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SunOpta Inc (NASDAQ:STKL)
Q2 2020 Earnings Call
Aug 5, 2020, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to the SunOpta's Second Quarter Fiscal 2020 Earnings Conference Call. By now, everyone should have access to the earnings press release that was issued this morning and is available on the Investor Relations site 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 morning, 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 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 securities laws. Finally, we would like to remind listeners that the company may refer to certain non-GAAP financial measures during this teleconference, and a reconciliation of these non-GAAP financial measures were included in the company's press release issued earlier today. Also, please note that unless otherwise stated, all figures discussed today are in U.S. dollars and are occasionally rounded to the nearest million.

And now, I would like to turn the conference over to SunOpta's CEO, Joe Ennen.

Joseph D. Ennen -- Chief Executive Officer & Director

Good morning, and thank you for joining us today. With me on the call is Scott Huckins, our Chief Financial Officer. Before we begin unpacking the Q2 results, there are three key takeaways that I would like to offer. First is that our prioritized investments in Plant-Based Food and Beverages is paying dividend. We are playing offense, we are winning, and we expect to continue to win as we strengthen an already strong position. Second, our focus on operational execution is improving gross margin and creating capacity in our manufacturing facilities. Lastly, we are optimistic about our future ability to deliver consistent above-average EBITDA growth.

The second quarter was another strong quarter for SunOpta, reflecting excellent execution across the board, with 6% revenue growth, 45% gross profit growth and 103% growth in adjusted EBITDA compared to prior year. I can confidently report that our turnaround efforts have taken hold and we are seeing the output of these efforts in the overall results and consistency of those results. I am proud to say that for the third consecutive quarter we doubled adjusted EBITDA on a year-over-year basis and generated 6.1% revenue growth despite the challenges related to COVID-19. Each of the three operating segments produced revenue growth in the second quarter, led by our plant-based business unit, which grew 9.6% on an adjusted basis. Additionally, we improved overall gross profit margin to 12.8% for a gain of 350 basis points.

All three operating segments saw improvements in gross margins. Adjusted EBITDA increased to $20.5 million from $10.1 million in the prior year. Encouragingly, we also generated positive operating cash flow during the quarter despite the seasonal investments in working capital that are typical in the second quarter. Now before we go further, let me comment on COVID-19 and its impact on our business. Similar to nearly every business around the world, COVID-19 related issues and opportunities impacted much of our Q2 effort. Our manufacturing teams have done an amazing job keeping our production facilities operating and we are incredibly proud that while we have had employees affected by COVID-19, there are no confirmed cases of community transmissions at any of our locations. We have had some minor disruptions in our operations, but overall we have managed this exceptionally well with employee safety being our top priority.

While COVID-19 has created dramatic swings in individual customer orders, the aggregate impact on total revenue and total EBITDA was modestly negative. Scott will share a more detailed overview of the financial impact of COVID-19 in his section. We continue to make good progress with our capital projects, which are on time and on budget. These investments are principally focused in our plant-based BU and will further build on our strength in plant-based beverages. Our ruthless prioritization in focusing on our most promising and high-return opportunities while deemphasizing lower margin, lower return on capital segments of our business is positively impacting margins and cash flow. I am pleased with the progress against our core priorities within each of our business segments. The efforts are increasingly apparent in our financial results.

Let me discuss each segment in greater detail. Our Plant-Based Food and Beverage business unit has been and will continue to be our top investment priority. This BU is composed of several product categories. The largest is our plant-based beverages with products such as soy, almond and oat, plus our broth business. Second is ingredient extraction. It's an important emerging business, where we convert plants into the concentrated basis for making plant-based food or beverages such as oat milk. Lastly, the sunflower and roasted snacks business is also included in this segment.

