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Sunopta Inc
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Good afternoon, and welcome to SunOpta's First Quarter 2022 Earnings Conference Call. By now, everyone should have access to the earnings press release that was issued this afternoon and is available on the Investor Relations page on SunOpta's website at www.sunopta.com. This call is being webcast, and its transcription will also be available on the company's website.
As a reminder, please note that the prepared remarks, which will follow, contain forward-looking statements, and management may make additional forward-looking statements in response to your questions. These statements do not guarantee future performance, and therefore, undue reliance should not be placed upon them. We refer you to all risk factors contained in SunOpta's press release issued this afternoon, the company's annual report filed on Form 10-K and other filings with the Securities and Exchange Commission for a more detailed discussion of the factors that could cause actual results to differ materially from those projections and any forward-looking statements. The company undertakes no obligation to publicly correct or update the forward-looking statements made during the presentation to reflect future events or circumstances, except as may be required under applicable laws.
Finally, we would like to remind listeners that the company may refer to certain non-GAAP financial measures during this teleconference. A reconciliation of these non-GAAP financial measures was included with the company's press release issued earlier today. Please note that unless otherwise stated, all figures discussed today are in U.S. dollars and are occasionally rounded up to the nearest million.
And now I'd like to turn the conference call over to SunOpta's CEO, Joe Ennen. Please go ahead.
Good afternoon, and thank you for joining us today. With me on the call is Scott Huckins, our Chief Financial Officer. We are pleased with the first quarter results, which exceeded our expectations. We are especially pleased with the strong rebound in top line growth as we made solid progress working through the various constraints that negatively impacted Q4.
Before we begin unpacking the Q1 results, let me offer some takeaways from the quarter. We saw a significant sequential improvement versus Q4, up and down the P&L and across the business. Revenue plus 18%, gross profit plus 52% and EBITDA plus 46%. Topline was strong across the portfolio, fueled by pricing, but also supported by volume growth. We had record production in our plant-based manufacturing facilities, which drove gross margin improvement versus Q4. Production was plus 19% versus Q4 and plus 8% versus Q1 2021, which was the previous best quarter ever. This record outlook allowed us to improve service levels and importantly, rebuild depleted safety stock. Oat milk sales continued to be very robust, with sales plus 59% versus Q1 2021, led by strong growth from Dream Oat milk in our largest food service customer, along with our partner brand.
The brands we support in part or in full, are now roughly one-third of the U.S. oat milk market and are gaining share every week. We are firing on all cylinders in oats from the supply of oats to extraction to customer development. We are selling every drop we can make, and we are producing volumes above the projections from our original capital project underwriting. In fruit, very strong demand for fruit snacks and better alignment of costs and prices in frozen delivered a better-than-expected Q1 in our fruit business unit. We are on track with plant expansion projects, including our greenfield plant in Texas, and we are making real progress in preselling capacity.
We are tightly managing the inflationary environment. Despite double-digit inflation in Q1, we only had $2 million of inflation that wasn't covered by increased customer pricing. Given macro uncertainties and how early we are in the calendar, we are not updating our financial outlook today. That said, we are increasingly optimistic about our ability to manage the controllable and enhance execution in our plants.
Now let me share some highlights from the first quarter. Total revenue was up 16% to $240 million, including solid increases in both plant-based and fruit-based, driven by a combination of pricing and broad-based volume and mix gains across our portfolio. Of this 16% growth, approximately two-thirds came from pricing and one-third for volume gains and the 2021 acquisition of Dream and WestSoy. Gross margin declined 270 basis points to 11.7% on a consolidated basis but was up from the 9% we reported in the fourth quarter.
There were several puts and takes, which Scott will cover in more detail, and we continue to take steps to mitigate the impact of inflationary factors, remaining firmly on track for further margin improvement. Adjusted EBITDA was down $2.7 million versus prior year to $15.6 million, primarily due to the slight reduction in gross profit. We also incurred higher labor costs related to a onetime bonus to recognize the outstanding turnaround in our plan in Q1. Importantly, adjusted EBITDA was up 46% from the fourth quarter of 2021, reflecting the anticipated improvement and strong execution in the business we discussed on the Q4 call in February.
