SunOpta Inc. (STKL) Earnings Call Transcript & Summary

Good morning. Welcome to Midlothian facility. My name is Greg Gaba. I'm the VP of Corporate Finance. I'd like to thank all of you for coming today and spending this time with us. We're extremely pleased to have you here at our facility. Before we get started, the forward-looking statements, our presentation will contain forward-looking statements. We cannot predict the future. So please do not put undue reliance on those statements. Please see our Form 10-K for risk factors that could cause our actual results to materially differ from our projections. Our agenda for today is our strategic update, financial algorithm on the construction and overview of this facility and the complexity of aseptic manufacturing. Then we'll have concluding remarks and Q&A. Once the presentation is done, we'll have a 5-minute break followed by a tour of the facility as well as [indiscernible] On your name tag, you will have a group number, and that's where you join. We'll have 5 routes for the tours. And we'll go over that after the break, but just see what group number you're in. Some housekeeping items. WiFi password is organics, all lower case letters. Coffee, water, beverages on the back corner here. The restroom is when you go straight out of the door. On the left-hand side, there'll be a ladies and men washroom out there as well as we have a washroom right by the reception. And the deck itself will be posted online later today, so that everyone will have access to that later today. They no need to [indiscernible]. Our first presenter today will be our CEO, Joe Ennen. He will take us through the strategic update; Scott Huckins, our GM of the fruit-based segment and CFO, will take us through the financial algorithm; Chris Whitehair, our SVP Supply Chain will take the construction and Overview of this facility; and Bryan Clark, SVP of R&D and QA will take through the complexity of aseptic manufacturing. On the right-hand side of the page, you'll see other team members that are here today, who you will meet as we go through the tour and the tasting. And finally, a special welcome to one of our board members, Leslie Keating up here at the front, who's joining us here today. With that, let me turn it over to Mr. Joe Ennen.

