Oatly Group AB (NASDAQ:OTLY) Q3 2023 Earnings Call Transcript

Oatly Group AB (NASDAQ:OTLY) Q3 2023 Earnings Call Transcript November 9, 2023

Oatly Group AB beats earnings expectations. Reported EPS is $0.07, expectations were $-0.12.

Operator: Good day and welcome to Oatly Third Quarter 2023 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Brian Kearney, Vice President of Investor Relations. Please go ahead.

Brian Kearney: Good morning and thanks for joining us today on Oatly’s third quarter 2023 earnings conference call. On today’s call are our Chief Executive Officer, Jean-Christophe Flatin; our Chief Operating Officer, Daniel Ordonez; and our new Chief Financial Officer, Marie-Jose David. Before we begin, please review the disclaimer on slide three. During this call, management may make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding our future results of operations and financial position, industry and business trends, business strategy, market growth, and anticipated cost savings. These statements are based on management’s current expectations and beliefs and involve risks and uncertainties that could differ materially from actual events or those described in these forward-looking statements.

Please refer to the documents we have filed with the SEC for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today. Also please note on today’s call, management will refer to certain non-IFRS financial measures, including EBITDA, adjusted EBITDA, constant currency revenue, and free cash flow. While the company believes these non-IFRS financial measures will provide useful information, the presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with IFRS. Please refer to today’s release for a reconciliation of non-IFRS financial measures to the most comparable measures prepared in accordance with IFRS.

In addition, Oatly has posted a supplemental presentation on its Web site for reference. I’d now like to turn the call over to Jean-Christophe.

Jean-Christophe Flatin: Thank you, Brian, and good morning everyone. Page five has the key messages I want you to take away from today’s presentation. First, we had solid third quarter results, where adjusted EBITDA exceeded our expectations, and we made solid progress. The results from bold strategic actions are clearly starting to materialize. Our EMEA segment continued to show its strength and durability. Our Americas segment gained good momentum in its retail business, and the foodservice business helped improve the bottom line by sacrificing some supply. And the Asia segment is executing its reset plan, which is on track and delivering good results. Today, we are also announcing another bold action where we are doubling down on our asset-light production model, which we expect to increase our focus while improving our cash flow outlook and improving our confidence in our longer-term margin targets.

Also, we are modifying our 2023 guidance to reflect an acceleration of our strategic actions, in particular the diversification of our Americas foodservice business and the strategic reset in Asia. We now expect our constant currency revenue growth to be near the low end of our prior range of 7% to 12%, and our fourth quarter gross margin to be in the mid-20s compared to our prior expectation of high-20s. Finally, we believe we remain on track to achieve profitable growth in 2024. On slide six, you can see that the profitability of the business continued to improve in the third quarter. Our reported gross profit included approximately $6 million of one-off costs related to our Asia strategy reset. It is primarily inventory write-offs and co-packer penalties.

This created a 320 basis point headwind in the quarter that we believe marks the underlying improvement in the business. Our adjusted EBITDA also improved sequentially in the quarter as each segment showed improvement. The $85 million cost-saving program that we announced last quarter is already starting to flow through the P&L, and we remain on track to achieve our targets. So, while we still have plenty of work to do, we are clearly making good progress. Slide seven outlines how we are doubling down on our asset-light production model. As you know, we have been evaluating how to optimize our supply chain. We have been taking a holistic look at the network with the overarching goal of ensuring we have the right amount of capacity when we need it, while also being very efficient with our capital.

We believe that we have enough capacity available to support our growth over the next few years. We currently have production capacity of approximately 900 million liters, compared to approximately [550] (ph) million liters sold over the past four quarters. Additionally, for the past 12 months, we have been making material improvements in our manufacturing network utilization, efficiency, and reliability, both our own oat-based processing production and with our strategic co-packers network. This has resulted in significantly higher and more consistent output across our established sites. We have also found new solutions that already enable us to better utilize our existing plants and expand and gradually, over time, to support the growth in EMEA and the Americas.

Therefore, we are discontinuing the construction of new manufacturing plants in EMEA and the Americas. As part of this, we have also started to relocate some equipment that we previously purchased to ensure that we have adequate capacity to service our growing demand. We believe these will help our goals of appropriately timed expansion and capital efficiency. It should also enable us to better focus by simplifying and streamlining the supply chain, and reducing the complexity. This increased simplicity and focus also increases our confidence in our longer-term margin targets as we expect to be able to allocate more of our team’s time and resources into improving the business. On capital efficiency, we now forecast significantly lower CapEx than we previously expected.

