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spk01: Good morning and welcome to the Whole Earth Brands third 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 also 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.
spk02: Thank you and good morning. Today's presentation will be hosted by Albert Manzoni, Chief Executive Officer, and Brian Littman, Chief Accounting Officer. Executive Chairman Erwin Simon is also participating on the call and will be available for Q&A. The comments during today's call and the accompanying presentation contain forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts are considered forward-looking statements. These statements are based on management's current expectations and beliefs, as well as a number of assumptions concerning future events. Such forward-looking statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from the results discussed in the forward-looking statements. Some of these risks and uncertainties are identified and discussed in the company's filings with the SEC. We'll also refer to certain non-GAAP financial measures today. Please refer to the tables included in the earnings release which can be found on the investor relations website, investor.wholeearthbrands.com, reconciliations of non-GAAP financial measures to their most directly comparable GAAP measures. Additionally, we've provided a supplemental earnings presentation on the investor relations website that may be useful in your analysis of the company's performance. I'd now like to turn the call over to Albert Manzoni, CEO.
spk08: Thank you, Jeff, and thanks to everyone for joining the call today. In Q3, we continue to demonstrate the strengths and momentum of our portfolio and our ability to generate strong top-line and bottom-line growth for our business. We reported consolidated organic constant currency revenue growth of 6.1%, including acquisitions in both periods. Branded CPG segment pro forma organic constant currency revenue growth of 7.6% versus 2020 or 14.3% on a two-year stacked basis versus third quarter 2019 due to strong volume growth and a record adjusted EBITDA of 22.1 million. Our Power of One strategy to enhance our shelf presence and drive greater visibility with retail customers across Wholesome, Swerve, All Earth, and Equal is working. We're seeing the distribution gains that we've been building towards across all sales channels, including retail, e-commerce, and food service. And we see this momentum continuing through the fourth quarter and into next year. Inflation and supply chain management are top of mind for the entire CPG industry, and it is a focus of ours as well. However, we believe we are in a relatively better position than others, given that we had a bit of a head start. We were already working on several initiatives to mitigate volatility, protect margin, and create opportunities to drive greater efficiencies over the long term. This includes our previously announced supply chain reinvention projects, pricing, and trade spend optimization. Our focus on sourcing, manufacturing operations, logistics, and distributions. Further, we are continuing to drive synergies with Swerve and Wholesome, which is yet another tool to protect our business against these macroeconomic forces. As such, We remain comfortable reiterating our fiscal 2021 food year guidance. We have most price increases staged with retailers to go live in the start of next year. As we look ahead, we are confident in our ability to deliver strong, sustainable growth and take advantage of market opportunities. The basis for our confidence lies in our proven operating model built on five strategic pillars. Brand building, innovation, distribution, supply chain, and our work-class team. Let me now provide some Q3 highlights. On our brand building and innovation, our growth across our branded CPG and flavors and ingredients segments has been driven primarily by volume here to date. Demand for our categories remains strong across both developed and emerging markets, and we have continued to gain share within those categories in recent years. We have very recognizable brands with number one or number two share in most key markets with new packaging design campaigns, including our wholesome purpose-led marketing campaign. and influencers' messaging in an attractive industry where consumers' demand is projected to be strong for years to come. We're meeting our goal of 30 product launches this year in branded CPG and 15 in flavors and ingredients, and we'll have over 15% of our branded CPG segment revenues derived from product innovation on a three-year rolling basis. Our innovation in branded CPGs focused on high-growth categories such as plant-based, keto-friendly zero sugar, functional benefits, organic and fair trade in current categories of sugar substitutes, baking, and baked mixes, as well as expanding into sugar-laden over categories. Half of the consumption of sugar is in baking, and we're ideally positioned to take a disproportionate share. I'm very pleased with the performance of our acquired brand's baking mix portfolio as we lap 2020 with dollar sales consumption growth up double digits and distribution up more than 60% year-on-year. On our market base execution, our brands are gaining distribution via our Power of One strategy to become retailers' key strategic category business partner across retail, e-commerce, and food service as we raise the profile of our innovative, better-for-you offerings. We believe our