Q3 2023 SunOpta Inc Earnings Call

Speaker 1: Greetings and welcome to SunOptis third quarter 2023 earnings conference call. At this time, all participants are in a listen only mode. A question and answer session will follow the prepared remarks.

Greetings and welcome to Sun <unk> third quarter 2023 earnings Conference call. At this time, all participants are in a listen only mode.

Question and answer session will follow the prepared remarks as a reminder, this conference is being recorded.

Speaker 1: I would now like to turn the conference over to your host, and that is Reed Anderson with ICR. Thank you and you may...

I'd now like to turn the conference over to your host and that is Reed Anderson with ICR.

Thank you Anne you may begin.

Speaker 2: Good afternoon and thank you for joining us on Synopta's third quarter fiscal 2023 earnings conference call. On the call today are Joe Ennin, Chief Executive Officer, and Greg Gabba, Chief Financial Officer.

Good afternoon, and thank you for joining us on Synopsys third quarter fiscal 2023 earnings conference call on.

On the call today are Joe <unk>, Chief Executive Officer, and Greg Gaba Chief Financial Officer.

Speaker 2: By now, everyone should have access to the earnings press release that was issued earlier this afternoon and is available on the investor relations page on Synopta's website at www.synopta.com. This call is being webcast and its transcription will also be available on the company's website.

By now everyone should have access to the earnings press release was issued earlier this afternoon.

Available on the Investor Relations page on <unk> website at Www Dot.

Dot com.

This call is being webcast and its transcription will also be available on the company's website.

Speaker 2: 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.

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.

Speaker 2: These statements do not guarantee future performance, and therefore undue reliance should not be placed upon them.

These statements do not guarantee future performance and therefore undue reliance should not be placed upon them.

Speaker 2: We refer you to all risk factors contained in Synoptis press release issued this afternoon, the company's annual report filed on Form 10K, and other filings with the Securities and Exchange Commission for a detailed discussion of the factors that could cause actual results to differ materially from those projections in any forward-looking statement.

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 detailed discussion of the factors that could cause actual results to differ materially from those projections and any forward looking statements.

Speaker 2: 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.

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.

Speaker 2: Finally, we would like to remind listeners that the company may refer to certain non-GAAP financial measures during this teleconference.

Finally, we would like to remind listeners that the company may refer to certain non-GAAP financial measures. During this teleconference.

Speaker 2: A reconciliation of these non-GAAP financial measures was included with the Companies Press release issued earlier today.

Reconciliation of these non-GAAP financial measures was included with the company's press release issued earlier today.

Speaker 2: Given the divestiture of a frozen fruit business in the third quarter of 2023, the company has changed reporting structures and is now reporting as a single operating segment.

Given the divestiture of our frozen fruit business in the third quarter of 2023. The company has changed reporting structures is now reporting as a single operating segment.

Speaker 2: Also, please note in the prepared remarks that follow, unless otherwise stated, the company will be referring to the continuing operations portion of the business and all figures are in US dollars occasionally rounded to the nearest million.

Also please note in the prepared remarks that follow unless otherwise stated the company will be referring to the continuing operations portion of the business and all figures are in U S dollars occasionally rounded to the nearest million.

Now I'll turn the call over to Joe.

Speaker 3: Good afternoon and thank you for joining us today. First, let me say welcome to the new Synopta. With the divestiture of the frozen fruit business, we have completed the heavy lifting around our portfolio transformation that began in 2020 with the divestiture of our global ingredients business, the sunflower business in 2022, and finally frozen fruit last month.

Good afternoon, and thank you for joining us today.

First let me say welcome to the new set up debt.

With the divestiture of the frozen fruit business, we have completed the heavy lifting around our portfolio transformation that began in 2020 with the divestiture of our global ingredients business. The sunflower business in 2022, and finally frozen fruit last month.

Speaker 3: Over the last several years, we've been very focused on aggressively investing in our plant-based and snacks businesses, and the results of these investments are now more obvious. The new Synopta is a focused, high-growth, competitively advantaged business operating in a very attractive category.

Over the last several years, we've been very focused on aggressively investing in our plant based and snacks businesses.

And the results of these investments are now more obvious the new sign up that is a focused high growth competitively advantaged business operating in very attractive categories.

Speaker 3: Let me give you a few facts about the new Synopta. On a pro forma basis, factoring in our Q4 outlook, in the last 36 months the new Synopta has grown revenue approximately 40% and EBITDA has grown 45%.

Let me give you a few facts about the new set up that.

On a pro forma basis factoring in our Q4 outlook in the last 36 months. The newson App that has grown revenue approximately 40% and EBITDA has grown 45%.

Speaker 3: Over this time, our EBITDA margins have consistently been in the 10 to 12 percent range.

Over this time, our EBITDA margins have consistently been in the 10% to 12% range.

Speaker 3: We have achieved this impressive growth in revenue in EBITDA in a highly efficient manner, with SG&A only up 5% in those 36 months, and SG&A has declined as a percentage of revenue every year for the last three years.

We have achieved this impressive growth in revenue and EBITDA and a highly efficient manner with SG&A only up 5% in those 36 months and SG&A has declined as a percentage of revenue every year for the last three years.

Speaker 3: Additionally, going forward, the divestiture has reduced the working capital needs of the business by over $100 million. The capital investments we made in 2021 and 2022 have been fueling this revenue and EBITDA growth, and we are excited about the future growth prospects for the new Synopta as we further optimize the investments we have made.

Additionally, going forward the divestiture has reduced the working capital needs of the business by over $100 million.

The capital investments, we made in 2021 and 2022 have been fueling this revenue and EBITDA growth and we are excited about the future growth prospects for the new sign up that as we further optimize the investments we have made.

Speaker 3: It is worth noting that Texas was half the investment quantum and is not yet contributed to EBITDA. Thereby supporting continued EBITDA growth as Texas Pivot's from startup mode to delivering cash flow.

It is worth noting that Texas was half the investment quanta and has not yet contributed to EBITDA, thereby supporting continued EBITDA growth as Texas pivots from startup mode to delivering cash flow.

Speaker 3: I will now share our strategic priorities going forward. First, operational excellence.

I will now share our strategic priorities going forward first operational excellence we.

Speaker 3: We are focused on sweating our assets to gain maximum value from the investments we have made to fuel growth organically. We believe there is significant opportunity to do this over the next several years.

We are focused on sweating, our assets to gain maximum value from the investments we have made to fuel growth organically. We believe there is significant opportunity to do this over the next several years.

Speaker 3: Second, capital allocation. We have come out of a large investment cycle and we are focused on demonstrating and creating strong returns for shareholders. And third, capital allocation.

Capital allocation, we have come out of a large investment cycle and we are focused on demonstrating and creating strong returns for shareholders.

And third growth.

Speaker 3: We are a growth company and our focus is on share gains with existing customers, adding new customers, and TAM expansion.

We are a growth company and our focus is on share gains with existing customers, adding new customers and Tam expansion.

Speaker 3: Now let me offer some key takeaways on the Q3 results. We have solid.

Now let me offer some key takeaways on the Q3 results.

We had solid volume growth, we had five 5% volume growth in Q3, and importantly, Q4 is looking even stronger as momentum builds.

Speaker 3: We have 5.5% volume growth in Q3, and importantly, Q4 is looking even stronger as momentum builds. Our growth was fuel-

Our growth was fueled by three things share gains with existing customers, new customers and Tam expansion.

Speaker 3: Share games with existing customers, new customers, and can expand.

