Q2 2020 Sunopta Inc Earnings Call

Good morning, and loved ones after second quarter physical 2020, <unk> earnings Conference call I know everyone should have access to the earnings press release issued this morning is available on the Investor Relations page, one son optimize website at Www dot.

All this being webcast.

I'm sure we'll also be available on the company's website.

As a reminder, please note that the prepared remarks, which will follow containing.

These statements in management.

All forward looking statements in response to your question.

These statements do not guarantee.

Future performance, and therefore undue reliance should not be placed upon them.

We refer you also asked factors contained in South Optus press release issued this morning.

Companies report filed on form 10-K.

Filings with the Securities and Exchange Commission for more detailed discussion of the factors that could cause actual results to differ.

That's really more detail.

The two relief from those projections and forward looking statements. The company undertakes no obligation to publicly update.

Update forward looking statements made during the presentation true like future events or circumstances.

I think is may required under except as may required under applicable security laws.

Finally, we she'd like to remind listeners that the company may refer to certain non G.A.P. financial measures. During this teleconference and a reconciliation of these nine G.A.P. financial measures were including the company's press release issued earlier today also please note that unless otherwise stated okay.

Figures discussed today, Alright, you list dollars in our occasionally round it to them.

Now I will like to turn the conference over to sign up do you see Oh John in it.

Good morning, and thank you for joining us today with me on the call is Scott Hawkins, our Chief Financial Officer.

Before we begin on packing. The Q2 results. There are three key takeaways that I would like to offer.

Or is that are prioritized investments in plant based food and beverages is paying dividends.

We're playing offense, we are winning and we expect to continue to win as we strengthen an already strong position.

Okay. 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 the average EBITDA growth.

The second quarter was another strong quarter for sonata, 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.

<unk> that our turnaround efforts have taken hold and we're seeing the output of these efforts in the overall result, and consistency of those results.

I'm 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 called the 19th.

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.

12.8% for a gain of 350 basis points.

All three operating segment saw improvements in gross margin.

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 our typical in the second quarter.

Now before we go further let me comment on Cobot 19, and its impact on our business.

Similar to nearly every business around the World Cup at 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're incredibly proud that while we have had employees affected by called at 19.

There are no confirmed cases of community transmission at any of our locations.

We have had some minor disruptions in our operation, but overall, we have managed to exceptionally well with employee safety being our top priority.

While cobot 19 has created dramatic swings in individual customer orders the aggregate impact on total revenue and totally EBITDA was modestly negative.

Scott will share a more detailed overview of the financial impact of Cobot 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 B U move further build on our strength in plant based beverages.

Our ruthless prioritization and 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'm 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 we'll continue to be our top investment priority.

It's Bu is composed of several product category. The largest is our plant based beverages with products, such as Soi Allmand and Oh.

Plus our brought business.

Second is ingredients extraction, it's an important emerging business, where we convert plants into the concentrate the basis for making plant based food or beverage as such as oak 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 to cope with 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 to be odd 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 called at 19 on foodservice related sales.

Revenue growth was broad based driven by both plant based beverage revenue and new brought business, partially offset by sale to a large foodservice customer who is impacted by called the 19th.

However, with the coffee shops, and restaurants slowly reopening we have seen steady improvement across the sales channel.

It is in process 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 done 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 as a result of great execution from our operation and supply chain teams.

[noise] driving our result 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.

Based products have dramatically better environmental footprint than animal based products and consumers are increasingly converting.

Their concern over climate change into purchasing choice it.

Second animal welfare gives a rising concern, especially among millennial engine the consumers.

Third is food allergies, approximately a 100 million Americans and 5 billion people globally, our lactose intolerant.

Fourth is taste preferences as consumers discover the great taste of products like owed and Almondmilk.

And fifth is health benefits be it began vegetarian or just a focus on cleaning Lady.

To continue to capitalize on these trends we remain on track with our capital project to expand our extraction capabilities and are progressing with the other two expansion projects to increase capacity and capability across our national footprint.

We continue expect all three of these projects to come online in the fourth quarter of this year, providing the capacity for significant future growth.

We're particularly excited about the timing of our extraction capability, which expands our capacity fourfold to support the strong growth Oh milk category growing over 300%.

When fully utilized these three capital projects have the potential to provide $100 million of additional revenue.

Filling that 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 that 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 declined due to cover.

Team.

Frozen fruit continues to benefit from our pricing and margin enhancement initiative.

Gross margin expanded 350 basis points year over year, continuing recent improvements.

Once again, our food operations team has done a great job managing Covidien pack and delivering on our productivity plan.

