Q2 2024 SunOpta Inc Earnings Call

August 7, 2024

Greetings and welcome to SunOpta's 2nd Quarter 2024 Earnings Conference Call.

Operator: conference call. At this time, all participants are in a listen-only mode.

Reed Anderson: At this time, all participants are in a listen-only mode. A question-and-answer session will follow the prepared remarks. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Reed Anderson with ICR. Thank you. You may begin.

Operator: A question-and-answer session will follow the prepared remarks. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Reed Anderson with ICR. Thank you. You may begin.

Speaker Change: At this time, all participants are in a listen-only mode. A question-and-answer session will follow the prepared remarks. As a reminder, this conference is being recorded.

Reed Anderson: I would now like to turn the conference over to your host, Reed Anderson, with ICR.

I would now like to turn the conference over to your host, Reed Anderson with ICR. Thank you. You may begin.

Reed Anderson: You may begin. Good afternoon, and thank you for joining us on SunOpta's second quarter fiscal 2024 earnings conference call. On the call today are Brian Kocher, Chief Executive Officer, and Greg Gaba, Chief Financial Officer.

Reed Anderson: Good afternoon, and thank you for joining us on SunOpta's second quarter fiscal 2024 earnings conference call. On the call today are Brian Kocher, Chief Executive Officer, and Greg Gaba, Chief Financial Officer. By now, everyone should have access to the earnings press release that was issued earlier this afternoon and is available on the Investor Relations page of SunOpta's website at www.sunopta.com. This call is being webcast, and its transcription will also be available on the company's website.

Good afternoon and thank you for joining us on Synopto's second quarter fiscal 2024 earnings conference call. On the call today are Brian Kocher, chief executive officer, and Greg Gaba, chief financial officer.

Reed Anderson: By now, everyone should have access to the earnings press release that was issued earlier this afternoon and is available on the Investor Relations page of SunOpta's website at www.sunOpta.com. This call is being webcast, and its transcription will also be available on the company's website. As a reminder, please note that the prepared remarks which will follow contained forward-looking statements, and management may make additional forward-looking statements in response to your questions. These statements do not guarantee future performance, and therefore under-reliance should not be placed upon them. We refer you to all risk factors contained in SunOpta's press release issued this afternoon.

Speaker Change: By now, everyone should have access to the earnings press release that was issued earlier this afternoon and is available on the Investor Relations page of SunOpta's website at www.sunopta.com.

Reed Anderson: As a reminder, please note that the prepared remarks, which will follow, contain forward-looking statements, and management may make additional forward-looking statements in response to your question. These statements do not guarantee future performance, and therefore, undue reliance should not be placed upon them. We refer you to all risk factors contained in SunOpta's press release issued this afternoon, the company's annual report filed on Form 10-K, and other filings with the Securities and Exchange Commission for a more detailed discussion of the factors that could cause actual results to differ materially from those projections and any forward-looking statements.

Speaker Change: This call is being webcast, and its transcription will also be available on the company's website. As a reminder, please note that the prepared remarks, which will follow, contain forward-looking statements, and management may make additional forward-looking statements in response to your questions.

Reed Anderson: As a reminder, please note that the prepared remarks, which will follow, contain forward-looking statements, and management may make additional forward-looking statements in response to your questions. These statements do not guarantee future performance, and therefore, undue reliance should not be placed upon them. We refer you to all risk factors contained in SunOpta's press release issued this afternoon, the company's annual report filed on Form 10-K, and other filings with the Securities and Exchange Commission for a more detailed discussion of the factors that could cause actual results to differ materially from those projections and any forward-looking statements.

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

Reed Anderson: The company's annual report filed on Form 10-K and other filings with the Securities and Exchange Commission for a more detailed discussion of the factors that could cause actual results to differ materially from those projections and any forward-looking statements. The company undertakes no obligation to publicly correct or update the forward-looking statements made during the presentation to reflect future events or circumstances, except as may be required under applicable securities laws.

we refer you to all risk factors contained in synopta' press release issued this afternoon

The company's annual report filed on Form 10-K and other filings with the Securities and Exchange Commission for a more detailed discussion of the factors that could cause actual results to differ materially from those projections and any forward-looking statements.

Reed Anderson: The company undertakes no obligation to publicly correct or update the forward-looking statements made during the presentation to reflect future events or circumstances, except as may be required under applicable securities laws. Finally, we would like to remind listeners that the company may refer to certain non-GAAP financial measures during this teleconference. A reconciliation of these non-GAAP financial measures was included with the company's press release issued earlier today. Also, please note, in the prepared remarks to follow, unless otherwise stated, the company will be referring to the continuing operations portion of the business, and all figures are in U.S. dollars, occasionally rounded to the nearest million. Now, I'll turn the call over to Brian to begin. Okay, Brian?

Reed Anderson: The company undertakes no obligation to publicly correct or update the forward-looking statements made during the presentation to reflect future events or circumstances, except as may be required under applicable securities laws. Finally, we would like to remind listeners that the company may refer to certain non-GAAP financial measures during this teleconference. A reconciliation of these non-GAAP financial measures was included with the company's press release issued earlier today. Also, please note in the prepared remarks to follow, unless otherwise stated, the company will be referring to the continued operations portion of the business, and all figures are in U.S. dollars, occasionally rounded to the nearest million. Now, I'll turn the call over to Brian to begin. Okay, Brian?

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

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

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

Speaker Change: A reconciliation of these non-GAAP financial measures.

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

was included with the company's press release issued earlier today. Also, please note, in the prepared remarks to follow, unless otherwise stated, the company will be referring to the continued operations portion of the business, and all figures are in U.S. dollars, occasionally rounded to the nearest million.

Reed Anderson: Now I'll turn the call over to Brian to begin.

Brian Kocher: Brian? Good afternoon, and thank you for joining us today. For today's call, I'll start with the highlights of our latest quarter's performance, along with an update on business trends and key priorities. Greg will follow with a review of the financials and our outlook. Then we'll take your questions.

Brian Kocher: Good afternoon, and thank you for joining us today. For today's call, I'll start with the highlights of our latest quarter's performance, along with an update on business trends and key priorities. Greg will follow with a review of the financials and our outlook. Then we'll take your questions. Our second quarter headline is very simple.

