Earnings Transcript for FREEW - Q4 Fiscal Year 2021

Operator: Good morning and welcome to the Whole Earth Brands Fourth Quarter and Full Year 2021 Results 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 over to Jeff Sonnek, Investor Relations at ICR. Please go ahead, sir.

Jeff Sonnek: Thank you and good morning. Today's presentation will be hosted by Albert Manzone, Chief Executive Officer; and Duane Portwood, Chief Financial Officer. Executive Chairman, Irwin Simon, is also participating on the call and will be available for Q&A. The comments during today's call and the accompanying presentation contain forward-looking statements within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, are considered forward-looking statements. These statements are based on management's current expectations and beliefs as well as a number of assumptions concerning future events. Such forward-looking statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from the results discussed in the forward-looking statements. Some of these risks and uncertainties are identified and discussed in the company's filings with the SEC. We'll also refer to certain non-GAAP financial measures today. Please refer to the tables included in the earnings release which can be found on our Investor Relations website, investor.wholeearthbrands.com, for reconciliations of non-GAAP financial measures to their most directly comparable GAAP measures. 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. With that, I'd now like to turn the call over to Albert Manzone, CEO.

Albert Manzone: Thank you, Jeff and thanks to everyone for joining the call today. I'd like to begin by welcoming Duane Portwood to his first earnings call for Whole Earth. As you know, Duane joined Whole Earth as CFO in January, bringing with him a wealth of experience and wisdom and has hit the ground running. I'm excited he's part of the Whole Earth team. 2021 was a transformational year for Whole Earth and I am pleased to deliver on our financial commitments and in a complex and challenging operational environment. In response to supply chain disruption and labor shortages, we took actions to position the company for success. And I am proud of our achievements and particularly grateful for the efforts of our team, including those on our front lines, for their resiliency and persistence which is critical in maintaining our operations and service levels with customers. For full year 2021 which is our first full year as a public company, we drove 2% consolidated organic constant currency revenue growth which included acquisitions in both periods. Branded CPG segment pro forma organic constant currency revenue growth grew 0.7% versus 2020 and 11.9% on a 2-year stacked basis versus 2019 due mostly to volume growth. And Flavors & Ingredients segment product revenues grew 7.1% versus 2020. We generated over $82 million in adjusted EBITDA within our guidance range through the power of our portfolio and strong cost discipline. It has been an exciting journey since our business combination in June 2020. And I would like to take a moment to reflect on Whole Earth Brands' accomplishments in this short time and the opportunities that lie ahead. At the time we went public, we saw an immense opportunity to bring global leadership to an unorganized yet extremely attractive category that not only had a large total addressable market but was also supported by powerful secular tailwinds geared toward better-for-you alternatives. To accomplish this goal, we needed capital to unlock this opportunity to compound value for shareholders over time. This capital provided us the ability to significantly improve our capital structure and reduce leverage. We also needed to generate scale, particularly in North America. We successfully acquired two amazing businesses in Wholesome and Swerve which nearly doubled our revenue base and provided the foundation which has become our Power of One strategy, to drive growth across our diverse portfolio of brands. And finally, we were able to invest in our team and strengthen our bench which is a critical point for a growing business with great aspirations. We have assembled the talents, capabilities and leadership to deliver on the potential of our global business through brand expansions, new product innovations, distribution increases and supply chain optimization. We have fundamentally strengthened and transformed our business. And to that end, I'd like to recognize our team once again for all of our accomplishments to date. Our Power of One strategy to enhance our shelf presence and drive greater visibility with retail customers across our portfolio of natural and traditional sweeteners is working. We are seeing the retail distribution gains that we have been building towards. We have momentum in e-commerce and food service is recovering nicely. This is a wonderful combination of forces that puts