Q3 2024 SunOpta Inc Earnings Call
Greetings and welcome to Synoptos 3rd Quarter 2021, Ernest Conference Call. At this time, all participants are an elicin only mode. A question and answer session will follow the prepared remarks.
Speaker Change: As a reminder, this conference is being recorded. Oh, now let's turn the conference over to your host, Reed Anderson with ICR. Thank you, you may begin.
Speaker Change: Good afternoon and thank you for joining us and synopsis 3rd quarter, fiscal 2024 earnings conference call.
Speaker Change: 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 is available on the Investor Relations page on synoptis website at www. synoptis.com
Reed Anderson: is causing 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 full-looking statements and management may make additional full-looking statements in response to your questions.
Reed Anderson: These statements do not guarantee a future performance, and therefore, undo reliance should not be placed upon them.
Reed Anderson: We refer you to all risk factors contained in synaptospress release issued this afternoon to companies in report filed on Form 10K, and other findings with the Securities and Exchange Commission, or more detailed discussion of the factors that could cause action results to differ materialy in those projections and any further looking statements.
Speaker Change: Company undertakes no obligation to publicly correct or update the former looking statements made during the presentation to reflect future events or circumstances, except as may be required under applicable securities loss.
Finally, you'd like to remind the listeners that the company may refer to certain non-gap and etchermitors during this teleconference.
Speaker Change: and Reconciliation of these non-gap financial measures was included with the company's press release issue earlier today. Also, please note in the prepare of the Marxist follow, unless otherwise stated the company will be referring to the continued operations portion of the business.
and all figures are a new established occasionally rounded to the nearest million. Now, let's turn the call, but a 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.
will follow with the review of the financials and our outlook. Then we'll take your questions.
Speaker Change: The third quarter played out as expected. We once again demonstrated our ability to drive significant growth, improve productivity and profitability, and build processes for our sustainable shareholder value creation.
Last quarter, we told you that we continued to see revenue growth from innovation, share expansion at existing customers and share growth with new customers.
Speaker Change: We also highlighted the temporary operating expense investments in our supply chain to accelerate future sustainable efficiencies, capacity growth and margin expansion.
Speaker Change: We guided to what we could see and worked diligently on key metrics, including revenue growth, volume growth, margin expansion, and increasing adjusted EBITDA. The short story we delivered.
Speaker Change: For the quarter, revenue growth of 16% was driven by volume growth of 21% reflecting broad-based strength across customers, channels, and major product categories. We are winning with winning customers as a solution provider and innovation partner.
Speaker Change: Our success in operational initiatives was evidenced by the 60 basis point year-over-year improvement in adjusted gross margin, as well as our 13% increase in adjusted EBITDA. Importantly.
Including the operational efficiency investments we projected, we improved gross margin, adjusted gross margin, and adjusted EBITDA sequentially over the second quarter of 2024.
Speaker Change: Let me provide a few data points to give you some perspective on the breadth and depth of our growth.
We again drove double digit revenue growth from each of our top three customers.
Speaker Change: Our top five customers posted 30% average year over year revenue growth.
Speaker Change: Our first next business grew by 42% reflecting 40% sales volume growth.
Speaker Change: In total, our beverages and broth product lines grew revenue by 14%.
Speaker Change: Our Food Service Channel, again, increased revenue by double digits, as our major customers continued to lean into consumers growing preference for plant-based beverages across their menu options.
Speaker Change: I love our categories and every category in which we participate is growing. As examples across all channels on a consolidated basis, shelf stable plant-based milk continues to grow at a mid-single digit rate.
Speaker Change: Pro Team Shakes increased 17% over the last 52 week period.
Speaker Change: The better for you fruits, next category, grew by 21% over the last 52 weeks with our customers commanding well over 75% of the segment share.
Speaker Change: Even a stable consumer category like Brock is up 8% over the last 52 weeks.
Speaker Change: Our coal manufacturing and private-level solution provider model has consistently demonstrated revenue growth potential.
