Earnings call transcript: SunOpta Q3 2025 sees strong revenue growth

SunOpta Inc. (SOY) reported robust financial results for the third quarter of 2025, with revenue reaching $205 million, representing a 17% year-over-year increase. The company’s earnings per share (EPS) were not disclosed in the available data, but the revenue exceeded the forecast of $194.38 million. Following the earnings release, SunOpta’s stock experienced a slight decline of 0.27%, closing at $7.46 in after-hours trading.

Key Takeaways

• SunOpta’s Q3 revenue rose by 17% year-over-year to $205 million.
• The company reported a gross profit increase of 11% to $25.5 million.
• Plant-based milk and broth volumes saw significant growth.
• Stock price fell by 0.27% in after-hours trading.

Company Performance

SunOpta’s performance in Q3 2025 was marked by substantial revenue growth, driven by strong demand in plant-based milk and broth products. The company continues to capitalize on the growing trend towards plant-based and health-conscious consumer preferences. With nine consecutive quarters of average volume growth of 15%, SunOpta is positioning itself as a leader in the plant-based beverage market.

Financial Highlights

• Revenue: $205 million, up 17% year-over-year.
• Gross Profit: $25.5 million, up from $22.9 million, an increase of 11%.
• Gross Margin: Decreased by 60 basis points to 12.4%.
• Adjusted EBITDA: $23.6 million, up 13% from the previous year.
• Net Leverage: Reduced to 2.8x from 3x at the end of 2024.

Outlook & Guidance

SunOpta provided optimistic guidance for the full year 2025, projecting revenue between $812 million and $816 million. The company anticipates adjusted EBITDA to range from $90 million to $92 million. Looking ahead to 2026, SunOpta expects revenue growth of 6-8%, targeting a range of $865 million to $880 million, with adjusted EBITDA projected to grow by 12-19%.

Executive Commentary

Brian Kocher, CEO of SunOpta, expressed confidence in the company’s strategic direction, stating, "I am energized by the fundamentals of our business." CFO Greg Gaba highlighted the company’s growth strategy, noting, "We are continuing to drive strong volume-based revenue growth." These statements underscore SunOpta’s commitment to long-term value creation and market leadership.

Risks and Challenges

• Operational challenges in absorbing accelerated customer demand may impact short-term margins.
• The company faces potential supply chain disruptions that could affect production and distribution.
• Increased competition in the plant-based sector may pressure pricing and market share.
• Macroeconomic factors, such as inflation, could influence consumer spending and input costs.

Q&A

During the earnings call, analysts focused on SunOpta’s ability to manage operational challenges arising from accelerated customer demand. The company addressed concerns about short-term margin pressures and outlined a recovery plan. Long-term customer commitments were also confirmed, indicating a stable demand outlook.

Overall, SunOpta’s Q3 2025 performance reflects its strategic focus on growth and innovation in the plant-based sector, despite minor stock fluctuations post-earnings.

Full transcript - SunOpta Inc. (SOY) Q3 2025:

Conference Operator: Greetings and welcome to SunOpta’s third quarter fiscal 2025 earnings conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the prepared remarks. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Reed Anderson with ICR. Thank you. You may begin.

Reed Anderson, IR Representative, ICR: Good afternoon, and thank you for joining us on SunOpta’s third quarter fiscal 2025 earnings conference call. On the call today are Brian Kocher, Chief Executive Officer, and Greg Gaba, Chief Financial Officer. By now, everyone should have access to the earnings press release that was issued earlier this afternoon and is available on the investor relations page of SunOpta’s website at www.SunOpta.com. This call is being webcast, and its transcription will also be available on the company’s website. The investor presentation referenced during this call and webcast is also posted on the company’s investor relations website. As a reminder, please note that the prepared remarks, which will follow, contain forward-looking statements, and management may make additional forward-looking statements in response to your questions. These statements do not guarantee future performance, and therefore, undue reliance should not be placed upon them.

We refer you to all risk factors contained in SunOpta’s press release issued this afternoon, the company’s annual report filed on Form 10-K, and other filings with the Securities and Exchange Commission for a more detailed discussion of the factors that could cause actual results to differ materially from those projections and any forward-looking statements. The company undertakes no obligation to publicly correct or update the forward-looking statements made during the presentation to reflect future events or circumstances, except as may be required under applicable securities laws. Finally, we would like to remind listeners that the company may refer to certain non-GAAP financial measures during this teleconference. A reconciliation of these non-GAAP financial measures was included with the company’s press release issued earlier today.