We now expect our 2023 CapEx to be below $75 million, compared to our prior guidance of $110 million to [$130] (ph) million. We also expect to invest below $75 million in 2024 CapEx. This increased efficiency is a meaningful step on our way forward towards financial self-sufficiency. We are continuing to evaluate our total supply chain, including our assets in Asia where we currently have two active facilities, and a third one that is currently being built. Since we are continuing to evaluate the network in Asia, our updated CapEx guidance continues to assume that the third facility will be built be an end-to-end facility. With that, I would now like to turn it over to our Chief Operating Officer, Daniel Ordonez, to give you an update on the segments.

Daniel Ordonez: Thank you, JC, and good morning, everyone. I begin my discussion on slide nine with EMEA which is our largest operating segment at 54% of our third quarter revenue. The oat drink category in EMEA grew at a very healthy 15% in the quarter, which was more than double the growth of the broader plant-based milk category. I am pleased to say though that our constant currency revenue growth was 16% in the quarter, outpacing the oat drink category. Slide 10 shows that EMEA segment has consistently reported volume growth in the mid- to high-single digit driven by our established market, growing volume in the mid-single digit and the new market contributing the balance. We believe that this consistency in our established market is a testament to the strength and durability of our business model in EMEA.

And we expect this momentum going forward, helped by many of our new customer wins including Coffee Fellows which we recently announced. We are pleased with the performance in the established market. And we are actively working to maintain the momentum. Slide 11 gives an update on our Go Blue strategy which is our approach to increasing consumer usage by launching margin accretive innovations that is best used outside of coffee. Recall that our U.K. business is the furthest along the way with this portfolio expansion. In the U.K., our new items are some of the fastest turning plant-based product. The whole and semi products are the biggest launches in the category in the last 52 weeks according to NPD. And, we have strong repeat rates with already 50% of whole and semi shoppers repeating purchase since launch.

In Germany, which is our second largest market in EMEA segment, the rollout of Go Blue is progressing well. The Go Blue introduction has driven a 24% in volume net of cannibalization. Overall, we are seeing very good progress here. Now turning to slide 12, we continue to make terrific progress in brining Oatly to new geographies. Here, we can see some of our activity in this market. You can see on the slide that we are making good progress establishing an oat milk culture in these new markets. For example, in Belgium we already have an established process in place. In France, we are already the highest velocity plant-based milk in supermarket. And, we are continuing to engage with customers and consumers on a personal level in the street. And in Spain, we already have the leading market share in the Barista category.

And, we are growing rapidly by integrating it into the culinary culture. Slide 13 shows some of the highlight of our recent unique experience-based brand activity with summer coffee and soft serve tour. We showed up the most important music festivals with food truck all over Europe, spreading the Oatly magic with its consumer target audience. In fact, we had to extend the soft serve pop-up shop in Amsterdam way after the summer. I encourage you to go to our YouTube channel to see more on how we engaged consumers this summer. I close the EMEA discussion on slide 14. You see while engaging the consumers and driving top line is important, EMEA is a solid and profitable business throughout the P&L. As you can see on this slide, our EMEA business is generating margins that are already approaching our total company’s long-term margin target.

We believe that EMEA margins still have room expand as we execute on our growth plans and increase our capacity utilization from the low 70s. As many of you know, we believe we can replicate our EMEA business models in our other segments. Turning to Americas segment on slide 15, I am pleased to report that we are back to gaining retail market share in the Americas. While the category growth rate has not been as strong as we would like, we firmly believe that consumers will continue to shift to oat milk over time. So, we focus on controlling the controllables and ensuring that we are building our business to achieve long-term profitable growth. On slide 16, you can see that we continue to post strong distribution gains. In the last 12-week period, we have increased our total distribution points by 18%.