Speaker 3: Fruit snacks had another strong quarter of volume-fueled growth. And with our capacity expansion that came online at the end of Q3, we expect continued strong growth.

Fruit snacks had another strong quarter of volume yield growth and with our capacity expansion that came online at the end of Q3, we expect continued strong growth.

Speaker 3: Adjusted EBITDA increased 8% to 19 million as volume flowed through to EBITDA.

Adjusted EBITDA increased 8% to $19 million as volume flowed through to EBITDA.

Speaker 3: At this point, all 2023 new business customers are in production and will positively impact growth in Q4 and 2024. Additionally, we have a strong pipeline of new business opportunities for the second half of 2024 that we are aggressively working to close.

At this point all 2023, new business customers are in production and will positively impact growth in Q4 and 2024.

Additionally, we have a strong pipeline of new business opportunities for the second half of 'twenty for that we are aggressively working to close.

Speaker 3: We are reaffirming 2023 guidance, adjusting for the sale of frozen fruit, and projecting high single to double digit volume and revenue growth in 2024. In terms of details around the Q3 results,

We are reaffirming 2023 guidance adjusting for the sale of frozen fruit and projecting high single to double digit volume and revenue growth in 2024.

In terms of details around the Q3 results.

Speaker 3: In beverages and broth, which is all of our packaged plant-based milks, teas, broth, and protein drinks, revenue increased 9% to $123 million.

In beverages, and broad, which is all of our packaged plant based milks Ts bras and protein drinks revenue increased 9% to $123 million.

Speaker 3: This product group represents 80% of our Q3 revenue.

This product group represents 80% of our Q3 revenue.

Speaker 3: The 9% revenue growth came from a 6% increase in volume, resulting from share gains with existing customers, new customers, and tam expansion.

The 9% revenue growth came from a 6% increase in volume, resulting from share gains with existing customers new customers and Tam expansion.

Speaker 3: We saw growth in oat milk, creamers, teas, and of course, protein shakes.

We saw growth in oat milk, Creamers Ts and of course protein shakes.

Speaker 3: Our fruit snacks business continued to deliver very strong growth with revenues up 16% to 24 million driven completely by increases in volume and led by private label growth.

Our fruit snacks business continued to deliver very strong growth with revenues up 16% to $24 million driven completely by increases in volume and led by private label growth.

Speaker 3: Q3 marks the 13th consecutive quarter of double digit growth for our fruit snacks business.

Q3 marks the 13th consecutive quarter of double digit growth for our fruit snacks business.

Speaker 3: For the total company from a go-to-market standpoint, we saw very balanced growth with positive gains in co-manufacturing gains in private label and the fastest growing part of the business continues to be our own brand.

For the total company from a go to market standpoint, we saw very balanced growth with positive gains and co manufacturing gains in private label and the fastest growing part of the business continues to be our own brands.

Speaker 3: The only go-to-market approach that was down was outside ingredient sales, resulting from the strategic shift we outlined in Q1 to prioritize internal use of OAPACE versus selling it externally as an ingredient.

The only go to market approach that was down was outside ingredient sales, resulting from the strategic shift we outlined in Q1 to prioritize internal use of oat base versus selling it externally as an ingredient.

Speaker 3: Here are a few comments on category performance for some of our major categories.

Here are a few comments on category performance for some of our major categories.

Speaker 3: From a category performance standpoint, we see a similar dynamic across plant-based milks, snacks, and broth, which is track channel performance being flatter down in volume, and non-track channels performing strongly.

From a category performance standpoint, we see a similar dynamic across plant based milks snacks, and bra, which is tracked channel performance being flat or down in volume and non tracked channels performing strongly.

Speaker 3: Since there have been a lot of questions about plant-based milk category performance, we have made an internal estimate of total category performance based on all the channels, and our aggregated estimate is that the total shelf-table plant-based milk category is up, low single digits in Q3, driven by food service and untracked club stores, despite track channel category volume being down.

Since there have been a lot of questions about plant based milk category performance. We have made an internal estimate of total category performance based on all the channels and our aggregated estimate is that the total shelf stable plant based milk category is up low single digits in Q3, driven by foodservice and <unk>.

On track to club stores, despite track channel category volume being down.

Speaker 3: It may be surprising to know that we estimate that the food service coffee shop channel consumes three to four times as much shelf stable plant based milk as all of track channel retailers combined.

It may be surprising to know that we estimate that the foodservice coffee shop channel consumed three to four times as much shelf stable plant based milk has all have tracked channel retailers combined.

Speaker 3: One Trek channel BreaksBot Last Quarter was Health and Performance Beverage's A.K.A. Protein Shakes.

One track channel bright spot last quarter was health and performance beverages.

Protein shakes.

Speaker 3: This category was up 18% in units with performance nutrition up 38%.

This category was up 18% in units with performance nutrition up 38%.

Speaker 3: Our major capacity expansion projects continue to show steady progress and we are tracking the virtually as expected.

Our major capacity expansion projects continued to show steady progress and we're tracking largely as expected.

Speaker 3: The new capacity at our snacks production facility in Omac Washington came online in the third quarter as planned.

The new capacity at our snacks production facility and Almac, Washington came online in the third quarter as planned.

Speaker 3: Once fully ramped, this expansion will create a 40% increase in our total fruit snacks capacity.

Once fully ramped this expansion will create a 40% increase in our total fruit snacks capacity.

Speaker 3: Production continues to ramp at our Mindelothein Texas facility without put on the first two lines, approximately 60% of the way to ideal state.

Production continues to ramp at our Midlothian, Texas facility with output on the first two lines approximately 60% of the way to ideal state.

Speaker 3: Texas production continues to meet customer expectations and we feel good about the demand environment for utilizing the Texas capacity.

Texas production continues to meet customer expectations, and we feel good about the demand environment for utilizing the Texas capacity.

Speaker 3: The two lines we commissioned this year are now shifting to running 245 and 247 respectively, and the third line will come online in Q1.

The two lines. We commissioned this year are now shifting to running $24 five and $24 seven respectively. In the third line will come online in Q1.

Speaker 3: The focus continues to be on improving output and efficiency of these new lines to fully realize the volume potential in 2024 and 2025.

The focus continues to be on improving output and efficiency of these new lines to fully realize the volume potential in 2024 and 2025.

Speaker 3: Lastly, as we referenced on the Q1 2022 call, we have now completed construction of a new ODE extraction capability in Modesto, and we will begin commissioning and production in the first half of 2024.

Lastly, as we referenced on the Q1 2022 call. We have now completed construction of a new ore extraction capability in Modesto and we will begin commissioning in production in the first half of 2024.

Speaker 3: With the divestiture of our frozen fruit business, we are at an inflection point and that gives us a good time to outline in more detail our capital allocation priorities.

With the divestiture of our frozen fruit business. We are at an inflection point and that gives us a good time to outline in more detail our capital allocation priorities.

Speaker 3: Historically, our approach and target metrics were heavily influenced by the capital needs of our different lines of business, which did not allow for much flexibility.

Historically, our approach and target metrics were heavily influenced by the capital needs of our different lines of business, which did not allow for much flexibility.

Speaker 3: That changes what the device to chair frozen through. Our working capital needs are significantly reduced.

That changes with the divestiture of frozen fruit, our working capital needs are significantly reduced.

Speaker 3: This fact, combined with anticipated growth and lower internal investment needs over the medium term, will result in increased

This fact, combined with anticipated growth and lower internal investment needs over the medium term will result in increased.