Also, please note in the prepared remarks to follow, unless otherwise stated, the company will be referring to the continuing operations portion of the business, and all figures are in US dollars, occasionally rounded to the nearest million. Now, I’ll turn the call over to Brian to begin. Brian.

Brian Kocher, Chief Executive Officer, SunOpta: Good afternoon, and thank you for joining us today. With my prepared remarks, I want to cover three topics: review our third quarter performance, including some underlying trends supporting our tremendous growth; provide transparency around some near-term operational opportunities we are navigating; and reinforce our confidence in our long-term growth trajectory, margin expansion initiatives, and value creation potential. Greg will then cover Q3 financial results and our updated 2025 expectations and initial 2026 outlook in more detail. Following our scripted comments, we’ll take your questions. Let me begin by saying that Q3 marked another quarter of exceptional commercial success. We exceeded our expectations for revenue and met our Q3 expectations for adjusted EBITDA. We continue to demonstrate our revenue diversity and ability to grow market share. Our categories and customers continue to grow at an accelerated rate compared to broader food and beverage trends.

We did a fantastic job of creating capacity within our existing manufacturing network to service 17% volume growth. We have now achieved nine successive quarters of, on average, 15% volume growth. We have done so while maintaining the highest food safety and quality standards. As you can see on slide six, revenue increased 17%, driven entirely by customer demand, and we continued to experience broad-based gains across our portfolio. Sales volume across our top six customers all increased over the previous year. We continue to win with category-leading customers in high-performing categories and channels. Plant-based milk volumes increased at a high teens rate in Q3. We have exceptional momentum in the club channel, as well as continued strength in food service, where we continue to drive both menu expansion and share gains.

Broth had another solid quarter with volumes up high single digits, and tea was our fastest-growing product category in both retail and food service during the quarter. In better-for-you fruit snacks, we achieved our 21st consecutive quarter of double-digit revenue growth. Note that demand for fruit snacks continues to significantly outpace supply, and we look forward to bringing on the previously announced additional capacity in 2026. Turning to slide seven, I want to expand on the strength of the plant-based beverage category in food service. Circana data disclosed the plant-based beverage category grew 9% in food service. Menu innovation is creating new purchase occasions and driving frequency. Mintel reports that 46% of consumers are expected to visit coffee shops at increasing rates. With plant-based offerings increasingly at the core of this innovation, we are seeing increased levels of demand.

In addition, based on consumption trends and population growth, we anticipate that the number of U.S. coffee shop units will grow by approximately 20% over the next five years. Remember, our products are featured in eight of the top 10 coffee chains across North America, including all four of the fastest-growing chains. As a value-added solution provider with broad-based and diversified distribution, we already benefit from and are positioned to continue winning from these trends. During the quarter, a major club channel customer, a co-manufacturing customer, and two broth customers accelerated their supplier of choice decisions. We had opportunities to capture the volume immediately. Along with some expected temporary inefficiencies that would accompany servicing the volume, or forgo the business and profit for several years. We seized every single one of these opportunities.

These are exactly the kind of openings that validate our solutions-based approach and demonstrate why customers view us as an indispensable partner. When the commercial marketplace presents these windows to expand our footprint and deepen customer relationships, we do not hesitate. Taking advantage of all that new demand did present short-term challenges to our supply chain, and I want to be completely transparent about the operational realities of accelerating business into 2025. To put this in perspective, at the beginning of the year, our production and cost plans were built in anticipation of approximately 9% revenue growth. We actually grew 17% in Q3. In stretching our operations to satisfy customers’ incremental growth needs, we quickly re-engineered our network to drive more volume output.

While we were able to create enough capacity to service the increased demand, the production schedule was not as efficient as it could have been, and equipment maintenance requirements were more significant than planned. We paid more in parts, technicians, and outside services to keep the equipment running and incurred additional overtime costs to accomplish this. We also had to push some of the new volume to our Midlothian facility, exacerbating the pre-existing limitations at that facility. Given we will never compromise our food safety and quality standards, the new volume opportunities also increased our short-term cost of compliance. Finally, as we were focused on servicing our customers with safe and high-quality product, we were forced to delay some of the previously planned margin expansion initiatives. As we digest the incremental volume, driving operational efficiencies will be back on center stage.