Inflation is probably the leading topic on everyone's mind. So, I'd like to provide some additional context for you on how key inflationary factors are impacting our business and how we have successfully addressed these items in the quarter and beyond. This sets us well for margins over the balance of 2022 as well as our longer-term view. We incurred $23 million of cogs inflation versus last year. These costs were covered by $21 million of customer pricing actions. We also have additional pricing being executed in Q2. There is obviously inflation impacting other cost areas, such as SG&A, but overall, we are keeping pace with the unprecedented inflationary increases.
I'll offer 1 caveat, which is that at almost at any point in time in the last 9 months, our assessment of our business would be that we had passed on all known inflationary cost to customers. But as we have seen, that could change the next day. I would describe the pricing environment with customers as constructive. While a few companies may be using the current inflationary environment to enhance margins, we have chosen to take a fact-based long-term view of building and maintaining partnerships with our customers.
Now I'll turn to our segments, starting with plant based. I'd like to remind listeners that we have 3 strategic priorities. First, strengthening and fortifying our competitive advantages; second, building a strong ingredient business focused on oat to try and grow in refrigerated beverages; and third, building a multi-pronged go-to-market business that includes co-manufacturing, private label and owned brands.
Plant-based revenues increased 13% to $136 million in the first quarter, another record and our 14th consecutive quarter of revenue growth. Of the 13% growth, approximately 60% came from pricing and 40% from volume gains, including the acquisition of Dream and WestSoy. Growth was broad-based within the portfolio across sales channels, product types and customers. Strong demand for oat-based offerings led the segment once again, increasing 59% versus the prior year period. Oat as a percentage of the plant-based milks portfolio has doubled in the last 24 months, approaching one-third of sales and underscores the value of our innovation focus.
As we have seen for almost a year now, our oat-base derived from SunOpta's proprietary oat extraction process is winning in the marketplace. As I mentioned earlier, brands we support are roughly a third of the oat segment market share as measured at Nielsen retail scan data. Oat has been the big winner, and our plant-based milk sales are up 18%. The total category has seen a bit of softness of late, but we believe some of this is COVID overlay. As we look at the category on a 2-year basis, it is up 10% and has grown steadily for over a decade. Additional growth drivers for SunOpta were our key business, which rose 26% and ingredients principally oat-based, which was up 37%.
From a customer demand perspective, demand was broad-based. Revenue from our top 5 customers grew 14%, slightly ahead of overall plant based and reflects significant contribution from new products and a large new plant-based customer. Our ability to develop, innovate and rapidly scale new products remains a core competitive advantage. In fact, during the first quarter, the majority of our growth came from new products or new customers. We continue to make progress on the development and execution of our branded portfolio. As a percent of overall plant-based business, our own brands represent approximately 9% of the total compared to under 2% a year ago. Private label increased approximately 11%, driven by broth sales, and we also had solid similar gains in our co-man business.
Finally, ingredients continued to show strong growth, up 30% in the quarter. We are a growth company, and as such, business development is of paramount importance to our sustained growth trajectory. We onboarded a significant new plant-based milk customer in 2021, which will contribute to growth in 2022 and 2023. We are also working on a contract extension with 1 of our top 3 customers that will extend our relationship out to 2027.
Let me share an update on our expansion initiatives, which are foundational in our plans to double the revenue and more than double the gross profit from 2020 to 2025. By the end of 2022, we will have effectively doubled the manufacturing capacity of the business versus 2020. This doubling is achieved through 6 capital projects, 4 of which are complete and have added over $150 million of revenue capacity. The fifth project comes online in Q3 of this year in Modesto and is on track. The big one, our Texas greenfield plant is impressively still tracking towards the Q4 startup despite all the macro supply chain challenges.
While we have a lot of work left to do in Texas, we are within 4 weeks of our original schedule and have already hired the majority of the management team. This is a testimony to our ability to execute. We broke ground on a 30-acre dirt field, September 8, 2021. In the 245 days since then, we've ported 80 million pounds of concrete, stood up walls, the [ rug ], installed [indiscernible], electrical, plumbing, and believe it or not, this week, we started the installation of the processing equipment. This week alone, we have over 165 contractors working on site. While I'm sure we'll face more challenges between now and the end of the year, success always comes down to people executing and our ability to execute is fueled by our culture of entrepreneurship, passion and accountability.
As I mentioned on the last call, we are making great progress on selling off the capacity. We will provide a more fulsome update at Investor Day, including how this new facility contributes to our long-term growth algorithm. I referenced a second oat extraction facility on the last call, which is over and above this doubling the capacity. We are currently at capacity on our first oat extraction system. And as I mentioned, our oat base is winning in the marketplace. Our existing customers continue to grow at a rapid rate, and we are confident based on customer discussions and commitments that this new system will be highly utilized. This project is now underway and will be online in Q3 of 2023, giving us 80% more oat base and taking our oat capacity to nearly $200 million. Importantly, this new system will add oat-based capacity to the West Coast, where there is little today.
