Q4 2023 SunOpta Inc Earnings Call

Operator: Greetings. And welcome to Sunopta's fourth quarter 2023 earnings call. At this time, all participants are in a listen-only mode; the question and answer session will follow the prepared script. In order to ask a question at that time, please press the star followed by the number one on your telephone keypad. To remove your question, press star one again.

Greetings.

And welcome to sign up those fourth quarter 2023 earnings conference call.

At this time all participants are in a listen only mode.

And the answer session will follow the prepared remarks.

In order to ask a question at that time. Please press star followed by the number one on your telephone keypad.

Move your question Press Star one again.

Operator: As a reminder, this conference is being recorded. I will now turn the conference over to your host, Reed Anderson with ICR. Thank you.

As a reminder, this conference is being recorded.

I will now turn the conference over to your host Reid Anderson with ICR.

Reed Alan Anderson: You may begin. Good afternoon, and thank you for joining us on Sunopta's fourth quarter fiscal 2023 earnings conference call. On the call today are Joe Ennen, former Chief Executive Officer, who retired at the end of 2023 and is serving in an advisory role through the end of the first quarter; Brian Kocher, who was appointed Chief Executive Officer effective at the start of 2024; and Greg Gaba, Chief Financial Officer. 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 of Sunopta's website at www.sunopta.com.

Thank you you may begin.

Good afternoon, and thank you for joining us enough those fourth quarter fiscal 2023 earnings conference call.

On the call today are Julien former Chief Executive Officer retired at the end of 2023 and are serving in an advisory role through the end of the first quarter Bryan Cooker, who was appointed Chief Executive Officer effective at the start of 2024, and Greg Gaba Chief Financial Officer.

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 of Synopsys website at Www Dot <unk> Dot com.

Reed Alan Anderson: This call is being webcast, and its transcript will also be available on the company's website. As a reminder, please note that the prepared remarks which follow contain forward-looking statements, and management may make additional forward-looking statements in response to your question. These statements do not guarantee future performance, and therefore, undue reliance should not be placed upon them.

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

As a reminder, please note that the prepared remarks, which follow contain forward looking statements and management may make additional forward looking statements in response to your questions. These.

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

Reed Alan Anderson: We refer you to all risk factors contained in Sunopta's press release issued this afternoon, the company's annual report filed on Form 10-K, and other filings with the Securities and Exchange Commission for a more detailed discussion of the factors that could cause actual results to differ materially from those projections and any forward-looking statements. The company undertakes no obligation to publicly correct or update the forward-looking statements made during the presentation to reflect future events or circumstances, except as may be required under applicable securities laws. Finally, we would like to remind listeners that the company may refer to certain non-GAAP financial measures during this teleconference. A reconciliation of these non-GAAP financial measures was included with the company's press release issued earlier today. Also, please note in the prepared remarks to 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. Given Joe's tenure as CEO fully encompassed the fourth quarter, Joe will speak to the quarterly results before turning the call over to Brian. Joe, good afternoon, and thank you for joining us today.

Refer you to all risk factors contained in <unk> press release issued this afternoon. The company's annual report filed on Form 10-K, and other filings with the Securities Exchange Commission for a more detailed discussion of the factors that could cause actual results to differ materially from those projections and any forward looking statements.

The company undertakes no obligation to publicly correct or update the forward looking statements made during the presentation to reflect future events or circumstances, except as may be required under applicable securities laws.

Finally, I would like to remind listeners that the company may refer to certain non-GAAP financial measures. During this teleconference. A reconciliation of these non-GAAP financial measures was included with the company's press release issued earlier today.

Also please note in the prepared remarks to 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.

Given Joes tenure as CEO fully encompassed fourth quarter, Joe will speak to quarterly results before turning the call over to Brian.

Joe.

Good afternoon, and thank you for joining us today and most of you know this will be my last set up the earnings call.

Joseph D. Ennen: As most of you know, this will be my last Sunopta earnings call. It's been great getting to know all of you over the past several years, and I've enjoyed our interaction. Today, Sunopta is a much different business than when I started in 2019. The journey from beginning to end has been incredibly rewarding, and it is exciting to be reporting a strong fourth quarter today, along with a solid outlook for 2024. Our results demonstrate the power of our platform, and it's clear that the new Sunopta is a highly focused growth company that leverages its differentiated model to participate in some of the industry's most attractive categories. On today's call, I'm going to cover the highlights from Q4 and then turn it over to Brian to discuss his views of the business, priorities, and the outlook.

Been great getting to know all of you over the past several years and I've enjoyed our interactions.

Today's date is a much different business than when I started in 2019.

Germany from beginning to end with an incredibly rewarding and it is exciting to be reporting a strong fourth quarter today, along with the solid outlook for 2024.

Our results demonstrate the power of our platform and it's clear that the New center is a highly focused growth company that leverages its differentiated model to participate in some of the industry's most attractive categories.

For today's call I'm going to cover the highlights from Q4, and then turn it over to Brian to discuss his views of the business priorities and the outlook.

Joseph D. Ennen: Greg will follow with a review of the financials, and then we'll take your questions. Now, let me offer some key takeaways from the fourth quarter results. Overall revenue growth was volume-driven and very strong. For the quarter, revenues increased 14% year-over-year, a sharp sequential acceleration from the 6% increase we delivered in Q3 and in line with our long-term growth algorithm. Growth continued to be broad-based. We continue to see similar growth rates from each of our three primary growth levers, share gains with existing customers, adding new customers, and expanding our total addressable market. Plant-based melts, led by oat-based offerings, had another strong quarter of growth, including significant gains in food service.

Greg will follow with a review of the financials and then we'll take your questions.

Now, let me offer some key takeaways from the fourth quarter results.

Overall revenue growth was volume driven and very strong for the quarter revenues increased 14% year over year, a sharp sequential acceleration from the 6% increase we delivered in Q3 and in line with our long term growth algorithm.

Growth continued to be broad based we continue to see similar growth rates from each of our three primary growth levers share gains with existing customers, adding new customers and expanding our total addressable market.

Plant based milk led by old based offerings had another strong quarter of growth, including significant gains in foodservice.

Joseph D. Ennen: Of all our product groups, Fruit Snacks had the highest growth rate for the quarter at 31%, reflecting strong customer demand that leveraged our expanded capacity. Adjusted EBITDA increased 17.5% to over $22 million as higher utilization of capacity investments further leveraged our volume-driven revenue growth to increase profitability. We had the best quarter of the year in terms of plant operations, as all four of our plant-based milk facilities performed well in meeting the strong customer demand. Last week, we signed an agreement to sell our frozen smoothie bowl business for $6 million. This small business was our last remaining frozen asset, and the supply chain had become highly inefficient after the divestiture of frozen fruit.

All in all our product groups fruit snacks had the highest growth rate for the quarter at 31%, reflecting strong customer demand that leveraged our expanded capacity.

Adjusted EBITDA increased 17, 5% to over $22 million as higher utilization of capacity investments further leveraged our volume driven revenue growth to increase profitability.

We had the best quarter of the year in terms of plant operations and all four of our plant based milks facilities performed well in meeting the strong customer demand.

Last week, we signed an agreement to sell our frozen smoothie golf business for $6 million.

This small business was our last remaining frozen asset and the supply chain had become highly inefficient after the divestiture of frozen fruit.

Joseph D. Ennen: Lastly, we continue to have a strong pipeline of additional growth opportunities. Now, let me offer some additional color on the Q4 results. In the beverage and broth product group, revenues increased 19% to $147 million.

Lastly, we continue to have a strong pipeline of additional growth opportunities.

Now let me offer some additional color on the Q4 results.

In the beverage and broth product group revenues increased 19% to $147 million.

Joseph D. Ennen: The growth was over 100% attributable to volume and mix, reflecting share gains with existing customers, the addition of new customers, and CAM expansion. This product group represented 81% of our Q4 revenue. Growth in oat milk was incredibly robust and remains a key driver, as it has been for over three years.

The growth was over 100% attributable to volume and mix, reflecting share gains with existing customers. The addition of new customers and Tam expansion.

This product group represented 81% of our Q4 revenue.

Growth in oat milk was incredibly robust and it remains a key driver as it has been for over three years.

Joseph D. Ennen: We also delivered sizable gains in creamers and tea, along with a continued ramp-up of our protein shake business. By the end of Q2, we should be close to our end-state run rate on this line. The operations and R&D teams have done an outstanding job in scaling our new plant in Texas. Truly an impressive accomplishment.