Our plant-based business unit is firing on all cylinders and once again exceeded our own internal forecast and is driving significant revenue and margin growth. Despite the impact of COVID-19, the diverse customer base we have built across the platform is demonstrating our ability to operate and drive strong financial performance in any environment. We have a robust business development pipeline to support growth in 2021 and beyond, and we are excited about our well-timed capacity expansion projects. During the second quarter, this segment delivered continued strong adjusted revenue growth of 9.6% and continued strong margin performance despite the negative impact of COVID-19 on foodservice related sales.

The revenue growth was broad-based, driven by both plant-based beverage revenue and new broth business, partially offset by sales to a large foodservice customer who is impacted by COVID-19. However, with the coffee shops and restaurants slowly reopening, we have seen steady improvements across this sales channel. It is impressive that the plant-based business delivered growth during an environment where there were significant negative impacts on our foodservice customers. This is a testament to the strength of the plant-based platform. Perhaps more impressive than the revenue growth was the margin expansion. In Q2, we delivered an 18.2% gross margin, an improvement of 340 basis points from prior year. This improvement is a result of great execution from our operation and supply chain team.

Driving our results is our strong execution, coupled with five underlying consumer drivers that are propelling this food movement. As a reminder of those five consumer factors, number one is sustainability: plant-based products have a dramatically better environmental footprint than animal-based products and consumers are increasingly converting their concern over climate change into purchasing choices. Second, animal welfare is a rising concern, especially among millennial and Gen Z consumers. Third is food allergies: approximately 100 million Americans and five billion people globally are lactose intolerant. Fourth is taste preferences as consumers discover the great taste of products like oat and almond milk. And fifth is health benefit, be it vegan, vegetarian or just a focus on clean eating.

To continue to capitalize on these trends, we remain on track with our capital projects to expand our extraction capabilities and are progressing with the other two expansion projects to increase capacity and capabilities across our national footprint. We continue to expect all three of these projects to come on line in the fourth quarter of this year, providing the capacity for significant future growth. We are particularly excited about the timing of our extraction capabilities, which expands our capacity fourfold to support the strong growth of oat milk, a category growing over 300%. When fully utilized, these three capital projects have the potential to provide $100 million of additional revenue. Filling this capacity certainly does not happen overnight, but as I mentioned previously, I am pleased with our sales pipeline development. Our leadership in plant-based beverages, our broad capabilities and our strong positioning are driving significant new opportunities in this segment.

Turning to fruit. The fruit-based business unit continued to deliver strong margin improvement and posted a 0.8% adjusted revenue increase in the second quarter, driven by new distribution of fruit snacks and retail channel frozen sales, offsetting the impact of foodservice sales decline due to COVID-19. Frozen fruit continues to benefit from our pricing and margin enhancement initiatives. Gross margin expanded 350 basis points year-over-year, continuing recent improvements. Once again, our fruit operations team has done a great job managing COVID impacts and delivering on our productivity plan. Our plan to improve the margin profile of our frozen fruit segment is progressing and our results are tracking in line with the expectations we have discussed over the last year. I can share that our productivity investments are ahead of our expectations and are incrementally evident in our quarterly margin progression.

As evidence of these efforts and our capital investment, it's impressive to note that we are now running our facilities with 40% fewer seasonal workers versus 2018 while maintaining our capacity and processing capability. As we discussed last quarter, we entered this year's harvest with very lean inventory position, and we are well into the California harvest. The freezer harvest this year is coming in lower than we expected. COVID-19 has produced a change in consumer purchasing patterns and the retail demand for fresh strawberry is significantly higher than normal. This demand is incenting growers to keep harvesting for fresh versus switching over to freezer. Our estimate is that the season will come in 15% to 20% below historical norms. Strong fresh demand combined with last year's shortfall has had inflationary pressures on the prices we are paying for fruit. While the harvest is not what we had hoped for, the efforts we undertook in 2019 to reduce volatility and exposure to California have paid dividends.

