Whole Earth Brands, Inc.

Good day and welcome to Whole Earth Brands Inc. Third Quarter 2022 Earnings Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press Startdown 1 on a touch-tone phone. To withdraw your question, please press Startdown 2. Please note this event is being recorded. I would like to turn the conference over to Jess and Sonic Please go ahead.

Thank you and good morning. Today's presentation will be hosted by Albert Manzoni, Chief Executive Officer, and Duane Portwood, Chief Financial Officer. Executive Chairman Erwin Simon is also participating on the call and will be available for Q&A. The comments during today's call and the accompanying presentation contain forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts are considered forward-looking statements. These statements are based on management's current expectations and beliefs as well as a number of assumptions concerning future events. Such forward-looking statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from the results discussed in the forward-looking statements. Some of these risks and uncertainties are identified and discussed in the company's filings with the SEC. We'll 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, investors.wholeearthbrands.com, for reconciliations of non-GAAP financial measures to their most directly comparable GAAP measures. Additionally, we've provided a supplemental earnings presentation on the IR website that may be useful in your analysis of the company's performance. With that, I'd like to turn the call over to Albert Manzoni, CEO.

Thank you, Jeff. And thanks to everyone for joining the call today. Our business generated an over quarter of consistent growth. In the third quarter, we drove consolidated constant currency revenue growth of 8.1% and generated adjusted EBITDA of 21.5 million. At the segment level, Our branded CPG business grew 5.9% on a constant currency basis driven by price. Our branded CPG portfolio is well positioned in the current environment with a diverse assortment of strong brands. The diversification in terms of its channel presence, product assortment, and geographical reach is a strength that continues to drive results. In North America, 80% of revenue is generated within unmeasured channels, such as club, e-commerce, food service, private label, and ingredients. We continue to see nice growth in these channels during the third quarter, and we believe they would remain a significant force for future growth. Within our measured channels, which represent 20% of North America revenue, We planned for and expected a slowdown in velocity on our branded business due to the price increases and reduction in trade promotions. This strategy speaks to our focus on profitable growth, gross profit dollar growth, and ultimately cash flow. Looking at the progression, we saw trends improve sequentially in third quarter versus the first half. And then looking ahead to the fourth quarter, we expect to see further improvement as well, which should put us in a good position to generate growth in the measured data in 2023. Our international branded CPG businesses grew revenue 8% in the third quarter on a constant currency basis with both volume and price increasing. contributing as we continue to grow share in our international markets. Globally, our product assortment is well positioned with a host of brands that address unique consumer preferences and offer entry-level price points for consumers that are feeling the effects of the ongoing macroeconomic headwinds. Our private label and ingredients business complemented the branded portfolio nicely through stronger and broader customer relationships and purchasing scale. As the world experiences unprecedented pressure from market disruptions and macroeconomic headwinds, our mission and core strategy remain more relevant than ever to consumers. With approximately three in four consumers aiming to limit or avoid refined sugar, as well as powerful movement toward wellness and personal health, our mission to help consumers achieve healthier lifestyle positions asks for success. Globally, our portfolio of brands is well-suited to address a variety of consumer needs. Our premium and baking-oriented brands, including Wholesome, Swerve, and Whole Earth in the US are optimal solutions for at-home indulgence and healthier lifestyles. Our mainstream brands, such as Candorail and Equal, present a strong value proposition, delivering affordability without sacrificing quality. We continue to see net gains in our distribution across our global footprint. In North America, through our ongoing focus on improving production rates and service levels, we are seeing distribution wins, driven by increasing momentum with national and regional customers. Our emerging international markets comprise of Asia Pacific, India, Middle East and Africa, and Latin America, which represent 15% of our branded CPG segment, once again, collectively posted a strong double-digit growth during the third quarter, confirming the strong secular demand trends for our products. Innovation is a core capability of our business and today represents 17.5% of our North American branded CPG sales and 12% of our global branded CPG sales over the trading three year period. Our new innovations are tapping into high growth segments of sugar substitutes with monk fruit, which is seeing consumption growth of 42% and allulose, which is growing at nearly 14% versus a year ago for the 13-week period ended October 1st. For instance, we are bringing these growing ingredients into our Swerve portfolio and leveraging Swerve's powerful consumer loyalty to drive cross-purchases. Nearly half of all Swerve consumers are repeat purchasers that will help drive brand growth on the heels of the innovations we're bringing to market. You would see us in the market with blends such as monk fruit and cane sugar to bring in new users to the