We also delivered sizeable gains in Creamers at tea, along with continued ramp up of our protein shake business.

By the end of Q2, we shouldnt be close to our end state run rate on this line.

The operations and R&D teams have done an outstanding job in scaling our new plant in Texas truly an impressive accomplishment.

Joseph D. Ennen: In Fruitsnacks, revenue was up 31% to over $27 million, driven by volume growth, which was enabled by our capacity expansion in OMAC Washington that came online late in Q3. This was our 14th consecutive quarter of double-digit growth for our Fruitsnacks business. From a go-to-market perspective, trends remain similar to what we've seen throughout the past several quarters. Our own brand continues to deliver the highest growth rates, followed by our contract manufacturing. Private label was down in Q4 due to competitive dynamics in the broad category, as we foreshadowed on the Q2 call. The decline in our ingredient revenue stemmed from the strategic shift we have discussed several times. Prioritize the internal use of oat base versus selling it externally as an ingredient.

And fruit snacks revenue was up 31% to over $27 million driven by volume growth, which was enabled by our capacity expansion in all Mac, Washington that came online late in Q3. This was our 14th consecutive quarter of double digit growth for our fruit snacks business.

From a go to market perspective trends remained similar to what we've seen throughout the past several quarters our own brands continues to deliver the highest growth rate followed by our contract manufacturing business.

Private label was down in Q4 due to competitive dynamics in the broth category as we foreshadowed on the Q2 call.

The decline in our ingredient revenues stemmed from the strategic shift we have discussed several times to prioritizing internally is about base versus selling it externally as an ingredient we.

Joseph D. Ennen: We continue to see the P&L benefits of that shift, and it was a major contributor to the 19% in beverage and broth growth. Now, I'd like to touch on overall category performance for our major business. Looking at the plant-based milk category in tracked and untracked channels, we estimate the category grew mid-single digit.

We continue to see in the P&L benefits of that shift and it was a major contributor to the 19% in beverage in broth growth.

Now I'd like to touch on overall category performance for our major businesses.

Looking at the plant based milk category and tracked and untracked channels. We estimate the category grew mid single digits.

Joseph D. Ennen: Recall that much of our revenue is derived from untracked channels. In Q4, we continue to see very strong trends for plant-based milks in the food service channel, which, as a reminder, we estimate to be at least four times larger than all of the tracked channels. Also, protein shakes continue to show very robust growth in tract channels, up 40% in the last 13 weeks versus prior year.

Recall that much of our revenue is derived from untracked channels.

In Q4, we continued to see very strong trends for plant based milk in the foodservice channel, which as a reminder, we estimate to be at least four times larger than all of tracked channels.

Also protein shakes continue to show very robust growth in tracked channels up 40% in the last 13 weeks versus prior year.

Joseph D. Ennen: In closing, I'd like to thank investors for your support and all of our employees for your passion and tenacious execution of our strategy. When reflecting on the past five years, I'm extremely proud of the transformation of the company. We optimized the portfolio by divesting our commodity-based businesses to focus on and invest in high-growth, competitively-advantaged businesses operating in very attractive categories.

In closing I'd like to thank investors for your support and all of our employees for your passion and tenacious execution of our strategies.

When reflecting on the past five years I'm extremely proud of the transformation of the company.

We optimized the portfolio by divesting, our commodity based businesses to focus and invest in high growth.

<unk> advantage business is operating at very attractive categories.

Joseph D. Ennen: We have built a great team with a great culture, and we live our sustainability values every day. We have delivered results. On a pro forma basis, over the last five years, the new Sunopta has more than doubled revenue, and adjusted EBITDA has quadrupled. I look forward to the continued success of the new Sunopta under Brian's leadership as we continue to fuel the future of food. With that, I'm going to pass the call over to Brian.

We have built a great team with a great culture, and we live our sustainability values everyday we have delivered results on a pro forma basis over the last five years, the new setup that has more than doubled revenue and adjusted EBITDA has quadrupled.

I look forward to the continued success of the new Sonata under Brian's leadership as we continue to fuel the future of food.

With that I'm going to pass the call over to Bryan.

Brian.

Brian W. Kocher: Thank you, Joe, and thanks to everyone for joining us on the call today. I want to start by saying how excited I am to be a part of Sunopta and grateful for the opportunity to lead this company in its next chapter. I'd also like to recognize Joe and the transformational change he drove over the last five years.

Joe and thanks, everyone for joining us on the call today I want to start by saying how excited I am can be a part of sun after and grateful for the opportunity to lead this company in its next chapter.

I'd also like to recognize Joe and the transformational change he drove over the last five years. The new setup is the culmination of Joes leadership.

Brian W. Kocher: The new Sunopta is the culmination of Joe's leadership. As a result of those efforts, we are a stronger, more focused company with a clear long-term growth trajectory. Joe, you should be very proud of your leadership at Sunopta, and we are definitely proud of you. Thank you for your impact, and thank you for your continued support. As I have discussed with many of our shareholders over the last two months, I'm excited about the future of Sunopta for several reasons. First and foremost, I love the categories in which we play.

As a result of those efforts we are a stronger more focused company with a clear long term growth trajectory.

Joe you should be very proud of your leadership and sought after and we're definitely proud of you.

Thank you for your impact and thank you for your continued support.

As I have discussed with many of our shareholders over the last two months I'm excited about the future of sought after for several reasons.

First and foremost I loved the categories in which we play our categories are growing and we have an excellent customer base to fuel further growth.

Brian W. Kocher: Our categories are growing, and we have an excellent customer base to fuel further growth. Secondly, the timing was right from a strategic perspective. Joe and his leadership team transformed the portfolio from largely commodity-based to one that is purely value-added.

Secondly, the timing was right from a strategic perspective.

Joe and his leadership team transformed the portfolio from largely commodity base to one that is purely value add.

Brian W. Kocher: Sunopta then deployed significant capital, and we are now leveraging that capital for growth. In short, the Sunopta CEO role is migrating from one of portfolio transformation to a role where operational excellence is the next unlock for volume and profit growth, and that fits with my strengths perfectly. Thirdly, the new Sunopta has already demonstrated several years of growth.

So and after then deployed significant capital and we are now leveraging that capital for growth.

Sure. The sonata CEO role is migrating from one of our portfolio transformation to enroll where operational excellence is the next unlocked for volume and profit growth.

Fits with my strengths perfectly.

Thirdly, the new sought after has already demonstrated several years of growth.

Brian W. Kocher: With the portfolio transformation now complete, you can see the power of the core business. Over the last 36 months, revenue has grown 40%, and adjusted EBITDA has grown approximately 60%. We are a growth company focused on growing categories, and I'm excited to lead our next chapter of growth. Additionally, every strand of this company's DNA is built on doing good for our customers, the environment, and the communities in which we work and live. We are blessed to operate in food and beverage categories. Doing right by our products and our customers is 100% aligned with doing right for our environment. And I'm proud to be associated with a company that lives by the sustainability value. Lastly, and probably most important, The culture, people, and values of the company were a great fit for me personally, once I joined Sunopta and started meeting everyone.

With the portfolio transformation now complete you can see the power of the core business.

Over the last 36 months revenue has grown 40% and adjusted EBITDA has grown approximately 60%.

We are a growth company focused on growing categories and I'm excited to lead our next chapter of growth.

Additionally, every strand of this company's DNA is built on doing good by our customers the environment and the communities in which we work and live we're blessed to operate in food and beverage categories. We're doing right for our products and our customers is 100% aligned with doing right for.

Our environment and I'm proud to be associated with a company that lives in sustainability values.

Lastly, and probably most importantly, the culture people and values of the company were a great fit for me personally onetime.

Once I joined sought after and started meeting everyone.

Brian W. Kocher: It was clear that there is an everyday passion within the entire employee base that exceeded my expectations. The culture is great, and it is a core differentiator for the company. [inaudible] Let me provide you with an update on my first couple of months. I've been able to align with the board on priorities as well as validate my initial views on the business. I understand the underlying growth drivers and believe they are sustainable and enduring. After digging into all key aspects of our business model and spending a lot of time working with the leadership team, I've grown increasingly more excited about Sunopta's potential. I understand the demand trends and have greater visibility into the sales pipeline.

It was clear that there is an everyday passion within the entire employee base that exceeded my expectations.

The culture is great and it is a core differentiator for the company.

Next.

Let me provide you with an update from my first couple of months.

I've been able to align with the board on priorities as well as validate my initial views on the business.

