our innovation revenue. of our net sales coming from innovation. Last year, I think I reported 16%. I think this year, you know, we say 15%. I think we're going to be way above. And those innovations are essentially what is driving our success in the marketplace. If you take not baking mixes, but if you take baking products, And you take essentially take on the whole earth. What we have been able to do on baking is essentially really to establish this brand, as I say, that we finished a year at 28. We're going to go at 50. It's the fastest growing stevia brand in the market year to date. It's one of the fastest natural brands in the market. We are, and I cannot disclose, but we have scored significant wins that you are going to start to see end of q2 and that is true around the world i mean if you look at this brand natural in baking and then i have a few more but if you take baking in the uk we became after three years the number two brand in natural and the fastest growing and we will become number one in australia we became from zero the third brand and we are growing 200 percent and we just uh listed the five SKUs or around baking. And that's just one example because another big trend that we see is really the one around fortifications, around adding benefits. So, you know, one of the big craze right now is turmeric and we have whole earth with turmeric. We have whole earth with collagen coming out. So I would say that, um, We do see significant, we have significant expansion. We swerve with the brown line, which is doing very well. Wholesome, as I said, we're number one. We are going to relaunch honey. We are going to relaunch agave. We're just introducing the baking mixes. So this is part of the story. Those are, by the way, as Andy mentioned earlier about the different revenue growth management techniques. Obviously, innovation provides you with price back architectures opportunity, which we're saving upon. And those are highly incremental to the retailers. And therefore, we get the appropriate space and we're happy with the performance that they have in the marketplace. They are what is bringing new life

into into a category we came in into 2016 believing in it and now taking its places and expanding into adjacencies thank you ladies and gentlemen that is all the time we have for questions today i'd like to turn the conference call back over to mr manzoni for any closing comments

Yes, I just wanted to thank you all for joining the call. I'm looking forward to have more discussions with all of you. And, you know, as I said, I think we have a great strategy and a great vision at the right time, which is always important. And we are very excited by our brand-building initiatives, our innovation, our distribution, and our top-notch supply chain. And I just want to, again, hats off to the team. who is, you know, I'm blessed with and doing a fantastic job. And so with that, we are excited by the year ahead of us. And thank you very much, all of you.

Thank you. That does conclude today's conference call. We do thank you for attending. You may now disconnect your lines.