Our stepped up grower relations efforts have enabled us to procure a much higher market share of the available fruit compared to what we were able to procure in 2019. Our automation efforts generated significantly higher yields, higher throughputs, and allowed us to operate with significantly fewer seasonal workers. Our efforts to move customers to pass-through pricing is helping them and us, and we estimate roughly 30% of the business is now operating on this formula. Lastly, our effort to build a supply network outside of California will also help us offset some of the California supply shortfall. We are confident in our long-term fruit optimization plan and continue to expect sequential improvements. While the news on the harvest may sound concerning, I would offer this point in time view that in 2021 the fruit business unit performance will likely look broadly similar to 2020 in terms of profitability. I will, of course, update this view as we learn more.

I want to end on fruit by commenting on the recent launch of a branded fruit bar called arbor. As I've said in the past, innovation will be a core growth strategy and we believe that having brands as a go-to-market option will allow us to launch more new products. Brands as a part of our strategy is something we will likely deploy in other areas as we seek to innovate, create markets and propel growth. This in no way distracts from our core business of private label and co-manufacturing. In fact, it is our view that it will make us a more valued partner as we contribute to category growth, build expertise, bring innovation to the market and raise consumer awareness. Finally, the Global Ingredients segment also delivered a strong second quarter, with 6.9% adjusted revenue growth and a 300 basis point improvement in gross margin year-over-year, 160 points net of CX.

The growth and gross margin improvement were driven by both the Tradin Organic ingredient business and our premium juice offerings. The margin improvement reflected increased pricing spreads, higher margin product mix and manufacturing efficiency. This combined with a favorable commodity hedging result and higher sales pricing and lower bottling cost for premium juice products drove margin improvement. I am pleased to say that we have made significant progress in our manufacturing facilities, in our cocoa processing facility in Holland and our sunflower facility in Bulgaria. Developing manufacturing capabilities in addition to our unique organic supply chain is a powerful combination. Adding these value-added processing capabilities is another way that we are building on the differentiated position that Tradin enjoys in key segments. All these improvements set the stage for continued growth.

Our strategy to focus on margins and the return on capital profile of our ingredients segment is now well under way and contributing to the improvements in margins and return. In conclusion, I'm very pleased with our second quarter performance across all three of our operating segments. Our focus and improved execution has driven the success of our turnaround efforts, which have transformed into an organization that has doubled EBITDA for three consecutive quarters. And candidly, I like our chances of making it four in a row. We believe the historical volatility in our quarter-to-quarter and year-to-year financial performance is behind us and we are well positioned for both growth and further margin enhancements going forward. Compared to 18 months ago, we are executing at a much higher level and much more consistently.

At the risk of being repetitive, I want to reiterate our bullishness on our Plant-Based Food and Beverage platform as the single most powerful driver of long-term growth. We are very confident with our strategy, our assets and our segment positioning, and we are optimistic about our ability to drive growth and enhanced margins across each of our business platforms.

Now I will turn the call over to Scott to take us through the rest of the financials.

Scott E. Huckins -- Chief Financial Officer

Thank you very much, Joe, and good morning, everyone. Let me walk through gross profit and the rest of the income statement given Joe's discussion of the commercial activities and revenue during the quarter. I will also cover our balance sheet and cash flow results. First, as Joe mentioned, we had another strong quarter with 6.1% revenue growth and doubled adjusted EBITDA year-over-year. We estimate the impact of COVID-19 on revenue was a negative $10 million. Gross profit was $39.7 million for the second quarter of 2020, an increase of $12.4 million or 45% compared to $27.3 million during the second quarter of 2019.

Plant-based segment accounted for $4.6 million of the increase in gross profit, mainly reflecting revenue growth, plant productivity efforts and higher capacity utilization, partially offset by wage premiums and higher cleaning costs attributable to COVID-19. Global Ingredients contributed $4.4 million of improvements, primarily due to the increased pricing spreads for organic ingredients and premium juice products, productivity improvements in our factories and a $1.8 million increase in commodity hedging results. The fruit-based segment was responsible for $3.4 million of the gross profit improvement, including improved pricing efforts and a favorable mix of higher margin retail versus foodservice sales, partially offset by lower sales volumes and plant utilization for fruit ingredients together with wage premiums and higher cleaning costs attributable to COVID-19.

