Over the last several years, SunOpta has executed on a well-defined strategy to optimize its portfolio, enhance operational execution, expand capacity, and deleverage balance sheet. These actions have transformed SunOpta into a faster-growing, higher margin business, generating more predictable growth with the financial flexibility to pursue its disciplined capital allocation strategy. Impressively, despite evolving market conditions, SunOpta continues to demonstrate the strength of its model, including recently raising its 2024 guidance. We're joined by CEO Brian Kocher and CFO Greg Gaba, both of whom were appointed to their roles within the last 12 months to build upon SunOpta's strong foundation and lead its next phase of growth. Thank you both for joining us.
Thanks for having us.
You know, I guess, Brian, where I wanted to start was, you know, you joined just over four months ago-
Right
... it is now. I guess, what attracted you to the opportunity? What have been maybe some of your impressions since joining? Any surprises so far?
I think a couple of things. One of the reasons I was excited about joining is I believed in the investment thesis. SunOpta had been through the transformation and shed itself of some other businesses. They've deployed the capital. They were growing with blue-chip customers, and we were at an inflection point, where it wasn't as much about the portfolio transformation anymore, as it was about nuts and bolts, operational excellence, taking customer centricity, R&D, new product development, and I was excited about that. I think the last thing that really pushed it over the edge for me is SunOpta has a really unique culture.
People who, who care about what they're doing, who care about making an impact in the communities in which we live and work, and so it was a really nice opportunity for me.
So, so you talked about the portfolio transformation. You've sold the frozen fruit business-
Right
... Sunflower, expanded into protein shakes. Can you talk maybe about the strategic direction of the company now with the portfolio, where it sits, and where that is headed? You know, why those actions made sense for the business? I know you're maybe looking back on before you arrived, but just trying to think about the benefits that that creates on a go-forward basis.
Well, I think if you look at it at a high level, SunOpta went from maybe 70%-80% of their revenue stream being commodity-based trading environment. Sunflower, the frozen fruit business, all commodity-based, and we transformed to now 100% value-added. So our two major product lines are plant-based beverages, aseptic-processed plant-based beverages, broth, tea, and then fruit snacks. Healthy for you, simple label, organic fruit snacks. But much more value-added, we are a solutions provider through our private label customers, our co-manufacturing customers, and I really do mean solutions. Not only do we provide the product for them, but a large amount of our customers, we do the R&D work for them as well. So I like our portfolio where it is now. We're a growth company, though. We've been growing...
I think if you look at the last three years, the continuing operations have grown 30%+. We grew 18% in the first quarter, and we do that because we're with blue-chip customers, we help with the innovation, we help with the new product development, and we've got some really good consumer tailwinds behind us in terms of health, nutrition, allergen avoidance, even taste profile, relative to some other conventional options out there.
Can you talk a little bit about the demand environment across the categories? Obviously, over the last couple of months, maybe this earnings season was a very, maybe an incrementally more cautious tone around the consumer and trade down in some of those things. You guys certainly didn't see any of that in your business.
We did not.
I guess I'm curious, you know, kind of how you would frame what you're seeing from a consumer perspective.
Let's, consumer-wise, let's think about kind of the top five areas that we have for growth. One is certainly allergen avoidance or dietary. You know, we've got anywhere... we've got more than 30% of the U.S. population that's lactose intolerant, and that's progressing towards 40%, so I think that's one. We've got a taste profile that there's just some consumers that prefer the taste profile. We have the existing to over, let's say, cow milk. We certainly have evolving trends on caloric intake, protein-centric meals, meal replacements, ingredients. And then ultimately, you have some people who, A, are concerned about animal welfare, or B, concerned about the environmental impact of the products we- all five of those factors go into our demand creation.
I think the other thing that's really important about SunOpta in particular is we have diversity across our channels, so food service, club channel, retail. We do private label and co-manufacturing that is sold through all of those channels, so there's some diversity there. But we also have diversity even in our product categories. So when we're in plant-based milk, we are on the entire category, whether it's oat, or almond, or soy, or whatever the particular need is, you're investing in the category and not a particular commodity or a particular segment of the category. And I think those are really important to remember about us and our revenue stream.
