Q2 2024 SunOpta Inc Earnings Call

August 7, 2024

Brian Kocher: And thirdly, we are also benefiting from our TAM expansion into protein shakes and other plant-based beverage innovations in food service. The target markets in which we participate are also large and growing. For 2024, we estimate the U.S. shelf-stable plant-based milk market will continue to grow in the mid-single digits in the aggregate across all channels tracked and untracked. Remember that much of our volume is derived from untracked segments, and we continue to see growth in food service and club channels.

Brian Kocher: Thirdly, we are also benefiting from our TAM expansion into protein shakes and other plant-based beverage innovations in food service. The target markets in which we participate are also large and growing. For 2024, we estimate the U.S. shelf-stable plant-based milk market will continue to grow in the mid-single digits in the aggregate across all channels tracked and untracked. Remember that much of our volume is derived from untracked segments, and we continue to see growth in food service and club channels.

And thirdly, we are also benefiting from our Tam expansion into protein shakes and other plant based beverage innovations in foodservice.

The addressable markets in which we participate are also large and growing for.

Speaker: For 2024, we estimate the U.S. shelf-stable plant-based milks market continues to grow in the mid-single digits in the aggregate across all channels tracked and untracked. Remember that much of our volume is derived from untracked segments, and we continue to see growth in food service and club channels. Protein shakes continues to be one of the fastest growing categories in CPG, with track channel volume up approximately 18% over the past 13 weeks. And over 60% of the performance nutrition category is comprised of the 330 ml format like we produce in Mid-Lothian, Texas. In fruit snacks, consumer and customer demand remain very strong.

For 2024, we estimate the U S shelf stable plant based milks market continues to grow in the mid single digits in the aggregate across all channels track to non tracked.

Remember that much of our volume is derived from untracked segments, and we continue to see growth in foodservice and club channels.

Brian Kocher: Protein shakes continue to be one of the fastest-growing categories in CPG, with tract channel volume up approximately 18% over the past 13 weeks, and over 60% of the performance nutrition category is comprised of the 330 ml format like we produce in Midlothian Text. In fruit snacks, consumer and customer demand remain very strong.

Protein shakes continues to be one of the fastest growing categories in CPG with track channel volume up approximately 18% over the past 13 week and over 60% of the performance nutrition category is comprised of the $3 30 ml format like we produce in mid <unk>.

In Texas.

In fruit snacks consumer and customer demand remained very strong.

Speaker: The better for you segment is the fastest growing subset within the fruit snacks category, up over 30% over the past 52 weeks. With our customers commanding well over 75% of the segment share.

Brian Kocher: The Better For You segment is the fastest growing subset within the fruit snacks category, up over 30% over the past 52 weeks, with our customers commanding well over 75% of the segment. As you can see, we have significant tailwinds supporting our revenue line. Let me transition to our operational performance. In addition to the revenue growth we guided in 2Q, we also committed to improving the effectiveness of our supply chain, which, as you know, has been a major area of focus for me and the organization over the past two quarters. As you've heard me describe many times, this is a journey of a thousand steps.

The better for you segment is the fastest growing subset within that fruit snacks category up over 30% over the past 52 weeks with our customers' commanding well over 75% of the segment share.

Speaker: As you can see, we have significant tailwinds supporting our revenue line.

As you can see we have significant tailwind supporting our revenue lines.

Brian Kocher: Let me transition to our operational performance. In addition to the revenue growth we guided in 2Q, we also committed to improving the effectiveness of our supply chain, which, as you know, has been a major area of focus for me and the organization over the past two quarters. As you've heard me describe many times, this is a journey of a thousand steps. We are making progress every day, and we always strive to be better. I am both pleased with our progress during the quarter and also energized by our prospects for substantial improvement in the future. From an output perspective, during the second quarter, we increased unit output in our aseptic facilities by over 24% versus the prior year, and output in our fruit snacks facilities increased by more than 33%.

Speaker Change: Let me transition to our operational performance.

In addition to the revenue growth we guided in <unk>.

We also committed to improving the effectiveness of our supply chain, which as you know has been a major area of focus for me and the organization over the past few quarters.

As you've heard me describe many times. This is a journey of a thousand steps.

Brian Kocher: We are making progress every day, and we always strive to be better. I am both pleased with our progress during the quarter and also energized by our prospects for substantial improvement in the future. From an output perspective, during the second quarter, we increased unit output in our aseptic facilities by over 24% versus the prior year, and output in our fruit snacks facilities increased by more than 33%. Importantly, these increases were driven by both greater efficiency from our established lines, as well as new capacity, if you exclude new capacity.

Brian Kocher: We are making progress every day, and we always strive to be better. I am both pleased with our progress during the quarter and also energized by our prospects for substantial improvement in the future. From an output perspective, during the second quarter, we increased unit output in our aseptic facilities by over 24% versus the prior year, and output in our fruit snacks facilities increased by more than 33%. Importantly, these increases were driven by both greater efficiency from our established lines as well as new capacity, if you exclude new capacity.

We are making progress every day and we always strive to be better.

I am both pleased with our progress during the quarter and also energized by our prospects for substantial improvement in the future.

From an output perspective during the second quarter, we increased unit output in our <unk> facilities by over 24% versus the prior year and output in our fruit snacks facilities increased by more than 33%.

Brian Kocher: Importantly, these increases were driven by both greater efficiency from our established lines as well as new capacity. If you exclude new capacity, we increase unit output of those assets by greater than 10% versus the year-ago quarter, which is the equivalent of adding roughly an entire manufacturing line to the network. Our team is making significant progress on creating capacity via operating improvements. Our extraction expansion in Modesto came online during the quarter, as many of you know, and we are both aggressively ramping volume as well as selling future capacity. In Mid-Lothian, we are progressing various efficiencies throughout the plan.

Importantly, these increases were driven by both greater efficiency from our established lines as well as new capacity.

If you exclude new capacity.

Brian Kocher: We increased unit output of those assets by greater than 10% versus the year-ago quarter, which is the equivalent of adding roughly an entire manufacturing line to the network. Our team is making significant progress on creating capacity via operating improvements. Our extraction expansion in Modesto came online during the quarter, as many of you know, and we are both aggressively ramping up volume as well as selling future capacity. In Midlothian, we are progressing various efficiencies throughout the plan.

We increased unit output of those assets by greater than 10% versus the year ago quarter.

Which is the equivalent of adding roughly an entire manufacturing line to the network.

Our team is making significant progress on creating capacity via operating improvements.

Our own extraction expansion in Modesto came online during the quarter as many of you know and we are both aggressively ramping volume as well as selling future capacity.

In Midlothian, we're progressing various efficiencies throughout the plan.

Brian Kocher: Our third line started producing commercially sellable product at the end of Q1-24, is ramping as anticipated and is expected to make a solid contribution to our second half-24 results. Output in Mid-Lothian is increasing, and we see opportunities to drive further improvement with targeted investments now to accelerate sustainable growth and margin achievement later this year and in the 20-25. 25. As I look at the progress we've made in our supply chain throughout the quarter, the increase in output was satisfying but ultimately uncovered and highlighted further areas for improvement and investment. As we continue identifying opportunities for operational efficiency, we are taking advantage of exceptional revenue growth to accelerate short-term investments, which in turn will accelerate sustainable process improvements.

Brian Kocher: Our third line started producing commercially sellable product at the end of Q1-24, is ramping as anticipated, and is expected to make a solid contribution to our second half of 24 results. Output in Midlothian is increasing, and we see opportunities to drive further improvement with targeted investments now to accelerate sustainable growth and margin achievement later this year and into 2025. As I look at the progress we've made in our supply chain throughout the quarter, the increase in output was satisfying, but ultimately, it uncovered and highlighted further areas for improvement and investment.

Our third line started producing commercially sellable product at the end of Q1 'twenty four is ramping as anticipated and is expected to make a solid contribution to our second half 'twenty for results.

Output in Midlothian is increasing and we see opportunities to drive further improvement with targeted investments now to accelerate sustainable growth and margin achievement later this year and into 2025.

As I look at the progress we've made in our supply chain throughout the quarter. The increase in output was satisfying, but ultimately uncovered and highlighted further areas for improvement and investment.

As we continue identifying opportunities for operational efficiency, we are taking advantage of exceptional revenue growth to accelerate short term investments, which in turn will accelerate sustainable process improvements.

Brian Kocher: Our supply chain initiatives are detailed by plant, by product line, and by hour of the day. Each of these projects is making progress, and the pace of the progress varies by project and location. In some lines and or functions, we may need to take a step back to take two steps forward. In two queue, we had the benefit of incremental growth, so we purposely invested to either shore up project plans or accelerate sustainable results. The quantum and magnitude of improvement plans we have in place across our network helped to fuel our 27% volume growth in queue two.

Our supply chain initiatives are detailed by plant by product line and by hour of the day.

Brian Kocher: Each of these projects is making progress, and the pace of the progress varies by project and location. In some lines and or functions, we may need to take a step back to take two steps forward. In 2Q, we had the benefit of incremental growth, so we purposely invested to either shore up project plans or accelerate sustainable results. The quantum and magnitude of improvement plans we have in place across our network help to fuel our 27 percent volume growth in Q2, and rarely are increases in output not simultaneously accompanied by some growth.

Brian Kocher: Each of these projects is making progress, and the pace of the progress varies by project and location. In some lines and or functions, we may need to take a step back to take two steps forward. In 2Q, we had the benefit of incremental growth, so we purposely invested to either shore up project plans or accelerate sustainable results. The quantum and magnitude of improvement plans we have in place across our network help to fuel our 27% volume growth in Q2, and rarely are increases in output not simultaneously accompanied by some growth.

Each of these projects are making progress and the pace of the progress varies by project and locations.

In some lines <unk> functions, we may need to take a step back to take two steps forward in <unk>, we had the benefit of incremental growth. So we purposely invested to either shore our project plans or accelerate sustainable results the quantum and magnitude of improvement plans, we have in place across.

Speaker Change: Our network helped to fuel our 27% volume growth in Q2.

Brian Kocher: Rarely, our increases in output are not simultaneously accompanied by some growing pain. In the quarter, we discovered areas for short-term investment, which will continue into the third quarter. However, we see significant opportunity for sustainable margin improvement commencing in queue four and carrying us through 2025.

Rarely are increases in output not simultaneously accompanied by some growing pain.

Brian Kocher: In the quarter, we discovered areas for short-term investment, which will continue into the third quarter. However, we see significant opportunity for sustainable margin improvement commencing in Q4 and carrying us through 2025. Once again, I'm proud of our quarterly results, and I continue to be excited about our long-term revenue and profit growth outlook. Our expectations for the future continue to be based on what we see, not on what we hope.

Speaker Change: In the quarter, we discovered areas for short term investment, which will continue into the third quarter.

However, we see significant opportunity for sustainable margin improvement commencing in Q4 and carrying us through 2025.

Brian Kocher: Once again, I'm proud of our quarterly results, and I continue to be excited about our long-term revenue and profit growth outlook. Our expectations for the future continue to be based on what we see, not on what we hope, and we are confident in raising our 2024 revenue outlook for the second time this year. Our priorities, actions, and initiatives to deliver against these expectations remain the same. First, grow volume through expanding our current customer relationships, acquiring new customers, and expanding our town. Our co-development in innovation network on behalf of our customers provides great excitement about the demand side of our business.

Once again I'm proud of our quarterly results and I continue to be excited about our long term revenue and profit growth outlook.

Our expectations for the future continue to be based on what we see not on what we hope and we are confident in raising our 2020 for revenue outlook for the second time this year.

Brian Kocher: And we are confident in raising our 2024 revenue outlook for the second time this year. Our priorities, actions, and initiatives to deliver against these expectations remain the same. First, grow volume through expanding our current customer relationships, acquiring new customers, and expanding our team. Our co-development and innovation network, on behalf of our customers, provides great excitement about the demand side of our business. Most importantly, it fills our capacity with products and categories that significantly over-index towards. Secondly, we want to drive operational improvements to both increase output and expand sustainable markets.

Our priorities actions and initiatives to deliver against these expectations remain the same.

First grow volume through expanding our current customer relationships acquiring new customers and expanding our Tam.

Speaker Change: Our co development innovation network on behalf of our customers provides great excitement about the demand side of our business. Most importantly, it fills our capacity with products and categories that significantly over indexed towards growth secondly.

Brian Kocher: Most importantly, it fills our capacity with products and categories that significantly over-index towards growth. Secondly, we want to drive operational improvements to both increase output and expand sustainable margins. We have multiple efficiency projects at each facility and are gaining momentum every day. We increased output by 27% in the second quarter, and our newest capacity is still ramping up in the second half. With the support of our short-term investments, we expect to see sustainable margin expansion starting in the fourth quarter through better fixed cost absorption as well as variable cost reduction. Lastly, we will maintain our discipline, financial reproach, and continue de-labourging to under three times the EBITDA or state of gold by the end of this year.

Speaker Change: Secondly, we want to drive operational improvements to both increase output and expand sustainable margins.

Brian Kocher: We have multiple efficiency projects at each facility and are gaining momentum every day. We increased output by 27% in the second quarter, and our newest capacity is still ramping up in the second. With the support of our short-term investments, we expect to see sustainable margin expansion starting in the fourth quarter through better fixed cost absorption as well as variable cost reduction. Lastly, we will maintain our disciplined financial approach and continue deleveraging to under three times EBITDA, our stated goal, by the end of this year.

We have multiple efficiency projects at each facility and are gaining momentum every day.

Speaker Change: We increased output by 27% in the second quarter and our newest capacity is still ramping up in the second half.

Speaker Change: With the support of our short term investments, we expect to see sustainable margin expansion, starting in the fourth quarter through better fixed cost absorption as well as variable cost reductions.

Speaker Change: Lastly, we will maintain our disciplined financial approach and continued deleveraging to under three times EBITDA. Our stated goal by the end of this year.

Brian Kocher: Every aspect of our business is closely linked, and through our discipline's relentless focus on operational execution, we continue delivering strong results. We are a growth company operating in growing categories with growing customers. As a private label and co-manufacturing solutions provider, we sell problems and create wins for our customers. As we create wins and solve problems for our customers, we grow share and revenue. We also grow share and revenue by improving operational efficiency. As we increase output through efficiency gains, we extend the capacity of our deployed investments and defer growth caps, which leads to higher returns on invested capital and drives incremental value for shareholders.

Brian Kocher: Every aspect of our business is closely linked, and through our disciplined, relentless focus on operational execution, we continue delivering strong results. We are a growth company operating in growing categories with growing customers. As a private label and co-manufacturing solutions provider, we solve problems and create wins for our customers. As we create wins and solve problems for our customers, we grow share and revenue. We also grow share and revenue by improving operational efficiency.

Speaker Change: Every aspect of our business is closely linked and through our disciplined relentless focus on operational execution, we continue delivering strong results.

Speaker Change: We're a growth company operating in growing categories with growing customers.

As a private label and co manufacturing solutions provider, we solve problems and create wins for our customers as we create wins and solve problems for our customers, we grow share and revenue.

Speaker Change: We also grow share and revenue by improving operational efficiency.

Brian Kocher: As we increase output through efficiency gains, we extend the capacity of our deployed investments and deferred growth capital, which leads to higher returns on invested capital and drives incremental value for shareholders. In summary, we delivered strong results in the first half and believe we are well positioned for the balance of 2024 and beyond. We are delivering top-line growth rates that are several times faster than peer averages and propelled by robust volume.

As we increase output through efficiency gains, we extend the capacity of our deployed investments and deferred growth Capex, which leads to higher returns on invested capital and drives incremental value for shareholders.

