Sunopta Inc

F:ZSK

Earnings Call Transcript 2021-Q3

[Operator]

Good morning, and welcome to SunOpta's Third Quarter Fiscal 2021 Earnings Conference Call. By now, everyone should have access to the earnings press release that was issued this morning and is available on the Investor Relations page on SunOpta's website at www.sunopta.com. This call is being webcast, and its transcription will also be available on the Company's website.As a reminder, please note that the prepared remarks, which will follow contains 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 morning, 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 law.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. And also, please note that unless otherwise stated, all figures discussed today are in U.S. dollars and are occasionally rounded to the nearest million.And now, I'd like to turn the call over to SunOpta's CEO, John Ennen (sic) [ Joe Ennen]. Please go ahead, sir.

[Joseph D. Ennen, CEO & Director]

Good morning, and thank you for joining us today. With me on the call is Scott Huckins, our Chief Financial Officer.Before I begin unpacking the Q3 results, let me offer 3 key takeaways from the quarter. First, given everything going on in the macro environment, it is worth starting out by stating that nothing has fundamentally or structurally changed within our business. Our strategies, priorities, deployment of capital, and expansion plans are all on point. Demand was exceptionally strong, especially in areas like oat-base, oat milk, and fruit snacks, again underlying the alignment of our priorities and investments with the market dynamics.Second, we saw very strong demand in plant-based, especially in oat as oat revenue tripled versus prior year. Revenue was plus 16% versus prior year achieving our highest ever Q3 in plant-based. And were it not for the raw material and labor challenges, we would have had growth in the low 20s percent. Sourcing incremental raw materials and incremental labor above plan proved challenging and disruptive to our operations. It would have been a much smoother quarter if we were just trying to deliver plus 5% plant-based growth. However, our aspirations are much larger than this.From a margin standpoint, gross margin in plant-based declined 360 basis points, of which 100 basis points was incremental depreciation. And the remaining 260 basis points was the result of the current supply chain and labor challenges. Given some of the challenges reported by our peers, only realizing a 260 basis point supply chain hit solidly represents the efforts of a passionate team hustling for every case and every dollar of productivity.Third, while there was some timing impact in the quarter related to cost inflation, our co-manufacturing cost pass-through business model and our other pricing strategies have us in a solid position. Based on confirmed customer pricing adjustments, 100% of the current raw material price inflation will be passed on. These pricing adjustments will be fully implemented by the end of this month.Now I'm sure everybody on this call is keenly aware of the unprecedented challenges impacting the global supply chain. Like many companies, we were challenged by labor availability, raw material availability, and inflation along with the corresponding push to pass it on. It is important to note that these same issues are hitting our customers, and that is creating fluctuating order patterns, which is also disruptive to our operations. The 3 pillars that underlie our strategic growth priorities: portfolio transformation, accelerating customer-centric innovation, and doubling the plant-based business have not changed. We continue emphasizing top line growth in our plant-based business and improving profitability in fruit-based.Our multi-pronged approach to solidify our leadership position by expanding capacity in the plant-based business while optimizing our fruit-based margins remains firmly on track. Our Allentown project will be coming online by year-end, the Modesto expansion along with the initial phase of the mega plant in Texas we announced in August, are all on target to be operational by late 2022. Collectively, these initiatives combined with our investments in 2020 provide a doubling of our plant-based capacity, enabling significant growth as well as de-risking the supply chain through geographic diversification, improved redundancy, and network optimization.We continue to see strong consumer and customer demand for plant-based products where we remain focused on strengthening our competitive advantages. In fruit, we are driving supply chain and cost efficiencies to improve the gross profit, which we are increasingly optimistic about. Our strategies are starting to pay dividends, and we expect to return to growth in 2022 based on the new business awards we have received.As it relates to