Our plan to improve the margin profile of our frozen fruit segment is progressing and our result 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 expectation and our incrementally evident in our quarterly margin progression.

As evidence of these efforts and our capital investments. 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 capabilities.

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.

Cobot 19 has produced a change in consumer purchasing pattern and the retail demand first fresh strawberries 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 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 Grover relations efforts have enabled us to procure a much higher market share of the available through compared to what we were able to procure in 2019.

Our automation efforts generated significantly higher yield higher throughput and allowed us to operate with significantly fewer seasonal workers.

Our efforts to move customers to pass through pricing is helping them and to 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 route optimization plan and continue to expect sequential improvement.

Well the news on the harvest makes on 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.

Well of course update this view as we learn more.

I want to end on through 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 have the 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 and other areas as we seek to innovate create markets and propel growth.

There's been no way distract from our core business, a 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, bringing innovation to the market and raise consumer awareness.

Finally, the global ingredients segment also delivered a strong second quarter was 6.9% adjusted revenue growth and a 300 basis point improvement in gross margin year over year 160 points net FCX.

The growth and gross margin improvement were driven by both the trod inorganic ingredient business and our premium juice offerings. The margin improvement reflected increased pricing spread higher margin product mix and manufacturing efficiencies. This combined with a favorable commodity hedging results and higher sales.

Pricing and lower bottling cost for premium juice products drove margin improvement.

Im 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 trodden enjoys in key segments.

All these improvements set the stage for continued growth.

Our strategy to focus on margin and the return on capital profile of our ingredients segment is now well underway and contributing to the improvement in margins and returns.

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 has transformed into an organization that has doubled EBITDA for three consecutive quarters and candidly I like our chances are making at 400 Rob.

We believe that 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 enhancement going forward.

Compared to 18 month 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're very confident with our strategy, our asset and our segment positioning and we are optimistic about our ability to drive growth and enhance the margins across each of our business platforms.

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

Thank you very much Joe and good morning, everyone.

Let me walk through gross profit in 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 in cash flow results.

First as Joe mentioned, we had another strong quarter was 6.1% revenue growth and doubled adjusted EBITDA year over year.

We estimate the impact of coded 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%.

Fair to 27.3 million during the second quarter of 2019.

When based segment accounted for 4.6 million of the increase in gross profit.

Mainly reflecting revenue growth.

Plant productivity efforts.

Your capacity utilization, partially offset by wage premiums and higher cleaning costs attributable to covert 19.

Global ingredients contributed 4.4 million of improvement primarily due to the increased pricing spreads for organic ingredients in premium juice products.

Activity improvements on our factories.

In a 1.8 million dollar increase in commodity hedging results.

The fruit based segment with responsible for 3.4 million of the gross profit improvement.

Including improved pricing efforts any favorable mix of higher margin retail versus foodservice sales.

Partially offset by lower sales volumes in plant utilization for food ingredients.

Together with wage premiums and higher cleaning costs attributable to coated 19.

We estimate that pivot 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.

350 basis point increase.

All segments contributed significantly to the gross margin expansion.

With gross margin expanded 350 basis points in the fruit segment.

340 basis points in client base.

300 basis points in global ingredients.

It is worth mentioning that our global ingredients business delivered that margin expansion with almost 10% lets inventory compared with last year.

Operating income was 8.8 million for 2.8% of revenues in the second quarter compared to a loss of 2.5 million last year.

Yes, DNA was fairly consistent with last years second quarter.

With the savings initiatives being offset primarily with variable compensation expense.

So that 19 impact on us Gionee 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 two cents per diluted share compared to a loss of 11.1 million or 13 cents per diluted share during the second quarter of 2019.

On an adjusted basis loss was 1.4 million or two cents per diluted share compared to a loss of 9 million or 10 cents 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 cobot 19 impact on adjusted EBITDA was a negative $2 million.

I'd like to remind listeners that adjusted EBITDA and adjusted earnings our non-GAAP measures and a reconciliation of these measures to GAAP can be found toward the back of the press release issued earlier this month.

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 in down 42 million from year end 2019.

Total debt reflects 219.1 million net of issuance costs of our secondly 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 works on refinancing our debt and would expect to be in a position to execute late this year.

A significant improvements in EBITDA to date and are expected continued improvements in EBITDA are immaterial asset in this process.

In summary, we are confident in our refinancing opportunities.

As most of you know, we raised 60 million of preferred stocks commitments.

We funded 30 million of that in April and we let the remainder lapse not tendering notice by July 15th.

2020.