Power of One strategy is working because sweeteners, in particular natural sweeteners, is such a young and fast-growing category where we can work together with retailers to optimize growth improve shoppability, and help consumers at the shelf as they look for alternatives to the 100 billion refined sugar total addressable markets. The increased consumer mobility is benefiting our food service business, and there too we are leveraging Power of One to gain a disproportionate share of this channel's growth. Whole Earth Brands provides both sweetening and baking solutions across all our brands and all our ingredients. Equal and Whole Earth Sweetener Sashay for coffee or tea. Wholesome Organic Agave for mixology. Swerve No Sugar No Carb for muffins. Or Wholesome Organic Sugar for non-GMO organic fair trade cookies and brownies. We expect more consumers and food service operators to demand natural sweetener options, which represents an incremental opportunity. Both Swerve and Rolsum had limited presence in food service pre-acquisition and will now benefit from our power of one approach with customers. As shown in our Q3 supplemental presentation made available on our website this morning, I'm happy to report some key performance measures that highlight the direct impact of our Power of One strategy. Whole of Brands, as a company, grew ACV or distribution in the U.S. measure channels to 79% overall, which is a three-point increase year-to-date Q3 versus 2019. Swerve distribution is 54%, a 26-point increase on a similar basis. and Whole Earth Sweetener, the brand, distribution is 31%, an 11-point increase. Our momentum is continuing in Q4, and we still have distribution gains ahead of us as we look at 2022. From a door count perspective, within our U.S. natural sugar substitute portfolio, we have grown the number of selling stores by 7% through year-to-date September. Whole Earth Brands is significantly outpacing the sweetener category growth in all our key developed markets. Year-to-date Q3 versus 2019. For example, in the US, our value sales change is 20.7% versus 7.6% for the category. Our household penetration is increasing across all key developed markets. For example, In the U.S., sweeteners' household penetration grew two points to 28% year-to-date Q3 versus 2020. Still, with 26% household penetration across our key developed markets versus 77% for processed sugar, the opportunity is huge and implies an opportunity to engage with an additional 245 million households. On manufacturing and supply chain, Supply chain remains undoubtedly a competitive advantage for holder brands across our branded CPG and flavors and ingredients segments. As I have noted previously, supply chain improvements will allow us to continue to mitigate inflation and drive top-line revenue growth, margin expansion, and free cash flow generation. Specific initiatives include commodity pre-buys ahead of 2021, acceleration of our branded CPG North America supply chain reinvention, and flavors and ingredients footprint optimization, including the completed sale of our Camden, New Jersey facility in Q2. All those initiatives are proceeding on or ahead of plan. On our world-class team, with our results to prove it, I want to recognize our best-in-class employees and leadership team. They demonstrate daily the passion, competency, and engagement to deliver on our vision to build a large, organic, natural plant-based food company. Our CFO search is progressing well, supported by a leading national executive search firm, and I am pleased with the quality of candidates we are attracting. As we continue to accelerate our growth in sweetener and adjacent categories, I'm also pleased to announce the addition of Rishi Deng to our North America leadership team. Rishi has a demonstrated track record of driving strategic growth, brand building, and innovation with over two decades of experience at leading companies such as PepsiCo and Tata Consumer Products. He will also play a significant leadership role in our portfolio expansion efforts in the North American market. With respect to our flavors and ingredients segment, we're very pleased with Q3 and year-to-date performance. The business delivered revenue growth in the quarter despite a tough comparison due to a strong performance in the third quarter of 2020. Our investments in R&D and sales are continuing to pay off with good momentum in the business and significant new customers anticipated for Q4 and 2022. We expect the business to continue to produce strong free cash flow, driven by our global leadership position in licorice and our diverse end markets. Polar Brands is the global leader in the better-for-you sweetener and reduced sugar categories. Our team continues to execute on our vision to grow into a 1 billion-plus revenue company as we pursue three priorities. First, disrupt the massive 100 billion total addressable refined sugar market that is being displaced by fast-growing sweeteners. Second, drive category leadership through best-in-class innovation and brand building, expand our global distribution, Leverage our strong supply chain capabilities and continue to further accelerate our growth through strategic M&A. Third, continue to evolve our brand and product portfolio towards becoming a large, organic, natural plant-based food company. I encourage you to review our Q3 supplemental deck for further highlights and details on our Q3 earnings. With that, Brian will now take you through our financials and outlook for 2021.
