Q4 2022 Sunopta Inc Earnings Call
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 <unk> press release issued this afternoon. The Companys 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.
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.
As may be required under applicable securities laws.
Finally, we'd like to remind listeners that the company may refer to certain non-GAAP financial measures. During this teleconference. The reconciliation of these non-GAAP financial measures was included with 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 I'd like to now turn the call over to Joe.
Good afternoon, and thank you for joining US today, we had another very strong performance in the fourth quarter with revenues in line with guidance, while profitability was significantly above reflecting solid execution against our key priority of driving strong profitable growth in plant based.
And fruit snacks, and continuing the optimization of frozen fruit profitability.
Please note my prepared remarks will generally exclude the impact of our sunflower business, which was divested at the beginning of the fourth quarter.
Let me offer some key takeaways before we began unpacking the results.
Q4 success was achieved much the same way, we have driven the business all year.
Strong broad based revenue growth in plant based from both pricing and real volume growth fruit snacks continued to experienced incredible growth in frozen fruit saw continued improvement in profitability linked to better execution.
Q4, adjusted EBITDA of $23 5 million was up 123% and was the highest quarter in company history on a normalized basis as we continued to efficiently scale, our business and optimize performance across our entire portfolio.
In plant based revenue growth remains incredibly broad based.
Owed almond soy and coconut all grew double digits with double digit increases in retail and over 30% growth in foodservice.
We also saw double digit growth in each of our top three customers.
Additionally, all the ways in which we go to market, we're up double digits led by our own branded portfolio, which was up 40%.
This broad growth is a testament to our competitive advantages and shows we have numerous ways to win with the business model we have built.
Our plant based growth was supported by solid gains in volume in addition to pricing.
Customer demand in the quarter was very strong very steady and very consistent and as I mentioned very broad based.
We continue to see profit improvements in the fruit segment, resulting from the strategies. We have talked about extensively mix shift to value added products and network optimization, along with better execution are delivering results with fruit segment gross profit up 95% we continue to recover.
Almost all inflationary costs with customer pricing adjustments, we continue to deliver outstanding customer service with case fill rates in plant based over 98% and fruit based over 97%, we continue to make gains and business development as our value proposition.
And competitive advantages continue to attract new customers as well as growing with existing customers. We continued to execute on our capital expansion plans with our 285000 square foot Greenfield plant in Texas now in operation.
We went from first bulldozer to first production and less than 16 months.
Lastly, solid execution in 2022 has created durable momentum for the business and we are well positioned for another strong year in 2023.
Now I will turn to our segment results starting with plant based where we remain focused on three strategic priorities number one strengthening in Florida flying our competitive advantages.
Number two winning in oat milk.
And number three building a balanced multi pronged go to market business that includes co manufacturing private label and owned brands.
Plant based revenues were up 23% in the fourth quarter to $136 million with growth split approximately 60 40 between pricing and volume with both factors up double digits.
These results once again underscore the competitive strength of our platform and why we are frequently a partner of choice.
We support customers across the full spectrum of channels and categories with industry, leading capabilities and innovation.
Providing multiple pathways for driving profitable sustainable growth.
Within the segment core plant based milk revenue increased 22% and accounted for over 60% of the total segment revenue.
Our tea business also continued to deliver outstanding results with the growth rate accelerating further to 57% driven by strong customer demand.
Finally, broth sales grew 10% a solid recovery from the third quarter in part driven by promotional efforts at select customers.
On plant based milks, we continue to see broad strength across the portfolio as four of our five product types experienced double digit growth rate.
<unk> continues to be a strong driver of our plant base growth and revenue from all other products was up 37%.
Nut milk was up 30%, reflecting gains in foodservice and soy milk was up mid teens with almond milk up low double digits.
Next I'll provide some context on the plant based milk category and its recent performance based on retail scan data as a reminder, we would estimate retail scan data only captures roughly one third of total shelf stable plant based milks with untracked Foodservice and club representing two thirds.
The volume.
We continue to see solid growth in the overall plant based milk category.
In the 13 weeks that coincide with our fourth quarter total plant based milk dollars grew 12% while units declined 4%.
Category growth continues to be led by oat milk with dollars growing 23% and units growing 4%.
Looking beyond scan channels, our business results would suggest very strong growth in foodservice and better than retail growth in club.