Good morning, everyone. Thank you for making the trek to Texas. I'm fired up. I mean this is so exciting to have all of you here in this facility. But more importantly, just to have this facility, right, that started, I don't know, 18 months ago, 2 years ago, where we were looking at our capacity, looking at the growth, looking at our ambitions and saying, we got to grow. Like we are not going to be able to meet our long-term objectives with just the manufacturing footprint that we have. . And so we set out to build in the heart of COVID and the teeth of, there's no structural steel anywhere in the world to be had and there's no people and there's no equipment and there's no nothing and we said, "Damn, we're going to do it. We're going to build this plant. We're going to make it happen." And so it's incredibly exciting for all of us to be able to -- I think every single person in the company wanted to be here today to kind of show this off. It has been an absolute team effort. I think every single person in the company has been involved in building this facility. We've made a very clear point to everyone in the company no matter what your job is if you're needed in Texas, that is your #1 priority. I don't care what else you're doing in the company, I don't care what else your job is for the last 18 months, if we have needed somebody needed help, we have been -- it's like -- you know, you ever watch 6-year-olds play soccer. They all run to the ball. Okay? That's exactly what this has looked like for the last 18 months here and an amazing result. So what I want you to take away from today, we're going to do a quick debrief of the strategic priorities that we outlined in June. I really hope, number one, and maybe just most importantly that you appreciate and understand our growth story. This is all about growth. This facility is about growth. Our aspirations are about growth, our product development efforts, our innovation is all about growth. So you can't grow if you don't have capacity, if you don't have manufacturing footprint to grow. And so this is singularly my hope for today is your takeaway is and these guys are built to continue to grow, right? We have been on a great growth trajectory for the last several years. And hopefully, you leave confident that we're going to be able to continue to drive industry-leading growth rates. So in terms of what are we trying to do, what are we trying to build here? Our corporate tagline, our mission, our vision is fueling the future of food. We are passionate about that. You're going to hear a lot about sustainability today. how we're building products that are better for people and better for the environment. We're going to lay out some ambitions around going from $1 billion to $2 billion. We absolutely believe that we can turn this into a $2-plus billion company in the next handful of years, 5, 6, 7 years, and the growth platforms are very clear, very consistent with what our core capabilities are today. You're going to see some dimensions of our multiple-pronged go-to-market strategy. So we talk about private label, we talk about co-manufacturing, we talk about our own brands. And when we first started pursuing our own brands, and we purchased a couple of brands from HAYN, everybody kind of was head scratching, Joe, how is that going to work? Nobody's ever done that. Some of the people in this room might have asked me about those things. Super proud of our flexibility and our agnostic approach. It absolutely drives our innovation agenda because it gives us the ability to commercialize -- develop and commercialize products and then have multiple ways to make money off that as opposed to just saying, well, the only way we make money is to do private label. And the only way we make money is if we can convince a national brand to take this product. Or the only way we make money is if we launch this with one of our brands. We love the fact that we can build product platforms like protein shakes, nutrition beverages like coffee, plant-based drinks and then say, how are we going to take this to market? Let's talk to our retail customers and see if they're interested. Let's talk to our co-manufacturing customers, see if they're interested. Let's think about how we might launch this under one of our own brands. So that is absolutely a catalyst for us. It's a driver for us, and it absolutely fuels our innovation ambitions and how we can continue to drive growth. So we talked about these in June. These are not new. These are the 5 strategic imperatives that we have, transforming the portfolio, fortifying our competitive advantages, leveraging our capabilities to expand the TAM of the business, be and be recognized as a sustainability company, and we've made great, great progress there with some of the external rating agencies along with our own efforts and ambitions and then codifying our vibrant culture. And this is probably the hardest one to get your head around, maybe that and the complexity of what we do, and we're certainly going to try to show you both of those things today. So I think you're going to hear from 11 different people on the team from production managers, to R&D managers, et cetera, et cetera. It's not just going to be the senior leadership team. We're going to get you in touch with literally the people who run and drive the business every day, because if you don't understand the culture or just PowerPoint and Excel, right? But the difference maker is always all about the people. I have a phrase that I used, which is it's always all about the people. Because when you look back on an accomplishment, whether it's building this facility, whether it's bringing on a new customer. When you look back, it's always about someone who did it, right? Like building this facility, it didn't build itself. Sure, we had a contractor, we paid a lot of money. But at the end of the day, it was people who made it happen. And it's always all about the people. And so hopefully, as you leave today, you have a better sense of the vibrancy of the culture here. We've managed to hire 150 people into this facility in a very, very short period of time. Why? Like, as just more people in Texas? No, it's about the people, "Hey, how did you stand up and build an entire new plant, 285,000 square feet in 16 months in the heart of the supply chain meltdown, people? Great problem solvers." So I can't under -- I can't overestimate enough the importance of the people in this equation and our business equation. And so we wanted you to kind of see and talk to and feel some of the people who make the business happen every day. Super proud of this. I will say I'm more proud of the people and the team, but the people and the team that I just talked about, they are the ones who delivered this. $20 million of EBITDA in 2019, $84 million last year, 4x. So we've quadrupled EBITDA in the last 4 years -- quadrupled. Our plans are to go to $100 million this year. That's our guide number, $120 million next year, $150 million in 2025. So I think if there's 1 thing this team has demonstrated, it's the ability to drive the EBITDA of the business. and super proud of that, we absolutely are convinced and convicted around our ability to continue to deliver these numbers. And it makes it easy when you can point to a quadruple in EBITDA over the last 4 years and then just ask you to simply believe a double in the next 2. We've talked about $2 billion and where is that going to come from. And we're going to unpack these a little bit more. But Nutrition beverages, we believe, is an absolute future growth driver for us for the next decade. Huge category, hits with our core competencies very, very well. And you're going to see that today as kind of a starting point of how we believe that will be a huge growth driver for us. Fruit Snacks, the little business that could, right? It was $50 million a couple of years ago, now $92 million. Amazing growth in that business. I've spent a chunk of my career at Frito-Lay in different brand management and marketing roles. So I have an affinity and certainly a knowledge around the snacking category. It's a mere $100 billion category, $100 billion. So there's roughly $50 million -- $50 billion of salty snacks and $50 billion of sweet snacks. So it doesn't take real courage to say, I think we can do $200 million, $250 million, $300 million of revenue in a $100 billion category. And so snacking, again, is something we've got a lot of momentum on, and we plan to continue to drive significant growth around snacking. And certainly, our core plant-based business is our third key lever. We continue to roll up market share from our competitors in that space. We continue to see category growth, and we continue to find new ways to drive innovation and take that plant-based milk capability into new categories and spaces. So again, can we -- some of these words are easy to say, right, transform the portfolio. But we've done it. If you look at 2019, we were 70% commodity-oriented, 70% of our revenue was commodity oriented. It was just ingredient sourcing, et cetera. So through a combination of growth and divestitures, we've completely flipped the mix in a matter of 3 or 4 years. To this year, we will do over 70% value-added manufacturing and only 30% of the business today is commodity oriented, and we would see that kind of continuing to decline over the next several years as the value-added segment continues to grow. So when we take a look at what are the characteristics of the spaces that we get excited about and that we're interested in investing and continuing to grow. There's a couple of common denominators. One is we are in category constrained spaces, right? So category constrained spaces and/or sort of, let's call it, specialized or bespoke manufacturing. So our fruit snacks, hey, there's $100 billion worth of companies manufacturing snack foods today, what's our little position in that market, very bespoke manufacturing. So between the idea of sort of bespoke, niche manufacturing practices and/or capacity constraint. So the world that is well documented, well written about on nutrition beverages, capacity-constrained environment. And again, it's a $65 billion category that's growing double digits and dominated by co-manufacturers. So co-manufacturers are not keeping pace with category growth, you end up with a situation which happened fairly frequently, which is it's undersupplied. And for those of you who follow any of the public companies in this space, I'm not telling you anything you haven't heard on some of their public calls. In terms of fortifying our competitive advantages, and again, we have talked about this extensively, world-class operational and technical expertise, complex manufacturing at scale. Project management, again, this facility is a great testimony. I'm not asking you to believe something that you're not experiencing just sitting here is our ability to execute in a very complex space. Integrated solutions, right? You think about milk. I mean, we go from working directly with organic farmers in Northern Canada, all the way through to delivering that product to Barista at your local coffee shop. So we're vertically integrated all the way through some of our supply chain, same on, say, fruit snacks, where we are sourcing 20-plus million pounds of organic apple from around the world. That's not an easy task. Just to kind of unpack these a little bit. So operational expertise, and again, we shared this back in June, we have 3 of the highest performing, highest functioning plants in the entire Tetra Pak network in North America. So that is data from them, not created by Joe or anybody on our -- not created by Chris Whitehair, Head of Operations as part of his performance review. We get this data from Tetra Pak, and these are 3 of the highest performing plants. I can't tell you how impressive that is because we're compared to plants that run one SKU of one product or one brand. I think of somebody running Tetra Pak and they're just making 2% milk. They're just running one product. We run hundreds of products, hundreds and hundreds of products. I would love to be able to run one product all day long, every single day. We've talked many, many times about the scale network, huge investment in capacity, right? $230 million invested in the last 24 months. 2.5x our 2023 -- excuse me, 2022 EBITDA. So huge investment. It's all delivering. It's all performing and it's all invoiceable. There's no hope for. There's no wish for here. All of our capital projects are executed and delivering. Integrated Solutions, again, we are a full-service model. We do not stand on the hey, we're only the low-cost producer, come and do your own R&D, et cetera, et cetera, we deliver a full service model, and that works very, very well with big co-manufacturing, national branded customers or big retail customers because they are very [indiscernible] and very demanding when it comes to things like quality and manufacturing and R&D, et cetera, et cetera. One thing we don't talk often about, but is, again, a core part of our competitive advantage is our service level. You didn't quite read the numbers, so I apologize for that. So this is our biggest customer. So there's 60 data points up here. So this is our top 5 customers last 12 months, what's our case fill rate, okay? 60 numbers up here. The worst number is our second biggest customer in July of 2022, we were 96% case fill rate. That's our worst number, 5 biggest customers, 12 months of data, customer #1, our biggest customer, I'll read them to you, 99%, 100%, 100%, 99%, 97%, 100%, 100%, 100%, 97%, 99%, 99%, 100%. That's our case fill rate, our biggest customer. The biggest customer 100%, 100%, 100%, 98%, 98%, 97%, 100%, 100%, 100%, 96%, 100%. That's our case fill rate. Nobody is talking about that. Nobody in the industry has those kind of case fill rates, right? You continue to still read about other food manufacturing companies who talk about, yes, our case fill rate is getting better, we're in the high 80s now. You kidding me? Look at it. So if you don't think that matters to our customers, you're crazy. That absolutely matters to our customers because they're selling a product for $3 and they're making 40% margin on it. So at $1.20 per unit, they're making, our customers making $1.20 a unit. So if 20% of the products you're ordering isn't showing up and you're out of stock 20% of the time. Working with some other co-manufacturer besides SunOpta, but getting 80% case fill rate and you're losing $1.20 on every single one of those cust orders is not a big idea, right? A bad business. So maybe we're a little more expensive. We don't position ourselves as a low-cost operator. But case fill matters when you've got out-of-stock issues. And certainly, this is a key point of difference for us with customers. I talked about what does this mean to our customers. And again, we talked about these are our competitive advantages, but why are those important to our customers. And you can see just the value that our customers derive from our competitive advantages, whether that's case fill rate, whether that's being the low-cost operator, delivering great cost to them, whether that's -- again, all of our customers, probably 70% on the plant-based side, 70% of our customers pick up their product here or at one of our plants. So they own the freight, okay? They own the freight. So if you're working with one of our competitors who only has one plant somewhere in America, they then have to ship that product everywhere where they're distributing. We have 4 plants, north, south, east, west, Minnesota, Texas, California, Pennsylvania. So when you're paying for the freight, when the freight is on your dime, you love working with a company like SunOpta because we afford you the opportunity to minimize the freight miles that you're paying for. Next, I'm going to talk a little bit about our core capability expansion. Just in terms of -- one of the things that I think, again, is underappreciated around our story is just the dramatic TAM expansion that we've been able to put together in our core business. So in 2019, we would roughly describe the TAM as $3 billion. Today, it's $15 billion. So we have fivefold increased the TAM of the competitive spaces we compete in. So you can see at the bottom of this upside down layer cake, shelf-stable plant-based milks, $1 billion category, a 3-year CAGR 5%. Then we entered into the Creamer and Barista space, added another $1 billion of TAM, growing 33%. Then we started to develop and push into refrigerated plant-based milks, really as an ingredient supplier, a $3 billion TAM growing [ test ]. BFY Snacks, Better For You snacks, $3 billion category, we would say just the BFY, Better For You snacks totaled $9 billion. I mean it's a massive number. All dairy, we've talked about plant-based ice creams and yogurts, et cetera, that's another $2 billion, growing 16%. And then now our entry into the nutrition beverage category $5 billion TAM, growing at 10%. And you can see on the left-hand side how we participate, and I talked about why we love our multiple go-to-market optionalities. As you can see almost every one of those we have multiple ways that we're making money. We have multiple ways to win. We have multiple customer touch points. We have multiple ways to make money on that initiative. So 3 key growth platforms that you're going to hear about and have heard about from us for a long time. Number 1 is scaling our plant-based business. We believe $1.15 billion of revenue is our, again, long-term goal. Second is accelerating Better For You snacks, our long-term goal is $250 million of revenue. And the third priority is expanding the nutrition beverage space. And again, $0.25 billion is our long-term aspiration. Just to kind of unpack each of those in a little bit of detail. Plant-based milk. You can see one of the things, again, I think that is underappreciated or misunderstood is just how broadly penetrated the plant-based milk category is. So 40% of U.S. households, 113 million U.S. households. 40% of U.S. households have 2 or more plant-based milks in their house in a 12-month period, okay? 53% of U.S. households have bought plant-based milks at least once. So 50 -- over half of America, half of American households have purchased the plant-based milk in the last 52 weeks. 74% of households have both plant-based and dairy milk in their house. So this is not a niche. This is not a fad. Plant-based milks have been around since I graduated from high school in the mid-80s with soy milk, et cetera. So again, look how old I am. That's how long plant-based milks have been around, okay? You look at how these products are used; added to cereal and smoothies or shakes as an ingredient in baking, drinking it just as a glass of milk or adding it to coffee and tea. So again, broad household penetration. Broad usage for a long, long period of time, and we continue to see the growth in plant-based milk over and over and over year after year after year. Just a couple of stats. I mean some of these partners are sort of well understood in terms of who we work with and our market share position via them in some of these categories, #1 brand of oat milk, #1 brand of almond milk, #1 brand of soymilk, #1 brand on rice milk, #1 aseptic tea, #1 brand in MULO, #1 brand in natural. I mean, again, we have amazing partners that we work with and have worked with for, in some cases, multiple decades. In terms of the growth levers around building out our core plant-based milks business, category growth, we continue to see momentum. We continue to see opportunities in scaling our foodservice and Barista business. We believe that will be a growth driver for a considerable period of time. You will see our dream oat milk running today that is going into the world's largest coffee shop directly out of this facility. Super excited about that as a kind of core platform here in Texas for us is oat milk for Starbucks coming out of Texas. One of the very first products coming out of here is for our single biggest customer. We see opportunities to continue to grow market share. We have been taking market share from existing customers. It's a dynamic environment, right? And the goal is always winning more than you're losing and we certainly feel great about our ability to win new customers, and we have been winning new customers. This facility has resulted in 2 of our large customers saying, "Great. I was dual sourced. As soon as Texas is up and running, we're going to shut down that other guy and consolidate volume with you. So that kind of dynamic is going on in the market. Product innovation, again, think about oat, 2019, we did $1 million of oat, $1 million revenue in oat. Last year, we did $120 million of oat revenue. So for $1 million to $120 million of oat for us, huge innovation platform for us, huge growth driver. You're going to taste a product today. I think everybody is fairly familiar with the size and momentum of ready-to-drink coffee. We now have the ability to do ready-to-drink plant-based milks, think plant-based lattes. You're going to try one of the products that we are in development. Again, innovation platform for us to continue to leverage our core competencies in plant-based milks, as in coffee concentrate and you have a beautiful plant-based milk, lattes. And again, tons of momentum in that category, we think, again, a long-term growth platform for us. And then you're going to hear on all 3 of these opportunities, the opportunity for inorganic growth. And we think in each of these 3 spaces, there will be opportunities for us over the next kind of, call it, 5 years to consider acquisitions in the space in terms of rolling up capacity and/or expanding capabilities. In terms of Better For You snacking, I referenced this $92 million of revenue last year, up from $50 million a mere 24 months prior. So huge -- we are absolutely out of capacity. We have capacity coming online in the third quarter. But right now, we are making every single pound of products we possibly can, and we are incredibly excited about that capacity expansion. We have one of the world's largest retailers ready to throttle down the minute that capacity comes online. We have done a test with them in their stores, blew the doors off and they are ready to drive expansion as soon as we can give them more products. So again, super exciting platform for us. the consumer is absolutely interested in Better For You snacking for themselves or their kids. These are in -- for the majority of these products are organic or clean label, therein no or low sugar added. So just great, great snacks for kids and continue to see momentum in this direction. I talked a little bit about just the size of the market here. And 2 key things that we do. One is around the manufacturing side of this, which is really running specialty bespoke manufacturing. I won't say it's handmade, but this is not a high-speed, high-scale operation. It's kind of very finicky, very fussy manufacturing, and we do a very bespoke manufacturing process allows us to deliver that clean label experience, allows us to produce products that taste sweet without dumping 100,000 pounds of sugar into a batch and gives a great, great product that candidly, a lot of other manufacturers just wouldn't want to touch because it's too fussy. So Better For You snacking, how do we continue to see growth, again, same touch points, category growth, market share, product innovation and inorganic growth. Again, as we look at how do we build out this capability, how do we build out this platform -- we absolutely think there's a role for potentially some small-scale M&A to add capabilities to our quiver. Lastly, and you will see it today, which is our new 330-milliliter entry into the Nutrition shake category. We are incredibly excited about where we are. We -- as we have said, we have effectively sold out the entire production line. We sold it out a year before, probably a year ago right around now. So 12 months before we're even starting production, we had sold out all the capacity on that. That customer was here last week, they're here again tomorrow, doing QA validation work, et cetera, et cetera. So excited about the progress we're making there. $5 billion category, growing 10%, dominated by co-manufacturers like us. So huge opportunity for us to come in with our unique set of capabilities and competencies and again, continue to roll up market share and build momentum on the business. You can see there is, again, category household penetration available. So ready-to-drink nutrition beverages, 25% household penetration, total sort of protein-oriented products, so I think bars plus powders plus drinks, 54%. So again, huge opportunity for continued growth in that space. One of the things we're excited about is bringing our plant-based capabilities to the nutrition drinks category. So if you look at milk kind of the universe of milk products at retail, $16 billion category, 16% of those are plant-based. So I think all cow dairy, all plant-based put together, plant-based milks 16%. If you look at ready-to-drink nutrition products, $5 billion category, 2% plant-based. [indiscernible]. If you look at protein powder. Protein powder is something like 25% or 30% plant-based. Protein powders at 25%, 30% plant-based, you've got ready-to-drink milk 16% plant-based, ready-to-drink nutrition to -- so again, key opportunity in one of our core thesis is in making this investment is we can bring our plant-based capabilities to ready-to-drink nutrition. You can see the growth on the right-hand side, of obviously a smaller base. The world's largest food company made an acquisition in this space not that long ago to buy the leading brand in the category. That brand is doing exceptionally well for them, and I'm sure their marketing muscle and their $80 billion of revenue and capabilities, as they lean into this, we again see expansion in the plant-based protein drink space. You're going to take a product later this morning, which we think is phenomenal, a blend of [ peas, flacks and barleys ] that our amazing R&D team has put together. And I think you would see we didn't do the easy job, which is to put a competitor product next to it. But if you've had any of the plant-based ready-to-drink nutrition beverages, I think you're going to find this is an amazing product. And again, a very logical extension for us we know how to make plant-based milk. And so adding protein to that for us was a relatively easy task, and he ducks as the R&D team in the back looked at him for describing their work as easy, but a logical extension of our capabilities and something that we're very, very excited about. So in terms of where the growth levers there come from, again, $250 million is our long-term ambition. The capacity-constrained environment. There's an easy play to run here, right, which is just continue to kind of keep pace and add capability with the category growth. Product innovation, I mentioned, you'll continue to see work there on our behalf and then inorganic growth. Again, a lot of co-manufacturers in this space. Some it is a very strategic business for them, some, it's more ancillary. We think, again, there's going to be an opportunity over the next, kind of, call it, 5 years to do some strategic and surgical acquisition. So last 2 points for me before I turn it over to Mr. Huckins is the idea of being and being recognized as a sustainability company, we have made great, great progress this year and in the last several years around this goal. I won't drain this net zero in all our U.S. manufacturing facilities, net zero to waste net -- net zero means we're not pushing any waste to the landfill, okay? So we were [indiscernible] we would use, we repurpose, et cetera, something we're very, very proud of. Policies. So we've updated our palm oil policy, our human rights policy. We've updated our code of conduct. We're joining SEDEX as a key component of transparency around our ingredient supplies and building transparency there. We're preparing Scope 1 and Scope 2 disclosures. Those are the kind of legislated components that are kind of on again, off again. But certainly, this is helping us make smart business decisions smart investments, one of the things we're going to talk to you about is our investment in a wastewater treatment facility here. Certainly, it has turned out to be an incredibly fortuitous effort on our part, fairly significant investment in this facility, but really represents what we would describe as a triple win for us, good for the environment, good financial and good for our business planning. So we'll go into that a little bit more. But again, I think it really defines how we think and these decisions that we're making are absolutely demonstrating strong returns on investment. Lastly, the culture. A lot of people talk about culture sometimes you would say, how do you measure culture. I think you can see it and feel it in people. But for those more analytical oriented minds in the audience, of which I think there are probably a few, we offer data. So this we have done since I started with the company and [ org health survey ], we do it 2 or 3 times a year; same questions, same measures every single time. It's a 5-point scale in case you're looking at it saying, "Hey, Joe, [ 4.0 ] is not so great on a 10-point, would not be that great on a 10-point scale; on a 5-point scale, it's freaking amazing. I mean to get -- we had, by the way, 92% employee participation in our [ org health survey ] 92%. We set up kiosks in every plant. Spanish and English. We ask people to take it. We don't mandate it. We don't stand there and hold them hostage. But 92% of people take the opportunity to give us feedback on how we're doing. 26 questions, we just pulled out kind of 4 of them, 1 around purpose, 1 around strategy, 1 around culture and 1 around engagement. Just to give you a flavor, every single measure that we have in the company has gone up. Every single measure, all 26 scores have gone up since 2019. Something we track and measure ourselves against each leader gets a report out on their part of the culture and their organization, look for opportunities, et cetera. So again, there's a soft side of the culture and a hard side to culture. This is the kind of hard side. The culture, hopefully, you'll see and feel a bit of the soft side as you meet some of our amazing teammates throughout the rest of the day. So with that, I'm going to invite Scott up to take us through a financial algorithm update. Mr. Huckins?