I understand the underlying growth drivers and believe they are sustainable and enduring.

After digging into all key aspects of our business model and spending a lot of time working with the leadership team.

Grown increasingly more excited about set up this potential.

I understand the demand trends and have greater visibility into the sales pipeline.

Brian W. Kocher: I've had a chance to see the improving throughput and efficiency trends in our facility. I've even seen our capacity expansion plans for Oak Basin Modesto and the third production line in Texas. These projects are progressing, and I'm excited about their ability to contribute to long-term growth. All of this has solidified my confidence in our 2024 outlook, as well as my confidence in the overall trajectory of our growth. The fourth quarter provides an early look at what is possible as we continue to execute our growth plan and focus on operational excellence to drive increasing rates of return. All the initiatives that helped to shape and transform the business over the past several years under Joe's leadership have clearly positioned us as a growth company. When taken as a whole, these observations give me strong confidence in our operating model and our sales momentum for the new year. In fact, I am so confident that I am reaffirming our outlook for 2024.

The chance to see the improving throughput and efficiency trends in our facilities.

Haven't seen our capacity expansion plans for oat base in Modesto and the third production line in Texas.

These projects are progressing and I'm excited about their ability to contribute to long term growth.

All of this have solidified my confidence in our 2024 outlook as well as my confidence in the overall trajectory of our growth. The fourth quarter provides an early look of what is possible as we continue to execute our growth plan and focus on operational excellence to drive increasing rates of return.

All of the initiatives that helped to shape and transform the business over the past several years under Joe's leadership have.

Clearly positioned us as a growth company.

When taken as a whole these observations give me strong confidence in our operating model and our sales momentum in the new year.

In fact, I am so confident that I am reaffirming our outlook for 2024.

Brian W. Kocher: Actually, reaffirming our outlook is effectively raising the stakes, as we did not adjust for the divestiture of the smoothie bowl business, which contributed $12 million of revenue in 2023. I am confident in the guidance due to the momentum and the competitively advantaged business model that we've built. After my discussions with the team, seeing the pipeline on the horizon, and validating those observations with our board, I am also confident in our plan to deliver 125 million of adjusted EBITDA run rate by the end of 2025 or early 2026. I'd like to take some time to reaffirm our strategic priorities. Number one, increasing the efficiency and effectiveness of our supply chain.

Actually reaffirming our outlook is effectively raising as we did not adjust for the divestiture of the Smoothie Bowl business, which contributed $12 million of revenue in 2023.

I am confident in the guidance due to the momentum and the competitively advantaged business model that we've built.

After my discussions with the team seeing the pipeline on the horizon and validating those observations with our board I am also confident in our plan to deliver $125 million of adjusted EBITDA run rate by the end of 2025 order in early 2026.

I'd like to take some time to reaffirm our strategic priorities.

Number one increasing the efficiency and the effectiveness of our supply chain.

Brian W. Kocher: We have invested in capacity and deployed capital. Now we need to ensure we are driving operational improvements with a daily rhythm. We need to operate our plant and physical assets highly efficiently to optimize the demand side momentum. Number two, drive growth, continue our trajectory via share growth with existing customers, new customer acquisition, and TAM expansion. And finally, remain focused and disciplined in executing our capital allocation priorities, of which deleveraging is currently the number one priority. In summary, Sunopta is a growing company in growing categories and is focused on supply chain excellence to leverage its installed base of assets.

We are investing in capacity and deploy capital now we need to ensure we are driving operational improvements with a daily relentlessness.

We need to operate our plant in physical assets highly efficiently to optimize the demand side momentum.

Number two drive growth.

Continue our trajectory of via share growth with existing customers, new customer acquisition and Tam expansion.

And finally, we remain focused and disciplined in executing our capital allocation priorities.

Which deleveraging is currently the number one priority.

In summary, some after as a growing company and growing categories and is focused on supply chain excellence to leverage its installed base of assets. We're focused on driving margin enhancement through volume growth and operational efficiencies and I look forward to updating you on our progress throughout 2024.

Brian W. Kocher: We're focused on driving margin enhancement through volume growth and operational efficiencies, and I look forward to updating you on our progress throughout 2024. Now, I'll turn the call over to Greg to cover the fourth quarter in more detail. Thank you very much, Brian, and good afternoon, everyone.

Now I'll turn the call over to Greg to cover the fourth quarter in more detail.

Thank you very much Brian and good afternoon, everyone. We had a strong fourth quarter revenue of $181 6 million was up 13, 7% versus last year driven by volume growth.

Greg Gaba: We had a strong fourth quarter. Revenue of $181.6 million was up 13.7% versus last year, driven by volume. Gross profit increased by 7.7% to $25.6 million. Adjusted gross margin was 17.3%, down 50 basis points from the prior year period, net of absorbing an 80 basis point increase in depreciation related to new production equipment. Operating income increased by 48% to $5.1 million, driven by profitable volume growth. Adjusted earnings from continuing operations more than doubled to $5.7 million, compared to $2.6 million in the prior year period.

Gross profit increased by seven 7% to $25 6 million.

Adjusted gross margin was 17, 3% down 50 basis points from the prior year period net of absorbing an 80 basis point increase in depreciation related to new production equipment.

Operating income increased by 48% to $5 1 million driven by profitable volume growth.

Adjusted earnings from continuing operations more than doubled and $5 7 million compared to $2 6 million in the prior year period.

Greg Gaba: Due to improved operating performance, more than offsetting increases. The adjusted EBITDA from continuing operations increased 17.5% to $22.3 million and was up 40 basis points as a percentage of revenue at $12.2.3%. Turning to the balance sheet and cash flow, as planned with the divestiture of the frozen fruit business and the significant reduction in working capital needs, we completed a refinancing of our debt in December. We entered into a new $180 million term loan credit facility and a new $85 million revolving credit facility. The new credit facilities have a five-year term, provide greater flexibility, strengthen our balance sheet, and provide a structure that is aligned with our future capital needs. At the end of Q4, debt was $263 million, a complying leverage of 3.4 times.

Due to improved operating performance more than offsetting increases in interest expense and depreciation.

Adjusted EBITDA from continuing operations increased 17, 5% to $22 3 million and was up 40 basis points as a percentage of revenue 12, 3%.

Turning to the balance sheet and cash flow.

As planned with the divestiture of the frozen fruit business and the significant reduction of working capital needs. We completed a refinancing of our debt in December.

We entered into a new $180 million term loan credit facility, and a new $85 million revolving credit facility.

The new credit facilities of a five year term provide greater flexibility and strengthen our balance sheet and provide a structure that is aligned with our future capital needs.

At the end of Q4, <unk> was 263 million implying leverage at three four times.

Greg Gaba: Cash provided by operating activities of continuing operations during the 4th quarter was $12 million, and cash used in investing activities of continuing operations was $9.2 million, resulting in free cash flow generated from continuing operations of $2.7 million. For 2024, we are maintaining the free cash flow target of $35 to $45 million that we first shared with you on the Q3 call. Let me reiterate our current borderline capital allocations priority. Given current interest rates, the first use of cash will be to pay down debt until we're under three times leverage. We expect to reach this level in the second half of 2024, as debt will increase slightly in the first half due to the completion of the Modesto extraction project, Brian noted. Once we are under three times leverage, we will continuously evaluate the best use of free cash flow.

Cash provided by operating activities of continuing operations during the fourth quarter was $12 million in cash used in investing activities of continuing operations was $9 2 million, resulting in free cash flow generated from continuing operations of $2 7 million.

For 2024, we are maintaining the free cash flow target of $35 million to $45 million that we first shared with you on the Q3 call.

Let me reiterate our current board aligned capital allocations priorities.

Given current interest rates. The first use of cash will be to pay down debt until we are under three times levered.

We expect to reach this level in the second half of 2024 as debt will increase slightly in the first half due to the completion of the Modesto extraction project Brian referenced.

Once we are under three times leverage we will continuously evaluate the best use of free cash flow. This may include share buybacks funding high ROI capital projects <unk> accretive M&A.

Greg Gaba: This may include share buybacks, funding high ROI capital projects, or creative. Let me close with comments on the. From a guidance standpoint, we are reaffirming the 2024 outlook we provided on our previous call. We expect revenue in the range of $670 to $700 million, which represents growth of 6 to 11%. From a profit perspective, we expect adjusted EBITDA of $87 to $92 million, which represents growth of $11 to $17 billion. From a pacing standpoint, as you would expect, we see the back half of the year to be somewhat stronger than the first half, with a split of approximately 48% first half and 52% second half.