Speaker Change: We are growing revenue through share gains as evidenced by our most recent announcement to expand dream oatmeal across North America and partnership with one of our largest customers.
Speaker Change: Our R&D teams are developing new innovative product solutions on behalf of our customers.
Speaker Change: We are deeply wired into our customer supply chain processes, and we were closely with them on longer-term inventory product and promotional plans.
Speaker Change: All of this gives us insight into and confidence about our future revenue growth opportunities. Moving on to our operational performance, as you know the supply chain has been a major area of focus for me.
Speaker Change: We are committed to improving its effectiveness and using those efficiencies to expand, margin, and fulfill our unit volume growth opportunities.
Speaker Change: While we've already realized many meaningful improvements in a relatively short period of time, I'm even more excited about the longer-term potential to drive greater productivity and efficiency.
Speaker Change: Based on our work over the past several quarters, we believe there is significant runway for us to unlock trap capacity in our existing network through 2026 and beyond.
Speaker Change: During Q3, as planned in similar to Q2, we chose to take advantage of our exceptional revenue growth and make additional short-term operating expense investments in our supply chain. To either shore up certain processes or accelerate sustainable efficiencies.
Speaker Change: These incremental investments were focused on process advancements, scheduling, training, and uptime improvements in our ASAPDic network. Individually and collectively, these projects are making meaningful progress.
Speaker Change: Our 20-plus percent volume grows over the past six months, provides strong evidence of the success of these investments and also gives us a high degree of confidence in our ability to sustain the efficiencies longer term.
Speaker Change: In summary, we have a much clearer vision in our opportunity to sustainably expand margins and meaningfully increase our return on invested capital. Let me share some recent examples of the progress.
Speaker Change: 3rd quarter output versus the prior year was up 18% in our ACeptic facilities and up 49% in our fruit
Speaker Change: Similar to Q2, the higher output was driven by greater efficiency from our established lines and facilities, as well as new capacity deployed over the last 18 months.
Speaker Change: During September, we had our second consecutive record-breaking production month at our Fruternac facility in Omaque, Washington.
Speaker Change: Our Allen Town facility achieved its highest operating up-time metrics of the year in September. OOT extraction in Modesto, which came online during Q2, continues to ramp from a volume perspective.
Speaker Change: Given our recently announced dream oatmeal distribution expansion, our investment in capacity proved to be very timely.
Speaker Change: Output in mid-Locenus increasing, with the third line contributing as expected.
Speaker Change: To provide just a few data points on Mid-Lothian's Performance Discoordered, the facility produced more than double the volume.
Speaker Change: of 3Q-2023. And more telling about the opportunities ahead, produce 20% more units than in the second quarter of 2024.
Speaker Change: We continue to see opportunities to drive further improvement in mid-Losey and run rates and output.
Speaker Change: Most importantly, our margin, output and manufacturing cost per unit was the strongest in the final month of the quarter, which aligns with our guidance for expanding margins in Q4.
Speaker Change: Supply chain excellence is the best return on investment we can make today. Based on our high degree of confidence in our supply chain improvement opportunities, we are prioritizing efficiency initiatives to create additional production capacity over incremental capital investments.
Speaker Change: I am most excited about the clear, practical, and tangible path we have the unlocked track capacity for years to come.
Speaker Change: We can see a future where our unlocked capacity enables expanded margin and significantly defers the timing while reducing the overall amount of capital investment needed for growth.
Speaker Change: While it's still early in our supply chain journey, we are starting to see the benefits and we look forward to updating you on our progress during our next starting call.
Speaker Change: We are confident in our direction and our expectations for the future continue to be based on what we see, not what we hope.
Speaker Change: Howard Priorities remain the same.
Speaker Change: First, drive operational improvements to fulfill customer growth and expand sustainable margins.
Speaker Change: Secondly.
Speaker Change: Grow volume through expanding our current customer relationships via both share gains and innovative solutions, acquiring new customers and expanding our town.
