SunOpta Inc. Q1 FY2024 earnings call

Key Highlights

• Q1 Headlines: 18% revenue growth, 21% EBITDA growth, adjusted EBITDA of $22.6 million. Grew at ~3x the rate of the categories served.
• Focus Areas: Top line growth, supply chain efficiency, and wise capital spending. Made progress in all initiatives, exceeding guidance.
• Revenue Drivers: Volume growth, broad portfolio across channels/customers, and TAM expansion in protein shakes. Top three customers grew double digits, and food service channel grew 11% YOY.
• Supply Chain: Increased plant throughput, third line at Texas facility launched in Q1, Modesto oat extraction expansion ongoing.
• ESG: Employee-driven initiatives, including energy reduction, zero waste at beverage plants, and tree planting; published annual ESG report.

Revenue for the first quarter was $183 million, representing an 18% growth. EBITDA grew 21% to $22.6 million. The food service channel saw a 11% year-over-year revenue increase, and fruit snacks revenue grew 31% from the prior year's quarter. Revenue growth was supported by improvements in plant throughput, a broad-based portfolio across channels and customers, and expansion in the rapidly growing protein shake category.

Guidance

• Raised 2024 revenue guidance to $685 million to $715 million (9%-13% growth) and adjusted EBITDA to $88 million to $92 million (12%-17% growth).
• Back half of 2024 expected to be stronger than the first half for both revenue and adjusted EBITDA.
• Aim to have leverage under 3x adjusted EBITDA by end of 2024. Capital expenditures expected to be $25 million to $30 million, with free cash flow $35 million to $45 million.

Risks

• Temporary margin leakage and inventory reserves due to the ongoing journey of supply chain efficiency. General risk factors outlined in SunOpta's SEC filings were referenced but not detailed in the call.

Q: Jon Andersen asked about the basis of guidance and incremental sales/costs.

A: Brian Kocher stated guidance is based on daily/weekly customer order volumes and visibility, not hopes, and guidance was raised by Q1 overperformance.

Q: Jon Andersen inquired about operational excellence progress.

A: Brian Kocher mentioned 20% increase in output but ongoing work on multiple supply chain initiatives.

Q: Jim Salera asked about food service growth differentiation.

A: Brian Kocher attributed it to plant-based product mix gain, share growth with existing customers, and customer innovation collaboration.

Q: John Baumgartner asked about margin leakage and inventory reserves.

A: Greg Gaba and Brian Kocher explained it was due to supply chain efficiency journey with initiatives to reduce waste going forward.

Q: Brian Holland asked about upside source and modeling pivot.

A: Brian Kocher said growth was broad-based and guidance is now based on visible customer orders/timings vs. hopes.

Q: Andrew Strelzik asked about midterm guidance and capital allocation.

A: Brian Kocher and Greg Gaba discussed midterm $125M EBITDA target and capital allocation strategy focusing on ROI projects, buybacks, or M&A post-3x leverage.