SunOpta, Inc.

Good afternoon and welcome to Sunopta's first quarter 2022 earnings conference call. By now, everyone should have access to the earnings press release that was issued this afternoon 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 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 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 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 note, please note that unless otherwise stated, all figures discussed today are in U.S. dollars and are occasionally rounded up to the nearest million. And now I'd like to turn the conference call over to SunOptist CEO, Joe Ennen. Please go ahead.

Good afternoon, and thank you for joining us today.

With me on the call is Scott Huckins, our Chief Financial Officer. We are pleased with the first quarter results, which exceeded our expectations. We are especially pleased with the strong rebound in top-line growth, as we made solid progress working through the various constraints that negatively impacted Q4. Before we begin unpacking the Q1 results, let me offer some takeaways from the quarter. We saw significant sequential improvement versus Q4 up and down the P&L and across the business. Revenue, plus 18%. Gross profit, plus 52%. And EBITDA, plus 46%. Topline was strong across the portfolio, fueled by pricing, but also supported by mulling growth. We had record production in our plant-based manufacturing facilities, which drove growth margin improvement versus Q4. Production was plus 19% versus Q4, and plus 8% versus Q1 2021, which was the previous best quarter ever. This record output allowed us to improve service levels and importantly, rebuild depleted safety stock. Oat milk sales continue to be very robust with sales plus 59% versus Q1 2021, led by strong growth from dream oat milk in our largest food service customer, along with our partner brands. The brands we support in part or in full are now roughly one third of the US oat milk market in our gating share every week. We are firing on all cylinders and oats, from the supply of oats to extraction to customer development. We are smelling every drop we can make, and we are producing volumes above the projections from our original capital project underwriting. In fruit, very strong demand for fruit snacks and better alignment of costs and prices in frozen. delivered a better than expected Q1 in our fruit business unit. We are on track with plant expansion projects, including our Greenfield plant in Texas, and we are making real progress in pre-selling capacity. We are tightly managing the inflationary environment. Despite double-digit inflation in Q1, we only had $2 million of inflation that wasn't covered by increased customer pricing. Given macro uncertainties and how early we are in the calendar, we are not updating our financial outlook today. That said, we are increasingly optimistic about our ability to manage the controllables and enhance execution in our plant. Now let me share some highlights from the first quarter. Total revenue was up 16% to $240 million, including solid increases in both plant-based and fruit-based, driven by a combination of pricing and broad-based volume and mixed gains across our portfolio. Of this 16 percent growth, approximately two-thirds came from pricing and one-third from volume gains and the 2021 acquisition of Dream and Wesley. Gross margins declined 270 basis points to 11.7 percent on a consolidated basis, but was up from the 9 percent we reported in the fourth quarter. There were several puts and takes, which Scott will cover in more detail. and we continue to take steps to mitigate the impact of inflationary factors, remaining firmly on track for further margin improvement. Adjusted EBITDA was down $2.7 million versus prior year to $15.6 million, primarily due to the slight reduction in gross profit. We also incurred higher labor costs related to a one-time bonus to recognize the outstanding turnaround in our plan in Q1. Importantly, adjusted EBITDA was up 46% from the fourth quarter of 2021, reflecting the anticipated improvement and strong execution in the business we discussed on the Q4 call in February. Inflation is probably the leading topic on everyone's mind, so I'd like to provide some additional context for you on how key inflationary factors are impacting our business and how we have successfully addressed these items in the quarter and beyond. This sets up well for margins over the balance of 2022, as well as our longer-term view. We incurred $23 million of cognitive inflation versus last year. These costs were covered by $21 billion of customer pricing actions. We also have additional pricing being executed in Q2. There is obviously inflation impacting other cost areas, such as SG&A, but overall, we are keeping pace with the unprecedented inflationary increase. I'll offer one caveat, which is that at almost any point in time in the last nine months, our assessment of our business would be that we have passed on all known inflationary costs to customers. But as we have seen, that could change the next day. I would describe the pricing environment with customers as constructive. While a few companies may be using the current inflationary environment to enhance margins, we have chosen to take a fast-paced, long-term view of building and maintaining partnerships with our customers. Now I'll turn to our segment, starting with plant-based. I'd like to remind listeners that we have three strategic priorities. First, strengthening and fortifying our competitive advantages. Second, building a strong ingredient business focused on oat to drive growth in refrigerated beverages. And third, building a multi-pronged go-to-market business that includes co-manufacturing, private label, and owned brand. Plant-based revenues increased 13% to $136 million in the first quarter, another record, and our 14th consecutive quarter of revenue growth. Of the 13% growth, approximately 60% came from pricing and 40% from volume gains, including the acquisition of Dream and Westway. Growth was broad-based within the portfolio across sales channels, product types, and customers. Strong demand for oat-based offerings led the segment once again, increasing 59% versus the prior year period. Oat as a percentage of the plant-based milk portfolio has doubled in the last 24 months, approaching one-third of sales, and underscores the value of our innovation focus. As we have seen for almost a year now, our oat-based, derived from Synoptic's proprietary oat extraction process, is winning in the marketplace. As I mentioned earlier, brands we support are roughly a third of the Yost segment market share, as measured in Nielsen retail scan data. Oat has been the big winner, and our plant-based milk sales are up 18%. The total category is seen as a bit of softness of late, but we believe some of this is COVID