us in a formidable position as we look ahead to 2022 and beyond. I view 2022 as a year of building upon the foundation we put in place in '21. Fundamentally, we are an organization focused on profitability and cash flow generation. And we believe we have a durable foundation to build from that will provide us the flexibility to advance our growth initiatives. Our opportunity to create value lies with a healthy global category, our world-class brands and our ability to leverage our commercial teams in key global regions to drive penetration. In North America, our Power of One strategy continues to provide us with a framework to drive long-term growth. With our Whole Earth Sweeteners brands, we continue to execute on opportunities to expand distribution and build out adjacencies. For Swerve and Whole Earth, innovation and expansions in the baking portfolio are critical factors that will support growth and distribution gains. In Wholesome, we have an amazing brand that has defined the word organic in the sweetener category for many years. We see an opportunity to build upon Wholesome's brand equity and expand its portfolio into other areas such as baking mixes. And finally, beyond the retail shelves, we continue to pursue opportunities within our -- other sales channels, such as e-commerce and foodservice, with a thoughtful approach to meet the shifting consumer needs and appetites for better-for-you products. Within our international markets, we are in an advantageous position with very recognizable brands that have number one or number two share in most key markets. Our aim is to continue to drive greater penetration with brands such as Canderel, Equal and Pure Via through portfolio expansion to baking and other adjacencies. At the same time, we're excited by our expansion momentum into new geographies such as India and China. From an operational standpoint, inflation and supply chain management continue to be top of mind for the entire CPG industry and it is a focus of ours as well. In fact, our North America Supply Chain Reinvention project is focused on identifying opportunities to derisk our supply chain while enhancing service and ultimately creating efficiency. We are fortunate in many regards that our focus began prior to the extreme disruption to global supply chains. And the project is all the more important today as we work to mitigate incremental costs and disruptions. The key thrust of this project was to bring select production activities in-house to improve our cost structure while improving service levels. In fact, in response to the rapid shift in the environment, we made a strategic decision to accelerate the project time line to minimize the impact on customers. While these efforts are ongoing, I am confident that our exposure would be significantly greater had we not invested the time and resources to optimize our network. While we weren't immune to the supply chain disruptions, we continue to believe we are in an advantaged position relative to others in the space. Nonetheless, we are actively working to offset inflationary pressures with price, SKU rationalization and pay attention on maintaining profitable relationships with our customers. We're also making every attempt to mitigate the timing mismatch that erodes margins. With respect to our recent results, our fourth quarter was negatively impacted and we expect this to continue through first quarter of '22 as well until our pricing actions are implemented. We believe the effects are temporary and we anticipate returning to more normalized margin rates beginning in second quarter, with a pricing structure that would offset forecasted cost pressure through the balance of '22. We will continue our initiatives to mitigate volatility, protect margins and create opportunities to drive greater efficiencies over the long term. This includes trade spend optimization and ongoing focus on sourcing, manufacturing operations, logistics and distributions and synergy extractions from our integration of Swerve and Wholesome to help protect our business against macroeconomic forces. With respect to our Flavors & Ingredients segment, we are very pleased with our performance. We added some new leadership and critical investments in R&D and sales that have been instrumental in shifting our commercial approach to the diverse end market that we serve. This is visible in our innovation and product development strategy which now clearly maps to the various application across our suite of Magna-branded products to drive use and sales growth. We continue to view this business as a strong free cash flow generator, with a defensible moat and global leadership position that will support our broader growth initiatives as we further diversify and grow our business. Whole Earth Brands is the global leader in the better-for-you sweetener and reduced sugar categories. Our team continues to pursue three priorities