From a cash flow perspective during the quarter cash generated by operating activities was 2.7 million compared to cash used 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 investments, primarily relates to last years 3 million dollar acquisition of sand Mark.

Use of leasing arrangements to support certain major capital projects.

As Joe mentioned, we're 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're also on track with our fruit margin improvement targets. Despite the cobot 19 demand related higher pricing, we're seeing in freezer fruit.

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

At this time, if you ask the questions. Please press Star then a number one on your telephone keypad again that is star and the number one and we'll pause for just a moment.

Okay.

Okay.

And from Ryan Holland.

<unk> Davidson company.

Thanks, Good morning, gentlemen.

First question I guess on the on the strawberries side there some of the dynamics as broke down in the harvest.

You know, you've obviously made considerable investments.

In automation or productivity as you said will help preserve some of the margin stability. There what are the pricing dynamics look like going forward, we need to take more pricing how do you feel as far as being comfortable with doing so I know you did a good that Fourq. You did you just help us understand what that landscape looks like.

Yeah. Good morning, 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.

Great. Thanks, and then.

Just curious.

Plant based revenue came in well ahead of what I was forecasting.

I was too conservative on the foodservice pressures or or because just the retail demand was that much stronger I can you 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 food service side.

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.

Dear Conservative estimates.

The recovery in Foodservice was also a quicker than the our expectations, especially as we look at it month to month to sequentially through the quarter.

We saw a pretty significant and speedy recovery as we went from kind of April through May and then to.

Into June.

Great. Thanks.

Last one for me and I'll pass it on but you talked to you talked a lot about barriers to entry within plant based beverages.

I think you talked about bringing quantified it at a 100 million I believe in revenue capacity.

Clarify if I'm wrong about that but you know.

Barriers to entry you've talked about them being high capital knowledge intensive et cetera can you talk about some of the contact can you provide some context around supply dynamics in the category today, what's the bottlenecks looked like upstream that that might limit some competitors ability to ramp production and how much of the category is outsourcing manufacture.

Today I'll leave it there thank you.

Yes, so I would say there are several barriers to entry none of them are complete obstacles, but certainly challenges one is the technical nature of this product manufacturing in 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 in a septic operation.

Second is.

Much of the capital associated with.

This platform as long lead items. So it's not something you can just pick up off the shelf.

And drop into manufacturing facility, you're talking 12 plus months.

In order to order capital get 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 Outsourcer use co manufacturing them not quite sure I can answer that question.

Because where we don't have visibility into every single.

Competitor in the marketplace and whether they are self manufacturing are using a third party co Packers.

Good question.

Fair enough appreciate the color best of luck gentlemen.

Thank you.

Okay next question comes from John.

Good morning, everybody.

Good morning, John.

I wanted to start by asking.

Question around fruit.

You mentioned that the margin optimization program is is it is on track.

And.

Seems impressive that given the some of the availability in pricing.

NAMIC 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.

The communication was that.

Fruit margins could get back towards that 10% level I think I, maybe wrong on that correct me if im wrong, but.

We are we moving are we still on track toward say exiting the year.

At about 10% gross margin rate you know in fruit.

You are correct that is what we have communicated and you're also correct that.

We we remain.

In the view that we can exit the year.

You know near that double digit mark.

Okay.

And then.

Follow on that.

I think.

Joe you you might have mentioned.

That's.

Yeah.

You made a comment that 20 2021 margins and 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.

Our normal year next year that profit would be up in that business in 2021, not necessarily flat to 2020.

Yes, so couple of comments and I and I think Scott can add some color as well the first piece as you don't we were 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 per view in front of us and and so we feel.

Not necessarily gross margin percentage, what I said was overall profitability. So think about as of the dollar component.

And really what we're trying to suggest there John 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 of our three business, obviously did talk about margin or margin percentage, we would need to know where revenues coming in that's a when evolving piece as we work with customers on pricing.

But certainly want to send the clear signal that that while the harvest isn't where we would want it to be that we have the situation under control.

Oh got anything to add.

Yes, Hey, John I'd say.

Just just the themes correctly I think the point is between.

Productivity improvements in the segment, we're benefiting from.

The comparatively weak peso, it's down 15% to 20% year over year, you'll recall, we do have fairly good size processing facility in Mexico in Threeg will comment on our ability to pass through some of the increase price, we think that keeps us largely on track for the second half of 20, but much like.

A year ago will have a little bit of the but probably a very similar kind a negative carry into the to the first half of 2021, therefore, leaving us probably flattish in terms of profit for us for 2021.

Okay.