Looking at <unk> results by customer channel.
Total retail was up 17%, reflecting strong growth in mass and club along with further growth from our large <unk> customer.
Foodservice, which includes our biggest customer had a very strong performance in.
The channel sales increased 32%, reflecting significant gains in our dream branded oat milk.
Dream Oat milk and foodservice helped propel our overall branded business up 40% in the fourth quarter.
<unk> brands, our top performing go to market approach.
In addition, we continue to see some resurgence in soy milk led by younger consumers.
Our westlife brand of non GMO soy products was the fastest growing brand in the shelf stable category in the last 13 weeks fueled by product innovation distribution gains and consumer interest in the superior protein content and nutrition profile of soy milk.
While not a huge base it shows our ability to work the edges of the category with innovation.
Private label was also very strong up 35% driven by broth and new distribution.
<unk> revenue rose, 14%, reflecting pricing and broad based gains across our major customers and channels.
As it relates to capacity expansion projects, all six of our projects needed to double capacity are now complete.
These projects have been instrumental and fueling our growth.
Plant based segment revenue and gross profit has doubled since 2018, including 40% growth in the last 24 months.
Our Greenfield plant in Midlothian, Texas was completed on time and on budget, which is an amazing feat given the macro volatility experienced over the past 16 months around the availability of everything from steel to equipment to labor.
<unk> hired over 100 employees and many of them have been cross training at our other plants for months.
We are currently manufacturing saleable product and expect volumes to ramp steadily over the next six months.
Maybe even more exciting is that commissioning is nearing completion on our 330 milliliter protein Shake line and we expect to begin initial production in Q2 as planned.
Over the past several months, we've hosted visits with many of our top current and prospective customers and their reactions have been overwhelmingly positive.
Overall business development continues to go quite well as we will be onboarding, several new customers in 2023, and just as importantly, expanding business with existing customers.
These wins were enabled by Texas, both from a capacity standpoint, as well as its attractive geographic location for both <unk> and our customers.
Moving on to our fruit based segment recall, our three strategic priorities are one derisking the business through geographic diversification customer pricing programs and better grower relations.
<unk>, becoming the low cost operator in frozen fruit through automation footprint reengineering and aggressive cost takeout and.
And three evolving the portfolio via mix shift and innovation towards more value added offerings.
Fourth quarter results and through fully reflect execution of these three strategies we.
We saw a surge in growth in fruit snacks, partially offset by expected moderation in frozen fruit as.
As we continue to shift the mix.
Segment revenues were up over 4% driven by a 56% increase in fruit snacks.
Impressively nearly 80% of this growth came from volume.
Selecting a continuation of the strong consumer demand trends, we've seen all year.
This core growth is combined with our ability to leverage key innovations and increased capacity across major retail and CPG customers points to a continued bright future for snacks.
Importantly, we delivered significant margin expansion across the entire fruit based portfolio as we captured scale related efficiencies and fruit snacks and benefited from a reduced manufacturing cost base and portfolio rationalization and frozen fruit.
Gross profit dollars in our fruit based segment nearly doubled in the fourth quarter and margin improvement followed a similar trajectory.
Turning to our ESG initiatives, we made significant progress in the year, we continued to make real progress towards zero waste in our plans.
We joined Fedex to enhance transparency in our supply chain and we have made significant progress towards sustainable packaging solutions.
As we outlined at Investor day, one of our goals is to be and be recognized as a sustainability food and beverage company in.
In 2022, we improved our CDP score to a b minus above the food and beverage industry average of a fee.
For those not familiar CDP is a nonprofit company, which runs a disclosure system for investors companies and governments to manage their environmental impact. Additionally, our most recent sustainability report clearly outlines our multiyear goals and plans for operating the business consistent with our sustainability.
<unk> heritage.
In summary, 2022 was a very good year for <unk> as we significantly expanded capacity continuing to reshape our portfolio and again delivered significant growth in revenues and profitability, we enter 2023, and a very strong competitive position with numerous tailwind.
That will propel our business further leverage our strong platform to capture additional share and expand our addressable market.
Our outlook for 2023 is largely unchanged from what we first shared with you several quarters ago.
At our Investor day in June of 2022.
We remain committed to our long term growth algorithm of annual double digit plant based revenue and profit increases and increasing returns on invested capital.