spk03: Thank you, Albert, and good morning to everyone. As a reminder, we acquired Swerve on November 10, 2020, and Wholesome on February 5, 2021. I will speak to reported results, which include Swerve and Wholesome, for the full third quarter period of 21. Additionally, we will provide some select pro forma results, as if we own both Swerve and Wholesome, in 2021, 2020, and 2019 to assist in your analysis of the organic growth of the combined portfolio. Also, please refer to our non-GAAP reconciliations at the end of the press release for additional detail, and I encourage you to view the supplemental earnings presentation on our investor relations website. For the third quarter ended September 30th, 2021, Consolidated product revenues grew 92.4% to $128.9 million versus 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 increased 6.6% compared to the prior year third quarter or increased 6.1% on a constant currency basis. Reported gross profit was $43 million compared to $18.6 million in the prior year third quarter. Results were positively influenced by contributions from the swerve and wholesome acquisitions, an $11.5 million favorable change in non-cash purchase accounting adjustments related to inventory revaluations, as well as revenue growth for the legacy business segments. The reported gross profit margin was 33.4% in the third quarter of 2021, compared to 27.8% in the prior year period. The prior year margin was negatively impacted by purchase accounting adjustments. Adjusted gross profit margin was 33.6%, down from 42.2% in the prior year, driven primarily by the inclusion of Wholesome's private label business. Consolidated operating income was $13.5 million, compared to $1.1 million in the prior year, And consolidated net income was $8.8 million, compared to a net loss of $2.8 million in the prior year period. Consolidated adjusted EBITDA increased 34.1% to $22.1 million, driven by contributions from the swerve and wholesome acquisitions and revenue growth in our legacy businesses, partially offset by higher bonus expense compared to 2020. Now, shifting to the segment results for Q3. Branded CPG segment product revenues increased $61.7 million, or 150.4%, to $102.7 million for the third quarter of 21, driven by the addition of Swerve and Wholesome. On a pro forma basis, including the impact of both acquisitions in the current and prior year quarters, organic constant currency product revenue increased 7.6%, compared to the prior year third quarter, primarily due to strong volume growth, particularly in our national products portfolio. On a two-year stack basis, when comparing third quarter 2021 to third quarter 2019, branded CPG segment pro forma organic constant currency revenue increased 14.3%. Operating income for the branded CPG segment increased $3 million to $10.1 million in the third quarter of 21. The increase was driven by contributions from the acquisitions of Swerve and Wholesome, revenue growth from our legacy business, and lower purchase accounting adjustments. These increases were partially offset by higher bonus expense, costs associated with our supply chain reinvention project, and the inclusion of stock-based compensation expense in 2021. Flavors and ingredients segment product revenues increased 1% to $26.2 million for the third quarter of 2021. The increase was driven by growth in licorice extracts and our MagnaSweet product lines, largely offset by declines in pure derivatives. Operating income for the flavors and ingredients segment was $9.5 million in the third quarter of 2021, compared to an operating loss of $0.4 million in the prior year period. The increase was primarily due to an $8 million favorable change in purchase accounting adjustments related to inventory revaluations, revenue growth, and lower operating costs. Operating expenses for corporate for the third quarter of 21 were $6.1 million compared to $5.6 million of operating expenses in the prior year period, primarily due to the addition of stock-based compensation expense in 2021. Now, I will briefly cover September year-to-date results. As a reminder, our consolidated year-to-date 2020 results reflect both predecessor and successor periods indicative of the June 25, 2020 business combination date. The year-to-date results I will discuss compare the results for the nine months ended September 30, 2021 to the combined nine months ended September 30, 2020, which includes the successor period from June 26, 2020 through September 30, 2020, and the predecessor period from January 1, 2020 through June 25, 2020. Additionally, our consolidated reported financial results reflect the completed acquisitions of Swerve and Wholesome. Proforma comparisons include the impact of both acquisitions in the periods of comparison. Consolidated product revenues increased 80.8% to $361.3 million as compared to the 2020 year-to-date period. On a pro forma basis, organic constant currency product revenues increased 2.7% compared to the prior year period. Branded CPG product revenues increased 128.1% to $283.6 million, reflecting the acquisitions of Wholesome and Swerve. On a pro forma basis, organic constant currency product revenues increased 2.6% compared to the prior year period and grew 12.8% on a two-year stack basis as compared to the first nine months of 2019. Flavors and ingredients segment product revenues were $77.7 million, an increase of 2.9% as compared to the prior year period. Reported gross profit was $120 million