Speaker 3: pre-cash flow, thereby giving up more optionality for returning value to Sheryl.

Free cash flow, thereby giving us more optionality for returning value to shareholders.

Speaker 3: Greg will cover this in more detail in his section, but it is a very important point and truly an inflection for Sao Apta that we feel is underappreciated today.

Greg will cover this in more detail in his section, but it is a very important point and truly an inflection for <unk>. After that we feel is underappreciated today.

Speaker 3: Given the new, more focused portfolio, let me share a preliminary view of our Outlook for 2024.

Given the new more focused portfolio, let me share a preliminary view of our outlook for 2024 and.

Speaker 3: In 2024, we will see steady, strong growth across the year with both volume and revenue growth in the high single digit to double digit range, specifically eight to 13% volume and revenue growth.

In 2024.

We will see steady strong growth across the year with both volume and revenue growth in the high single digit to double digit range, specifically, 8% to 13% volume and revenue growth.

Speaker 3: Evidot will grow faster than revenue with adjusted evidot growth expected to be in the 14-21% range.

EBITDA will grow faster than revenue with adjusted EBITDA growth expected to be in the 14% to 21% range.

Speaker 3: This is our core business forecast. And in addition to this, we have a very strong pipeline of new business development opportunities for the second half of 2024, which we will be able to update during the Q4 call.

This is our core business forecast and in addition to this we have a very strong pipeline of new business development opportunities for the second half of 2020 for which we will be able to update during the Q4 call.

Speaker 3: I will end by commenting on previously communicated forecast. We have previously communicated a midterm target of 150 million of adjusted EBITDA.

I will end by commenting on previously communicated forecast, we had previously communicated a mid term target of $150 million of adjusted EBITDA.

Speaker 3: This number would have included approximately $25 million for frozen sprued. As you can infer from the bridges presented in both 2022 and earlier this year.

This number would have included approximately $25 million for frozen fruit as you can infer from the bridges presented in both 2022 and earlier this year.

Speaker 3: The 125 million for plant-based plus NACs represented full utilization of the network and this number is still valid. After when we see the network being fully utilized again, that is something that is informed by new business, but likely by 2025 or 2026.

The $125 million for plant based plus snacks represented full utilization of the network and this number is still valid.

As to when we see the network being fully utilized again that is something that is informed by new business, but likely by 2025 or 2026.

Speaker 3: In summary, we continue to execute well against our strategic priorities and our well-position to deliver significant growth and improved profitability as we leverage our flexible model and expanding capacity to fuel the future of food.

In summary, we continue to execute well against our strategic priorities and are well positioned to deliver significant growth and improved profitability as we leverage our flexible model and expanding capacity to fuel the future of food.

Speaker 3: In a moment, I'll turn the call over to Greg Gava, who was appointed CFO in mid-October. Many of you know Greg, and have interacted with him previously in his prior capacity as Deputy CFO . Greg has been with the Optifer over six years, and has consistently provided critical financial insights and played a pivotal role in achieving our business goals. He has a strong background and extensive knowledge of our business, and I'm thrilled to have him lead our finance organization. Greg.

In a moment I'll turn the call over to Greg Gaba, who was appointed CFO in mid October.

Many of you know, Greg and as I interacted with him previously in his prior capacity as deputy CFO.

Greg as bandwidth for over six years and has consistently provided critical financial insights and played a pivotal role in achieving our business goals. He has a strong background and extensive knowledge of our business and I am thrilled to have him lead our finance organization Greg.

Speaker 1: Thank you very much Joe and good afternoon everyone. It's a privilege to speak with you today. I'm excited about my new role and look forward to regular dialogue with all of you in the future.

Thank you very much Joe and good afternoon, everyone. It's a privilege to speak with you today.

I'm excited about my new role and look forward to regular dialogue with all of you in the future.

Speaker 2: Before discussing the quarterly results, let me start with a divestiture of our frozen fruit business on October 12.

Before discussing the quarterly results, let me start with the divestiture of our frozen fruit business on October 12.

Speaker 2: Frozen fruit met the health for sale criteria and together with sunflower qualifies for reporting as discontinued operations beginning in the third quarter of 2023.

Frozen fruit that the held for sale criteria and together with sunflower qualifies for reported as discontinued operations beginning in the third quarter of 2023.

Speaker 2: As a result, the assets and liabilities of the frozen fruit disposal group have been reclassified and reported as held for sale on the balance sheet.

As a result, the assets and liabilities of the frozen fruit disposal group had been reclassified and reported as held for sale on the balance sheet.

Speaker 2: The estimated aggregate purchase price of $141 million comprise cash consideration of $95 million, a short-term note receivable of $10.5 million.

The estimated aggregate purchase price of $141 million comprised cash consideration of $95 million short term note receivable of $10 5 million.

Speaker 2: secured seller promissory notes due in three years with a stated principal amount of $20 million in the aggregate and the assumption by the purchasers of $16 million of accounts payable and accrued liabilities of frozen fruit.

Secured seller promissory notes due in three years with a stated principal amount of $20 million in the aggregate.

And the assumption by the purchasers of $16 million of accounts payable and accrued liabilities of frozen fruit.

Speaker 2: At the closing date, $21 million of the cash consideration was used to make required repayments of certain bank loans and other liabilities of frozen fruit not assumed by the purchaser.

At the closing date $21 million of the cash consideration was used to make required repayments of certain bank loans and other liabilities of frozen fruit not assumed by the purchasers.

Speaker 2: We utilize the remaining cash consideration of $75 million to repay a portion of the outstanding borrowings under our revolving credit facility.

We utilized the remaining cash consideration of $75 million to repay a portion of the outstanding borrowings under our revolving credit facilities.

Speaker 2: Note that unless stated otherwise, my commentary regarding our third quarter performance will be in regard to results from continuing operation.

Note that unless stated otherwise my commentary regarding our third quarter performance will be in regard to results from continuing operations.

Speaker 2: Third quarter revenues of $153 million were up 6% versus last year, driven mostly by volume growth of 5.5%.

Third quarter revenues of $153 million were up 6% versus last year, driven mostly by volume growth of five 5%.

Speaker 2: Adjusted gross profit for moving start of costs was 25 million or 16.4% of revenue, which includes 150 basis points impact of incremental depreciation from new production equipment.

Adjusted gross profit for moving startup costs was $25 million or 16, 4% of revenue, which includes 150 basis points impact of incremental depreciation from new production equipment.

Speaker 2: Adjusted earnings from continuing operations was 500,000 compared to 2.4 million in the prior year period.

Adjusted earnings from continuing operations was 500000 compared to $2 4 million in the prior year period.

Speaker 2: Adjusted EBITDA from continuing operations increased 8% to 19 million and was up 25 basis points as a percentage of consolidated revenue to 12.5%.

Adjusted EBITDA from continuing operations increased 8% to $19 million and was up 25 basis points as a percentage of consolidated revenue to 12, 5%.

Speaker 2: Turning to the balance sheet in cash flow, at the end of Q3, debt was $315 million.

Turning to the balance sheet and cash flow.

At the end of Q3 that was $315 million.

Speaker 2: Adjusting for the $75 million of immediate pay down of debt related to the divestiture of frozen fruit, debt is $240 million and corresponding leverage is 3.2 times.

Adjusting for the $75 million of immediate paydown of debt related to the divestiture of frozen fruit that is $240 million and corresponding leverage is three two times.

Speaker 2: cash use and operating activities of continuing operations during the third quarter of 26 million, reflecting the impact of startup costs related to our Mid-Locian Texas facility.