sugar substitute category and to help consumers transition toward a sugar-free lifestyle. Another innovation we're especially excited about is worth no sugar added chocolate chips in the large baking adjacency. Chocolate baking chips have a strong natural link to existing Swerve baking behaviors and is a segment of interest for sugar-reducing consumers. And we're also bringing exciting adjacencies in North American chocolate, cookies, and flour, to name a few, coming on shelves soon. Stay tuned. Our innovation efforts have also driven our share growth across our international markets. For example, take our work in Australia, where we now have 23% share of the natural segment, which increased nearly 12 points over the past two years following the introduction of our Whole Earth, Baker's Secret range, and Monk Fruit range, including our latest launch, the raw variant. As we look to the future of web, we focus on building our brands both in their core categories, and through potential adjacency expansion. By putting various innovation levers across ingredients, occasions, value propositions, and new categories, our brands can solve a variety of consumer needs and ultimately grow the category household penetration. Moving to supply chain, and as communicated previously, we took control of the Decatur Alabama facility that manufactures sachets and bags in the second half of 2021. This was a deliberate move as our co-manufacturer went into financial distress, there was no such availability in the U.S., and significant supply chain disruptions exacerbated by COVID and low unemployment rates. Since then, we have stabilized operations at the Decatur Alabama facility, improved service rates, supply to demand, and reinvigorated growth of our North American branded CPG business, despite facing a series of macroeconomic challenges along the way. Following the stabilization of our North American supply and the improvement in customer service that followed, we will streamline our North American supply chain network and pursue an asset-light model with increased use of strategic partners that possess proven operating capabilities and cost advantages across manufacturing, warehousing, and distribution. We expect that this will allow us to improve costs and drive positive free cash flow in 2023, while continuing to deliver sustainable supply for our customers and allow our teams to focus on our core competencies, driving growth through innovation, brand building, and distribution. Beyond the supply chain, we're also combating inflationary forces through a combination of tools, including price, productivity, and prudent expense management. We are on track in 2022 to deliver about $40 million of pricing and cost savings to offset inflationary and currency pressures. With respect to our pricing actions, We instituted a mid-single-digit price increase earlier in the year and took another round of price in the third quarter of low single digits to fend off the persistent cost inflation. We will continue to take actions as needed to protect margin dollars. Next, productivity. The SKU rationalization we executed at the beginning of the year, which was a year-over-year headwind of 1.6% in the third quarter, was largely focused on less profitable SKUs and reallocating those resources toward innovation. This is an excellent complement to our pricing strategy and something that we can control in response to external forces. Finally, expense management. We continue to be vigilant about expenses and reduce headcount and expenses throughout the year to ensure our organization is right-sized and appropriate for the current operations and environment. Shifting to our flavors and ingredients segments, we continue to generate above-trend revenue growth in the third quarter at 17% on a constant currency basis. This growth was driven primarily through volume and, to a lesser extent, pricing actions. This marks the fourth consecutive quarter of strong growth for the segment following the implementation of new leadership. We have developed a set of commercial initiatives aimed at driving adoption of our natural, non-GMO, flavor-enhancing licorice-related ingredients in our end markets across food and beverage, cosmetics, healthcare, and industrial. Together with a significantly improved cost structure following our footprint optimization projects, we also have an ability to drive more competitive pricing. Taken together, the team has the tools necessary to drive growth and we're very excited about the results they are generating for the business. Flavoring Ingredients is a strong free cash flow generator with high barriers to entry and a global leadership position that would support our broader growth initiatives as we further diversify and grow all our brands. This diversification in both revenue and cash flow is valued in a fluid environment such as this, allowing us to deliver greater consistency in our operating results. In summary, Our proactive efforts across Hall of Friends are creating a stronger foundation that we will build upon. We are pleased with our progress to meet our goals for 2022. Hall of Friends is the global leader in the better for you sweetener and reduced sugar categories. Our team, who I want to thank today on this call for all the work done to date, continues to pursue four priorities. Disrupt, the massive 100 billion total addressable refined sugar market, which is being displaced by fast-growing alternative sweeteners. Drive category leadership through best-in-class innovation and brand building. Expand our global distribution and leverage our supply chain capabilities. Continue to build out our ESG credentials and evolve our brands and products portfolio towards becoming a large, organic, natural plant-based food company, and work on enhancing our cash flow management and reducing balance sheet leverage. With that, I'll pass the call for the financial review.