Moving on to our fruit segment. Our 3 strategic priorities are: number one, derisking the business through geographic diversification, customer pricing program and better grower relations; two, becoming the low-cost operator in frozen fruit through automation, footprint reengineering and aggressive cost takeout; and three, evolving the portfolio via innovation towards more value-added offerings. We were very pleased with the performance of our fruit business unit in Q1 as our strategies really took hold. Fruit-based revenues increased 19% to $105 million in the first quarter, 2-thirds of which was driven by pricing. Volume and mix accounted for roughly one-third of the increase, which also benefited from some onetime volume at our largest customer.
Frozen fruit revenue grew 16% and was largely driven by pricing. We continued to experience very strong demand for fruit snacks with revenue up 29% in the quarter, which was primarily driven by volume gains on the base business. Along with the smoothie bowls, which we recently launched via a private label offering at one of the largest retailers in the world via a co-manufactured brand with a massive global food company and also via our own brands. Sales to our top 5 customers in frozen were up 37% year-over-year and accounted for 80% of the total versus 68% in last year's first quarter. In Snacks, our sales to our top 5 customers rose 30%. Fruit snacks remains a large and on-trend category that continues to demonstrate strong growth dynamics. Nielsen data for the 13 weeks that coincide with our first quarter showed total fruit snacks up 9%, which implies significant share gains for SunOpta and its customers.
Before closing, I want to touch on our efforts to wrap sustainability. Last year, we took steps to formalize our environmental, social and governance framework, harnessing the passion of our employees to move us forward into a new era of awareness, engagement and responsibility. Our most recent ESG report, which was released roughly 2 weeks ago, summarizes SunOpta's approach relative to 4 key areas: products, planet, people and governance. It highlights our commitment and actions as we continue to advance sustainability and communicate transparently. We are proud of our progress so far, and we embrace the opportunities that lie ahead as we work to sustainably fuel the future of food.
In summary, 2022 has got to a strong start, and we are very confident in our direction and outlook. Our strategic growth priorities around portfolio transformation, innovation and doubling the plant-based business have not changed. We remain committed to our long-term growth algorithm of annual double-digit plant-based revenue and profit increases and continue to focus on increased returns on invested capital. SunOpta offers investors interested in plant-based foods and beverages, the rare combination of both strong top line growth and profitability today. We expect year-over-year adjusted EBITDA growth in Q2 and every quarter moving forward.
Now I'll turn the call over to Scott to take us through the rest of the financials. Scott?
Thank you very much, Joe, and good afternoon, everyone. First quarter revenues of $240.2 million were up 15.7% year-over-year, with solid gains in both segments. Plant-based revenue increased 13.4% driven by strong demand for our oat-based offerings and teas along with pricing actions and the impact of the Dream and WestSoy acquisition.
Fruit-based revenues increased 18.7% as we benefited from pricing actions implemented in the second half of 2021, along with strong demand for fruit snacks and smoothie bowls, and some one-time orders from our largest frozen customer outside of normal distribution, which represented nearly half of the revenue growth. Gross profit was $28 million for the first quarter of 2022, a decrease of $2 million compared to the first quarter of 2021, and consolidated gross margin was down 270 basis points to 11.7% with most of the decline attributable to temporary factors in our plant-based segment.
Importantly, gross margin expanded 270 basis points from Q4. In plant-based, segment level gross profit decreased $3.2 million and gross margin was down 470 basis points to 14.7% versus the prior year. The 14.7% margin rate improved 300 basis points from Q4 and was consistent with what we communicated on our Q4 call. We expect further sequential margin rate improvement in Q2 and significant growth in gross profit dollars.
Unrecovered inflation represented $2 million, which along with $1 million of increased depreciation expense accounted for the decline in year-over-year gross profit. These factors were partially offset by higher production volumes and improved utilization in our plant-based beverage ingredient operations. In fact, Q1's production in plant-based milks was up 8% over last year and 19% sequentially from Q4 2021, exiting the quarter very strong.