Cash used in operating activities of continuing operations during the third quarter was $26 million.

<unk> the impact of startup costs related to our Midlothian, Texas facility.

Speaker 2: higher cash interest expense, together with increases in working capital.

Higher cash interest expense together with increases in working capital.

Speaker 2: Cash used in investing activities for continuing operations was $5 million, reflecting the wind-down of CapEx associated with Midlothian.

Cash used in investing activities for continuing operations was $5 million, reflecting the wind down of Capex associated with Midlothian.

Speaker 2: As Joe commented earlier, the divestiture of our frozen fruit business had a significant positive impact on our balance sheet with the paydown of debt and with a significant reduction to our working capital levels going from approximately 20% of annual revenue to half that amount at around 10%.

As Joe commented earlier, the divestiture of our frozen fruit business had a significant positive impact on our balance sheet with the paydown of debt and with a significant reduction to our working capital levels going from approximately 20% of annual revenue to half that amount at around 10%.

Speaker 2: Given the significant working capital reduction, our current ABL arrangement, which was supplemented with third party extended payable facilities and finance leases is suboptimal for our new operating company.

Given the significant working capital reduction our current ABL arrangement, which was supplemented with third party extended payable facilities and finance leases is suboptimal for our new operating company.

Speaker 2: We are moving to a turbulent and revolver structure with limited finance. Please.

We are moving to a term loan and revolver structure with limited finance leases.

Speaker 2: We have great banking partners who have been very supportive and we anticipate completing the refinancing with the five year maturity by the end of the year.

We have great banking partners, who have been very supportive and we anticipate completing the refinancing with a five year maturity by the end of the year.

Speaker 2: Over the next several years, we expect this refinancing to lower our cost of capital and provide greater flexibility around capital allocation.

Over the next several years, we expect this refinancing to lower our cost of capital and provide greater flexibility around capital allocation.

Speaker 2: In recent years, our focus has been on internal investment opportunities to add new capabilities and capacity.

In recent years, our focus has been on internal investment opportunities to add new capabilities and capacity.

Speaker 2: As a reminder, we've invested 230 million since 2020 to expand and improve existing facilities along with building our new Greenfield Plant and Tech.

As a reminder, we've invested $230 million since 2020 to expand and improve existing facilities, along with building, our new Greenfield plant in Texas.

Speaker 2: These investments will continue to deliver significant growth in revenues, profits, and cash flow over the next several years, simply by monetizing this incremental capacity as we have been doing since 2021.

These investments will continue to deliver significant growth in revenues profits and cash flow over the next several years simply by monetizing this incremental capacity as we have been doing since 2021.

Speaker 2: As a result of this investment cycle, our capex needs will decrease significantly in the medium turn, which will generate meaningful, free cash flow.

As a result of this investment cycle, our capex needs will decrease significantly in the medium term, which will generate meaningful free cash flow.

Speaker 2: In 2024, we expect to generate three cash flow in the range of 35 to 45 billion.

In 2024, we expect to generate free cash flow in the range of $35 million to $45 million.

Speaker 2: Given our expected soon-to-be significant cash flow, I feel it is an appropriate time to outline our capital allocation priorities.

Given our expected soon to be significant cash flow I feel it is an appropriate time to outline our capital allocation priorities.

Speaker 2: The first use of cash will be to further pay down debt until we are under three times lever.

The first use of cash will be to further pay down debt until we are under three times levered.

Speaker 2: Given current interest rates being sub three times levied is our leverage goal. We expect to be there in the second half of 2024, and that will increase slightly in the first half of the year, resulting from the Modesto Extraction Project Joe Reference coming online, and the payment of other current liability.

Given current interest rates being sub three times Levered is our leverage goal, we expect to be there in the second half of 2024 is that will increase slightly in the first half of the year, resulting from the Modesto extraction project, Joe referenced coming online and the payment of other current liabilities.

Speaker 2: Once we are under three times levered, our priority is to use free cash flow to buy back shares, assuming the stock price is still under value.

Once we are under three times Levered, our priority is to use free cash flow to buy back shares assuming the stock price is still undervalued.

Speaker 2: We have had preliminary discussions with our board and they are aligned.

We have had preliminary discussions with our board and they are aligned.

Speaker 2: It is management's intention to formally propose a share by back at our year-end board meeting.

It is management's intention to formally propose a share buyback at our year end Board meeting.

Speaker 2: While we believe there are many attractive organic investment options, none compare to the values Sonata represents.

While we believe there are many attractive organic investment options noncompetitive to the value Sinatra represents.

Speaker 2: As we believe our stock is significantly undervalued in trading at a material discount to other similarly positioned companies.

We believe our stock is significantly undervalued and trading at a material discount to other similarly positioned companies.

Speaker 2: While the specific quantum and boundaries of a buyback are yet to be agreed, we would expect to be roughly equivalent to one year's cash.

While the specific quantum and boundaries of a buyback or yet to be agreed we would expect to be roughly equivalent to one year's cash flow.

Speaker 2: After these priorities, we will either fund organic growth through Attractive ROI projects or acquisition. Let me close with...

After these priorities, we will either fund organic growth through attractive ROI projects or acquisitions.

Let me close with comments on our outlook.

Speaker 2: From a guidance standpoint, we are maintaining our 2023 estimates that were provided on our previous call, adjusting for the sale of the frozen fruit business.

From a guidance standpoint, we are maintaining our 2023 estimates that were provided on our previous call adjusting for the sale of the frozen fruit business.

Speaker 2: The midpoint of the guidance for continuing operations would result in high single digit revenue growth and single digit adjusted EBITDA growth in the fourth quarter.

The midpoint of the guidance for continuing operations would result in high single digit revenue growth and single digit adjusted EBITDA growth in the fourth quarter.

Speaker 2: For 2024, we expect revenue in the range of 670 to 700 million, which represents growth of 8% to 13% from the midpoint of the range of our 2023 outlook.

For 2024, we expect revenue in the range of $670 million to $700 million, which represents growth of 8% to 13% from the midpoint of the range of our 2023 outlook.

Speaker 2: From a profit perspective, we expect the justity of 87 million to 92 million, which represents growth of 14% to 21% from the midpoint of the 2023 ring.

From a profit perspective, we expect adjusted EBITDA of 87 million to $92 million, which represents growth of 14% to 21% from the midpoint of the 2023 range.

Speaker 2: From a pacing standpoint, as you would expect, we see the back half of the year to be so much stronger than the first.

From a pacing standpoint, as you would expect we see the back half of the year to be somewhat stronger than the first half.

Speaker 2: From a balance sheet and cash flow standpoint, we continue to expect capital expenditures on the cash flow statement of approximately 45 million in 2023 and approximately 25 to 30 million in 2024.

From a balance sheet and cash flow standpoint, we continue to expect capital expenditures on the cash flow statement of approximately $45 million in 2023.

And approximately $25 million to $30 million in 2024.

Speaker 2: For opening the call for questions, just a reminder that for competitive reasons, we do not provide detailed commentary regarding customer or skewed level activity. And with that, operator, please open.

Before opening 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.

Speaker 1: And at this time I would like to remind everyone that in order to ask a question, simply press star and the number one on your telephone keypad. Once again, star one on your telephone keypad. And we will pause just a moment to compile our rush.

And at this time I would like to remind everyone that in order to ask a question simply press star and the number one on your telephone keypad. Once again star one on your telephone keypad, and we will pause just a moment to compile our roster.