the shortages in raw materials and labor, I want to recognize the herculean efforts of the team in responding and tempering the impact. From adding backup suppliers to the backup suppliers, finding new sources of raw materials, hosting job fairs, working double shifts, adjusting production schedules on the fly to match the raw materials, our team has risen to the challenges.We also have a stepped-up focus on retention in our plant-based facilities. These are highly automated, sophisticated plants with highly skilled workers and training new employees can take months. As I assess where we are through the first 6 weeks of Q4, I can share that we are in a better spot as far as staffing in the plan. There are still open positions, but fewer than this summer, and there is still work to be done around training to improve our overall efficiency.Similarly, the raw material situation is sequentially better than this summer. As I mentioned, for the most part, we have been successful in sourcing our planned level of raw materials. It is sourcing materials for the growth over and above our planned growth that has been challenging and disruptive. So with all of this as backdrop, our total company revenues in Q3 increased 3.6% to $198.5 million, which, as I mentioned, was somewhat suppressed due to our inability to keep up with demand. This had a disproportionately negative 220 basis point decline to 11.8%. Despite these factors, we delivered 8.4% growth in adjusted EBITDA to $15.6 million by mitigating headwinds through proactively managing SG&A.Now, let me turn to our segment results. Starting with our plant-based segment. As a reminder, we have 3 strategic priorities in our plant-based business unit. First is strengthening and fortifying our competitive advantages already present in our SunOpta value proposition. Second, compete in refrigerated plant-based beverages by building a strong ingredient business focused on oat. Third, build a multi-pronged go-to-market business that includes co-manufacturing, private label, and owned brands.The reason we are so bullish about the growth in this business is that we have multiple layers of competitive advantage that comprise our SunOpta value proposition. This model has 5 dimensions. First, capacity, having available capacity for our customers to grow. Second, quality, consistent product quality that comes from new state-of-the-art planta. Third, cost, delivering advantaged supply chain costs that are derived from our national manufacturing footprint. Fourth, service with professional support and strong order fill rate. And last but not least is innovation that is enabled by world-class R&D to accelerate customer innovation. We've made a significant investment in R&D, in talent, and a brand-new R&D innovation center in Minneapolis, which includes a full-scale pilot plant. We start moving into this new facility in the next 6 weeks.We reported plant-based revenue of $114.9 million in the third quarter, up $15.8 million or 16% over prior year, which is the highest plant-based Q3 in our history. This 16% growth is 23.9% on a 2-year stack basis. Had we not faced challenges around labor and raw material availability, our plant-based growth would have been notably higher, likely 5 points or so as I mentioned earlier. Retail scanner data for the plant-based milks category shows 6% growth over the last 13 weeks, and compared with 2019 the 13-week growth was 24%.Looking at the trends by ingredient type for the last 13 weeks, almond has a 63% market share, and revenue was down slightly. Oat has an 18% share and revenue is up 65%, and soy has an 8% share and is flat. New customer/new business accounted for an impressive 34% of our plant-based growth with a significant portion attributable to our owned brands, Dream, WestSoy and SOWN. Beyond our brands, we also signed a new 2-year contract with a major food service customer to supply Chai tea, and we extended our manufacturing agreement for another 2 years with an existing oat milk customer, which is one of the leading brands in retail oat milk.Revenue from our top 5 plant-based customers increased 14% during the third quarter, more than 2x the pace of category growth. The majority of this gain was driven by oat-based offerings, which more than tripled. As I mentioned on our last call, the success of our brand partners is a strong marketplace testimony to the quality of the product that is produced by our proprietary oat extraction process as evidenced by consumers' purchasing behavior and validated in quantitative consumer testing.Being innovation-led is one of our 3 strategic priorities, and this is a great example of the power of proprietary innovation, combined with great brand partners. We have secured long-term commitments from our 3 largest existing oat customers. When you combine this with strong interest from other major new