On a margin rate basis, we would estimate that the pass-through of costs created 150 basis points of margin rate dilution as the pricing gets added to each of revenue and COGS on a similar basis. Given the transportation availability challenges in the quarter, we would estimate that we left $7 million of revenue and $2 million of gross profit on the cable due to the challenging environment with even some of the global leading CPG companies unable to arrange carriers to pick up their products. In April, with some additional focus, we did see some improvement in this transportation dynamic.
In fruit-based, segment level gross profit rose $1.2 million and gross margin of 7.7% was flat with the prior year. Gross profit in fruit benefited from portfolio rationalization along with manufacturing efficiencies stemming from our consolidation efforts last year. A lot impacting gross profit dollars on a margin rate basis, we would estimate that the pass-through of higher costs represented 100 basis points of headwind. Segment operating income was $3.9 million in the first quarter compared to $6.1 million in the year earlier period. The year-over-year decline was attributable to the previously mentioned $2 million of lower gross profit on a consolidated basis, a $1.1 million increase in SG&A, including a special onetime bonus recognizing the significant improvement in production and $0.4 million of incremental amortization for Dream and WestSoy.
Partially offsetting these factors was a $1.3 million improvement in year-over-year foreign exchange results related to our Mexican operations. Earnings from continuing operations for the first quarter were $0.7 million, which was down from $1.7 million in the prior year period. On an adjusted basis, we had earnings of $0.6 million or $0.01 per diluted share in the first quarter of 2022 versus adjusted earnings of $1.3 million or $0.01 per diluted share in the prior year period.
In the first quarter, adjusted EBITDA was $15.6 million compared to $18.3 million in the prior year and $10.7 million in the fourth quarter of 2021. The primary driver of the year-over-year reduction in adjusted EBITDA was the $2.2 million decline in operating income. I'd like to remind listeners that adjusted EBITDA and adjusted earnings are non-GAAP measures, and a reconciliation of these measures to GAAP can be found towards the back of the press release issued earlier this afternoon.
Turning to the balance sheet and cash flow. As of April 2, 2022, total debt was $250 million and reflects $159 million drawn on our asset-based credit facility, $84 million of capital leases, with the balance representing smaller credit facilities. Leverage stood at 4.3x at the end of the first quarter, just above our previously communicated range. It is important to point out that our current leverage position is largely reflective of the timing and scale of our significant and planned investments in capacity expansion over the last 2 years. As we have said for many, many quarters, these investments are needed to double the capacity, revenue and profits of our plant-based business. As we described with some of the 2021 and 2022 projects and Texas comes online at the end of the year, we would expect a reduction of leverage in 2023, and we believe executing this magnitude of capacity expansion in this environment will be rewarded.
From a cash flow perspective, cash provided by operating activities of continuing operations during the first quarter of 2022 was a strong $15.5 million compared to cash used of $7 million during the first quarter of 2021. This result is essentially a 100% drop-through of Q1 EBITDA. Cash used in investing activities from continuing operations was $24.5 million compared with $7.9 million in last year's first quarter, primarily reflecting investments in capacity expansion projects.
Let me close with some comments on our outlook for the balance of 2022, recognizing the environment is very fluid as it relates to inflation, supply chain, labor and raw materials. We are maintaining our prior guidance, first introduced on our Q4 call of revenue in the range of $890 million to $930 million, which translates into a growth rate of approximately 10% to over 14% compared with 2021. As we have said for several quarters, we generally expect the first half of 2022 to be more challenging than the second half of the year. As such, we would expect margins to be stronger in the second half of the year compared to the first half based on our existing capacity. I also would like to remind listeners about how we see a plant-based facility in Midlothian, Texas affecting 2022 gross profit and gross margin. As we have previously stated, we expect commercial production to start at the very end of the year.
In order to be ready for year-end production, we expect to incur approximately $10 million of start-up costs, primarily in the second half of the year, roughly evenly distributed between Q3 and Q4. While these start-up costs are added back to adjusted EBITDA, it will affect gross profit and gross margin rate as reported. From a profitability standpoint, we remain very confident in the previously communicated adjusted EBITDA range of $67 million to $75 million for 2022. This represents 10% to 25% growth over 2021. As Joe mentioned, we expect year-over-year improvement in gross profit and adjusted EBITDA for the balance of the year. We also reiterate our expectations for $100 million of adjusted EBITDA in 2023.
From a capital standpoint, we continue to expect capital expenditures in the $110 million to $115 million range as reported on the cash flow statement driven primarily by the new facility in Texas. As a reminder, this facility is being financed through the company's credit and lease facilities, and we do not need equity capital to fund these investments.