Speaker 1: Okay, and our first question today comes from the line of Jim Salera with Stevens. Jim, go ahead.

Okay and our first question today comes from the line of Jim <unk> with Stephens Jim go ahead.

Speaker 1: I guess thanks for taking our question and thanks for all the detail on the transaction as we're you know getting our bearings with the new look sonopta

Hi, guys. Thanks for taking my question and thanks for all the detail on the transaction as we're getting our bearings with the new look some op.

Speaker 4: If I could maybe ask a question, if my notes serve me correctly.

If I could maybe ask a question if my notes serve me correctly.

Speaker 4: In QQ, you guys said that there was, you know, 10 new business opportunities at the time.

In <unk> you guys said that there was 10 new business opportunities at the time that you had kind of baked into the 2023 guide I think too we're on pace to had gone by the Wayside and then six were delayed can you just give us an update on kind of how far along we are with those six.

Speaker 4: that you had kind of baked into the 2023 guide. I think two were on pace, two had gone by the wayside and then six were delayed.

Speaker 4: Can you give us an update on how far along we are with those six?

Speaker 4: and maybe any contribution from them that's factored into your numbers for 2024.

And maybe any contribution from them that's factored into your numbers for 2024.

Speaker 3: Hi, Jim. So all six are now in production and would have contributed to growth in the third quarter. And certainly we expect them to be key contributors to growth in Q4 and the first half of 2024 before we then start overlapping them.

Hi, Jim.

All six are now in production and would have contributed to growth in the third quarter and certainly we expect them to be key contributors to growth in Q4 in the first half of 2024 before we then start overlapping them.

Speaker 4: Okay, great, that's helpful. And then I found the data that you guys offered on kind of the total plant-based consumption very interesting, because you know, obviously we only have kind of visibility into those track channels. Can you give us any thoughts around why there's such divergence between the consumption trends at food service and club versus, you know, what we can see in the retail channel?

Okay, Great that's helpful.

And then I found the data that you guys offered on kind of the total plant based.

Very interesting.

Obviously, we only have kind of visibility into those track channels can you give us any thoughts around.

Why there is such a divergence between the consumption trends at foodservice and club versus what we can see in the retail channel.

Speaker 3: I think food service and especially in a coffee shop environment, you have a consumer who's in a very rootonized behavior pattern. They have their favorite drink.

Yes, I think foodservice and especially in a coffee shop environment, you have a consumer who's in a very routinized behavior pattern they have their favorite drink.

Speaker 3: They go to the drive-through or up to the counter and they order their usual.

They go to the drive through or are up to the counter and they order their usual I think when the consumer is in a retail shopping environment. They are much more budget conscious because they have a certain amount of dollars for the week for groceries for themselves or their family and I think they are much more.

Speaker 3: I think when the consumer is in a retail shopping environment, they're much more budget conscious.

Speaker 3: because they have a certain amount of dollars for the week, for groceries for themselves or their family. And I think they're much more in a trade-off orientation to try to fill the basket and put food on the table for the week. And so I think you just see the consumer with two very different elasticity frameworks, depending upon what they're shopping for.

In a tradeoff orientation to try to.

Fill the basket and put food on the table for the week and so I think you just see the consumer with two very different elasticity frameworks, depending upon what they're shopping for.

Yeah.

Speaker 4: That's helpful. And maybe if I can sneak in one more as it relates to 2024 outlook, how much of that outlook is just kind of your core business with existing customers? Or is there some of those new opportunities baked in that as well?

That's helpful and maybe.

Maybe if I can sneak in one more as it relates to the 2024 outlook.

How much of that.

That outlook is just kind of your core business with existing customers or is there some of those new opportunities.

Baked into that as well.

Speaker 3: Yeah, so, you know, one of the things Jim that we tried to learn for our 24 guidance.

Yeah, So one of the things Jim that.

We tried to learn for our 2000 and floor guidance.

Speaker 3: was we baked in a certain quantum in 2023 of what we thought was new business and as we talked on the Q2 call.

Was we baked in a certain quantum in 2023 of what we thought was new business and as we talked on the Q2 call.

Speaker 3: You know, just calling the timing and the quantum of those nine months out is very challenging. So, what you would have heard us share relative to the 24 numbers is just core business. It's customers we serve today, it's SKUs we manufacture today. It is as certain as certain can get from our vantage point. Great.

Just calling the timing and the quantum of those nine months out is very challenging. So what you would have heard us share relative to the 24 numbers is just core business. Its customers. We serve today. It's S. Skus, we manufacture today.

It is as certain as certain can get from our vantage point.

Great. That's awesome. Thank you guys I'll pass it along.

Speaker 1: Great. Thanks, Jim. And our next question comes from the line of Ryan Myers with Lake Street Capital Markets. Ryan, please go ahead.

Great. Thanks, Jim and our next question comes from the line of Ryan Meyers with Lake Street Capital markets. Ryan. Please go ahead.

Speaker 5: Hey, guys, thanks for taking my questions. Just kind of as a follow up as the last question, you know, the overall category softness obviously sounds like that continued, you know, I'm just kind of curious what kind of visibility you guys have there into a potential improvement. And if we do see some sort of improvement into next year, if that could be, you know, some sort of an upside to the overall guidance that you gave.

Hey, guys. Thanks for taking my questions just kind of as a follow up as the last question. The overall category softness obviously it sounds like that continued you know I'm just kind of curious what kind of visibility you guys have there into a potential improvement.

And if we do see some sort of improvement into next year, if that could be some sort of an upside to the overall guidance that you gave.

But yes so.

Speaker 3: Yeah, so, you know, Ryan, as we said, total shelf stable plant based milks, we would call the category up mid single digits Lotus mid single digits, not down. So, as it relates to the subset, meaning the track channel.

Ryan as we said total shelf stable plant based milks, we would call the category up mid single digits low to mid single digits not down so as it relates to the subset, meaning the tracked channel.

Speaker 3: Um, you know, certainly if that were to recover, we would see that as an upside.

Certainly if that were to recover we would see that as an upside for 2024 as it would appear that many of our customers have forecasted further declines in 2024 as it relates to the skus that they sell into the retail channel, but again just to.

Speaker 3: for 2024, as it would appear that many of our customers have forecasted further declines in 2024, as it relates to the SKUs that they sell into the retail channel. But again, just to underline the point.

Underlying the point, we saw category total category growth not decline.

Speaker 3: we saw total category growth, not decline.

Speaker 3: Because again, the food service channel is four times larger than track channel.

Because it got it.

The foodservice channel is four times larger than tracked channel.

Speaker 3: Got it. But that's not even counting. That's not even county club stores. That's just food service.

Got it but that's not even that's not even counting club stores Thats just food.

<unk> service.

Speaker 5: Okay. And then as we just think about this sort of new synoptia, do you call it, how should we be thinking about sort of where the current gross margin of the business is and ultimately where you guys feel like you can take the gross margin to?

Okay, and then as we just think about this sort of news and opt as you call. It you know how should we be thinking about sort of where the current gross margin of the business is and ultimately where you guys feel like you cannot take the gross margin too.

Speaker 5: Thanks, Ryan. You know, our current gross margin has been pretty consistent when you look at the historicals that were published as well. I would say our goal hasn't changed. We've said for the last couple years that we view the gross margin around 20%, you know, excluding our frozen fruit business that was divested, and we still feel pretty strong that our long-term goal will be 20%. Great. Thanks for taking my questions.

Yes, Thanks Ryan.

Our current gross margin, it's been pretty consistent when you look at the historical is that we'll publish as well.