Speaker Change: and thirdly maintain our discipline financial approach and continue delabberating to under three times the justice EBITDA by the end of the year.
Speaker Change: Our immediate focus is on delivering another good quarter and we are reaffirming our fiscal 2024 revenue and adjusted EBITDA guidance.
Speaker Change: As well as our mid-term target of 125 million adjusted, even the run rate by late fiscal 2025 or early fiscal 2026.
Speaker Change: We will provide our outlook for 2025 on our next earnings call when we announce fourth quarter results.
Speaker Change: In summary, we continue to deliver strong results. We are a growth company in growing categories with winning customers.
Speaker Change: and over the past four consecutive quarters, we've consistently delivered top and bottom line results that were in line or better than expected.
Speaker Change: Our revenue growth is broad-based and volume driven. At rates that are several times faster than the respective categories in which we participate.
Speaker Change: Our temporary operating expense investment.
Speaker Change: and focus on operational excellence and productivity positions us for sustainable margin improvement, commencing in the fourth quarter and accelerating through 2025 and into 2026.
Speaker Change: I am confident in the direction of our business and our significant potential to drive growth, task flow and shareholder value over the longer term.
Speaker Change: Now, I'll turn the call over to Greg to cover the third quarter and full year outbook and more detail. Thank you, Brian, and good afternoon, everyone.
Greg Gaba: We had another strong quarter. Revenue of 176 million was up to 16% compared to last year and continued to be driven by outstanding broad-based volume growth.
Speaker Change: Gross Prophet increased 3.3 million or 16% to 23.6 million in the quarter and reported Gross margin was 13.4%.
Speaker Change: A just-and-growth margin was 17% compared to 16.4% in the prior year, reflecting higher sales and production volumes that drove improved plant utilization, partially offset by incremental depreciation for newly launched production assets.
Speaker Change: Along with some manufacturing and efficiencies, as we continue short-term investments to drive future sustainable supply chain efficiencies.
Speaker Change: Operating income of 1.5 million was up slightly compared to prior year as increased gross profit and lower business development costs and employee severance cost following the infrastructure of grossing fruit.
Speaker Change: We're largely offset by higher variable compensation and increased professional fees related to operational productivity initiatives.
Speaker Change: Laws from Continuing Operations was 5.5 million compared to a loss of 5.7 million in the prior year period.
Speaker Change: The Justice Ebetat from Continuing Operations increased 13% to 21.5 million compared to 19.1 million last year.
Speaker Change: Turning to our balance sheet, at the end of the quarter, debt was 290 million, which was 13 million lower than the end of Q2.
Speaker Change: Networked with 3.3 times the decrease from 3.5 times the last quarter and we expect to achieve our target of being under 3 times the end of the year.
Speaker Change: Here-to-date cash provided by operating activities of continuing operations increased significantly during the quarter to 19.2 million. And here-to-date cash used in investing activities of continuing operations was 16.5 million.
Speaker Change: Now turning to our full-year outlook.
Speaker Change: we are reaffirming our outlook for fiscal 2024.
Speaker Change: We continue to expect revenue in the range of $710 to $730 million, which represents growth of 13 to 16%, and adjusted EBITDA of $88 to $92 million, which represents growth of 12 to 17%.
Speaker Change: In summary, it was another quarter of exceptional, volume-driven, top-line growth rates with improved gross margin and cash flow.
Speaker Change: We continue to accelerate short-term investments in the supply chain initiatives, which we anticipate will wind down in the fourth quarter.
Speaker Change: These investments are expected to deliver higher sustainable margins, improve profitability, and provide great momentum as we enter 2025, helping us achieve higher rates of return and significant long-term value for shareholders.
Speaker Change: I'm going to go to the next one. So let's get started. It's been a long day and I really appreciate it. So I'm going to go to the next one.
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 activities.
Speaker Change: And with that, Operator, please open the call for questions.
Speaker Change: Thank you. The floor is now open for questions. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again.
Speaker Change: If you are called upon to ask a question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question.