Brian Kocher: Good afternoon, and thank you for joining us today. For today's call, I'll start with the highlights of our latest quarter's performance along with an update on business trends and key priorities. Greg will follow with a review of the financials and our outlook. Then we'll take your questions. Our second quarter headline is very simple.

Speaker Change: Now I'll turn the call over to Brian to begin. Brian ?

Brian: good afternoon and thank you for joining us today for today's call i'll start with the highlights of our latest quarterters performance along with an update on business trends and key priorities greg will follow with the review of the financials and our outlook then we'll take your questions

Brian Kocher: Our second quarter headline is very simple. Both volume-driven revenue growth of 21% and adjusted EBITDA of 20.6 million exceeded our guidance. And I'd like to share context on that performance, specifically focusing on our revenue and operational initiatives. With respect to our revenue performance, on our last call, we guided to revenue growth that we could see. We worked on initiatives beyond our known wins, and then we over delivered with 21% volume-driven revenue growth. For the fourth quarter in a row, our volume growth was spread broadly across customers, panels, and major product categories. We are executing well across our product portfolio and continue to see significant opportunities for further growth in...

Brian Kocher: Both volume-driven revenue growth of 21% and adjusted EBITDA of $20.6 million exceeded our guidance, and I'd like to share context on that performance, specifically focusing on our revenue and operational initiatives. With respect to our revenue performance, on our last call, we guided to revenue growth that we could, we worked on initiatives beyond our known wins, and then we over-delivered with 21% volume-driven revenue. For the fourth quarter in a row, our volume growth was spread broadly across customers, panels, and major product categories.

Brian Kocher: Our second quarter headline is very simple.

Greg Gaba: Both volume-driven revenue growth of 21% and adjusted EBITDA of $20.6 million exceeded our guidance. And I'd like to share context on that performance, specifically focusing on our revenue and operational initiatives.

Brian Kocher: Both volume-driven revenue growth of 21% and adjusted EBITDA of $20.6 million exceeded our guidance, and I'd like to share context on that performance, specifically focusing on our revenue and operational initiatives. With respect to our revenue performance, on our last call, we guided to revenue growth that we could... We worked on initiatives beyond our known wins, and then we over-delivered with 21% volume-driven revenue. For the fourth quarter in a row, our volume growth was spread broadly across customers, panels, and major product categories.

Brian: With respect to our revenue performance, on our last call, we guided to revenue growth that we could see. We worked on initiatives beyond our known wins, and then we over-delivered with 21 percent volume-driven revenue growth.

Brian: For the fourth quarter in a row, our volume growth was spread broadly across customers, panels, and major product categories.

Brian Kocher: We are executing well across our product portfolio and continue to see significant opportunities for further growth and improvement. Remember last quarter I mentioned we have visibility into our customers' initiatives and pipelines, which gives us confidence in our demand generation engine and confidence to increase our 2024 outcome. Let me provide a few data points to give you some perspective on the depth of our growth. We again drove double-digit revenue growth from each of our top three customers. Our top five customers posted 23% average year-over-year revenue.

Brian Kocher: We are executing well across our product portfolio and continue to see significant opportunities for further growth and improvement. Remember last quarter I mentioned we have visibility into our customers' initiatives and pipelines, which gives us confidence in our demand generation engine and confidence to increase our 2024 output. Let me provide a few data points to give you some perspective on the depth of our growth. We again drove double-digit revenue growth from each of our top three customers. Our top five customers posted 23% average year-over-year revenue.

Brian: We are executing well across our product portfolio and continue to see significant opportunities for further growth and improvement.

Brian Kocher: Remember last quarter, I mentioned we have visibility into our customers' initiatives and pipelines, which gave us confidence in our demand generation engine and confidence to increase our 2024 outlook. Let me provide a few data points to give you some perspective on the depth of our growth. We again drove double-digit revenue growth from each of our top three customers. Our top five customers posted 23% average year over year. Our fruit snacks business grew by over 24% and continued a streak of 16 consecutive quarters with at least double-digit growth. Our food service segment revenue again increased at a double-digit rate, and every major go-to-market channel and product category grew during the quarter.

Brian: Remember last quarter I mentioned we have visibility into our customers, initiatives, and pipelines, which gave us confidence in our demand generation engine and confidence to increase our 2024 outlook.

Brian: Let me provide a few data points to give you some perspective on the depth of our growth. We again drove double-digit revenue growth from each of our top three customers. Our top five customers posted 23 percent average year-over-year revenue growth.

Brian Kocher: Our fruit snacks business grew by over 24% and continued a streak of 16 consecutive quarters with at least double-digit growth. Our food service segment revenue again increased at a double-digit rate, and every major go-to-market channel and product category grew during the quarter. We continue to see plant-based beverages increasingly featured across new menu items and on menu boards in food service. Volume continues to be the primary driver of growth. Unit volume growth is the most significant confirmation of our continued and differentiated value proposition in the commercial market.

Speaker Change: Our fruit snacks business grew by over 24% and continued a streak of 16 consecutive quarters with at least double-digit growth.

Speaker Change: Our food service segment revenue again increased at a double-digit rate, and every major go-to-market channel and product category grew during the quarter.

Brian Kocher: We continue to see plant-based beverages increasingly featured across new menu items and on menu boards in food service. Baldwin continues to be the primary driver of growth. Unit volume growth is the most significant confirmation of our continued and differentiated value proposition in the commercial market. When customers want more of our support products and innovation and want them at a faster rate than the overall market is growing, we know we have a sustainable competitive advantage. Our volume growth is coming from several areas. We are winning with winning customers as the solution provider and an innovation partner.

Speaker Change: We continue to see plant-based beverages increasingly featured across new menu items and on menu boards in food service.

Brian Kocher: Volume continues to be the primary driver of growth. Unit volume growth is the most significant confirmation of our continued and differentiated value proposition in the commercial market. When customers want more of our support products and innovation and want them at a faster rate than the overall market is growing, we know we have a sustainable competitive advantage. Our volume growth is coming from several areas. We are winning with winning customers as a solution provider and an innovation partner. Specifically, the brands we support are winning and outperforming the categories where they play. Over the last 13-week measurement period, the majority of the brands we support have exceeded category volume performance by over 700 baselines.

Brian: Volume continues to be the primary driver of growth. Unit volume growth is the most significant confirmation of our continued and differentiated value proposition in the commercial market.