Our goal Hasnt changed we have said for the last couple of years that we view that goes to gross margin around 20%.

Excluding our frozen fruit business that was divested and we still.

Pretty strong that our long term goal will be 20%.

Great. Thanks for taking my questions.

Thanks Ryan.

And our next.

Speaker 1: question comes from the line of Andrew Strelzyk with BMO Capital Markets. Andrew, please go ahead. Hey, good afternoon.

Question comes from the line of Andrew <unk> with BMO capital markets. Andrew. Please go ahead.

Hey, good afternoon, thanks for taking my questions.

Speaker 6: My first one is just around the 24 guidance, and I guess I'm curious when you think about the kind of underlying operating environment that you assumed. Are you just assuming, similar to what you did for this year, that kind of current category level trends, I guess, both food service club, et cetera, that those continue? Have you baked in any? I mean, I think you talked about kind of the outlook from some of your customers. How did that all roll up into the guidance? Just some texture there would be great.

My first one is just around the 24 guidance and I guess I'm curious when you think about the.

Kind of underlying operating environment that you assumed or you're just assuming similar to what you did for this year that kind of.

Current.

Category level trends I guess, both foodservice club et cetera that does continue have you baked in any I mean, I think you've talked about.

Kind of the outlook from some of your customers how does that all roll up into the guys. Just some texture there would be great.

Yeah.

Sure so.

Speaker 3: Our forecast

Our forecast start with our customers' assumptions as opposed to a category.

Speaker 7: start with our customers assumptions as opposed to a category.

Speaker 7: forecast, meaning the customers will give us their forecast for 2024.

Forecast, meaning the customers will give us their forecast for 2024.

Speaker 7: And that is our starting point or our working point from which we build our forecast. And it would appear that our customers are continuing to plan growth in the food service and club channel, and they are planning or expect to see continued declines in the track channel category.

And that is our starting point, our working point from which we build our forecast and.

It would appear that our customers are continuing to plan the growth in the foodservice and club channel and they are planning or expect to see continued declines in the tracked channel category.

Speaker 7: So, we, they don't break it out, but we can infer based on the, you know, the SKUs and the forecast by SKU, kind of what products are going in what direction. But overall, I would say we are seeing positive growth being planned, as you would have seen in our numbers. And again, as, you know, Ryan asked, you know, we would see recovery and track channels as upside, but.

So they don't break it out, but we can we can infer based on that.

<unk> in the forecast by SKU kind of what products are going and what direction, but overall I would say we are seeing.

Positive growth being planned as you would've seen in our numbers.

And again as.

Ryan asked.

We would see a.

A recovery in tracked channels as upside but.

Speaker 7: Clearly, what happens in the food service coffee shop channel is by far the most important driver of volume for Synopta.

Clearly what happens in the foodservice coffee shop channel is by far the most important driver of volume for some <unk>.

Got it Okay. That's helpful and then.

Speaker 8: In terms of the capital allocation of potential share buybacks, I guess I'm curious how you're thinking about that from a cadence perspective in relation to capacity needs. You know, I know some of that has been pushed out, obviously, but it sounds like based on when you expect to hit your leverage targets and things like that, you know, eventually we're going to get to to to a situation where you're going to be spending again on capacity expansion. So, I guess, just commentary on how you how you or your ability to kind of balance.

In terms of the capital allocation of potential share buybacks. So I guess I'm curious, how you're thinking about that from a cadence perspective in.

In relation to capacity needs.

I know some of that has been pushed out obviously, but it sounds like based on when do you expect to hit your leverage targets and things like that.

Actually we're going to get to a situation, where youre going to be spending again on capacity expansion. So.

I guess, Ed just commentary on how you how you or your ability to kind of balance those two things.

Yes.

Speaker 7: You know, I would say, I mean, from a prioritization standpoint, we absolutely feel like the best value and the best use of cash flow at this point in time is a share buyback.

I would say I mean from a prioritization standpoint, we absolutely feel like the best value and the best use of cash flow at this point in time is a share buyback.

Speaker 7: As it relates to future capital needs, you know, as you heard in our discussion around what our core priorities are, operational excellence and squeezing more out of our existing manufacturing base and infrastructure is a massive priority for us. And I certainly believe that we can continue to drive strong volume growth for the next several years with the assets we currently own.

As it relates to future capital needs.

As you heard in our discussion around what our core priorities are operational excellence and squeezing more out of our existing manufacturing base and infrastructure as a massive priority for us and I certainly believe that we can continue to drive strong volume growth for the next several years with the assets. We currently.

Yeah.

Yes.

Speaker 8: Okay, and then if I just just squeeze one more in here, about the comments you made with respect to the 125 million.

Okay, and then if I can just squeeze one more in here.

The comments you made with respect to the $125 million being in 25 or 26 can you maybe elaborate on the on the swing factor. There I think when you were talking about was timing of Onboarding and things like that.

Speaker 8: In twenty five or twenty six, can you maybe elaborate on the on the swing factor there? I think what you were talking about was timing of onboarding and things like that. There'd obviously be a big leap in, even from the twenty four guide to that in twenty five. So, I guess.

It would obviously be a big leap in EBITDA from the 24 guide to that in 25. So I guess I mean does it seem like 26 is more realistic Utica as possible in 25, just a little more color there would be great. Thank you.

Speaker 6: It seemed like 26 is more realistic. Do you think that's possible in 25? Just a little more color there would be great.

Speaker 7: Yeah, so the answer to the question is it's highly informed by new business.

Yes, so the answer to the question is it's highly informed by new business.

Speaker 7: And as I indicated, you know, we'll be in a much better position to comment on the quantum of new business that we see for the back half of 24 and into 2025. So, you know, we have several big opportunities that we're enthusiastic about and are pursuing. But until those are certain,

And.

As I indicated we will be in a much better position to comment on the quantum of new business that we see for the back half of 'twenty four and into 2025. So.

We have several big opportunities that we're enthusiastic about and are pursuing but.

Until those are certain.

Speaker 7: you know, be premature to kind of peg the date, but consistent with what we've said, when we first rolled out the...

It would be premature to kind of peg the date, but consistent with what we've said when.

When we first rolled out the <unk>.

Speaker 7: $150 or $125 million target that represented kind of full network utilization and

150, or $125 million target that represented kind of full network utilization and.

Speaker 7: You know, we're absolutely pursuing that. So, I would say, you know, can give you probably a better reference point on that, you know, on the Q4 call.

We are absolutely pursuing that so I would say can give you probably a better reference point on that.

On the Q4 call.

Great. Thank you very much.

Speaker 1: Thanks, Andrew. And our next question comes from the line of Alex Furman with the Craig Hallam Capital Group. Alex, please go ahead.

Thanks, Andrew.

And our next question comes from the line of Alex Fuhrman with Craig Hallum Capital Group Alex. Please go ahead.

Speaker 5: Hey guys, thanks very much for taking my question and congratulations on the sale of the frozen fruit business. It's obviously, you know, food service restaurants, that sounds like the most important channel for you guys, of course, by a pretty good margin. Do you have any insight into what you think has really been driving what's been a pretty huge divergence in trends for plant-based milk between grocery stores, club, and restaurants? You know, curious.

Hey, guys. Thanks, very much for taking my question and congratulation on the sale of the frozen fruit business.

Obviously foodservice restaurants that sounds like the most important channel for you guys of course by a pretty good margin do you have any insight into what you think has really been driving what's been a pretty huge divergence in trends for plant based milks between grocery stores club and.