Brian Kocher: In summary, we delivered strong results in the first task and believed we were well positioned for the balance of 2024 and beyond. We are delivering top line growth rates that are several times faster than peer averages and propelled by robust volume gain. We are demonstrating the necessary operational resilience of business needs to service growth while simultaneously overcoming challenges and improving our operational efficiency. As a result, we are poised for higher sustainable margins and improving profitability as our supply chain initiatives gain traction and accelerate, all of which helps to drive free cash flow. Unconfident in the direction of our business and increase revenue outlook for 2024, along with our significant potential for driving growth, cash flow, and shareholder value over the longer term.

Brian Kocher: In summary, we delivered strong results in the first half and believe we are well-positioned for the balance of 2024 and beyond. We are delivering top-line growth rates that are several times faster than peer averages, propelled by robust volume. We're demonstrating the necessary operational resilience of business needs to service growth while simultaneously overcoming challenges and improving our operations. As a result, we are poised for higher sustainable margins and improved profitability as our supply chain initiatives gain traction and accelerate, all of which helps to drive free cash flow.

Speaker Change: In summary, we delivered strong results in the first half and believe we are well positioned for the balance of 2024 and beyond we are delivering topline growth rates that are several times faster than peer averages and propelled by robust volume gains.

Brian Kocher: We're demonstrating the necessary operational resilience of business needs and service growth while simultaneously overcoming challenges and improving our operations. As a result, we are poised for higher sustainable margins and improved profitability as our supply chain initiatives gain traction and accelerate, all of which helps to drive free cash flow. I'm confident in the direction of our business and increased revenue outlook for 2024, along with our significant potential for driving growth, cash flow, and shareholder value over the longer term. Now, I'll turn the call over to Greg to cover the second quarter and full year outlook in more detail.

We are demonstrating the necessary operational resilience of business needs to service growth, while simultaneously overcoming challenges and improving our operational efficiency. As a result, we are poised for a higher sustainable margins and improving profitability as our supply chain initiatives gain traction and accelerate.

All of which helps to drive free cash flow.

Brian Kocher: I'm confident in the direction of our business and increased revenue outlook for 2024, along with our significant potential for driving growth, cash flow, and shareholder value over the longer term. Now I'll turn the call over to Greg to cover the second quarter and full year outlook in more detail.

Speaker Change: I'm confident in the direction of our business and increased revenue outlook for 2024, along with our significant potential for driving growth cash flow and shareholder value over the longer term.

Greg Gaba: Now, I'll turn the call over to Greg to cover the second quarter and full year outlook in more detail.

Speaker Change: Now I'll turn the call over to Greg to cover the second quarter and full year outlook in more detail.

Greg Gaba: Thank you, Brian, and good afternoon, everyone. We had another strong quarter. Revenue of 171 million was up 21% compared to last year, driven by exceptional volume growth. As Brian highlighted, this growth was across the board. Gross profit increased 3.2 million or 17% to 21.8 million in the quarter and reported gross margin with 12.8%. Adjusted gross margin was 16.2% and reflects increased volume and better plant utilization, offset by short-term discretionary investments in future sustainable supply chain efficiencies, sub-manufacturing inefficiencies, and incremental depreciation for newly launched production assets. Operating income more than doubled to 2.6 million in the second quarter as profitable volume growth was partially offset by higher variable and incentive compensation.

Greg Gaba: Thank you, Brian, and good afternoon, everyone. We had another strong quarter. Revenue of $171 million was up 21% compared to last year, driven by exceptional volume growth. However, as Brian highlighted, this growth was across the board. Gross profit increased $3.2 million, or 17%, to $21.8 million in the quarter, and reported gross margin was 12.8%. Adjusted gross margin was 16.2% and reflects increased volume and better plant utilization. Offset by short-term discretionary investments in future sustainable supply chain efficiencies, some manufacturing inefficiencies, and incremental depreciation for newly launched production assets.

Greg Gaba: Thank you, Brian, and good afternoon, everyone. We had another strong quarter. Revenue of $171 million was up 21% compared to last year, driven by exceptional volume growth. However, as Brian highlighted, this growth was across the board. Gross profit increased $3.2 million, or 17%, to $21.8 million in the quarter, and reported gross margin was 12.8%. Adjusted gross margin was 16.2% and reflects increased volume and better plant utilization, offset by short-term discretionary investments in future sustainable supply chain efficiencies, some manufacturing inefficiencies, and incremental depreciation for newly launched production assets.

Greg: Thank you, Brian and good afternoon, everyone. We had another strong quarter.

Greg: Revenue of $171 million was up 21% compared to last year, driven by exceptional volume growth.

Greg: As Brian highlighted this growth was across the board.

Greg: Gross profit increased $3 2 million or 17% to $21 8 billion in the quarter and reported gross margin was 12, 8%.

Greg: Adjusted gross margin was 16, 2% and reflects increased volume and better plant utilization offset by short term discretionary investments and future sustainable supply chain efficiencies.

Manufacturing inefficiencies and incremental depreciation for newly launched production assets.

Greg Gaba: Operating income more than doubled to $2.6 million in the second quarter as profitable volume growth was partially offset by higher variable and incentive compensation. Loss from continuing operations was $3.8 million compared to a loss of $11.7 million in the prior year period. This improvement was driven by incremental operating income, in addition to reduced income tax expense. Suggested EBITDA from continuing operations increased 12% to $20.6 million compared to $18.4 million last year.

Speaker Change: Operating income more than doubled to $2 6 million in the second quarter as profitable volume growth was partially offset by higher variable and incentive compensation.

Greg Gaba: Loss from continuing operations was 3.8 million compared to a loss of 11.7 million in the prior year period. This improvement was driven by incremental operating income in addition to reduced income tax expense. Adjusted EBITDA from continuing operations increased 12% to 20.6 million compared to 18.4 million last year. Turning to the balance sheet, at the end of the second quarter, debt was 303 million. Remember, an increase in debt was expected in the quarter due to our OAT extraction capacity expansion in Modesto coming online. Net leverage was 3.5 times, and we fully expect to achieve our target of being under 3 times levered by the end of the year.

Speaker Change: Loss from continuing operations was $3 8 million compared to a loss of $11 7 million in the prior year period.

Greg: This improvement was driven by incremental operating income in addition to reduced income tax expense.

Greg: Adjusted EBITDA from continuing operations increased 12% to $20 6 million compared to $18 4 million last year.

Greg Gaba: Turning to the balance sheet, at the end of the second quarter, debt was $303 million. Remember, an increase in debt was expected in the quarter due to our oat extraction capacity expansion in Modesto coming online. Net leverage was 3.5 times, and we fully expect to achieve our target of being under three times levered by the end of the year. Year-to-date cash provided by operating activities of continuing operations was $2 million. In the year-to-date, cash used in investing activities of continuing operations was $13.9 million.

Turning to the balance sheet at the end of the second quarter debt was $303 million rich.

Speaker Change: Remember an increase and that was expected in the quarter due to our own extraction capacity expansion in Modesto coming online net leverage was three five times and we fully expect to achieve our target of being under three times levered by the end of the year.

Greg Gaba: Year-to-date cash provided by operating activities of continuing operations was $2 million. In year-to-date, cash used in investing activities of continuing operations was $13.9 million.

Speaker Change: Year to date cash provided by operating activities of continuing operations was $2 million.

Speaker Change: And year to date cash used in investing activities of continuing operations was $13 9 million.

Greg Gaba: Now, turning to our full-year outlook, we are raising our 2024 revenue outlook for the second time this year to reflect the strong performance in Q2 and higher growth expectations in the second half. We now expect revenue in the range of 710 to 730 million, which represents growth of 13% to 16%. From a profit perspective, with the short-term investments we are making in the supply chain, in the natural challenges that result when you are growing a business 3x the category run rate, we are maintaining our outlook for adjusted EBITDA of 88 to 92 million, which represents growth of 12% to 17%.

Operator: Now turning to our full-year outlook. We are raising our 2024 revenue outlook for the second time this year to reflect the strong performance in Q2 and higher growth expectations in the second half. We now expect revenue in the range of $710 to $730 million, which represents growth of 13% to 16%. From a profit perspective, with the short-term investments we are making in the supply chain and the natural challenges that result when you are growing a business 3x the category run rate, we are maintaining our outlook for adjusted EBITDA of $88 to $92 million, which represents growth of 12% to 17%.

Now turning to our full year outlook.

Speaker Change: We are raising our 2020 for revenue outlook for the second time this year to reflect the strong performance in Q2 and higher growth expectations in the second half.

Speaker Change: We now expect revenue in the range of $710 million to $730 million, which represents growth of 13% to 16%.

Speaker Change: From a profit perspective with the short term investments, we are making in the supply chain and the natural challenges that results. When you are growing a business three X. The category run rate, we are maintaining our outlook for adjusted EBITDA of $88 million to $92 million, which represents growth of 12% to 17 <unk>.

Greg Gaba: From a second half pacing standpoint, we expect a third quarter to look similar to the second quarter with slight improvement, and both revenue and adjusted EBITDA increasing in the fourth quarter. As Brian discussed, we are delivering exceptional top-line growth rates and are accelerating our investments in supply chain initiatives that are expected to deliver higher sustainable margins and improve profitability in the fourth quarter, provide great momentum entering 2025, and deliver significant shareholder value over the longer term.

Speaker Change: <unk>.

Operator: From a second half pacing standpoint, we expect the third quarter to look similar to the second quarter with slight improvement and both revenue and adjusted EBITDA to increase in the fourth quarter. As Brian discussed, we are delivering exceptional top-line growth rates and are accelerating our investments in supply chain initiatives that are expected to deliver higher sustainable margins and improve profitability in the fourth quarter, provide great momentum entering 2025, and deliver significant shareholder value over the longer term. 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.

Speaker Change: From a second half pacing standpoint, we expect the third quarter to look similar to the second quarter with slight improvement.

Speaker Change: And both revenue and adjusted EBITDA, increasing in the fourth quarter.

Speaker Change: As Brian discussed we are delivering exceptional top line growth rates and are accelerating our investments in supply chain initiatives that are expected to deliver higher sustainable margins and improved profitability in the fourth quarter provide great momentum entering 2025 and deliver significant shareholder value.

Speaker Change: Over the longer term.

Speaker: Before opening the call for questions, just a reminder that for competitive reasons, we do not provide detailed commentary regarding customer or skew level activity.

Speaker Change: 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.

Speaker: And with that, operator, please open the call for questions. Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. And if you would like to withdraw that question, again, press star one.

Speaker Change: And with that operator, please open the call for questions.

Operator: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. And if you would like to withdraw that question, again press star 1. And we ask that you please limit yourself to one question and one follow-up. Your first question comes from the line of Jon Andersen with William Blair. Please go ahead.

Speaker Change: Thank you we will now begin the question and answer session.

Speaker Change: I would like to ask a question. Please press star one on your telephone keypad to raise your hand and join the queue and if you would like to withdraw that question again press Star one and we ask that you. Please limit yourself to one question and one follow up your first question comes from the line of Jon Andersen with William Blair. Please go ahead.

Speaker: And we ask that you please limit yourself to one question and one follow-up.

John Andersen: Your first question comes from the line of John Anderson with William Blair. Please go ahead. Good afternoon, everybody. Thanks for the question.

Speaker Change: <unk>.

Jon Andersen: Good afternoon, everybody. Thanks for the question. Hi Jon, how are you? I'm good, thank you. Hope you are too.

Jon Andersen: Good afternoon, everybody. Thanks for the question.

Jon Andersen: Hey, good afternoon, everybody. Thanks for the question.

Brian Kocher: Hi Jon, how are you? I'm good, thanks.

John Andersen: John, how are you? I'm good. Thank you. Hope you are too.

Speaker Change: Hi, John how are you I.

Jon Andersen: I'm going to thank you. I hope you are too.

Jon Andersen: I'm good. Thank you hope you are too.

John Andersen: So the sales were, as you pointed out, very strong in the quarter and volume driven. I'm wondering if you could talk a little bit more about the upside. Presumably, you know the sales exceeded your own expectations. They clearly exceeded the street's expectations in the quarter. But I'd like to get a little better sense for, you know, was that more in the existing customer base? Was it a new additions ramping more quickly? Or was it kind of the tam part of the the growth story that drove that?

Jon Andersen: So the sales were, as you pointed out, very strong in the quarter and volume driven. I'm wondering if you could talk a little bit more about the upside. Presumably, you know, the sales exceeded your own expectations; they clearly exceeded the streets' expectations in the quarter. But I'd like to get a little better sense for, you know, was that more in the existing customer base? Was it was new additions ramping more quickly, or was it kind of the TAM part of the growth story that drove that?

Jon Andersen: So the sales were, as you pointed out, very strong in the quarter and volume driven. I'm wondering if you could talk a little bit more about the upside. I presumably, you know, the sales exceeded your own expectations; they clearly exceeded the streets' expectations in the quarter. But I'd like to get a little better sense for, you know, was it more in the existing customer base? Was it was new additions ramping more quickly, or was it kind of the TAM part of the growth story that drove that?

Speaker Change: So the sales were as you pointed out very strong in the quarter and volume driven.

Speaker Change: I'm wondering if you could talk a little bit more about the upside presumably the sales exceeded your own expectations. They clearly exceeded the street's expectations in the quarter, but.

Speaker Change: To get a little better sense for.

Speaker Change: Was that more in the.

Speaker Change: The existing customer base was was it new additions ramping more quickly or was it kind of the Tam part of the growth story that drove that.

Speaker: and thirdly, we are also benefiting from our TAM expansion into protein shakes and other plant-based beverage innovations in food service. The adjustable markets in which we participate are also large and growing. For 2024, we estimate the U.S, shelf-stable plant-based milks market continues to grow in the mid-single digits in the aggregate across all channels tracked and untracked. Remember that much of our volume is derived from untracked segments and we continue to see growth in food service and club channels.

Brian Kocher: John, thanks a lot for the question. I really appreciate it. I think we were we were really excited this quarter. By the fact that it was a little bit of everything. If we had some new product launches that came out and did well in the second quarter on behalf of our customers. Certainly, we saw growth in of our tam expansion initiatives with with either protein shakes and some of our plant based beverage initiatives. We also continued to see a category that, overall, when you include untracked channels, is growing. And I think one of the more important things is the brands that we support are winning.

Brian Kocher: Jon, thanks a lot for the question. I really appreciate it.

Speaker Change: John Thanks, a lot for the question and really appreciate it I think we were we were really excited this quarter by the fact that it was a little bit of everything if we had some new product launches that came out and did well in the second quarter on behalf of our customers.

Brian Kocher: I think we were really excited this quarter by the fact that it was a little bit of everything. If we had some new product launches that came out and did well in the second quarter on behalf of our customers, certainly we saw growth in our TAM expansion initiatives with either protein shakes or some of our plant-based beverage initiatives. We also continue to see a category that, overall, when you include untracked channels, is growing. And I think one of the more important things is...

Speaker Change: Certainly we saw growth in of our Tam expansion initiatives with either protein shakes in some of our plant based beverage initiatives. We also continue to see a category that that overall when you include untracked channels is growing.

Speaker Change: And I think one of the more important things is the.

Speaker: Protein shakes continues to be one of the fastest growing categories in CPG, with track channel volume up approximately 18% over the past 13 weeks. And over 60% of the performance nutrition category is comprised of the 330 ML format like we produce in Mid-Lothian Texas. In fruit snacks, consumer and customer demand remain very strong. The better for you segment is the fastest growing subset within the fruit snacks category, up over 30% over the past 52 weeks. With our customers commanding well over 75% of the segment share.