Where are we, and this might be a hard one to answer, but where are we in the alternative dairy, plant-based milk kind of adoption curve? I don't know if during COVID there was channel mix shifts, but you certainly saw an acceleration. You've seen kind of the retail side. I'm just curious kind of how you think about where we are in that curve, and how much more runway there is to go?
I think if to think about the consumer adoption curve, think about two areas. One is on the food service side. Plant-based beverages, predominantly coffee shops, coffee houses, restaurants, are routinized behavior. So you are finding a consumer that is going to their coffee shop every day, and they're ordering their Americano with oat milk or. And they're ordering that every day, regardless if it increases in price $0.10 or if it adjusts here or there. And so that routinized behavior has been really... Even in the food service arena, where you may have seen some foot traffic softness, we see mix shift, because the product portfolio that you see is mixing more towards plant-based beverages. Go to your favorite coffee shop and look up on the promotion board, and you'll find either plant-based beverages or drinks with plant-based ingredients.
So that's kind of the food service side, where we continue to see the routinized behavior fuel demand. If I look at the household consumer, let's say penetration is somewhere around 50%-55%, household penetration. The fact of the matter is, plant-based beverages make up maybe 20% of the overall milk category, including cow milk. But remember, lactose intolerance in the U.S. is well above 30% and progressing towards 40%. So we believe that there's continued runway on options. So I think we're, we're bullish on the, the consumer environment. I haven't even touched on the fruit snack environment, which is growing like crazy for us. 15 straight quarters of double-digit growth, 31% growth in the last quarter, and it's really that better for you, natural ingredient, cleaner label, fruit snacks.
And we continue to be excited about the options that people have for either lunchbox or healthy snacks at home. And we see a lot of growth there in fruit snacks as well.
I don't wanna maybe belabor the point, but I'd like to talk a little bit more about food service, just because of maybe what's out there in the public realm about some of the larger players and the slowdown that they're seeing, and contrasting that to your business. Now, you talked about mix shift, you talked about routinized behaviors, but I guess more, can you just give a little more color as to what you're seeing, and why your business has been so much more insulated than maybe some of the traffic trends we've seen on the food service coffee side recently?
If you look at how we grow, we grow with share with existing customers, we grow with acquiring new customers, and we grow with innovation, new product development. Let's call it TAM expansion. The great thing about our relationship and really our customer base, I mean, we are with blue chip customers who are all, by the way, we're a private label and co-manufacturer. They're all trying to grow their brand, so, so we benefit from their efforts. But if you think about those three areas, we grow with share, but we grow with new product development, too. We've got 20+ food scientists who are designing everything from taste profile to caloric intake to performance in the product. They're doing that with consumer preference in mind, as well as business challenges in mind.
There are opportunities where we'll work with packaging changes to make it more efficient for our, for our private label or co-manufacturing customers. That happens all throughout food service. I think what you're seeing is a combination of our growth in, in share, the fact that there is a mix shift. I think a lot of people notice a foot traffic difference in, in, or maybe softness in food service, but a cash register ring increase. That is all not just price. That's there are mix shift in there, and again, our opportunity to take advantage of a growing category where you're seeing menu items shift to either plant-based beverages or beverages with plant-based ingredients, really has fueled our growth. I think our food service business grew 11% in the first quarter.
In a quarter when public data would suggest softness in foot traffic, our food service business grew 11%, and our top three customers all grew in double digits this quarter.
Oh, I wanna ask about what positions the company to continue to gain share, some of which you have articulated in terms of how you work with some of your customers. But kind of tagging onto that, what are the competitive dynamics that you see in the space? I find it hard, it just would make sense to me that when a competitor sees the success that you guys are having, they say: "Well, how do we get some of that?" So, have there been competitive responses? Are you seeing any other capacity expansions? Maybe if you could tie those two pieces together.