Impressive there.

We're in the significant progress, we're making this year in margins.

By that getting a lot to help from the.

From the from the harvest itself shifting gears to.

To the plant based.

And beverage business.

You know there.

This new capacity sounds super exciting because.

It sounds to me like your enhancing your capacity and in some of the legacy lines.

Plant based beverage broad, but then you're bringing this new capability on two to two.

Do extraction and and supply I guess other manufacturers with.

Components that they need to produce.

No there branded.

Based beverages for example, so.

The 100 million dollar.

Opportunity that you talked about how 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 you know that business into commercial.

Commercial or in market business. So how should we be thinking about your ability to go and get that 100 million. What's the capacity is in place.

Yes, so two comments.

Number one is we're very pleased with.

Our sales pipeline the efforts to date and.

Well good about our ability our ability to start up those lines and have new business.

Flowing against those new capabilities.

To your second question, we've set ourselves the goal to have those new capabilities.

Kind of fully utilized in 24 months, so call. It by Q4 of 2022.

That we would be foetal fully utilized rolling into 2023.

Terrific and and you know obviously that could go faster if the sales pipeline.

Efforts.

Accelerate faster than we thought but that that is at least at the moment. The goal that we have set for ourselves is 24 month to full utilization.

Great.

And then.

You've had terrific performance year to date in the global ingredient business.

Typically though the margin improvement you've seen there is that.

A function of.

Just better.

Operating the Krona Holland plant, you know more effectively efficiently.

Are there other.

One or two other things maybe that you could shed some light on that that's leading to some of that them that powerful margin expansion in that in that segment.

Yeah. There's a couple of things are juice business is operating very efficiently, we're seeing strong demand than that demand than revenue is is flowing through into.

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 is 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 ingredients business is helping us lift on gross margin.

Yes.

The last one for me.

It sounds like.

Later this year.

Let's assume you have a strong third quarter sounds like you think you can double EBITDA again in the third quarter you have.

TTM.

EBITDA level, which is significantly higher than the prior prior.

Trailing 12 month puts you in a better positioned to.

Address the the balance sheet.

What is your.

Is your goal to.

As you think about what you're likely to be able to accomplish.

Is it is that extend maturities at comparable.

No.

Pricing or interest rates or is it.

Better pricing terms.

Just trying to get so what you hope to accomplish there.

Yes, John I guess it.

Couple of things. So you hit the nail and ahead of me perspective, we entered.

2020 call It 10 times Levered.

Through to Q low sixs. So obviously, that's what I was getting at my earlier comments about.

Thats it for mineable 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 l. matures in in March 22. So thats. The first went up and then the second lien notes mature in October of two.

22, so I think first priority really is working on maturities.

Capital markets are obviously fluid so it's hard to call on exact interest rates sitting here in August, but I think it'd be focused in priority order on maturity extension and hopefully with with a relatively.

Yes, so the capital market conditions are improved performance will give us at least the chance to mitigate some of the existing interest rate levels.

Right.

Thanks, and congratulations on another strong quarter.

Thank you John.

Okay. Next question comes from Mark Smith from Lake Street capital.

Me just wanted to see you guys quantified afirma under the cover the impact I just want to run through those are mixture that we have those those numbers right was that a 10 million dollar negative impact on 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 can control.

Yes, so first of all good morning, you their numbers are correct that I think.

Comments that said, we had about 3 million of gross profit headwind of which approximately 1 million was call. It premium pay in spend in plants and then a million dollars of us junaid benefit primarily lower travel costs resulted in that net negative 2 million of EBITDA.

Okay.

Perfect.

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

As we we expect a strong fourth quarter Oh are brought business continues to accelerate plant base 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 it we'd probably be at a much better positioned to comment on that at the end of next quarter when.

You are closer to a sales pipeline.

We're in discussions with customers, but don't have a specific kind of number or framed out outlook that we could share with you at this point just given.

The fluidity of capacity coming online and customer contracts under negotiation et cetera, but again, we are pleased with our sales pipeline efforts to date.

Okay, that's fair.

And then last one from 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.

Yeah. So this is you know part and parcel to our overall fruit snacks platform.

We we again in that category.

We think there's significant opportunity to drive innovation. This product is pretty unique and not its organic and has zero 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 of the product that we've built.

Just in terms of margin profile, you know, we would obviously see that from a kind of mid to long term.

Standpoint, being margin accretive to the overall fruit snacks platform.

Okay, great. Thank you.

Okay.

Questions at this time.

Okay.

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 sonata.

Have a great day.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating.

[music].