And restaurants curious what you really attribute that to and if you expect.

Speaker 4: what you really attribute that to, and if you expect tracked channels to continue to underperform for the foreseeable future. And then I'd be curious also, just given your dominant share in shelf-stable plant-based milks, if you've noticed any sort of a divergence in the broader category across all channels between refrigerated and shelf-stable plant-based milk.

Track channels to continue to underperform for the foreseeable future and then I'd be curious also just given your dominant share in shelf stable plant based milks, if you've noticed any sort of divergence in the broader category.

Across all channels between refrigerated and shelf stable plant based milk.

Speaker 7: Yeah, working backwards, we haven't seen a big divergence between shelf, stable and refrigerated. They've tracked incredibly closely together in terms of performance. In terms of why we think there's been such a divergence. Again, I think you're seeing a number of things and and

Yes, working backwards, we haven't seen a big divergence between shelf stable and refrigerated.

<unk> tracked incredibly closely together in terms of performance in terms of why we think theres been such a divergence again, I think youre seeing a number of things and and happening in the foodservice coffee shop channel. One is that routinize behavior that I mentioned prior second is I think as you.

Speaker 7: happening in the food service coffee shop channel. One is that routinized behavior that I mentioned prior. Second is, you know, I think as you get more and more people returning to work, the Starbucks or whatever coffee shop drive-through continues to be then a popular destination. You would have seen same-store comps being reported recently from one of the large coffee shop chains last week.

You get more and more people returning to work the Starbucks or whatever coffee shop.

Drive through continues to be then.

Popular destination, you would've seen same store comps being reported recently from one of the large coffee shop chain last week.

Speaker 7: which saw both revenue growth on a per-drink basis as well as door traffic gains. So I think they are in aggregate the channel, meaning the coffee shop channel, is doing a great job around product innovation and keeping their customers engaged.

Which saw both revenue growth on a per drink basis as well as store traffic gains. So I think they are in aggregate the channel, meaning the coffee shop channel is doing a great job.

Around product innovation and keeping their customers engaged.

Okay. That's really helpful. Joe Thank you very much.

Yeah.

Speaker 1: Thank you. And just one more reminder to ask a question, star one on your telephone keypad. Once again, star and the number one.

Thank you.

And just one more reminder to ask a question star one on your telephone keypad once again star and the number one.

Speaker 1: And with that, we will take our next question from the line of John Anderson with William Blair. John , please go ahead. Hey, thank you very much.

And with that we will take our next question from the line of Jon Andersen with William Blair. John. Please go ahead.

Yeah.

Hey, Thank you very much Joe likely.

Hi, John.

Speaker 4: Let's see. So where to start. Why don't we begin on the the 24 sales outlook. I'm wondering if it may not be possible.

Let's see so where to start why don't we begin.

On the 24 sales outlook.

I'm wondering if I.

And it may not be possible at this point, but I'll ask.

Speaker 9: you could kind of add some dimension to the.

You could kind of add some dimension to the.

Speaker 9: high single-digit to low double-digit growth rate across the

High single digit low double digit growth rate across the.

Speaker 9: The three buckets that you used to describe the growth opportunity that the those being share the share gains with existing customers, new customers and expansion, I'd love to get a better sense for, you know, the relative size of each of those and driving that growth in 24, if possible.

The three buckets that you used to describe the growth opportunity that the what's being share share gains with existing customers.

New customers and Tam expansion I'd love to get a better sense for.

The relative size of each of those and driving that growth in 'twenty four if possible. Thanks.

Speaker 7: I think it's pretty split, John , between shared-aids, new customers and tam expansion. You know, we see real positive, as we've kind of talked about 2023, a lot of activity around gaining share from existing customers.

I think it's pretty split John.

Between share gains new customers and Tam expansion.

We see real positive as we kind of talked throughout 2023.

A lot of activity around gaining share from existing customers as.

Speaker 7: as well as onboarding new customers, and certainly Texas opened a lot of doors for us in that regard. And then, of course, TAM expansion with the protein shakes. So all three of them will deliver and contribute to that growth algorithm.

As well as Onboarding, new customers and certainly Texas opened a lot of doors for us in that regard and then of course Tam expansion.

With the protein shakes, so all three of them will deliver.

<unk> contributed to that to that growth algorithm.

Speaker 9: Good. Okay. So balance there. Good. And then you mentioned that you, the two lines that are producing in, in Midlothian now are running at about 60% of where you'd like them to be ultimately, is that kind of where you had hoped to be at this point? And maybe more importantly, what's

Okay, Okay, so a balance there.

And then you mentioned that.

The two lines that are.

Producing it.

Midlothian now.

Are running at about 60% of.

Where you'd like them to be ultimately.

Is that kind of where you had hoped to be at this point and maybe more importantly whats.

Speaker 9: What's the, what are the steps that are necessary to get that to, I guess, you know, 100% from here and do you have kind of good line of sight? Do you feel at this point in time to that?

What's the what are the steps that are necessary to get that to I guess, 100%.

From here and do you have kind of a good line of sight do you feel at this point in time.

Speaker 7: Yes, I would say we have a very good line of sight to the continued progression up the startup curve. So yep, we're feeling very good about our ability to continue to progress and push that up.

Okay.

Yes, I would say we have very good line of sight to the continued progression up the startup curve.

So yes, we're feeling we're feeling very good about our ability to continue to progress.

Speaker 9: And the third line, Joe, is going to be focused on which area of the business?

<unk> that up.

And the third line, Joe is going to be focused on which area of the business.

Core it would be core plant based milks.

Speaker 7: Um, probably a heavy skew to, uh, to.

Probably a heavy skew to two.

<unk>.

Speaker 9: Okay, and the Modesto extraction.

Okay and in the Modesto extraction.

Speaker 9: capability, can you, you may have mentioned that this already, but when will that start contributing in earnest, do you think, to sales and is that product that you will use internally to support the plant-based.

Capability can you you may have mentioned this already but when will that start contributing in earnest do you think to sales.

Is that is there.

Yep.

That you will use.

Use internally to support.

<unk>.

The plant based.

Speaker 9: you know, the finished goods business, or will a portion of that be dedicated to external ingredients?

The finished goods business or what proportion of that would be dedicated to external ingredient sales.

Speaker 7: There will be some external ingredient sales, but a significant portion of the oat base that is produced out of Modesto will be consumed internally. In terms of when we see that, really Q1 will be in startup mode, so really Q2 is when we would expect that to be contributing materially. Thank you. Thank you. Thank you.

There will be some external ingredient sales but.

A significant portion of the.

Base that is produced out of Modesto will be.

Consumed internally.

Terms of when we see that really Q1 will be in startup mode. So really Q2 is when we would expect that to be contributing materially.

Okay great.

Sure.

Speaker 9: Question, perhaps for Greg here, the during the prepared comments mentioned that.

A question, perhaps for Greg here.

During the prepared comments meant.

You mentioned that.

Speaker 9: In 2024, you expect to generate a free cash flow of $35 to $45 million. Is that unlevered free cash flow or free cash flow after interest expense and capital expenditures? Just want to make sure I have the definition of that right.

In 2024, do you expect to generate.

Free cash flow of $35 million to $45 million.

Is that unlevered free cash flow or free cash flow after interest expense capital expenditures I just want to make sure I have the definition of that rate.

Speaker 2: Yeah, no problem, John . It is free cash flow, including interest. So not the unlevered free cash flow we referenced in the back.