While it would take us a couple of quarters to fully absorb all the volume growth, we have a clear understanding of the root causes of the short-term increased spend and are implementing corrective action plans. These plans include maintenance scheduling changes, labor balancing between shifts, and network optimization between plants. I am confident in and fully expect to get back to our planned adjusted EBITDA growth and margin expansion pace by mid-2026. We are incredibly excited about the long-term benefits of the customer volume recently gained and fully expect to see incremental benefits in 2027 and beyond. I do not want the short-term increase in cost to overshadow the most important part of our third quarter results. Our categories are roaring. Our customers are voting with their business, and they are voting for us.

We are winning in the marketplace, and by virtue of these opportunities, we are growing volume faster than we anticipated. As we look into 2027, we see a growth trajectory well in excess of our expected supply chain capacity. Just as we realized last quarter with our fruit snacks business, our aseptic customers are quickly demanding more capacity than we can deliver. We must now invest for growth in 2027 and beyond. As such, we are announcing the investment of an additional line of aseptic processing capacity at our Midlothian facility. We are timing the launch of this new line with the completion of the previously announced wastewater management investment. I am looking forward to finally utilizing the full power of our Midlothian facility. Greg will have more details on the financials, but I’m proud that we can invest in growth at an accretive ROIC while maintaining discipline leverage rates.

Our confidence in the future continues to be based on what we can see, not on what we hope. Our fundamentals remain intact, and we are growing faster than we even anticipated. I remain incredibly confident in our strategic position and execution capabilities. This extraordinary growth does put some near-term pressure on our production network, but we have a plan and know what we need to do to reach our margin targets. Our ability to create value for customers while driving sustainable returns for shareholders remains our North Star. Now, I’ll turn the call over to Greg to cover the financial details and our updated outlook.

Greg Gaba, Chief Financial Officer, SunOpta: Thank you, Brian, and good afternoon, everyone. Turning to slide 11, we had another exceptionally strong top-line performance with third-quarter revenue of $205 million, up 17% compared to last year, entirely driven by volume growth. Gross profit increased by $2.6 million, or 11%, to $25.5 million compared to $22.9 million in the prior year. Gross margin decreased by 60 basis points to 12.4% compared to 13% in the prior year. Adjusted gross margin was 13.6% compared to 16.6% in the prior year period. The decrease partially reflected incremental investments in variable labor and infrastructure to improve long-term margins, increased maintenance expense, overtime costs, and higher waste as a result of certain manufacturing pressures from tremendous volume growth, together with temporary volume limitations and increased downtime resulting from the excess wastewater issue at our Midlothian, Texas, facility.

These factors were partially offset by higher sales and production volumes for beverages, broths, and fruit snacks, driving improved plant utilization. Operating income increased $6.1 million to $6.9 million compared to $0.8 million in the prior year. The increase mainly reflected lower employee variable compensation costs based on performance, lower professional fees related to operational productivity initiatives, and the $2.6 million increase in gross profit. These factors were partially offset by non-cash asset impairment charges of $2.6 million in the third quarter of 2025 related to the decommissioning of the tote filling equipment and the early retirement of certain non-productive assets. Earnings from continuing operations were $0.8 million compared to a loss of $6.2 million in the prior year period. Adjusted earnings from continuing operations were $6 million, or $0.05 per diluted share, compared to $1.8 million, or $0.02 per diluted share in the prior year period.

Adjusted EBITDA increased 13% to $23.6 million compared to $20.8 million in the prior year period. Turning to our balance sheet, at the end of the third quarter, debt was $266 million, and net leverage was 2.8 times, down from 2.9 times in Q2 and 3 times at the end of 2024. Cash provided by operating activities of continuing operations in the first three quarters was $34 million compared to $19 million in the first three quarters of the prior year. The increase mainly reflected higher operating profitability driven by revenue growth and reduced SG&A spending, partially offset by increased working capital to support the strong revenue growth. Cash used in investing activities of continuing operations was $23 million in the first three quarters of 2025 compared to $17 million in the first three quarters of fiscal 2024.

We are updating our outlook for the full year to reflect accelerated demand and short-term incremental costs. As shown on slide 12, we now expect revenue in the range of $812 million-$816 million. From an earnings perspective, we expect adjusted EBITDA of $90 million-$92 million. We also continue to expect interest expense of $24 million-$26 million and capital expenditures on the cash flow statement of approximately $30 million-$35 million. We now expect free cash flow of $20 million-$22 million. Please note that essentially all of the free cash flow in 2025 is allocated for mandatory debt and notes payable repayments. Our capital allocation priorities remain the same: deleveraging, investing in capacity expansion, and returning excess capital to shareholders.