customers, it is highly likely that we will soon begin construction on another oat extraction facility in the very near future.From a go-to-market standpoint, our owned brands were a key growth driver in the third quarter. Dream and WestSoy, which we acquired in Q2, contributed to growth and performed slightly ahead of our expectations as did Sown, our organic oat milk creamer. Sown was named a 2021 best new product by Progressive Grocer magazine, and we are seeing strong velocities and expanding retail distribution. We expect to be in over 3,500 stores by the end of the year. Brands accounted for only 6% of Q3 plant-based revenues, but we are excited by the long-term prospects of our branded portfolio as in aggregate it has a more than 1,000 basis point gross margin advantage compared to our core business.As we have communicated for the past 2 years, our plan is to double the size of our plant-based business. As such, business development is a critical component to realizing this goal. We have several promising opportunities we are working on with leading CPG customers who are significantly expanding their plant-based portfolio.Additionally, now that we have begun construction in Texas, we have initiated the first phase of business development for a brand-new capability for us. This capability is one of the building blocks of our plan to double the business. We will be installing equipment to produce 330-milliliter Tetra Pak beverages. For those not familiar, 330 ml is the size commonly associated with protein drinks, which you see in club stores, gyms, and virtually every other food retail outlet in America. The retail sales for the nutritional beverage segment is approximately $3.5 billion, and we estimate the majority of this is co-manufactured. Clearly, this is a big opportunity for SunOpta, and we are actively engaging with multiple potential customers. We expect to be in production with this new capability in Q1 of 2023.Moving on to our fruit-based segment, where our 3 strategic priorities are: number one, derisking the business, which we're doing through geographic diversification, customer pricing programs and better grow relations; two, becoming the low-cost operator in frozen fruit through automation, footprint reengineering and aggressive actions in rightsizing SG&A; and three, evolving the portfolio via innovation towards more value-added offerings. We reported fruit-based revenue of $83.6 million in the third quarter, down $9 million or 9.7% over the prior year period. Similar to what you've heard all year, this reduction is reflective of SKU and customer rationalization along with global shortages in certain fruit types such as blackberries and raspberries.Declines in frozen were partially offset by fruit snacks, which increased 21%, fueled by growth in both CPG co-man customers as well as retail private label customers. We are seeing very strong demand in fruit snacks across the board and consider this a growth engine for the future. In addition, we have successfully launched smoothie ball products, which will be marketed across co-manufacturing, private label, and our own branded platform. Based on Nielsen data, the frozen fruit category is basically flat over the last 13 weeks, with private label outpacing branded offerings rising 3%. The fruit snack category is up an impressive 16% over the same time period.Our business grew faster than the category, propelled by strong growth from our top retail customers as well as our top CPG co-manufacturing customers. The focus of the last several months in fruit has been around pricing. To provide some perspective, we have executed significant pricing increases across the portfolio including with our largest customer. These actions are expected to pass-through the entirety of the fruit cost inflation. These pricing actions are material, representing low double digits as a percentage of revenue.In summary, despite all the global supply chain issues, our plant-based segment produced another solid quarter of growth, delivering a record-setting third quarter, more than offsetting declines in our fruit-based business. We continue to work to mitigate the impact of supply chain issues, creating transitory headwinds and our long-term outlook for double-digit plant-based revenue growth and continued improvement in return on invested capital remains unchanged.We've been winning business with new customers, capturing additional business from existing customers, adding capacity, and expanding our portfolio of products. Coupled with our strong balance sheet, SunOpta remains well-positioned for substantial long-term growth in some of the fastest-growing CPG categories, all of which supports my continued optimism as we continue to focus on fueling the future of food.Now, I'll turn the call over to Scott to take us through the rest of the financials. Scott?