Now I will turn the call over to Scott to take us through the rest of the financials Scott.
Sure.
Thank you very much Joe and good afternoon, everyone.
Fourth quarter revenues of $221 million were up eight 4% year over year as reported and grew 16% excluding the divested sunflower business.
Land based revenue increased 23%, excluding the sunflower with pricing up 13% in volume up a strong 10%.
Fruit based revenues increased four 5% led by fruit snacks, which grew 56%.
Consolidated gross profit increased 56% to $28 million and was up 82% to 33 million, excluding $4 6 million of startup costs for our Texas plant.
Consolidated gross margin was up 400 basis points to 12, 8%. Despite the impact of 210 basis points of startup costs and approximately 80 basis points of headwind from the dilutive effect of passing through higher input costs to customers.
And plant based segment level gross profit increased 46% to $21 million and was up 78% to $25 million, excluding the impact of startup costs for Texas.
Gross margin and plant based was up 360 basis points to 15% and would have been 330 basis points higher if we exclude startup costs for Texas.
The increase in gross margin.
Proximately 120 basis points was due to the sunflower divestiture.
The increase in gross margin reflected both volume growth and pricing.
And fruit based segment level gross profit rose, 95% to $7 million and gross margin increased 420 basis points to 9%.
The improvement in gross margin was driven by lower manufacturing costs and increased pricing in frozen fruit and significant volume growth price increases and plant efficiencies in our fruit snack operations.
I would like to reiterate that our focus is on increasing EBITDA growth.
Driven by gross profit expansion, we are pleased to see this flowing through the P&L.
Segment operating income was $5 2 million in the fourth quarter compared to a $1 7 million loss last year, mostly reflecting higher gross profit along with a $1 6 million FX gain.
Earnings attributable to common shareholders for the fourth quarter was <unk> 2 million compared to a loss of $6 8 million in the prior year period.
Adjusted EBITDA was $23 5 million or 123% higher than $10 6 million in the prior year.
As a percentage of revenue adjusted EBITDA more than doubled from five 2% last year to 10, 6% this year.
Turning to the balance sheet and cash flow to.
To start we are pleased with where we are on the balance sheet, both from a leverage and debt maturity perspective for.
For context, we have invested over $200 million of growth capital over the last two years as we seek to double our plant based business.
Our core credit facilities are not due until the end of 2025.
As of December 31, 2022, total debt was $308 million with leverage of three seven times at the end of the fourth quarter as.
As a reminder, our target leverage is two times to four times, we continue to expect to be within that range at year end 2023, with the first half of the year towards the higher end of the range followed by gradual improvement as we continue ramping the production capacity that came online over the last couple of quarters.
From a cash flow perspective, we had a strong fourth quarter with positive cash flow before and after capital investment and the divestiture of the sunflower business contributed $8 million to the fourth quarter cash flow profile.
Cash provided by operating activities during the fourth quarter of 2022 was $27 million compared to $20 million during the fourth quarter of 2021.
Cash used in investing activities was $20 million compared with $23 million in last year's fourth quarter, primarily reflecting investments and capacity expansion projects, partially offset by proceeds from the recent divestiture of the sunflower business.
Let me close with comments on our outlook recognizing the environment remains fluid.
I will provide our guidance for 2023, along with some perspective on other items across the financial statements.
From a guidance standpoint, we expect revenue in a range of 1 billion to one point <unk> 5 billion, representing 14% to 20% growth, excluding the divested sunflower business.
We would expect the majority of that growth to come from volume with the balance driven by the wrap around of pricing actions taken throughout 2022.
As a reminder, 2022 included $58 million of sunflower revenue, including $17 million in Q1 that will not recur in 2023.
Please also refer to the commentary on last year's Q1 call for onetime revenue gains in that quarter.
From an adjusted EBITDA standpoint, we would expect a range of $97 million to $103 million, which represents 16% to 23% growth.
As we think about the pacing of EBITDA in 2023, we would expect a roughly 45 55 split in the first in the second half of the year with a back half benefiting from the ongoing ramp up of our Texas facility.
Let me also cover a few of our other financial statement items as we see them developing in 2023.
From a P&L standpoint, we would expect SG&A to be up low double digit percent consistent with the outlook shared at Investor day, driven in part by stock based compensation expense.