Duane Portwood: 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 fourth quarter of 2021. Additionally, we will provide some select pro forma results as if we owned 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 in our Investor Relations website. For the fourth quarter ended December 31, 2021, consolidated product revenues grew 75.3% to $132.7 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 constant currency product revenue was flat with the prior year fourth quarter. Reported gross profit was $38.7 million compared to $25.2 million in the prior year fourth quarter. Results were positively influenced by contributions from the Swerve and Wholesome acquisitions, a $5.9 million favorable change in noncash purchase accounting adjustments related to inventory and partially offset by $6.2 million of costs associated with our Supply Chain Reinvention project. Reported gross profit margin was 29.2% in the fourth quarter of 2021 compared to 33.3% in the prior year period. Adjusted gross profit margin was 34%, down from 42% in the prior year, driven primarily by the inclusion of Wholesome in 2021 which has lower profit margins and product mix. Consolidated operating income was $6.4 million compared to an operating loss of $6.9 million in the prior year. And consolidated net loss was $0.4 million compared to a net loss of $5.1 million in the prior year period. Consolidated adjusted EBITDA increased 47.5% to $20.6 million, driven by contributions from the Swerve and Wholesome acquisitions and revenue growth, partially offset by higher bonus expense compared to 2020. Now shifting to the segment results for Q4. Branded CPG segment product revenues increased $52.3 million or 98.1% to $105.6 million for the fourth quarter of 2021, driven primarily 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 decreased 4.3% compared to the prior year fourth quarter, primarily due to temporary supply constraints that were partially offset by solid volume growth at Wholesome. On a 2-year stacked basis, when comparing fourth quarter 2021 to fourth quarter 2019, Branded CPG segment pro forma organic constant currency revenue increased 9.1%. Operating income for the Branded CPG segment was $4.4 million in the fourth quarter of 2021 compared to operating income of $6.2 million in the prior year period. The decrease was driven by a decline in revenues within the legacy Branded CPG business, higher bonus expense and costs associated with our Supply Chain Reinvention project, partially offset by contributions from the acquired Swerve and Wholesome businesses and lower purchase accounting adjustments. Flavors & Ingredients segment product revenues increased 21.2% to $27.1 million for the fourth quarter of 2021. The increase was driven by increases in all product categories, including licorice extracts, pure derivatives and the Magnasweet product lines. Operating income for the Flavors & Ingredients segment was $7.6 million in the fourth quarter 2021 compared to an operating loss of $2.0 million in the prior year period. The increase was primarily due to a $5.9 million favorable change in purchase accounting adjustments related to inventory revaluations, revenue growth and lower operating costs. Operating expenses from corporate for the fourth quarter of 2021 were $5.7 million compared to $11.1 million of operating expenses in the prior year period. The decrease was primarily due to lower M&A transaction fees and nonrecurring public company readiness expenses. Now I will briefly cover our full year 2021 results. As a reminder, our consolidated full year 2020 results reflect both predecessor and successor periods indicative of the June 25, 2020, business combination date. The full year results I will discuss compare the results for the year ended December 31, 2021, to the combined year ended December 31, 2020 which includes a successor period from June 26, 2020, to December 31, 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. Pro forma comparisons include the impact of both acquisitions and the periods of comparison. Consolidated product revenues increased 79.3% to $494 million as compared to the full year 2020. On a pro forma basis, organic constant currency product revenues increased 2% compared to the prior year. Branded CPG segment product revenues increased 119.1% to $389.2 million, reflecting the acquisitions of Wholesome and Swerve. On a pro forma basis, organic constant currency product revenues increased 0.7% compared to the prior year and grew 11.9% on a 2-year stacked basis as compared to the full year 2019. Flavors & Ingredients segment product revenues were $104.8 million, an increase of 7.1% as compared to the prior year. Reported gross profit was $158.8 million, an increase of $62.5 million from $96.3 million in the prior year. Gross profit margin was 32.1% for the full year ended December 31, 2021, as compared to 34.9% in the prior year. Adjusted gross profit margin was 34.5%, down from 42.0% in the prior year, driven by the inclusion of Wholesome. Consolidated operating income was $22.8 million compared to an operating loss of $44.3 million in the prior year. And consolidated net income was $0.1 million for the full year ended December 31, 2021, compared to a net loss of $42.6 million in the prior year. The improvement was largely due to a $40.6 million of noncash impairment charges recorded in 2020 and the positive impacts of acquisitions on our 2021 results. Consolidated adjusted EBITDA increased 50.7% to $82.2 million, driven by contributions from the acquired Swerve and Wholesome businesses and revenue growth, partially offset by higher bonus expense. Now moving to cash flow and the balance sheet. Cash flow provided by operating activities for 2021 was $9.5 million. That is net of $26.9 million of nonrecurring or unusual items such as M&A transaction-related costs and restructuring costs. Capital expenditures for the year ended December 31, 2021, were $12.2 million. And free cash flow, excluding the nonrecurring or unusual items, was $24.2 million. As of December 31, 2021, we had cash and cash equivalents of $28.3 million and $387.2 million of debt, net of unamortized debt issuance costs. Our net debt-to-adjusted EBITDA ratio at December 31, 2021, was 4.37x. Reducing balance sheet leverage continues to be a corporate priority. Now shifting to our initial full year 2022 outlook which includes the full year impact of the Wholesome acquisition. As a reminder, our 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 Wholesome for the full year 2021. For 2022, we expect consolidated product revenues to be in the range of $530 million to $545 million, representing reported growth of 7% to 10% and pro forma organic growth of 3% to 6%. We expect consolidated adjusted EBITDA to be in the range of $84 million to $87 million. And we expect total capital expenditures will be approximately $10 million. Finally, I want to take a moment and provide some context around the quarterly cadence for the year. As you heard, the ramp-up of our Supply Chain Reinvention project is creating some headwinds for us in the first quarter. These relate to the inflation price mismatch that is putting some temporary pressure on margin through about mid-quarter when a significant number of our price increases take effect. Additionally, the supply constraints that impacted fourth quarter 2021 will have a residual impact on the first quarter of 2022. And lastly, from a comparability perspective, we anniversaried the Wholesome acquisition on February 5 which put some pressure on the reported year-over-year comparison. As we look to the balance of the year, we see our sales and margin rates reverting to more normal levels and expect relative consistency and seasonality relative to the prior year. Before we open the call for Q&A, I want to thank Albert for his kind words to open his prepared remarks. In the two months since I joined Whole Earth Brands team, the attributes that attracted me to the company have not only been validated, they've been strengthened. First, we operate in a fantastic category and are well positioned to take advantage of organic top line growth opportunities which will drive profitability and cash flow. Second, we have a platform to take advantage of acquisition opportunities and the discipline to do it right. And finally, we have a team that has the experience, the bandwidth and is all in to meet the challenges and take advantages of the opportunities. I couldn't be more excited to be part of this team. That concludes our prepared remarks. Operator, now back to you. Please open the call for Q&A.