Based on our updated expectations for adjusted EBITDA, we expect to maintain our current leverage of 2.8 times at the end of the year compared to our prior expectation of 2.5 times. As Brian mentioned, we are in great position to announce the next phase of capacity for our beverage and broth operations. With a total investment of $35 million, primarily occurring in 2026, this will increase network capacity by approximately 10%. We anticipate that the new equipment at our Midlothian facility that is already over 50% subscribed will come online in late 2026. This investment, along with our previously announced fruit snacks line in Omak, Washington, will be key components to delivering our long-term growth algorithm in 2027 and 2028.

Even with adding this growth CapEx in 2026, we plan on maintaining our leverage ratio under three times throughout the year with a target of 2.8 times by the end of 2026. Given the expected reduction in adjusted EBITDA for the fourth quarter of approximately $10 million compared to our prior expectations, we want to ensure you have a complete understanding of the scope along with the pathway forward. Turning to slide 15, there are four temporary issues related to our beverage and broth facilities that are impacting our results. First is our current wastewater limitations at Midlothian. Context is important. Since our Midlothian plant came online in 2023, we have been aggressively increasing output. This rapid growth, combined with the temporary wastewater limitations, has resulted in inefficient operations. We expect a $2 million impact compared to our prior expectations in the fourth quarter.

As Brian mentioned, this will be resolved by the installation of new wastewater equipment by the end of the second quarter of 2026. We are conservatively planning our equipment and processes to catch up to this increased volume demands by mid-2026. Second, for the rest of our beverage and broth network, the third quarter incremental volumes strained our equipment and people, resulting in unplanned downtime events, increased short-term variable labor costs, and overtime, together with additional parts and maintenance spend. To address these issues, we implemented an equipment maintenance recovery plan. We expect to continue to incur these costs for the next few quarters until we realize the benefits of the recovery plan. This will have a $3 million impact in the fourth quarter compared to our prior expectations. Third, we prioritize servicing the accelerated demand, which resulted in delaying our margin improvement plan.

As Brian mentioned, it will take a few quarters to adjust the incremental volume. We expect our previously announced margin expansion plan will resume in the second half of 2026. This will have around a $3 million impact to the fourth quarter compared to prior expectations. Finally, in preparation for the new aseptic line in Midlothian, we shut down operations at the plant for one week in October for infrastructure work. This will have a $2 million impact to the fourth quarter versus our prior expectations. To provide clarity on how this impacts 2026, we are introducing our initial outlook. We expect revenue in the range of $865 million-$880 million, growth of 6%-8% versus the midpoint of our 2025 outlook, and adjusted EBITDA of $102 million-$108 million, which represents growth of 12%-19% compared to the midpoint of our 2025 outlook.

From a pacing standpoint, we expect the back half of the year to be stronger than the first half as we work through our recovery plan in the beverage and broth facilities. We expect a 48% first half and 52% second half split for revenue, and 45% first half and 55% second half split for adjusted EBITDA. We will provide additional details on the Q4 call. In summary, we are continuing to drive strong volume-based revenue growth. Grow gross profit dollars, adjusted EBITDA, net income, EPS, and free cash flow. We expect to see continued improvements in all of these areas in 2026 and beyond. Our original revenue outlook for this year projected 9% growth at the midpoint. We are currently expecting 12%.

The strong growth has exceeded our expectations and has a compounded impact on our operations as this is on top of a 15% growth in 2024 for a two-year stack of 27%. The good news is we managed to support the volume-based growth without compromising food safety or quality and found additional opportunities during this time. We see tremendous opportunity to improve our operations, expect to see continued strong revenue growth, and feel great about the opportunities to significantly drive shareholder value. Before opening the call for questions, just a reminder that for competitive reasons, we do not provide detailed commentary regarding customer or SKU-level activity. With that, operator, please open the call for questions.

Conference Operator: Ladies and gentlemen, we will now begin the question and answer session. I would like to remind everyone to ask a question. Please press the star button followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star one again. One moment, please, for your first question. Your first question comes from the line of Jim Salera of Stephens Inc. Please go ahead.

