Whole Earth Brands: announces Q2-2021 results

Chicago / IL. (web) Whole Earth Brands, a global food company enabling healthier lifestyles by providing access to premium plant-based sweeteners, flavor enhancers and other foods through a diverse portfolio of trusted brands and delicious products, announced its financial results for its second quarter ended June 30, 2021. The Company also reiterated fiscal year 2021 guidance.

Irwin D. Simon, Executive Chairman, stated, «Throughout my entire career I’ve been focused on making food healthier and I’m excited about the opportunity we have at Whole Earth Brands to bring ‘better-for-you’ foods to consumers across the world. Our recent performance affirms that Whole Earth Brands is unquestionably the leading global player in the ‘better-for-you’ sweetener and reduced sugar categories. We are poised to disrupt those categories through the strength of our brand portfolio, our track record of product innovation and distribution, our recent strategic acquisitions that broaden our offerings, and a best-in-class operational platform. I am confident in our ability to take full advantage of the substantial growth opportunity we have ahead.»

Albert Manzone, Chief Executive Officer, commented, «We are on a mission to make sweet healthy through disrupting a massive USD 100 billion market that’s dominated by refined sugar. Today, penetration of sugar substitutes is at its infancy, representing approximately 3 percent of a USD 100 billion global market. The successful first quarter integration of our Swerve and Wholesome acquisitions has generated notable momentum as we focus on growing our global brand portfolio and further strengthening operations across the Company. We believe the second quarter 2021 15 percent two-year stacked growth rate in our Branded CPG Segment is indicative of the potential of the business. We are proud of our best-in-class global supply chain and have recently completed our Flavors + Ingredients segment’s footprint optimization project with the sale of our Camden, New Jersey facility. Additionally, our Branded CPG North America supply chain reinvention project reached a milestone with the opening of a new facility in Decatur, Alabama which is driving efficiencies and long-term margin enhancement. Together with the execution of several levers, including pricing, trade spend optimization, and productivity, these supply chain initiatives are helping us offset inflation.»

Second quarter 2021 highlights

Our consolidated financials reflect both predecessor and successor periods indicative of the June 25, 2020 business combination date. The second quarter results discussed below compare the successor’s 2021 second quarter results ended June 30, 2021 to the combined 2020 second quarter results which includes the successor period from June 26, 2020 through June 30, 2020 and the predecessor period from April 1, 2020 through June 25, 2020.

We completed the acquisition of Swerve on November 10, 2020 and the Wholesome acquisition on February 5, 2021 and our reported results include Swerve and Wholesome from those respective dates onwards.

  • Consolidated product revenues were USD 126.5 million, an increase of 89.3 percent on a reported basis and an increase of 84.8 percent on a constant currency basis, as compared to the prior year second quarter. On a proforma basis, including the impact of both acquisitions for the quarter in both the current and prior year periods, organic product revenue decreased 1.4 percent, or decreased 3.8 percent on a constant currency basis, compared to the prior year second quarter driven by 2020 one-time pantry loading at the onset of Covid.
  • Reported gross profit was USD 41.4 million, compared to USD 26.6 million in the prior year second quarter, and gross profit margin was 32.7 percent in the second quarter of 2021, compared to 39.8 percent in the prior year period. Gross profit results were positively influenced by USD 11.0 million of contributions from the Swerve and Wholesome acquisitions, revenue growth from the legacy Branded CPG and Flavors + Ingredients segments and productivity gains. The decline in gross profit margin was driven primarily by the inclusion of Wholesome’s private label business.
  • Adjusted gross profit margin, when adjusting for all non-cash and cash adjustments, was 34.0 percent down from 41.2 percent in the prior year driven primarily by the inclusion of Wholesome‘s private label business.
  • Consolidated operating income was USD 6.0 million compared to an operating loss of USD 5.2 million in the prior year and consolidated net income was USD 3.7 million in the second quarter of 2021 compared to a net loss of USD 6.0 million in the prior year period.
  • Consolidated Adjusted Ebitda increased 94.9 percent to USD 22.0 million driven by contributions from the Swerve and Wholesome acquisitions, revenue growth and productivity gains, partially offset by public company costs.

Segment results

Branded CPG Segment

Branded CPG segment product revenues increased USD 56.0 million, or 130.0 percent, to USD 99.1 million for the second quarter of 2021, compared to USD 43.1 million for the same period in the prior year. On a constant currency basis, product revenues increased 123.1 percent driven by the addition of Swerve and Wholesome revenue, which was not comparable to the prior year period. Constant currency results reflect the strong growth in our natural brands. On a proforma basis, including the impact of both acquisitions in the current and prior year periods, organic constant-currency product revenue decreased 8.1 percent, compared to the prior year second quarter. The decline was driven by one-time pantry loading in 2020 at the onset of Covid, partially offset by growth in the U.S. foodservice channel. On a two-year stacked basis, when comparing second quarter 2021 to second quarter 2019, Branded CPG segment proforma organic constant currency revenue increased 15 percent.

Operating income on a GAAP basis was USD 10.3 million in the second quarter of 2021 compared to operating income of USD 1.8 million for the same period in the prior year. The increase of USD 8.5 million was driven by contributions from the acquired Swerve and Wholesome businesses, revenue growth and productivity gains within the segment.

Flavors + Ingredients Segment

Flavors + Ingredients segment product revenues increased 15.3 percent to USD 27.4 million for the second quarter of 2021, compared to USD 23.8 million for the same period in the prior year. The increase was driven by growth across most of the product lines and a favorable comparison in the prior year where the business realized a surge in product orders in March 2020 related to Covid-19, which reduced revenues in the second quarter of 2020.