Brian Kocher: The brands that we support are winning. As a co-manufacturer and a private label provider, we are a solutions provider. We work with brands, and they are every day out there trying to grow their own brands. If you look at the brands we support... They are all performing better than the category as a whole. And so, as you think about all the areas we can grow, it was really across all of the areas that we provided strength. And we're very happy with the volume growth, in particular. That's always a great sign.

Brian Kocher: The brands that we support are winning. As a co-manufacturer and a private label provider, we are a solutions provider. We work with brands, and they are out there every day trying to grow their own brands. If you look at the brands we support, they are all performing better than the category at whole. And so, as you think about all the areas we can grow, it was really across all of the areas that we provided strength. And we're very happy with the volume growth, in particular. That's always a great sign.

Speaker Change: The brands that we support are winning.

Brian Kocher: as a co-manufacturer and a private label, provider, solutions provider, we work with brands and they are every day out there trying to grow their own brand. If you look at the brands we support, they are all performing better than the category as a whole. And so, as you think about all of the areas we can grow, it was really across all of the areas that we provided strength, and we were very happy with the volume growth in particular. That's always a great sign.

Speaker Change: As a co manufacturer and a private label provider solutions provider.

Speaker Change: We work with brands and they are everyday out there trying to grow their own brand.

Speaker Change: If you look at the brands we support.

Speaker Change: They are all performing better than the category as a whole and so as you as you think about all the areas. We can grow it was really across all of the areas that we provided strength and we were we're very happy with the volume growth in particular.

Speaker Change: That's always a great time.

Brian Kocher: Absolutely. So you have a large customer. I mean, many customers, but there is a large customer, and there's been some noise about around, you know, broadly traffic trends in food service establishments. I mean, what can you tell us about your business that makes it different? Because it sounds like that hasn't put any material pressure on your business to date, and you don't expect it to on a full year basis, obviously, as you lift your overall revenue outlook for the year.

Brian Kocher: Absolutely. So you have a large customer, I mean many customers, but there is a large customer, and there's been some noise about around, you know, broadly traffic trends in food service establishments. I mean, but what can you tell us about your business that makes it different? Because it sounds like that hasn't put any material pressure on your business to date, and you don't expect it to on a full year basis, obviously, as you lift your overall revenue outlook for the year.

John Andersen: Absolutely. So you have a large customer. I mean many customers, but there is a large customer, and there's been some noise around broadly traffic trends in food service establishments.

Speaker Change: Absolutely. So you have a large customer I mean, many customers, but there is a large customer and theres been some noise about around.

Speaker: As you can see, we have significant tailwinds supporting our revenue line.

Speaker Change: Broadly traffic trends in foodservice establishment.

Brian Kocher: What can you tell us about your business that makes it different? Because it sounds like that hasn't put any material or pressure on your business to date, and you don't expect it to on a full-year basis, obviously, as you lift your overall revenue outlook for the year. Well, I think there's a couple of things to remember with respect to our customer base. We have diversity of channels. So we've got food service channel, we have club channel, we have retail support in both private label and co manufacturing. So there's a lot of diversity there. Again, I think if you think about the growth, it was broad-based.

Speaker Change: What can you tell us about your business that makes it different because it sounds like that hasnt.

Speaker Change: Put any material pressure on your business to date and you don't expect it to on a full year basis, obviously as you lift your overall revenue outlook for the year.

Brian Kocher: Well, I think there are a couple of things to remember with respect to our customer base. We have diversity of channels. So we've got the food service channel, we have the club channel, we have retail support in both private label and co-manufacturing. So there's a lot of diversity there. Again, I think if you think about the growth.

Brian Kocher: Well, I think there are a couple things to remember with respect to our customer base. We have diversity of channels. So we've got the food service channel, we have the club channel, we have retail support in both private label and co-manufacturing. So there's a lot of diversity there.

Speaker Change: Well I think Theres, a couple of things to remember with respect to our customer base, we have diversity of channels. So we've got <unk>.

Brian Kocher: I am both pleased with our progress during the quarter and also energized by our prospects for substantial improvement in the future. From an output perspective, during the second quarter, we increased unit output in our aseptic facilities by over 24% versus the prior year and output in our fruit snacks facilities increased by more than 33%. Importantly, these increases were driven by both greater efficiency from our established lines as well as new capacity.

Speaker Change: Foodservice channel, we have club channel, we have a retail support in both private label and co manufacturing so theres a lot of diversity there.

Brian Kocher: Again, I think if you think about the growth, it was broad-based. Our top three customers grew double digits. Our food service customers in the aggregate grew double digits. Our top five customers grew 23%. Now that comes with some where the category is growing, some where TAM expansion is happening, some where innovation and development are happening. I think we talked a little bit about that last quarter. The opportunity that we have to work with our customers on either innovation or co-development really gives us a unique position to potentially participate in limited-time offers, in menu items, in things of that nature. And those often grow at an index that is different than the overall revenue stream of some of the channels or some of the categories. And that's probably the best way to describe it.

Speaker Change: Again, I think if you think about the growth.

Brian Kocher: It was broad-based; our top three customers grew double digits, our food service customers in the aggregate grew double digits, our top five customers grew 23%. Now that comes with some areas where the category is growing, some where TAM expansion is happening, some where innovation and development are happening. I think we talked a little bit about this last quarter. The opportunity that we have to work with our customers on either innovation or co-development really gives us a unique position to potentially participate in limited-time offers, menu items, things of that nature. And those often grow at an index that is different than the overall revenue stream of some of the channels or some of the categories. And that's probably the best way to describe it.

Speaker Change: It was broad based our top three customers grew double digits, our foodservice customers in aggregate grew double digits. Our top five customers grew 23% now that comes with.

Brian Kocher: Our top three customers grew double digits. Our food service customers and the aggregate grew double digits. Our top five customers grew 23%. Now that comes with somewhere, the category is growing; somewhere, TAM expansion is happening; somewhere, innovation and development is happening. I think we talked a little bit about this last quarter. The opportunity that we have to work with our customers on either innovation or code development really gives us a unique position to potentially participate in limited time offers, in menu items, in things of that nature. Those often grow at an index that is different than the overall revenue stream of some of the channels or some of the categories.

Brian Kocher: If you exclude new capacity, we increase unit output of those assets by greater than 10% versus the year ago quarter, which is the equivalent of adding roughly an entire manufacturing line to the network. Our team is making significant progress on creating capacity via operating improvements. Our extraction expansion in Modesto came online during the quarter, as many of you know, and we are both aggressively ramping volume as well as selling future capacity.

Speaker Change: Some where the category is growing some.

Speaker Change: Some were Tam.

Speaker Change: Tam expansion is happening somewhere innovation and development development is happening I think we talked a little bit about this last quarter.

Speaker Change: The opportunity that we have to work with our customers on either innovation or co development really gives us a unique position to potentially participate in limited time offers in menu items and things of that nature and those are.

Brian Kocher: In Mid-Lothian, we are progressing various efficiencies throughout the plan. Our third line started producing commercially sellable product at the end of Q1-24 is ramping as anticipated and is expected to make a solid contribution to our second half-24 results. Output in Mid-Lothian is increasing, and we see opportunities to drive further improvement with targeted investments now to accelerate sustainable growth and margin achievement later this year and in the 20-25. 25. As I look at the progress we've made in our supply chain throughout the quarter, the increase in output was satisfying, but ultimately uncovered and highlighted further areas for improvement and investment.

Speaker Change: Often grow at an index that is different than the overall revenue stream of of some of the channels are some of the categories and thats, probably the best way to describe it.

John Andersen: That's probably the best way to describe it. It makes sense. I'm going to squeeze. I know I'll get a lot of questions. So volumes are extremely strong. You're ramping production of the Lothian. The fruits next business is on fire and volumes are strong there. Yet we saw some margin, some margin growth, margin degradation year over year.

Jon Andersen: make sense. I'm going to squeeze a third one in if I can. You know, I know I'll get a lot of questions. So the volumes were extremely strong. You're ramping up production in Midlothian because the fruit snacks business is on fire, and volumes are strong there. And yet, you know, we saw kind of margin, some margin, gross margin degradation year over year. Could you just explain a little bit more, you know, talk a little bit more about some of these short-term investments that you're making?

Jon Andersen: makes sense. I'm going to squeeze a third one in if I can. You know, I know I'll get a lot of questions. So the volumes were extremely strong. You're ramping up production in Midlothian because the fruit snacks business is on fire, and volumes are strong there. And yet, you know, we saw kind of margin, some margin, gross margin degradation year over year. Could you just explain a little bit more, you know, talk a little bit more about some of these short-term investments that you're making?

Speaker Change: It makes sense I'm going to squeeze a third one if I can.

Speaker Change: <unk>.

Speaker Change: I will get a lot of questions. So volumes were extremely strong youre ramping production at Midlothian.

Speaker Change: The fruit snacks business is on fire and volumes are strong there.

Speaker Change: We saw kind of margin some margin gross margin degradation year over year.

Brian Kocher: Could you just explain a little bit more, talk a little bit more about some of these short-term investments that you're making, maybe some of the inefficiencies that you surfaced and how to get us confident that that inflection that you're kind of pointing to in the fourth quarter is your visibility is really good in terms of delivering on that. Thank you. No problem, John. Look, I love the question. A couple of things to think about. Let's talk about it in terms of gross margin and the outlook for gross margin. First of all, there is all good news in this story.

Speaker Change: Could you just explain a little bit more talk a little bit more about some of these short term investments that youre, making maybe some of the inefficiencies that you surfaced in and how to get us confident that that inflection that you are kind of pointing to in the fourth quarter.

Jon Andersen: Maybe some of the inefficiencies that you surfaced and how to make us confident that that inflection that you're kind of pointing to in the fourth quarter is your visibility really good in terms of delivering on that. Thank you.

Brian Kocher: As we continue identifying opportunities for operational efficiency, we are taking advantage of exceptional revenue growth to accelerate short-term investments, which in turn will accelerate sustainable process improvements. Our supply chain initiatives are detailed by product line and by hour of the day. Each of these projects are making progress and the pace of the progress varies by project and location. In some lines and or functions, we may need to take a step back to take two steps forward.

Speaker Change: Is your visibility is really good in terms of delivering on that.

Brian Kocher: No problem, Jon. Look, I love the question. A couple of things to think about. Let's talk about them in terms of gross margin and the outlook for gross margin. First of all, there is all good news in this story. Our gross margin story starts with volume. We posted a quarter with big volume growth, and when that big volume growth came in, our network supplied it. I mean, that's one very positive thing that happened here.

Brian Kocher: No problem, Jon. Look, I love the question. A couple of things to think about. Let's talk about them in terms of gross margin and the outlook for gross margin. First of all, there is all good news in this story. Our gross margin story starts with volume. We posted a quarter with big volume growth; big volume growth came in, and our network supplied it. I mean, that's one very positive thing that happened here.

John: No problem John look Lovely question couple of things to think about let's talk about it in terms of gross margin and the outlook for gross margin first of all there is all good news in this story.

Brian Kocher: Our gross margin story starts with volume. We posted a quarter with big volume growth, and when that big volume growth came in. Our network supplied it. I mean, that's one very positive thing that happened in here. We took share, and you take share when it's available, not when it's convenient. So the first bit of good news that's in that margin story I would tell you is that we had to produce the volume to deliver the volume growth, and we did it. In fact, on some of our existing assets, let's exclude Midlothian and some of the newer capacity.

Speaker Change: Our gross margin story starts with volume, we posted a quarter with big volume growth.

Speaker Change: And when that big.

Brian Kocher: In 2Q, we had the benefit of incremental growth, so we purposely invested to either shore up project plans or accelerate sustainable results. The quantum and magnitude of improvement plans we have in place across our network helped to fuel our 27% volume growth in Q2. Rarely are increases in output, not simultaneously accompanied by some growing pain. In the quarter, we discovered areas for short-term investment, which will continue into the third quarter. However, we see significant opportunity for sustainable margin improvement, commencing in Q4 and carrying us through 2025.

Speaker Change: Volume growth came in our network supplied it.

Speaker Change: That's one very positive thing that happened in here.

Brian Kocher: We took share, and you take share when it's available, not when it's convenient. So the first bit of good news that's in that margin story, I would tell you, is that we had to produce the volume to deliver the volume growth, and we did it. In fact, on some of our existing assets, let's exclude Midlothian and some of the newer capacity we've put in place. On our existing assets, we increased output enough to be the equivalent of a full manufacturing line, essentially out of sweat equity and ingenuity. So we were really excited about that.

Brian Kocher: We took share, and you take share when it's available, not when it's convenient. So the first bit of good news that's in that margin story, I would tell you is that we had to produce the volume to deliver the volume growth, and we did it. In fact, on some of our existing assets, let's exclude Midlothian and some of the newer capacity we put in place, on our existing assets, we increased output enough to be the equivalent of a full manufacturing plant, essentially out of sweat equity and ingenuity, a full manufacturing line. So we were really excited about that.

Speaker Change: We took share and you take share when it's available not when it's convenient.

Brian Kocher: The second bit of good news, and I'm going to call this good news, is volume growth like this routinely and expectedly tests your supply chain. And when you grow as fast as we grow and you take some share when it's available as opposed to convenient, you certainly identify opportunities in your supply chain where you could be more efficient. The good news is we're identifying that now as opposed to two quarters from now or three quarters from now. So we're investing in areas, to just give you some specificity, we're investing in areas around downline efficiencies. Why is that important?

Speaker Change: So the first bit of good news.

Speaker Change: That margin story I would tell you is that we.

Speaker Change: We had to produce the volume to deliver the volume growth and we did it in fact, one on some of our existing assets, let's exclude midlothian in some of the newer capacity, we put in place in our existing.

Brian Kocher: We put in place in our existing assets. We increased output enough to be the equivalent of a full manufacturing line, essentially out of sweat equity and ingenuity: a full manufacturing line. So we were really excited about that. The second bit of good news, and I'm going to call this good news, is volume growth. Like this routinely and expectedly test your supply chain, and when you grow as fast as we're growing and you take some share when it's available as opposed to convenient, you certainly identify opportunities in your supply chain where you could be more efficient.

Speaker Change: Assets, we increased output enough to be the equivalent of a full manufacturing line.

Speaker Change: Essentially out of sweat equity and ingenuity of full manufacturing lines. So we were really excited about that.

Brian Kocher: Once again, I'm proud of our quarterly results and I continue to be excited about our long-term revenue and profit growth outlook. Our expectations for the future continue to be based on what we see, not on what we hope, and we are confident in raising our 2024 revenue outlook for the second time this year. Our priorities actions and initiatives to deliver against these expectations remain the same. First, grow volume through expanding our current customer relationships, acquiring new customers and expanding our town.

Speaker Change: The second bit of good news and I'm going to call. This good news is volume growth like this routinely and expectedly.

Speaker Change: Test your supply chain.

Speaker Change: And when you grow as fast as we're growing and you take some share when it's available as opposed to convenient you certainly identify opportunities in your supply chain, where you could be more efficient.

Brian Kocher: But good news is we're identifying that now in supposed two quarters from now or three quarters from now. So we're investing in areas to just give you some specificity. We're investing in areas around downline efficiencies. Why is that important? Because if we can pack out more, we can run systems more fluidly and continuously. We're investing in equipment maintenance up time. We're investing in these short-term areas in labor and labor management. We're investing in our procurement and inventory management processes to see all these to make this flow together from beginning to end of the supply chain.