Let me close with comments on the outlook.

From a guidance standpoint, we are reaffirming the 2024 outlook, we provided on our previous call.

We expect revenue in the range of $670 million to $700 million, which represents growth of 6% to 11%.

From a profit perspective, we expect adjusted EBITDA of $87 million to $92 million, which represents growth of 11% to 17%.

From a pacing standpoint, as you would expect we see the back half of the year to be somewhat stronger than the first half with a split of approximately 48% first half 52% second half.

Operator: In addition, in the first half of the year, due to seasonality, we expect Q1 to be stronger than Q2, with an expected split of approximately 52 to 48% for Q1 and Q2. From a balance sheet and cash flow standpoint, we continue to expect capital expenditures on a cash flow statement of approximately $25 to $30 million in 2024. Before opening the call for questions, just a reminder that, for competitive reasons, we do not provide detailed commentary regarding customer or SKU level activities. And with that, operator, please open the call for questions. In order to ask a question, please press star followed by the number one on your telephone keypad.

In addition in the first half of the year due to seasonality, we expect Q1 to be stronger than Q2 with an expected split of approximately 52% to 48% for Q1 and Q2.

From a balance sheet and cash flow standpoint, we continue to expect capital expenditures on a cash flow statement of approximately $25 million to $30 million in 2024.

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.

Yes.

In order to ask a question. Please press star followed by the number one on your telephone keypad. Your first question comes from the line of Andrew <unk> with BMO capital markets. Your line is open.

Andrew Strelzik: The first question comes from the line of Andrew Strelzik with BMO Capital Markets. Your line is open. Hey, good afternoon.

Hey, good afternoon, thanks for taking the questions and Joe Best of luck.

In the future it's been great working with you.

Brian W. Kocher: Thanks for taking the questions and Joe, best of luck. Chairperson, it's been great work. My first question, I guess, is about the new business pipeline. And I guess I wanted to tie that back to the comment you made that there's kind of an underlying increase in the revenue assumptions, just given that now you'll be without the smoothie business. So have you seen any movement towards converting some of those new business opportunities over? Is that contributing to that?

Thanks, Andrew My question absolutely.

My first question I guess is about.

The new business pipeline.

And I guess I wanted to tie that back to the comment you made that there's kind of an underlying.

Increase I guess in the.

The revenue assumptions, just given the debt that now you.

You'll be without the smoothie business. So have you seen any movement there converting some of those new business opportunities over is that contributing to that or how is that new business pipeline building.

Yeah, Andrew Thanks, a lot for the question and for joining the call a couple of things that I would say about our new business pipeline first and foremost we.

Brian W. Kocher: Or how is that new business pipeline? Yeah, Andrew, thanks a lot for the question and for joining the call. A couple of things that I would say about our new business pipeline. First and foremost, we have multiple ways to grow our revenue line. We're growing share with existing customers, we're acquiring new customers, we're expanding the TAM with some of the investments that we made recently. And don't also don't forget, we've got a fourth area. And that fourth area is the fact that a lot of our blue chip customer base is growing in and of itself, and that carries along our growth with it.

We have multiple ways to grow our revenue line.

Sure.

The existing customers, we are acquiring new customers, we're expanding the Tam with some of the investments that we made recently and don't also don't forget we've got really a fourth area not fourth area is the fact that a lot of our blue chip customer base is growing in and of themselves and that carries long.

Our growth with it so.

I think specifically when we looked at that 2024 guidance I've had a chance now with two months in the role.

Brian W. Kocher: So I think specifically when we looked at that 2024 guidance, I've had a chance now, after two months in the role, to see facilities, meet salespeople, meet a few customers to understand the order volumes that are coming in and the pace that they're coming in at. And I would say they're all in line with the forecast that we outlined in the third quarter calls. So new business is always a part of our process, new business development, that new business development runs from anywhere from the discovery stage close to implementation.

C facilities to meet salespeople to meet a few customers to understand the order volumes that are coming in and the and the pace that they're coming in at and I would say, they're all in line with the forecast that we outlined in our third quarter call So new business.

As always a part of our processing and business development.

New business development runs from anywhere from discovery stage close to implementation and we're at various points along that horizon with each of our customers excuse me customers. So.

Brian W. Kocher: And we're at various points along that horizon with each of our customers. So I guess with respect to new business development, specifically, it's on the horizon; we continue to invest in new business development. But right now, we're looking at the strength of our current customers with our current product portfolio and the growth that we see with them. And that gives us the confidence to affirm our guidance for 2024. I got it.

I guess with respect to new business development, specifically, it's on the horizon, we continue to invest in new business development, but right now we're looking at the strength of our current customers with our current product portfolio and the growth that we see with them and that's what gave us the confidence to affirm our guidance for 2024.

Got it Okay. That's helpful. And then the second question is just on the ramp of the Texas facility and you noted the first you know that by the end of the second quarter, you would be kind of at end state. So I guess in terms of the first two lines, where those from utilization rate perspective, and I know the third line.

Brian W. Kocher: Okay, that's helpful. And then the second question is just on the ramp for the Texas facility. And you noted the first, you know, that by the end of the second quarter, you would be kind of at an end state. So I guess in terms of the first two lines, where are those from a utilization rate perspective? And I know the third line was coming on in the first quarter. Is that online right now?

What's coming out in the first quarter is that online right now could you just give us an update on how that's ramping.

Yeah, I think the best way I can say it as its ramping as expected. The first two lines are demonstrating both the production and productivity that we expected and are absolutely on the trajectory to be.

Brian W. Kocher: Can you just give us an update on how that's going? Yeah, I think the best way I could say it is it's ramping as expected. The first two lines are demonstrating both the production and productivity that we expected and are absolutely on the trajectory to be at our, and run rate, so to speak, in the second quarter of the year. And then the third line is in process right now.

At our <unk>.

And run rate so to speak and in the second quarter middle of the year and then the third line is in process right now. So it comes in and then we do some qualification and other things, but yeah. We're excited about the path that it's on and we believe in.

By the end of the second quarter, the third line would be contributing to profits as well.

Okay and then just one quick last one for me and that's on the foodservice side, where it is impressive to hear the strength there, especially as some of the larger players node, maybe a little bit of softness in some of the top line trends that youre seeing can you just talk about.

Brian W. Kocher: So it comes in, and then we do some qualification and other things. But yeah, we're excited about the path that it's on. And we believe that by the end of the second quarter, the third line will be contributing to profits as well. Okay, and then just one quick last one for me, and that's on the food service side, where it's impressive to hear the strength there, especially as some of the larger players note maybe a little bit of softness in some of the top line trends that they're seeing. Can you just talk about what you're seeing on the food service side, maybe more recently, and what gives you the confidence there kind of underpinning the outlook in terms of whether it's share gains or new customers or those types of things where you're seeing the bulk of that growth would be helpful? Yeah, I think the story is similar to what Joe described in the fourth-quarter results. We do still see growth in the food service area with many of our customers. I think Oat is driving that. There is a preference, in particular in coffee shops and quick service restaurants for oat products.

What youre seeing on the foodservice side, maybe more recently and what gives you the confidence they're kind of underpinning the outlook in terms of whether it's share gains or new customers or those types of things where you are seeing.

The bulk of that growth would be would be helpful. Thanks.

Yeah, I think the story is similar to what Joe described in in the fourth quarter results, we do see still growth in the foodservice area with many of our customers I think is driving that there there is a preference.

In particular in the coffee shops, and quick service restaurants, FERC for old products. So I think thats been a driving.

Factor of it but it really comes across all of those bands, where we think we have growth. It comes from from expansion of share with existing customers. It comes from acquisition of new customers and it comes from from Tam expansion and in particular.

Brian W. Kocher: So I think that's been a driving factor of it. But it really comes across all of those spans where we think we have growth. It comes from an expansion of share with existing customers. It comes from acquisition of new customers. And it comes from TAM expansion. And in particular, It really is even across those three areas. Great, thanks. I'll pass it on.

It really is even across those three areas.

Great. Thanks, I'll pass it on.

Thanks, Andrew.

Your next question comes from the line of Bobby Burleson with Canaccord Genuity. Your line is open.

Great. Thanks.

Thanks for taking my questions hopefully you can hear me.

So I guess the first one is just curious how your volumes look versus the industry, you mentioned share gains and I'm wondering.