Operator: Thank you. [Operator Instructions] Our first question comes from the line of Brian Holland with Cowen & Company. Please proceed with your question.

Brian Holland: Yes, thanks. Good morning. Forgive me, I hopped on a little bit late. Were you able to -- if so, if I missed this, forgive me but were you able to quantify the impact of the supply constraints, either in 4Q or the extent to which that impacts your fiscal '22 guidance?

Albert Manzone: Good morning, Brian. Hope you are well. We didn't quantify the impact and I will pass it on to Duane to comment on that. But what I would tell you is that we're very pleased to have been very proactive ahead of essentially any supply chain disruption. As you do know, after the acquisition of Swerve and Wholesome, we essentially saw the opportunity. And you see the number of dots on the supplemental deck of all the locations we were operating in to essentially synergize and bring those things together. And we very decidedly took over some of the production in-house for sachet and bags. And looking back, we're extremely happy that we did this because that positioned us very strongly for 2022, where we're able to mitigate essentially cost inflation with our productivity, together with pricing. And so that had an impact in Q4, some lingering effects in Q1 and then that's behind us. We also took that opportunity, importantly, to do some SKU rationalization which we have not done in quite some time, especially on the private label side and lower-margin products. And again, that bodes well for 2022. Duane?

Duane Portwood: Yes. I think from a -- as to your first question in terms of did we quantify the impact of the constraints, we did not. That said, I will say, we ended up within our guidance range on the top line. We would have been, certainly, over the midpoint of our guidance range had that constraint not been present.

Brian Holland: Okay. Fair enough, appreciate that. Next question, maybe just, again, around the fiscal '22 guide. As a later reporter, you obviously have more information in a very dynamic and fluid environment. I think you called out some of the geopolitical factors within the context provided. Can you give us any color or just help us understand, whether it's from a raw material sourcing perspective or on the revenue line, what exposure you might have as a result of recent conflict in Eastern Europe?

Albert Manzone: Sure. Let me start this by telling you -- so let me break it down a little bit by telling you that we are very comfortable about our guidance for 2022. The high end is obviously within our long-term guidance. The low end just takes into account some of what you say, since I would say that, as of today, nobody knows how bad things could get. But within what we see today, first of all, we have no exposure to Eastern Europe and Russia, either from a sourcing or really from a customer standpoint. So that's first and foremost. Second of all, from a supply of ingredients, etcetera and I had talked about this previously, we essentially have amounts of inventories needed -- located in North America or in Europe and close to our production sites and, therefore, are comfortable with this. And then number three, thanks to the brands, the innovation, the Power of One at the distribution, we're seeing the ability to really compensate any inflationary pressure this year through our supply chain productivity and pricing and, therefore, feel very comfortable about our guidance.

Brian Holland: So appreciate the color, Albert. Go ahead. I'm sorry.

Duane Portwood: Sorry, Brian. I echo everything that Albert has said. I would -- and we're trying to take what we know right now into account in our guidance. As things progress, however they progress during the year, obviously, that could change. As I sit here now and with the conflict going on in Eastern Europe, gas prices seem to be pretty volatile. To the extent that continues, then there could be other things and other pressures that go on throughout the year.

Brian Holland: And then if I could just sneak in one last one, Albert. I know we've talked about this a lot but there's obviously challenging optics here with what we see in the scanner data on a bimonthly basis, with your portfolio down sharply. I just wonder if you could just take a minute and just help us parse out kind of your exposure to those channels, how much that represents and maybe why that -- these data points that we're getting are not -- why you think they wouldn't be instructive as to directionally where this business is headed or more specifically the category?