Operating income was USD 3.7 million in the second quarter of 2021, compared to USD 0.1 million in the prior year period. The increase was driven primarily by revenue growth.

Corporate

Corporate expenses for the second quarter of 2021 were USD 8.0 million, compared to USD 7.0 million of Corporate expenses in the prior year. Corporate expenses increased USD 1.0 million, primarily driven by increased public company costs and stock-based compensation, partially offset by transaction related expenses of USD 4.5 million in 2020.

Year-to-date 2021 highlights

Our consolidated financials reflect both predecessor and successor periods indicative of the June 25, 2020 business combination date. The year-to-date results discussed below compare the results for the six months ended June 30, 2021 to the combined six months ended June 30, 2020, which includes the successor period from June 26, 2020 through June 30, 2020 and the predecessor period from January 1, 2020 through June 25, 2020.

We completed the acquisition of Swerve on November 10, 2020 and the Wholesome acquisition on February 5, 2021. Our reported results include Swerve and Wholesome from those respective dates onwards.

  • Consolidated product revenues were USD 232.3 million, an increase of 74.9 percent compared to June year-to-date 2020 and, on a constant currency basis, an increase of 71.1 percent. On a proforma basis, including the impact of both acquisitions for the full six month periods ended June 30, 2021 and June 30, 2020, organic product revenue increased 3.0 percent, or increased 0.9 percent on a constant currency basis, compared to the prior year.
  • Branded CPG segment product revenues were USD 180.9 million, an increase of 117.2 percent or 111.0 percent on a constant currency basis. Constant currency results reflect the acquisitions of Wholesome and Swerve and growth in our natural brands. On a proforma basis, including the impact of both acquisitions for the full six month periods ended June 30, 2021 and June 30, 2020, organic constant-currency product revenues increased 0.2 percent, compared to the prior year period. On a two-year stacked basis, when comparing the first half of 2021 to the first half of 2019, Branded CPG segment proforma organic constant currency revenue increased 11.5 percent. Operating income was USD 20.4 million compared to an operating loss of USD 5.0 million in the prior year period. The increase was due to an USD 11.1 million goodwill asset impairment charge in the prior year, USD 7.9 million of contributions from the acquired Swerve and Wholesome businesses, revenue growth and productivity gains.
  • Flavors + Ingredients segment product revenues were USD 51.4 million, an increase of 3.9 percent as compared to the prior year period. The increase was driven by growth in derivatives. Operating income for the six months ended June 30, 2021 was USD 4.7 million, compared to an operating loss of USD 23.9 million in the prior year period. The USD 28.6 million increase was primarily driven by asset impairment charges totaling USD 29.5 million recorded in the first quarter of 2020 and transaction related expenses of USD 3.8 million also recorded in 2020 and revenue growth, partially offset by USD 4.5 million of facility closure and restructuring costs and a USD 1.9 million increase in amortization expense due to purchase accounting revaluations of intangible assets.
  • Reported gross profit was USD 77.0 million, an increase of USD 24.5 million from USD 52.5 million in the prior year period, and gross profit margin was 33.1 percent in the six months ended June 30, 2021, down from 39.5 percent in the prior year period.
  • Adjusted gross profit margin, when adjusting for all adjustments, was 35.3 percent, down from 41.5 percent in the prior year period driven primarily by Wholesome’s private label business.
  • Consolidated operating income was USD 2.9 million compared to an operating loss of USD 38.5 million in the prior year and consolidated net loss was USD 8.3 million for the six months ended June 30, 2021 compared to a net loss of USD 34.6 million in the prior year period. The improvement was largely due to the non-cash asset impairment charges recorded in 2020, the positive impact of acquisitions and lower transaction related costs.
  • Consolidated Adjusted Ebitda increased 64.9 percent to USD 39.4 million driven by contributions from the acquired Swerve and Wholesome businesses, revenue growth and productivity, partially offset by increased public company costs.

Cash flow + balance sheet

Cash used in operating activities was USD 9.5 million and capital expenditures were USD 4.6 million during the first half of 2021. As of June 30, 2021 the Company had cash and cash equivalents of USD 24.1 million and USD 384.7 million of long-term debt, net of unamortized debt issuance costs.

Reducing balance sheet leverage is a corporate priority and the Company estimates that it will achieve a ratio of Net Debt to Adjusted Ebitda of approximately 4.0x by December 31, 2021.

Outlook

The Company is reiterating its outlook for full year 2021, which includes the impact of its recent acquisitions of Swerve and Wholesome. The outlook includes expectations for growth on a proforma organic basis and margins for the combined business. The Company defines proforma organic growth to be as if the Company owned both Swerve and Wholesome for the full years 2020 and 2021. The Company’s 2021 outlook is as follows:

  • Net Product Revenues: USD 493 million to USD 505 million (representing reported growth of greater than 78 percent, and proforma organic growth of 3 percent to 5 percent)
  • Adjusted Gross Profit Margin: 34 percent to 35 percent of product revenues
  • Adjusted Ebitda Margin: Approximately 17 percent of product revenues
  • Adjusted Ebitda: USD 82 million to USD 85 million (representing reported growth of greater than 50 percent, and proforma organic growth of 3 percent to 5 percent)
  • Capital Expenditures: USD 10 million to USD 12 million
  • Tax Rate: Approximately 7 percent on a GAAP basis due to one-time discrete favorable items