And, our ACV is now up 39%, which is 250 basis points versus this time last year. While this progress is good, there is plenty more to come during the shelf reset this fall and this winter. You have likely seen our recent press release announcing the new Meijer distribution. And, we are also launching new distribution at Costco and expanding our distribution at Walmart. I am also very pleased to announce that we have regained distribution at Stop & Shop, which is a customer that we lost during our historical supply chain pickups. Turning to slide 17, a part of this shelf reset, we are also getting good acceptance of our new innovation. Here, you can see our new product. Similar to the EMEA global strategy in the Americas, we are expanding our portfolio to increase consumer choice and usage of our product.

We are launching two new oat milks, a super basic version that has just four easy-to-pronounce ingredient and an unsweetened version that has zero sugar and has a calorie count that will directly compete with almond milk. We are also launching a line of delicious coffee creamers with a variety of popular flavors. Be on the lookout for this terrific new product. Turning to foodservice side of the business on slide 18, 45% of the Americas segment’s third quarter revenue was in foodservice. This part of the business revenue declined by 6% in the quarter. While we do not like to see sales decline, we are focused on profitable growth. Excluding our largest customer, foodservice revenue grew by 10%. By winning new customers, expanding into new doors, and launching new items, we are diversifying our foodservice business, improving our margin, and giving us access to faster growing areas of the channel.

Slide 19 shows that our co-packer consolidation in Americas is driving solid results that are flowing through the P&L. This initiative has driven the segment’s cost of good services down by a healthy 10% from quarter one to quarter three, which is enabled by the Ya Ya food transactions that we completed only this year, and it is well above strong ongoing partnership with Innovation Foods at our [indiscernible] facility. Both Ya Ya Foods and Innovation Foods have been terrific partner. As we continue to work with them to become more and more efficient, we believe we can continue to reduce our cost moving forward. Turning to Asia on slide 20, the Asia team has moved quickly to implement the strategy reset plan that we discussed on the last quarter’s call.

On this slide, you can see the impact of those actions. By refocusing the business and reducing cost, there was a top line impact and a significant bottom line benefit. By implementing the reset plan, the Asia business improved adjusted EBITDA by $4 million quarter over quarter and $10 million year on year. Slide 21 shows how significant the change the team has executed just in the last quarter. The team has cut over 70% of the wastages and focused on the ones that are most profitable and can be produced more efficiently. You can see in the middle chart that we are also executing a significant shift in our channel mix by intentionally pulling back on certain SKUs, customers, and geographies. We have increased the percentage of revenue sold through the core foodservice channel by a full 11 percentage points.

And the result of this refocusing is a reduction in cost of goods services by 16% year on year and 8% quarter over quarter. The team has done a good job executing the first phase of the recent plan. Now turning to slide 22, while we are pleased with the progress to date, we know that we would still have lots to do to get this segment to where it needs to be. And, the team is clearly focused on achieving profitable growth. As JC mentioned, our SG&A cost-saving program remains on track and Asia remains on track to deliver their portion, which is $40 million. The team is continuing to drive efficiencies in the supply chain by focusing on things such as optimizing which facilities we produce, which products in, and maximizing production runs for our larger selling SKUs. We expect that they will continue to find ways to drive additional efficiencies.

Finally, the sales team remains active and energized. We have been given the direction to continue to build the business with our core channels, geographies, and SKUs, so that we can build a strong, profitable, and sustainable business. I would now like to turn the call over to our new CFO, MJ Marie-Jose David.

Marie-Jose David: Thank you, Daniel. Good morning, everyone. Slide 24 gives you an overview of the P&L for the quarter. We reported 3% year-over-year revenue growth and flat constant current year revenue growth. Growth margin for the quarter was 17.4%, which is a 14.7 percentage point improvement versus the prior year quarter, and a 180 basis-point sequential decline from Q2. As Jean-Christophe mentioned, our reported gross margin includes approximately $6 million or 1% of costs associated with the ongoing Asia reset, which is a 320 basis-point headwind that we believe masks the underlying improvement in our gross margin. Adjusted EBITDA was a loss of $36 million, which was ahead of expectations. This was $47 million improvements versus the prior year and $17 million improvement versus the second quarter.

Slide 25 shows the bridging items for our quarterly revenue growth. You can see volume declined 1%, price mixing for 1% for a flat constant current year revenue growth. Foreign exchange was a tailwind of 3%, resulting in 3% total revenue growth for the quarter. Slide 26 shows the revenue bridge by segment. EMEA continued to report strong growth, with 16% constant current year revenue growth, led by 10% price mix improvement, which was driven by the price increase due to last winter, and will start to anniversary this coming fourth quarter. America’s 4% decline was driven by a 6% volume decline, which was driven entirely by the food service channel as the rest of the business grew volume. Asia 28% constant currency decline was driven by the actions we have taken as part of the segment’s strategic reset plan.

