SunOpta, Inc.

financial officer. 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 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 Synoptys' 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 action results to differ materially in 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 the listeners that the company may refer to certain non-GAAP financial measures during this teleconference. 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 that 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. 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. 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 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. We also highlighted the temporary operating expense investments in our supply chain to accelerate future sustainable efficiencies, capacity growth, and margin expansion. 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. 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 an innovation partner. 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. 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. Our top five customers posted 30% average year-over-year revenue growth. Our fruit snacks business grew by 42%, reflecting 40% sales volume growth. In total, our beverages and broth product lines grew revenue by 14%. 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. 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 milks continue to grow at a mid-single-digit rate. Protein shakes increased 17% over the last 52-week period. The better for you fruit snacks category grew by 21% over the last 52 weeks, with our customers commanding well over 75% of the segment share. Even a stable consumer category like broth is up 8% over the last 52 weeks. Our co-manufacturing and private label solution provider model has consistently demonstrated revenue growth potential. We are growing revenue through share gains as evidenced by our most recent announcement to expand Dream Oat Milk across North America in partnership with one of our largest customers. Our R&D teams are developing new, innovative product solutions on behalf of our customers. We are deeply wired into our customers' supply chain processes, and we work closely with them on longer-term inventory product and promotional plans. 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. We are committed to improving its effectiveness and using those efficiencies to expand margin and fulfill our unit volume growth opportunities. 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. 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. During Q3, as planned and 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. These incremental investments were focused on process advancements, scheduling, training, and uptime improvements in our aseptic network. Individually and collectively, these projects are making meaningful progress. Our 20-plus percent volume growth 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. 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. Third quarter output versus the prior year was up 18% in our aseptic facilities and up 49% in our fruit snack facilities. 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. During September, we had our second consecutive record-breaking production month at our fruit snack facility in OMAC Washington. Our Allentown facility achieved its highest operating uptime metrics of the year in September. Oat extraction in Modesto, which came online during Q2, continues to ramp from a volume perspective. Given our recently announced dream oat milk distribution expansion, our investment in capacity proved to be very timely. Output in Midlothian is increasing, with the third line contributing as expected. To provide just a few data points on Midlothian's performance this quarter, the facility produced more than double the volume of 3Q2023, and more telling about the opportunities ahead, produced 20% more units than in the second quarter of 2024. We continue to see opportunities to drive further improvement in Midlothian run rates and output. 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. 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 i am most excited about the clear practical and tangible path we have to unlock trap capacity for years to come 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 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 earnings call. We are confident in our direction and our expectations for the future continue to be based on what we see, not what we hope. Our priorities remain the same. First, Drive operational improvements to fulfill customer growth and expand sustainable margins. Secondly, grow volume through expanding our current customer relationships via both share gains and innovative solutions, acquiring new customers, and expanding our TAM. And thirdly, maintain our disciplined financial approach and continue deleveraging to under three times adjusted EBITDA by the end of the year. Our immediate focus is on delivering another good quarter, and we are reaffirming our fiscal 2024 revenue and adjusted EBITDA guidance, as well as our mid-term target of $125 million adjusted EBITDA run rate by late fiscal 2025 or early fiscal 2026. We will provide our outlook for 2025 on our next earnings call when we announce fourth quarter results. In summary, we continue to deliver strong results. We are a growth company in growing categories with winning customers. And over the past four consecutive quarters, we've consistently delivered top and bottom line results that were in line or better than expected. Our revenue growth is broad based and volume driven at rates that are several times faster than the respective categories in which we participate. Our temporary operating expense investments 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. I am confident in the direction of our business and our significant potential to drive growth, cash flow, and shareholder value over the longer term. Now I'll turn the call over to Greg to cover the third quarter and full year outlook in more detail. Thank you Brian and good afternoon everyone.

We had another strong quarter. Revenue of $176 million was up 16% compared to last year and continued to be driven by outstanding broad-based volume growth. Gross profit increased $3.3 million or 16% to $23.6 million in the quarter and reported gross margin was 13.4%. Adjusted gross 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, along with some manufacturing inefficiencies as we continued short-term investments to drive future sustainable supply chain efficiencies. 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 costs following the divestiture of frozen fruit were largely offset by higher variable compensation and increased professional fees related to operational productivity initiatives. Loss from continuing operations was $5.5 million compared to a loss of $5.7 million in the prior year period. Adjusted EBITDA from continuing operations increased 13% to $21.5 million compared to $19.1 million last year. 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. Net leverage was 3.3 times the decrease from 3.5 times last quarter, and we 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 increased significantly during the quarter to $19.2 million. and year-to-date cash used in investing activities of continuing operations was $16.5 million. Now turning to our full-year outlook, we are reaffirming our outlook for fiscal 2024. 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%. In summary, it was another quarter of exceptional volume-driven top-line growth rates with improved gross margin and cash flow. We continue to accelerate short-term investments in the supply chain initiatives, which we anticipate will wind down in the fourth quarter. 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. 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.