Jim Salera, Analyst, Stephens Inc.: Hi, Brian. Hey, Greg. Good afternoon. Thanks for taking our questions. I wanted to start off just with maybe helping us out with the cadence around the new investment and building out the production capacity around broth. So if my quick math is correct, it implies gross margin down like 180-200 basis points in Q4 to get to the midpoint of the updated EBITDA guidance because that kind of jives with what you guys are expecting. And then if we think about 2026, if I recall correctly, Q4 of 2026 was supposed to be kind of around that 20% gross margin rate. Should we think about Q4 of 2026 looking like what we expected Q4 of 2025 to look like, or just any thoughts around kind of the sequencing there and any additional color you can provide on Q4?

Brian Kocher, Chief Executive Officer, SunOpta: A couple of things, Jim. First of all, let’s make sure we’re clear in what’s impacting the fourth quarter of 2025 and what would be impacting later. Look, we had an opportunity to take advantage of some customer allocation decisions that originally were in our pipeline for 2026. We had the chance to take advantage of those in 2027. We believe and still believe in the long term those are accretive to our long-term algorithm. It was a good opportunity for us to take this now to onboard the volume. The other option was potentially forgoing that volume for years and years and years. We are excited and believe ten times out of ten that was the right decision to do. It did have, and just to be open and transparent, I am disappointed in.

How difficult it’s been to absorb this volume. That is where Greg went through and said, "Look, there are some impacts in the fourth quarter. Impacts from accelerated equipment maintenance spend, impacts from the fact that a lot of this volume we had to push towards Midlothian, which you know is constrained now and is our least efficient plant. We had to do it for the customer service and for the optimization efforts between all of our plants." That was another aspect of it. I would say the last aspect is because this volume came on, we really reallocated the resources that otherwise would have been working on yield improvement and direct labor improvements, our margin expansion plans. They would have been working on that, and therefore they cannot because we reallocated those to deliver and meet customers’ expectations with respect to our.

Standards for service quality and food safety. There are large portions of the reconciliation between previous guidance and existing guidance in the fourth quarter of 2025. We do anticipate that. It’s a time-bound plan. We’ve got concrete fixed plans on equipment reliability, on the wastewater in Midlothian, which we’ve mentioned several times on previous calls. We have fixed definitive plans that will allow us to absorb this volume and then get back towards our margin expansion targets and plans at the second half of 2026 and into 2027. The whole reason we were trying to give a little bit of outlook on 2026 was to further reinforce the time-bound nature of some of these short-term operational challenges. Again, we’ll be able at the next call to give more definitive cadence around first quarter, second quarter, third quarter, fourth quarter in 2026.

We wanted to make sure we passed along 2026 outlook. The investment community could realize these are short-term in nature. We’ve got a plan. We have a finite time where we can turn that around, and then we’ll be right back on our margin expansion and opportunities for long-term growth.

Greg Gaba, Chief Financial Officer, SunOpta: Got it. That’s helpful. I guess kind of building off that, is it safe to say that given you had all of these customers, it sounds like from kind of different end markets, come to you at once, that the capabilities that you have either don’t exist outside of your network or are not scaled in a meaningful way outside of your network, and that’s why everyone came to you at the same time? Is there something unique about what these customers are experiencing that caused them all to kind of come to you at the same time?

Brian Kocher, Chief Executive Officer, SunOpta: The way I would look at it, Jim, is it certainly reinforces what we believe is our value proposition in the market: a nationwide network to supply accounts. The R&D resources to bring items to market quickly. The packaging sizes and formats that resonate in the market. I think what it does for me is it reinforced our value proposition. The interesting thing about this, and we’ve talked for a couple of quarters about our pipeline, nine times out of 10, a customer pushes their pipeline backwards, defers the launch. This was really an interesting situation where several customers brought us an opportunity that was faster than we were anticipating. Again, 10 times out of 10, I’ll take that. This volume is with marquee customers in great channels, in product areas that we want to over-index because of the long-term trends.

I believe this will give us a chance to outperform our long-term algorithm late in 2026 and into 2027. It did cause some challenges. Look, I’m frustrated that we didn’t see more of this volume drop through to the bottom line, but I’m confident we know the root causes. I’m confident we have complete and time-bound plans, and I’m confident that in the second half of 2026, we’ll be right back on the trajectory that we laid out before.

Greg Gaba, Chief Financial Officer, SunOpta: Great. I appreciate the detail. I’ll hop back. Thank you.

Brian Kocher, Chief Executive Officer, SunOpta: Thank you.

Conference Operator: Your next question comes from the line of Andrew Strelzik of BMO Capital Markets. Please go ahead.