Brian Kocher: When customers want more of our support products and innovation and want them at a faster rate than the overall market is growing, we know we have a sustainable competitive advantage. Our volume growth is coming from several areas. We are winning with winning customers as a solution provider and an innovation partner. Specifically, the brands we support are winning and outperforming the categories where they play. Over the last 13-week measurement period, the majority of the brands we support have exceeded category volume performance by over 700 basis points.

Brian: When customers want more of our support products and innovation and want them at a faster rate than the overall market is growing, we know we have a sustainable competitive advantage.

Speaker Change: Our volume growth is coming from several areas.

Speaker Change: We are winning with winning customers as a solution provider and an innovation partner.

Brian Kocher: Specifically, the brands we support are winning and outperforming the categories where they play. Over the last 13-week measurement period, the majority of the brands we support have exceeded category volume performance by over 700 basis points. Secondly, we're gaining incremental business from new and existing customers as they seek to leverage our service capabilities, our capacity, and our innovation talent to launch new products as well as support growth in their established offering. And thirdly, we are also benefiting from our cam 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.

Speaker Change: Specifically, the brands we support are winning and outperforming the categories where they play.

Brian: Over the last 13-week measurement period, the majority of the brands we support have exceeded category volume performance by over 700 basis points.

Brian Kocher: Secondly, we're gaining incremental business from new and existing customers as they seek to leverage our service capabilities, our capacity, and our innovation talent to launch new products as well as support growth in their established software. 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 will continue to grow in the mid-single digits in the aggregate across all channels tracked and untracked.

Brian: Secondly, we're gaining incremental business from new and existing customers as they seek to leverage our service capabilities, our capacity, and our innovation talent to launch new products as well as support growth in their established offerings.

Brian: And thirdly, we are also benefiting from our TAM expansion into protein shakes and other plant-based beverage innovations in food service.

Brian: The adjustable markets in which we participate are also large and growing.

Brian Kocher: For 2024, we estimate the U.S. shelf-stable plant-based milk 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.

Speaker Change: 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.

Brian Kocher: Remember that much of our volume is derived from untracked segments, and we continue to see growth in food service and club champions. 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 remains very strong.

Brian Kocher: Remember that much of our volume is derived from untracked segments, and we continue to see growth in food service and club changes. 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 remains very strong.

Brian: Remember that much of our volume is derived from untracked segments and we continue to see growth in food service and club channels.

Brian: protein shakes continues to be one of the fastest growing categories and cpg

Speaker Change: 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, Texas.

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

Speaker Change: in fru nackx consumer and customer demand remain very strong

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. 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.

Speaker Change: 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's share.

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

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

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 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 A septic facilities by over 24% versus the prior year, and output in our fruit snacks facilities increased by more than 33%.

Brian: Let me transition to our operational performance.

Brian: 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.

Brian: 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.

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.

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

Brian: From an output perspective, during the second quarter, we increased unit output in our aseptic facilities by over 24 percent versus the prior year, and output in our fruit snacks facilities increased by more than 33 percent.

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.

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

Brian Kocher: If you exclude new capacity... 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 plant.

Brian Kocher: If you exclude new capacity, 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 plant.

Brian: 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.

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

Brian: 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.

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 in 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 in 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: In Midlothian, 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.

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.

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 2024. 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.

Brian: 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.

Brian: 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.

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 improvement. 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.

Brian: 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 Q, we add 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 Q.

Brian: Our supply chain initiatives are detailed by plant, 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.

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. Rarely are increases in output not simultaneously accompanied by some growth.

Brian: 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.

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 growth. In the quarter, we discovered areas for short-term investment, which will continue into the third quarter.

Brian: The quantum and magnitude of improvement plans we have in place across our network help to fuel our 27% volume growth in Q2.

Brian Kocher: Rarely, our 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.

Brian: 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.

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 beginning 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, 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.

Brian Kocher: However, we see significant opportunity for sustainable margin improvement beginning 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.

Brian: 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.

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

Brian: 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.

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 cost.

Brian: our priorities actions and initiatives to deliver against these expectations remain the same

Brian Kocher: 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.

Brian: First, grow volume through expanding our current customer relationships, acquiring new customers, and expanding our TAM.

Brian: 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 growth.

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 percent 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 disciplined financial reproach and continue de-leveraging to under three times the evita, our stated goal by the end of this year.

Brian Kocher: Secondly, we want to drive operational improvements to both increase output and expand sustainable. 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.

Brian Kocher: Secondly, we want to drive operational improvements to both increase output and expand sustainable markets. 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.

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

Brian: 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: 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.

Brian: 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.

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 in revenue. We also grow share in revenue by improving operational efficiency. As we increase output through efficiency gains, we extend the capacity of our deployed investments and defer growth capex, which leads to higher returns on investing 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 will also grow share and revenue by improving operational efficiency.

Brian: 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.

Speaker Change: As a private label and co-manufacturing solutions provider, we solve problems and create wins for our customers.

Speaker Change: 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.

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 sharing. 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.

Brian: 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 half, 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 gains. We are demonstrating the necessary operational resilience of business needs, the 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 on. 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.

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.

Brian: 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 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.

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 and more details.

Brian: We're demonstrating the necessary operational resilience a business needs, the service growth while simultaneously overcoming challenges and improving our operational efficiency.

Brian: as a result we are poised for a higher sustainable margins and improving profitability as our supply chain initiatives stain traction and accelerate all of which hellps to drive free cash flow

Brian: 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. Thank you, Brian, and good afternoon, everyone. We had another strong quarter. Revenue of 171 million was up 21 percent compared to last year, driven by exceptional volume growth. As Brian highlighted, this growth was across the board. Growth profit increased 3.2 million or 17 percent to 21.8 million in the quarter and reported growth margin with 12.8 percent. Just in growth margin with 16.2 percent 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.

Brian: 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. 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 percent compared to last year, driven by exceptional volume growth. As Brian highlighted, this growth was across the board.

Reed Anderson: I would now like to turn the conference over to your host, Reed Anderson with ICR. Thank you. You may begin.

Brian Kocher: Good afternoon, and thank you for joining us on SunOpta's second quarter fiscal 2024 earnings conference call. On the call today are Brian Kocher, Chief Executive Officer, and Greg Gaba, Chief Financial Officer. By now everyone should have access to the earnings press release that was issued earlier this afternoon and is available on the Investor Relations page of SunOpta's website at www.sunOpta.com. This call is being webcast and its transcription will also be available on the company's website.