Thank you, Joe. Good morning, everybody. We go through 3 topics, just a few pages. I think we'll start with a recap of the outlook for the company, 2023, 2025. Then we'll do just a quick refresher on capital allocation framework and priorities. And we'll show you what the math looks like for what we call the aspiration beyond 2025 being what it looks like to be a $2 billion company. How might that look and feel. Okay. So first, I want to just kind of frame the outlook. If you were around the company in June of '22, you would have seen something similar. The point is you just sort of the assumptions. So the first is, this is a roll forward of the current economic climate. We've not tried to reforecast changes in interest rates and commodities just a roll forward. Second one is that this is a model for '23 to '25, that's my phrase internally consistent. So the revenue, the profit and the capital are all the in-motion projects. So we don't have revenue without the capital or capital without the revenue, it hangs together. The third, we get a few questions about it's really for simplicity. We've not assumed operating leverage in the business. But the management team is not committing that there won't be operating leverage. We're just sharing them for simplicity. We have not credited the economics and the outlook for operating leverage. And the very last one is the current portfolio construct as we sit here in early 2023 is what we have rolling through 2025. Okay. So the outlook, again, recap. This is a business that started with about $20 million of EBITDA in 2019. You can see the recap of the 2022 results. The guide for this year, sit on the column $1 billion to $1.05 billion -- excuse me in revenue, $100 million in EBITDA, $30 million of free cash flow. You can see the outlook more specifically that we shared in the past for 2024, again, $1.1 billion of revenue, about $120 million of adjusted EBITDA, $25 million remains unchanged. That's the $150 million target that you've seen. I think it's important to keep in mind, and you'll see this as you walk the -- walk the plant today. There's an inherent lumpiness in the revenue, right? As we're onboarding new customers and new SKUs, it's actually easier to predict the business on a full year basis than quarter-to-quarter. So just keep that in mind, I think you'll see it in practice. I think the last piece of this that's important to keep in mind is that when we talk about free cash flow again for clarity, this is the free cash flow profile without new growth investments, right, without new growth investments. So if we do identify incremental growth investments that obviously changes the free cash flow profile and the forecasted financials, which is probably a good segue to the next topic. Okay. So on capital allocation, again, this is just a reset. So we have for several years that we'd like to run the business between 2 and 4x leverage. We think that's the sweet spot given the revenue and earnings and profits engine at SunOpta. So within that 2 to 4x zone, there's 3 choices. And each of these compete for capital, and they're not mutually exclusive, right? We could have, one incremental growth opportunities, but organically speaking; two, we could have a return of capital such as a share repurchase; three, share purchase. We may find ourselves with attractive bolt-on or similar acquisition opportunities. Sitting here today, I think we're pretty bullish about identifying organic growth investments, as you heard from the outlook in our 3 core growth levers. Okay. Over the last several months, we've got a lot of questions, as you would probably guess and many of you have asked, how do we think about the business beyond 2025? In the Q4 call, we shared this framework, right? In general, we would expect to see low double-digit top line growth. Again, 3 core growth drivers, right? We've got plant-based beverages, nutritional beverages and fruit snacks. Two, this is where mix is your friend. The gross margin profile of those businesses are advantaged. So if you just roll forward or model it, you'd see a high teens gross margin profile without any assumption of accretive or dilutive OpEx, operating expense, we would have a low teens adjusted EBITDA margin profile. And then the hardest one to get right in a year would just be on average, we would see roughly 5% capital investment per dollar of revenue, right, again, so the things hang together, that's our estimate of the average capital investment to facilitate that growth in revenues and profits. Putting it all together, what would a $2 billion portfolio, we aspire to develop, look like. You have $1.15 billion of plant-based beverages. As you've heard from Joe, you have $250 million each businesses in fruit snacks or Better For You snacking along with nutritional beverages. And then we have some growth built in for our frozen fruit business at about $350 million. But I think the takeaway is this is what the management team is working on for the generation of the company beyond 2025. With that, I'd like to bring up Chris Whitehair. Chris, SVP of Supply Chain has been to Texas probably 40 times in the last 50 weeks, something like that. So looking forward to having him share with you the journey.