[Scott E. Huckins, Chief Financial Officer]

Thank you very much, Joe, and good morning, everyone. We're excited to report another quarter of plant-based revenue and adjusted EBITDA growth. As Joe mentioned, third quarter revenues of $198.5 million were up 3.6% year-over-year reflecting strong demand in plant-based where revenues increased 16%, partially offset by a 9.7% decline in fruit-based revenues due to both the rationalization of marginally profitable SKUs and ongoing shortages of certain fruit varieties.Adjusted EBITDA increased 8.4% to $15.6 million. Gross profit was $23.4 million for the third quarter of 2021, a decrease of $3.5 million compared to the third quarter of 2020, and consolidated gross margin declined 220 basis points to 11.8%. In plant-based, segment level gross margin decreased $1 million or 360 basis points to 16.3%. Lower client utilization was the primary factor due to supply chain disruptions and labor shortages. This adversely affected plant efficiencies during the third quarter worth 260 basis points. In addition, depreciation expense increased 100 basis points over last year similar to the second quarter.In fruit-based, segment level gross profit declined $2.5 million or 210 basis points to 5.6%. The decline in fruit-based gross margin reflected higher commodity prices for most berries, higher production costs, and higher cost of food inventory due to a stronger Mexican peso versus the prior year. Pass-through pricing, rationalization of marginally profitable business, and productivity gains were mitigating factors in fruit-based during the quarter. As we have previously stated, we are confident we will pass on materially all of the fruit cost increases, but through the time line.Operating income was $3.9 million in the third quarter compared to $3.1 million in the year earlier period. SG&A decreased $5.6 million or 25.3% to $16.5 million, primarily due to reductions in variable compensation and a headcount reduction in our food business, partially offset by transition and integration expenses related to the Dream and WestSoy acquisition.Launch from continuing operations attributable to common shareholders for the third quarter was $3.8 million or $0.04 per diluted share compared to a loss of $6.7 million or $0.07 per diluted share during the third quarter of 2020. Note that this quarter's loss is after giving effect to $2.8 million of expenses related to the transition and integration of the Dream and WestSoy acquisitions, business development costs, including our new plant-based beverage facility under construction in Midlothian, Texas, and costs related to the exit of our South Gate fruit processing facility.Loss from continuing operations also absorbed $2.9 million of income tax expense due to the lack of deductibility of certain expenses. On an adjusted basis, third quarter 2021 earnings were $1.1 million or $0.01 per diluted share versus an adjusted loss of $5.8 million or $0.06 per diluted share in the prior year period. Adjusted EBITDA was $15.6 million compared to $14.4 million in the prior year, an 8.4% increase. In addition to the $0.8 million improvement in segment operating income, depreciation and amortization was $1.3 million higher versus a year ago, reflecting our capacity expansion initiatives in plant-based.Partially offsetting these increases was a $2.2 million decrease in stock-based compensation expense. Finally, adjusted EBITDA included $1.6 million in add-backs for business development costs associated with the acquisition of Dream and WestSoy as well as project costs for our new plant-based beverage facility being constructed in Texas. I'd like to remind listeners that adjusted EBITDA and adjusted earnings are non-GAAP measures and a reconciliation of these measures to GAAP can be found towards the back of the press release issued earlier this morning.Turning to the balance sheet and cash flow. As of October 2, 2021, total debt was $220 million approximately 50% lower than a year ago, and up $14 million from the end of the second quarter. Total debt reflects $170 million drawn on our asset-based credit facility with the balance representing smaller credit facilities, lease, and other financing arrangements. Leverage stood at 3.1x at the end of the third quarter versus 5.3x a year earlier.From a cash flow perspective, cash provided by operating activities during the third quarter of 2021 was $5.1 million compared to $8.7 million of cash provided by operating activities during the third quarter of 2020. The change in operating cash flow versus last year was primarily due to the year-over-year change in net working capital. Cash used in investing activities was $17.4 million compared with $11.3 million in last year's third quarter, primarily reflecting investments in capacity expansion projects. I'd like to remind listeners that we expect to see our customary reduction in working capital and resulting cash flow benefit in Q4.Before we turn to the outlook and given our investment in capital projects, I'd like to comment on our capital allocation priorities and perspectives on capital expenditure ROIs. As we have discussed previously, we prioritize our plant-based business from a capital allocation standpoint while investments in fruit have been more modest and centered around cost reduction projects. In plant-based, to remind you, we have 3 projects in-flight now, which are the expansion projects in Modesto, California, and Allentown, Pennsylvania along with our greenfield plant in Midlothian, Texas.When we think about return profiles, it is important to understand that there are 3 broad categories of growth investments: one, building a specific capability such as oat extraction; two, general capacity expansions to an existing plant; and three, building a new plant. Looking across these investment types taken in the aggregate, they provide somewhere between a 3 and 4-year payback period, which is attractive.Let me close by providing some commentary around the outlook for the fourth quarter, recognizing we are all operating in uncertain times with supply chain, labor, and ingredient challenges. Further, it is important to recall that Q4 2020 had an extra week, so we will be talking about adjusted growth in light of last year's 53rd week. On the top line, we are assuming that we will continue to experience some disruptions, and as such expect the total company to grow in the mid- to high single digits versus Q4 2020 adjusted for the 53rd week. From a margin standpoint, we expect Q4 to show some sequential improvement. Finally, from an EBITDA standpoint, given the macro environment headwinds, Q4 will likely be similar to last year, recognizing Q4 2020 was a record quarter from continuing operations at $20.6 million. Before opening up 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, I'd ask the operator to please open up the call to questions.

[Operator]

[Operator Instructions] Your first question comes from the line of Brian Holland from Cowen & Company.

[Brian Patrick Holland, Senior Analyst]

If I can start with the Q4 outlook, kind of drilling down on the segments here, you talked about sequentially the margins looking a little bit better. Is that balanced? Is that biased towards one segment or the other?

[Joseph D. Ennen, CEO & Director]

Brian, I think there's probably a couple of points. We talk about pricing actions that we would expect to benefit the fruit business. We would also expect a continued mix benefit because obviously, the growth profiles of the 2 segments are different.

[Operator]

And your next question comes from the line of Andrew Strelzik from BMO.