Greg Gaba: 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, 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: Gross profit increased $3.2 million, or 17%, to $21.8 million in the quarter, and reported gross margin was 12.8%.

Greg Gaba: Adjusted gross margin was 16.2% and reflects increased volume and better plant utilization.

Greg Gaba: offset by short-term discretionary investments in future sustainable supply chain efficiencies, some manufacturing inefficiencies, and incremental depreciation for newly launched production assets.

Brian Kocher: As a reminder, please note that the prepared remarks which will follow contained forward-looking statements and management may make additional forward-looking statements in response to your questions. These statements do not guarantee future performance and therefore under-reliance should not be placed upon them. We refer you to all risk factors contained in SunOpta's press release issued this afternoon. The company's annual report filed on Form 10K and other filings with the Securities and Exchange Commission for a more detailed discussion of the factors that could cause actual results to differ materially from those projections and any forward-looking statements.

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. Adjusted EBITDA from continuing operations increased 12 percent 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 the despo coming online.

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. Adjusted EBITDA from continuing operations increased 12% to $20.6 million compared to $18.4 million last year.

Greg Gaba: to

Brian: 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, the company's 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.

Brian: Loss from continuing operations was $3.8 million compared to a loss of $11.7 million in the prior year period.

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

Brian Kocher: The company undertakes no obligation to publicly correct or update the forward-looking statements made during the presentation to reflect future events or circumstances except as may be required under applicable securities laws. Finally, we would like to remind listeners that the company may refer to certain non-gap financial measures during this teleconference. A reconciliation of these non-gap financial measures was included with the company's press release issued earlier today. Also, please note in the prepared remarks that follow unless otherwise stated the company will be referring to the continued operations portion of the business and all figures are in US dollars occasionally rounded to the nearest million.

Brian: 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.

Greg Gaba: Turning to the balance sheet, at the end of the second quarter, debt was $303 million.

Speaker Change: 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.

Greg Gaba: 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.

Greg Gaba: 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 year-to-date, cash used in investing activities of continuing operations was 13.9 million.

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

Brian Kocher: Now I'll turn the call over to Brian to begin. Brian? Good afternoon and thank you for joining us today. For today's call, I'll start with the highlights of our latest quarters performance along with an update on business trends and key priorities. Greg will follow with a review of the financials and our outlook. Then we'll take your questions.

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 percent to 16 percent. 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, remember, we are maintaining our outlook for the EBITDA of 88 to 92 million, which represents growth of 12 percent to 17 percent.

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 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%.

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%.

Brian: Now turning to our full-year outlook.

Brian: 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.

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

Brian: From a profit perspective.

Brian: 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,

Brian: We are maintaining our outlook for adjusted EBITDA of $88 to $92 million, which represents growth of 12% to 17%.

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.

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 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.

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.

Brian: 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.

Brian Kocher: For the fourth quarter in a row, our volume growth was spread broadly across customers, panels, and major product categories. We are executing well across our product portfolio and continue to see significant opportunities for further growth in... Remember last quarter, I mentioned, we have visibility into our customers' initiatives and pipelines, which gave us confidence in our demand generation engine and confidence to increase our 2024 outlook. Let me provide a few data points to give you some perspective on the depth of our growth.

Brian: As Brian discussed, we are delivering exceptional top-line growth rates and are accelerating our investments in supply chain initiatives.

Brian Kocher: 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.

Greg Gaba: Before opening the call for questions, just a reminder that for competitive reasons, we do not provide details in the field 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.

Brian Kocher: We again drove double digit revenue growth from each of our top three customers. Our top five customers posted 23% average year over year. Our fruit snacks business grew by over 24% and continued a streak of 16 consecutive quarters with at least double digit growth. Our food service segment revenue again increased at a double digit rate and every major go-to-market channel and product category grew during the quarter. We continue to see plant-based beverages increasingly featured across new menu items and on menu boards in food service.

Operator: 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.

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 Anderson with William Blair. Please go ahead.

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

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

Speaker Change: If you would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue.

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

Brian: And if you would like to withdraw that question, again, press star 1.

Operator: 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: 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.

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

Jon Anderson: Good afternoon, everybody. Thanks.

Brian Kocher: Hi Jon, how are you? I'm going to thank you. I hope you are, too.

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

John Anderson: 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. 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, was it new additions ramping more quickly? Or was it kind of the tam part of the, the growth story that drove that?

Brian Kocher: Baldwin continues to be the primary driver of growth. Unit volume growth is the most significant confirmation of our continued and differentiated value proposition in the commercial market. When customers want more of our support products and innovation and want them at a faster rate than the overall market is growing, we know we have a sustainable competitive advantage. Our volume growth is coming from several areas. We are winning with winning customers as the solution provider and an innovation partner.

Speaker Change: Hi, Jon. 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.

Brian Kocher: 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 new additions ramping more quickly? Or was it kind of the TAM part of the growth story that drove that?

Brian Kocher: So the sales were 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? new additions ramping more quickly, or was it kind of the TAM part of the growth story that drove that? Jon, thanks a lot for the question. I really appreciate it.

Jon Andersen: 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.

Speaker Change: But I'd like to get a little better sense for, you know, was that more in the existing customer base? Was it new additions ramping more quickly? Or was it kind of the TAM part of the growth story that drove that?

Brian Kocher: Specifically, the brands we support are winning and outperforming the categories where they play. Over the last 13 week measurement period, the majority of the brands we support have exceeded category volume performance by over 700 basis points. Secondly, we're gaining incremental business from new and existing customers as they seek to leverage our service capabilities, our capacity, and our innovation talent to launch new products as well as support growth in their established offering.

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 either protein shakes and some of our plant based beverage initiatives. We also continued to see a category that, 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 as a co-manufacturer and a private label provider solutions provider.

Brian Kocher: Jon, thanks a lot for the question. I really appreciate it. I think we were really excited about this quarter because 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 of our TAM expansion initiatives with protein shakes and 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...

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.

Speaker Change: Don, thanks a lot for the question. I really appreciate it. I think we were.

Don: We were really excited this quarter by the fact that it was a little bit of everything.

Speaker Change: 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 of our TAM expansion initiatives with either protein shakes and some of our plant-based beverage initiatives.

Brian Kocher: And thirdly, we are also benefiting from our cam 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 milk 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.