Let's start with an overall assessment of our industry. One, we are in a chronically undersupplied or under capacity industry. Aseptic processing has been under capacity for the last several years. There's long lead times, there's heavy capital investment, so you need to be able to operate that. We have an advantage because we just deployed capital over $200 million. Some of it is new lines. We did a greenfield plant, but we've got runway, and the capital is already deployed, and I think that's one opportunity for us to grow. The other area that we really are positioned for growth is we have a lot of flexible formats. You want half gallon, you want one liter, you want 330 ml single serve—we, we can do all of those platforms.
I think the third area, and again, remember, it's really important to remember we're a private label and co-manufacturer predominantly. So our job is to providing a solution for the brands that we support. And having the flexibility and format, having the R&D team, executing well, I'm sure we'll talk about operational excellence at some time this morning. We are starting from an advantage. The two biggest ways we grow share is when an existing customer comes to us and says, "Hey, our other provider is falling down, can you help us?" Or when a new customer comes to us and says, "Our current provider is falling down, can you help us?" When we grow share, it's coming predominantly from those two questions. So we've got a lot of good things that give us an advantage.
I'm never going to tell you that we don't discuss price with customer, but it's fourth or fifth on the list. First on the list is service, and innovation, and support, and capabilities. And in an industry that I think we would call under capacity, we really like the position we're in competitively.
Are you seeing anybody shift strategies, try to add capacity? That was a conversation I know, you know, maybe last year or two years ago around some potential capacity additions. I don't think those... Yeah, what's the environment like?
We certainly see people adding capacity, but I think there's another subtlety in here. We are focused on plant-based beverages, and I would say it's probably more than dabble, but we live with broth business and tea business. But we are focused on plant-based beverages. I think people who have low acid aseptic processing capabilities, there's not exactly someone that's in our swim lane. They are either coffee providers who maybe dabble in plant-based beverages, or broth providers who dabble in plant-based beverages. So we do see capacity coming online. Again, I think investing in capacity and running it well are two things that often don't go hand in hand, and that's where we make a difference.
Oat has been, from an ingredient perspective, the predominant driver of the category for the last bit now. So where do those other kind of alternative milk, plant-based milk ingredients stand from a consumer perspective, from a growth perspective? I guess, are you approaching it as soy and almond maybe are flat to down for the foreseeable future? I don't know how you think about the different mix, I guess, of ingredients within the category, and whether or not that matters for you guys.
Well, for us, it again, it's a real advantage because those different commodities have different usages, different intended usages. Oat does much better in coffee, and whether it's cold or warm, it performs better. Almond has a better performance, at least we hear from consumers, in cereal and options of that nature. Soy, for protein or dietary restrictions. So we like playing in all of those areas. We like being able to support our private label and co-manufacturing partners with all of those options, and I think what it really does is it gives us a diversity of revenue. If you look at our revenue growth in the first quarter, we grew across all of our channels: food service, club, retail.
We grew across all of our major product lines, plant-based beverages, broths, teas, fruit snacks, almost any way you cut it. And I think that's a real advantage because, again, we're, we're there providing solutions for the brands that we support to drive revenue growth. If you look at over the last three quarters, Q3 of 2023, 6% revenue growth, Q4, 14%, Q1, 18%. And I think that's a testament to the strength of the breadth of our revenue streams.
Midlo, in bringing that online has been a nice accelerant, contributor at least, to the acceleration in growth, I would imagine. How has the process of bringing that online, the operation side, the demand side, how has that all progressed relative to internally how you guys had thought about that? Maybe you could just give us an update on where that ramp process is currently.
Yeah, it's come just to our expectations. You know, our first line is pretty much already running at an investment level thesis. Our second line, the protein shakes, as Brian mentioned, you know, a TAM expansion for us, we expect that to be at an investment level thesis by mid-year. And then our third line just started up in March, so a lot of runway there for additional growth.
Can you talk about the strategy on the protein shake side a little bit, and why that's an attractive market for you? Is there a difference in the margin structure? I know you guys don't want to get too deep into some of these things historically, but any way you can kind of frame that versus the rest of the portfolio, and even as you transition to more plant-based from traditional protein shakes, how that kind of margin dynamic evolves?