We estimate that COVID-19 impacted gross profit by a negative $3 million in the quarter, including approximately $1 million of additional plant operating costs. As a percentage of revenues, second quarter gross margin was 12.8% compared to 9.3% last year, a 350 basis points increase. All segments contributed significantly to the gross margin expansion, with gross margin expanding 350 basis points in the fruit segment, 340 basis points in plant-based and 300 basis points in Global Ingredients. It is worth mentioning that our Global Ingredients business delivered that margin expansion with almost 10% less inventory compared with last year. Operating income was $8.8 million or 2.8% of revenues in the second quarter compared to a loss of $2.5 million last year. SG&A was fairly consistent with last year's second quarter, with the savings initiatives being offset primarily with variable compensation expense. The COVID-19 impact on SG&A was approximately a benefit of $1 million primarily due to lower travel costs.

Loss attributable to common shareholders for the second quarter was $1.6 million or $0.02 per diluted share compared to a loss of $11.1 million or $0.13 per diluted share during the second quarter of 2019. On an adjusted basis, loss was $1.4 million or $0.02 per diluted share compared to a loss of $9 million or $0.10 per common share in the prior year. As Joe mentioned earlier, for the second quarter of 2020 adjusted EBITDA was $20.5 million compared to $10.1 million in the prior year. The estimated COVID-19 impact on adjusted EBITDA was a negative $2 million. 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 toward the back of the press release issued earlier this morning.

Turning to the balance sheet and cash flow. At June 27, 2020, total debt was $448.9 million, down approximately $20 million from the first quarter and down $42 million from year-end 2019. Total debt reflects $219.1 million net of issuance costs of our second lien notes due in 2022; $202.3 million drawn on our global asset-based credit facility, with the balance representing smaller credit facilities, lease and other financing arrangements. As many of you know, the debt capital markets have been very strong recently. We have begun the early stage work on refinancing our debt and we expect to be in a position to execute late this year. Our significant improvements in EBITDA to date and our expected continued improvements in EBITDA are a material asset in this process. In summary, we are confident in our refinancing opportunities.

As most of you know, we raised $60 million of preferred stock commitments. We funded $30 million of that in April and we let the remainder lapse, not tendering notice by July 15, 2020. From a cash flow perspective, during the quarter cash generated by operating activities was $2.7 million compared to cash used of $31.7 million during the second quarter of 2019. The $34.4 million improvement reflects improved operating performance and continued working capital management. As a reminder, we generally see working capital investment increase during the second and third quarters based on seasonal inventory purchases, particularly in fruit. For the full year 2020, we continue to expect working capital to be relatively flat to 2019.

Cash used in investing activities was $6.3 million compared with $12.9 million in the second quarter of 2019. The decrease in capital investment primarily relates to last year's $3 million acquisition of Sanmark and the use of leasing arrangements to support certain major capital projects. As Joe mentioned, we are confident in our near-term and long-term outlook, which will be led by the strength of our Plant-Based Food and Beverage business. While we don't give guidance and many companies are now refraining from doing so at least in the short term, we do believe we have a good chance to double adjusted EBITDA once again in the third quarter. We are also on track with our fruit margin improvement targets despite the COVID-19 demand related higher pricing we are seeing in freezer fruit.

With that, I'd ask the operator to please open up the call to questions.

Questions and Answers:

Operator

[Operator Instructions] We have a question from Brian Holland, D.A. Davidson & Company.

Brian Holland -- D.A. Davidson & Company -- Analyst

Thanks, good morning gentlemen. First question I guess on the strawberry side there and some of the dynamics that you broke down in the harvest. You've obviously made considerable investments in automation and productivity, as you said will help preserve some of the margin stability there. What do the pricing dynamics look like going forward? Will you need to take more pricing? How do you feel as far as being comfortable with doing so? I know you did that in 4Q. If you could just help us understand what that landscape looks like?