Andrew Strelzik: Thanks, Andrew. Your next question comes from the line of Bobby Burleson with Canaccord Genuity. Your line is open. Thanks for taking my questions. Hopefully, you can hear me.

It's tough to look outside of tracked channels, but just overall, where do you think the share gains are the most substantial in that or is there any kind of.

Robert Joseph Burleson: So I guess the first one is just curious how your volumes look versus the industry. You mentioned share gains, and I'm wondering, You know, it's tough to look outside of track channels, but just overall, what do you think the share gains are the most substantial, and then is there any kind of volume delta color by food service versus versus Hey, hey, Bobby, it's Joe. You know, as we outlined the categories in the fourth quarter for total plant base, we would say it was mid singles.

Volume Delta color by foodservice versus trend versus retail.

Hey, Bobby its Joe.

As we outlined category in.

In the fourth quarter for a total plant basically would say it was mid singles.

And given the volume we reported I mean, we were three three X.

Faster growth than total category.

Okay.

And so in terms of like the tightness for I'm, assuming out base you guys are prioritizing internal consumption rather than.

Joseph D. Ennen: And, you know, given the volume we reported, I mean, we were 3x faster growth than the total category. Okay, and so in terms of like the tightness for, I'm assuming OAT based, you guys are prioritizing internal consumption rather than supporting some of the external, and I'm wondering what the industry is seeing, do you think, in terms of what the production needs might be more broadly. And yeah, have you guys gotten some, you know, gained some competitive advantage there? Well, Bobby, I think you have a couple of things to think about. We definitely saw oat driving growth in the category of food service, as well as our co-man business and private label business. So we saw oats as a driver.

Supporting some of the external and I'm wondering.

What are the industry seeing do you think in terms of oat base.

Supply versus what the production needs might be might be more broadly have you guys gotten some gain some competitive advantage there.

Well, Bobby I think a couple of things to think about we definitely saw.

Driving growth in the category foodservice as.

As well as our co man business and private label business. So we saw owed as a driver remember, we also anticipated that and our own extraction.

Joseph D. Ennen: Remember, we also anticipated that, and our oat extraction line in Modesto is in place. It's coming online in the first quarter, and we expect it to be positively impacting profits in the second quarter. So we foresaw the oat expansion.

Blind in Modesto is is in place it's coming online in the first quarter and we expect it to be positively impacting profits in the second quarter. So we foresaw the expansion I think we've been able to partner with our customers again I would say we have a real.

Brian W. Kocher: I think we've been able to partner with our customers. Again, I would say we have a really blue chip customer base. And so we've been able to partner with them across the spectrum of different outlets to make sure that we're executing well, and they're executing well.

Blue chip customer base, and so we've been able to partner with them across the spectrum of different outlets to make sure that we are executing well and they're executing well and thats whats taken advantage of the growth in the fourth quarter and certainly knowing our some of our customers and in our existing customers.

Brian W. Kocher: And that's what's taken advantage of by the growth in the fourth quarter. And certainly, knowing some of our customers and our existing customers and our existing product lines when we charted out our 24 percent growth, we've been able to see those trends be exactly in line with what we were expecting. Okay, great. Thank you. Congratulations. Thank you, Bobby.

In our existing product lines when we when we charted out R. R 24 growth, we've been able to see those trends be exactly in line with what we were expecting.

Okay, great. Thank you congratulations.

Thank you Bobby.

Robert Joseph Burleson: Your next question comes from the line of Ryan Meyers with Lake Street Capital Markets. Your line is open. Hey guys, thanks for taking my questions. First one for me, you know, if we think about the guidance ranges that you guys gave for 2024, what are some things that you're looking for that could potentially see where you could come in at the high end, if not better than what you initially guided here? Yeah, I think there are a couple of things that would positively impact our 24 Outlook. One would be if some of these new business development opportunities got across the goal line. I would think of those as additive. The other thing that I would say is we certainly had visibility into what our customers who operate in track channels were forecasting for 24, and they're forecasting in track channels again, not for the entire category. I think we've explained well enough that the entire category is growing mid-single digits. But tracking channels; we see some softness there.

Your next question comes from the line of Ryan Meyers with Lake Street Capital markets. Your line is open.

Hey, guys. Thanks for taking my questions first one for me you know if we think about the guidance range that you guys gave for 2024, you know what are some things that you're looking for you could potentially see.

Where you could come in at the high end, if not better than what you had initially guided here.

Yeah, I think Theres, a couple of things that would positively impact our 'twenty four.

Outlook, one would be if some of these new business development opportunities got across the goal line I would think of those as additive. The other thing that I would say is we certainly have visibility to what our customers who operate in tracked channels. We're forecasting for 'twenty four and they are forecasting.

Track channels again, not for the entire category I think we've explained well enough that the entire category is growing mid mid single digits, but tracked channels, we see some softness there.

Brian W. Kocher: If that would turn around, if promotional volume would drive some increases, if that would turn around and start growing, I think that would be additive to the 24 Outlook as well. That's helpful. And then as we think about the growth levers and the expansion into new customers, you know, I was wondering if you could talk about how penetrated you are in food service and how much ability there is to add new customers to that channel. Well, I think it's a great question.

That would turn around and promotional volume would drive some increases if that would turn around and start growing I think that would be additive to the 24 outlook as well.

Got it that's helpful. And then as we think about the growth levers and the expansion into new customers.

Wondering if you could talk about how penetrated you are in foodservice and how much ability there is to add new customers in that channel.

Okay.

Well I think it's a great question I mean, we certainly have customers that that were penetrated in and we're working on.

New product development or Tam expansion ideas I think if you look at shelf stable. We believe we're about 65, 70% of the overall shelf stable market, including tracked and non tracked channels.

Brian W. Kocher: I mean, we certainly have customers that we're penetrated into, and we're working on new product development or cam expansion ideas. I think if you look at shelf stable, we believe we're about 65 70% of the overall shelf stable market, including tracked and untracked cam. Got it.

Got it that's helpful. Thank you for taking my questions.

Thanks, Brian.

Your next question comes from the line of Jim <unk> with Stephens. Your line is open.

Hi, guys.

Brian W. Kocher: That's helpful. Thank you for taking my questions. Thanks, Ryan. Your next question comes from the line of Jim Salera with Stevens. Your line is open.

First of all Joe Congrats on retirement, I think you leave the business in a really great spot moving forward.

If I said I wasn't a little envious of your future escapades, so have fun with that maybe.

James Ronald Salera: Hi guys. First of all, Joe, congrats on retirement. I think you lead the business in a really great spot moving forward. And I'd be lying if I said I wasn't a little envious of your future escapades.

Maybe one last question for you to kind of close the loop on everything if.

If we look at the sales composition moving forward into 2024.

James Ronald Salera: So F on the Fed. Maybe one last question for you to kind of close the loop on everything. If we look at the sales composition moving forward into 2024, it sounds like smoothies are gone. You guys are using the majority of the ingredients internally now. Is it really just two categories now, the beverages and broths and the fruit snacks? I mean, I think, Jim, it depends upon how you think about protein shakes.

It sounds like smoothies Moody's are gone you guys are using the majority of the ingredients internally now is it really just two categories now the beverages in bras and the fruit snacks.

I mean, I think Jim it depends on how you think about protein shakes, we certainly see that as an incredibly.

Untapped market for us for the next half a decade, if not decades. So I would think about that as even though from a reporting standpoint, it rolls up in there.

Just really outstanding.

Joseph D. Ennen: You know, we certainly see that as an incredibly, you know, untapped market for us for the next half-decade, if not decades. So I would think about that as, even though from a reporting standpoint, it rolls up in there, just really outstanding revenue, potential growth territory for us. Okay, and I'm sorry if I missed this, but did you give the 4Q number for beverages and broth?

Revenue potential growth territory for us.

Okay, and I'm, sorry, if I missed this but did you give the <unk> number for beverages broth and a French tax was 31%, but maybe I missed the beverage and <unk> growth rate.

We said plus 19.

Okay.

Yeah beverages in blood and brass I think was 81% of total revenue and plus 19.

Okay, great in 2024 at the midpoint for the sales guide as it was like eight and a half should we think about that as being evenly split between beverages and Boston fruit snacks or is there a little bit more leverage on fruit snacks, just given the capacity unlock that you guys are working through there.

