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spk01: 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.
spk03: Good afternoon, and thank you for joining us on Synopta's second quarter fiscal 2024 earnings conference call. On the call today are Brian Cooker, 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 Synopta's website at www.synopta.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, 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 Synopta's press release issued this afternoon, the company's annual report filed on Form 10-K, and other filings with the Securities and Exchange Commission for a more detailed discussion of the factors that could cause actual results to differ materially from those projections and any forward-looking statements. The company undertakes no obligation to publicly correct or update the forward-looking statements made during the presentation to reflect future events or circumstances, except as may be required under applicable securities laws. Finally, we would like to remind listeners that the company may refer to certain non-GAAP financial measures during this teleconference. A reconciliation of these non-GAAP financial measures was included with the company's press release issued earlier today. Also, please note, In the prepared remarks to follow, unless otherwise stated, the company will be referring to the 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. Brian?
spk06: 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. 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 and improvements. 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 revenue growth. 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. 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. 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. And thirdly, we are also benefiting from our TAM expansion into protein shakes and other plant-based beverage innovations in food service. The adjustable markets in which we participate are also large and growing. For 2024, we estimate the U.S. shelf-stable plant-based milks market continues to grow in the mid-single digits in the aggregate across all channels tracked and untracked. Remember that much of our volume is derived from untracked segments, and we continue to see growth in food service and club channels. Protein shakes continues to be one of the fastest-growing categories in CPGs. 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. In fruit snacks, consumer and customer demand remain very strong. The Better For You segment is the fastest growing subset within the fruit snacks category. up over 30% over the past 52 weeks, with our customers commanding well over 75% of the segment share. As you can see, we have significant tailwinds supporting our revenue line. Let me transition to our operational performance. In addition to the revenue growth we guided in 2Q, we also committed to improving the effectiveness of our supply chain. which as you know has been a major area of focus for me and the organization over the past two quarters. As you've heard me describe many times, this is a journey of a thousand steps. We are making progress every day and we always strive to be better. I am both pleased with our progress during the quarter and also energized by our prospects for substantial improvement in the future. From an output perspective, during the second quarter, we increased unit output in our aseptic facilities by over 24% versus the prior year, and output in our fruit snacks facilities increased by more than 33%. Importantly, these increases were driven by both greater efficiency from our established lines as well as new capacity. If you exclude new capacity, we 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 volume as well as selling future capacity. 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. Output in Midlothian is increasing, and we see opportunities to drive further improvement with targeted investments now to accelerate sustainable growth and margin achievement later this year and into 2025. As I look at the progress we've made in our supply chain throughout the quarter, the increase in output was satisfying, but ultimately uncovered and highlighted further areas for improvement and investment. As we continue identifying opportunities for operational efficiency, we are taking advantage of exceptional revenue growth to accelerate short-term investments which in turn will accelerate sustainable process improvements. 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. 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 growing pain. In the quarter, we discovered areas for short-term investment, which will continue into the third quarter. we see significant opportunity for sustainable margin improvement commencing in Q4 and carrying us through 2025. Once again, I'm proud of our quarterly results, and I continue to be excited about our long-term revenue and profit growth outlook. Our expectations for the future continue to be based on what we see, not on what we hope, 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 TAM. 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. Secondly, we want to drive operational improvements to both increase output and expand sustainable margins. We have multiple efficiency projects at each facility and are gaining momentum every day. We increased output by 27% in the second quarter, and our newest capacity is still ramping up in the second half. With the support of our short-term investments, We expect to see sustainable margin expansion starting in the fourth quarter through better fixed cost absorption as well as variable cost reduction. Lastly, we will maintain our disciplined financial approach and continue deleveraging to under three times EBITDA, our stated goal, by the end of this year. 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 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 deferred growth capex, 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 gains. We're demonstrating the necessary operational resilience a business needs to service growth while simultaneously overcoming challenges and improving our operational efficiency. As a result, we are poised for higher sustainable margins and improving profitability as our supply chain initiatives gain traction and accelerate, all of which helps to drive free cash flow. 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.
spk11: Thank you, Brian, and good afternoon, everyone. We had another strong quarter. Revenue of $171 million was up 21% compared to last year, driven by exceptional volume growth. As Brian highlighted, this growth was across the board. Gross profit increased 3.2 million, or 17%, to 21.8 million in the quarter, and reported gross margin 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. 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. 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 year to date, cash used in investing activities of continuing operations was 13.9 million. Now turning to our full year outlook. We are raising our 2024 revenue outlook for the second time this year to reflect the strong performance in Q2 and higher growth expectations in the second half. We now expect revenue in the range of $710 to $730 million, which represents growth of 13% to 16%. From a profit perspective, with the short-term investments we are making in the supply chain, In the natural challenges that result when you are growing a business 3x the category run rate, we are maintaining our outlook for adjusted EBITDA of $88 to $92 million, which represents growth of 12% to 17%. From a second-half pacing standpoint, we expect the third quarter to look similar to the second quarter with slight improvement and both revenue and adjusted EBITDA increasing in the fourth quarter. As Brian discussed, We are delivering exceptional top-line growth rates and are accelerating our investments in supply chain initiatives that are expected to deliver higher sustainable margins and improve profitability in the fourth quarter, provide great momentum entering 2025, and 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 activity. And with that, operator, please open the call for questions.