Speaker Change: 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...

Brian Kocher: And I think one of the more important things is that 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 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 were 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, and 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 were very happy with the volume growth in particular. That's always a great sign.

Brian: The brands that we support are winning. As a co-manufacturer and a private label provider, solutions provider,

John Anderson: 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 all. 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 were very happy with the volume growth in particular. That, that's always a great time. Absolutely.

Brian: 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,

Brian: 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.

Brian: All of the areas that we provided strength in, and we were very happy with the volume growth in particular. That's always a great sign.

Brian Kocher: 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%, with our customers commanding well over 75% of the segment share.

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, you know, 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, what can you tell us about your business that makes it different? Because it sounds like that hasn't, you know, 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: 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 that 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. 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. Well, I think there's a couple of things to remember with respect to our customer base.

Speaker Change: 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

Speaker Change: 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...

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 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, it was broad-based.

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. Again, I think if you think about the growth, it was broad-based.

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

Brian Kocher: 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, and 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, somewhere innovation and development is happening. I think we talked a little bit about this last quarter.

Speaker Change: 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 anl we have clubchanne we have a retail support in both private label in co manufacturing so there's a lot of diversity there

Brian Kocher: 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 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.

Brian Kocher: Our top three customers grew double digits. Our food service customers, in the aggregate, grew double digits. Our top five customers grew 23 percent, 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 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.

Brian: Again, I think if you think about the growth...

Brian: 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 percent. Now that comes with

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 A septic 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: Some where the category is growing, some where TAM expansion is happening, some where innovation and development is happening. I think we talked a little bit about this last quarter.

John Anderson: 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. That's probably the best way to describe it. Makes sense.

Brian: The opportunity that we have to work with our customers on either innovation or co-development

Brian: really gives us a unique position to potentially participate in

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.

Brian: 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.

Jon Anderson: Makes sense. I'm going to squeeze a third one in if I can.

John Anderson: I'm going to squeeze a third one in if I can. I know I'll get a lot of questions, so volumes are extremely strong. You're ramping production in the Lothian. The fruits next business is on fire, and volumes are strong there. Yet, we saw some margin growth, margin degradation year over year. 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 in? 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.

Speaker Change: 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 volumes were extremely strong. You're ramping production of Ibidlothian.

Brian Kocher: You know, I know I'll get a lot of questions. So the volumes were extremely strong. You're ramping production to 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? 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: You know, I know I'll get a lot of questions. So the volumes were extremely strong. You're ramping up production at 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? 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: The fruit snacks business is on fire and volumes are strong there.

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 in 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 in investment.

Speaker Change: And yet, you know, we saw kind of margin, some margin, gross margin degradation year over year.

Speaker Change: 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

Brian Kocher: 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. 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. 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. 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.

Speaker Change: Your visibility is really good in terms of delivering on that. Thank you.

Brian Kocher: No problem, Jon. Look, I love the question. A couple of things to think about, and we'll talk about them in terms of gross margin and the outlook for gross margin. First of all, there is lots of 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.

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

Brian: No problem, Jon. Look, I love the question. A couple of things to think about, and 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.

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

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 plant, 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.

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: 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.

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 plant, essentially out of sweat equity and ingenuity, a full manufacturing line. So we were really excited about that.

Brian: So the first bit of good news that's in that margin story, I would tell you, is that

Brian Kocher: In fact, on some of our existing assets, let's exclude Mid-Lothian 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. So we were really excited about that. The second bit of good news, and I'm gonna 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.

Brian: 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.

Brian Kocher: In two Q we add 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 Q. Rarely, our 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.

Brian: essentially out of sweat equity and ingenuity, a full manufacturing line. So we were really excited about that.

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'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. 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?

Brian: 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: The good news is we're identifying that now. In supposed 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 down line 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.

Brian Kocher: 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, 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...

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.

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 of labor and labor management. We're investing in our procurement and inventory management processes to make this flow together from beginning to end of the supply chain. Again, I think the good news for us is that

Brian: 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

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 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 percent in the second quarter, and our newest capacity is still ramping up in the second half.

Speaker Change: See all the to make this flow 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 an investment. 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 be as we produce the volume we can get better at it and just a few data points.

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.

Brian: We've 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 investments, think of these investments as temporary investments in labor, potentially some surge resources to help us on efficiency initiatives.

Speaker Change: Maybe a small investment here or there in terms of shop floor metric systems and reporting and escalation systems. So we're really confident.

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: 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-laveraging to under three times the evita, our stated goal by the end of this year. Every aspect of our business is closely linked, and through our discipline's relentless focus on operational execution, we continue delivering strong results.

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.

Speaker Change: 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: If I look at overall cost per unit produced and overall labor unit produce, 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: 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.

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

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

Brian: Thanks a lot, Brian .

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 in revenue. We also grow share in revenue by improving operational efficiency. As we increase output through efficiency gains, we extend the capacity of our deployed investments and defer growth capex, which leads to higher returns on investing capital and drives incremental value for shareholders.

Speaker Change: Your next question comes from the line of Jim Salera with Stevens. 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 Salera: Yes, good afternoon. Thanks for taking our questions. Brian , I really wanted to drill down on

Jim Salera: The kind of sustainability of what seems to be pretty meaningful gains in kind of the share among your customers because

Speaker Change: And 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 than maybe some other categories.

Brian Kocher: 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 unseen, so to speak. 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.

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: But your outperformance relative to what is visible in the track channels continues to be very stark.

Brian Kocher: In summary, we delivered strong results in the first half, 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 gains. We are demonstrating the necessary operational resilience of business needs, the 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 on 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.

Speaker Change: And so, should we expect to see...

Speaker Change: 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 the growth that's unseen, so to speak.

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.

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 clubs, that's the opportunity, and on other untracked channels, that's the opportunity that we really address, and certainly is more meaningful to us.

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

Jim Salera: Track channels is less than a fifth of the market that we serve.

Brian Kocher: 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 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 channels 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. Let's call it Philosophy on guidance and expectation setting.

Speaker Change: 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 other untracked channels, that's the opportunity that we really address and certainly is more meaningful to us.

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, we're starting to see some of that, but I will get back to our philosophy on guidance and expectation setting.

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: So that is one thing.

Speaker Change: 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...

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.

Brian Kocher: We communicate what we see. 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. So I would never say 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: communicate what we see

Jim Salera: where we understand and work with our customers every week, every month on their innovation efforts.