an increase of $48.9 million from $71.1 million in the prior year period. Gross profit margin was 33.2% in the nine months ended September 30th, 2021, as compared to 35.6% in the prior year period. Adjusted gross profit margin was 34.7%, down from 41.8% in the prior year period, driven primarily by Wholesome's private label business. Consolidated operating income was $16.4 million compared to an operating loss of $37.4 million in the prior year, and consolidated net income was $0.5 million for the nine months ended September 30th, 2021, compared to a net loss of $37.5 million in the prior year period. The improvement was largely due to $40.6 million of non-cash impairment charges recorded in 2020 and the positive impact of acquisitions in our 2021 results. Consolidated adjusted EBITDA increased 51.9% to $61.6 million driven by contributions from the acquired swerve and wholesome businesses, revenue growth and productivity gains, partially offset by increases in public company costs and bonus expense. Now moving to cashflow and the balance sheet. Cashflow provided by operating activities September year-to-date was $6.6 million. That is net of $19.7 million of non-recurring or unusual items, such as M&A transaction-related costs and restructuring costs. Our September year-to-date capital expenditures were $7.1 million. Free cash flow, excluding the non-recurring or unusual items, was $19.2 million. As of September 30th, 2021, we had cash and cash equivalents of $33.6 million and $384.1 million of long-term debt, net of unadvertised discounts and debt issuance costs. Using the midpoint of our adjusted EBITDA guidance, our net debt to adjusted EBITDA ratio at September 30th, 2021 was approximately 4.2 times. Reducing balance sheet leverage continues to remain a corporate priority. Shifting to our full year outlook, we are reiterating our full year 2021 guidance, which includes our acquisitions of Swerve and Wholesome. As a reminder, the outlook represents our expectations for growth on a pro forma organic basis. We define pro forma organic growth to be as if the company owned both Swerve and Wholesome for the full years of 2020 and 2021. To reiterate our guidance, 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%. Adjusted gross profit margin is expected to be 34% to 35% of product revenues, which again reflects the influence of our acquired assets, Folsom and Swerve. Adjusted EBITDA margins are expected to be approximately 17% of consolidated product revenues. We expect 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%. Total capital expenditures will be in the range of $10 to $12 million. And lastly, we expect cash taxes will be in the range of $6 to $8 million. That concludes our prepared remarks. Operator, now back to you. Please open the call for Q&A.
spk01: Thank you. We will now begin the question and answer session. To join the question queue, you may press star then one on your telephone keypad. You will hear a tone acknowledging your request. If you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then two. We will pause for a moment as callers join the queue. The first question is from Scott Mushkin from R5 Capital. Please go ahead.
spk04: Hey, guys. Thanks for taking my questions. And hey, Erwin, I think your non-compete is ending. So congratulations on that with Hayne. So I guess probably exciting as that's concluding. I guess the first question I had is looking at the debt. And you guys talked about it at the end there. Can you refresh us what the targets are there? And when you you know, you're more comfortable that you can get back in the M&A market or are you comfortable already? Sure.
spk08: Good morning, Scott. And, uh, thank you for, um, uh, addressing Irwin. So I guess maybe Irwin, if you want to start with, uh, with that and your anniversary mapping, and then the Brian can, uh, can address the depth piece.
spk07: Sure. Um, good morning, Scott. And yeah, it's three years since I've gone from Hain and, uh, three years that I did have a non-compete in certain natural organic categories. And I look forward to working with Albert and the full team in regards to future acquisitions in that fast-growing natural organic category. As I said in the press release, we're going to be focused on plant-based, we're going to be focused on natural, we're going to be focused on organic. And with that, we're seeing lots of niche things. Albert in the past has done lots of acquisitions with his Pepsi years, but right now our debt levels are in the fours. I'm not a guy who likes a lot of debt, but I guess I come back to companies where there is growth and we would push our our debt levels, you know, four, four and a half is where we're, where we would do that today. But again, Scott, it's buying companies with good growth and good EBITDA. So, and there's, you know, lots of stuff we're working. What we wanted to do was get Swerve integrated, get Wholesome integrated and get our, you know, whole earth on track. And you got to remember, we're really only a public company now for just over a year and what we've been able to accomplish in just over a year and, you know, the size of the company and the growth of the company. Um, and, and then, you know, with the ability to go out there and do a lot more acquisitions. So back to your question on a long winded answer, um, we're excited about going out there and looking at multiple acquisitions over the next few years and looking at a bunch of them now.