[Andrew Strelzik, Restaurants Analyst]

I guess to start on the top line side. Can you talk a little bit about kind of unpacking between the retail and the food service? You highlighted some of the scanner data numbers. But just curious what you're seeing also on the food service side, how that recovery is shaping out? And last quarter, you made some comments about your oat milk relationship with one of your largest customer on that side, so just any kind of confidence around that or how you're viewing any changes around that would be fantastic.

[Joseph D. Ennen, CEO & Director]

Yes, we actually saw stronger growth on the retail side of the business this quarter fueled by -- oat was a strong driver on both sides of the equation, both on retail and food service. Obviously, we were particularly pleased with our triple of oat milk revenue and continue to see exceptionally strong demand there.As it relates to our oat milk business with our largest customer, I would -- certainly, I don't want to speak for them, I would direct you to their earnings release on October 28 where they specifically referenced adding additional suppliers in oat milk and other categories. And I would say, given our confidence in the long-term business that we have in oat milk, that's why we indicated we're initiating construction of a second oat milk extraction facility.

[Andrew Strelzik, Restaurants Analyst]

Okay. And then, obviously, the focus on oat milk and the numbers you cited around kind of underlying growth in the category of oat milk are tremendous. I was hoping though you could maybe elaborate a little on what you're seeing on the almond milk side even at the category level. I guess, it's the biggest chunk and it was declining. I mean, is that just a function of what we saw a year ago and looking on it on a 2-year basis is more appropriate? Or just kind of -- does that concern you at all? I'm just curious for your thoughts around that.

[Joseph D. Ennen, CEO & Director]

Yes. Revenue was pretty close to flat. From -- I'm talking retail scanner data. Almond milk is still the lion's share of the category and revenue was flattish. So the way to look at it is, I mean, the plant-based milk category continues to source milk -- source volume from cow dairy, not intra-ingredient components, right. And that's what's so exciting about the plant-based milk category is it's not just a share smashing of one ingredient type trying to take share from another, but continuing to bring consumers to the category.So we did see oat milk at a retail scanner level kind of flatten out. But we obviously have a significant business in oat milk. We were one of the pioneers in putting in oat milk extraction in the U.S., and we're well positioned to capitalize on that consumer momentum. I mean, obviously, if our business tripled and the category was up 65%, we were pacing. Again, I'm mixing metrics here because one's retail scanner data versus a P&L number. But I think you can see that we continue to do exceptionally well in oat milk and we're very well positioned to continue to ride that wave.

[Andrew Strelzik, Restaurants Analyst]

Okay, that makes sense. And then my last one on the margin side. I mean, a number of the factors that you cited are industry-wide and outside of your control. I'm curious if there are things or efficiencies that you're pursuing that we should be considering moving forward as it relates to things that are within your control?The corporate services line, at least the way that we look at it was much lower than we were anticipating, you talked about some nice count reductions in fruit, and we know that there's ongoing action there, so maybe there's things around that you can talk about. But I'm just curious anything that we should keep in mind that maybe you're doing internally or that might be sticky beyond when the supply chain and other dynamics kind of subside?

[Joseph D. Ennen, CEO & Director]

Yes. We obviously made some reductions in headcount and endeavor to be judicious in our management of operating expenses. Additionally, we've talked on our -- on the fruit side of the business for several quarters about our initiatives to deploy more automation. We are deploying more automation in our plant-based plants as well in order to help mitigate some of the pressures around labor availability.

[Operator]

We have your next question coming from the line of Bobby Burleson from Canaccord.

[Robert Joseph Burleson, MD & Analyst]

Curious with the dialing back of some of the SG&A to kind of offset the gross margin pressure, whether or not that was exclusively things that you were already pursuing on a fruit-based business? Or if there was any impact on plant-based, and in particular, any initiatives related to Sown or your owned brands?

[Joseph D. Ennen, CEO & Director]

By. So in terms of the costs, the headcount reduction was squarely focused on fruit, not plant-based. And the balance of it, if you look at the press release, you'll see a pullback, for example, in stock-based comp. So that was really the variable comp in the total. So that was really the core thrust of the cost reduction.

[Robert Joseph Burleson, MD & Analyst]

Great. And then just on the topic of Sown, you're at I guess 3,500 doors there at this point. Any sense for what the doors could grow to over the next year? Is this something where you see door count potentially doubling? And is part of what's driving that new distribution relationships or new relationships at the end retailer?