Yeah, it's a great category for us. You know, the supply continues to be tight. Great growing category, over 20% growth in that category. You know, it's been a big growth driver for us. We put in the one new line, which we, as mentioned, should get to full run rate by mid-point of the year, but significant growth for us in the protein shakes going forward. When it comes to margin structure, you're right, Andrew, we don't typically give margin structure by category, and it all really depends on contract structure. For some of our customers, we provide all of the raw materials, therefore, our revenue would be higher. And for something like protein shakes, they actually provide a significant portion of the raw material, so revenue is lower.
But how we monitor is we try to get the same profit per case, manufacturing profit per case. So by default, that would be a higher margin for us, but not really apples to apples.
... We have a question tying back to something you asked from the audience: Why is lactose intolerance growing? Is there confusion with plant-based beverages and milk from cows, and how that impacts that?
I think that we probably have plant-based- or sorry, lactose, allergies and intolerance for years, and years, and years, and now have more capability to diagnose it and change it. People are more sensitive. Look, this is a sample of one, but I didn't ever even heard of lactose intolerance when I was a kid, right? You had milk, and maybe you had chocolate milk. So I think there is a sensitivity to this being an issue. There's certainly more awareness of nutrition and food as medicine, and those types of things, so we see that and see the consumer trends continue to gravitate towards that way.
I'm not sure I knew about—I know about confusion between plant-based beverages and milk from cows, as it relates to lactose intolerance, but I will say you see a conversion. Again, sample of one, but in my house, 10 years ago, we had cow milk. I've got a son and two girls. You go to my fridge now, I don't have any cow milk. It's almond milk or it's oat milk. What are the chances that my grandkids, hopefully for a while, but my grandkids are gonna have cow milk? There is zero chance, because their parents will have grown up with plant-based beverages, and I think that's some of the momentum that we see long, long, long term.
But again, health and nutrition is a big driver and tailwind for us, and you know, I, I, I don't know if I care any way it comes about-
Right.
... but let's take advantage of how it comes about.
I know you guys are very excited about the momentum. You mentioned the multiple quarters of strong growth in the fruit snacks business, and it's been a huge success story. How big is that business today? How should we think about, you know, kind of growth contributions on a go-forward basis or the runway there, as you continue to grow?
Yeah, you know, as Brian mentioned earlier, it's been a great business for us, 15 quarters in a row of double-digit growth, right? The last two quarters, both 31% growth. The reason why we've been able to jump to 31% growth is we put capacity online at the end of Q3. It was a business where we were actually at a point where we had our customers on allocation. We couldn't give them all the product they wanted. As soon as we put that new line in, we've been able to do that, right? 31% growth the last couple quarters. We love the business, you know, whether it's education, whether it's people being more conscious in nutrition, but the healthy, clean label fruit snacks have really been taking off. We can see a long runway there. We expect that to continue to grow.
That's one of our top priorities when it gets to capital allocation and future ROI projects. It's right at the top of the list.
We have another question from the audience, tying a couple things together. One has a couple themes from the conference have been, you know, trade down, which we've already kind of talked about, and the other has been private label growth. So you've talked about the portion of your the breadth of your portfolio, I guess, whether it's private label or, or otherwise. Can you just talk about are you agnostic to, you know, kind of where, where you're seeing the growth, if you see more private label or more branded? Just kind of how you think about the portfolio positioning for that.
I think we're excited that we can service customers.
I don't know that I would say, we're agnostic to, to whether it's co-manufacturing and/or private label, but we're excited that having that capability gets us in more discussions. You have a brand, I, I'm just- I'll use for illustrative purposes only, you have a brand that you're supporting that's sold in Kroger. I like the fact that we can also have a discussion with Kroger on, on their private label. Again, illustrative purposes only. That's and, and oh, by the way, the brands that we support, they know and accept that we're a private label supplier, too. We've already had those discussions. So, so oh, we don't, we don't have conflict with our customers saying, "Well, you're supporting our brand in co-manufacturing, but you're also co-" They know that already. They've-
... they bought into that as an option, and I think that's one thing that there might be some other people who are trying to grow one segment or another and have to face that conflict a little bit, but we've solved that years ago, and so I think that's very healthy.