Greg Gaba: Just in growth margin with 16.2 percent 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.

Speaker Change: 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.

Speaker Change: 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

Speaker Change: You know, it's 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 Solera: Okay, both volumes. And then, yeah, that's that's helpful.

Jim Salera: Okay. 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, let's say, that we see in food

Brian Kocher: Okay. 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, let's say, that we see in food

Greg Gaba: This improvement was driven by incremental operating income in addition to reduced income tax expense. Adjusted EBITDA from continuing operations increased 12 percent 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 the despo 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 year-to-date, cash used in investing activities of continuing operations was 13.9 million.

Speaker Change: Okay, both volumes. And then...

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 what's driving your sub-segment in food service that it sees such a higher degree of success relative to kind of the broader slowdown that's out of the sea and you know 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: yeah there's on the food service side in particular i guess

Speaker Change: I'm obviously positively surprised by the strength you guys continue to see there.

Speaker Change: 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

Speaker Change: What's driving your sub-segment in food service that it sees such a higher degree of success relative to kind of the broader slowdown, let's say, that we see in food service?

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.

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 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's two things that I would say think about that. Thank you for your time.

Brian Kocher: 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'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 index versus the rest of the product portfolio of some of our food service customers.

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..., 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.

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... 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 track channels, the brands that we support are outperforming the overall category.

Speaker Change: 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

Speaker Change: 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.

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 channel.

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: versus the rest of the product portfolio of some of our food service customers. 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 channel.

Jim Solera: Okay, great. I appreciate all the color.

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

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

Operator: I'll pop out in the view. Thank you.

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

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

Brian Holland: Your next question comes from the line of Brian Holland with D.A. 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 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 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'm 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?

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

Brian Holland: Yes, thanks. Good afternoon.

Brian Holland: Yeah, thanks. Good afternoon.

Brian Kocher: 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.

Brian Kocher: 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 had it, it's kind of like a 20% gross margin target. You can correct me, kind of in the long term. You can correct me if I'm wrong there.

Brian Holland: Yeah, thanks. Good afternoon. So I just wanted to ask about some of the supply chain of investments.

Greg Gaba: Before opening the call for questions, just a reminder that for competitive reasons, we do not provide details in the field commentary regarding customer or skew level activity.

Speaker Change: It may be in the context of...

Speaker Change: you know, kind of rolling this forward.

Speaker Change: If I've got it right, and I know there's a lot of moving parts with the divestitures and portfolio reshaping, but last I have it, it's kind of like a

Speaker Change: That's 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,

Brian Kocher: 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 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: 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,

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. 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. Presumably, you know, the sales exceeded your own expectations. They clearly exceeded the streets expectations in the quarter.

Brian Holland: Are these investments maybe intended to ultimately drive upside to that target, if it would be possible to address it in that way, that there'll be...

Speaker Change: 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 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. As we 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 identify 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 an opportunity we believe to kind of accelerate our margin enhancement.

Speaker Change: Yeah, Brian , I absolutely would not characterize them as simply costing more.

Speaker Change: Think of it this way, we're growing faster.

Speaker Change: Then 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

John Andersen: But I'd like to get a little better sense for, you know, was, 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? 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.

Speaker Change: Test your supply chain a little bit and we're identifying some of these areas that we would have identified

Speaker Change: 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.

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, 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, right.

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, 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 percent, but that would be the upside, I think, right.

Brian Kocher: 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 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 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%. But that would be upside.

Speaker Change: our margin enhancement. We make some short-term investments, and then we drive to that 20%

John Andersen: If we had some new product launches that, that came out and did well in the second quarter on behalf of our customers, certainly we, 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, 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 as a co manufacturer and a private label provider solutions provider.

Speaker Change: long-term target for, mid-term target for margin.

Speaker Change: 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.

Speaker Change: If we look at the next time our network will be full, 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...

Speaker Change: We really want to hold ourselves and push ourselves to get something north of 20 percent. But that would be upside, I think, right now.

Brian Kocher: I think right now.

Brian Kocher: 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 closer for not already at the point where we need to decide what those lines are going to be allocated for, dedicated to. So I'm 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 Kocher: understood. That's a great color.

John Andersen: 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 all. And so as you, as you think about all the areas we can grow, it was really across all of the areas that, that we provided strength and, and we were, we're very happy with the volume growth in particular.

Speaker Change: Understood, that's great color. And then the other question, if we think, you know, in Midlothian about the opportunity for expansion, I think like lines 4 out to, you know, potentially 8 as it was outlined 18 or so months ago,

Brian Kocher: 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.

Brian Kocher: 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.

Speaker Change: i suspect we're getting close we're not already at the point where we need to decide what those

John Andersen: That, that's always a great time. 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 that 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. 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.

Speaker Change: So, I'm curious if you can provide any assessment there because

Brian Kocher: 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 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: 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

Brian Kocher: And you obviously have discussed what we're seeing in the protein shake category. So, 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.

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: what we're seeing on the protein shapeke category so just maybe a sense of 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 twelve twenty four month

Brian Kocher: Yeah, sure, Brian. Great question. So, as you recall, we just had our third line in Mid-Lothian come online in Q2, right? So there is quite a bit of run rate at Mid-Lothian for future growth. We've said before, and we still believe by the end of 2025, or at least 26, when we see our network to be full. But our first priority continues to be to deal average, right? So our goal is to be under three times levered. 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.

John Andersen: 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, and the aggregate grew double digits, our top five customers grew 23%.

Greg Gaba: 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.

Greg Gaba: 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.

Speaker Change: Yes, sure, Brian. Great question.

Speaker Change: 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.

Speaker Change: we've said before and we still believe by the end of two thousand andtwentyfive early twenty six 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 we fullyld expect to bethere by the end of this year and al be a focusused here in 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-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: 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 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-capacity capital. And that's where our focus is on the short term.

John Andersen: Now that comes with some where the category is growing, some where 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 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.

Speaker Change: Okay, fair enough.

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.

Speaker Change: 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.

Speaker Change: there is tremendous opportunity for us to continue improving efficiency and output and creating non-CAPEX capital. And that's where our focus is on the short term.

Andrew Strelzik: Your next question comes from the line of Andrew Strelzik with the BMO Capital Markets. Please go ahead. Any 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 pointed to, kind of run rate. It exiting 25 and you know into 26. It 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.