Speaker Change: The good news is we're identifying that now as opposed to two quarters from now or three quarters from now so we're investing in areas to just give you. Some specificity we are investing in areas around down line efficiencies why is that important because if we can pack out more we can run systems more fluidly and continue.

Brian Kocher: Our co-development in innovation network on behalf of our customers provides great excitement about the demand side of our business. Most importantly, it fills our capacity with products and categories that significantly overindex towards growth. Secondly, we want to drive operational improvements to both increase output and expand sustainable margins. We have multiple efficiency projects at each facility and are gaining momentum every day. We increased output by 27% in the second quarter and our newest capacity is still ramping up in the second half.

Brian Kocher: Because if we can pack out more, we can run systems more fluidly and continuously. We're investing in equipment maintenance uptime. We're investing in these short-term areas in labor and labor management. We're investing in our procurement and inventory management processes to see all the ways to make this flow together from beginning to end of the supply chain. Again, I think the good news for us is this.

Speaker Change: We're investing in.

Speaker Change: <unk>.

Speaker Change: Equipment maintenance uptime, we're investing in the short term areas in <unk>.

Speaker Change: Labor and Labor management, we are investing in our procurement and inventory management processes to see all of these.

Speaker Change: Make this low together from beginning to end of the supply chain again, I think the good news for us is.

Brian Kocher: Again, I think the good news for us is we've got the volume and we've got the output. Remember, we can never make efficient the volume that we don't take. So we took the volume. We've got opportunities to make it in investments. Think of these investments as temporary investments in labor, potentially submit search resources to help us on efficiency initiatives, maybe a small investment here or there in terms of shop for metric systems and reporting and escalation systems. So we're really confident a that we can produce the volume. B, as we produce the volume, we can get better at it and just a few data points.

Brian Kocher: With the support of our short-term investments, we expect to see sustainable margin expansion starting in the fourth quarter through better fixed cost absorption, as well as variable cost reduction. Lastly, we will maintain our disciplined financial reproach and continue delivering to under three times the event done, our state of goal by the end of this year. Every aspect of our business is closely linked, and through our discipline, relentless focus on operational execution, we continue delivering stronger.

Brian Kocher: We've got the volume, and we've got the output. But remember, we can never make efficient the volume that we don't take. So, we took the volume; we've got opportunities to make it in investments. Think of these investments as temporary investments in labor, potentially some surge resources to help us with efficiency initiatives, maybe a small investment here or there in terms of shop for metric systems and reporting and escalation systems. So, we're really confident, A, that we can produce the volume.

Brian Kocher: We've got the volume, and we've got the output. But remember, we can never make efficient the volume that we don't take. So we took the volume. We've got opportunities to make it in investments. Think of these investments as temporary investments in labor, potentially submitting surge resources to help us on efficiency initiatives, maybe a small investment here or there in terms of shop floor metric systems and reporting and escalation systems. So we're really confident, A, that we can produce the volume, and B, as we produce the volume, we can get better at it.

Speaker Change: <unk> got the volume and we've got the output remember, we can never make efficient the volume that we don't take.

Speaker Change: So we took the volume we've got opportunities to make it in.

Speaker Change: Investments think of these investments is temporary investments in labor potentially submit surge resources to help us on efficiency initiatives, maybe a small investment here or there in terms of of shop floor metric systems and reporting an escalation systems. So we're really confident that we can produce.

Brian Kocher: B, as we produce the volume, we can get better at it. And just a few data points, if I look at overall cost per unit produced and overall labor unit produced, those were better than the second quarter of 23. Now, we had some other areas that suffered some challenges, but I'm excited about what we're doing in the supply chain and our opportunities to grow.

Brian Kocher: We are a growth company operating in growing categories with growing customers. As a private label and co-manufacturing solutions provider, we sell problems and create wins for our customers. As we create wins and solve problems for our customers, we grow share and revenue. We also grow share and revenue by improving operational efficiency. As we increase output through efficiency gains, we extend the capacity of our deployed investments and defer growth caps, which leads to higher returns on invested capital and drives incremental value for shareholders.

Speaker Change: The volume B as we produce the volume we can get better at it and just a few data points. If I look at overall cost per unit produced and overall labor unit produced those were better than the second quarter of 2003 now we had some other areas that suffered some challenges but.

Brian Kocher: And just a few data points, if I look at overall cost per unit produced and overall labor unit produced, those were better than the second quarter of 23. Now, we had some other areas that suffered some challenges, but I'm excited about what we're doing in the supply chain and our opportunities to grow.

Brian Kocher: If I look at overall cost per unit produced and overall labor unit produced, those were better than the second quarter of 23. Now we had some other areas that suffered some challenges, but I'm excited about what we're doing in the supply chain and our opportunities to grow. Thanks a lot for.

Speaker Change: I am excited about what we're doing in the supply chain and our opportunities to grow.

Speaker Change: Thanks, a lot.

Jim Solera: Your next question comes from the line of Jim Solera with Stevens. Please go ahead. Yes. Good afternoon. Thanks for taking our questions. Right.

Operator: Your next question comes from the line of Jim Salera with Stevens. Please go ahead.

Jim <unk>: Your next question comes from the line of Jim <unk> with Stephens. Please go ahead.

Jim Salera: Yes, good afternoon. Thanks for taking our questions. Brian, I really wanted to drill down on the kind of sustainability of what seems to be pretty meaningful gains in kind of share among your customers. Because I can appreciate, you know, the untracked channels and the food service channels represent a much larger piece of the business, especially for your customers and maybe some other categories. But your outperformance relative to what is visible in the tracked channels continues to be very stark.

Jim <unk>: Yes. Good afternoon, thanks for taking my questions.

Speaker: In summary, we delivered strong results in the first task and believed we were well positioned for the balance of 2024 and beyond. We are delivering top line growth rates that are several times faster than peer averages and propelled by robust volume gain. We are demonstrating the necessary operational resilience of business needs to service growth while simultaneously overcoming challenges and improving our operational efficiency. As a result, we are poised for higher sustainable margins and improving profitability as our supply chain initiatives gain traction and accelerate, all of which helps to drive free cash flow. Unconfident in the direction of our business and increase revenue outlook for 2024, along with our significant potential for driving growth, cash flow and shareholder value over the longer term.

Jim Solera: I really wanted to drill down on the kind of sustainability of what seems to be pretty meaningful gains in kind of the share among your, your customers because I can appreciate, you know, the interact channels and the food service channels represent a much larger piece of business, especially for your customers and maybe some other categories. But you're out performance relative to what is visible in the track channels; it continues to be very stark. And so should we expect to see some of the strength in these on track channels eventually filter into track channels, or is it just that the way that the end market structure, you know, investors really shouldn't worry about track channels.

Jim <unk>: I really wanted to drill down on.

Jim <unk>: Kind of sustainability of wood.

Jim <unk>: Season pretty meaningful gains in share.

Speaker Change: Sure among your customers because I.

Speaker Change: I can appreciate the <unk>.

Speaker Change: On tracked channels in the foodservice channels represent a much larger piece of the business, especially for your customers, but maybe some other categories.

Jim Salera: And so should we expect to see some of the strength in these untracked channels eventually filter into track channels? Or is it just that, the way that the end market structure, you know, investors really shouldn't worry about track channels, and it's really all about kind of growth that's unseen, so to speak?

Speaker Change: Your outperformance relative to what is visible in the track channels continues to be very stark.

Speaker Change: So should we expect to see some of the strength in these untracked channels eventually filter into tracked channels or is it just that the way. This is the end market structure investors really shouldnt worry about tracked channels and this is really all about kind of the growth fits that unseen so to speak.

Jim Solera: And this is really all about kind of the growth that's that unseen.

Brian Kocher: James Salera. Okay, a couple of themes in their gym, and let me try to break those apart. First of all, I think it's important to remember that, from our perspective, track channels is less than a fifth of the market that we serve. So, of course, we pay attention to it, but when you look at food service, when you look at clubs, that's the opportunity, and another untracked channel, that's the opportunity that we really address, and certainly is more meaningful to us. So, that is one thing. On the track channel side, we actually are starting to see a little bit of turn, or let's call it a deceleration of the softness in shelf stable.

Brian Kocher: Okay, there are a couple of themes here, Jim, and let me try to break those apart. First of all, I think it's important to remember from our perspective that Track Channels is less than a fifth of the market that we serve. So, of course, we pay attention to it, but when you look at food service, when you look at club, that's the opportunity, and on track channels, that's the opportunity that we really address and, certainly, is more meaningful to us.

Greg Gaba: Now, I'll turn the call over to Greg to cover the second quarter and full year outlook in more detail. Thank you, Brian, and good afternoon everyone. We had another strong quarter. Revenue of 171 million was up 21% compared to last year driven by exceptional volume growth. As Brian highlighted, this growth was across the board. Gross profit increased 3.2 million or 17% to 21.8 million in the quarter and reported gross margin with 12.8%.

Speaker Change: Okay, a couple of themes in there Jim and let me try to break those apart first of all I think it's important to remember from our perspective.

Speaker Change: Track channels is less than a fifth of the market that we serve.

Speaker Change: So of course, we pay attention to it but when you look at foodservice. When you look at club that's the opportunity in other untracked channels. That's the opportunity that we really address and certainly it's more meaningful to us. So that is one thing.

Brian Kocher: So that is one thing. On the track channel side, we actually are starting to see a little bit of a turn, or let's call it a deceleration of the softness in shelf stable. So, you know, we're starting to see some of that, but I will get back to our philosophy on guidance and expectation setting.

Speaker Change: On the track channel side, we actually are starting to see a little bit of of turn or let's call. It a deceleration of the softness in shelf stable. So we're starting to see some of that but I will get back to our.

Greg Gaba: Adjusted gross margin was 16.2% and reflects increased volume and better plant utilization, offset by short-term discretionary investments in future sustainable supply chain efficiencies, sub-manufacturing inefficiencies, and incremental depreciation for newly launched production assets. Operating income more than doubled to 2.6 million in the second quarter as profitable volume growth was partially offset by higher variable and incentive compensation. Loss from continuing operations was 3.8 million compared to a loss of 11.7 million in the prior year period.

Brian Kocher: So, you know, we're starting to see some of that, but I will get back to our, let's call it philosophy on guidance and expectation setting. We communicate what we see, where we understand and work with our customers every week, every month on their innovation efforts. I think innovation is also an area that the investment community can't see in track channels because it happens in food service and in clubs. So, there's another area, which it might be a very positive divergence from the track channel data that's publicly available. All of those things go in and factor into the performance.

Brian Kocher: But I will get back to our... Let's call it philosophy on guidance and expectation setting. We communicate what we see, where we understand, and work with our customers every week, every month on their innovation efforts. I think innovation is also an area that the investment community can't see in track channels because it happens in food service and in clubs. So there's another area where there might be a very positive divergence from the track channel data that's publicly available.

Speaker Change: Let's call it philosophy on guidance and expectation setting.

Brian Kocher: We communicate what we see, where we understand, and work with our customers every week, every month on their innovation efforts. I think innovation is also an area that the investment community can't see in track channels because it happens in food service and in clubs. So there's another area where this might be a very positive divergence from the track channel data that's publicly available. All of those things go in and factor into the performance. So I would never say. You know, it's inconsequential, but our world is absolutely more heavily weighted to solving opportunities and challenges for our customers and growing share that way.

Speaker Change: We we communicate what we see.

Speaker Change: We're we understand and work with our customers every week every month on their innovation efforts I think innovation is also an area that the investment community can't see in tracked channels because it happens in in foodservice and in clubs. So there is another area with which it might be a very.

Greg Gaba: This improvement was driven by incremental operating income in addition to reduced income tax expense. Adjusted EBITDA from continuing operations increased 12% to 20.6 million compared to 18.4 million last year. Turning to the balance sheet, at the end of the second quarter, debt was 303 million. Remember, an increase in debt was expected in the quarter due to our OAT extraction capacity expansion in Modesto coming online. Net leverage was 3.5 times and we fully expect to achieve our target of being under 3 times levered by the end of Year. Year to date, cash provided by operating activities of continuing operations was 2 million. In year to date, cash used in investing activities of continuing operations was 13.9 million.

Speaker Change: <unk> divergence from from the tracked channel data that's publicly available all of those things go in and factor into the performance.

Brian Kocher: All of those things go in and factor into the performance. So I would never say it's inconsequential, but our world is absolutely more heavily weighted to solving problems, opportunities, and challenges for our customers and growing share that way.

Brian Kocher: So, I would never say, you know, it's inconsequential, but our world is absolutely more heavily weighted to solving opportunities and challenges for our customer and growing share of that way.

Speaker Change: Performance, So I would never say.

Speaker Change: <unk>.

Speaker Change: Its inconsequential, but our world is absolutely more heavily weighted to solving.

Speaker Change: Opportunities and challenges for our customer and growing share that way.

Jim Salera: Okay, both volumes. And then, yeah, that's helpful. On the food service side, in particular, I guess I'm obviously positively surprised by the strength you guys continue to see there, given the overall kind of consumer softness that we see in food service. And so I wonder if you could just give us some color on what's driving your subsegment in food service that it sees such a higher degree of success relative to the kind of broader slowdown that we see in food service.

Jim Solera: Okay, both volumes. And then, yeah, that that's all.

Jim Salera: Okay, both volumes. And then, yeah, that's helpful. On the food service side, in particular, I guess I'm obviously positively surprised by the strength you guys continue to see there, given the overall kind of consumer softness that we see in food service. And so, I wonder if you could just give us some color on what's driving your sub-segment in food service that it sees such a higher degree of success relative to the kind of broader slowdown that we see in food service.

Speaker Change: Okay, both volume and <unk> and then.

Speaker Change: Yeah, that's visible.

Jim Solera: On the food service side, in particular, I guess I'm obviously positively surprised by the strength you guys continue to see there, given the overall kind of consumer softness that we see in food service. And so, I wonder if you could just give us some color on which driving your sub-segment in food service that it sees such a higher degree of success relative to kind of the broader slowdown of the fedity and food service. Now, two things that I would say really contribute to that. Remember, we're wired in tight with our customers, our top 15 customers.

Speaker Change: On the foodservice side in particular I guess.

Speaker Change: Obviously positively surprised by the strength you guys continue to see there given the overall kind of consumer softness that we see in food service and so I Wonder if you could just give us some color on whats driving your sub segment in foodservice that it seems such a higher degree of success.

Greg Gaba: Now, turning to our full year outlooks. We are raising our 2024 revenue outlook for the second time this year to reflect the strong performance in Q2 and higher growth expectations in the second half. We now expect revenue in the range of 710 to 730 million, which represents growth of 13% to 16%. From a profit perspective, with the short term investments we are making in the supply chain in the nostril challenges that results when you are growing a business 3x the category, we are maintaining our outlook for adjusted EBITDA of 88 to 92 million, which represents growth of 12% to 17%.

Speaker Change: Relative to kind of the broader slowdown in let's say that we see in foodservice.

Brian Kocher: Now, two things that I would say really contribute to that. Remember, we're wired in tight with our customers, our top 15 customers. We're in their supply planning meetings. We're talking to their innovation team. And that happens on a weekly and a monthly basis.

Brian Kocher: Now, two things that I would say really contribute to that. Remember, we're wired in tight with our customers, our top 15 customers. We're in their supply planning meetings, we're talking to their innovation team, and that's happening on a weekly and a monthly basis. So there are two things that I would say think about that.

Speaker Change: Now two things that I would say really contributed to that.

Speaker Change: Remember, we're wired in tight with our customers our top 15 customers were in their supply planning meetings, we are talking to their innovation team and that's happening on a weekly and a monthly basis. So there is two things that I would say think about that one.