[Joseph D. Ennen, CEO & Director]

Yes, it is new relationships opening up for us at retail. I mean, we have really strong velocities. The brand is doing very well on Amazon as well. So we're able to leverage the success there and the ratings that we're showing on Amazon to pull-through and sell against for retail distribution. I'm not prepared to comment on the 2022 end state distribution number.I would say we have a passionate sales team who are out there telling the story around Sown, and I would expect significant continued distribution gains into 2022, especially when you take into context retail resets of categories were somewhat impacted by COVID and the availability of labor to do that. And so, assuming 2022 looks a bit more normal, I think you're going to see increased enthusiasm by the retailers to do major category resets, and that should open more doors for us to bring this owned product into retail distribution.

[Robert Joseph Burleson, MD & Analyst]

That's great. And just one last quick one. Is there -- you may have talked about this before. Just curious, is there a plan to add additional SKUs under the Sown brand? How many SKUs do you think that you could add there ultimately?

[Joseph D. Ennen, CEO & Director]

I think we're up to 4. I don't know if we've officially launched it or not. But I guess we will on this call a salted caramel version, so that brings us to 4 SKUS. We're going to keep it very focused on organic oat milk creamers for the moment. And really, our focus is on driving retail distribution as opposed to SKU proliferation, but we think 4 represents a nice shelf set for the retailer and for the consumer and offers some good choices within the brand lineup.

[Operator]

And we have your next question from the line of Jon Andersen from William Blair.

[Jon Robert Andersen, Partner]

I wanted to ask about the plant-based business. Organic growth in the quarter was 10%, which was a bit of a deceleration from 16% in the second quarter. It sounds like most of that was related to the labor and raw material supply issues you described. When do you anticipate that correcting, i.e., labor and supply getting to a point where you can I guess shift to the full potential of that demand in that business?

[Joseph D. Ennen, CEO & Director]

Yes. It's a great question, Jon. I think -- I wish I could give you a precise answer. But I think what we're seeing in the fourth quarter is sequential improvement versus Q3. And I think, though, most of the external thoughts that I've read on this topic is Q1 and Q2 are going to continue to be a little bit bumpy.I hope that's not true. But within the context of what SunOpta can control and what we're focused on, I think we're doing an incredible job managing through a tough situation. And again, we're delivering growth. We're producing at a very high level. It's just -- we're kind of hitting a few speed bumps here and there. And that's -- when you're used to operating at a very high level, that's disruptive.

[Jon Robert Andersen, Partner]

Can you just refresh us -- I know you touched on a couple of these in your prepared comments, but I just want to make sure I understand the recent agreements, contractual agreements that you've put in place or extended with key customers in plant-based, new customers or new business that you see on the horizon that I think you referenced. And then what kind of visibility that gives you into 2022 growth from the plant-based business? Yes, that would be helpful.

[Joseph D. Ennen, CEO & Director]

Yes. This is a business that is defined by longer term agreements, given some of the supply and demand imbalance in the category, we are obviously very interested in long-term agreements as is our customers. So we have pretty good line of sight to 2022. I would offer -- we're not prepared to kind of fully unpack some outlook for 2022.What I would tell you is we've been pretty consistent in communicating the aspiration to double the business, which roughly translates to 15% growth every year for the next 5 years. And I think that's a good starting point. And as we get deeper into next year, we can certainly offer some direction as to what that's looking like. But we feel good about our growth plans for 2022 in aggregate, for sure.

[Jon Robert Andersen, Partner]

Okay. On the oat extraction part of the business, I maybe incorrectly assumed that perhaps the Greenfield facility in Texas would take care of some portion of that would be dedicated to out extraction, but it sounds like there's a new facility in the works for that. Can you give us a little bit more a sense of what kind of capability and capacity is going in, in Texas and the need for a separate facility? I don't know if it's another Greenfield plant for oat extraction.

[Joseph D. Ennen, CEO & Director]

Yes, it would not be a Greenfield plant. We are still doing an assessment as to whether that goes into Midlothian or whether we put it in Modesto. It's likely to go into Modesto just based on where our customer demand is, makes more sense. But we're doing that assessment. So between talking about the oat extraction as well as the 330 ml business, we were trying to get a little bit more line of sight to future business development.

[Jon Robert Andersen, Partner]

Yes. And to that point, on the 330 milliliter Tetra Pak, would that be within one of the existing facilities as well?

[Joseph D. Ennen, CEO & Director]

Yes, that will go into Midlothian. That will go into -- sorry, Texas. We still have to ingrain name Midlothian into your brain yet. That is our Texas facility just south of Dallas-Fort Worth.