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

Andrew Strelzik: Hey, good afternoon. Thanks for taking the questions. My first question, 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 I guess it feels like it's pulling forward, but I guess I was just a little unclear based on that answer.

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 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 answer.

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

Andrew Strelzik: Hey, good afternoon. Thanks for taking the questions.

Andrew Strelzik: 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.

Speaker Change: 25 and 20, 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 the answer.

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

John Andersen: 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. Our gross margin story starts with volume.

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 wanna 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: Andrew, I'll be blatantly 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 mid-term guidance now than we did this time last quarter, which was more confident than the quarter before.

Andrew Strelzik: Yeah, Andrew, I'll be...

Andrew: Blatant and bluntly clear with you.

Andrew Strelzik: We're really focused on communicating what we can see and not what we hope right now.

Speaker Change: We've...

Speaker Change: 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,

John Andersen: We posted a quarter with big volume growth, and when that big volume growth came in, our network supplied it. 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. 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.

Speaker Change: is we have more confidence.

Speaker Change: 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,

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 mid-term target and worrying about changing a timing or magnitude. Okay, okay, that makes sense.

John Andersen: In fact, on some of our existing assets, let's exclude Mid-Lothian 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. So we were really excited about that. The second bit of good news, and I'm gonna call this good news, is volume growth like this routinely and expectedly test your supply chain.

Speaker Change: I would look at that as giving us more confidence in that midterm target than worrying about changing a timing or magnitude.

Andrew Strelzik: Okay, 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 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: 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 on how, how, how those conversations are progressing. Thanks.

Speaker Change: Okay, okay, that makes sense. And then my other question, you know, obviously there's a lot of, you know, 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.

Speaker Change: 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 curious how those conversations are progressing. Thanks.

John Andersen: 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. The good news is we're identifying that now. In supposed 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 down line efficiencies. Why is that important?

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, cross-tracked and untracked, all 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.

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.

Brian Kocher: No problem, Andrew, but let's break down the categories in which we play. She'll stable plant-based beverages. We believe is growing in the mid single digits across tract and on track. Alright, 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, fruits, snacks, growing, heck, even our less mainstream products, broth and tea, growing. So our cat, the categories in which we service and in particular, the ones in which we're helping our customers win, those are all growing.

Speaker Change: No problem, Andrew, but let's break down the categories in which we play. Shelf stable, plant-based beverages.

Speaker Change: We believe is growing in the mid-single digits, the cross-tracked and untracked, 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.

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 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 we look at the consumer in the category. Now, we are also helping customers grow with innovation. Not always is that innovation new... Flavor or product or unit size.

Speaker Change: 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.

John Andersen: 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. Again, I think the good news for us is we've got the volume and we've got the output.

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.

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

Brian Kocher: And I think that's one thing to keep in mind is we think about how you look at the consumer and the category. Now we are also helping customers grow with innovation, not always if that innovation. 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. Those are things that all go into solutions providing and innovating for customers when you're a solutions provider. 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 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 thing.

Speaker Change: flavor, or product, or unit size. It could be a new pack size.

John Andersen: Remember we can never make efficient the volume that we don't take. So we took the volume. We've got opportunities to make an investment. 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 be as we produce the volume we can get better at it and just a few data points.

Speaker Change: 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,

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.

Speaker Change: 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.

John Andersen: If I look at overall cost per unit produced and overall labor unit produce 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.

Andrew Strelzik: Great. Thank you very much.

Ryan Meyers: Your next question comes from the line of Ryan Meyers with Lake Street Capital Markets. Please go ahead. Just one question for me. Just curious how we should think about the potential for adding any new business into the pipeline. I mean, we 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?

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

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

Ryan Meyers: 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.

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. Just curious how we should think about the potential for adding any new business into the pipeline. I mean, I know 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, how should we be thinking about that for this year, and then maybe the potential for next year as well?

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

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.

Speaker Change: and many more. Thank you for watching. I hope you enjoyed the video. If you did, please like, comment, and subscribe. I'll see you next time.

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 hope for.

Brian Kocher: 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.

Brian Kocher: 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.

Ryan Meyers: Don't let that be confused with, we don't work on anything else.

John Andersen: 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 unseen so to speak.

Speaker Change: 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.

Speaker Change: 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.

Operator: We'll continue all of those, but we'll also continue communicating what we see, not what we hope. Thanks for taking my question. Okay, thank you.

John Andersen: 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 club, 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: Thanks for taking my questions.

Alex Furman: 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 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? Would 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: Okay, thank you.

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

Alex Fuhrman: Hey guys, thanks for taking my question and congratulations on another really strong quarter. 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: Hey, guys, thanks for taking my question and congratulations on another really strong quarter. Brian, I was hoping you could unpack something a little bit more about what 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.

John Andersen: So that is one thing on the track channels 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 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. We understand and work with our customers every week, every month on their innovation efforts.

Alex Fuhrman: 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.

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 Um..., 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.

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.

Brian Kocher: 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.

Speaker Change: 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.

John Andersen: 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 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 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. And then, yeah, that's that's helpful.

Alex Furman: 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 customer. 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. Thank you.

Speaker Change: 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.

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 customer.

Speaker Change: They also have a team that is out there every day working to grow their brand.

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

Alex Fuhrman: That's terrific. Thank you very much. Thank you. Your next question comes from the line of Daniel Bioski with Hedge Eye Risk Management. Please go ahead.

Operator: That's terrific. Thank you very much. Thank you. Your next question comes from the line of Daniel Biolsi with Hedge Eye Risk Management. Please go ahead.

Speaker Change: and Brian Kocher. Thank you. Thank you.

John Andersen: 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 kind of the broader slowdown that's out of the sea and you know food service.

Daniel Biolsi: Your next question comes from the line of Daniel Biolsi with Hedge I Risk Management. Please go ahead. 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's the same secular trends that we've seen again and in advantage with with SunOpta and 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. Thank you, Brian and Greg. It's really nice to see revenue expectations going higher.

Brian Kocher: That's terrific. Thank you very much.

Speaker Change: Thank you.

Speaker Change: Your next question comes from the line of Daniel Biolsi with Hedge Eye Risk Management. Please go ahead.

Daniel Biolsi: Thank you, Brian and Greg. It's really nice to see revenue expectations going higher.

Daniel Biolsi: Brian and Greg, it's really nice to see revenue expectations going higher.