Brian Kocher: We're in their supply planning meetings. We're talking to their innovation team, and that's happening on a weekly and monthly basis. So, there's two things that I would say think about that. One, just as I mentioned with track channels, the brands that we support are outperforming the overall category. Think of the menu items that you see in food service and where plant-based or the products that we support are either over-indexed or ingredients in promotional items, limited time offers, real volume growth, or focus points for our customers. You can see that. And so, it can be true that our products grow at potentially a faster pace than the rest of the product portfolio, or our over-indexed versus the rest of the product portfolio of some of our food service customers.

Brian Kocher: So there are two things that I would say to think about that. One, just as I mentioned with tracking channels, the brands that we support are outperforming the overall category. Think of the menu items that you see in food service and where plant-based or the products that we support are either over-indexed or ingredients in promotional items, limited time offers, real..., focus points for our customers. You can see that. And so it can be true that our products grow at potentially a faster pace than the rest of the product portfolio or are over-indexed versus the rest of the product portfolio of some of our food service customers. That can be true. The other thing is that we innovate. So we have several new product launches that we co-developed and launched with our customers, and that are also showing up in the food service channel.

Jim Salera: Okay, great. I appreciate all the color. I'll hop back in the queue.

Operator: Thank you. Your next question comes from the line of Brian Holland with DA Davidson. Please go ahead.

Brian Kocher: Just as I mentioned with track channels, the brands that we support are outperforming the overall category. Think of the menu items that you see in food service where plant-based or the products that we support are either over-indexed or ingredients in promotional items, limited time offers, real... Volume Growth, or... focus points for our customers, you can see that. And so it can be true that our products grow at potentially a faster pace than the rest of the product portfolio or are over-indexed compared to the rest of the product portfolio of some of our food service customers. The other thing is, remember, we innovate. So we have several new product launches that we co-developed and launched with our customers, and that is also showing up in the food service channel.

Speaker Change: Just as I mentioned with tracked channels the brands that we support are outperforming the overall category.

Speaker Change: Think of the menu items that you see in foodservice.

Speaker Change: And where plant based store the products that we support are either over indexed or or ingredients in promotional items limited time offers.

Greg Gaba: From a second half pacing standpoint, we expect the third quarter to look similar to the second quarter with slight improvement and both revenue and adjusted EBITDA increasing in the fourth quarter. As Brian discussed, we are delivering exceptional top line growth rates and are accelerating our investments in supply chain initiatives that are expected to deliver higher sustainable margins and improve profitability in the fourth quarter, provide great momentum entering 2025 and delivers significant shareholder value over the longer term.

Speaker Change: Real.

Speaker Change: Volume growth or focus points for our customers you can see that and so it can be true that our our products grow at potentially a faster pace than than the rest of the product portfolio or are over indexed versus the rest of the product portfolio of some of our foodservice customers that can be true.

Brian Kocher: That can be true. The other thing is remember, we innovate. So, we have several new product launches that we co-developed and launched with our customers and that is also showing up in the food service.

Speaker Change: The other thing is remember we innovate so we have several new product launches that that we co developed and launched with our customers and that is also showing up in the foodservice channel.

Speaker: Before opening the call for questions, just a reminder that for competitive reasons, we do not provide detailed commentary regarding customer or skill level activity.

Speaker: And with that operator, please open the call for questions. Thank you.

Jim Salera: Okay, great. I appreciate all the color. I'll hop back in. Thank you.

Speaker Change: Okay, Great I appreciate all the color I'll hop back in queue.

Jim Solera: I appreciate all the color. I'll hop back into you. Thank you.

Speaker Change: Sure.

Operator: Thank you. Your next question comes from the line of Brian Holland with DA Davidson. Please go ahead.

Speaker: We will now begin the question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. And if you would like to withdraw that question, again, press star 1. And we ask that you please limit yourself to one question in one follow-up.

Speaker Change: Thank you.

Brian Holland: Your next question comes from the line of Brian Holland with DA Davidson. Please go ahead. Yeah, thanks. Good afternoon. So I just wanted to ask about some of the supply chain of investments. Maybe in the context of, you know, kind of rolling this forward. If I've got it right, I know there's a lot of moving parts with the divestitures and portfolio reshaping, but you know, last I have it is kind of like a 20% gross margin target. You can correct me kind of long term. You can correct me if I'm wrong there. But I guess what I maybe another way of asking this supply chain question would be is what you're discovering that it's more expensive to get to that 20% gross margin or with the volume that's coming through your network are these investments may be intended to ultimately drive up to side to that target.

Speaker Change: Your next question comes from the line of Brian Holland with D. A Davidson. Please go ahead.

Brian Holland: Yeah, thanks. Good afternoon.

Operator: So, I just wanted to ask about some of the supply chain of investments. Maybe in the context of, you know, kind of rolling this forward, if I've got it right, and I know there are a lot of moving parts with the divestitures and portfolio reshaping, but, you know, last I have it, it's kind of like a 20% gross margin target, you can correct me, kind of long-term. You can correct me if I'm wrong there.

Brian Holland: Yes, thanks, good afternoon.

Brian Holland: So I just wanted to ask about some of the supply chain investments.

Brian Holland: So, I just wanted to ask about some of the supply chain investments. Maybe in the context of, you know, kind of rolling this forward, if I've got it right, and I know there's a lot of moving parts with the divestitures and portfolio reshaping, but, you know, last I have it, it's kind of like a 20% gross margin target, you can correct me, kind of long-term. You can correct me if I'm wrong here.

Speaker Change: And maybe in the context of kind of rolling this forward.

John Andersen: Your first question comes from the line of John Anderson with William Blair. Please go ahead. Take it afternoon, everybody. Thanks for the question. John, how are you? I'm good. Thank you. Hope you are too. So the sales were, as you pointed out, very strong in the quarter and volume driven. I'm wondering if you could talk a little bit more about the upside. I presumably, you know, the sales exceeded your own expectations.

Speaker Change: I've got it right and I know Theres, a lot of moving parts with the divestitures and portfolio reshaping, but lastly, I haven't kind of like a 20% gross margin target you can correct me kind of long term you can correct me, if I'm wrong, there, but I.

Brian Holland: But I guess what I would have asked this supply chain question would have been, what are you discovering that it's more expensive to get to that 20% gross margin, or with the volume that's coming through your network, are these investments maybe intended to ultimately drive upside to that target? If it would be possible to address it in that way, that would be, you know, great to hear.

Operator: But I guess what I would have asked this supply chain question would have been, what are you discovering that it's more expensive to get to that 20% gross margin, or with the volume that's coming through your network, are these investments maybe intended to ultimately drive upside to that target? If it would be possible to address it in that way, that would be, you know, great to hear.

Speaker Change: I guess, maybe another way of asking the supply chain question would be is what youre discovering that it's more expensive to get to that 20% gross margin or with the volume that's coming through your network are these investments may be intended to ultimately drive upside.

John Andersen: They clearly exceeded the streets expectations in the quarter. But I'd like to get a little better sense for, you know, was that more in the existing customer base? Was it was it new additions, ramping more quickly? Or was it kind of the tam part of the, the growth story that drove that?

Bobby: To that target if it would be possible to address it in that way that Bobby.

Brian Holland: If it would be possible to address it in that way, that would be, you know, great to hear.

Bobby: Great to hear.

Brian Kocher: Yeah, Brian, I absolutely would not characterize them as simply costing more. Think of it this way; we're growing faster than we had outlined previously. I mean, heck, this is the second quarter in a row that we're raising guidance. So we're growing faster. When you grow faster, you also test your supply chain a little bit, and we're identifying some of these areas that we would have identified in the next quarter, or the following quarter, or three quarters from now. We're identifying them sooner.

Brian Kocher: Yeah, Brian, I absolutely would not characterize them as simply costing more. Think of it this way; we're growing faster than we had outlined previously. I mean, heck, this is the second quarter in a row that we're raising guidance, so we're growing faster. When you grow faster, you also test your supply chain a little bit, and we're identifying some of these areas that we would have identified in the next quarter, or the following quarter, or three quarters from now. We're identifying them sooner, so we're addressing them sooner, which has the opportunity, we believe, to kind of accelerate the growth of the supply chain.

Brian Kocher: Yeah, Brian, I absolutely would not characterize them as simply costing more. Think of it this way: we're growing faster than we had outlined previously. I mean, heck, this is the second quarter in a row that we're raising guidance. So we're growing faster. When you grow faster, you also test your supply chain a little bit. And we're identifying some of these areas that we would have identified in the next quarter or the following quarter or three quarters from now; we're identifying them sooner. So we're addressing them sooner, which has an opportunity we believe to kind of accelerate our margin enhancement.

Bobby: Yes, Brian absolutely would not characterize them as simply costing more.

Speaker Change: <unk> of it this way we are growing faster.

Speaker: John, thanks a lot for the question. Really appreciate it. I think we were, we were really excited this quarter. By the fact that it was a little bit of everything. If we had some new product launches that came out and did well in the second quarter on behalf of our customers. Certainly, we saw growth in our tam expansion initiatives with either protein shakes and some of our plant-based beverage initiatives. We also continued to see a category that overall and when you include untrack channels is growing.

Speaker Change: Then than we had outlined previously I mean heck. This is the second quarter in a row that we are raising guidance. So we're growing faster when you grow faster you also test your supply chain, a little bit and we are identifying some of these areas that we would have identified.

Brian Holland: In the next quarter or the following quarter or three quarters from now we're identifying them sooner. So we are addressing them sooner which has.

Brian Kocher: So we're addressing them sooner, which has the opportunity, we believe, to kind of accelerate our margin enhancement. We make some short-term investments, and then we drive to that 20% long-term target for mid-term margin. I think Greg and I have both been very public in saying the 20% margin was derived from the last time our network was full. If we look at the next time our network will be full, or close to full, and think about that margin, that 20% is achievable. However, with some of the investments we make, I think we would be— We really want to hold ourselves and push ourselves to get something north of 20%, but that would be the upside, I think, right.

Speaker Change: The opportunity, we believe to kind of accelerate our margin enhancement, we make some short term investments and then we drive to that 20% long term target for midterm target for margin I think Greg and I have both been been very public in saying the 20% margin.

Brian Kocher: We believe in kind of accelerating our margin enhancement. We make some short-term investments, and then we drive to that 20% long-term target for, and mid-term target for margin. I think Greg and I have both been very public in saying the 20% margin was derived from the last time our network was full. If we look at the next time our network will be full, or close to full, and think about that margin, that 20% is achievable. However, with some of the investments we make, I think we would be. We really want to hold ourselves and push ourselves to get something north of 20%, but that would be the upside, I think.

Brian Kocher: We make some short term investments, and then we drive to that 20% long term target for mid term target for margin. I think Greg and I have both been very public in saying the 20% margin was derived from the last time our network was full. If we look at our the next time our network will be full and or close to full and thinking about that margin, that 20% is achievable. However, with some of the investments we make, I think we would be. We really want to hold ourselves and push ourselves to get something north of 20%.

Speaker: And I think one of the more important things is the brands that we support are winning. As a co-manufacturer and a private label provider, solutions provider, we work with brands and they are every day out there trying to grow their own brand. If you look at the brands we support, they are all performing better than the category at whole. And so, as you think about all the areas we can grow, it was really across all of the areas that we provided strengths and we were very happy with the volume growth in particular.

Greg: It was derived from the last time, our network was full.

Brian Holland: understood. That's a great color.

Greg: If we look at our next time, our network will be full in or close to full and thinking about that margin in that 20% is achievable. However, with some of the investments we make.

Speaker Change: I think we would be.

Greg: We really want to hold ourselves and push ourselves to get something north of 20%, but that would be upside I think right now.

Brian Kocher: But that would be upside, I think, right now.

Speaker: That's always a great sign. Absolutely. So you have a large customer. I mean, many customers, but there is a large customer and there's been some noise about around, you know, broadly traffic trends in food service. I mean, what can you tell us about your business that makes it different? Because it sounds like that hasn't, you know, put any material or pressure on your business today and you don't expect it to on a full year basis obviously as you lift your overall revenue outlook for the year.

Brian Holland: Understand, that's great color. And then the other question, if we think in Mid-Lothian about the opportunity for expansion, I think what like lines for out to potentially eight as it was outlined 18 or so months ago, I suspect we're getting close to for not already at the point where we need to decide what. But those lines are going to be allocated for dedicated to, so curious if you can provide any assessment there because certainly we talked a lot about the plant-based beverage and shelf-stable category. But obviously, as well now you have the 330 milliliter capability, and you obviously have discussed what we're seeing on the protein shake category.

Brian Holland: understood. That's a great color.

Brian Holland: And then the other question, if we think, you know, in Midlothian about the opportunity for expansion, I think lines 4 out to, you know, potentially 8, as it was outlined 18 or so months ago, I suspect we're getting close if we're not already at the point where we need to decide what those lines are going to be allocated for or dedicated to. So I'm curious if you can provide any assessment there because certainly we've talked a lot about the plant-based beverage and shelf-stable category, but obviously, as well, now you have the 330 milliliter capability, and you obviously have discussed what we're seeing in the protein category. So maybe we can get a sense of how that capacity or that infrastructure gets filled out at a category level as we look out over the next, I don't know, 12, 24 months.

Speaker Change: Understood Thats great color.

Speaker Change: And then the other.

Speaker Change: Other question.

Speaker Change: If we think.

Speaker Change: Midlothian about.

Brian Holland: And then the other question, if we think, you know, in Midlothian about the opportunity for expansion, I think lines 4 out to, you know, potentially 8, as it was outlined 18 or so months ago, I suspect we're getting close if we're not already at the point where we need to decide what those lines are going to be allocated for or dedicated to. So I'm curious if you can provide any assessment there because certainly we've talked a lot about the plant-based beverage and shelf-stable category, but obviously, as well, now you have the 330 milliliter capability, and you obviously have discussed what we're seeing in the protein shake category. So maybe we can get a sense of how that capacity or that infrastructure gets filled out at a category level as we look out over the next, I don't know, 12, 24 months.

Speaker Change: The opportunity for expansion I think like lines for alto potentially eight as it was outlined 18 or so months ago.

Speaker Change: Sure.

Speaker Change: I suspect, we're getting closer already at the point, where we need to decide what those lines are going to be allocated for dedicated to so curious if you can provide any assessment there because certainly we've talked a lot about the plant based beverage and shelf stable category, but obviously as.

Speaker: Well, I think there's a couple things to remember with respect to our customer base. We have diversity of channels. So we've got food service channel. We have club channel. We have retail support in both private label and co manufacturing. So there's a lot of diversity there. Again, I think if you think about the growth. It was broad based our top three customers grew double digits. Our food service customers in the aggregate grew double digits are top five customers grew 23%.

Speaker Change: Well now you have the 330 milliliter capability and you obviously have discussed.

Speaker Change: What we're seeing on the protein shake category. So just maybe a sense of how that.

Brian Kocher: So just maybe a sense of how that capacity or that infrastructure gets filled out at a category level as we look out over the next, I don't know, 12, 24 months.

Speaker Change: Pasadena or that infrastructure gets filled out at a category level as we look out over the next I don't know 12 24 months.

Brian Kocher: Yes, sir, Brian. Great question. So, as you recall, we just had our third line at Midlothian come online in Q2, right? So there is quite a bit of run rate at Midlothian for future growth. We've said before, and we still believe by the end of 2025 or early '26, when we see our network to be full. But our first priority continues to be to de-leverage, right? So our goal is to be under three times leveraged. We fully expect to be there by the end of this year, and that will be our focus here in the short term.