Albert Manzone: Thank you, Brian. This is an important question because, obviously, that's what people see. And I will tell you, first of all, that what you see in Nielsen measured channel is really about 25% for North America of our total sales. So first and foremost, that's a small piece. Number two, we are essentially making our biggest gains as we speak outside of those measured channels. And that would be specifically into club; into foodservice which essentially grew 30% year-on-year; into e-commerce which grew 100% versus 2019. So you have significant distribution gains and progress outside of those channels. Now when you come into the channel and you say, well, if that's what you do outside, why don't you do it here, too? What I would tell you is the following. As part of those supply chain constraints that we really impacted end of Q3, Q4 and are lingering in Q1 and we will be over this by March, April, really, what we did is two things. Number one, we had to stop most of our promotions. So from a year-over-year, that has an impact. And number two, we did have some supply constraints. That being said, again, when you compare this to 2019, you do see an 11% growth. And that is also for some of our products that are really geared to baking, etcetera, some level of deceleration. Importantly, when you look at 2022, what I would tell you is, number one, that those supply chain constraints are behind us. We're back to high customer service levels with our key customers. And number two, we have significant innovation coming upstream in the second half. And what I would say on those innovation, additionally, is that a lot of them are not recorded into Nielsen. So all the baking mixes that are coming up with Wholesome and we picked up 3,500 stores at the end of February. The innovation that you could see at Expo West the last week on Swerve on chocolate chips, cookies, etcetera, those things are, again, not measured by Nielsen since they only look at the category as a sweetener.

Brian Holland: I appreciate all that context, Albert. I’ll leave it there. Best of luck.

Albert Manzone: Thank you.

Operator: Thank you. Our next question comes from the line of Scott Mushkin with R5 Capital. Please proceed with your question.

Scott Mushkin: Hey guys, thanks for taking my question. So I guess, Albert, I wanted -- where you left off, I wanted to go where you left off on 2022. You talked about the back half, some good product introductions, Wholesome baking -- bake mixes. Maybe elaborate a little bit more on that. Maybe also tell where is Wholesome bake mixes, where they're going to be? But what else is in the pipeline? And how do you think these new products could eventually propel you to the top end of your guidance? Kind of just frame it for us a little bit more.

Albert Manzone: Sure. So if you look at 2021, I see that as a very foundational year, for all the reasons that we said. We made two acquisitions that we brought in-house. We doubled almost the size of our company. We took our EBITDA to 80 -- the mid-80s. And we essentially showed, as a team, that we could take those on. The work has been intensely going, as you can imagine, in terms of bringing those brands together, bringing the operations together and bringing an innovation pipeline together. And you are going to see that really coming in 2022. Obviously, those products are being presented, were presented to the retailers. We do see more appetite in the retail environment to take on new innovation. As you know, the last two years have been more limiting due to labor shortages and so on and so forth. But we do see appetite from the retail to listen, even for the risk prudence and put those things on the shelf. So what we're excited about in these talks is essentially to, what I say, the top end of our guidance is really geared to -- our mid- to our long-term guidance is those innovations hitting the shelf. As I said, some of them are hitting as we speak. And so you will obviously see that impact in Q2. And then throughout Q3 and Q4, you will see those innovations. I will add, if you allow me, that our international business grew almost double digits. And we continue to see that opportunity going on and we're very excited about this. We're doing well in China and India that we started last year. And then I also want to take a moment to really congratulate the Flavors & Ingredients team. And you have seen incredible growth there which, again, comes from laser-focused execution on R&D, on sales. And there, too, we're very pleased with essentially the power of a very strong position, supported by innovation and R&D and distribution.

Scott Mushkin: That actually leads into my -- right into my second question. I know you talked about exposure to the war in Ukraine. What I wanted to also explore is that Asian component, I mean, obviously, there's been some concern vis-a-vis China. So maybe you can walk us through, both from a raw material perspective and then also from a sales perspective, specifically, the Flavors & Ingredients, I think, on raw materials. How much licorice do you have in kind of in inventory? Where is it -- I think there's some sub manufacturing going on there? Just kind of walk us through that, that would be great and then I'll yield.