Joseph D. Ennen -- Chief Executive Officer & Director

Yes. So we are definitely in conversations with customers where we have the ability to adjust pricing, and we'll be looking to make those adjustments where we can throughout the third and fourth quarter and into 2021.

Brian Holland -- D.A. Davidson & Company -- Analyst

Great. And then just curious. The plant-based revenue came in well ahead of what I was forecasting. Maybe I was too conservative on the foodservice pressures or maybe just the retail demand was that much stronger. Can you provide any sort of sense of what the growth looked like on the retail side of the business for plant-based beverages versus what you saw as far as headwinds on the foodservice side?

Joseph D. Ennen -- Chief Executive Officer & Director

So we saw very strong growth in both retail broth as well as retail plant-based beverages. And I would also say maybe similar to your conservative estimates, the recovery in foodservice was also quicker than our expectations. Especially as we look at it month-to-month sequentially through the quarter, we saw a pretty significant and speedy recovery as we went from kind of April through May and into June.

Brian Holland -- D.A. Davidson & Company -- Analyst

Great. And then last one for me and I'll pass it on. But you talked a lot about barriers to entry within plant-based beverages. I think you talked about bringing I quantified it at $100 million, I believe, in revenue capacity. You can clarify if I'm wrong about that. But barriers to entry, you've talked about them being high, capital knowledge intensive, etc. Can you talk about some of the content can you provide some context around supply dynamics in the category today? What the bottlenecks look like upstream that might limit some competitors' ability to ramp production? And how much of the category is outsourcing manufacturing today? I'll leave it there.

Joseph D. Ennen -- Chief Executive Officer & Director

Yes. So I would say there are several barriers to entry, and none of them are complete obstacles, but certainly challenges. One is the technical nature of this product manufacturing and the spectrum of all food and beverage manufacturing. I would certainly peg this on the more technical side. And so that represents a barrier, because you have to be technically competent to efficiently and effectively run an aseptic operation.

Second is much of the capital associated with this platform is long lead items, so it's not something you can just pick up off the shelf and drop into a manufacturing facility. You're talking 12-plus months in order to order capital, get it installed and get it operating, as you saw from our projects. And so those are kind of two fundamental sort of long term not necessarily barriers to entry, but just obstacles for a quick resolution of the supply and demand imbalance that we see. Relative to your question about what percentage of people outsource or use co-manufacturing, I'm not quite sure I can answer that question because we don't have visibility into every single competitor in the marketplace and whether they're self manufacturing or using a third-party co-packer. That's a good question.

Brian Holland -- D.A. Davidson & Company -- Analyst

Fair Enough. Appreciate the color vessel, gentlemen. Thank you.

Joseph D. Ennen -- Chief Executive Officer & Director

Okay.

Operator

Next question comes from Jon Andersen with William Blair.

Jon Andersen -- William Blair -- Analyst

Good morning, everybody. Martin jump Wanted to start by asking a question around fruit. You mentioned that the margin optimization program is on track and it seems impressive that given some of the availability and pricing dynamic this year that you're able to deliver the kind of margin improvement that you are hoping for. As we look to the balance of the year, I think that or the original communication was that fruit margins could get back toward the 10% level, I think. I may be wrong on that, correct me if I'm wrong. But are we moving are we still on track toward, say, exiting the year at about 10% gross margin rate in fruit?

Joseph D. Ennen -- Chief Executive Officer & Director

You are correct that is what we have communicated and you're also correct that we remain in the view that we can exit the year near that double-digit mark.

Jon Andersen -- William Blair -- Analyst

Okay. And then a follow-on that. I think, Joe, you might have mentioned that you made a comment that 2021 margins in fruit may look like margins in 2020. I guess I just wanted to get some clarification on that, because I would assume with the sequential progression you've seen in 2020 in fruit and maybe a more normal year next year that profit would be up in that business in 2021, not necessarily flat to 2020.