Daniel Biolsi: 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 trends going?

John Andersen: 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'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.

Brian Kocher: I would say they're the same secular trends that we've seen. Again, an advantage with SunOpta and our model is that we participate across the spectrum. And their usage occasions 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.

Daniel Biolsi: 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: and many more. Thank you. Thank you.

Speaker Change: I would say they're the same secular trends that we've seen, again an advantage with with SunOpta and our model.

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: is that we participate across the spectrum.

Speaker Change: And there's usage occasions differ across the spectrum of plant-based beverages. So, I'm excited to the fact that when...

Speaker Change: You work with us as a solutions provider. You've got the full spectrum of plant-based beverages to deploy at your disposal.

Daniel Biolsi: 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 CapEx 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 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. And then there's a whole host of other relative investments, but I don't want to put the cart before the horse.

Brian Kocher: And so I have to follow up with the results you put in 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. 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.

Speaker Change: I have to follow up with the results you put 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: Well, let's stay really focused. Right now, Daniel, we're worried about executing, growing with our customers, solving their problems, and deleveraging.

John Andersen: 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 index versus the rest of the product portfolio of some of our food service customers. 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 channel. Okay, great. I appreciate all the color. I'll pop out in the view. Thank you.

Speaker Change: and getting that three times clever. When we do, I think there's a ton of evaluations to do. First and foremost,

Brian Kocher: 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 related 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: Returning capital to shareholders.

Daniel Biolsi: That's 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.

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

Speaker Change: Let's focus on delivering the third quarter, then the fourth quarter, deleverage, and then we've got a lot of opportunities after that.

Brian Kocher: 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.

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

Speaker Change: Sounds good.

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.

Speaker Change: And that concludes our question and answer session. I will now turn the conference over to Brian Kocher 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 Kocher: Thanks to everyone for joining us today, and we really appreciate the opportunity to explain our model and our results.

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 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 thing. 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, but also stretching our existing assets.

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 Change: If you take away only three things for this call, please remember these three things. At SunOpta, we are winning with winning customers across every significant channel and category in which we play.

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 maybe intended to ultimately drive upside to that target, if it would be possible to address it in that way, that there'll be...

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.

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: So that's one thing.

Speaker Change: Secondly, our supply chain is up to the challenge of accelerated growth.

Speaker Change: We have increased output by over 25% year-to-date.

Brian Kocher: 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.

Speaker Change: 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.

Brian Kocher: 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 has identified and highlighted some areas where we can further invest in the short term, and we will invest to drive operating efficiencies. Starting now with the goal of accelerating margin enhancement in 4Q and beyond.

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 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: 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.

Speaker Change: with the goal of accelerating margin enhancement in 4Q and beyond.

Brian Kocher: 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. 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 Change: Then lastly, we are really excited about our demand generation.

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

Speaker Change: 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. We're extremely excited about that.

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.

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

Brian Kocher: 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: to deliver.

Speaker Change: Thank you again for participating today. We look forward to updating you at 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.

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

Operator: R.I.P. Eric

unknown: Lyndsay Ma, But it's all good.

Brian Kocher: 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 closer for not already at the point where we need to decide what those lines are going to be allocated for dedicated to. So I'm curious if you can provide any assessment there because certainly we talked a lot about the plant based beverage and shelf stable category.

Brian Kocher: 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.

Brian Kocher: Yeah, sure, Brian, great question. So as you recall, we just had our third line in mid-Lothian come online in Q2, right? So there is quite a bit of run rate at mid-Lothian for future growth. We've said before and we still believe by the end of 2025 or at least 26 when we see our network to be full. But our first priority continues to be to deal average, right? So our goal is to be under three times levered.

Brian Kocher: We fully expect to be there by the end of this year. And that will be our focus here in the short term. 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 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-capacity capital. And that's where our focus is on the short term.

Andrew Strelzik: It exiting 25 and you know into 26. It is the timeline. Should we think about the timeline around that changing it all given those dynamics or or is the net with the investments that the timeline stays the same. I guess it feels like it's pulling forward but but but I guess I was just a little unclear based on the answer.

Andrew Strelzik: Andrew, I'll be blatantly 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 mid term guidance now than we did this time last quarter, which was more confident than the quarter before.

Andrew Strelzik: So each time we have revenue acceleration or potentially capacity creation. I would look at that as giving us more confidence in that mid term target and worrying about changing a timing or magnitude. 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 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 on how, how, how those conversations are progressing.

Andrew Strelzik: Thanks. No problem, Andrew, but let's break down the categories in which we play. She'll stable plant-based beverages. We believe is growing in the mid single digits across tract and on track. Alright, so those are our customers that we're talking with that we understand that we see have visibility to we believe that that categories and growing in the mid single digits. Ready to drink protein shakes, growing, fruits, snacks, growing, heck, even our less mainstream products, broth and tea, growing, so our cat, the categories in which we service and in particular, the ones in which we're helping our customers win, those are all growing.

Andrew Strelzik: And I think that's one thing to keep in mind is we think about how you look at at the consumer and the category. Now we are also helping customers grow with innovation, not always if that innovation. 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. Those are things that all go into solutions providing and innovating for customers when you're a solutions provider.

Andrew Strelzik: 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.

Andrew Strelzik: Great. Thank you very much.

Ryan Meyers: 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 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. Okay, thank you.

Alex Furman: 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 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?

Alex Furman: Is that just plant based, taking share from dairy or your customers having more consistent access to supply and fewer stockouts? Would love to just get a sense of what that common theme has been there. 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.

Alex Furman: 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 customer. 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.

Alex Furman: Thank you very much.

Daniel Biolsi: Thank you. Your next question comes from the line of Daniel Biolsi with hedge I risk management. Please go ahead. 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's the same secular trends that we've seen again and in advantage with with SunOpta and our model is that we participate across the spectrum.

Daniel Biolsi: 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.

Daniel Biolsi: First and foremost, returning capital to shareholders. That's 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, dereliverage, and then we've got a lot of opportunities after that. Sounds good.

Operator: And that concludes our question and answer session.

Brian Kocher: 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 has identified and highlighted some areas where we can further invest in the short term and we will and will invest to drive operating efficiencies. Starting now with the goal of accelerating margin enhancement in 4Q and beyond.

Brian Kocher: 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.

Brian Kocher: 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.

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

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