[Jon Robert Andersen, Partner]

Yes. No, I picked up on that earlier. On fruit, I think someone made the comment, I think Scott might've or maybe Joe it was you that you expect return to growth next year. Can you talk about that? Like what kind of growth are you looking to achieve from that business? What gives you confidence that you can grow the top line in fruit in 2022? And then just a follow-on to that is you're implementing pricing in fruit, sounds like that's going in later this month. Does that kind of cover the full gap, if you will?And what I mean is you're experiencing cost inflation on berries, but there are also transportation elements that are inflationary. How do we think about that price increase that's going in? Does that kind of cover the whole nut, and is that in place by the end of November?

[Joseph D. Ennen, CEO & Director]

Yes. We expect to have all the inflationary factors fully covered by the end of this month. And part of the confidence in growth for 2022, I would suggest it's 2 things. Number one, we have certainly endeavored over the last 24 months to significantly re-engineer this business to where we're one of if not the low-cost producer in the category. And so, you have a very handy scorecard on that, which is whether you're winning new business or not.And so we feel increasingly confident based on the new business awards that we're seeing for 2022 that we are indeed making significant improvements in our overall cost structure on fruit. So between the combination of new business as well as revenue increases from the pricing, that is what gives us confidence to suggest that we'll see rev growth in 2022.

[Operator]

We have your next question coming from the line of Mark Smith from Lake Street Capital.

[Mark Eric Smith, Senior Research Analyst]

Just wanted to dig in a little bit more on this labor and raw material shortages. Anything else that you can quantify as far as the impact in the quarter and where kind of you stand today with those sentiments?

[Joseph D. Ennen, CEO & Director]

Yes. So working backwards we've seen sequential improvement through the kind of first part here of Q4. We're not all the way back to bright on raw materials and labor, but it is a better situation than we were in the third quarter. In terms of what those look like, it's a -- it would take me either a very long time here to summarize them or a very short time.And I would just say there were dozens of little speed bumps along the way that kind of took us off course, whether it was not having crewing available for a specific shift or a downstream customer moves an order because they can't get a truck or raw materials were a day late because they couldn't get a truck or they didn't have a gluten-free test kit to test the product to make sure it arrived at our facility is certified gluten-free.I mean all these kind of little things really added up. And so that's why we feel, number one, proud of the efforts of the team. But number two, that when we look at the things that impacted us, they're really not structural, and they're really transitory just little speed bumps.

[Mark Eric Smith, Senior Research Analyst]

Okay. And then second question, integration of the recent acquisitions. Can you just talk about kind of how that process has gone, and we did see some incremental costs from that, that you called out kind of your outlook in Q4 on costs from continued integration?

[Joseph D. Ennen, CEO & Director]

Yes. Integration is materially complete. We're off the TSA and are fully managing these brands from tip to tail. And right now, the organization is focused on pivoting and really trying to drive accelerated growth, but the integration has gone very, very smoothly.

[Mark Eric Smith, Senior Research Analyst]

Excellent. And last one from me is just transportation cost and maybe even more so availability, any headwinds that you see here in Q4?

[Scott E. Huckins, Chief Financial Officer]

Yes. I'd say we -- to give you a couple of metrics of respective. On a year-over-year basis, lane rates are probably up to a tune of about 20%. I think we've actually done a very good job managing this. From an internal standpoint, we actually contracted with asset owner carriers, which obviously gives us an advantage versus the spot rate. But it continues to be -- I think it's fair to say, a fairly tight market, and those costs continue to climb. But I think we've remained on top of it. You'll notice we didn't call out a ton in the prepared remarks for this very reason.

[Operator]

We have another question coming from the line of Brian Holland from Cowen & Company.

[Brian Patrick Holland, Senior Analyst]

I got kicked off. The operator must've seen all my customer-specific questions.

[Joseph D. Ennen, CEO & Director]

We were expecting more from you, Brian. So glad to have you back.

[Brian Patrick Holland, Senior Analyst]

Yes. Everyone cleaned up most of the outstanding questions, but -- that I had, but maybe if you could just kind of discuss -- I'm trying to sort of reconcile the labor, raw material issues impacting your availability -- or your ability to kick out volume with the incremental customers business that you're bringing on. So how are you -- can you just help me unpack how you're doing that, how you're able to bring on more customers in this dynamic?Is it -- does it have to do with your comfort level and your customers' comfort level would be timeline for you getting back on? And maybe if I could touch on the second question, maybe going back over a year now, you sort of laid out some of those capital projects that you've brought on over the past 18 months and how much revenue they could bring on.Are you able -- is there upside to those revenue numbers based on either running more shifts, which obviously seems like almost in irrelevant question given the labor component that you're dealing with now, but whether it's through increased efficiencies or if and when you can bring on more labor and run those 24/7, is there incremental revenue that gives you a little more cushion on your way to ramping Dallas-Fort Worth?