Joseph D. Ennen -- Chief Executive Officer & Director

Yes. So a couple of comments, and I think Scott can add some color as well. The first piece is we're not going to try to forecast what the crop is going to look like in 2021. We can only comment on, call it, what's in our purview in front of us. And so we feel not necessarily gross margin percentage, what I said was overall profitability, so think about it as a dollar component. And really what we're trying to suggest there, Jon, is that while the crop is not coming in as we would expect, that we shouldn't expect a material erosion in the profitability of our fruit business. Obviously, to talk about margin or margin percentage, we would need to know where revenue is coming and that's an evolving piece as we work with customers on pricing. But certainly, want to send the clear signal that while the harvest isn't where we would want it to be, that we have the situation under control. Scott, anything to add?

Scott E. Huckins -- Chief Financial Officer

Yes. Jon, I'd say Joe has the themes correctly. I think that the point is between our productivity improvements in the segment. We're benefiting from the comparatively weak pace. It was down 15% to 20% year-over-year. You'll recall we do have a fairly good sized processing facility in Mexico. And then three, Joe commented on our ability to pass-through some of the increased price. We think that, that keeps us largely on track for the second half of 2020. But much like a year ago, we'll have a little bit of a and probably a very similar kind of negative carry into the first half of 2021, therefore, leaving us probably flattish in terms of profit for 2021.

Jon Andersen -- William Blair -- Analyst

But impressive that we're making the significant progress we're making this year in margins despite not getting a lot of help from the harvest itself. Shifting gears to the Plant-Based Food and Beverage business, there this new capacity sounds super exciting because it sounds to me like you're enhancing your capacity in some of the legacy lines, plant-based beverage, broth.

But then you're bringing this new capability on to do extraction and supply I guess other manufacturers with components that they need to produce their branded oat-based beverages, for example. So the $100 million opportunity that you talked about, how far off is that? How do you think about that, because right that may be the market opportunity, but you have to build a pipeline, right, and you have to convert that business into a commercial or end market business? So how should we be thinking about your ability to go and get that $100 million once the capacity is in place?

Joseph D. Ennen -- Chief Executive Officer & Director

Yes. So two comments. number one is we're very pleased with our sales pipeline efforts to date and feel good about our ability to start-up those lines and have new business flowing against those new capabilities. To your second question, we've set ourselves a goal to have those new capabilities kind of fully utilized in 24 months. So call it by Q4 of 2022 that we would be fully utilized rolling into 2023. And obviously, that could go faster if the sales pipeline efforts accelerate faster than we thought. But that is at least at the moment the goal that we have set for ourselves is 24 months to full utilization.

Jon Andersen -- William Blair -- Analyst

Great. And then you had terrific performance year-to-date in the Global Ingredient business, particularly the margin improvement you've seen there. Is that a function of just better operating the Crown of Holland plant more effectively, efficiently? Are there other one or two other things maybe that you could shed some light on that's leading to some of that powerful margin expansion in that segment?

Joseph D. Ennen -- Chief Executive Officer & Director

Yes, there's a couple of things. Our juice business is operating very efficiently. We're seeing strong demand. And that demand and revenue is flowing through into gross margin. So the premium juice business we talked a lot about our efforts to prioritize businesses where we've got supply chain advantage and/or pricing advantage. And so, there's a bit of a mix shift if you think about that, is definitely helping us. And then the third piece is certainly the output and efficiency of our manufacturing plants within the Global Ingredient business is helping us lift gross margin.

Jon Andersen -- William Blair -- Analyst

The last one from me. It sounds like later this year let's assume you have a strong third quarter. It sounds like you think you can double EBITDA again in the third quarter. You have a TTM EBITDA level which is significantly higher than the prior trailing 12 months, puts you in a better position to address the balance sheet. Is your goal to as you think about what you're likely to be able to accomplish, is it extend maturities at comparable pricing or interest rates or is it better pricing terms? I'm just trying to get a sense of what you hope to accomplish there.