Depreciation will be up $7 million to $8 million as capacity expansions begin depreciating.
Interest expense will be up $12 million to $13 million with roughly half due to rising interest rates on credit facilities and half from interest on capital leases used to finance expansion projects. Finally, we would expect $10 million to $12 million of startup costs related to our capital expansion projects with the flow being.
Approximately $6 million in Q1.
$3 million in Q2, and $1 million each in Q3 and Q4.
As a reminder, startup costs are recorded in cost of goods sold reducing gross profit and gross margin and are added back to EBITDA from a balance sheet and cash flow standpoint, we would expect capital expenditures on the cash flow statement between 35 and $45 million, assuming no material new growth.
Investments.
Free cash flow is expected in a range of $25 million to $35 million with a year end leverage in the mid threes. Each of these estimates are consistent with what we laid out at our Investor day in June of 2022.
As we think about the business post 2025, we would expect the financial algorithm for the total company of low double digit revenue growth.
High teens gross margins with low teens, adjusted EBITDA margins and capital expenditures of mid single digits as a percentage of revenue.
As a reminder, we have said for a long time that we need to deliver a 14, 5% CAGR in our plant based business to achieve our 2025 targets and beyond.
One final item to mention.
We are planning to host an analyst and Investor meeting in mid April at our newly opened lithium Texas facility.
This event will showcase our new facility, including an overall update on our business along with a plant tour. We intend this to be both an in person event and a live webcast will also be available.
There will be more details to come.
Before opening up the call for questions. Just a reminder that for competitive reasons, we do not provide detailed commentary regarding customer or SKU level activity.
And with that operator, please open the call for questions.
Thank you Ms Robbins, ladies and gentlemen at this time any question. Please press star one.
Your question has already been addressed you can remove yourself from the queue by pressing star one again.
First question this afternoon from Brian Holland of Cowen.
Yes. Thank you good afternoon.
If I could just start with obviously really strong performance in the plant based beverage category I know that's been a point of some sensor.
<unk> among investors, who just kind of look at the high level data and wondering how that conveys to your business.
So obviously strong execution here.
Implies continued share encouraging as we go out to 2023, though and we obviously, we see at a high level of deceleration and Joe I. Appreciate the color you provided around how that data of the scanner data impacts.
What it doesn't catch in your business.
And we'd be hopeful if we have a little sense of to the extent that you maybe heather youre guiding to underlying category forecast.
If theres a range of outcomes for the plant based beverage category in 2023, but youre using as a starting point there that you could help help us frame that.
Yes.
Good morning, or good afternoon, Brian So youre asking about our category forecast.
As it relates to scan.
Scanner.
Yes, it doesn't have to be just at a category level. I mean do you have an assumption for the plant based beverage category growth between X and Y in 'twenty three and then we're going to take this amount of share I guess I'm just curious what your starting point is for the category because I think that would help people understand.
And.
The pace of share incursion that youre anticipating in the extent to which you are maybe making some reasonable assumptions for how the underlying category is going to grow.
Yes, we've certainly seen.
So I'll talk about.
Track channels, we have seen tracked channel growth in the kind of mid teens for going back for several years, Brian I mean fully if you go back even 10 or 15 years, one of the things that you've seen with plant based milk is just a very consistent low double.
<unk> CAGR and we don't see anything that would suggest there is a deceleration.
Round plant based milks from a revenue growth standpoint, I mean that has been the CAGR for fully over a decade.
We're also seeing really strong growth in foodservice, we continue to see consumers in that channel migrate to plant based milk.
We see when <unk> gets brought in it as largely incremental which is great.
Great benefit for the overall category and the momentum.
And then in the non tracked retail channels think club and other non tracked channels.
Again.
From double digit growth rates. So overall I mean, that's what we see obviously for the last really four to six quarters.
Our performance has significantly exceeded the category growth and we would expect that to continue.
Got it appreciate the color there Joe.
And maybe switching.
Just for a minute.
Obviously theres been a lot of weather.
Vince.
Up and down the West coast.
I'm just curious if you could give us any update.
Honestly I understand the evolution of the fruit business and it's more heavily weighted towards Mexico, but whether it's tree nuts fruit crops. If you can.
Could provide any color on what youre seeing there and any impact to your business upstream in 'twenty three.