Speaker Change: We ask that you ask one question and queue up again for any follow-up questions.
Speaker Change: Your first question comes from the line of Jim Salera of Stevens. Your line is open.
Jim Salera: Hey guys, good afternoon. Thanks for taking our question.
Jim Salera: I wanted to ask on recent headline news, a big customer of yours removing surcharge on plant-based add-ons for their drinks.
Jim Salera: just any thoughts on how that could potentially both increase the demand for your product among people who are familiar with plant-based add-ons and do you have any sense for if that incremental surcharge was kind of a
Speaker Change: prohibiting factor for maybe people that haven't tried the plant-based milk, and this opens up an opportunity for them to try it for the first time, and you kind of convert and bring them into the fold.
Speaker Change: Yeah, Jim, thanks for the question. Let me kind of answer that and then also put it into context for you. If I think about it in general, we believe anything that that fosters trial
Speaker Change: penetration or repeat buys, in general, is good for us. So I think in general that that's how we view that.
Speaker Change: those types of activities. Now I will also say we don't comment on any particular customer, but as you remember, we are tied into the supply chains of our top 15 customers.
Speaker Change: So, we work with them on product development, on responses to consumer demands, on...
Speaker Change: pricing developments and make sure that our solutions are available to ensure that they're in supply and they can satisfy their customers. So I guess that's a long way of saying, look, we've been working with our customer base.
Speaker Change: throughout food service and retail in trying to ensure that we're meeting the demands and providing solutions for that.
Speaker Change: Your next question comes from line of Andrew Strelzyk of BMO Capital Markets. Your line is open.
Speaker Change: Hi, this is Daniel Gold on for Andrew Strzok. Thanks for taking my question.
Speaker Change: and many others. Thank you. Thank you.
Speaker Change: Sure, Daniel.
Daniel Gold: Thanks. Revenue Guidance applies still a pretty wide range for 4Q. What are the swing factors for the high and low ends of that range?
Speaker Change: Daniel, it's Greg. Thanks for the question. You know, we put our guidance out for the back half of the year, and we raised twice already this year, and when we look at the quarter, it basically came in exactly as we expected. So not to overthink it, we just kept the guidance. We reaffirmed it for the full year and didn't make any full changes.
Speaker Change: Your next question comes from the line of Ryan Myers of Lake Street Capital Markets. Your line is open.
Ryan Myers: Hey guys, thanks for taking my question. Just, you know, kind of as a follow-up to the unchanged guidance question, you know, is there any potential for new business to come in the pipeline here in Dufour where there could be upside or is most of the capacity for this quarter pretty much accounted for already?
Speaker Change: Yeah, Ryan, hey, it's a really good question. We appreciate it. I will go back to, we continue to try to...
Speaker Change: to frame our guidance and our outlook in what we can see versus what we hope that happens. We know we've seen a lot of data that's come through over the course of the last
Speaker Change: several weeks. We've worked with customers.
Speaker Change: So, I think we're fairly confident in our guidance for the fourth quarter. Probably, just in terms of repeating Greg's answer and feedback,
Speaker Change: I wouldn't overthink it too much. We had the guidance, we basically came in for the quarter the way we thought in the third quarter, and therefore we left the fourth quarter the same.
Speaker Change: Your next question comes from Brian Holland of D.A. Davidson. Your line is open.
Brian Holland: Yeah, thanks, good afternoon. I'm curious, you referenced at the top, Brian,
Brian Holland: top customer growth at a pretty meaningful magnitude. I'm curious if you can sort of...
Brian Holland: discern for us between you know how much of that is a byproduct of you picking up incremental business with these customers versus what these customers underlying growth trend is and to the extent that it's the former how sustainable do you view that magnitude of growth to be for you?
Speaker Change: Yeah, Brian, thank you. Great question. Let me start even with our categories, because I think the other thing that we mentioned in our prepared remarks, and I want to make sure it doesn't get lost in the Q&A, every category we're participating in is growing.