Joseph D. Ennen: I know fruit snacks were 31%, but maybe I missed the beverage and broth growth rate. We said plus 19. Yeah, beverages and broths made 81% of total revenue and plus 19. Okay, great. In 2024, the midpoint for the sales guide is likely to be eight and a half. Should we think about that as being evenly split between beverages and broths and fruit snacks? Or is there a little bit more leverage on fruit snacks, just given the capacity unlock that you guys are working through there? Yeah, Jim, I think it's probably fair to say there might be a slightly accelerated growth rate on the fruit snack side versus the beverage and broth side.

Yes, Jim I think it's probably fair to say there might be a little accelerated growth rate on the fruit snack side versus the beverage abroad, but remember the size of the beverage abroad is so big that the absolute dollar amount may be similar.

Okay great.

And then maybe switching gears to the operation side or Brian I know, that's your area of expertise and excited to see what you can do with business here, but.

Especially on the Tetra pack side, you already inherited a very well functioning.

Joseph D. Ennen: But remember, the size of the beverage and broth is so big that the absolute dollar amount may be similar. Okay, great. And then maybe switching gears to the operations side. So Brian, I know that's your area of expertise and am excited to see what you can do with business here. But, you know, especially on the Tetra Pak side.

Supply chain and operations piece.

Can you just maybe walk through where you think there is opportunity for <unk>.

Ross the manufacturing base to really see.

Operating leverage that you can extract out of the business and hopefully see that flow through.

On the EBITDA line.

Yeah, Jim Thanks for the question I think.

You are right.

Brian W. Kocher: You already inherit a very well-functioning supply chain and operations piece. Can you just maybe walk through where you think there's opportunity across the manufacturing base to really see operating leverage that you can extract out of the business and hopefully, you know, see that flow through to the Pivotal line? Yeah, Jim, thanks for the question. I think, A, you are right.

We do have what we believe is a competitive advantage and our supply chain and our ability to fulfill customer demand. So.

I agree with you there.

Even with that I think if you look at the supply chain in total and what we do is essentially break it down into its component parts everywhere from from long term planning to procurement to inventory the conversion. The distribution there are points along that line that you find that maybe there's some leakage in any of their productivity.

Brian W. Kocher: We do have what we believe is a competitive advantage in our supply chain and our ability to fulfill customer demand. So I agree with you there. Even with that, I think if you look at the supply chain in total, and what we do is essentially break it down into its component parts everywhere from long-term planning, to procurement, to inventory, to conversion, to distribution, there are points along that line where you find that maybe there's some leakage in either productivity or opportunity. And we've spent a large part of last year implementing some shop floor metrics that allow us to track that. But most importantly, to track the operating metrics at each one of those, for lack of a better word, component parts of the supply chain, Pareto the defects, and then start working against fixes and opportunities to improve that. I would say, to answer your question sort of philosophically, we will never ever, ever be done trying to drive supply chain efficiency and supply chain excellence.

Our opportunity and.

We've spent a large part of last year implementing some shop floor metrics that allow us to track that but most importantly, it's attractive operating metrics in each one of those for lack of a better word component parts of the supply chain for radio the defects and then started working.

Against fixes and an opportunity to improve that I would say to answer your question sort of philosophically, we will never ever ever be done trying to drive supply chain efficiency and supply chain excellence and we're not done for two reasons. One there is an opportunity to if we can push.

More units through our fixed cost network, certainly we came and enhance margin and that's just straight math right. Jim That's easy I think the second part of that is the more units, we can get through our fixed cost.

Network, we create what I'd like to call non capex capacity and that allows us to fill customer demand. It allows us to manage our schedule. So we're producing at the most time effective time of the quarter the month of the year and so there's a lot of advantages to continue pushing on supply chain excellence.

Brian W. Kocher: And we're not done for two reasons. One, there's an opportunity if we can push more units to a fixed cost network, certainly, we can and enhance margin. And that's just straight math, right, Jim? That's easy.

And free up any amount of trapped capacity that we can in our in our network.

Okay. That's great and then maybe if I can sneak in one more question just thoughts around <unk>.

Brian W. Kocher: I think the second part of that is, the more units we can get through our fixed cost network, we create what I'd like to call non-capex capacity. And that allows us to fill customer demand; it allows us to manage our schedule. So we're producing at the most efficient time of the quarter of the month of the year. And so there are a lot of advantages to continuing pushing on supply chain excellence and freeing up any amount of trapped capacity that we can in our network. Okay, that's great.

Capex spend in 2024, obviously coming off a bit.

Big lift what's been load them and getting that up and running either like a dollar amount, we should think of or percentage of sales whatever is easier for you guys just thinking about that for 'twenty 'twenty four.

Yes, Jim.

Paired remarks, we gave an estimate at between 25 and $30 million for Capex in 2024, and we feel pretty good about that range.

Perfect.

James Ronald Salera: And then maybe if I can sneak in one more question, just thoughts around CapEx spend in 2024. Obviously, coming off a big lift with Penlothan and getting that up and running, either like a dollar amount we should think of or, you know, a percentage of sales, whatever's easier for you guys. Thank you for that for 2024. Yeah, Jim, in the prepared remarks, we gave an estimate between 25 and 30 million for CapEx in 2024. And we feel pretty good about that. Burwich.

I'll hop back in the queue.

Thanks, Jim.

Your next question comes from the line of John Baumgartner with Mizuho Securities. Your line is open.

Thanks, Good afternoon. Thanks for the question.

I wanted to come back first off I wanted to come back to operating leverage and specifically at the SG&A line.

The last nine months showed some pretty solid improvement there I'm curious as to how you were thinking about SG&A in 2024 as volume drives the top line. I mean is there is there any reason to expect a material uptick in SG&A spending or the incremental resources you need to add as you go forward just trying to understand how SGA evolves from here. Thank you.

James Ronald Salera: Thanks guys, I'll hop back in. Thanks, Jim. Your next question comes from the line of Jon Baumgartner with Mizzou Health Securities. Your line is open. Thanks. Good afternoon.

Hey, John Great question, Thanks for asking that.

Jon Baumgartner: I wanted to come back, first off, I wanted to come back to operating leverage and specifically SG&A. The last nine months showed some pretty solid improvement there. I'm curious as to how you think about SG&A in 2024 as volume drives the top line. I mean, is there any reason to expect a material uptick in SG&A spending? Are there incremental resources you need to add as you go forward?

I always look at 24 is pretty similar to our SG&A as a percentage of revenue as it was in 'twenty three.

In Q4, it was a little bit lower the percentage that was due to all of the change no change in leadership change.

The divestiture of the frozen fruit business and there was a bit of a reversal of stock based compensation in Q4, and you'll see that on the cash flow statement.

But going forward you know we were roughly 12, 3% SG&A as revenue.

As a percentage of revenue and I would view that to be pretty similar in 'twenty four.

Greg Gaba: Just trying to understand how SG&A evolves from here. Hey, Jon, great question. Thanks for asking that. 24 is pretty similar to our, you know, SG&A's percentage revenues. It wasn't 23.

Thanks for that and then coming back to the comments on the mid single digit all outlet growth for plant based beverages, obviously driven by away from home are you seen any sort of commonalities in terms of where the away from home channel has gained that acceleration are there certain sectors adopting plant base for the first time like the universities or <unk>.

Greg Gaba: In Q4, you know, it was a little bit lower the percentage. That was due to all of the change, you know, change in leadership change in the best interest of the frozen fruit business. And there was a bit of a reversal of stock-based compensation in Q4.

<unk> is it still largely coffee house driven.

I'm, just trying to figure out understanding better the Tam how the tannins evolving across the verticals and away from home.

Yeah, John It's Joe.

Greg Gaba: And you'll see that on the cash flow statement. But going forward, you know, we were roughly 12.3% SG&A as revenue as a percentage of revenue, and I would view that to be pretty similar in 24. Thanks for that. And then coming back to the comments on the mid-single-digit all-outlet growth for plant-based beverages, obviously driven by away-from-home. Are you seeing any sort of commonalities in terms of where the away-from-home channel is gaining that acceleration? Are there certain sectors adopting plant-based food for the first time, like universities or hospitality?

We're definitely seeing that driven by coffee shops.

What youre seeing is and this isn't a new trend we've seen for years and years the migration of consumers from Cowen area to plant based.

Additionally, you see coffeehouses, putting an increasing emphasis on the promotional drinks featuring plant based all one has to do is look at the menu Board and you will see a plethora of plant based special.

Specialty drinks and so between the consumer shift and then the coffee shops enthusiasm for promoting and pushing.

Joseph D. Ennen: Is it still largely coffeehouse driven? I'm just trying to figure out, understand better the TAM, how the TAM is evolving across the verticals in away-from-home. Yeah, Jon, it's Joe.