Albert Manzone: Sure. So well, most of the companies today are global and globalization has been a phenomena of decades. And where that is going to go and take us, nobody knows. But what we're doing, obviously, is a few things. Number one is to diversify our supply from different regions in the world and we're doing that as much as we can. Number two, as I said earlier, is also build up inventories in the locations, be Europe or be the U.S., so that we have a certain amount of inventories and feel comfortable that we can manage, starting from labor shortages and freight shortages and those type of things. That's really what initiated it. And so this is just taking the next level up, making sure our exposure from a sales standpoint and customer is obviously still very small. As I told you previously, markets like India and China, you can invest heavily. It takes a long time. We have decided to take more of an e-commerce, modern trade route. So those are not big exposure in the context of our guidance and where we're heading. But I hear you and we are as proactive in terms of diversify of supply, together with different manufacturing centers and building those up, as well as we're putting the right amount of inventories in strategic locations.

Scott Mushkin: Perfect, thanks. Thanks, guys.

Albert Manzone: Thank you.

Operator: Our next question comes from the line of Bobby Burleson with Canaccord Genuity. Please proceed with your question.

Bobby Burleson: All right. Yes, I think you guys have covered a lot of good ground here in the Q&A but maybe just focusing a little bit more on foodservice. Curious how that's contributing to your growth outlook, what kind of trends you're seeing there? Obviously, a lot of mask mandates have been removed and there's a lot of broad reopening. So curious how that's affecting your outlook in 2022.

Albert Manzone: Thanks for the question. I will start by telling you and I think that comes across for some of the Q&A questions so far which is the power of a diversified portfolio. And what I love about our business is that you operate in two segments. You operate in North America, you operate in international, you operate across different channels. And that is what gives me extreme confidence in terms of the sustainability of our results and our operations. And so when you then dive into those channels in North America, as I was saying, our foodservice grew 30% year-on-year in 2021. And that was great because that's the start. In 2021, foodservice was not out of the woods. And as we look forward, what we're excited about is, first of all, that we have a great portfolio of both traditional as well as natural options. And we have seen in the -- said in the past that we do foresee a number of operators proposing increasingly natural options. And the second thing is that we have the power of Wholesome, the number one organic brand in North America; the power of Swerve, the number one baking brand in North America; Whole Earth Brands; Equal. And there's a recent opportunity that we're facing upon to essentially not only work on the front end of the store but also on the back end. And we are extremely happy with the successes we're getting on the back end of the kitchen, whether somebody wants to provide a calorie-free muffin or an organic sugar chocolate cookie. And so we have a great team. We have great operations there and we do see 2022 as a good year for us in foodservice driving our performance.

Bobby Burleson: Great. And then just in terms of pricing actions, those are obviously helping you here in the balance of Q1 and going forward. But there's a lot of fluidity in cost inflation this year, it looks like. Curious, what are the kind of cycle times in terms of you identifying cost headwinds and then being able to put through price increases? What's the lag time there? And how much flexibility do you have in price changes this year, given the -- to address this dynamic environment?

Albert Manzone: Yes, that's a great question, Bobby, because we, essentially, are taking prices as we speak. And those prices are in the mid-single digit. Those prices are going through. As you know, it's never-seen-before ability to take some level of pricing. And the pricing has gone through. There is, number two, a lag factor which you are going to see somewhat in Q1, where your COGS start in January and your prices start mid-quarter. So you are going to see some of that in Q1 which Duane and I alluded to before. And number three, I would go back to, really, our Supply Chain Reinvention project in North America. I'm so pleased and so thankful for the organization and the team to have taken on the time, the energy to start this very early on. We didn't wait for inflation to start. We immediately withhold some things, where -- took on the opportunity to synergize. And those synergies are extremely helpful, together with price. At this point in time, we feel comfortable, as Duane said earlier, with what we see today to be able to essentially throughout the year to compensate the COGS increases and inflation with the pricing actions and the Supply Chain Reinvention.

Bobby Burleson: Okay, great. Thank you. That’s it for me.

Albert Manzone: Thank you, Bobby.

Operator: Our next question comes from the line of Ryan Meyers with Lake Street Capital Markets. Please proceed with your question.

Ryan Meyers: Good morning, guys. Thanks for taking my question. Just one for me. You talked quite a bit about the price increases. So what sort of feedback have you gotten from some of your retailers as far as these price increases go? And have they been pretty receptive to it?

Albert Manzone: Yes and yes. That's the long and short answer. And we have taken those prices, I would tell you, across North America. We have taken them across international. We have taken them on Flavors & Ingredients. And essentially, there is, I would say, a very good understanding about where this is coming from. Depending on customers or regions in the world, you have to justify, more or less and almost document what is going on and why you are doing it. And I will tell you that there is receptivity, understanding; and that's what we're doing and have done as we speak.