Speaker Change: if you look at shelf-stable plant-based beverages growing mid-single digits, if you look at
Speaker Change: broth growing, if you look at fruit snacks growing. So, first and foremost, it starts off with categories that are growing. I think...
Speaker Change: We also have had some investments starting in last year into the beginning of this year that were TAM expansion so clearly our Investments in protein shake capacity as well as some other innovation. I would say was clearly TAM expansion or innovation related that helped spur growth
Speaker Change: and then we also have been very open about shares that we've gained. If you remember, at our heart, we are a customer-focused solution provider.
Speaker Change: customer focused solution provider. And that gives us the opportunity to innovate with our customers, it gives us the opportunity to grow the market, but it also gives us the opportunity to to see share advances and share increases. And if you look at our revenue for the first
Speaker Change: six months of the year, we would have said that, you know, we're probably a third TAM expansion, a third rep share growth with existing customers, and a third share growth with new customers. I think if you look at this third quarter, it's more 50-50 between new products and share growth.
Speaker Change: Your next question comes from the line of Alex Freeman of Craig Hadlam Capital
Speaker Change: Group. Your line is open.
Alex Freeman: Hey guys, thanks for taking my question and I'll add my congratulations on another really good quarter. I wanted to ask about the announcement you guys had about a month ago about expanding your dream brand, Oat Milk Barista product.
Alex Freeman: through the Coffee Shop Channel, looks like a pretty big rollout of 6700 stores. I think my understanding here of your business in the Coffee Shop Channel has been consumers wouldn't generally see your product, or your product would be in a fairly nondescript container. Can you talk a little bit about this shift into having a bigger role for your brands in the Coffee Shop Channel? Does this represent any sort of a change in strategy now that you have a larger portfolio of brands to work with?
Alex Freeman: Thank you very much.
Speaker Change: Yeah, Alex, appreciate the question. I don't know that I would go so far as to say this is a change in strategy.
Speaker Change: Certainly having our brand available to consumers is a unique option for any one of our customers. And again, you know, we can do co-manufacturing, we can do private label, but we can also have a brand offering. I think the opportunity...
Speaker Change: that led to this distribution expansion was one of providing a supply chain solution.
Speaker Change: And this happened to be a unique opportunity where we could draft a solution that could be implemented relatively quickly and implemented on a wide scale and our brand was the best product or the best format to do that. So I don't know that I would think of it as a strategy change as much as a perfect example of how we try to provide solutions for our customer base.
Speaker Change: And when you provide solutions, you get chances on innovation. When you provide solutions, you get chances for share growth, and this was one of those.
Speaker Change: Okay, that's really helpful. Thanks Brian.
Speaker Change: Your next question comes from the line of John Baumgartner of Mizzou Securities. Your line is open.
John Baumgartner: Good afternoon. Thanks for the question.
John Baumgartner: Yeah, thanks, John. I appreciate that. Look, we're really excited first and foremost about our demand generation engine. I think we've been saying that for several quarters now. We also have tried to be
Speaker Change: responsible in providing an outlook or guiding to what we see and not what we hope that happens, but then go work our tails off to make what we hope happens is a reality. So I continue to believe that we'll have operating expense leverage as we go through here. We are a solutions provider that are drafting great answers and great
Speaker Change: initiatives for our customers to continue growing and our categories to continue growing. So I love that aspect of it and we can do that while continuing to think about how we support our customers in R&D, how we support them with the with the sales team and representation.
Speaker Change: If you look at investment, it is abundantly clear to Greg and I, and it's more clear today than it was three months ago. It was more clear three months ago than six months ago. Our next best dollar investment is in supply chain efficiencies.
Speaker Change: If we can unlock the trap capacity in our network
Speaker Change: We have an opportunity to really drive margin and more importantly, even do so in a way that either defers and or reduces ultimately the amount of growth capex that we have.