Yes, no problem it is free cash flow, including interest so not the unlevered free cash flow, we referenced Nevada.

Speaker 9: Excellent, excellent. And then the last one, I think.

Excellent excellent and then the last one.

I think.

Speaker 9: You talked about this as well. You're working towards kind of a restructuring, I guess, of the ABL to a term and revolver facility. Do you have any thoughts on the timing of that and how that could impact?

You talked about this as well youre working towards kind of a restructuring I guess of the ABL to a term revolver.

Facility.

Do you have any thoughts on the timing of that and how that could impact.

Speaker 9: you know, your interest rate and kind of annual expense, or is it just too early to call that? Thanks.

Your.

Interest rate and kind of annual expense.

Or is it just too early to call that.

Speaker 2: No, great question, John . So we're expecting to get that done by the end of the year. You know, our, our bank partners have been extremely supportive. We've started the process and we don't see any reason why that won't be completed by the end of the year. I would say from an interest rate perspective, it'll be relatively similar to where we are now. It just creates a lot of flexibility for us with the new structure.

No great question, Jon So we're expecting to get that done by the end of the year.

Our partners have been extremely supportive we've started the process and we don't see any reason why that won't be completed by the end of the year I would say from an interest rate perspective, it will be relatively similar to where we are now it just creates a lot of flexibility for us with the new structure.

Speaker 9: Great. Congrats on the new Synopto. We look forward to strong performance going forward.

Great Congrats on the new Sone after we look forward to.

Okay.

Strong performance going forward.

Bob.

Thanks, John Thanks Joseph.

Speaker 1: Thank you, John . And our final question today comes from the line of John Baumgartner with Mizzouho Securities. John , please go ahead.

Thank you John and our final question today comes from the line of John Baumgartner with Mizuho Securities. John. Please go ahead.

Okay.

Speaker 9: Maybe first off on the plant base, I go, given the volume the clients we're seeing, you mentioned the expectations for continued declines in 2024 in the track channel. And I think last quarter there was some discussion around retailers maybe cooling to the idea of adding new brands, but we're still seeing modest growth in TD P.

Maybe first off on the plant based side, Joe given the volume declines. We're seeing you mentioned the expectations for continued declines in 2024 in the track channel and I think last quarter. There was some discussion around retailers may be cooling to the idea of adding new brands, but we're still seeing modest growth in <unk>.

Speaker 4: for the category through October . And I'm curious, with the outlook for declines there, do you sense there's any desire for retailers to address the tail in the category, you know, the lower velocity brands and pare back some of the underperformers and declutter the shelf a bit? I'm just curious how you think about changes in retailer merchandising for this category in light of the volume's up.

<unk> for.

For the category through October and I'm curious with the outlook for declines there do you sense, there's any desire for retailers to address the tail on the category the lower velocity brands and pair back some of the Underperformers and declutter the shelf a bit.

Just curious how youre thinking about changes in retailer merchandising for this category in light of the volume softness.

Speaker 7: Yeah, you know what, what I would say.

Yes.

What I would say.

Speaker 7: I would expect to see in 2024 is probably less assortment changes and more of a focus on promotional activity from the brands. You know, I think as

I would expect to see in 2024 is probably less assortment changes and more of a focus on promotional activity from the brands.

I think as the collective.

Speaker 7: the collective brand owners have experienced some.

<unk> owners have experienced some.

Speaker 7: volume, softness, and track channels, I would expect that the promotional activity in 2024 will intensify. I think that is a pretty consistent message we're hearing across all categories.

Volume softness in tracked channels I would expect that the promotional activity in 2024 will intensify I think.

That is a pretty consistent message we are hearing across all categories in the grocery store as a kind of thematic for 2024 and I would expect that that would play out in our category as well, but we have not seen any kind of material movement from retailers to trim.

Speaker 7: in the grocery store as a kind of thematic for 2024, and I would expect that that would play out in our category as well. But we have not seen any kind of material movement from retailers to trim the bottom end of the category at this juncture, but certainly as resets occur.

Bottom end of the category at this at this juncture.

But certainly as resets occur.

Speaker 2: You know, typically in the middle of the year, call it middle, you know, Q2, Q3, you know, we will certainly be watching out for that. Okay. And then.

Typically in the middle of the year call. It Middle Q2 Q3.

We will certainly be watching out for that.

Okay, and then pertaining to fruit snacks category.

Speaker 6: The category of volume there has also been, you know, soft the last few months in the scanner data, but you sound very bullish on growth for next year as well. And, you know, think about the impact we saw in the back half of this year from softness and plant-based beverages sort of hitting orders in the back half.

Category volume there has also been soft the last few months in the scanner data, but you sound very bullish on growth for next year as well and you think about the impact we saw in the back half of this year from softness in plant based beverages sort of hitting orders in the back half.

Speaker 6: How do you see the visibility into order staying on track for snatch in 2024? Is there a difference in the customer or retailer mix for fruit that better allows you to maybe buck the trend if the overall take will remain soft? How do you think about that and the risks to the outlook for fruit in 2024?

How do you see the visibility into order staying on track for snacks. In 2024 is there is there a difference in the customer retailer mixed for fruit that better allows you to buck the trend if the overall takeaway remains soft and how you think about that and the risks to the outlook for fruit in 2024.

Speaker 7: Yeah, good question. So, you know, with 13 consecutive quarters of double digit growth and a significant capacity expansion coming online, we are very bullish about our growth. Our business is very, very driven by club stores and specifically both tracked and untracked.

Yes, good question so.

With 13 consecutive quarters of double digit growth.

And a significant capacity expansion coming online.

We are very bullish about our growth.

It is a bit odd.

Our business is very very driven by club stores.

And specifically both tracked and untracked.

Speaker 7: club. And so when you look at the trends in those

And so when you look at the trends in those.

Speaker 7: with those retailers, we see very, very strong growth. It's also worth noting, I mean, we have had several customers on allocation for...

With those retailers, we see very very strong growth.

It's also worth noting I mean, we've had several customers on allocation for.

Speaker 7: what might be approaching multiple years and so those customers are also incredibly anxious to

What might be approaching multiple years and so those customers are also incredibly anxious too.

Speaker 7: um come off allocation and be able to drive this business so You know just even in the first month and I referenced strength in the fourth quarter That we're seeing, you know Certainly the added fruit snacks capacity is is one of the things or one of the areas of the business where we're seeing uh, you know certainly very strong early trends here in q4 as

Come off allocation and be able to drive this business. So just even in the first month and I referenced strength in the fourth quarter.

We're seeing certainly the added fruit snacks capacity is is one of the things are one of the areas of the business, where we're seeing.

Certainly very strong early trends here in Q4 as this product continues to just perform and perform and perform.

Speaker 7: this product continues to just perform and perform and perform.

Okay. Thank you.

Thanks, John.

Speaker 1: And with that, I would like to turn the call back over to Joe Innan for closing remarks. Joe, the floor is yours.

And with that I would like to turn the call back over to Joe Ennen for closing remarks, Joe the floor is yours.

Speaker 7: Great, thank you. I just want to thank everybody for joining us on the call today and look forward to speaking to many of you in the future. Thanks again.

Great. Thank you.

Want to thank everybody for joining us on the call today.

And look forward to speaking to many of you in the future. Thanks again.

Speaker 1: And ladies and gentlemen, that concludes today's call. Thank you all for joining and you may now disconnect. Have a great day, everyone.

And ladies and gentlemen that concludes today's call. Thank you all for joining and you may now disconnect have a great day everyone.

Okay.

Okay.