Ryan Meyers: Great. That’s helpful. Thank you.

Albert Manzone: Thank you.

Operator: Our final question this morning comes from the line of Alex Arnold with Odeon Capital. Please proceed with your question.

Alex Arnold: Hey guys, good morning. I guess I have two; one is a little higher level which is just sort of balancing or looking at the state of the consumer as it relates to your product portfolio. Sort of on the back end of lapping stimulus and inflation squeezing the wallet, how does that impact sort of a higher-value, higher-price product portfolio relative to trade down? And then the other question is, I guess, that the inventory reset versus the supply chain costs almost net out. So if you can just help me, other than pricing, unpack the other stuff that's running through the COGS increase. And then also how the supply chain costs might look in Q1?

Albert Manzone: Okay. So three questions, if I understand. So give me back the first one and I'm happy to take it.

Alex Arnold: The first one is when you think about your product portfolio being a premium product portfolio that's not the lowest price, what are you seeing out there in terms of consumer behavior on the back end of stimulus going away and inflation squeezing their wallet?

Albert Manzone: Understood. So this is a great question and one that, obviously, we spend a lot of time thinking about. I would tell you a few things. The first one is, this is a portfolio where -- and a category where consumers come to it, either because they need it for health reason or because they want it for lifestyle reasons. So this is a -- that goes back to this -- the promise of this category and why I'm excited about it which is really there is too much processed sugar. Consumers realize what they need to do and the importance of it. I've said many times, COVID was just an accelerator of that because diabetes and obesity were risk factors. And so there is -- this category is really prone for consumers to sticking to it. Number two, we do have, very importantly for me, a number of brands and they play across different price points. And I continue to consider that, together with taste, cost is a very important element to increase penetration of this category. And I'm very pleased with the fact that we do have a portfolio that goes from traditional at a lower price point all the way to the most premium products like Wholesome. And that gives the opportunity to consumers to still come into category but essentially pick it up where they can afford it. And playing that portfolio, I think, is one of the strengths in the environment that you are describing. And I would say that's true also for international, where we have always a traditional offering and a premium offering. This is very important in emerging markets. So taking all the lessons and benefiting from our global view, this is no different when you talk to different income groups than thinking about an international developing market versus a developed market. And so we know how to operate this and we have a great portfolio to do it. Does that answer your first question?

Alex Arnold: It does. I guess Duane is probably the next one but I'm really -- all I'm trying to do is unpack the increase in COGS a little bit and understand how some of the onetime pieces roll forward. So if you can give some -- just some high-level guidance, we can drill in further on the Zoom later.

Duane Portwood: Yes, sure, Alex. I appreciate your question. I think from a onetime cost perspective, obviously, we had a little bit in Q4. There will be some in Q1 as well and then it should taper off dramatically. From an overall inflation perspective, you mentioned pre-buys of inventory and the like. I would say, generally speaking, we see inflation in our production processes throughout, whether those are packaging, whether that's raw materials, whether that's labor. We've mitigated that somewhat in terms of inventory pre-buys and the like. Obviously, the lens is more clear in Q1 than it is in Q4. So we're not as concerned about inflation, so to speak, in the near term. And to the extent that it -- like I said at the -- on one of the other questions, we're confident that we can control what we see right now. And should things change, obviously, we'll have to change. But as we finish what we're doing in our North America supply chain, get stability there, we're comfortable that, through these initiatives and through efficiencies there, that we're doing what we can to mitigate the inflation that we're seeing.

Alex Arnold: Okay. And then just in terms of supply chain costs, the $6 million rolls into -- can you give a rough range for everyone as to what that might look like in Q1?

Duane Portwood: I would -- without getting too specific, it will be significantly less than that. It will be south of $5 million.

Alex Arnold: Okay, thanks.

Operator: Thank you. Our final question comes from the line of Pablo Zuanic with Cantor Fitzgerald. Please proceed with your question.

Pablo Zuanic: Thank you. Albert, I mean, it's a basic numbers question but can you give more color in terms of your various brands performance in the fourth quarter? I mean minus 4% pro forma, I understand that we have to look at the 2-year stacked number. But can you break that down between, I don't know, North America and international, between Branded CPG? And even within North America, maybe more color between Wholesome, Swerve and the Whole Earth? I mean just more color would help and then I have a follow-up.