overlap. As we look at the category on a two-year basis, it is up 10% and has grown steadily for over a decade. Additional growth drivers for Synopta where our tea business, which rose 26%, and ingredients, principally oat-based, which was up 37%. From a customer demand perspective, demand was broad-based. Revenue from our top five customers grew 14%, slightly ahead of overall plant-based, and reflects significant contribution from new products and a large new plant-based customer. Our ability to develop, innovate, and rapidly scale new products remain the core competitive advantage. In fact, during the first quarter, the majority of our growth came from new products or new customers. We continue to make progress on the development and execution of our branded portfolio. As a percent of overall plant-based business, our own brands represent approximately 9% of the total, compared to under 2% a year ago. Private label increased approximately 11% driven by gross sales. And we also had solid similar gains in our command business. Finally, ingredients continue to show strong growth, up 30% in the quarter. We are a growth company, and as such, business development is of paramount importance to our sustained growth trajectory. We onboarded a significant new plant-based milk customer in 2021. which will contribute to growth in 2022 and 2023. We are also working on a contract extension with one of our top three customers that will extend our relationship out to 2027. Let me share an update on our expansion initiatives, which are foundational in our plan to double the revenue and more than double the gross profit from 2020 to 2025. By the end of 2022, we will have effectively doubled the manufacturing capacity of the business versus 2020. This doubling is achieved through six capital projects, four of which are complete and have added over $150 million of revenue capacity. The fifth project comes online in Q3 of this year in Modesto and is on track. The big one, our Texas Greenfield plant, is impressively still tracking toward the Q4 startup despite all the macro supply chain challenges. While we have a lot of work left to do in Texas, we are within four weeks of our original schedule and have already hired the majority of the management team. This is a testimony to our ability to execute. We broke ground on a 30-acre dirt field September 8, 2021. In the 245-day sunset, We poured 80 million pounds of concrete, stood up walls, the roof, installed HVAC, electrical, plumbing, and believe it or not, this week we started the installation of the processing equipment. This week alone, we have over 165 contractors working on site. While I'm sure we'll face more challenges between now and the end of the year, success always comes down to people executing and our ability to execute. is fueled by our culture of entrepreneurship, passion, and accountability. As I mentioned on the last call, we are making great progress on selling off the capacity. We will provide a more fulsome update on investor day, including how this new facility contributes to our long-term growth algorithm. I referenced a second oat extraction facility on the last call, which is over and above this doubling of capacity. We are currently at capacity on our first oat extraction system, And as I mentioned, our oat base is winning in the marketplace. Our existing oat customers continue to grow at a rapid rate, and we are confident, based on customer discussions and commitments, that this new system will be highly utilized. This project is now underway and will be online in Q3 of 2023, giving us 80% more oat base and taking our oat capacity to nearly $200 million. Importantly, this new system will add oat-based capacity to the West Coast, where there is little today. Moving on to our fruit segment, our three strategic priorities are, number one, de-risking the business through geographic diversification, customer pricing programs, and better grower relations. Two, becoming the low-cost operator in frozen fruit through automation, footprint re-engineering, and aggressive cost takeouts. And three, evolving the portfolio via innovation toward more value-added offerings. We were very pleased with the performance of our fruit business unit at Q1, as our strategies really took hold. Fruit-based revenues increased 19% to $105 million in the first quarter, two-thirds of which was driven by pricing. Volume and mix accounted for roughly one-third of the increase, which also benefited from some one-time volume and our largest customer. Frozen fruit revenue grew 16% and was largely driven by prices. We continued to experience very strong demand for fruit snacks with revenue up 29% in the quarter, which was primarily driven by volume gains on the base business. Along with the smoothie bowl, which we recently launched via a private label offering at one of the largest retailers in the world, via a co-manufactured brand with a massive global food company and also via our own brand. Sales to our top five customers in frozen were up 37% year over year and accounted for 80% of the total versus 68% in last year's first quarter. In snacks, our sales to our top five customers rose 30%. Fruit snacks remain a large and on-trend category that continues to demonstrate strong growth dynamics. Nielsen data for the 13 weeks that coincide with our first quarter showed total fruit snacks up 9%, which implies significant share gains for some outstanding customers. Before closing, I want to touch on our efforts around sustainability. Last year, we took steps to formalize our environmental, social, and governance framework, harnessing the passion of our employees to move us forward into a new era of awareness, engagement, and responsibility. Our most recent ESG report, which was released roughly two weeks ago, summarizes Synopta's approach relative to four key areas, products, planet, people, and government. It highlights our commitment and actions as we continue to advance sustainability and communicate transparently. We are proud of our progress so far, and we embrace the opportunities that lie ahead as we work to sustainably fuel the future of food. In summary, 2022 is off to a strong start, and we are very confident in our direction and output. Our strategic growth priorities around portfolio transformation, innovation, and doubling the plant-based business have not changed. We remain committed to our long-term growth algorithm of annual double-digit plant-based revenue and profit increases. and continue to focus on increased returns on invested capital. Synopta offers investors interested in plant-based foods and beverages, the rare combination of both strong top-line growth and profitability today. We expect year-over-year adjusted EBITDA growth in Q2, and every quarter will be more. Now I'll turn the call over to Scott to take us through the rest of the financials.