Volume declined 15% as we refurbished the business on our core channels and geographies, and price mix declined 13%, largely driven by unfavorable sales mix as we rationalized SKUs that were higher priced but lower margin. Slide 27 shows you the sequential quarter-over-quarter growth margin bridge. A year-over-year bridge is provided in the appendix of this presentation. Overall, growth margin declined 180 basis points. The sequential decline in growth margin was driven primarily by a 190 basis point headwind from the Asia business, which includes the $6 million or approximately 320 basis points of one-off costs related to the strategic reset. Pricing and mix in EMEA and Americas improved growth margin by 110 basis points. Costs of goods per liter in EMEA and Americas was a headwind of 90 basis points as the co-packer consolidation in Americas is improving our cost per liter.

While EMEA experienced increase co-packing cost. Finally, foreign exchange was a 20 basis points headwind. Slide 28 shows our adjusted EBITDA by segment. As you can see, each segment shows good sequential improvement as our strategic actions are showing results. The cost-saving program that we announced last quarter is on track, and it is most clearly helping drive the improvement in Asia and corporate. Similar to last year, we do expect corporate to increase several million dollars sequentially in Q4 as we seasonally spend more in our fourth quarter. Turning to our balance sheet and cash flow on slide 29, overall, our liquidity position is strong, and we are improving our free cash flow. The left-hand chart shows how liquidity position at the end of the quarter.

We ended the quarter with $487 million of total liquidity, comprised of $283 million of cash and equivalents, and $204 million of undrawn bank facilities. The center chart shows that we have made good progress in improving our free cash flow. Improving our free cash flow is a priority for me, and our organization is very focused on it. As such, we expect our cash flow to continue to improve driven by the items shown on the right side of this slide. We expect to continue improving our adjusted EBITDA and reach profitability in 2024. As Jean-Christophe discussed, we are continuing to optimize our manufacturing footprint, and we are continuing to evaluate options elsewhere in the network. We believe that we have the opportunity to improve our working capital metrics.

Slide 30 shows you an updated guidance. For 2023, we now expect constant currency revenue growth to be near the low end of our guidance range of 7% to 12%. This is primarily driven by a revised outlook in the Americas segment as we diversify its foodservice business. We now expect our fourth quarter gross margin to be in the mid-20%s. This estimate now includes our expected cost related to the Asia reset as well as the absorption impact of reduced volume expectations in the Americas segment. As Jean-Christophe said earlier, we also now expect CapEx to be below $75 million this year as well as in 2024. As mentioned in our earnings press release, in our fourth quarter, we expect to incur non-cash impairment in the range of $110 million to $150 million related to the production facilities in EMEA and Americas segment where we are discontinuing construction.

We also expect to incur restructuring and other exit costs of approximately $40 million-$50 million. We currently estimate this to result in no more than $20 million of net cash out over the next two fiscal years, after taking into consideration anticipated proceeds from selling certain equipment. Finally, we remain on track to achieve positive adjusted EBITDA in 2024, while enabling our future sustained growth. We are confident that the actions we are taking will strengthen the business and position us for success. This concludes our prepared remarks. Operator, we are now prepared to take questions.

Operator: We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Ken Goldman with J.P. Morgan. Please go ahead.

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Q&A Session

Ken Goldman: Hi, good morning. Thank you. I wanted to ask, if it’s not too early, if we could get a little bit of a read on what you think some of the key tailwinds and headwinds we should look for as we head into next year? Not looking for numbers necessarily, but just an idea of how you think about progression. Obviously, it looks like you’re feeling pretty good about Americas recovering, and some of the new doors going in there. Just want to get a general sense of your thoughts early on, on the direction there, and the milepost we should look for?

Marie-Jose David: Hey, hi, Ken, Marie-Jose David speaking. Nice meeting you today.

Ken Goldman: You too.