Hey, Brian It's Scott. Thanks for the question. So we're in the heart of the Mexico season, now we're seeing good quality availability, we won't be ramping California production call. It until may at least the scattered reports we have so far suggest perfectly fine season, there has certainly been.
Some erosion from the severe weather at the same time, there has been more acres planted so I think we're at least as we sit here in March.
Not of a view that we're going to see anything better or worse that we would expect.
Got it appreciate that and then last one for me.
Obviously, you're stuck with $100 million EBITDA guidance for 2023, I think when you first provided that 12 months ago.
Yes.
On your initial 22 guide it would have implied 40% growth with the 18% applied you've delivered in 'twenty. Two we're now suggesting that it's closer to 20% growth and I certainly don't want to.
Okay.
Nothing that I can say about 20% EBITDA growth having.
Having said that though I'm curious whether there is anything to interpret from sticking with that guidance in light of the over delivery in 2022 or the outperformance in 2022, whether that there's something here that we need to be mindful of that maybe have gotten a little bit worse or there is a headwind here but.
Is it that you're factoring in.
Certainly, it's okay, we're being conservative or.
Mindful of the Midlothian ramp, but just want to understand in the context of the outperformance in 2020 to sticking with the $100 million what it could be interpreted from that thanks.
Yes, no problem, Brian I think I'll just start with the answer we center cut 2023 really consistent with what we outlined really going back almost a year's time I think it's important to remember and you hit it I think on the head as you is the way you asked your question that a lot of the growth in 'twenty three is a function of.
One onboarding new customers into commercializing additional business for existing customers and so to me that's inherently some level of volatility and how that works.
Requires cooperation between <unk> and the customer base. So I think it could could things go better of course, they could but I think as usual we want a center cut the estimate.
Yeah.
Thank you we'll go next to Ryan Meyers of Lake Street capital markets.
Hey, guys. Thanks for taking my question.
First one for me I know you've kind of talked about this in the past then you kind of alluded to it at the beginning of the call the growth from new and existing customers. Just curious if you could.
Provide some sort of commentary on growth that you guys saw this quarter.
From new customers, and then kind of how much of it was from existing customers.
Yes, the beauty of the quarter Ryan was.
A virtual clean sweep across every cut and dimension of the business. So as I said several times.
In the prepared remarks.
The highlight in the story of the quarter was exceptionally broad based.
Growth, especially on the plant based side new customers existing customers almost every single product type every single channel.
Every single go to market mechanism, we have all saw double digit growth. So we saw consistent with our plans and expectations.
Contribution from new customers, but.
Credibly importantly, when you can get your big giant existing core customer base growing double digit.
That is just an incredible amplifier to add new business on top of.
Got it makes sense and I know over the past few quarters inventory at customers has kind of been.
<unk> do you feel like we've now kind of hit a normalized level and they're kind of returning to normal buying patterns.
Yes.
One might go supplier to describe the quarter as an erratic.
Incredibly consistent steady order pattern.
Felt really good about it and.
Really in the quarter came in as exactly as expected.
Good to hear thanks for taking my questions.
Okay.
Thank you we'll go next to Andrew stroke at BMO capital markets.
Hey, good afternoon. Thanks for taking my questions. My first one is kind of at a high level on competitive dynamics and how you are thinking about that.
323 and into the future.
There's only so much you can say with respect to customers or competitors et cetera, but just as we think about some of the other publicly traded peers in the space.
We are evolving their production capabilities do you think that that impacts you at all.
Key customers or anything we should be aware of.
Yes, Andrew but I would say every business in every industry have competitors and we do as well and.
We are very confident in our competitive advantages in the service model that we provide our customers and the.
<unk> is in the pudding right and you look at just our growth rates in EBITDA or revenue growth rates, our growth by channel et cetera.
That is the strongest indicator possible that we have real.
Broad and sustainable competitive advantages and.
We certainly have competitors we respect.
We monitor them as closely as possible but.
We're confident in the playbook, we're running and we're demonstrating that the business model that we have assembled and the customer service and value equation that we offer customers is proving itself in the marketplace.
To be incredibly valuable.
Okay, great that makes sense.
So a question on kind of broadly the margin progression through the year and in particular I'm curious just as you talked about commissioning of 330 milliliter.
Piece of the business and that coming online does that have any material impact and just broader comments on the shape of the margin progression through the year.