Well, Joe said, he's fired up. I've been fired up for the last couple of years. I mean, this has been a great project. I've been doing this for 35 years, and I'll tell you what this was actually a lot of fun, and I'm really excited for you guys to see this today. So I've been with the company for 6 years. I run our operations supply chain and we're going to start with a little video , sorry. This music will get you a little bit fired up as well. [Audio Gap] Just a little bit of fun facts about the building. There's 21,000 cubic feet of concrete that was used in the facility. That's about 1/3 of what it took to build the star -- Empire State Building, 29,000 linear feet of piping, about 7,800 feet of electrical wire. We had over 300 contractors working on this facility at a given day. It was a 7-day operation. And as we've talked about, it was 16 months from the day we broke ground until we were operational. So it was not easy. We have a lot of problem solving. We had challenges that came up along the way such as electrical components and all the chip shortages that you've heard about. We actually bought a lot of that equipment before we actually broke ground. We bought structural steel before we broke ground. We had very good project management, and then we have in our culture of tenacity to overcome, and that really is what set us apart. Because a lot of people thought we were crazy trying to pull this off and I'm sure you all hear about delays or stopping projects. We were able to overcome a lot of those challenges. So very proud of the team and the culture that our company has on the tenacity that they've had over this project. We also talked a lot about sustainability. Sustainability was very much a part of how we built this facility and how it was designed. We talk a lot about the diamond shape and how many miles we're going to be able to take off of transportation by building this facility here for our customers. So 15 million freight miles, that's 59 million pounds of carbon emissions. We've also had an investment, a $6.5 million investment in our wastewater treatment facility. So you can imagine with a growing population that we see in the Dallas-Fort Worth area. If we hadn't made that investment, we likely wouldn't be even starting up. But you'll see today that we can take the water and it's drinkable when it comes out of our wastewater treatment facility. So we were able to operate, and it also gives us the ability to grow in the future with that investment. Again, we've designed our systems around utilities with centralized HVAC recycled materials. So a lot of that went into the investment as well. This plant was also built for growth. You could see -- you're going to see Phase 1 today, but we're very -- we're already working on our Phase 2 expansion plan as well as our Phase 3. So within the 4 walls that we have that you'll see today, we're going to show you some areas where we can grow and put more lines in. So you can see the 2 additional line 4 and 5. And then you'll see we have a lot -- this site was built with 33 acres, and we can add another 150,000 square feet to this plant, making it almost a 400,000 square foot facility to add 3 more additional systems. So the growth is going to be tremendous here. This is not -- the whole design was built, assuming that we would have a 3-phase growth potential here. So very excited about that as well. One thing too that I don't know that everyone appreciates is what it takes to start up a product here, months go in advance, not just designing the sanitation design, but training our employees. Obviously, we have to pass audit. So a lot of work, not only as we were building this plant, we were also training employees, hiring those 150 employees, bringing them to our existing plants to train them on how to operate the equipment, how to do things in a food safe manner. We also have to pass audits for our customers. So we've had -- you can imagine in the last couple of months, a ton of audits. We've also -- as we ramp up those customers, then as we pass those audits, we order materials and then we do trials. And then once we get those trials complete, then we can start up product. So you're going to see the product of that where you actually will see commercial product running in our plant today. So those steps are in place. We're on track, and we're doing very, very well. And I will say, right now, as we stand here today, I couldn't be more excited about what we're delivering from this plant from all the work. And thanks to the 1,000 employees of SunOpta to make that happen. So with that, I will turn it over to Bryan Clark, SVP of R&D.