spk01: 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 John Anderson with William Blair. Please go ahead.
spk08: Hey, good afternoon, everybody. Thanks for the question. Hi, John. How are you? I'm good. Thank you. Hope you are too.
spk12: 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 new additions ramping more quickly? Or was it kind of the TAM part of the growth story that drove that?
spk06: Don, 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 of our TAM expansion initiatives with either 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 the brands that we support are winning. As a co-manufacturer and a private label provider, solutions provider, we work with brands and they are every day out there trying to grow their own brand. If you look at the brands we support, they are all performing better than the category at whole. And so as you think about all the areas we can grow, it was really across all of the areas that we provided strength and we were very happy with the volume growth in particular. That's always a great sign.
spk12: Absolutely. So you have a large customer, I mean many customers, but there is a large customer and there's been some noise around broadly traffic trends in food service establishments. What can you tell us about your business that makes it perhaps different because it sounds like that hasn't you know put any material pressure on your your business to date and and you don't expect it to on a full year basis obviously as you lift your overall revenue outlook for the year uh well i think there's a couple things to to remember with respect to our customer base um we have diversity of channels so we've got
spk06: Food service channel, we have club channel, we have retail support in both private label and co-manufacturing. So there's a lot of diversity there. Again, I think if you think about the growth, it was broad-based. Our top three customers grew double digits. Our food service customers in the aggregate grew double digits. 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 is happening. I think we talked a little bit about this last quarter. The opportunity that we have to work with our customers on either innovation or code development really gives us a unique position to potentially participate in limited time offers, in menu items, in things of that nature. 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. Makes sense.
spk12: 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 in Midlothian. 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 get us confident that that inflection that you're kind of pointing to in the fourth quarter your visibility is really good in terms of delivering on that. Thank you.
spk06: 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. I mean, that's one very positive thing that happened in here. We took share, and you take share when it's available, not when it's convenient. So the first bit of good news that's in that margin story, I would tell you, is that we had to produce the volume to deliver the volume growth, and we did it. In fact, on some of our existing assets, let's exclude Midlothian and some of the newer capacity we've put in place. In our existing assets, we increased output enough to be the equivalent of a full manufacturing line, essentially out of sweat equity and ingenuity, a full manufacturing line. So we were really excited about that. The second bit of good news, and I'm going to call this good news, is volume growth like this routinely and expectedly test your supply chain. And when you grow as fast as we're growing and you take some share when it's available as opposed to convenient, you certainly identify opportunities in your supply chain where you could be more efficient. 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? 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 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. Remember, we can never make efficient the volume that we don't take. So we took the volume. We've got opportunities to make it in investments. Think of these investments as temporary investments in labor, potentially submit 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. 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. Thanks a lot, Brian.
spk01: Your next question comes from the line of Jim Solera with Stevens. Please go ahead.
spk02: 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 the 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 than maybe some other categories. But your outperformance relative to what is visible in the tracked channels continues to be very stark. And so should we expect to see some of the strength in these untracked channels eventually filter into tracked channels? Or is it just that the way 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.
spk06: 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, 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 other untracked channels, that's the opportunity that we really address and certainly is more meaningful to us. So that is one thing. On the track channel side, we actually are starting to see a little bit of turn or Let's call it a deceleration of the softness in shelf stable. 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. 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, you know, it's inconsequential, but our world is absolutely more heavily weighted to solving opportunities and challenges for our customer and growing share that way.
spk02: Okay.
spk06: Both volumes.
spk02: And then, yeah, that's helpful. On the food service side in particular, I guess I'm obviously positively surprised by the strength you guys continue to see there, given the overall kind of consumer softness that we see in food service. And so I wonder if you could just give us some color on what's driving your sub-segment in food service that it sees such a higher degree of success relative to kind of the broader slowdown that we see in food service?
spk06: 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. You can see that. And so it can be true that our products grow at potentially a faster pace than the rest of the product portfolio or are over indexed versus the rest of the product portfolio of some of our food service customers. That can be true. The other thing is, 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 channels.
spk02: Okay, great. I appreciate all the color. I'll back into you.
spk08: Thank you.
spk01: Your next question comes from the line of Brian Holland with DA Davidson. Please go ahead.
spk05: Yeah, thanks. Good afternoon. So I just wanted to ask about some of the supply chain of investments. Maybe in the context of, you know, kind of rolling this forward, If I've got it right, I know there's a lot of moving parts with the divestitures and portfolio reshaping, but you know, last I have it, it's kind of like a 20% gross margin target. You can correct me kind of long-term. You can correct me if I'm wrong there. 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 great to hear.