Finally, I'd like to remind listeners that we are holding an Investor Day on June 2. We plan to unpack the business in detail, further depict our sources of competitive advantage and share additional financial metrics, including our outlook for performance through 2025. Before opening the call for questions, just to remind you that for competitive reasons, we do not provide a detailed commentary regarding customer or SKU level activity.
And with that, operator, please open up the call for questions.
[Operator Instructions] Your first question comes from the line of Brian Holland with Cowen & Company.
Just looking at gross margin sequentially, considering the ongoing sources of -- some of the corrective measures in place. Is it your expectation that 1Q -- it sounds like 1Q should be the trough for fiscal 2022 gross margin. But you talked about balance of the year, we're going to grow gross margin. I would suspect that, that would still assume a pretty big jump if you have year-over-year in Q2. So maybe just frame that out, is Q2 kind of higher sequentially on gross margin but still down year-over-year than the back half is a year over the year?
Brian, it's Scott. So, I think you've got it generally right. We would expect, as we work our way through 2022, sequential improvement in margin, again, sequential from 4 to 1 in Q1 and Q2, etc. So, if that's the core of your question. The answer to that is yes.
Okay. Got it. I wanted to ask more broadly about elasticity on both -- clearly, great performance in fruit. I know that there's some selling benefit or distribution benefit 1Q. But obviously, you took drastic price pricing there. But also, on the oat inflation, obviously, it's pretty significant. So -- and you also have exposure across the pricing tiers. So just kind of curious the interplay you're seeing there on plant-based, but any thoughts on the fruit side as well would be helpful.
Yes. Brian, it's Joe. We're certainly keenly watching elasticities. As we look at volume growth as a lever, obviously, we have 2 ways for volume to grow, aggregating or growing share within existing or new customers. And you certainly heard us reference that as a volume growth driver as well as core underlying category growth. So, we did see certainly dollar sales growth in plant-based. Unit growth was slightly down, but as I mentioned, on a 2-year basis and any longer time frame in plant-based, you continue to see pretty strong upward momentum. We referenced plus 9 on snacks, which is fantastic. And then on frozen, it's holding its own in the face of some pretty significant pricing across the category.
Appreciate the color, Joe. Last one for me, and I'll get back in the queue. You mentioned several more customer updates here on the plant side. Just stepping back, can you talk about what's driving -- I know you don't want to talk about specific customers, etc., but can you talk about what's driving the wins right now in this environment? I mean conceptually, we understand it, you're adding capacity to the cost provider with a broad manufacturing network, etc., etc. But is -- I mean, what's happening right now? Is that all just coming to fruition? Is this demand outstripping supply and people are just looking anywhere they can? Just help frame for us what's bringing in this new business right now?
Yes, Brian, what I referenced specifically, which will end up being a very significant customer for us has been in development for a considerable period of time. It wasn't an emergency rush to SunOpta because we happen to have production output. Unfortunately, our business doesn't fit it that quickly. So, this is really long-term customer development. As we've shared many, many times, I mean in this category in this industry, customer development is a 12 to 24-month cycle. And so really, we feel -- we felt like it was worth referencing today simply because the efforts are starting to pay dividends in terms of revenue growth and was worth highlighting. But this is something we candidly have been working on since probably the end of 2020.
Your next question comes from the line of Andrew Strelzik with BMO Capital Markets.
I guess I wanted to tack on to the question about elasticity and just talk generally about plant-based demand. I guess, what's your sense for how the category holds up in a softer spending environment? I guess the customer for that category probably just skewed more higher income. I don't know if there's an interplay with food service to think about it. I'm just curious how you think about generally speaking, the plant-based category in the event that we get into a tighter consumer environment?
Yes, Andrew, I think there's a couple of things to consider. One, the category does skew higher income. Second is this is a category where many people are in the category for either health reasons, meaning they believe that these are healthier products to consume versus the alternative or they have a dairy allergy and the alternative has been available to them.
So typically, what I've seen in 30 years in food is consumers are loath to trade off a product that they're purchasing for a health reason and make an unhealthier choice just to save $0.50. They'll come something else in their overall spending budget before they'll sacrifice their own personal health.
Okay. That makes sense. And then on the operational side, some of the strides that you made this quarter really kind of tightened down the execution on some of those things and the productivity. Can you just talk about what drove that? I mean, was that really getting over the hump from a training perspective and a staffing perspective? Or was there -- just curious kind of how you think about what drove those dynamics?