Albert Manzone: Sure. So with regard to Q4 and with regard to the supply chain constraints I talked about, I will tell you that the -- all of the brands, to a lesser extent, Wholesome, were impacted by the supply chain constraint, very simply put. And all of them were impacted by a reduction of -- elimination, essentially, of any promo activity. So I would say that, that was really a theme across because, essentially, we are in-sourcing sachet and bags. So that's a big component of our business, including in foodservice. And so you know that plus 30% was also done with those supply chain constraints. So I would say that was the impact of the -- on North America. On international, we operate from number one, number two positions across all of the markets. And the category is healthy. When you look at -- on a 2-year basis and even year-on-year basis, the category is double digit, high single digit. We are leading in those categories. Remember that we have a number of markets where we have a 70% market share. So we're driving the category. And I would say that international had very healthy growth and that will continue. Similarly, Flavors & Ingredients and we broke it down for you. We're very pleased with the results there. So Pablo, does that answer your question?

Pablo Zuanic: Okay, yes. And then in terms of just the outlook, when I think about -- in the past, about ACV opportunity versus whether that means new doors or new SKUs within the same store, maybe expand on that. I'm trying to understand. What we've seen is that your brands maybe are beginning to enter into each other's turfs, right? So the lines are beginning to blur but I'm sure there are different segmentation for each brand. And maybe the channel opportunities vary by brand. But maybe just a reminder, when I think of Wholesome versus Swerve versus Whole Earth, about the ACV opportunity, whether that's doors versus space within the store SKUs and then whether there are any channels that you won't go to, like maybe Wholesome won't go to a certain place or Swerve won't go to a certain channel.

Albert Manzone: Yes, that's a great question. And first, let me tell you that if you add our four brands, we are, as we close the year in North America, in about 85,000 doors and that we added 7,000 -- over 7,000 doors this year. And that's 9% versus 2020. So our Power of One which is essentially going to the customer with a retail solution, customer by customer, is powerful. We are elevating this organization and adding resources to continue to move this forward and we're very excited by it, number one. Number two, what you said about the brand is very important. And having worked in portfolio of brands all my life, the last thing you want to do is to have overlaps and cannibalization. That's not why you do a portfolio of brands. We had a question earlier from Alex about the pricing. And so there is significant opportunities when you have a great portfolio of brands like ours. Number one, there is a differentiation on taste and price. Number two, there is chartered innovation field. We talked earlier about the baking mixes for Wholesome which are delicious, full-calorie baking mixes. Then you have Swerve going into chocolate chip cookies which we showcased at Expo West which are amazing with no added sugar products. And then to your point, you can also play channels right. There are some channels, as you know, whether you look at club, mass or natural channels that are not -- where a product is not going to coexist well and that gives us an opportunity to really play this portfolio to always be in a very strong position and play the channels from a price standpoint. So, I would say -- and I will close by telling you that we're excited, as Bobby said earlier, about our foodservice opportunities for 2022. We're excited about our e-commerce which, as I said, grew 100% over the last two years. And we're excited about the innovation and discussions and Power of One discussions that we have with retailers, be it Nielsen, be it outside of Nielsen.

Pablo Zuanic: Got it. Thank you.

Operator: Thank you. Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Mr. Manzone for any final comments.

Albert Manzone: Sure. And maybe as a final comment, I know that our Chairman, Irwin Simon, is on the line. Irwin, if you want to give us some comments, that would be great.

Irwin Simon: Thank you, Albert. Good morning, everybody. And I know in regards to supply chain, I know in regards to what's going on in Ukraine and Russia is difficult times for fuel prices. But I must say, in regards to Whole Earth, it's just 18 months old. It's a company that owns some great brands today. I've been listening to a lot of your questions in regards to our brands, premium brands. Listen, I think with gas prices where they are today, people will stay home, be at home more, bake more and I think we're in a good position. As Albert said, we don't have disruption to Ukraine or Russia. And we have a really good infrastructure and building out the infrastructure that can run a $1 billion company. No, not everything goes perfect. And when we had issues, we reacted with regard to supply chain, taking overall manufacturing. As Albert and Duane talked about, putting in place today for a company our size, our public company costs are tremendous. But as I see this company going forward, as I saw in -- building another natural organic food company, we're in a really good place here with our brands, with our products, with our distribution, with our brand awareness and our categories and with our free cash. So it's tough; but with that, there's really a good plan in place for '22, as Albert talked about it. We got our people. We got our brands. We got our strategy. And most important, how do we reward our shareholders is something that's very, very important to us. So thank you, Albert.

Albert Manzone: Nothing to add to that.

Operator: Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.