Thank you, Chris. So as my colleagues have said, we're very thrilled to have you here today. Thank you for making time to be with us here. We're really excited to showcase our state-of-the-art facility, our newest state-of-the-art facility, and I'm the last speaker between you and the tour. So I will be brief. But what I'd like to talk about today are some of the complexities associated with aseptic manufacturing. And I'd like to start with an analogy that I find very helpful and that's that of a symphony orchestra. And that's because success is only attained with every section, every line and every chair performing in Harmony, very similar to our aseptic processing systems. They're highly sophisticated, they are automated integrated systems. The front and the back are directly tied together. So without that harmony and without that working well together, we're not able to be successful. So first, I'd like to talk a little bit about why we do what we do. And specifically, we'll get into thermal processing in a moment. But there are many, many techniques used to preserve foods, and it is a complex but finite matrix of consideration. We think about what ingredients are in the product, what attributes do consumers want for those final products, what's the best way to give the best product to the consumer. My education and background is in thermal processing. I've worked over my career, pushing 25 years now with all of these, specifically expertise in thermal processing. And what I can say is that aseptic processing is the most complex and has some of the most high demands for precision in what we do every day. The other thing that we like to consider are how do we optimize and really, it is an optimization equation when picking the preservation technique, how do we optimize the food product safety and maintain those nutritional and sensory benefits. It's a lot like a supply and demand curve. I'm trying to hit the optimization point where I can have the best quality product, but safety is table stakes. We must optimize those factors. When we talk about products like we make here at SunOpta and regulatory speak, they are low acid can foods or low acid beverages in the case of SunOpta. There are 2 primary techniques that are used. They're by far and wide the best for the application, but they're also the most common. So you'll see and hear about these very common. Aseptic processing as well as pasteurization or extended shelf life. In aseptic processing, we take a very high temperature of approximately 290 Fahrenheit, and we expose the product to that temperature for seconds, dominantly in the 3 to 6 second range. That product is then taken into a sterile package, in a sterile environment, which is really where the complexity comes in. And you'll have a chance to see you and hear from that on the floor here in a few minutes. But those things come together, and that gives the product what we call in technical language, commercially sterile. That means we can distribute and store that product at ambient temperature. Consumer can keep it in their pantry at home, has a shelf life of at least 12 months. Technically, that product is safe for years. It's usually the nutrition facts panel where it is how much vitamin A, how much vitamin D, that's typically what drives that shelf life. It's certainly safe long beyond that. When we think about how that compares to pasteurization. Pasteurization treats a much more narrow spectrum of microorganisms. The lower temperature. It's not packaged in the same sterile conditions that aseptic is. And as a result, there are still some microorganisms that without refrigeration could spoil that product. You want to do an experiment, I probably wouldn't recommend it. You could take a carton of an oat milk that we make and a carton oat milk from the fridge, give it 4 days, that will be an interesting science experience for you. But really, the difference is higher temperature, we're killing more microorganisms in an aseptic process in the packaging sterile relative to pasteurization, which kills fewer microorganisms requires refrigeration to get that shelf life. So we've talked about what we do. We talked about how we do. Now I'm going to tell you what makes SunOpta unique in this equation. What have we done to differentiate ourselves to be successful as well as a leader in the industry. So it is a very complex manufacturing scenario. You will get a sense and a gravity for that as we walk and take the tour today. I talked about the symphony analogy. This is a direct couple manufacturing system, meaning the front end and the back end are tied together. If I have a speed bump or a hiccup at any part of that process, it all starts to cascade like a bad case of dominoes. What we have done to be successful there, I would say, you've heard this from Joe and others is really our culture. We are a learning organization. We embrace the continuous improvement mentality and culture. And by the fact that we now have 5 facilities, we are learning and sharing those things 5x faster than someone that has one line, one plant to another. If we didn't have this culture and commitment to being a learning organization, it could be really challenging for us. We have fantastic forums weekly where we collaborate, whether it's operations, R&D, supply chain, all those functions are talking about how did you solve this problem? How did you overcome that obstacle, share those learnings? The next part is the diverse portfolio. Joe opened with the number of SKUs that we manage in our portfolio, the number of customers that we manage in our portfolio. We're very proud of that. I had a mentor once that talked about how do you take a challenge and make that into a strength. I would say that embodies everything that we do here and in Midlothian for sure and in SunOpta in general. So here, we have high-volume process systems. We make large volumes of liquid. We process at high rates of speed. That could be an opportunity to lose a lot of money. We don't do that. And we don't do that because our counter here is our people. We have experienced people. We have tenured employees. We continually invest in training, the continuous learning and continuous improvement culture I talked about earlier. I personally echo with what Joe led with, which is it's always about the people. Our solution to complexity is our people. And then finally, we talk about the scale, the scale at which we operate and how we operate. 3 of the top 4 performing lines in the Americas cluster when we think about aseptic systems. What's not happening in many of those instances, they're not making the same portfolio of products that we're making. They're not managing the same number of changeovers that we're making, and we embrace that challenge. Again, points back to the tenure and the training we invest in our employees. And then I wouldn't be the great -- fortunate R&D leader to say, if we didn't have our proprietary processes, our tips and tricks and our trade secrets that we've built here at SunOpta over the last 10 years, we certainly wouldn't be in the advantaged place that we are. So with my closing comments, what I'll say is we have a complexity multiplier that I'd love for you to appreciate. It is 5 plants, 12-plus processing systems, 300 SKUs, 100 customers, and we crush that. And we crushed that with the service levels that Joe talked about. That's how you can judge the performance that we have. It all comes together to do that, and we're very proud of the culture we've built here. We're very excited to showcase the facility to you today, and thanks again for being here. So with that, I will have Joe come back up for some concluding remarks.