Speaker Change: is required to service our growth. So I'm excited about that. In fact, we still have a little bit of work to do to quantify the financials on that. And we look forward to sharing that with you when we announce our fourth quarter results. But we can tell you as of today,
Speaker Change: that we believe we have a line of sight in the operational improvements that would fuel our volume growth well in the 26 and possibly even further without significant CapEx, without significant growth CapEx, and we're really excited about that.
Speaker Change: Okay, and to follow up on the efficiency there, I think part of the process efficiency...
Speaker Change: There was an expectation.
Speaker Change: to get some benefits for inventory.
Speaker Change: And I'm curious, in thinking about working capital, do you have to hold more inventory going forward to accommodate stronger growth? Are there efficiencies in procurement and supply chain that are accretive to working capital? Just sort of your thoughts there on the balance of that.
Speaker Change: and I'm going to be talking about the the the the the the the the the the the the the the
Speaker Change: Yeah, you know, for inventory levels, they were up this quarter, a couple reasons why. One, our revenue is growing, and as revenue grows, the absolute dollars of inventory will go up.
Speaker Change: In addition, it's a little bit seasonal, John, as we are going into our broth season. So we do typically have an inventory build here in Q3 to get us prepared for the Q4 broth season. So I would look at it more in the terms of days on hand. And, you know, we do strive for certain targets there, and we expect those to be consistent going forward. But as revenue grows, the absolute dollar of inventory will grow. Thanks, Greg. Thanks, Brian.
Speaker Change: Your next question comes from the line of John Anderson of William Blair. Your line is open.
John Anderson: Good afternoon, congrats with a good quarter. I may have missed this earlier so I apologize but
John Anderson: You know, this year, your volume has been extremely strong and
John Anderson: It seems like you've satisfied that demand, but it has caused some manufacturing inefficiencies as a result, thus spurring your investments in the supply chain.
Speaker Change: How do you balance that equation of chasing that growth when it's there versus, you know, trying to maintain some balance in your operations to deliver profit objectives, return objectives, and then as a second part,
Speaker Change: are these short-term or near-term investments you're making in the second half of this year. How incremental is that to your capacity going forward? Thanks.
Speaker Change: Thank you. Thank you. Thank you.
Speaker Change: Okay, John, a lot to unpack there. Let me start with the second part of your question first because it's a really important point that I want to make sure everyone understands and really is more clear for us now than it has been certainly in the 10 months that I've been here. What we've
Speaker Change: very clearly understand today.
Speaker Change: is
Speaker Change: The next best dollar that we can spend in investment is Unlocking trap capacity in our operating system in our supply chain and trap capacity comes from all kind of things It comes from equipment downtime. It comes from sequence and scheduling potentially it comes from order of production product mix there's all types of things that impact
Speaker Change: capacity and utilization rates. I am more clear today, and we as an organization are more clear today.
Speaker Change: that we have runway to satisfy our growth initiatives and what we've talked about in the investment community with long-term growth targets, we're more confident in our ability to...
Speaker Change: drive operational efficiencies which unlock that capacity and allow us to service growth well into 26 and potentially further out, thereby deferring significant growth TPECs.
Speaker Change: We don't have all of our answers yet, so we've got a little bit more work to do, but we're looking forward to sharing that with everyone when we announce our fourth quarter results.
Speaker Change: and provide an outlook on 2025 at the same time. So, I think that's the answer to the second question. The answer to the first part of the question on efficiencies and how do you balance that
Speaker Change: I think there's two answers. One is a lot of times when you are looking to fill your facilities and your plants, you're looking to gain volume.
Speaker Change: and you take the volume when you can get it, not necessarily when it's convenient. I think we're probably past that phase in our growth strategy now, and we have the opportunity, as I said, to fund volume growth.
Speaker Change: through operational efficiencies, but also ensure that we're working with our customers so that it's the right type of growth.
Speaker Change: We clearly have a plan to expand margins, to use that operational efficiency to expand margins. We have a margin target.
Speaker Change: that we're marching to at 20% gross margin. It won't be tomorrow. It'll be over the course of several quarters, but we do that by balancing not only operational efficiency, but the right type of growth as well.