What about maybe on the other end of the spectrum when it comes to your own brands? How do you kind of see the role of your own brands in the portfolio? How do you see that evolving over time? Are there aspirations for that to become larger, limitations maybe from a retailer overlap perspective? How should we think about that?
I think we should think about our own brands as an innovation arm. We have food scientists that work to solve challenges and opportunities for our customers. They're also creative, and they like to do some things on their own, too. We'll offer those to customers, but sometimes we like to test that in the market and see if we can use that to spur further growth. So I would think of our brand more as an innovation tool, rather than us thinking about heavily investing in consumer awareness, trying to grow ACV. You know, we're really using it as an investment arm. Oftentimes, some of our private label customers will do it in our brand first to prove the concept, and then we'll switch to a private label brand as well.
Those are all innovation tools-
Yeah
... I would say that we use our brand as.
Can you—we've talked about Midlothian, we talked about fruit snacks capacity, we talked about I think there was oat extraction as well, that came on recently. Where is the business today in terms of capacity needs? What would be maybe next on the agenda, as you think about where you might need to, to, to put more capacity in place?
Yeah, we've been on a journey of investing in capacity and helping fuel this growth, right? We spent $230 million in the last few years to really increase our network and create the capacity to drive this 18% growth that we just put up, and 14% the prior quarter. Based on what we see today, Andrew, end of 2025, early 2026 is when we'll be full again. At that point in time, we expect to be at about a $125 million run rate of EBITDA, and at that point in time, we will have to make future investments that continue to grow at this rate. When it comes to what do we see, you know, as the, as the next thing? I think it's, it's gonna depend, Andrew.
There's a lot of great growing categories that we're in that actually creates a lot of choices, whether that's fruit snacks, or protein shakes, or core plant-based milks. A lot of great options for us out there.
All right, so I want to switch gears to something that's near and dear to your heart, which is, the supply chain efficiencies that you've started to do even more of. Can you talk about what you guys have executed against so far, and where you see the greatest opportunities for further improvement from here?
Sure. I got excited there when he said, "Near and dear to my heart." I thought he was gonna talk about the Knicks.
Mixed reaction.
Look, we've got, we... One of the great advantages of SunOpta is we have deployed the capital. Our opportunity now is to eke out productivity in our installed base, and that really helps us in two ways. One of which is so simple, right? You've pushed more units through a fixed cost network, your cost per unit goes down, so there's margin expansion opportunities. The other one, which is really important to us, is if we can increase capacity with our existing utilization, we actually create non-CapEx capacity. If I can produce 10% more units, I can fuel the growth from our current customers, and I can do that without writing a check for CapEx. If we can produce more capacity, we defer our next investment. We create opportunities for more flexibility. And so, operational excellence is...
I probably spend a disproportionate amount of my time on ensuring we've got a continuous improvement structure in place. Now, I would also say that's a journey of a thousand steps. There is not a switch in a closet somewhere where we say, "Oh, you know what? No one pressed that. Here, flip that, and we've got 10% more units." This is starting off with your demand planning and your long-term forecasting. It's talking about procurement processes. Do you procure for the lowest cost, or do you procure for the lowest yielded cost? It goes into scheduling, right? One, I'll share, I don't think this is a trade secret. Do anything you can before you do a chocolate flavor. Anything you can before you do chocolate. Hard to clean, hard to make sure you get out of the system.
Those types of things are what we work on. How about warehouse and distribution? We have floor space, could racking be more efficient? If we're going to do racking, are we going to do narrow aisle, automated robot sequencing? Again, those are the items where we make little pieces of progress, and so it takes a little bit of time for those pieces to add up to something significant. But we've got teams that are addressing the supply chain from beginning to end, and you make progress here, you might not see it until you fix the bottleneck in the next phase, and then you fix the bottleneck, and then you see it come through.
If you think about a list of opportunities, or projects, or whatever those thousand steps might look like, I guess, how, how many have you checked? How far down the list have we gone? And I guess what I'm really trying to get at is, at the end of the day, kind of how do we think about the way that this contributes to profitability on a go-forward basis?