Andrew Strelzik, Analyst, BMO Capital Markets: Hey, good afternoon. Thanks for taking the questions. I appreciate all the color you gave on the profits ridge and the components that are driving some of the pressures there. Maybe I just missed it, but I’m not fully understanding why the top line is coming up short in the fourth quarter. Next year, I saw on the slide you talked about the downtime. I guess at the end of the day, why is all of this demand not flowing through in subsequent quarters at the same rate from a top line perspective? I’d just like to better understand that.

Greg Gaba, Chief Financial Officer, SunOpta: Yeah, sure, Andrew. One of the things is with the pull-through from the pipeline from 2026 into Q3 of 2024, we expected some of that volume to come in 2026. We also expected some of that to come in 2024.

Brian Kocher, Chief Executive Officer, SunOpta: In Q4?

Greg Gaba, Chief Financial Officer, SunOpta: Sorry. You’ll notice that Q4 is a slight call down versus the prior number. For the full year, we’re right on where we thought we’d be, but slightly ahead. At the beginning of the year, we thought we were going to grow 9% revenue. We’re now projecting to grow 12%. Quite a big increase. If you recall, at the beginning of the year, we said we have the capacity in our current network to grow 20% over the next two years. Really, next year’s revenue guide is due to the capacity limitations until we get the new equipment installed for both our beverage and broth and for our fruit snack lines at the end of the year, which will support growth going forward. We’re still achieving the two-year 20% growth that we anticipated based on the capacity of our network.

Brian Kocher, Chief Executive Officer, SunOpta: Okay. Okay. I guess I understand that. I guess on the flip side. From a demand perspective, pretty much all the consumer commentary that we hear from other CPG companies is pretty poor. You’re seeing the stronger-than-expected new business. Category dynamics that you referenced as well. I guess how do you square what your business is seeing from a demand perspective and what the category is experiencing versus the broader consumer backdrop? I am going to give you one quick answer, Andrew, and I do not want it to sound flippant, but I am not going to apologize for being in growing categories when maybe some others are not, right? That is one thing. Also think about it. We tried to give a little bit more detail on the food service category this time. Coffee shops are, in fact, expanding. They have been expanding since COVID.

Some of the data would say there are more—there were 8-9% more coffee shops now than there were pre-COVID. If you look out over the next four or five years, just from public data that large coffee chains disclose, we can see up to 20% growth in coffee chains, in coffee cafes, shops. That is powering a food service business that we are very embedded in. Eight of the top 10 coffee chains our products are featured. Four of the fastest growing were featured. The benefit of that growth endures to us. I think that is one area. The other area that I would mention is we are in areas where there are hotspots for the consumer. We are in those areas. If you think about fruit snacks, as an example, Better For You fruit snacks, that category is growing 20% plus. We grew double digits.

That category is growing 20-plus %. As you know, we’ve got an oversubscribed CapEx equipment that if I could weld myself, I’d hurry up and get it installed. There is tremendous category growth based upon some of the underlying actions that we see. I also think if you look at our products and ultimately what a consumer pays on the shelf, they’re not considered luxury items. Many of our fruit snacks are retailing for—if you look on an each basis, they’re 50 cents each or less. That is not considered a luxury. Even when people are going to a coffee shop, and as we mentioned in our prepared comments, consumers, even though—and by the way, we would agree that consumers are expressing concern. We see the same data.

In our categories, consumers are expected to go to—46% of the consumers are expected to go to coffee shops more frequently over the course of the next year than less frequently. We have some of these areas that they’re not considered luxury. I think that’s important. Lastly, I would say, remember the diversity of our categories. Yes, we are in co-manufacturing. Yes, we are in food service. Yes, we are in private label. We are also everywhere from mass merchant to traditional retail to Club Channel to QSRs. As you see a consumer in tough economic times, you see consumers migrate usually through channels, potentially from branded to private label product. The good news is that through our customers, we’re represented in all those channels and all those formats. I think that’s why we continue growing.

On top of that, when I mentioned that our value proposition seems to be resonating in the market, that’s the recipe for nine straight quarters of, on average, 15%+ volume growth. Great. I appreciate it very much.

Greg Gaba, Chief Financial Officer, SunOpta: Thank you.

Conference Operator: Your next question comes from the line of Jonathan Anderson of William Blair. Please go ahead.