spk06: Yeah, Brian, I absolutely would not characterize them as simply costing more. Think of it this way. We're growing faster. than we had outlined previously. I mean, heck, this is the second quarter in a row that we're raising guidance. So we're growing faster. When you grow faster, you also test your supply chain a little bit. And we're identifying some of these areas that we would have identified in the next quarter or the following quarter or three quarters from now. We're identifying them sooner. So we're addressing them sooner, which has the opportunity, we believe, to kind of accelerate our margin enhancement. We make some short-term investments and then we drive to that 20% long-term target for mid-term target for margin. I think Greg and I have both been 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 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.
spk05: 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. 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, 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. 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?
spk11: Yes, sure, Brian. Great question. So as you recall, we just had our third line at Midlothian come online in Q2, right? So there is quite a bit of run rate at Midlothian for future growth. We've said before, and we still believe by the end of 2025, early 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 levered. We fully expect to be there by the end of this year. And that will be our focus here in the short term. Fair enough.
spk06: Your next question. Hey, Brian, just one other item. I don't want to gloss over the fact that by increasing output, you create non-CAPEX capacity. Effectively, we created out of thin air the equivalent of an additional manufacturing line. Now, that was spread out through our network, but you get the feeling. You understand the analogy. There is tremendous opportunity for us to continue improving efficiency and output and creating non-CAPEX capital. And that's where our focus is on the short term.
spk01: Your next question comes from the line of Andrew Strelzyk with BMO Capital Markets. Please go ahead.
spk07: 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 20 you know into 26 is the timeline should we think about the timeline around that changing at all given those dynamics or or is the net uh 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 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
spk06: 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 in that midterm guidance now than we did this time last quarter which was more confident than the quarter before so each time we we have revenue acceleration or or potentially capacity creation i would look at that as giving us more confidence in that midterm target than worrying about changing a timing or magnitude okay okay that makes sense and then my other question you know obviously there's a lot of um
spk07: 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 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. Thanks.
spk06: No problem, Andrew, but let's break down the categories in which we play. Shelf-stable, plant-based beverages, we believe is 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 see have visibility to. We believe that that category is growing in the mid-single digits. Ready to drink protein shakes, growing. Fruit snacks, growing. Heck, even our less mainstream products, broth and tea, growing. So the categories in which we service, and in particular the ones in which we're helping our customers win, those are all growing. 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. flavor or product or unit size. It could be a new pack size. It could be a more efficient configuration. It could be a better transportation methodology or mode. So those are things that all go into solutions providing and innovating for customers when you're a solutions provider. So I think it's a little narrow, at least as you look at our revenue stream, to just say hey, there's some pressure on the consumer, 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.
spk08: Great. Thank you very much.
spk01: Your next question comes from the line of Ryan Mayers with Lake Street Capital Markets. Please go ahead.
spk09: Hey, guys. Just one question for me. Just curious how we should think about the potential for adding any new business into the pipeline. 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?
spk06: Ryan, I hate to give you an incredibly boring answer. But I'm going to continue to tell you, look, we communicate what we see, not what we hope for. Don't let that be confused with, we don't work on anything else. If you don't grow a business 21% this quarter, 18 the quarter before, 14% the quarter before, without focusing on a lot of different initiatives and opportunities. So we're going to continue working on a wide range of initiatives from growing share with customers to acquiring new customers to innovating with our portfolio to TAM expansion. We'll continue all of those, but we'll also continue communicating what we see, not what we hope.
spk09: Got it. Thanks for taking my questions.
spk06: Okay. Thank you.
spk01: Your next question comes from the line of Alex Furman with Craig Hallam Capital Group. Please go ahead.
spk10: 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 stock outs. We would love to just get a sense of what that common theme has been there.
spk06: 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. We're a solutions provider for our customers. They also have a team that is out there every day working to grow their brand. We support them, but we also benefit as they grow their brand.
spk08: That's terrific. Thank you very much. Thank you.
spk01: Your next question comes from the line of Daniel Bielski with Hedgeye Risk Management. Please go ahead.
spk04: Brian and Greg, it's really nice to see revenue expectations going higher. Your growth sounds very diversified by customer and channel. I was hoping you could share a little how it looks by type of plant-based milk. Are there any changes there in the market or is it still sort of the same secular trends going?
spk06: 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 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. And so I have to follow up with the results you put today.
spk04: When you hit three times leverage, how are you going to compare new CapEx investments with the share price being where it is?
spk06: 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. Let's focus on delivering The third quarter, then the fourth quarter, deleverage, and then we've got a lot of opportunities after that.
spk08: Sounds good.
spk01: And that concludes our question and answer session. I will now turn the conference over to Brian Cooker for closing remarks.
spk06: Thanks to everyone for joining us today, and we really appreciate the opportunity to explain our model and our results. If you take away only three things for this call, please remember these three things. At Sunopto, 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. 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 we'll invest to drive operating efficiencies. Investing now with the goal of accelerating margin enhancement in 4Q and beyond. And then lastly, we are really excited about our demand generation, about the co-development opportunities with our customers that we have on the horizon, about our opportunities to grow share with existing customers and potentially acquire new customers. 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 at the next quarter. And again, thanks so much for your support.
spk01: This concludes today's conference call. Thank you for your participation and you may now disconnect.
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