spk04: Can I just, I know, I think that probably addressed the debt issue. Maybe I could just, uh, ask one more thing, Erwin, as, you know, thinking back to your time at Hain, you were almost allergic to debt. Sometimes it seemed like you didn't like a lot of debt. So you did from time to time, I know, like have earnouts with equity and that type of thing. You know, is that a possibility here that you would go that route rather than layering more debt on that, debt on the company? And then, you know, maybe I'll yield to other questions as we've talked about.
spk07: Yeah, sure. Really good question. And we did use equity and listen, we have some great equity at Whole Earth. And I think the big thing is buying those and doing those acquisitions where there is an earn out and giving equity to share in the accretion of our equity and a share in the accretion of the earnings and be a part of it and look for the upside here. And I think that is a big thing. There's tremendous upside here. And I step back today and we're in a time when supply chain is being disrupted, there's a lot of smaller companies out there today that feel they have to be part of someone bigger. And with that, you know, we've demonstrated what we've been able to do with Swerve and Wholesome and even taking brands like Whole Earth and Equal and growing them the way we have. The other thing is, Scott, we have an international business. We have a good, strong international businesses with offices around the world. So yeah, we would use equity as part of it. And ultimately, you know, with the cost of money today, that's why I'm a little more, you know, not as reluctant as I was before to go out there and borrow. And, you know, you heard Brian talk about our free cash. We throw off a tremendous amount of free cash. The other thing is whole earth is really asset life. So it's not like we're investing a ton of capital in our CapEx investments.
spk04: Perfect. I'm going to jump back in the queue, actually, let other people have a chance. But I do have some other questions. Anyway, thank you. Thank you. Thanks, Koth.
spk01: The next question is from Bobby Burleson from Canaccord. Please go ahead.
spk06: Good morning. So just a couple of quick ones on the just regional color to the U.S. Are there any areas where you're particularly underrepresented right now where, you know, just gaining traction in those regions will really help, uh, the U S growth. I'm thinking mainly branded CPG and retail.
spk08: Yeah. Good morning, Bobby. And, um, I missed the piece when you were talking about region, you meant geographic pieces in the U S. Yeah.
spk06: Are there geographic regions in the U S where you're under penetrated? Right. Particularly with branded CPG in retail.
spk08: Understood. Listen, the way we think about it is this is alleviated with a growing distribution across retailers that have national footprint and or very strong regional footprint. As we continue to gain distribution, we see opportunities to close those gaps What that also indicates, Bobby, is we are really at the beginning of this move away from processed sugar. And this is why Power of One is so important. There is a lot of education going on, a lot of working with retail partners about the shopability, optimizing the growth of those categories. And this is why we're so excited. by Power of One and the results we're getting, because this is a need, as you know, that is for sure a national need, a global need, an international need. And therefore, with the Power of One, with the education, this is a very young category, especially on the natural side, the growing leaps and bounds. There is a ton of opportunity, not only, as you just mentioned, there is not only opportunities, as we always talk about gaining distribution, but there is also specific regional opportunities that we're tackling with retailers that have a national footprint and then increasing the penetration in those retailers in those regions.
spk06: Great. And just as we're on the topic of this category being young, but obviously a lot of tough supply chain issues out there. Um, I would imagine that you guys, like you mentioned are ahead of the curve a little bit in terms of making sure you have ample supply and, and, you know, reduce disruptions. Are you seeing any of the end kind of retail partners, um, maybe gravitating more towards a brand consolidation strategy in the natural sweetener category where they might want, might want to align, you know, uh, these sweeteners with, you know, someone that has scale like yourself that can kind of reduce the risk of disruptions.
spk08: Right, Bobby. And I would take you back on this to really 2020, right? And if you think about 2020 and if you think about some of the color of the growth that we've shown there with brands like Wholesome and Swerve and Whole Earth, Back in 2020, what you started to have was significant disruption, significant inability to stock the shelf, significant inability from manufacturers. And we said it, I said it on previous calls that, you know, back in 2020, we had about a 98%, 99% service rate. And I talked about the fact that this was boding well in terms of building a strategic partnership with those retailers. The way I think about it is you can never rest on your laurels. And as you look at 2021, not only we are working very hard, and I talked in my prepared remark about being a little bit ahead of the curve in terms of securing supply and in terms of managing inflation. But in addition, as we talked, I just talked about, we are also bringing new tools like the Power of One, which combined with you know, supply combined with maintaining costs are all very important things for the retailer to continue to, you know, partner with the emerging players. And we always talk, as Erwin just said, you know, we're the global leader in that space. So the answer is we're working hard at it to deserve that confidence from the retail partners.