[Joseph D. Ennen, CEO & Director]

Yes. So kind of working backwards from your questions. I mean, as it relates to the Dallas-Fort Worth project, we've already hired a plant manager for that and he is beginning the efforts to start to build the team. So we're well ahead of the game on getting started on that given that facility won't be open for 12 months. So we are certainly being proactive in trying to build the right team so that we're ready to hit the ground running when that project is commissioned and ready to produce salable product.As it relates to bringing on new business in the context of some of the challenges, I mean, recognize we grew 16% in plant-based. So really this is a story of trying to punch above our weight class, if you will, in terms of we had demand that exceeded what we were able to produce and we were hustling to try to produce as much of that volume as we possibly could. So it's not like there was some massive structural issue that hit us, it was just a whole series, which everybody is struggling with. I mean, absolutely, everybody is struggling.I don't think there's unlimited supply of anything right now, including people or raw materials. And so, as we went into this and we saw a stepped-up demand, we were attempting to drive incremental growth above our planned growth, and that's where we experienced some challenges. So think about, okay, we tripled out, we were chasing more. And it became increasingly challenging to get raw material, et cetera, but we obviously procured enough oats to triple the business. So it wasn't like there wasn't any raw material available. But as we chase the growth that we didn't have in our plan, that's where things got interesting. Does that answer...

[Brian Patrick Holland, Senior Analyst]

Okay. Fair enough. No, that was perfect. And then if I could just kind of -- I'll start with this one on the balance sheet. Can you just remind us, Scott, just kind of talk through the flexibility that you have on the balance sheet because I think one of the concerns that I've heard from folks is, well, they're going to add Dallas-Fort Worth, they've talked about maybe meeting incremental capacity beyond that, how are they going to fund this? Can you just remind us how you are able to fund and what levers you have to pull there as far as funding some of this forthcoming CapEx?

[Joseph D. Ennen, CEO & Director]

You bet. So it's really 2 tools in the toolkit. As you're aware, last year, we obviously knew that we were going to have the -- what we now call the Midlothian for the Texas plant coming. And so when we redesigned the credit facilities, we added a $75 million delayed draw term loan that is principally earmarked for equipment in that facility.The second, just staying on Texas is we've done a pretty good job in the capital lease market finding cost-effective financing for build-out costs. And so, I think that play will continue meaning, if you look through our filings I think you've seen we've done a decent job raising that capital lease financing for projects because again in a supply-constrained market I think broadly lenders appreciate the value of those assets.

[Brian Patrick Holland, Senior Analyst]

And then maybe you referenced tools in your toolbox and at the risk of injecting my own sort of thesis into this in commentary, this -- your stock 1 year ago today, you sold your ingredients business. You're trading at more than 10% below where you were this time last year when you announced that sale.So in last year, you've announced that sale, you have essentially reaffirmed the doubling of the plant-based beverage business by bringing on Dallas-Fort Worth. And absent today's modest miss here, you delivered EBITDA ahead of every quarter that you've been the CEO. When we talk about tools in the toolset, I mean, when you look at the balance sheet leverage, is -- are share repurchases, at these levels, do they enter the equation at all? Or do your capital -- are your capital needs such that you prefer to remain nimble there? Just help us think through that here this morning would be helpful.

[Joseph D. Ennen, CEO & Director]

Sure. So we've had a couple of holders bring up the topic. Candidly, we mentioned that to our Board just for context and awareness. I think that in the immediate near term, the thing we're mindful of is not wanting to increase leverage in a simplistic way to effectuate a buyback. But it's definitely a never say never sort of a situation, Brian.

[Operator]

And there are no further questions. I would now like to turn the call back to SunOpta's CEO, Mr. Joe Ennen for final remarks. Please go ahead.

[Joseph D. Ennen, CEO & Director]

Great. Well, thank you, everyone, for your interest and I hope everybody has a great day. Thank you.

[Operator]

And this concludes today's conference call. Thank you all for participating. You may now disconnect.