Yeah, I think, I think... Here, here's the best example I can give you. Out of our plant-based facilities, in the first quarter, we produced 20% more units, 20%+ more units than we did the first quarter of 2023. 20% more units. Now, we worked on a whole bunch of other things, too, and not everything achieved the results that we thought, but that's a great sign in terms of production output. I think we've got a long way to go. In fact, I'm submitting to you today that we'll never be finished on operational excellence, ever.
You have to go to the organization, and the supply chain leader. I just ask him one simple question: "How are you gonna produce one more unit today using one less labor hour and one less pound of raw product?" Boom, that, keep it simple, right? Work on that each and every day until the end of time. But we know when you produce more units, you can service more demand. We could not—the fact of the matter is, we couldn't have posted the growth we posted in the first quarter unless we got that output efficiency. We just couldn't have serviced it. And Greg, maybe you can talk a little bit about how we think of gross margin as a result of operational improvements, how we think gross margin in the midterm and after.
Yeah, for sure. So the last time we were full, had a net profit before that $230 million investment, we were at around 20% gross margin. There is no reason why we can't get at least a 20% gross margin here in the midterm, and then with this program we have in place with the operational excellence, we actually think there's upside to that 20% in the, in the midterm here.
So can you build... How do you build to the 20%? Sorry, so do that again. So you build to the 20%, and then there's some potential upside. Can you give us the, the steps?
Sure. Getting back to 20% is simple.
Yeah.
We basically need to get run efficiently and be full. We'll be at 20%... However, there's areas for improvement, and Brian just walked through some of those areas for improvement. Once you layer those on, we can be higher than 20%.
Is there a time frame? I mean, you talked about 20% kind of in that end of 2025, 2026 kind of runway. Is it beyond that, that we should think about upside, or is there-
That's right
... in that time frame?
I think that's a fair-
Got it.
Fair assessment.
Okay. Okay. When you think about the $125 million, we've talked about a lot of the positives. What do you see as the biggest risks to that? I think, you know, if you were to ask investors a couple of weeks ago, they probably would have told you, you know, the consumer environment. But I guess, how do you guys think about the visibility and the risks to achieving that number?
Yeah. One thing we don't see as a risk is the consumer environment, and that's not because we're not paying attention. Again, I think this component about flexibility of forms, flexibility of packaging, the opportunity to do R&D and co-development work with our customers, not only on the taste profile that match consumers' changing needs, but also the performance or the efficiency factors for our customers. We believe we've got a good opportunity there. We're also in growing categories. When you combine all of the areas that we surface, everyone can see kind of the retail track channel data.
Sure.
But when you combine club channel with food service, in the areas we service, we believe that market's growing in the mid-single digits. So we've got a growing market across a diverse set of channels and a diverse product base. So I don't wanna. We're not paying attention to that, but that's not the risk that we see. I think we continue to be worried about labor. Labor is not in the post-COVID era of tightness and concern, but we're constantly competing with our frontline labor and other production environments. So we're paying attention to things like attraction, retention, career pathing, those types of things to give labor a chance to find their home in SunOpta. I think that would be a big one. You know, Greg, we don't...
In a lot of our contracts, we don't really see commodity risk, and maybe talk just a little bit about how we manage commodity risk.
Yeah. For most of our contracts, the commodity is actually pass-through. You would have seen that in our results in Q1. We talked about a 5% reduction in price due to commodity pass-through. One of the big commodities that has gone down, and we passed on to the customer, was oat price this year, for example, right? So it's not a winning or losing proposition for us when the commodities change. It's just pure pass-through to the customer, which is nice. It takes the risk off of us, and we make money based on producing product.
Yeah, the risk that I would say is labor, and then always for us is execution and timing.
You know, if you look at the business development efforts that are bearing fruit for us today, that are paying benefits today, they actually happened last year. You know, SunOpta talked about it last year, and then there was a little bit of timing delay. So timing is certainly a risk, and then, you know, as with any business, good, clean execution is our goal. I wish I'd say we knock that goal out of the park every day, but the fact of the matter is, you don't. So we need to keep driving, and we pick ourselves up and get back after it the next morning.