Brian Kocher: Yes, sure, Brian. Great question.

Speaker Change: Yeah sure Brian Great question so.

Brian Kocher: So As you recall, we just had our third line at Midlothian come online in Q2, right? So there is quite a bit of run rate at Midlothian for future growth. We've said before, and we still believe by the end of 2025, early in 26, and when we see our network to be full, but our first priority continues to be to deleverage, right? So our goal is to be under three times leveraged. We fully expect to be there by the end of this year. And that will be our focus here in the short term.

Brian Kocher: So As you recall, we just had our third line at Midlothian come online in Q2, right? So there is quite a bit of run rate at Midlothian for future growth. We've said before, and we still believe by the end of 2025, early in 26, is when we see our network to be full. But our first priority continues to be to deleverage, right? So our goal is to be under three times leveraged. We fully expect to be there by the end of this year. And that will be our focus here in the short term.

Speaker Change: As you recall, we just had our third line in Midlothian and come online in Q2, right. So there is quite a bit of run rates at Midlothian for future growth, We've said before and we still believe by the end of 2025 early 'twenty six and when we see our network to be full but our first priority continues to be to deleverage right. So our goal is to be under three times levered.

Speaker: Now that comes with some where the category is growing somewhere. Tam expansion is happening somewhere innovation and development is happening. I think we talked a little bit about this last quarter. The the opportunity that we have to work with our customers on either innovation or code development. Really gives us a unique position to potentially participate in limited time offers in menu items and things of that nature and and those often grow at an index that is different than the overall revenue stream of of some of the channels or some of the categories.

Speaker Change: We fully expect to be there by the end of this year and that will be our focus here in the short term.

Speaker: Fair enough.

Speaker Change: Okay fair enough.

Andrew Strelzik: Your next question.

Brian Kocher: your next question. Hey Brian, just one other item.

Brian Kocher: Hey, Brian, just one other item. I don't want to gloss over the fact that by increasing output, you create non-CAPEX capacity. Effectively, we created out of thin air the equivalent of an additional manufacturing line. Now, that was spread out through our network, but you get the idea. You understand the analogy. There is tremendous opportunity for us to continue improving efficiency and output and creating non-CAPEX capital. And that's where our focus is for the short-term.

Brian Kocher: Hey, Brian, just one other item. I don't want to gloss over the fact that by increasing output, you create non-capacity. Effectively, we created Avathin Air, the equivalent of an additional manufacturing line. Now, that was spread out through our network, but you get the feeling you understand the analogy. There is tremendous opportunity for us to continue improving efficiency and output and creating non-capacity capital. And that's where our focus is on the short term.

Speaker Change: Hey, Brian just one other item I don't want to gloss over the fact that by increasing output you create non capex capacity.

Brian Kocher: I don't want to gloss over the fact that by increasing output, you create non-CAPEX capacity. Effectively, we created out of thin air the equivalent of an additional manufacturing line. Now, that was spread out through our network, but you get the feeling. You understand the analogy. There is tremendous opportunity for us to continue improving efficiency and output and creating non-CAPEX capital. And that's where our focus is in the short-term.

Speaker Change: Affectively, we created out of thin air.

Speaker Change: The equivalent of a and additional manufacturing line that was spread out through our network, but but you get the feeling you understand the analogy there is tremendous opportunity for us to continue improving efficiency and output and creating non capex capital and Thats, where our focus is on the short term.

Speaker: And that's probably the best way to describe it. Make sense. I'm going to squeeze a third one in if I can't. You know, I know I'll get a lot of questions. So volumes were extremely strong. You're ramping production of the Lothian. The fruit snacks business is on fire and and volumes are strong there.

Speaker: And yet, you know, we saw kind of margin some margin growth margin degradation year over year. Could you just explain a little bit more, you know, talk a little bit more about some of these short term investments that you're making. Maybe some of the inefficiencies that you surfaced and and how to get us confidence that that inflection that you're kind of pulling to in the fourth quarter is your visibility is is really good in terms of delivering on that.

Andrew Strelzik: Your next question comes from the line of Andrew Stralsic with the BMO Capital Markets. Please go ahead. Hey, good afternoon. Thanks for taking the questions. My first one, and I want to, I guess, revisit the answer to a prior question. I'm trying to think about the implications of faster revenue growth, and you're talking about accelerating the margin improvements, and what that means for the EBITDA you've pointed to, kind of, run rate exiting 25 into 26. Is the timeline, should we think about the timeline around that changing it all, given those dynamics, or is the net with the investments that the timeline stays the same?

Operator: Your next question comes from the line of Andrew Strelzik with BMO Capital Markets. Please go ahead.

Andrew <unk>: Your next question comes from the line of Andrew <unk> with BMO capital markets. Please go ahead.

Andrew Strelzik: Hey, good afternoon. Thanks for taking the questions. My first one, and I want to, I guess, revisit the answer to a prior question, I'm trying to think about the implications of faster revenue growth, and you're talking about accelerating the margin improvements, and what that means for the EBITDA you've pointed to, kind of run rate exiting, 25 and you know into 26. Is the timeline, should we think about the timeline around that changing at all given those dynamics, or is the net I guess it feels like it's pulling forward, but I guess I was just a little unclear based on that.

Andrew Strelzik: Hey, good afternoon. Thanks for taking the questions. My first one, and I want to, I guess, revisit the answer to a previous question.

Andrew: Hey, good afternoon, thanks for taking the questions.

Andrew: My first one I wanted to I guess revisit.

Speaker Change: The answer to a prior question I'm trying to think about.

Andrew Strelzik: I'm trying to think about the implications of faster revenue growth, and you're talking about accelerating the margin improvements, and what that means for the EBITDA you've pointed to, kind of run rate exiting. 25 and, you know, into 26. Is the timeline, should we think about the timeline around that changing at all given those dynamics, or is the net with the investments that the timeline stays the same? I guess it feels like it's pulling forward, but I guess I was just a little unclear based on that.

Andrew: The implications of faster revenue growth and you are talking about accelerating the margin improvements and what that means for the the EBITDA you pointed to kind of run rate exiting 'twenty.

Speaker: Thank you. No problem, John, look, I'd love the question. A couple of things to think about. Let's talk about it in terms of of gross margin and now look for gross margin. First of all, there is all good news in this story. Our gross margin story starts with volume. We posted a quarter with big volume growth and when that. Big volume growth came in. Our network supplied it. I mean, that's one very positive thing that happened in here.

Speaker Change: <unk> 25 to 26 is the timelines should we think about the timeline around that changing at all given those dynamics or is the net.

Budd: With the investments that the timeline stays the same I guess it feels like it's pulling forward Budd, but I guess I was just a little unclear based on the answer.

Andrew Strelzik: I guess it feels like it's pulling forward, but I guess I was just a little unclear based on the answer.

Brian Kocher: Yeah, Andrew, I'll be blatantly clear with you. We're really focused on communicating what we can see and not what we hope right now. We can see through the end of the year. We can see the short-term investments that we need to make and want to make in the supply chain. We can see the opportunity for margin expansion. We're excited about our demand generation engine, and we have more confidence. I think the best way to say it is we have more confidence in that midterm guidance now than we did this time last quarter, which was more confident than the quarter before.

Brian Kocher: Yeah, Andrew, I'll be blatant and bluntly clear with you. We're really focused on communicating what we can see and not what we hope right now. We can see through the end of the year. We can see the short-term investments that we need to make and want to make in the supply chain. We can see the opportunity for margin expansion. We're excited about our demand generation engine, and we have more confidence. I think the best way to say it is we have more confidence in that midterm guidance now than we did this time last quarter, which was more confident than the quarter before. So each time we have revenue acceleration or potentially capacity creation, I would look at that as giving us more confidence in that midterm target rather than worrying about changing the timing or magnitude.

Brian Kocher: Yeah, Andrew, I'll be blatant and bluntly clear with you. We're really focused on communicating what we can see and not what we hope right now. We can see through the end of the year. We can see the short-term investments that we need to make and want to make in the supply chain. We can see the opportunity for margin expansion, and we're excited about our demand generation engine. And we have more confidence. I think the best way to say it is that we have more confidence in that midterm guidance now than we did this time last quarter, which was more confident than the quarter before. So each time we have revenue acceleration or potentially capacity creation, I would look at that as giving us more confidence in that midterm target rather than worrying about changing the timing or magnitude.

Andrew: Yes, Andrew I'll be.

Andrew Strelzik: Okay, okay. That makes sense.

Andrew: Blatant and bluntly clear with you we're really focused on communicating what we can see and not what we hope right now we can see through the end of the year. We can see the short term investments that we need to make and want to make in the supply chain, we can see the opportunity for margin expansion.

Speaker: We took share and you take share when it's available, not when it's convenient. So the first bit of good news that's in that margin story I would tell you is that we had to produce the volume to deliver the volume growth and we did it. In fact, on some of our existing assets, let's exclude Midlothian and some of the newer capacity. We put in place in our existing assets. We increased output enough to be the equivalent of a full manufacturing line essentially out of sweat equity and ingenuity, a full manufacturing line.

Andrew: We're excited about our demand generation engine and we have more confidence I think the best way to say it is we have more confidence in that mid term guidance now than we did this time last quarter, which was more confident than the quarter before so each time.

Brian Kocher: So each time we have revenue acceleration or potentially capacity creation, I would look at that as giving us more confidence in that midterm target than worrying about changing a timing or magnitude.

Andrew: We have revenue acceleration or potentially capacity creation.

Speaker: So we were really excited about that. The second bit of good news and I'm going to call this good news is volume growth like this routinely and expectedly test your supply chain and when you grow as fast as we're growing and you take some share when it's available as opposed to convenient, you certainly identify opportunities in your supply chain where you could be more efficient. But good news is we're identifying that now in supposed two quarters from now or three quarters from now.

Andrew: I would look at that is giving us more confidence in that mid term target than worrying about changing.

Speaker Change: Timing or magnitude.

Andrew Strelzik: Okay, okay. That makes sense.

Andrew Strelzik: And then my other question, you know, obviously there's a lot of concern about the consumer environment. We've seen slowdowns across food and beverage categories, you know, in a number of places, none of which you're really seeing for a variety of reasons. But I guess I'm just curious about the tone of your customer conversations broadly. Are you sensing any change in the way that they're approaching their businesses? Are they getting more aggressive or less aggressive in this environment? Just kind of, you know, curious under the hood how those conversations are progressing.

Andrew Strelzik: Okay, that makes sense. And then my other question, you know, obviously there's a lot of concern about the consumer environment. We've seen slowdowns across food and beverage categories, you know, in a number of places. None of what you're really seeing for a variety of reasons. But I guess I'm just curious about the tone of your customer conversations broadly. Are you sensing any change in the way that they're approaching their businesses? Are they getting more aggressive or less aggressive in this environment, just to kind of, you know, curious under the hood how those conversations are progressed.

Speaker Change: Okay. Okay that makes sense and then my other question, obviously theres a lot of.

Speaker Change: Concerned about the consumer environment, we've seen slowdowns across food and beverage categories and a number of of places none of what Youre really seeing for variety of reasons, but I guess I'm just curious about the tone of your customer conversations broadly are you sensing any any change in the way that they're approaching their businesses are they getting more aggressive or less.

Speaker: So we're investing in areas to just give you some specificity. We're investing in areas around downline efficiencies. Why is that important? Because if we can pack out more, we can run systems more fluidly and continuously. We're investing in equipment maintenance up time. We're investing in these short term areas in labor and labor management. We're investing in our procurement and inventory management processes to see all these to make this flow together from beginning to end of the supply chain.

Speaker Change: Less aggressive in this environment just to kind of.

Speaker Change: Curious under the Hood.

Speaker Change: These conversations are progressing thanks.

Brian Kocher: Jackson, thanks. No problem, Andrew, but let's break down the categories in which we play. Shell stable, plant-based beverages, we believe, is growing in the mid-single digits, across track and on track. All right, so those are our customers that we're talking with, that we understand, that we see have visibility to. We believe that that category is growing in the mid-single digits. Ready-to-drink protein shakes, growing, fruit snacks, growing, heck, even our less mainstream products, broth and tea, growing. So the categories in which we service and, in particular, the ones in which we're helping our customers win, those are all growing.

Brian Kocher: No problem, Andrew, but let's break down the categories in which we play. Shelf stable, plant-based beverages, we believe are growing in the mid-single digits, across tracked and untracked, all right?

Brian Kocher: No problem, Andrew, but let's break down the categories in which we play. Shelf-stable, plant-based beverages, we believe are growing in the mid-single digits, across tracked and untracked, right? So those are our customers that we're talking with, that we understand, that we have visibility into. We believe that that category is growing in the mid-single digits. Ready-to-drink protein shakes are growing in popularity. Fruit snacks are also popular.

Speaker Change: No problem, Andrew, but let's break down the categories in which we play.

Speaker Change: Shelf stable plant based beverages, we believe is growing in the mid single digits across tracked and untracked alright. So those are our customers that we're talking with that we understand that we see you have visibility to we believe that that category is growing in the mid single digits.

Brian Kocher: So those are our customers that we're talking with, that we understand, that we see, and that we have visibility to. We believe that that category is growing in the mid-single digits. Ready-to-drink protein shakes are growing. Fruit snacks are growing.

Speaker Change: Ready to drink protein shakes growing fruit snacks growing tech even arm less mainstream products Boston tea growing so are the categories in which we service and in particular the ones in which we are helping our customers win those are all growing.

Brian Kocher: Heck, even our less mainstream products, broth, and tea, are growing. So the categories in which we serve, and in particular the ones in which we're helping our customers win, those are all growing. And I think that's one thing to keep in mind as we think about how you look at the consumer in the category. Now, we are also helping customers grow with innovation. Not always is that innovation a new flavor, or product, or unit size.

Brian Kocher: Heck, even our less mainstream products, broth, and tea, are growing. So the categories in which we service, and in particular, the ones in which we're helping our customers win, those are all growing. And I think that's one thing to keep in mind as we think about how you look at the consumer in the category. Now, we are also helping customers grow with innovation. Not always is that innovation a new flavor, or product, or unit size.

Speaker: Again, I think the good news for us is we've got the volume and we've got the output. Remember, we can never make efficient the volume that we don't take. So we took the volume. We've got opportunities to make it in investments. Think of these investments as temporary investments in labor, potentially submit search resources to help us on efficiency initiatives, maybe a small investment here or there in in terms of shop for metric systems and reporting and escalation systems.

Brian Kocher: And I think that's one thing to keep in mind as we think about how you look at the consumer and the category. Now we are also helping customers grow with innovation. Not always is that innovation a new flavor or product or unit size? It could be a new pack size. It could be a more efficient configuration. It could be a better transportation methodology or mode. So those are things that all go into solutions providing and innovating for customers when you're a solutions provider. So I think it's a little narrow, at least as you look at our revenue stream, to just say, hey, there's some pressure on the consumer.

Speaker Change: And I think Thats, one thing too to keep in mind as we think about how you look at the consumer and the category. Now we are also helping customers grow with innovation not always is that innovation.

Speaker: So we're really confident a that we can produce the volume. B, as we produce the volume, we can get better at it and just a few data points. If I look at overall cost per unit produced and overall labor unit produced, those were better than the second quarter of 23. Now we had some other areas that that suffered some challenges, but I'm excited about what we're doing in the supply chain and our opportunities to grow.

Speaker Change: Our new.

Brian Kocher: It could be a new pack size or a more efficient configuration. It could be a better transportation methodology or mode. So those are things that all go into solutions providing and innovating for customers when you're a solutions provider. So I think it's a little narrow, at least as you look at our revenue stream, to just say, hey, there's some pressure on the consumer. Therefore, the categories aren't growing. Every category we play in is growing, and I would remember that as you think about our prospects for growth.