Yes. I think as we referenced on the Q4 call, we were slightly frustrated with our Q4 production simply because we had hired the majority of the people that we needed, and we just weren't getting any output. And to say that the team rose to the challenge and started knocking the ball out of the park is an understatement. I mean, almost 20% production growth in Q1 versus Q4. And it's worth pointing out, I mean Q1 was not without headwinds. And so, to post those numbers, a record quarter, plus 8% versus our best quarter ever in the history of the company, I think, really speaks to us as an operation manufacturing-driven company who knows how to run these plants. And I think you see that in the numbers. I mean, we're an operations company. We're not a marketing company. We're not just a brand, we're operators. This is what we do, and it was great to get our mojo back.
Absolutely. And then just my last one, if I could. I guess I'm just trying to understand how to think about the fruit segment going forward. And you're talking about sequential margin improvement. Generally, there was the note of the onetime volume contribution. Maybe you can frame how big that was. But in the context of that and what was for us a better performance in that segment than we were anticipating, how should we think about the sustainability of that throughout the rest of the year?
Andrew, it's Scott. So yes, the reason we called out the so-called onetime distribution was just from a go-forward standpoint, by definition, we didn't assume that's going to repeat. So, the 18%, 19% growth in the quarter, roughly half of that, or approaching half of that, was driven by that outside normal distribution revenue.
So again, I think we're pleased with the results in Q1. I'm generally bullish about seeing a continued solid progress in fruit really for the balance of the year. So, I think it's consistent with the narrative we've got for the company.
Your next question is from the line of Jon Andersen with William Blair.
Maybe just kind of tagging on to that last question. On the piece of the fruit-based food and beverage growth in the quarter that was related to that order, onetime order from a large customer. Does that come out of Q2? Or was that kind of a pipeline fill or something? Just trying to understand if that's going to have to come out of the Q2 revs as we think about modeling that?
Yes. Good question, Jon. No, it doesn't come out of Q2. It was that customer was -- they had a shortfall from another supplier, and they asked us that we could step in and fill in while they were scrambling and we happened to have the inventory available to help them out. And so, we did. But it was outside of kind of the core divisions for that particular customer that we cover.
Got it. That's super helpful. And as you think about the fruit-based business for the balance of the year, let's say, it grew 9% or 10% X that order. I mean are you seeing a similar kind of level of growth through the balance of the year? Or is it not that simple, given maybe some comparison issues or other factors?
Jon, it's Scott. I think it's a good representation of what I would see from Q2 to 4. Just keep in mind, it's nuanced because we have a bunch of SKUs that we're comping year-over-year, but put that aside, I think it's representative of what we would expect to see for the balance of the year.
Okay. Super helpful. Shifting over to the -- well, let me actually stay with fruit for a minute. Could you talk a little bit about the harvest, sourcing, fruit availability, fruit costs and how that may -- what kind of implications that may have on margins for that particular segment?
Yes, Jon. So, the core of our fruit operations is now based in Mexico as we've closed a significant number and taken almost 80% of the square footage out of California. And so, Mexico has really become kind of the cornerstone of our fruit business. We had a very successful berry season, availability and pricing and quality were all good. That berry season is wrapping up. So almost through it in Mexico. The California season is just starting. So very early days, but no major reports either kind of good or bad, just it's early days there. So, nothing hitting us from a negative standpoint at this point. But as you know, fruits a dynamic business.
Right. But it's good to hear because we've had kind of 3 seasons that have been, let's call it, less than normal, right?
Yes. Yes. So, volumes and availabilities were at or maybe even exceeded our expectations a bit in terms of availability of fruit. And again, pricing was in line with where we were expecting it. So, no surprises.
Okay. So, the next thing I want to do is dig into the plant-based business and talk about capacity because your plan is to double that business 2020 to 2025. It was a $415 million business in 2020. So, it implies $830 million. It doesn't take a rocket science to get there even I can do that. But you talked a little bit about your capacity expansion programs, and you had some capacity that you added in 2021, you have more capacity that you added, I think, are adding in 2022 and then some more in 2023.
So, can you kind of walk us through where you are today in terms of total capacity to service the business? And then with the addition of Midlothian at the end of the year, how does that step up your capacity? And then with the ingredient, I guess, another extraction facility in the third quarter out West, where that takes you? I mean, does that get you the capacity you need in the aggregate to do north of $800 million? Or is there more to come? I know there's a lot there, but I'm really just trying to understand the sequence here and how that builds your capability and capacity to hit that target.