I wanted to shift gears a little bit, on the balance sheet and capital allocation. You've talked about a goal of getting the balance sheet back to three, turns of leverage. I guess what's your... You've made a lot of progress already. What is the confidence level in getting there by the end of this year? Why is three turns really the right, the right level for the business?
Yeah, we definitely feel very confident we'll be under three turns by the end of this year. We were 3.1 at the end of Q1. I will point out, Q2 debt will increase with the new oat expansion project coming online in Q2. So that's gonna increase a bit in Q2, and then we'll come back down, and we should be under 3 times by the end of the year. We do see a very clear path to that. I think with the current interest rate environment and with the opportunities that we see, I think three is probably a right number for us right now.
Yeah.
And again, as we have that capacity in place right now, and runway to the end of 2025, early 2026, we don't need to make those additional CapEx investments at this point in time.
So if you get your balance sheet back to where you want it to be, and you don't need to make those CapEx investments, at least in the near term, what kind of opportunities from a capital allocation standpoint does that open up for you guys?
Yeah, so three things. One, we could choose to, you know, be aggressive and bring some of those projects on, or at least see very high return on. Two, we could do a share buyback program, or three, accretive M&A.
Is there an order of preference?
You know, we'll wait till we get there in Q4, Andrew, and then we'll give you the answer to that question at the time.
Got it. Okay, I figured I would give it a shot. When you think about the M&A side, though, kind of at a high level, what are you trying to achieve with that? Is there... I don't know if it's geographic, if it's more on the capacity side or something like that, I guess. What type of assets are interesting, and maybe what's the environment for M&A like now?
Yeah, I think if we really like the categories that we're playing in, we really like this model as a private label and co-manufacturer provider. I think if there was an opportunity to pick up maybe new capabilities, either in form factor or processing capability, I think if there was an opportunity to find a geographic expansion that yielded some operational efficiencies, took food miles off the business or something of that nature, that would be interesting. Certainly, if it gave us access to capability in one of the high growth areas that we'd see, that would be an interesting capability. But we're really focused on our capital allocation. I mean, I would rather-...
I would rather not do a deal and do high yield internal projects, than do a bad deal just to say we did a deal. That doesn't make much sense to me.
We had another a question from here that I think is at least interesting for you to address, and I guess the overarching theme is that there's a lot of healthy plant-based stuff out there. How does competition impact your business? Does it... I mean, you guys have such a broad customer base, how do you think about the breadth, the growing breadth of consumer options around those trends?
Well, I think it's not unlike any other consumer category. Innovation, line extensions, those are the things that we work on with our customers. That's how you keep consumers engaged. I do want to mention that one point again, we don't have someone exactly in our swim lane. You know, we're focused on plant-based beverages, and then do some teas, and broths, and other things. Most of the competitors, almost all of them are private, but most of our competitors do something else, coffee, broth, tea, or whatever, and then they dabble a little bit in plant-based beverages. So again, the key to our growth is continually supporting our brands and our blue chip customers. They're growing. BellRing Brands is one of our customers. We kinda like dealing with customers that are growing in 20%+ categories.
That's not a bad option. So again, the concept that our form factors are fairly versatile, and we want to continue to provide a solution for the brands that we support.
And then just last one from here, from me here as we wrap up. You know, you're going through a tremendous growth trajectory and growth phase right now, certainly. How... You've talked about end of 2025 kind of guidance, 2026. It's not that far away, I guess. Is there a way to frame, just at a high level, kind of the way to think about the longer term growth trajectory of the business beyond that? I don't know, maybe it's volatile based on capacity or, or a variety of different things, but is there just a way to kind of frame beyond the 2025 top line and EBITDA numbers that you guys have given, kind of how to think about the business?
I would think... we have talked publicly about a long-term growth algorithm that's 10% on the top line.
Mm-hmm.
You know, you get 10% growth on the top line, you get your target margins at, at 20%, maybe a little bit more. You get an EBITDA margin that's 15%ish. We all think that that's believable and achievable, and frankly, most of our compensation is tied to that, too, so we better think it's believable.
It's a perfect place to end. So thank you very much. We're out of time, so really appreciate you guys being here. Thanks very much.
Hey, thank you, and thanks a lot for attending. We really appreciate it.