Speaker Change: Flavor or product or unit size it could be a new pack size it could be a more efficient configuration it could be.

Speaker Change: A a better transportation methodology or or mode. So those are things that all go into solutions, providing and innovating for for our customers when you're when you're a solutions provider. So.

Speaker Change: I think it's a little narrow at least as you look at our revenue stream to just say hey, there is some pressure on the consumer therefore, the categories arent growing every category we play in is growing.

Speaker: Thanks a lot for.

Brian Kocher: Therefore, the categories aren't growing. Every category we play in is growing. And I would remember that as you think about our prospects for growth.

Jim Solera: Your next question comes from the line of Jim Solera with Stevens. Please go ahead. Yes. Good afternoon. Thanks for taking our questions. Right. I really wanted to drill down on the kind of sustainability of what seems to be pretty meaningful gains in kind of the share among your, your customers because I can appreciate, you know, the interact channels and the food service channels represent a much larger piece of business, especially for your customers and maybe some other categories.

Speaker Change: And I would remember that as you as you think about our <unk>.

Speaker Change: Prospects for growth.

Speaker: Great. Thank you very much.

Operator: Great, thank you very much. Your next question comes from the line of Ryan Meyers with Lake Street Capital Markets. Please go ahead. Okay, just one question for me.

Speaker Change: Great. Thank you very much.

Ryan Meyers: Your next question comes from the line of Ryan Mayors with Lake Street Capital Markets. Please go ahead. Okay, just one question for me.

Operator: Your next question comes from the line of Ryan Meyers with Lake Street Capital Markets. Please go ahead. Okay, just one question for me.

Brian Kocher: Great, thank you very much. Your next question comes from the line of Ryan Meyers with Lake Street Capital Markets. Please go ahead. Okay, just one question for me.

Operator: Your next question comes from the line of Ryan Meyers with Lake Street Capital Markets. Please go ahead. Okay, just one question for me.

Speaker Change: Your next question comes from the line of Ryan Meyers with Lake Street Capital markets. Please go ahead.

Ryan Meyers: Hey, guys just one question for me.

Ryan Meyers: Just curious how we should think about the potential for adding any new business into the pipeline. I mean, how do you talk about communicating what you guys have visibility to? But as we think about potential areas for upside or additional opportunities that could come in, maybe how should we be thinking about that for this year and then maybe the potential for next year as well?

Ryan Meyers: Just curious how we should think about the potential for adding any new business into the pipeline you talked about youre only communicating what you guys have visibility to but as we think about potential areas for upside or additional opportunities that can come in and maybe how should we be thinking about that for this year and then maybe the potential for next year as well.

Jim Solera: But you're out performance relative to what is visible in the track channels, it continues to be very stark. And so should we expect to see some of the strength in these on track channels eventually filter into track channels or is it just that the way that the end market structure, you know, investors really shouldn't worry about track channels. And this is really all about kind of the growth that's that unseen. James Salera.

Brian Kocher: Ryan, I hate to give you an incredibly boring answer, but I'm going to continue to tell you, look, we communicate what we see, not what we hope for. Don't let that be confused with. We don't work on anything else. If you don't grow a business, 21% this quarter, 18% the quarter before, 14% the quarter before, without focusing on a lot of different initiatives and opportunities. So we're going to continue working on a wide range of initiatives from growing share with customers, to acquiring new customers, to innovating with our portfolio, to TAM expansion. We'll continue all of those, but we'll also continue communicating what we see, not what we hope.

Speaker Change: Ryan I hate to give you an incredibly boring answer, but I'm going to continue to tell you look we communicate what we see not what we hoped for.

Speaker Change: Don't let that be confused with we don't work on anything else.

Brian Kocher: If you don't grow a business 21 percent this quarter, 18 percent the quarter before, 14 percent the quarter before, without focusing on a lot of different initiatives and opportunities, then you won't grow your business. So we're going to continue working on a wide range of initiatives from growing share with customers to acquiring new customers, to innovating with our portfolio, to TAM expansion. We'll continue all of those, but we'll also continue communicating what we see, not what we hope.

Speaker Change: If you don't grow a business, 21% this quarter 18 in the quarter before 14% the quarter before without focusing on a lot of different initiatives and opportunities. So we're going to continue working on a wide range of initiatives from growing share with customers.

Speaker: Okay, a couple of themes in their gym, and let me try to break those apart. First of all, I think it's important to remember from our perspective, track channels is less than a fifth of the market that we serve. So, of course, we pay attention to it, but when you look at food service, when you look at clubs, that's the opportunity, and another untracked channel, that's the opportunity that we really address, and certainly is more meaningful to us.

Speaker Change: Acquiring new customers to innovating with our portfolio to Tam expansion will continue all of those but we will also continue communicating what we see not what we hope.

Speaker: So, that is one thing. On the track channel side, we actually are starting to see a little bit of turn, or let's call it a deceleration of the softness in shelf stable. So, you know, we're starting to see some of that, but I will get back to our, let's call it philosophy on guidance and expectation setting. We communicate what we see, where we understand and work with our customers every week, every month on their innovation efforts.

Speaker: Thanks for taking my question. Okay, thank you.

Speaker Change: Got it thanks, Anthony Thanks for taking my questions.

Speaker Change: Okay. Thank you.

Alex Fuhrman: Your next question comes from a line of Alex Furman with Craig Hallum Capital Group. Please go ahead. Hey guys, thanks for taking my question, and congratulations on another really strong quarter. Ryan, I was hoping you could unpack something a little bit more that you've talked about in your prepared remarks. It sounds like you said something to the effect of your customers growing faster than their categories by a pretty significant margin. What's been driving that? Is that just plant-based taking share from dairy, or your customers having more consistent access to supply and fewer stockouts? We'd love to just get a sense of what that common theme has been there.

Operator: Your next question comes from the line of Alex Fuhrman with Craig Hallam Capital Group. Please go ahead.

Speaker Change: Your next question comes from the line of Alex Fuhrman with Craig Hallum Capital Group. Please go ahead.

Alex Fuhrman: Hey guys, thanks for taking my question. And congratulations on another really strong quarter.

Alex Fuhrman: Hey, guys. Thanks for taking my question and congratulations on another really strong quarter.

Brian Kocher: Brian, I was hoping you could unpack something a little bit more that you talked about in your prepared remarks. It sounds like you said something to the effect of your customers, you know, growing faster than their categories by a pretty significant margin. What's been driving that? Is that just, you know, plant-based taking share from dairy or, you know, your customers having, you know, more consistent access to supply and fewer stockouts? We would love to just get a sense of what that common theme has been there.

Alex Fuhrman: Brian I was hoping you could unpack something a little bit more that you've talked about in your prepared remarks. It sounds like you said something to the effect of your customers.

Alex Fuhrman: Growing faster than their category by a pretty significant margin what's been driving that is that just plant base, taking share from dairy or your customers, having more consistent access to supply and fewer stock out.

Speaker: I think innovation is also an area that the investment community can't see in track channels because it happens in food service and in clubs. So, there's another area, which it might be a very positive divergence from the track channel data that's publicly available. All of those things go in and factor into the performance. So, I would never say, you know, it's inconsequential, but our world is absolutely more heavily weighted to solving opportunities and challenges for our customer and growing share of that way. Okay, both volumes.

Speaker Change: We would love to just get a sense of what that <unk> has been there.

Brian Kocher: Chair. Yeah, I think it's more traditional category management tools; certainly availability and consistency of supply as a piece of it, innovation is a piece of it, line extensions and brand extensions, distribution gains, and remember our customers are also taking share. The category is never equal for all participants. You have some winners, and you have others that are not winning, and I think that's a component where we're helping our customers be successful. And again, I can't reiterate this enough: we're a solutions provider for our customers. They also have a team that is out there every day working to grow their brand.

Brian Kocher: Yeah, I think it's more traditional category management tools. Certainly, availability and consistency of supply is a piece of it, innovation is a piece of it, line extensions and brand extensions, distribution gains, and remember, our customers are also taking share. The category is never equal for all participants. You have some winners, and you have others that are not winning, and I think that's a component where we're helping our customers be successful. And again, I can't reiterate this enough.

Speaker Change: Yeah, I think it's more traditional category management tools.

Speaker Change: Availability and consistency of supply is a piece of it innovation is a piece of it.

Speaker Change: Line extensions and brand extensions distribution gains and remember our customers are also taking share.

Speaker Change: The category.

Speaker Change:

Speaker: And then, yeah, that that's all. On the food service side in particular, I guess I'm obviously positively surprised by the strength you guys continue to see there, given the overall kind of consumer softness that we see in food service. And so, I wonder if you could just give us some color on which driving your sub-segment in food service that it sees such a higher degree of success relative to kind of the broader slowdown of the fedity and food service.

Speaker Change: Is never equal for all participants you have some winners and you have others that are not winning and I think thats a component, where we're helping our customers be successful and again I can't reiterate this enough.

Brian Kocher: We're a solutions provider for our customers, but they also have a team that is out there every day working to grow their brands. We support them, but we also benefit as they grow their brands.

Speaker Change: We're a solutions provider for our customers. They also have a team that is out there every day working to grow their brand.

Alex Fuhrman: We support them, but we also benefit as they grow their brand. That's terrific.

Speaker Change: We support them, but we also benefit as they grow their brand.

Alex Fuhrman: That's terrific. Thank you very much.

Speaker Change: That's terrific. Thank you very much.

Speaker: Thank you very much.

Speaker: Now, two things that I would say really contribute to that. Remember, we're wired in tight with our customers, our top 15 customers. We're in their supply planning meetings. We're talking to their innovation team and that's happening on a weekly and monthly basis. So, there's two things that I would say think about that. One, just as I mentioned with track channels, the brands that we support are outperforming the overall category. Think of the menu items that you see in food service and where plant-based or the products that we support are either over-indexed or ingredients in promotional items, limited time offers, real volume growth or focus points for our customers.

Speaker: Thank you.

Speaker Change: Thank you.

Daniel Biolsi: Your next question comes from the line of Daniel Biolsi with Hedge I Risk Management. Please go ahead. Well, Brian and Greg, it's really nice to see revenue expectations going higher. Your growth sounds very diversified by customer and channel. I was hoping you could share a little how it looks by type of plant-based milk. Are there any changes there in the market or still sort of the same secular trends going? I would say there are the same secular trends that we've seen again, and in advantage with Sonopta in our model is that we participate across the spectrum.

Operator: Your next question comes from the line of Daniel Biolsi with Hedge Eye Risk Management. Please go ahead. Brian and Greg, it's really,

Operator: Your next question comes from the line of Daniel Bioski with Hedge Eye Risk Management. Please go ahead. Brian and Greg, it's going.

Danielle <unk>: Your next question comes from the line of Danielle <unk> with hedge risks management. Please go ahead.

Daniel Biolsi: Well, Brian and Greg, it's really nice to see revenue expectations going higher. Your growth sounds very diversified by customer and channel. I was hoping you could share a little how it looks by type of plant-based milk. Are there any changes there in the market, or is it still sort of the same secular, you know, trends?

Daniel Biolsi: Brian and Greg, it's really nice to see revenue expectations going higher. Your growth sounds very diversified by customer and channel. I was hoping you could share a little how it looks by type of plant-based milk. Are there any changes there in the market, or is it still sort of the same secular, you know, trends?

Danielle <unk>: Brian and Greg, it's really nice to see revenue expectations going higher.

Danielle <unk>: And your growth sounds very diversified by customer and channel I was hoping you could share a little of how it looks by type of plant based milk are there any changes there in the market or is it still sort of the same secular <unk>.

Speaker Change: Trends going.

Brian Kocher: I would say they're the same secular trends that we've seen, again an advantage with Sunopta in our model is that we participate across the spectrum. And there are usage occasions that differ across the spectrum of plant-based beverages. So I'm excited about the fact that when you work with us as a solutions provider, you've got the full spectrum of plant-based beverages to deploy at your disposal.

Brian Kocher: I would say they're the same secular trends that we've seen, again an advantage with Sunopta in our model is that we participate across the spectrum, and there are usage occasions that differ across the spectrum of plant-based beverages. So I'm excited about the fact that when you work with us as a solutions provider, you've got the full spectrum of plant-based beverages to deploy at your disposal.

Speaker Change: I would say the same secular trends that we've seen again, an advantage with with Sun after in our model.

Speaker Change: Is that we participate across the spectrum.

Brian Kocher: And there's usage occasions differ across the spectrum of plant-based beverages. So, I'm excited to the fact that when you work with us as a solutions provider, you've got the full spectrum of plant-based beverages to deploy at your disposal.

Speaker Change: And their usage occasions differ across the spectrum of plant based beverages. So I'm excited the fact that when when you.

Speaker: You can see that. And so, it can be true that our products grow at potentially a faster pace than the rest of the product portfolio, or our over-indexed versus the rest of the product portfolio of some of our food service customers. That can be true.

Speaker Change: Work with us as a solutions provider you have got the full spectrum of plant based beverages to deploy at your disposal.

Brian Kocher: And so, I have to follow up with the results you put today. When you hit three times leverage, how are you going to compare new cat-back investments with the share price being where it is? Well, let's stay really focused. Right now, Daniel, we're worried about executing, growing with our customers, solving their problems, and de-leveraging and getting that three times lever. When we do, I think there's a ton of evaluations to do. First and foremost, returning capital to shareholders. That's an absolutely one that is first on our list. And then there's a whole host of other relative investments, but I don't want to put the cart before the horse.

Daniel Biolsi: And so I have to follow up with the results you presented today. When you hit three times leverage, how are you going to compare? You know, new CapEx investments with the share price being where it is.

Daniel Biolsi: And so I have to follow up with the results you presented today. When you hit three times leverage, how are you going to compare new CapEx investments with the share price being where it is?

Speaker Change: So I have to follow up with the results you put today when you hit three times leverage how are you going to compare.

Speaker: The other thing is remember, we innovate. So, we have several new product launches that we co-developed and launched with our customers and that is also showing up in the food service Okay, great. I appreciate all the color.

Speaker: I'll hop back into you.

Speaker Change: New capex investments with the share price being where it is.

Brian Kocher: Well, let's stay really focused. Right now, Daniel, we're worried about executing, growing with our customers, solving their problems, and deleveraging, and getting that three-times lever. When we do, I think there's a ton of evaluations to do. First and foremost, returning capital to shareholders. That's absolutely one that is first on our list. Then there's a whole host of other potential investments, but I don't want to put the cart before the horse. Let's focus on delivering the third quarter, then the fourth quarter, and deleverage, and then we've got a lot of opportunities after that.

Brian Kocher: Well, let's stay really focused. Right now, Daniel, we're worried about executing, growing with our customers, solving their problems, and deleveraging, and getting that three times leverage. When we do, I think there's a ton of evaluations to do. First and foremost, returning capital to shareholders. That's absolutely one that is first on our list. Then there's a whole host of other potential investments, but I don't want to put the cart before the horse. Let's focus on delivering the third quarter, then the fourth quarter, and deleverage, and then we've got a lot of opportunities after that.

Speaker Change: Well, let's stay really focused right now Daniel we're worried about executing and growing with our customers solving their problems and deleveraging.

Speaker Change: And getting that three times lever when we do I think there's a ton of evaluations to do first and foremost.