Marie-Jose David: Thank you. Look, as we speak, we are working on our 2024 budget. So, for sure, we will share more next earnings call. But what I can tell you today is that our first priority to bring this business to profitability. What also we see is that the second-half is going to be better than the first-half, both from absolute EBITDA dollars as well as organic sales growth. Asia reset plan and the actions we are taking in Americas will be behind us. And we will continue to deliver on our SG&A savings, as well as the [indiscernible] productivity, as we discussed. So, this is what we can tell you today. I really want to reinforce the fact that we’re working on it, and this is where we stand today.

Ken Goldman: Thank you. And then, just a quick question about the status of your relationship, I guess, with your largest customer in Americas, how you see that progressing from here, any color you can provide on that would be helpful, I think?

Daniel Ordonez: Thanks again. Daniel here. Good to hear from you today. Well, listen, we’re looking to drive profitable growth. You heard us in the prepared remarks, and you heard MJ talking about it now. And that means that we are prioritizing the quality of our growth according to our strategy, and we believe we’re here for the long run. So, this doesn’t mean we’re walking away from any contract and any customer, we’re just rebalancing our out-of-home and foodservice channel sales, which have a variety — as we discuss in previous earnings, a variety of sub-channels that are more margin accretive to us and more profitable, and we’re rebalancing that. So, that’s all we can share with you today. There is ample opportunity to grow to both channels, as you see our recent distribution gains in the U.S. with some early signs of market data improvement.

And the same thing goes for out-of-home and foodservice, ample growth opportunities, it’s just the rebalancing of the equation between both to make sure that we’re true to our quality of growth, and that Oatly becomes a much better and stronger business before it becomes a bigger business.

Operator: Our next question comes from Max Gumport with BNP. Please go ahead.

Max Gumport: Hey, thanks for the question. Sticking with the Americas, so you acknowledge that category growth rates in the retail channel have slowed, but it sound that you believe that the shift to oat milk will continue, I was just hoping for more color on what’s driving the conviction behind that? Thanks.

Daniel Ordonez: Yes, thank you, Max. Thanks for the question, Daniel again taking it. Yes, as you have seen, we’ve seen units and dollar growth recently in our scanner data. And we have also seen market share progress within both plant-based milk and oat milk. So, this is consistent with the early signs of distribution gains we’ve seen. And as we consistently said, we are head-down on execution. It may sound a bit self-centered, but Oatly is the proven brand that ignites category growth. And therefore, as opposed to spend time worrying about the category, what we’re doing is stimulating that growth. Sustained fill rates, as you would have heard us speaking a few earnings call ago, now strong innovation coming, and ongoing disruptive brand activation at the back of solid distribution gains.

This is what we’re doing in EMEA, Max, and with visible results. And this is why we’re starting now to consistently deploy in the U.S. Mind you, that Oatly has a strong runway for distribution gains in the Americas too. And that will help with the strong velocities we have to stimulate further demand.

Max Gumport: Got it. And then, just on the supply chain changes. I realize they are being positioned as a doubling down on the asset-light production model, and they should increase your focus and improve your cash flow and the confidence in your longer-term margin target. But to play devil’s advocate, a skeptic could say you’ve stepped back from Asia and you’re seeing declining sales in the Americas partly due to the step away from your largest customer in foodservice. It sounds like you’ve got the capacity to produce more than you’re selling. You’ve lowered your sales targets throughout the year. And you’re volumes did decline in 3Q on a year-over-year basis, and maybe you could conclude that growth has come down a lot for this business over the last several months. What would your pushback be to that type of narrative?

Jean-Christophe Flatin: Hi, Max. Jean-Christophe speaking. I have a very strong pushback for you, which is there is no demand issue for us. What drives demand is our ability to fully deploy our playbook. The underlying demand for the oatmeal category remains strong. And as Daniel said, Oatly is the key driver of category growth, especially when we combine sustained capacity, distribution gains, and ground-building investments. EMEA is a very good example for that. We have consistently stimulated growth in our core markets, and we are still gaining significant share. Just take the example of Germany or the Netherlands. Oatmeal continues to grow in a consistent high single-digit in volume market, despite pricing. And that’s why in the U.S., we are confident that with the recent and upcoming distribution gains, as well as increased brand activity, we will be able to replicate the same playbook and results.