Yes, so 6 projects equal doubling of the revenue potential of the business. So, 6 projects adds circa $400 million. 4 of the 6 are already done. They're already producing cases, they're already in our run rate. As a reminder, we grew revenue $100 million from 2019 to 2021. So, we're already realizing the value of the capacity additions. This isn't all a -- just hold your breath and wait for it, it's coming. So, 4 of the 6 projects are completed. Those 4 projects in aggregate are equal to call it, $150 million is what I referenced. So those 4 projects give us $150 million. Then we've got another project coming on in Modesto. We haven't quantified that. But between that project in Modesto plus Texas, that is the balance, call it, the remaining $250 million. And as you would expect, Jon, the Texas project is a significant majority of the remaining $250 million to go. And then as it relates to the second extraction facility, that is over and above the doubling.
Okay. And you mentioned, is that a tack on to Modesto, or is that a wholly new location?
Good question. We are doing that inside of Modesto. So much easier to execute as you would suspect there are a lot of supply chain challenges doing construction right now, and we found a way to do it inside of Modesto. So that is expediting that project for us, and we're excited about -- as I referenced, we're selling every drop of oat milk we can make right now. So, we're excited to get that project moving.
Okay. And I think if I heard you right, you said that you're basically sold out of your existing extraction capacity and that's where I think much of the growth -- I mean you have broad-based growth in the plant based. I think it's been higher within that ingredient portion. Does that slow you down? Is that a limiter here on the plant-based growth until you can get the second facility up in 2023? How does that work into the goal of delivering double-digit or mid-teen plant-based growth?
Yes, I thought you might ask that question. So, we -- so just to anchor in 2021, we did $80 million of revenue in oat-based products. And on the Q4 call, we said we did $80 million of oat, and we could grow 50% off of that number. So, we can grow 50% in 2022. So, we can put up -- these are estimate numbers, Jon, but we can grow out sales $40 million in 2022. And what I -- what we are communicating is we're kind of at that pace, meaning at that $120 million pace in Q1. But if we do that same number in Q2, Q3, Q4, obviously, on a year-over-year overlap basis, that represents pretty significant growth because we can grow 50% for the full year.
And then as it relates to -- and your next question might be what about Q1 and Q2 of 2023? Are you going to be stuck until Modesto comes online? We are aggressively working to find other sources of oat-base from other suppliers to help us bridge. We've got, obviously, almost a year to figure that out, but we're working that now to identify additional sources of oat-base and how to squeeze more productivity out of our existing facility, which we try to do every single day.
Yes. Okay. And then with your largest customer, are you seeing mix shift in your business with your largest customer? Are some forms, or crop forms, declining in favor of oat? Do you still fully expect to be kind of a permanent factor in their oat-base business?
Absolutely to the second part of your question. Yes, we're definitely seeing some mix shift. Again, we're seeing category growing plant-based milks within foodservice growing and oat milk doing well both growing total kind of category, if you will, but also sourcing some volume from the other formats. But there's some promotional impact there. So really, it needs to be a kind of longer time based to answer to the question. But the oat milk isn't 100% incremental. We've not seen it be 100% incremental in foodservice. And we continue to service all our oat customers at a very, very high level. And we expect to be in business for a long, long, long time.
Okay. On the -- I'm going to do a couple more. So, you're seeing -- you covered -- it sounds like on the inflation side, you covered everything, but $2 million, is that right? In the quarter?
Correct.
So, do you only need or do you plan another $2 million in pricing? Or have other commodities moved higher, such that what kind of price, I guess, are you thinking? And just generically speaking, which businesses, what kind of magnitude and when does it go in?
It's a customer by customer answer to your question, Jon, so I don't want to kind of go down to that granular level. But yes, we -- as you might expect, I mean, we certainly have pricing in the market that will cover that $2 million and then any other inflationary factors that we've seen subsequently.
But when you say in the market, you mean you've communicated it, when it will be effective at some date in the future?
Yes. I mean that's what I was saying. I mean we just went through this yesterday with the team. I mean some are effective 5/1, some 5/16, some 6/16. I mean there's -- it wasn't just one blast of a price increase to everyone. These are handled customer by customer, product by product, plant by plant.