spk07: And, Bobby, just on that, I think, again, and that's a great question, as we build out our footprint on the whole sweetener category and the benefits of the sweetener category and consumers moving over this category, to your point, as being that leader out there in either building share from going out and getting new distribution opportunities developing new products or doing future acquisitions. And we will build the footprint out to supply. I must tell you, the team has done a great job in regards to supply right now. But again, you know, there's always challenges out there. And I think the big thing is back to what Scott asked before. How do we diversify our portfolio and not just be a sweetener company? And that's what we tried to do you know, in regards to swerve, that's what we tried to do in regards to wholesome. And that's the direction that Albert, you know, and myself and team want to take this. Yes. Be that's going as that sweetener company. And, and again, it's great to see food service come back. It's great to see some of the innovation that we've come out with, but we want to be that dirt diversified better for you, whether it's plant-based, whether it's sweetener, whether it's organic, and look at that and how do we pull it all together. I think that's what's important, you know, from what hold earth and it says it in our name. Great.
spk06: Thank you very much. Thank you. Thank you, Bobby.
spk01: The next question is from George Kelly from Roth Capital Partners. Please go ahead.
spk09: Hi, everybody. Thanks for taking my questions. So just to start with your full year guidance, I was hoping you could Help me understand what's implied then in fourth quarter. So if I look at revenue, it looks like there's a nice step up sequentially from what you just generated in the third quarter. But then I have EBITDA kind of flattish. And so I was hoping you could help me understand just what's driving that revenue growth in the fourth quarter and why should EBITDA not kind of move up along with it.
spk08: Yeah, I can start, George. Good morning. And then let Brian build on it as needed. But I will tell you that, you know, we are, first of all, very pleased with our Q3 growth of, you know, if you take overall 6.1 and if you take branded CPG 7.6 versus 2019 of 14.3. And, you know, you know, we've been planning our business against this range of outcome, and I'm very pleased with the job we're doing to execute against that. Now, the second half of the year, and I think you see that in Q3, which including market share gains has always been about rolling out innovation and expanding our distribution as we have been telling you before, and you see that materializing. Now, this is a very fluid environment, as we have talked in the first two questions as a we have just said, and we are therefore, you know, we remain prudent and will continue to work to meet our goals. But, you know, we are in a very fluid environment, and we prefer to remain prudent with regard to Q4. Brian, anything you want to add?
spk03: Yes, Albert. George, this is Brian. You know, the one thing I would add, especially on the revenue side, and I think Albert alluded to it, but This is our baking season, so we do get an uplift in Q4 related to the baking season. In particular, this is really our first baking season owning Swerve, given that it was acquired in November of last year. So this is really our first ownership planning and owning the business heading into the baking season. So that's a big driver for some of the lift we would expect for Q4.
spk09: And just to make sure, I don't know, but on the EBITDA front, is there any kind of one-time, I'm sure that you're getting hit by inflation, and so that's, you know, totally, I just wasn't sure if there was anything bonus-related or anything else you can flag that is going to impact Q4 on the expense side. Brian?
spk03: Sure. What I can add there, George, there's a couple things. Obviously, we have a little bit more of our marketing and weighted towards Q4 to support, obviously, the baking season and some of the items that I just had mentioned. The other item, you mentioned bonus, for example, and as a reminder, we had a little bit of a different program from a bonus perspective last year where the bonus program was paid in the form of RSUs or stock, where this year we're largely more back to the cash bonus, so there will be a little bit of headwind on the bonus expense line as well. But those are probably just two items I would say off the top of my head that I would point to you.
spk09: Okay, great. That's helpful. And then next question for me, and I'm not looking for specific 2022 guidance, but looking at the free cash flow you just generated in the quarter. Really strong. And curious if you could help bridge just on a go-forward basis, just in round numbers, how I should think about your cash conversion from EBITDA to free cash flow. And what is kind of normalized CapEx, or what are your working capital expectations going forward? Just, you know, any of those kind of things in round numbers would be helpful.