And of course, in China, we just started recently to adapt to the new context. So, really, when you look at the reduction in CapEx, it is therefore simply a consistent ongoing calibration acknowledging the fact that we have found asset-like ways to service our goals and extension within our established network, and by doing so, strengthening further our confidence in our long-term margin. So, that would be my pushback, Max.

Max Gumport: Great. Thanks very much.

Operator: The next question comes from John Baumgartner with Mizuho Securities. Please go ahead.

John Baumgartner: Good morning. Thanks for the question. I guess first off, looking at Asia, there’s a lot going on there, I think. Just sort of restaging the portfolio, pulling back on profitable items, is there a way to think about where this business sort of bases out in terms of just seeing big year-on-year decreases in revenue? What’s the right run rate for this business at this point, what do you think? I mean, is this sort of the bottom? And is there more to go? In terms of absolute sales declines this year? Like, how do you think about resetting the base in Asia?

Jean-Christophe Flatin: Thanks, John. And it’s great to hear from you. Thank you for joining us today, as always. I’ll try to unpack that for you. And you’re right. There are multiple, multiple dimensions to our reset in Asia. The first one has to do with the context, right? Accepting and acknowledging that there’s a much tougher consumer and customer environment. With very clear repercussions when it comes to demand sensitivity, but also especially price sensitivity more than demand. That’s number one. So, we’re reacting to that first, right? And as explained in prepared remarks, not just on these earnings, but in previous one, the team has moved in record time to implement that reset plan that we announced. So, that is focusing the portfolio with a strong reduction of 70% in SKUs, channel in our proven perimeter, which is food service, and of course, a subsequent headcount recalibration.

So, this is almost behind us in terms of operational execution. So, now it’s all hands on deck towards generating further growth. So, we are pleased to see that the reset is moving in the right direction. Now, I know your question is about the outlook and what we expect moving forward. And of course, we cannot predict the future, right? So we are controlling the controllables there. And we are in the early steps of our reset plan. We do expect, and I think MJ was referring to that, to report better results in 2024. But it’s too early to give you exact details on the shape of the growth curve at this point in time. The three of us, I can tell you, will be in Shanghai and in the factory in Ma’anshan again in two weeks’ time with our team in the field.

We will obviously keep you updated, and we’ll give you full 2024 guidance in our quarter four call, and the perspective on how the business is expected to look. Our go-forward plan has been proven, John, to work in EMEA and it’s starting to show early results in the U.S. So, we see no reason why we cannot follow suit in Asia. However, I would like to repeat one of the previous mantras with which we are driving the business since the last two quarters. We really seek, John, a stronger business before we seek a bigger business, and I cannot think on a better region to apply that mantra than in Asia at the moment.

John Baumgartner: Okay. And to follow up in the Americas, I think you’ve quietly built up some pretty nice TDP growth year-on-year, despite the absence of any kind of big bang, one-off increases in sizable retailers. But looking at the Americas results today, seeing the volume being softer coming from food service, how should we think about that sort of volatility from food service in the Americas numbers going forward? I imagine, to the extent that you’ve gotten volume declines in food service, you’re shifting leaders to more profitable outlets. How do we think about preparing for further volume declines in the Americas going forward? If we see that, is there a tradeoff of more profitability going forward? Just help us walk through the non-measure channel component of the geography.

Jean-Christophe Flatin: Thank you, John. Well, I’ll spare you the same words of how we’re seeking profitable growth here. But imagine the two buckets, as you call them out, food service and retail. In the retail environment, you see the baby steps with a very promising outlook when it comes to distribution gains and with our continued solid velocities. And very promising ACV gains when it comes to the new items, the new innovations. So, expect a promising solid outlook when it comes to retail, which is approaching 50% of our sales. In food service, it’s a balancing act. Expect some headwinds in the net because we have made some proactive decisions to manage growth profitably. Now, if you look at one slide in which we made specific remarks on these, we are growing solidly outside some of our largest customer in food service.

So, we believe now that we have put focus, teams, and resources to multiply growth in these sub-channels, which are more margin-accretive, to give us that balance that MJ was referring to more towards the second half of 2024. So, expect more growth.

John Baumgartner: Okay. Thank you.

Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Brian Kearney for any closing remarks.

Brian Kearney: Great. Thank you, Operator. Thanks, everyone, for joining us. Feel free to reach out to me if you have any follow-up questions. Have a great day.

Operator: The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.