So we're going to do Q&A now because we wanted the people who are on the phone to have an opportunity to hear the questions from all of you. As opposed to coming back at the very end of doing the Q&A and the folks who are on the phone would have to sit there for 1.5 hours waiting for [Indiscernible]. So we're going to do some Q&A now, then we're going to go on the tour and then we'll kind of reconvene in this room kind of any wrap-up thoughts that you all would like to share. It would be great. There'll be -- to go lunch. I'm not quite sure what time flights are. But we're a little bit ahead of schedule now, which is great. But kind of open the floor for questions before we head out for the tour.

Yes. So no operating leverage assumed in the 2025 model. I'm just curious if you're willing to say what's possible there if we do assume operating leverage in terms of the gross margin or incremental gross margin or if you don't want to say anything that's fine, too. I understand.

Scott? [Indiscernible]

I'll try to speak up this [Indiscernible] again I would really go back to a simple line assumption recognizing the development -- type of revenue development in forms with the operating expense. So for example, if the development happens to be more brand heavy that would pull forward more SG&A [Indiscernible] or private label. Is it possible to question that we'll see some average leverage. Absolutely. [Indiscernible]

The 2025 numbers assume that you guys will do that 150,000 square foot addition or a -- that will be added, too? Just to layer on that, do you need all of the lines that you showed us to get to the 2025 assumption? Or is it a portion of [Indiscernible]

So I guess none of that's in the '25.

So just the [Indiscernible] lines that you showed at [indiscernible].

Yes. Just Phase 1 is in the '25 numbers. And kind of given lead times, right now. And given we're -- believe it or not, almost in the middle of '23, we're going to be coming up on some decision points here of how to -- how and when we're going to fill that expansion space. John?

Bank factoring footprint based [Technical Difficulty] but you're coming into [Indiscernible] beverages in a [Indiscernible] different position with one facility, not the diamond footprint that you'd like to talk about. And there are others out there doing this. So -- could you just talk a little bit about -- I think you're not as competitive out of the [Indiscernible] over time try and replicate the competitive advantages you have like milk [indiscernible].

I'm supposed to be repeating the question. I forgot for the folks on the phone. So John's question was really how do we think about building competitive advantage in the protein shake space. I would tell you immediately out of the gates, our competitive advantages geography. The nearest person who manufactures nutrition drinks is in Missouri. So you think about Texas is the second biggest state in the union, one of the fastest growing. And every single person in that $5 billion category today, is at best case shipping product from Missouri and likely from further points of field. So I can tell you when we had our very first conversation with our customer who's going to consume that line, they were like, "Wow, you've picked a great location. You could not have picked a better spot. We're super excited to start talking to you." So that's our starting point. The second is from a processing product manufacturing standpoint, we absolutely believe that in short order, we will be in that top tier in terms of manufacturing performance because you'll get a chance to see it, but I mean it runs very, very similar to our existing plant-based milk. So we think all that manufacturing prowess and capability that we have, not that it's not different, not that it's not a little bit trickier, but we absolutely believe we will, again, check the box on that. Third is just the full service model that we bring. We absolutely see value and benefit in that as does the customers that we're potentially working with. And lastly is the innovation piece, right? So again, plant-based, highly underdeveloped in nutrition beverages, Why? I would contend nobody has brought [Indiscernible] to really be great at plant-based with the manufacturing ability to do 330 ml.

Are there -- are there -- are whey-based protein-based superior for some reason? Are there technical hurdles of [Indiscernible] for that kind of consumer.

So the question was, is our whey-based protein drink superior. It depends on your definition of superior. The protein density of whey is higher. So in the same volume of liquid, you're going to get a higher protein content from whey-based, not that you can't get there with plant-based. It's just a little bit more technically challenging. So in the category today. You would see the plant-based products are circa 20 grams of protein. The whey-based are 30 grams of protein. Now -- and everybody wants or needs 30 grams of protein, but that is one product difference between whey-based protein drinks and plant-based protein drinks.

How do you see the new FDA guidelines for labeling effective your growth trajectory?

So the question was, how do we see the new FDA guidelines impacting our trajectory. We don't see really any significant impact. I mean they came out and said you can continue to call these products milk. There's some discussion around if there's a nutrition difference between plant-based milks and cow dairy, you're going to have to call that out. There's 2 solutions there you could call it out or you can just add the fortification to have the plant-based milk be parity to cow dairy in terms of, say, vitamin A&D, et cetera. So we're already exploring some of that. But we don't think from a consumer behavior standpoint, I don't believe it will have a material impact whatsoever.

[Indiscernible] have you seen anything else coming in the category, adding capacity? And then from the branded side, there seems to be a little bit of a push on health manufacturing a couple of years back, has that shifted all as people [Indiscernible] to manufacture the [Indiscernible] self-manufacturing?