Brian Holland: Thank you. Your next question comes from the line of Brian Holland with DA Davidson. Please go ahead. Yeah, thanks. Good afternoon. So I just wanted to ask about some of the supply chain of investments. Maybe in the context of, you know, kind of rolling this forward. If I've got it right, I know there's a lot of moving parts with the divestitures and portfolio reshaping, but you know, last I have it is kind of like a 20% gross margin target.

Factset: Returning capital to shareholders Factset, absolutely one that is first on our list.

Brian Holland: You can correct me kind of long term. You can correct me if I'm wrong there. But I guess what I maybe another way of asking this supply chain question would be is what you're discovering that it's more expensive to get to that 20% gross margin or with the volume that's coming through your network are these investments may be intended to ultimately drive up to side to that target. If it would be possible to address it in that way, that would be, you know, great to hear.

Speaker Change: And then there's a whole host of other relative investments but.

Speaker Change: I don't want to put the cart before the horse, let's focus on delivering the third quarter than the fourth quarter Deleveraged and then we've got a lot of opportunities after that.

Speaker: Let's focus on delivering the third quarter, then the fourth quarter, de-leverage, and then we've got a lot of opportunities after that. Sounds good.

Danielle <unk>: Good.

Speaker: And that concludes our question-and-answer session.

Operator: And that concludes our question and answer session. I will now turn the conference over to Brian Kocher for his closing remarks.

Danielle <unk>: And that concludes our question and answer session I will now turn the conference over to Brian Coker for closing remarks.

Brian Kocher: Thanks to everyone for joining us today, and we really appreciate the opportunity to explain our model and our results. If you take away only three things from this call, please remember these three things.

Brian Coker: Thanks to everyone for joining us today, and we really appreciate the opportunity to explain our model and our results. If you takeaway only three things for this call. Please remember these three things at Sun. After we are winning with winning customers across every significant channel and category of which we.

Brian Kocher: If you take away only three things for this call, please remember these three things. At Sunop, though, we are winning with winning customers across every significant channel and category of which we play. The best sign of a sustainable value proposition in the market is volume growth, and we are growing volume with our largest customers across all channels and across all major product Anderson, Brian Holland, Robert Burleson, Robert Burleson in the short term. And we will and we'll invest to drive operating efficiencies. Investing now with the goal of accelerating margin enhancement in 4Q and beyond. And then lastly, we are really excited about our demand generation, about the co-development opportunities with our customers that we have on the horizon, about our opportunities to grow share with existing customers and potentially acquire new customers.

Brian Kocher: At Sunopta, we are winning with winning customers across every significant channel and category in which we play. The best sign of a sustainable value proposition in the market is volume growth, and we are growing volume with our largest customers across all channels and across all major product segments. So that's one.

Speaker: Yeah, Brian, absolutely would not characterize them as simply costing more. Think of it this way, we're growing faster than we had outlined previously. I mean, heck, this is the second quarter in a row that we're raising guidance. So we're growing faster. When you grow faster, you also test your supply chain a little bit. And we're identifying some of these areas that we would have identified in the next quarter or the following quarter or three quarters from now, we're identifying them sooner.

Danielle <unk>: <unk>.

Speaker Change: The best sign of a sustainable value proposition in the market is volume growth and we are growing volume with our largest customers across all channels and across all major product segments. So that's one thing.

Brian Kocher: Secondly, our supply chain is up to the challenge of accelerated growth. We have increased output by over 25% year-to-date through a combination of new capacity and stretching our existing assets. I'm proud of the progress we made in the first half, and specifically during the second quarter. I'm proud, but not satisfied.

Brian Kocher: Secondly, our supply chain is up to the challenge of accelerated growth. We have increased output by over 25% year to date through a combination of new capacity and stretching our existing assets. I'm proud of the progress we made in the first half and, specifically, during the second quarter. I'm proud, but not satisfied.

Speaker Change: <unk> our supply chain is up to the challenge of accelerated growth.

Danielle <unk>: We have increased output by over 25% year to date through a combination of new capacity, but also stretching our existing assets I'm proud of the progress we made in the first half and specifically during the second quarter I'm proud, but not satisfied our tremendous growth as identified in highly.

Speaker: So we're addressing them sooner, which has an opportunity we believe to kind of accelerate our margin enhancement. We make some short term investments and then we drive to that 20% long term target for mid term target for margin. I think Greg and I have both been been very public in in saying the 20% margin was derived from the last time our network was full. If we look at our the next time our network will be full and or close to full and thinking about that margin, that 20% is achievable.

Brian Kocher: Our tremendous growth has identified and highlighted some areas where we can further invest in the short term. And we will, and we'll invest to drive operating efficiencies. Investing now, with the goal of accelerating margin enhancement in 4Q and beyond. And then lastly, we are really excited about our demand generation, about the co-development opportunities with our customers that we have on the horizon, about our opportunities to grow share with existing customers and potentially acquire new customers.

Speaker Change: In some areas, where we can further invest in the short term.

Danielle <unk>: And we will and we'll invest to drive operating efficiencies investing now.

Danielle <unk>: With the goal of accelerating margin enhancement in <unk> and beyond.

Danielle <unk>: And then lastly, we are really excited about our demand generation.

Speaker Change: The co development opportunities with our customers that we have on the horizon about our opportunities to grow share with existing customers and potentially acquire new customers. We're extremely excited about that.

Speaker: However, with some of the investments we make, I think we would be. We really want to hold ourselves and push ourselves to get something north of 20%. But that would be upside, I think, right now. Understand, that's great color.

Brian Kocher: We're extremely excited about that. As a result of that confidence, we are again raising our revenue guidance. Remember, we guide to what we see, not what we hope, and then we relentlessly work every opportunity we can find to deliver. Thank you again for participating today. We look forward to updating you during the next quarter. And again, thanks so much for your support.

Brian Kocher: We're extremely excited about that.

Brian Kocher: As a result of that confidence, we are again raising our revenue guidance. Remember, we guide to what we see, not what we hope, and then we relentlessly work every opportunity we can find to deliver.

Brian Kocher: We're extremely excited about that. As a result of that confidence, we are again raising our revenue guidance. Remember, we guide to what we see, not what we hope, and then we relentlessly work every opportunity we can find to deliver. Thank you again for participating today. We look forward to updating you on the next quarter. And again, thanks so much for your support.

Speaker Change: As a result of that confidence we are again, raising our revenue guidance <unk>.

Speaker Change: Remember, we guide to what we see not what we hope and then we relentlessly work every opportunity we can find.

Speaker: And then the other question, if we think in mid-Lothian about the opportunity for expansion, I think what like lines for out to potentially eight as it was outlined 18 or so months ago, I suspect we're getting close to for not already at the point where we need to decide what. But those lines are going to be allocated for dedicated to, so curious if you can provide any assessment there because certainly we talked a lot about the plant based beverage and shelf stable category.

Speaker Change: To deliver.

Speaker: Thank you again for participating today. We look forward to updating you during at the next quarter. And again, thanks so much for your support.

Speaker Change: Thank you again for participating today, we look forward to updating you during the next quarter and again, thanks, so much for your support.

Operator: This concludes today's conference call. Thank you for your participation, and you may now disconnect.

Operator: This concludes today's conference call. Thank you for your participation.

Speaker: This concludes today's conference call. Thank you for your participation.

Speaker Change: This concludes today's conference call. Thank you for your participation and you may now disconnect.

Speaker: And you may now disconnect.

Speaker Change: [music].

Speaker: But obviously as well now you have the 330 milliliter capability and you obviously have have discussed what we're seeing on the protein shake category. So just maybe a sense of how that capacity or that infrastructure gets filled out at a category level as we look out over the next, I don't know, 12, 24 months. Yes, sir, Brian, great question. So, as you recall, we just had our third line at Midlothian Come Online in Q2, right?

Speaker Change: Yes.

Speaker: So there is quite a bit of run rate at Midlothian for future growth. We've said before and we still believe by the end of 2025 or early 26 when we see our network to be full, but our first priority continues to be to de-laverage, right? So our goal is to be under three times leveraged. We fully expect to be there by the end of this year, and that will be our focus here in the short term.

Speaker: Fair enough. Your next question. Hey, Brian, just one other item. I don't want to gloss over the fact that by increasing output, you create non-capacity. Effectively, we created Avathin Air, the equivalent of an additional manufacturing line. Now, that was spread out through our network, but you get the feeling you understand the analogy. There is tremendous opportunity for us to continue improving efficiency and output and creating non-capacity capital. And that's where our focus is on the short term.

Andrew Stralsic: Your next question comes from the line of Andrew Stralsic with the BMO capital markets.

Speaker: Please go ahead. Hey, good afternoon. Thanks for taking the questions. My first one, and I want to, I guess, revisit the answer to a prior question. I'm trying to think about the implications of faster revenue growth, and you're talking about accelerating the margin improvements, and what that means for the EBITDA you've pointed to, kind of, run rate exiting 25 into 26. Is the timeline, should we think about the timeline around that changing it all, given those dynamics, or is the net with the investments that the timeline stays the same?

Speaker: I guess it feels like it's pulling forward, but I guess I was just a little unclear based on the answer. Yeah, Andrew, I'll be blatantly clear with you. We're really focused on communicating what we can see and not what we hope right now. We can see through the end of the year. We can see the short term investments that we need to make and want to make in the supply chain. We can see the opportunity for margin expansion.

Speaker: We're excited about our demand generation engine, and we have more confidence. I think the best way to say it is we have more confidence in that midterm guidance now than we did this time last quarter, which was more confident than the quarter before. So each time we have revenue acceleration or potentially capacity creation, I would look at that as giving us more confidence in that midterm target than worrying about changing a timing or magnitude.

Speaker: Okay, that makes sense. And then my other question, you know, obviously there's a lot of concern about the consumer environment we've seen, slowdowns across food and beverage categories, you know, in a number of places none of what you're really seeing for a variety of reasons. But I guess I'm just curious about the tone of your customer conversations broadly. Are you sensing any change in the way that they're approaching their businesses, are they getting more aggressive or less aggressive in this environment just to kind of, you know, curious under the hood how those conversations are progressed.

Speaker: Jackson, thanks. No problem, Andrew, but let's break down the categories in which we play. Shell stable, plant-based beverages, we believe is growing in the mid-single digits, across track and on track. All right, so those are our customers that we're talking with, that we understand, that we see have visibility to, we believe that that category is growing in the mid-single digits. Ready to drink protein shakes, growing, fruit snacks, growing, heck, even our less mainstream products, broth and tea, growing.

Speaker: So the categories in which we service and in particular the ones in which we're helping our customers win, those are all growing. And I think that's one thing to keep in mind as we think about how you look at the consumer and the category. Now we are also helping customers grow with innovation. Not always is that innovation a new flavor or product or unit size? It could be a new pack size.

Speaker: It could be a more efficient configuration. It could be a better transportation methodology or mode. So those are things that all go into solutions providing and innovating for customers when you're a solutions provider. So I think it's a little narrow, at least as you look at our revenue stream, to just say, hey, there's some pressure on the consumer. Therefore the categories aren't growing. Every category we play in is growing. And I would remember that as you think about our prospects for growth.

Speaker: Great.

Speaker: Thank you very much.

Ryan Meyers: Your next question comes from the line of Ryan Mayors with Lake Street Capital Markets.

Speaker: Please go ahead. Okay, just one question for me. Just curious how we should think about the potential for adding any new business into the pipeline. I mean, how do you talk about communicating what you guys have visibility to?

Speaker: But as we think about potential areas for upside or additional opportunities that could come in, maybe how should we be thinking about that for this year and then maybe the potential for next year as well? Ryan, I hate to give you an incredibly boring answer, but I'm going to continue to tell you, look, we communicate what we see, not what we hope for. Don't let that be confused with. We don't work on anything else.

Speaker: If you don't grow a business, 21%, this quarter, 18, the quarter before, 14% the quarter before, without focusing on a lot of different initiatives and opportunities. So we're going to continue working on a wide range of initiatives from growing share with customers, to acquiring new customers, to innovating with with our portfolio, to Tam Expansion. We'll continue all of those, but we'll also continue communicating what we see, not what we hope. Thanks for taking my question.

Speaker: Okay, thank you.

Alex Fuhrman: Your next question comes from a line of Alex Furman with Craig Hallum Capital Group. Please go ahead. Hey guys, thanks for taking my question and congratulations on another really strong quarter. Ryan, I was hoping you could unpack something a little bit more that you've talked about in your prepare remarks. It sounds like you said something to the effect of your customers growing faster than their categories by a pretty significant margin. What's been driving that? Is that just plant-based taking share from dairy or your customers having more consistent access to supply and fewer stockouts? We'd love to just get a sense of what that common theme has been there.

Speaker: Chair. Yeah, I think it's more traditional category management tools, certainly availability and consistency of supply as a piece of it, innovation is a piece of it, line extensions and brand extensions, distribution gains, and remember our customers are also taking share. The category is never equal for all participants. You have some winners and you have others that are not winning, and I think that's a component where we're helping our customers be successful.

Speaker: And again, I can't reiterate this enough, we're a solutions provider for our customers. They also have a team that is out there every day working to grow their brand. We support them, but we also benefit as they grow their brand. That's terrific. Thank you very much.

Speaker: Thank you.

Daniel Biolsi: Your next question comes from the line of Daniel Biolsi with Hedge I Risk Management.

Speaker: Please go ahead. Well, Brian and Greg, it's really nice to see revenue expectations going higher. Your growth sounds very diversified by customer and channel. I was hoping you could share a little how it looks by type of plant-based milk. Are there any changes there in the market or still sort of the same secular trends going? I would say there are the same secular trends that we've seen again and in advantage with Sonopta in our model is that we participate across the spectrum.

Speaker: And there's usage occasions differ across the spectrum of plant-based beverages. So, I'm excited to the fact that when you work with us as a solutions provider, you've got the full spectrum of plant-based beverages to deploy at your disposal.

Speaker: And so, I have to follow up with the results you put today. When you hit three times leverage, how are you going to compare new cat-back investments with the share price being where it is? Well, let's stay really focused. Right now, Daniel, we're worried about executing, growing with our customers, solving their problems and de-leveraging and getting that three times lever. When we do, I think there's a ton of evaluations to do.

Speaker: First and foremost, returning capital to shareholders. That's an absolutely one that is first on our list. And then there's a whole host of other relative investments, but I don't want to put the cart before the horse. Let's focus on delivering the third quarter, then the fourth quarter, de-leverage, and then we've got a lot of opportunities after that.

Speaker: Sounds good.

Speaker: And that concludes our question and answer session.

Brian Kocher: I will now turn the conference over to Brian Cooker for closing remarks. Thanks to everyone for joining us today, and we really appreciate the opportunity to explain our model and our results. If you take away only three things for this call, please remember these three things. At Sunop, though, we are winning with winning customers across every significant channel and category of which we play. The best sign of a sustainable value proposition in the market is volume growth, and we are growing volume with our largest customers across all channels and across all major product Anderson, Brian Holland, Robert Burleson, Robert Burleson in the short term.

Brian Kocher: And we will and we'll invest to drive operating efficiencies. Investing now with the goal of accelerating margin enhancement in 4Q and beyond. And then lastly, we are really excited about our demand generation, about the co-development opportunities with our customers that we have on the horizon, about our opportunities to grow share with existing customers and potentially acquired new customers. We're extremely excited about that. As a result of that confidence, we are again raising our revenue guidance. Remember, we guide to what we see, not what we hope, and then we relentlessly work every opportunity we can find to deliver.

Speaker: Thank you again for participating today. We look forward to updating you during at the next quarter. And again, thanks so much for your support.

Speaker: This concludes today's conference call. Thank you for your participation.

Speaker: And you may now disconnect.

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