Speaker Change: So hopefully that that clarifies.
Speaker Change: Yeah, that's very helpful. I appreciate it. Can I squeeze in a follow-up on...
Speaker Change: Your value-added fruit snack business has been a good business for a long time, but it doesn't necessarily seem like it's a total fit or clean fit with kind of the aseptic, you know,
Speaker Change: packaging and processing and packaging that you do at the beverage space. Is that a business we should think about is core or central to you know your strategy going forward or are you always thinking about a range of you know strategic alternatives across the portfolio including that part of the business? Thanks.
Speaker Change: John, I love the product categories we're in. Every one of them is growing. That fruit snacks category is growing like crazy. I think over the last 52 week period it's up 21%. It's actually up more in the last
Speaker Change: 26-week period, so I'm really excited about fruit snacks. I actually think, although the operating mechanism is different...
Speaker Change: You know, hot extrusion, single flow wrap, multi-packs in fruit snacks, aseptic processing in our beverage and broth category. Although the operating facilities are different.
Speaker Change: the customer base, the solution orientation.
Speaker Change: the opportunity to innovate, the opportunity to work with our customers on solving their supply chain challenges.
Speaker Change: the opportunity to grow with them as we solve supply chain challenges. They're actually extremely similar in terms of our go-to-market approach. It feels to me like it's a very core part of our business.
Speaker Change: in a growing category where we can distinguish ourselves with
Speaker Change: customer focused, innovative solution. So I really like the portfolio.
Speaker Change: Well said. Thanks.
Speaker Change: Your next question comes from the line of Daniel Biolsi of Hedgeye. Your line is open.
Daniel Biolsi: Thank you. Brian, I was hoping you can follow up on some of the answers you were talking about with the productivity gains your team has achieved in Q3.
Daniel Biolsi: and the rest of the year and, you know, what that opportunity is for next year and how much of that is at the newest plants, you know, getting that up to where the other more, you know, existing plants are and, you know, just bringing it up to speed and how much is just sort of across the board with all your plants.
Speaker Change: Thank you.
Speaker Change: Yeah, so, you know, if I think about it, Daniel, I'm really proud of what we've done in the supply chain so far.
Speaker Change: If you look at us year to date, I think we're up 18% in total.
Speaker Change: Actually in the third quarter we are. Year-to-date it's a little more. If I split that out, what I'll call our existing, so maybe legacy is a way to think of it.
Speaker Change: plants and manufacturing lines, they were up 10 percent.
Speaker Change: So, yes, part of it is the new assets.
Speaker Change: We're filling those, they're getting up to speed, they're getting up to the efficiency and throughput levels that we want in mature assets. But the other piece of that is our mature.
Speaker Change: assets, we're also increasing output there. Again, that's what gives us so much confidence that
Speaker Change: that we can drive and fulfill the revenue growth that we see over 25 and into 26, potentially even further.
Speaker Change: We can fulfill that with operational excellence initiatives because we're already seeing that in our mature legacy assets. To give you some perspective, and I think we said this last time, a 10% increase in that asset production,
Speaker Change: is the equivalent of a manufacturing line. That's a free manufacturing line. We didn't have to pay any capex for that. Now, again, it's a little bit clouded because
Speaker Change: Some of the volume gains that we took on came with some inefficiencies, and we've had to shore up a few processes, as well as build sustainable processes for future margin expansion. But the fact of the matter is, we see a path, and we're excited about fulfilling our volume growth.
Speaker Change: through operational efficiency initiatives and not through investment CapEx.
Speaker Change: Well then, I'm looking forward to what you announce next quarter on where you see.
Speaker Change: Yeah we need a little bit of work still to to kind of crystallize everything but we're excited to talk about what 25 can bring.
Speaker Change: Thanks.
Speaker Change: Your next follow-up question comes from the line of Jim Salera of Stevens. Your line is open.