Jonathan Anderson, Analyst, William Blair: I wasn’t sure if you mentioned or if you could mention what the new line, what kind of product or end market is that going to supply. In terms of lining that up with the work you’re doing on the wastewater, how does that kind of come together? Because as I understand it, the wastewater limitation is something that you’re having to work around now with a couple of lines. If you add another, that issue could become worse. Thanks.

Brian Kocher, Chief Executive Officer, SunOpta: John, great question. A couple of things. We mentioned it’s an aseptic line that we’re adding. I would think of it to support our beverage and broth business, the large packet-sized beverage and broth. About 50% of that line is already subscribed. We’re a little less than a year away from go-live. We’ll continue to work on that. We went where the customers and the dollars and where we thought the margin would be. That was in the larger-sized beverage and broth format on the aseptic line. I think you asked a great question. We tried to articulate this and maybe didn’t do a good enough job. We are actually timing the aseptic launch with the wastewater launch. The wastewater has to come first. You’re 100% on. The wastewater processing has to come first.

After that, we will have more than enough wastewater management capacity to not only unlock the efficiencies in the lines that we have now, but also the additional CapEx growth that we’re planning for Midlothian. Also remember, we’ve had Midlothian for three years and really have never been able to unlock the full power. We’ve had startup the first couple of years and then wastewater limitations. I am really excited to see what Midlothian looks like when, A, we’ve got the ability to run the existing lines at full bore. We get another one in there. And oh, by the way, you get all that volume to dilute the fixed cost or absorb the fixed cost. I think that’s going to be a really powerful leverage point in our margin. Okay. I guess the question on—I get your point, Brian, on wanting to accommodate customers and service.

Volume that comes your way. I guess at some point it becomes a bit of an issue because it keeps pushing out kind of some of your targets. I guess one question would be, have you considered or are you able—and maybe you just can’t—I mean, price for kind of overload volume in a way that values your manufacturing capabilities that you’ve talked about so that you can kind of maintain a margin while you’re helping accommodate customers? There’s kind of got to be a give and take, I would think, in there, particularly with your value proposition. John, I think it’s a great question. We have, over the course of the last year or so, been able to take some price where we thought that there was an opportunity. I would also tell you it gets a little muddled, particularly in our P&L, because you’ve got.

Raw product prices that are going up and down. This year, we also had tariffs that were in the mix. Although we’ve been able to pass along tariff costs, from a P&L standpoint, we’ve more or less been able to offset that and be whole. Do not forget that that tariff increase has gone right to the consumer. Although I think we’ve got enduring trends in our category that have helped us, and I mentioned that on a previous answer, John, do not discount the impact that passing along those tariff costs have had on our customers and their ability and potentially concern about passing those along to the end consumer. It is a little muddy. We are 100% aligned with taking price where we can.

I think the other area, John, that we do not talk much about, but you notice it in this quarter’s results, where there is an opportunity to either de-emphasize or rationalize. Either products or potentially some relationships, we have done that too. This quarter was a good example. We did some aseptic tote filling of products for certain customers, and it just was not going to give us the return that we wanted. It was going to also take capacity from some of the customers that we really wanted to grow with. We managed to work our way through that customer relationship and then exit that in favor of the new volume that we brought on. It is a little bit about all of those things. Really good question, John. Thanks for bringing it up.

Jonathan Anderson, Analyst, William Blair: I guess just one more. I think you mentioned, Brian, that the investments that you’re making and I guess the incremental volume you’ve taken on or incremental business. Is this kind of short-term business? Are there long-term commitments from customers as you take this additional volume on? How does that work so that you can kind of think about the longer-term value of taking this volume on and having it disrupt some of your internal efficiency work? Thanks.

Brian Kocher, Chief Executive Officer, SunOpta: John, let me be 100% clear then. We took this business on because we thought it would benefit us in 2026, 2027, 2028, and beyond. There are really two reasons for that. One, when we get customers, we service the heck out of them. We do not have a lot of customer churn. In fact, I do not even know of a customer that we have churn on. One is we get them. We know we have an opportunity to keep them the long term. That was the idea. We would not have done this for a half-a-year relationship or a promotional relationship. It was because we have a long-term outlook and are on a path to create long-term upside to our algorithm. First things first, that is one of them. I think the relationships and how we service them.

On top of that, as you know, many of our customers have multiple-year agreements. We layer those out. They have different, some three to five, you would see. We do not go into any specific customer details. The point that I want you to get away is, I would take this business 10 times out of 10 times if it was offered to me again because it is longer-term in nature, and it gives us a chance to outperform where we thought we were going to be in back half of 2026, 2027, 2028, and beyond.