Specialty drinks you know it has been.

The same drivers for several years now and we would expect those to continue.

Great. Thanks, Jeff all the best.

Okay. Thanks, Sean.

Joseph D. Ennen: You know, we're definitely seeing that driven by coffee shops. What you're seeing is, and this isn't a new trend we've seen for years and years, the migration of consumers from cow dairy to plant-based. Additionally, you see coffee houses putting an increasing emphasis on promotional drinks featuring plant-based ingredients. All one has to do is look at the menu board, and you will see a plethora of plant-based specialty drinks.

Your next question comes from the line of Brian Holland with D. A Davidson your line is open.

Yeah. Thanks, good evening.

So I think this has been addressed in a few.

In a few different spots, but maybe just to tie it all together.

Sounds like on whole plant based beverage growth around mid single digits has been the trend here for a little while now stronger in foodservice, a little softer than what we can see in the tracked channels just want to make sure I understand.

Joseph D. Ennen: And so between the consumer shift and then the coffee shops' enthusiasm for promoting and pushing specialty drinks, you know, it has been the same drivers for several years now. And, you know, we would expect those to continue. Great. Thanks, Joe. All the best.

To the extent that this is possible to look at it this way what needs to be assumed for category growth that underpins your outlook are we.

Are we still sort of like on whole mid single digits is it a little bit softer than that a little bit stronger than that I. Just I just want to make sure I'm sort of centered there.

Jon Baumgartner: Thank you. Thanks, Sean. Your next question comes from the line of Brian Holland with D. A. Davidson. Your line is open. Yeah, thanks. Good evening.

Yes, Brian a really good question I think.

Brian Patrick Holland: So I think this has been addressed in a few places and in a few different spots, but maybe just to tie it all together. So it sounds like on hold plant-based beverage growth around mid single digits has been the trend here for a little while now, stronger in food service, a little softer in what we can see in the track channels. Just want to make sure I understand, to the extent that it is possible to look at it this way, what needs to be assumed for category growth that underpins your outlook? Are we still sort of like on hold in mid single digits? Is it a little bit softer than that, or a little bit stronger than that?

The way to think about this in terms of what underlies our outlook is remember we don't necessarily start off our outlook and forecast with a category growth number we start off with the growth forecast from our customers and so then that gives us obviously insight to where.

There the category as a whole is growing now.

That's that's sort of a insight into the process that we have but ultimately I would say the growth that we have with our customers.

Would translate to two a category that's growing in the mid single digit digits. So they happened to be a very aligned in this example.

Brian W. Kocher: I just wanna make sure I'm sort of centered. Yeah, Brian, a really good question. I, The way to think about this in terms of what underlies our outlook is to remember that we don't necessarily start off our outlook and forecast with a category growth number; we start off with the growth forecast from our customers. And so then that gives us, obviously, insight into where the category as a whole is growing. Now, that's sort of an insight into the process that we have. But ultimately, I would say, the growth that we have with our customers would translate to a category that's growing in the mid-single digits. So they happen to be very aligned in this example.

Oh, Okay, and if I just kind of follow up on that.

So maybe ask the question another way.

Because I think this was an issue a few quarters ago, where you know maybe some assumptions were made about the category the category softened.

And some plans changed any sense as you talk to your customers on hold that some of the slowdown in that category that we have seen.

Where we've seen it in tracked channels and the like.

They've gotten a little more conservative about those assumptions over the next 12 months relative to maybe the prior 12 months.

Yeah, I think that's absolutely true.

They've been a little bit more conservative in it and as we are we made I think we answered. This in one of the earlier questions. That's why also tracked channels returns to sort of growing.

Brian W. Kocher: Okay, and I just kind of followed up on that, so maybe ask the question another way. Because I think this was an issue a few quarters ago, where, you know, maybe some assumptions were made about the category, the category softened, and, you know, some plans changed. Any sense, as you talk to your customers on hold, that some of the slowdown in that category that we have seen, you know, where we've seen it in track channels and the like, that they've gotten a little more conservative about those assumptions over the next 12 months relative to maybe the prior 12 months? Yeah, I think that's absolutely true that they've been a little bit more conservative in that.

We believe that would be upside to our outlook for 2024.

So we base some of our overall forecast for 24 on the feedback directly from customers that they were being a little bit more conservative than the tracked channel arena.

I appreciate it that's very helpful. Last one for me, we've talked a lot about new business development, but I think one of the more underappreciated components of the growth story here over the last few years has been the innovation pipeline.

Which I think is sort of.

You know come to fruition in a number of forms.

Brian W. Kocher: And as we may have, I think we answered this in one of the earlier questions. That's why, also, if the track channel returns to sort of growing, we believe that would be upside to our outlook for 2024. So we based some of our overall forecasts for 24 on the feedback directly from customers that they were being a little bit more conservative in the track channel arena. [inaudible] It has come to fruition in a number of forms. Where does that stand today?

Where does that stand today.

You know I don't know to the extent you can actually talk about specific products I. Appreciate some things that maybe haven't been unveiled that you can't talk about but just understanding how actively we are managing the product innovation pipeline and to what extent is that proving to be a lever that you are using to either.

Gain more business from existing customers or help penetrate new customers.

Brian W. Kocher: You know, I don't know to the extent you can actually talk about specific products. I appreciate some things that maybe haven't been unveiled that you can't talk about. But, just understanding how actively we are managing the product innovation pipeline. And to what extent is that proving to be a lever that you are using to either

Yeah, Brian.

Great question, and let me just try to kind of simply talk about that a little bit. If you look at the growth that we had in Q4.

Basically almost $22 million worth of revenue growth from from Q4 'twenty to Q4 of 2003 that really was split almost equally between Tam expansion share growth with existing customers and the acquisition of new customers now some of the.

Brian W. Kocher: Gain more business from existing customers or help penetrate new ones. Yeah, Brian, it's a great question. And let me just try to kind of simply talk about that a little bit. If you look at the growth that we had in Q4, basically almost $22 million worth of revenue growth from Q4 of 22 to Q4 of 23. That really was split almost equally between TAM expansion, share growth with existing customers, and the acquisition of new customers. Now, some of the acquisition of new customers was also coinciding with new products and new product launches.

Some of the new customers, we're also coinciding with with new products and new product launches. So.

So it's a real key contributor to our growth platform as I mentioned earlier in the call.

We are at various every day, we're at various stages in the in the new product development and in sort of the new business development pipeline with customers and sometimes were at multiple stage are different stages in multiple projects with the same customer. So we will continue to try to make sure on our regular updates that.

That we update you on the progress, but what what I think you'll see is you'll see that product roll into the into the financials and that's the best way to see it work in the best way to see the impact that it's had on the on the organization.

Brian W. Kocher: So, as I see it, it's a real key contributor to our growth platform. As I mentioned earlier in the call, we are at various stages in new product development and in sort of the new business development pipeline with customers. And sometimes we're at multiple stages or different stages in multiple projects with the same customer.

Okay.

Yes.

Your next question comes from the line of Jon Andersen with William Blair. Your line is open.

Brian W. Kocher: So we'll continue to try to make sure in our regular updates that we update you on the progress. But what I think you'll see is you'll see that product roll into the financials. And that's the best way to see it work.

Hey, everybody.

Joe.

It's been fun to get to know you and best wishes as you go forward.

Let's see most of my questions have been asked I guess.

Brian W. Kocher: And the best way to see it is the impact that it's had on the organization. Your next question comes from the line of Jon Andersen with William Blair. Your line is open. Hey, everybody. Joe.

There was a reference in the prepared comments too.

It will be longer term EBITDA goal of $125 million.

Jon Robert Andersen: It's been fun to get to know you, and best wishes as you go forward. See, most of my questions have been asked, I guess. There was a reference in the prepared comments to the longer-term EBITDA goal of $125 million. I think it was kind of portrayed, you know, that you're comfortable achieving that you can achieve that by 25 or early 26.

And I think it is.

<unk> kind of portrayed.

You're comfortable with cheap debt you can achieve that by 'twenty five early 'twenty six.

Am I right to think that's a bit of a.

Pull forward from how you talked about that previously and where does that kind of incremental confidence coming from.

John Let me just make sure we clarified I would say, we're affirming that we can be at a $225 million annual run rate.

Brian W. Kocher: Am I right to think that's a bit of a pull forward from how you talked about that previously, and where is that kind of incremental confidence coming from? Jon, let me just make sure we clarify. I would say we're affirming that we can be at a $125 million annual run rate, at sort of the end of 25 and beginning of 26. Great, that's helpful.