Jim Salera: Hey guys, just one follow-up question to my earlier question. You talked about how there's a big opportunity for penetration in retail and kind of closing the household penetration gap between
Jim Salera: plant-based milk and traditional dairy milk. Do you have a sense for in the coffee shop channel what that mix or what that penetration is at right now and what you think that could go to?
Speaker Change: You know,
Speaker Change: Jim, it's harder. That coffee shop data is much harder to get a hold of, as you know. I think what I tried to do is make a more general statement, which was
Speaker Change: We view that we benefit any time there's product initiatives, assortment initiatives, pricing initiatives, or distribution initiatives that encourage
Speaker Change: penetration, trial, or repeat buys. We think we benefit in in those scenarios. So that that's a more general comment. I think I would keep steering this back to a couple of high-level points. We've guided to kind of ten percent
Speaker Change: revenue growth, 10% long-term revenue growth. We're more confident in that.
Speaker Change: today than we were three months ago. We're confident in our demand generation engine. And part of that is because, again, we are tied into our top 15 customers.
Speaker Change: and work with them on their innovation pipeline, their product assortment, and when they make changes in promotional volume or pricing initiatives, we're there right beside them to help them ensure that they've got supply to meet the demand. So all of that shapes our guidance and our outlook.
Speaker Change: And we try to use all of that information as we then speak to you and others about what we think the potential of our business is.
Speaker Change: that's some background to say we've incorporated this data, we adjust the data based upon what we see and not hope, and then can communicate responsibly to you.
Speaker Change: Great. Appreciate the thoughts. Thanks, guys.
Speaker Change: Your next follow-up question comes from the line of Brian Holland of DA Davidson. Your line is open.
Brian Holland: Yeah, thanks. Forgive me if this was referenced at some earlier point, but can you frame how much of a drag the manufacturing efficiencies and supply chain investments you referenced were to EBITDA in the quarter? And for how long these should continue to kind of weigh on the results? Obviously, you know, to the extent that these are transitory, it'd be helpful to get a sense of kind of what the underlying trajectory here is.
Speaker Change: Yeah, Brian, we didn't quantify the amount, but what I will say, with 21% volume growth in the quarter, that does create a lot of stress on the system, right? And not all of the cost is to third parties. A lot of the cost is internal costs, and it's opportunity costs, you know, such as training.
Speaker Change: process improvement, working on equipment reliability. I mean, we expect that those costs are going to wind down here, and they have been winding down, and we would expect those to be completely gone by the end of the fourth quarter.
Brian Holland: Helpful, thanks.
Speaker Change: That concludes our Q&A session. I will now turn the conference back over to CEO Brian Kocher for closing remarks.
Brian Kocher: Thank you, and thanks to all of you for listening and joining. Hey, if you walk away with two things from this quarter, I hope you walk away with the following two. One, our customer-focused solution provider model is an enduring growth engine.
Speaker Change: the value of our solutions.
Speaker Change: and the offerings to our customers are reflected in the share gains and the TAM expansion, which is that we've realized, which are driving four straight quarters of plus 14% revenue growth. And that also underpins our confidence in our long-term growth algorithm.
Speaker Change: and we're really confident in our demand generation engine. I think the other area and we've hit this a couple of times but I want to make sure it's clear
Speaker Change: We have a better vision and increasing confidence in our ability to improve.
Speaker Change: operationally through our supply chain.
Speaker Change: Those initiatives unlock Trap Capacity.
Speaker Change: within the existing manufacturing network and that capacity is sufficient to service our growth, volume growth needs in the 26 and potentially beyond without the need for significant growth capex.
Speaker Change: Those would be the two points that I really hope you walk away from.
Speaker Change: We'll update you in more detail.
Speaker Change: when we provide 25 Outlook next quarter. So we're looking forward to talking about our fourth quarter to providing you Outlook on the, 25 Outlook on the next earning call. And until then, we thank you for your support and look forward to talking to you soon. Thank you all.
Speaker Change: This concludes today's conference call. You may now disconnect.
Speaker Change: conference call you may now disconnect