Jonathan Anderson, Analyst, William Blair: Okay. Thanks a lot. Thank you.

Conference Operator: Your next question comes from the line of Daniel Biolsi of EdgeHigh. Please go ahead.

Daniel Biolsi, Analyst, EdgeHigh: Hi, Brian and Greg. On client 15, I was wondering if you could help me think about the $10 million headwind in Q4 for 2026. Is that a per quarter amount? It sounds like each one of those continues except the Midlothian operations downtime.

Conference Operator: Yeah, Daniel. So. We said that this will impact us in the first half of 2026, not in the second half. We anticipate to have all these issues resolved by then. You’re correct. The downtime is one time in October here in Q4. That will not have an impact. The fix for Midlothian wastewater, as Brian discussed, is getting the new CapEx in place, which is on schedule by the end of the second quarter. That will go away after that as we won’t have that limitation anymore. When it comes to the impact related to the accelerated volume and having the additional maintenance cost and labor cost as we work through that, again, we expect that to lower each quarter, Q1 and Q2, and get that all resolved by the end of Q2 as well.

Of course, by focusing there and handling this volume and bringing that into our network, we have not been able to spend the focus on the margin optimization plan. We fully expect to get back on that work and start to see some benefits here in the second half of the year. No, it is definitely not a $10 million per quarter impact going forward. We will have, compared to prior expectations, a little bit lower Q1 and Q2, but we expect to be back on track by the second half of 2026.

Daniel Biolsi, Analyst, EdgeHigh: Okay. Once these are all sorted out, if we could sort of see the incremental margins from this new business, would we see the higher margins in this? Would we be able to see that in terms of dropping some lower margin customer or being able to raise price? Would that be evident once we get through all this?

Conference Operator: I mean, we do have some pretty ambitious margin targets. We do feel there’s a path to this, the margin improvement plan. We think there’s tremendous opportunity. Brian talked earlier. When we get that wastewater in Midlothian, the limitations that has created with the wastewater, it was actually more than our expectation. Once that gets fixed, once we get the new line in there with the fixed cost leverage, we expect to see some huge margin improvement. Yes, it will definitely be evident. Brian mentioned once we get to 2027, we still expect to be fully on target and even potentially above the target before. If you recall, we said we expect to get up to 20% margin in 2027, and we still expect to get there.

Daniel Biolsi, Analyst, EdgeHigh: Thank you.

Conference Operator: There are no further questions at this time. With that, I will turn the call back over to Brian Kocher, CEO, for closing remarks. Please go ahead.

Brian Kocher, Chief Executive Officer, SunOpta: Thank you, Kelvin. Look, thanks so much for joining us today. Really appreciate your questions and your interest. Before we wrap up, I would just really like to summarize three key messages to take away from the call. First of all, I am energized by the fundamentals of our business. We continue to deliver best-in-class growth based on the strength of our customers, our channels, and the categories we serve, and the value of our solutions-led proposition. I’m really energized by that. In this quarter, we intentionally chose a path by accelerating some of this volume. We intentionally chose a path that prioritized long-term value creation and gives us the opportunity with marquee customers in important channels and categories, gives us a pathway to overdeliver our long-term algorithm in 2027 and beyond. I’m energized by that.

Secondly, I am really proud of the employees and how they responded to the volume challenge and how they met the expectation of the customers while maintaining our standards for service, quality, and food safety. We are never going to negotiate or bargain with that. That being said, I am also not satisfied at all with the progress we’re making on gross margin. While taking the accelerated volume was the right strategic decision, I’m dissatisfied that we didn’t realize the profitability and have that flow through. However, we’ve got a clear and finite plan on how to address that. We know what we need to do in the fourth quarter of 2025, in the first quarter of 2026, and the second quarter of 2026. We know by delivering against those clear, definitive plans.

We’ll have the margin improvement initiatives, and we’ll have the profitability back on track to our original outlook. I’m confident in that. Lastly, what I would tell you as a takeaway, I am convinced the actions that we’re taking now and the decisions we’re making now are for the sustained success of SunOpta. That’s what creates a path to outperform our revenue and profit targets in 2027 and beyond. Those would be the three things that I would take away. Thanks so much for your support. Thanks for being on the call. Thanks for your questions. Greg and I look forward to updating you during the next quarter.

Conference Operator: Ladies and gentlemen, this concludes today’s call. We thank you for participating. You may now disconnect your line.

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