And sort of the end of 'twenty five beginning of 'twenty six.

Great. That's helpful. Thank you.

That is what we what we said in the Q.

Q3 conference in the Investor conferences that we've been to date, so I think it's very consistent.

Okay.

Brian W. Kocher: And that is what we said at the Q3 conference and the investor conferences that we've been to date. So I think it's very consistent.

And then can you remind me.

<unk> three in Midlothian.

That mine is going to be producing and then.

I guess, if the protein shake line is going to be at run rate production levels by the end of the second quarter are there plans to add additional capacity.

Brian W. Kocher: Okay, and then can you remind me what Line 3 in Midlothian is going to be producing? And then if, I guess if the protein shake line is going to be at run rate production levels by the end of the second quarter, are there plans to add additional capacity on, you know, in terms of TAM expansion, just given how strong that category has been, as you referenced in the prepared comments as well? Sure. Yeah, line three, just specifically, line three is focused on plant-based milk.

In terms of Tam expansion, just given how.

Strong that that category, it's been as you referenced in the prepared comments as well.

Sure Yeah and line three just specifically line three is focused on plant based milks.

And I think our next best opportunity again, we will be at the run rate that we're on track to be at the run rate that we expect to be in Midlothian in sort of the middle of the year I do think there's further opportunity to drive productivity and unleash some trapped capacity right now so I would think.

Brian W. Kocher: And I think our next best opportunity, again, we will be at the run rate that we're on track to be at the run rate that we expect to be in Midlothian by sort of the middle of the year. I do think there's further opportunity to drive productivity and unleash some trapped capacity right now. So I would think the next step we should take is to continue to drive productivity and efficiency in those lines and create capacity in that manner. Okay, that makes sense. Maybe one for Greg.

The next step we do is continue to drive productivity and efficiency in those lines.

And create capacity in that manner.

Okay that makes sense.

Maybe one for Greg so.

Brian W. Kocher: So, you know, as you generate free cash. It's been a while since I think you've generated the kind of free cash that you're talking about in 2024. Unknown Speaker Could you talk about your plans for kind of just the cadence of debt paydown, you know, is that 35 to 45 million earmarked for debt paydown in 2024? What's your long-term, target leverage level, and with the refi that you did, how much of your debt is fixed versus variable right now?

Yeah.

As you generate free cash.

It's been a while since I think you've you've generated the kind of free cash that you are talking about in 2024.

Could you talk about your plans for kind of just the cadence of debt Paydown.

That $35 million to $45 million earmarked for debt Paydown in 2020 for what's your long term target leverage level.

And with the refi that you did.

How much of your debt is fixed versus variable right now thanks.

Greg Gaba: Alright, thanks, John. So I'll address the last one first. So roughly, our debt is 80% variable and 20% fixed.

Alright, Thanks, John So I'll address the last one first so roughly our debt is 80% variable 20% fixed.

Greg Gaba: So our first goal, right for our capital allocation priority is to deleverage, right? We want to get under three times leverage. So our primary goal is to pay down debt to accomplish that, Jon, by the end of the second half of the year. Other priorities, right, will either be stock buybacks, or the purchase of ROI, high ROI investments, or M&A acquisitions. So that hasn't changed.

So our first goal right for our capital allocation priority is to deleverage right. We want to get under three times leverage for our primary goal is to pay down debt to accomplish that we think will be there John body by the by the end of second half of the year.

Other priorities right well either be stock buyback will be.

Purchase of ROI, IRI investments or M&A acquisitions, so that hasn't changed we continue to focus on paying down debt, we continue to focus on deleveraging.

Greg Gaba: We continue to focus on paying down debt, we continue to focus on deleveraging, and we continue to focus on getting under three times, which is our long-term objective. Okay, great. Thanks very much. Thanks again. Your next question comes from the line of Daniel Biolsi with Hedgeye.

They need to focus on getting under three times, which is our long term goal.

Yeah.

Okay, great. Thanks very much.

Yeah.

Thanks, again and good luck.

Thanks, Joe.

Your next question comes from the line of Danielle <unk> with <unk>. Your line is open.

Jon Robert Andersen: Your line is open. I just wanted to extend my best wishes, Joe. And my question is, the mid single-digit growth in plant-based foods, would you be able to sort of, you know, bucket that between oat, almond, and soy? I'm just curious how that looks for the industry. You know, we don't really kind of bucket that and segment that.

I just wanted to extend my best wishes Joe and.

And my question is that the mid single digit growth in plant based would you be able to sort of Buck.

Bucket that between <unk>, and almond and soy I'm, just curious how that looks for the industry.

You know, we don't really kind of bucket that in the second segment that I think it's fair to say that the grow.

Joseph D. Ennen: I think it's fair to say that the growth rate that we're projecting includes all of the plant-based milks, whether it's oat, almond, soy, coconut, it's all plant-based. Okay, and then does Modesto still look to be online in Q2? And when would shipping start?

Growth rate that we're projecting includes all of the plant based.

Milks, whether it's oat almond soy coconut and it's all of the plant based milks.

And then does Modesto still look to be online in Q2, and when would shipping start and then should we expect growth in ingredients once that comes online in the second half of the year.

Joseph D. Ennen: And then should we expect growth in ingredients once that comes online in the second half of the year? Yes, Modesto is still on track. Yes, we believe that it will make a positive impact on the financials in the second quarter. Again, we will prioritize the internal use of OAT for our own products.

But yes, Modesto is still on track yes.

Yes, we believe that it will make a positive impact in our.

In the financials in the second quarter again, we will prioritize the internal use of vote for for our own products, but I would say you know maybe by the end of the year or the first part of 2025, you might see some ingredient sales, but our priority will be the internal use first.

Joseph D. Ennen: But I would say, you know, maybe by the end of the year, or the first part of 2025, you might see some ingredient sales, but our priority will be internal use first. Great, thanks. There are no further questions at this time. I will now turn the call over to Brian Kocher for closing remarks. Thank you, Operator. I'd just like to take a few minutes to summarize our key messages. If you only take away three items from this call, then the three items should be, first and foremost, we are a growing company in growing categories. In addition to the growth that's naturally coming our way via the growth of our blue chip customer base, we're growing via share gains in our existing customers, we're growing via new customer acquisition, and we continue to grow via TAM expansion. So that's one thing.

Great. Thanks.

There are no further questions at this time I will now turn the call over to Brian Cooper for closing remarks.

Thank you operator, I'd just like to take a few minutes to summarize our key messages. If you only take away three items from from this call than the three items should be <unk>.

First and foremost we are a growing company in growing categories. In addition to the growth that's naturally coming our way via the growth of our Blue chip customer base, we're growing via share gains in our existing customers were growing the new customer acquisition and we continue to grow via Tam expansion. So that's one thing.

Brian W. Kocher: Secondly, I just like to remind everyone, our early visibility into the results and trends in 2024 has allowed us to both affirm our 24 guidance, as well as that midterm guidance that we talked about. And so that's really important to remember. And then I think the other thing that's important is that my confidence in the demand side of the business is allowing us to prioritize our leadership efforts in the pursuit of operational excellence and operational excellence as a way to enhance margin and then create that non-CAPEX capacity to unlock capacity from our existing network. So remember those three as the summary items.

Lee I, just like to remind everyone. Our early visibility into the results and trends in 2024 have allowed us to both affirm our 24 guidance as well as that mid term guidance that we talked about and so that that's really important to remember and then I think the other thing that's important is my car.

<unk> in the demand side of the business.

This is allowing us to prioritize our leadership efforts in the pursuit of operational excellence and pursuing operational excellence as a way to enhance margin and then create that non capex capacity to unlock to unlock capacity from our existing network. So remember those three are the summary ita.

Brian W. Kocher: And then finally, I'd really like to thank you again, Joe, for your leadership. Your legacy will positively impact the culture and the business of Sunopta for many years to come. And so, thank you for your effort. With that, Operator, we can adjourn. Thank you to all who joined us, and we look forward to updating you throughout 2024. This concludes today's call. You may now disconnect.

And then finally I'd really like to thank you again, Joe for your leadership your legacy will positively impact the culture and the business of <unk> for many years to come and so thank you for your efforts with that operator, we can enjoying adjourned excuse me. Thank you to all who joined us.

And we look forward to updating you throughout 2024. Thank you.

This concludes today's call you may now disconnect.

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