Okay. Cool. And then 2 quick ones. So, I just want to confirm this that I heard this right. Gross margin rate and EBITDA margin rate will improve sequentially throughout the year versus Q1.
Correct. You heard that right, Jon.
Okay. And last one, I promise. The acquisition contribution in the quarter in dollars?
Is around $5 million, Jon.
$5 million. Great. I apologize for all the questions, but thank you for the time, and see you on June 2. Is that it?
Yes, correct.
Your next question is from the line of Mark Smith with Lake Street Capital Markets.
Just wanted to ask first on the kind of the delta in oat milk share kind of where it's come from, maybe over the last 12 months? And then kind of where you think that share goes as well as kind of any industry growth trends that you can give us on oat milk would be great.
So just so I'm clear, when you say where has the -- within the category, where has oat milk taken share from other formats?
No, I guess it's more so your share of oat milk, where that's at today and where that's going to come from maybe 12 months ago?
Yes. I mean we have been partnered with 2 of the big players in the melt category, 2 of the top 5 brands, and they continue to rip in the marketplace, both of them growing faster than the market. And so, we've really rode the momentum that they have in the marketplace. And we're certainly appreciative and humbled by the consumer response to our oat-base, which obviously is winning in the marketplace. So that has not -- us winning business away from somebody else. These are the existing oat milk customers that we've worked with for several years now.
Okay. And then just catch us up on maybe the growth in foodservice and how that is today maybe versus pre-pandemic?
Q1 was we saw solid growth in food service in total. And oat milk is obviously a key driver of that foodservice gain. It is a great product in coffee applications and consumers are discovering that. And we continue to see oat milk driving good growth in the foodservice channel.
Okay. And last one for me. Just as we think about Q2 kind of gross profit margins, as we look at the improvement, is your expectation purely based on the pricing that has gone into effect? Or have you seen any abatement of the headwinds that are out there?
Yes, I guess it's just a general improvement in the business. It's not a call per se on inflation. I think that's the spirit. I think the environment remains pretty choppy. So, I think it's just the continuation, Mark, of what we've seen in Q1 continuing and strengthen in Q2.
Mark, I just -- I would remind too that raw material inflation is margin -- gross profit margin rate destroying. Because if you got $20 million of ingredient inflation and you pass on $20 million of cost increases, that reduces gross margin by, in the case of our business, roughly 100 basis points. No change to gross profit dollars, but the rate goes down.
Your next question is from the line of Alex Fuhrman with Craig-Hallum.
I wanted to ask about the new rebranded West Life. What kind of a response have you been getting from consumers and retailers from the rebrand? And given that this brand has such a strong and consistent supply, do you think that this could potentially become a major brand in the category over time?
Yes. So that branding and that product innovation that we showcased at Expo West will start to go in, in the second half of Q3. So, we used Expo West as the forum to kind of launch that to the marketplace, but it has not started shipping yet. As it relates to the customer response, it's been really good. They're excited. There hasn't been a lot of innovation in shelf-stable plant-based milk. And so, they're excited to see somebody like SunOpta step up with some truly consumer grounded insight-driven product innovation, and we would expect distribution gains on both of the brands, both Dream and West Life.
Your next question comes from the line of Brian Holland with Cowen.
One last follow-up, if I could, a bit of a nuance question, not to keep beating down this capacity thing. But obviously, you talked about the capacity projects to double you out to 2025. But aside from just -- from a volume standpoint, you've taken significant pricing in response. I'm just curious, does the value of the capacity go up as well as you think that out? I mean because 10% on $800-plus million is another $80 million. Or are you just kind of working off the assumption that just given the nature of your business that you would be -- that, that pricing would roll back in a more normalized environment?
Brian, we have not adjusted the capacity we're adding for current pricing. We -- when we've looked at that, we're really aggregating our internal capital project underwriting and then making sure that, that [ ticks and ties ]. But we've not gone back and readjusted all those capacity numbers for what might be a perpetual new normal pricing environment. But you are correct in that if the pricing we have today stays where it is, some of those capabilities, those assets that we've added, would produce more revenue, certainly.
There are no further questions at this time. I will now turn the call back over to Mr. Joe Ennen for closing remarks.
Great. Thank you, operator, and thank you for everyone for participating in our first quarter conference call. Look forward to speaking and seeing some of you in person soon, and appreciate your interest in SunOpta. Have a great evening.
Ladies and gentlemen, thank you for participating. This concludes today's call. You may now disconnect.