Yes. So the question was, are we seeing any shift to self-manufacturing? The answer is no. We have not seen that. In fact, we've probably seen a bit more of the opposite where some people are looking at outsourcing manufacturing versus in-sourcing. And then the second question was around competitive intensity have we seen anything. There's always projects going on. There's always competitors doing things. I mean it's not a static environment, but nothing that we're particularly stressed about. I mean, we have competitors just like every single business on planet Earth. They're putting capital in, they're developing products so are we. And at the end of the day, our job is to grow consistent with the revenue projections we put out there, as far as kind of new steel in the ground, there's a couple of projects going on, but we would expect that. I mean, it's a growing category, you have competitors, and they're looking to grow as well.

All right. You've illustrated on one of the slide about [Indiscernible]. If you talk about margin profile [Indiscernible]. And also [Indiscernible] those -- then what -- for your customers, what is the margin profile of those customers, their margin profile? Is it higher than some of your others [Indiscernible] pricing, [indiscernible]?

Yes. So the question was, and Scott jump in here. But the question was the margin profile of the customer and does that give them more pricing power on fruit snacks.

Yes. More pricing power for you. Is their margin profile is higher [Indiscernible] versus something where it's [Indiscernible] margin for them. They kind of sweep you...

Yes. So the margin profile of the fruit snacks business is margin accretive for us as a company. And again, probably consistent with the strong margin structure for them. We don't know exactly what their margin structure is, but we can infer it.

[Indiscernible]

Yes. So one of the challenges -- and I hesitate to weigh it into this topic, gross margin sometimes is a tough -- so there's 2 different models as in -- kind of on the co-manufacturing side of the business, there's 2 different models. One model is we buy all the ingredients and that is a pass-through cost to our customers. We make up tolling our manufacturing margin, okay? We do not mark up the ingredients. So if we buy them per dollar, we buy it for $2, it just goes straight through. But it shows up as revenue for us, okay, because we invoice the ingredient. On the nutrition beverage side of things, it's going to be a bit of a hybrid. So our customer will send us some of the ingredients. So they're purchasing because they're larger than us. So they're procuring, say, all the way protein, they send it to us. So we're procuring some of the ingredients. They're procuring some of the ingredients. So revenue would look, on all things being equal, revenue would look smaller, gross margin will look bigger because we're going to make the same amount of money per case, whether the revenue number is $10 or $5. Does that make sense? So the 330 ml, the nutrition beverage business is a bit of a hybrid pricing model for us. So it should be gross margin accretive, but the revenue number might not be quite as iconic.

[indiscernible]

Good question. So the question was what incremental sales do we need to realize those 2025 numbers. There's not a huge leap of faith in any of those. There's no, oh, we got to go find a new $100 million customer. It is very much existing customers. And again, remember, our sales development pipeline or cycle is at least 12 months up. And in many cases, if you kind of measure back to first conversation, probably more like 18 months, 15 to 18 months, again, many, many of our customers are giant $10 billion, $20 billion, $30 billion, $40 billion PPGs. They're not necessarily moving at the speed of sound on some stuff. So it's like you have a conversation and there's a process, et cetera. So we have pretty good line of sight certainly into the growth levers for the future. There's always a little bit of, okay, we got a go find customer X, Y, Z. But there's no stress for me in any of those revenue numbers of like, holy c***, who is mystery customer X or mystery customer go get that we have to fill it with. So -- right?

So maybe roughly a year since you initially provided a 2025 outlook. Anything that you would point to as either making you incrementally bullish about achieving those targets or anything that's changed that would have an adverse impact on your billing[Indiscernible]. What are the 2 or 3 things that may be [indiscernible]?

Yes. So the question was relative to the 2025 projections that we put out as anything, what are potential headwinds or tailwinds? And are we incrementally more bullish or less bullish? Is that accurate? I still think Bryan, relative to when we put those out in June, the environment is still pretty much the same. You look at there's still instability in the consumer landscape relative to inflation and real wage decline, et cetera, what impact is that going to have. You're starting to see it in some of the categories. You continue to see the consumer kind of making adjustments. So I think that would be a question mark or a risk to any business, including ours. Relative to things that make me incrementally bullish. I would say this facility, you're going to see -- you can't lean into the expansion side of it until you get the first job done, right? And so to DJ's question and Coleman's, do we have any of this expansion built into our '25 numbers? The answer is no. Would I pull the trigger on that before I do -- we could run the facility as it is today, absolutely not, right? We've had discussions about do we put another 330 ml system in when we've kind of said, well prove to ourselves, we can run the first one before we write the check for the second one. So the more confident we get there, the more likely we are to make a move on that, and therefore, that would impact the '25 outlook.

[Indiscernible] Being at the [Indiscernible] trade show [indiscernible]. And what we heard a lot was in a second quarter [Indiscernible], et cetera. The question was how do we introduce plant-based while delivering sufficient protein. And it seems like the question there is doing that at a quality level where the taste is not sacrificed. Any -- so that seems to be the big unlock, right? And deliver plant-based beverage in a sufficient protein, 330-milliliter category. How close do you feel you are to achieving that?

I think we've done. And you'll have a chance to take it in an hour.

What do you sense to the timing of larger private label oat milk launches at retail discussion with the customers?

Yes. The question was what do we see around larger private label oat milk launch of that retail. Mike, feel free to kind of chime in here. But we -- there was some momentum about a year ago with a couple of the world's largest retailers, and it's kind of hit a little bit of a, I don't know, speed bumper. It wasn't a huge thing for us. We were going to supply some of the oat-based, et cetera, et cetera. But we haven't seen huge momentum there. I would just call it kind of incremental activity, but nothing -- we haven't seen anybody do the proverbial cannibal in the middle of the pool in terms of like, okay, we're going to own this with private label, et cetera. They're starting to introduce products, the biggest traditional grocer has done a bunch around oat milk creamers. But Mike, anything to add? Mike's the General Manager of our plant-based business unit.

Yes. I would just add, I mean, you're absolutely correct. And what we're still seeing is some testing at retail. And so we're certainly engaged with brands and retailers as we're doing that but we're seeing a lot of the growth in [Indiscernible] and foodservice. I would say foodservice, whether it's direct or through contract manufacturing brands, there's still a lot of runway. There's still a lot of growth. And so I would say foodservice what you'll see a lot of our growth, but certainly we're participating [Indiscernible].

[Indiscernible] 100 customers. How do you see that evolving over time? Is there aspirations you consolidate? Does that give you more leverage in terms of visibility, contract margins, anything like that [Indiscernible]?

Yes. So the question was Bryan referenced 100 customers. We don't have 100 customers on the plant-based side, which is the more [Indiscernible] challenging piece of it. It's a finesse, right? We are always in the mode of -- as you might expect, a lot of smaller companies come to us and want us to co-manufacture for them. We are optimistic, and we actually make them present a business plan to us like we were a banker basically like convince us, you're going to get big. And we try to place a couple of bets a year. We try to find a couple of new partners that were like these guys seem to have a great product, know what they're doing, have funding, have momentum, have built an organization, we're going to take a bet on them. But we certainly probably turn down more customers than we say yes to, Mike, I don't know what you would say the ratio of who we bring on versus who we say no to.