Yeah, Andrew It's Scott I think what we were trying to outline in my prepared remarks was exactly that that all other factors being equal you would you would expect to see positive sequential margin development, because I tried to lay out each quarter is estimated startup costs for example.
So for modeling purposes, you'd have a feel for that and then the second one is I think I laid out the amount of incremental depreciation. So just conceptually would go back to the basics as we're bringing up Texas as an example, selling that through you would expect positive margin development sequentially through the year.
Okay, Great and then just a last quick one for me just as it relates to the strategy around being a low cost producer in Peru.
What's on the agenda for 2023.
Anything new that is.
On our productivity agenda, there that we should be mindful of.
So as we see that play out thanks.
Yeah. Good question I think 22 really demonstrated what we're capable of I think if you go back in time, we've talked about we jettisoned three plants that are six and that frozen business.
I think what's happened is you've seen the flow through to profit from a better absorbed.
Operating business and then I think the second piece is I think youll recall, we resigned a fair amount of Skus that were in <unk>.
Lower de Minimis margins, so from a productivity standpoint, I think we're running the business in <unk>.
Frozen exactly as we had expected to and it shows up in the P&L I would say turning to fruit snacks and we're very excited about really the second half of 2023 I think we've mentioned a few times, we've got a large expansion project in that business that we expect to come online in the third quarter and that's important because that will that will deliver another material.
Of growth I wish it were sooner, but I think that's the that's the recap that we've talked about in the past.
Great. Thank you very much.
We will go next now to Alex Fuhrman of Craig Hallum.
Hey, Thanks, very much guys for taking my question and congratulations for getting the Midlothian facility opened so quickly.
Wanted to ask about that facility it sounds like youre going to have production ramping up steadily as the year progresses can you give us a sense of relative to how much product you're going to eventually be producing there in midlothian how much of that volume is baked into your guidance for this year.
Is the question first of all Hi, Alex It's a question really around how are we thinking about Texas as it affects guidance or did I Miss it.
Yeah, but I guess more specifically I mean, it sounds like youre going to be producing a lot less in Q1 and Q2, then you will be by the end of the year. When you have the second line coming on I guess I'm wondering how much more potential is there to come above and beyond what you are going to produce in the year 'twenty three based.
On what you'll be producing in terms of a run rate at the end of the year.
Okay.
See any so I guess, what I would say is we would expect to start to see more.
More material contribution as you inferred in Q2 than one could think of it as you would have a full quarter of that first line humming and number two you would expect to see more contribution in Q3, because we've talked about the $3 30 on online coming up in Q2, so it's a bit of a transitional year, but I think the <unk>.
In the center question.
The biggest driver of 2024 and 2025 growth.
Okay, that's really helpful.
Thanks, Scott and then if I could ask just one on the on the branded business I know that's a smaller business for you, but the growth numbers last year were very impressive.
Can you share where that's coming from is that mostly your homegrown sone brand growing off of a very small base or are you starting to see more significant growth from the more mature acquired brands like dream in Westlife as well.
For sure the biggest contributor to that growth was dream milk in foodservice.
But we also saw smaller basis, so I hesitate to give percentages I will just say that we saw really strong growth in the sone brand as we continue to drive distribution principally focused on the natural channel. The velocities are exceptionally strong in the natural Channel reminder, thats, an organic product in a category.
Laurie that does not have much in the way of organic product offerings. So a key point of difference for US and then I mentioned our relaunch of.
The west what the artist formerly known as West So now known as Westlife.
Early early days, but we're certainly encouraged and as I mentioned.
Fastest growing brand in the shelf stable plant based milk category in the last 13 weeks behind innovation distribution expansion and.
Our focus team driving productivity around our trade spending so.
Lot of great stuff, but just to kind of end, where I started really the big.
Load is being carried there by the dream bulk milk in foodservice.
That's great thanks, very much Joe.
Okay.
And when Thats now to Jon Andersen of William Blair.
Good afternoon everybody.
John John .
Trying to figure out what to ask.
[laughter].
Let's see so the last you've seen broad based growth.
In plant based.
As you look to 2023.
Do you expect the growth in plant based to be similarly broad based.
Across product types channels go to market strategies or is there a.
A tilt.
In one particular direction or a couple of directions that we should be considering.
No John I think certainly of.