Joseph D. Ennen -- Chief Executive Officer & Director

Yes. Jon, I guess it's a couple of things. So you hit the nail on the head, I mean, perspective. We entered 2020, call it, 10 times levered through 2Q, low 6s. So obviously, that's what I was getting at in my earlier comments about that's a formidable asset. And so as we continue to lift EBITDA, that equation continues to improve. So I think job one is, if you think through the two debt instruments, the ABL matures in March of '22. So that's the first one up. And then the second lien notes mature in October of 2022. So I think first priority really is, is working on maturities.

Capital markets are obviously fluid, so it's hard to call an exact interest rate sitting here in August. But I think I'd focused in priority order on maturity extension. And hopefully, with a relatively cohesive sort of capital market condition, our improved performance will give us at least a chance to mitigate some of the existing interest rate levels.

Jon Andersen -- William Blair -- Analyst

Right, thanks and congratulations on another strong quarter.

Joseph D. Ennen -- Chief Executive Officer & Director

Thanks, John.

Operator

Next question comes from Mark Smith from Lake Street Capital.

Mark Smith -- Lake Street Capital -- Analyst

Me Just wanted to see you guys quantified a fair amount of the COVID impact. I just want to run through those and make sure that we have those numbers right. Was that a $10 million negative impact on revenue, $3 million negative gross profit and $2 million negative on EBITDA? And if so, maybe just walk through a little bit of how much of that is spending on taking care of employees, working on safety measures versus how much is kind of outside of your control?

Scott E. Huckins -- Chief Financial Officer

Yes. So first of all, good morning. Your numbers are correct. And I think in my comments I said we had about $3 million of gross profit headwind, of which approximately $1 million was, call it, premium pay and spend in plants and then $1 million of SG&A benefits, primarily lower travel costs, resulting in that net negative $2 million of EBITDA.

Mark Smith -- Lake Street Capital -- Analyst

Okay. Perfect. And then just looking at the increased capacity in plant-based business, you talked about kind of long term when that's more fully utilized. Can you talk more kind of short term when we start to see those incremental ramps and benefit?

Joseph D. Ennen -- Chief Executive Officer & Director

As we we expect a strong fourth quarter. Our broth business continues to accelerate. Plant-based continues to post very strong results. So with the added capacity, we would certainly expect to have a very strong fourth quarter across the Plant-Based Food and Beverage platform. As it I think we'd probably be in a much better position to comment on that at the end of next quarter when you're closer to a sales pipeline. We're in discussions with customers, but don't have a specific kind of number or a framed out outlook that we could share with you at this point just given the fluidity of capacity coming on line and customer contracts under negotiation, etc. But again, we are pleased with our sales pipeline efforts to date.

Mark Smith -- Lake Street Capital -- Analyst

Okay. That's fair. And then last one for me. Can you just talk a little bit about maybe the margin profile as you look at this new arbor bar business versus kind of your historical bar business, building for others?

Joseph D. Ennen -- Chief Executive Officer & Director

Yes. So this is part and parcel to our overall fruit snacks platform. We again, in that category, we think there's significant opportunity to drive innovation. This product is pretty unique in that it's organic and has 0 grams of added sugar, which if you're a consumer of that category at all, you would recognize how unique that attribute is. So we're incredibly proud of the product that we've built. Just in terms of margin profile, we would obviously see that from a kind of mid to long term standpoint being margin accretive to the overall fruit snacks platform.

Mark Smith -- Lake Street Capital -- Analyst

Okay, great. Thank you.

Operator

And there are no more questions at this time.

Joseph D. Ennen -- Chief Executive Officer & Director

Okay. Thank you, operator, and thanks to all of you for participating in our second quarter conference call. Look forward to speaking to you in the near future and appreciate your interest and support in SunOpta. Have a great day.

Operator

[Operator Closing Remarks].

Duration: 44 minutes

Call participants:

Joseph D. Ennen -- Chief Executive Officer & Director

Scott E. Huckins -- Chief Financial Officer

Brian Holland -- D.A. Davidson & Company -- Analyst

Jon Andersen -- William Blair -- Analyst

Mark Smith -- Lake Street Capital -- Analyst

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