[Indiscernible] launches from the emerging [Indiscernible]. I would say on the plant-based side, we're certainly moving heavily towards big national brands and customers, right? I mean they really -- that scale and our signings [Indiscernible] capacity is a perfect match. There's a lot of people still looking to get into this space. So I would say kind of [Indiscernible] we talked to a lot of people that have ideas for the next potato milk and sunflower milk and lots and lots of different ideas. And so that helps us to understand what's going into the market to help them with some of our [Indiscernible], at the end of the day, I'd say we're a better fit in plant-based for big, large brands [Indiscernible].

One of the things every customer hates to hear is what's your -- what's our MOQ or minimum order quantity. And we love entrepreneurs. They're fantastic. They drive the category. They bring innovation. But we can't sign up a customer where we run their product twice a year. And you'll see from the scale of the operations we have and that we're trying to run. It's just not practical when they say we're going to do $1 million at retail and really, okay, that means we'll run -- we'll run your product twice in a year. Like that's just not productive for us. So we do place some bets on emerging customers, but we got to be convinced is the right partner.

How long is the average contract for your customers [Indiscernible] volume contract and what are [indiscernible]?

Yes. So the question was what's the average length of contract that when the last time we lost somebody. Average length, I would say, is 3 years. We won't sign any contract less than 2. We have some that are 5, I would call 3 pretty standard. In terms of when the last time we lost a customer, I would say we haven't lost a customer, certainly since I've been here, so probably 5 years. What happens though is they'll shift, right? So say you were doing 70% of their volume, they might shift it to 30% or vice versa, right? So the people don't tend to move wholesale, move away from somebody, but they might shift volume to a competitor price would typically be the main reason why we wouldn't see that shift. We've seen a little bit of that shifting. We were pretty aggressive on taking pricing in Q1 of last year to protect margins and reflect the increased costs. And so we saw throughout that a little bit of shifting here and there. But we haven't lost anybody. Really more prevalent on the private label side where they're working with, say, some of the biggest retailers that are working with 3 or 4 suppliers. And if you take price and they get take [ umbridge ] with that, they'll kind of fine to ship 20% of your volume, put us in the penalty box. So we have some benefit from that when other people do it. So the whole thing kind of is moving -- and that's why Scott referenced, I mean it's important to put annual numbers -- it's not like we're -- I worked at 3 delay, right? I mean it's like Doritos sales are -- there's never really a big surprise in the Doritos sales. [Indiscernible] really, Joe. But it's a much more predictable curve, right? Whereas with us, you have so many customers and so many dynamics. That's why I think the annual numbers were super, super confident, but it's lumpy, right, because you're bringing customers on and you think they're going to come in on this day and gets delayed. So...

Just given kind of the length of the sales cycle, when do you guys reach a decision point on what to put in those incremental lines that you have available? And what drives the decision of or to do another 330 ml [indiscernible] whatever you guys up to?

Yes. So the question was what drives what we do and when do we decide it. So there's a pretty -- one of the roles that Tetra Pak plays in the industry is there a bit of a center point for people looking for supply and manufacturers. And so they are probably one of our best sources of sales development leads because they play that role, right? It's in their best interest to match demand and supply, right? It drives their business. It drives equipment sales, it drives laminate sales, et cetera. So they play that role. So they will point potential customers to us and say, hey, you should talk to these guys, how you should talk to these guys. So in terms of what drives it, I would say stickiness of the demand is a key thing, right? So like 330 ml, again, we are bullish about because you look at the totality of that, which is $5 billion TAM, growing double digits, it's been growing double digits for the better part of a decade, big giant [Indiscernible], big giant companies behind the growth, right? You got [Indiscernible], you've got PepsiCo, you've got Nestle, they're going to drive it, right? So -- and we know how to do it. and we think we can make money doing it. So like that's a composite of do we think the demand is sustainable? Do we think the industry economics favor us and does it fit with our competencies and our advantages? In terms of the timing, we're probably 18 months out thinking about -- I mean we have a long-term capacity plan. But in terms of sort of real decision points, we're kind of thinking and activating 18 months out.

Just be clear, 18 months out for making a decision or 18 months out to having [Indiscernible]?

18 months out from having the line, meaning, right now, we're starting to look at, okay, like beginning of '25 like we're almost in the middle of '23 believe it or not. So if you think about, okay, we need to build the business case, board approval, et cetera, et cetera. ordering equipment, 12 to 15 months, we're kind of getting into the zone here of thinking about what's going to be the growth drivers for 2025, incremental to what we've already outlined.

So probably a [Indiscernible] alternative to the traditional beverage kind of pricing can drive up that [Indiscernible]

Yes. So the question was when we create innovation, is there more pricing power there? I would say it's probably -- there's more pricing power there over the long term than the short term. We -- it depends on if we share formulation with them or not. But I think it's part of our overall value equation more than it is, okay, we make this margin when we develop the formulation and the product, we make this margin if they hand us the formula. So -- but I kind of get where you're going on that, which is, hey, is this a margin opportunity for us. We wouldn't necessarily see it that discretely. I mean, probably, yes, is the answer. But we wouldn't say, okay, our pricing strategy is if we develop the innovation, we charge you this, if you give us the formula we do this. It's not quite that -- quite that straightforward.

I saw your path to $2 billion [Indiscernible]. Is that -- what your thinking there? I assume that doesn't include Canada would include a plant? Just can you give any color?

Yes, I think -- so the question was how are we thinking about international. So I think there are a couple of different ways, Nelson, we've talked about and considered international. Number 1 is all of our plants are within 200 miles of the border. The Pennsylvania plant, the Minnesota plant, the California plant and the Texas plant are all within a relatively short difference from a border. We have seen a significant collapse in the ocean freight rates. So in the heart of COVID, it was $20,000 for a 40-foot container, not $2,000 for 40-foot containers. So if you do the math of how many units we can get on an ocean-bound container, it's actually not that significant. I think it was $0.15, Mike, I don't know if you remember Joe math that was done calculating that. But if you say, okay, there's $0.15 premium for us to manufacture in the U.S., but our proximate location to soybean and oat plus the scale of manufacturing here, can we be cost competitive manufacturing in the U.S. and shipping internationally. And is the size of the price worth it. So I would call it a paper exercise right now, Nelson. We're just kind of contemplating that. The second thing is, outside the U.S., the kind of aseptic beverage landscape is dramatically more developed than the U.S. I mean it is the 98% of all European plant-based milks are shelf-stable. Here, it's a 1/3, right? So dramatically overdeveloped in almost every market, Asia, South America, Europe, that is the standard format. Now that obviously means there's big competitors and big manufacturers there. So we're not naive to think we're just going to kind of walk into those geographies and be successful. But certainly, the size of the market. So it would be imprudent of us to not be looking at how to participate more broadly in that kind of global landscape. Okay. So here's what we've got going. We broke you all up into 5 groups just to kind of keep the tour group small and make sure you could kind of hear in some of the places, it's pretty loud. So on your badge, it should be the tour group. I am Group 1, Scott is Group 2, Mike is Group 3, Chris is 4, Bryan 5. Again, one more time. I'm Group 1, Scott's Group 2, Mike in Group 3, Chris is 4, Bryan is 5. So we're going to kind of -- there's 11 stops on the tour, okay? So if you keep a track at home [Audio Gap]