spk08: Yeah, George, so as you know, we're not providing guidance for next year at this stage, but I would let Brian address anything that can be addressed within your question.
spk03: Yeah, I guess the only thing I would reiterate, George, is that We've publicly in the past have indicated CapEx expectations on a long-term view of approximating about 1.5% of sales. But I echo otherwise what Albert indicated. You know, we're not really providing guidance yet going forward.
spk09: All righty. Sure enough. Thanks, everybody. I'll hop back to Nick here.
spk08: Thanks, George. Thank you.
spk01: The last question is from Mark Smith from Lake Street Capital Markets. Please go ahead.
spk05: Hi, guys. As we look at this busy holiday baking season moving into this, how do you feel about your inventory out on shelves at retailers today? Is there any regions or anywhere where maybe sales could be supply-constrained?
spk08: Yeah, great question, Mark, and good morning. This is, you know, why I'm so thankful to our organization and our supply chain organization and our sales organization. I can tell you that everybody is working very closely together, including with the retail partners, including with our distributor to the retailers to make sure that we have everything that the consumer wants. on the shelf, and so far so good. We are benefiting from a great network of co-manufacturers, which is spread across the U.S., and at this point in time, we don't foresee issues for Q4.
spk07: Mark, let me just jump into that. I really got to commend the team here we've brought. you know, these basically four companies together. We've innovated products. We've ultimately gained distribution. And we've picked up distribution where other companies or competitors could not service. And at the same time, what we're seeing today is food service sales pick up that, you know, was a big part of our business that, you know, dropped off during COVID. So, you know, again, I would not sit here and say we're not going to see any disruption out there. Absolutely. Because as we get ingredients and packaging, pull it together. But again, you know, I commend the team for what we've been able to do in regards to putting companies together, the new distribution, the new products out there, and also just a category that's growing. So you'll be able to find your swerve to bake during Thanksgiving and Christmas, Mark.
spk05: Okay. Excellent. And the last one for me is just as we look at kind of this organic growth within CPG. Can you give us a little bit of insight into how much of this growth is coming from new customers and kind of growth there versus expanding shelf space within existing customers or more turnover and growth within existing customers?
spk08: Yeah, that's a great question. And I will tell you that the good news is really a little bit of everything. And that's why I think, you know, it's great to work with healthy channels. So if you look at distribution, we are seeing a growth, as I said, you know, we grew our doors count to 7% on natural versus 2020. We are also seeing, you know, very strong growth in e-commerce where we have more than our fair share. Our food service business, you know, we've increased mobility, grew 40%, 30%, sorry, in Q3 versus Q3 of last year. And you would see on the supplemental deck the power of one that we also play out in food service and e-commerce. So I would say distribution is a piece of it. Innovation. I mean, 15, 30 new products in the branded CPG, which would represent well over 15% of net sales on a three-year CAGR basis is very good for us. And so I would say that with the brands that we have, the category expansion, which we haven't talked about, but we're very pleased with the expansion into baking mixes. We have five SKUs of Swerve and five SKUs of Wholesome. We are growing those double digits. We gained 60 points of distribution. So you essentially have innovation on the core, innovation in new categories. And I mentioned earlier that, you know, Rishi Deng that joined us is going to be in charge of category expansion. You have distribution gains. You have distribution across the different channels. And you have a supply chain that, you know, is best in class and could do this with a great organization. So that's in a category that is healthy, which has been always the ongoing premise. We're at the beginning of continued growth in a very healthy category. So our job is to lead, deserve that leadership. And therefore, we want to make sure that you see growth across all the competencies. which essentially provides you sustainable long-term growth ongoing.
spk05: Excellent. Thank you, guys. Thanks, Mark.
spk01: This concludes the question and answer session. I would like to turn the conference back over to Mr. Manzoni for any closing remarks.
spk08: Sure. So, Lisa, thank you very much for taking the time to listen to us. Happy to have a follow-up course with all of you, and please take a look at the supplemental deck that we posted this morning. It has additional elements and information which you may find useful in your analysis. Again, a big thank you for joining us, and as Erwin said, you can find our products for the baking season, Thanksgiving and Christmas, and we hope you enjoy them. Thank you so much. Goodbye.
spk01: This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.
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