The last couple of quarters, we've seen I think the first half of the year. It was kind of the all out story.
I think in the back half of the year I would say, we saw a bit of a return to a lot of sector is doing well I mean as I mentioned, we saw coconut milk almond milk soy milk up which is great to see that that is a core competency for us which is.
Playing not just in a single product category, but actually having an entire portfolio of nine or 10 different product types to satisfy the consumer so when we look at the consumer trends.
Within the category I mean, we see that broad growth continuing in the other piece I would add is where a customer driven business and so when we look customer by customer and therefore channel by channel we have pretty good line of sight too.
A continuation of hearing the descriptor broad based growth.
Okay. That's helpful.
For many of US we have been tracking I guess price pricing.
You've implemented.
Reflect commodity pressure.
Can you help us think through the two things the wraparound benefit from price in 2023.
And.
Weather.
You know kind of the current commodity environment as you see it.
Support.
Stability for 'twenty three at this point or if you think there will be movement up further movement upward Furthermore, but down in pricing.
Yes, John I think I tried to outline I would expect the majority of the growth to be volume based the minority of the growth to be the so called wrap around on the pricing actions just to give you that one first.
I think as you would expect there's puts and takes you have examples like packaging is still escalating labor costs escalating, but I think when we look at look at the whole I think we're in a fortunate position I don't expect or don't see any broad based price increases from here. So that's how at least we're thinking about 2023.
Good good.
Another one on Midlothian.
Excited to come down and see it in a few weeks.
How much of the volume is currently I think you've talked about maybe more than 50% pre sold but you talked about the BD efforts business development efforts earlier in the prepared comments is that.
Percent risen and then with the second line being the 330 Milliliter line.
Would you expect.
Youre able to kind of ramp that as quickly as he.
Line, one which is I think dedicated to business you're already doing so I guess, what I'm trying to ask there on that second line, because it's a new product.
And a Tam expander for you is it is there a little bit more kind of risk or timeframe built in to the ramp of that particular.
That line thanks.
Yes, John so on the business development front, yes, we continue to make progression and we could certainly summarize that we are more than 50%.
Utilized as we continue to expand existing customers as well as bring on new customers. So business development continues and we continue to sell out more and more of the facility.
Youre, 100% spot on we would take a much more conservative approach in terms of the timelines we have built for ramping the protein shake Tam expansion opportunity.
Not because we're not confident in it but we're trying to be humble and recognizing this is a new capability for us and we want to deliver on customer expectations in terms of our commitments around timing and volume so.
Yes.
The first line was about as vertical of our startup as I.
<unk> ever seen or heard of just an incredible.
<unk> effort from the company across literally every single function in every single plant I think we had people from every single one of our manufacturing and plant at plants across the country, helping in Texas and Thats the benefit of our network.
But yeah, we're taking a bit more of a conservative approach, we hope to beat it but we absolutely think that's a prudent approach in managing what is a big new customer for us.
Great one quick one follow up on the cash.
Cash flow.
Situation I think you mentioned <unk>.
Positive free cash flow in 2023.
What's what are your kind of priorities.
For the use of that cash is that if I heard that right.
Yes, so I was trying to outline John is very consistent with what I had shared back in June at Investor day that outlook still stand.
I think that we think about capital deployment as having three alternatives. One is do we find ourselves with attractive organic growth investments I very much think that we will see that you were asking about the protein shake business that would be a good example.
Two would be the potential for bolt on or add on M&A opportunities in a dislocated environment, which is I think what we've got.
Three would be a return of capital or a share repurchase for example, and I think how we think about those as is the relative return profile against them and to be clear. They are not mutually exclusive but those would be the three if you like apertures of what we could do with that cash flow.
Okay.
I'll just close it by saying this was a very erratic call congratulations on a great quarter.
Thanks, John .
Thank you gentlemen, it appears we have no further questions. This afternoon, Mr. Andy I'd like to hand, it back to you for any closing comments.
Great.
Thank you for your interest in the company. We appreciate your time this evening and look forward to following up and talking with all of you.
Further depth.
Thank you Mr Yan ladies.
Ladies and gentlemen that will conclude Synopsys fourth quarter 2022 earnings conference call again, we'd like to thank you. So much for joining us and wish you all a great remainder of your day Goodbye.
Okay.
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Okay.