SunOpta, Inc.

Good afternoon and welcome to Sunopta's third 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 the risk factors contained in Synopta'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 discussions 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 security 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 that unless otherwise stated, all figures discussed today are in U.S. dollars and are occasionally rounded to the nearest million. I'd like to now turn the conference over to the Synopta CEO, Joe Ennen.

Good afternoon, and thank you for joining us today.

With me on the call is Scott Huckins, our Chief Financial Officer. Overall, we were very pleased with our Q3 results. Revenue was up 16%, with plant-based revenue up 20%. Profitability also rose significantly with a 42% increase in adjusted EBITDA. These results demonstrate the durability of our competitive advantages in plant-based and the traction of our turnaround strategies in fruit. Let me offer several key takeaways before we begin unpacking the results. Encouragingly, we continue to deliver both revenue and volume growth. We continue to cover almost all inflationary costs with customer pricing adjustments. Similar to Q2, we had approximately 95% coverage of cost inflation. We made progress in Q3 against one of our five strategic comparatives focused on portfolio evolution with the sale of our sunflower business and an idled frozen fruit plant in California. The sale of the sunflower business will provide investors with a clearer view of the margins in our core plant-based milk segment, as sunflower was significantly margin dilutive. Despite a choppy supply chain, we continue to service our customers at an exceptionally high level, with case fill rates in the high 90s. Similar to last quarter, the growth in plant-based was broad-based, with growth across channels, product types, customers, and go-to-market strategies. Growth in plant-based largely came from share gains from both new and existing customers, reflecting our competitive advantages and capacity additions we have made in 2021 and 2022. OAT continues to fuel growth in our plant-based business unit, and we are far outpacing the OAT segment growth rates. The oat milk segment growth in syndicated data for the quarter was plus 29% in dollars. Our oat business grew 68%. We saw significant improvement in fruit segment performance, both from portfolio evolution and productivity gains in frozen fruit. Fruit snacks continues a very impressive growth pace at plus 52%, most of which is volume growth. Similar to almost all food and beverage categories, we are seeing some demand softness and what I would describe as an erratic demand signal from our customers. Recall less than one-third of shelf-stable plant-based milks show up in tracked retail channel data, where we continue to significantly outpace category performance, and the food service channel remains strong. Innovation continues to power the business. New oat-based products like chocolate oat milk, high-protein oat milk, and even pumpkin oat milk, new fruit snacks, new value-added frozen fruit blends, and new plant-based bowls are all examples of our commitment to lead through innovation. Lastly, the construction and qualification of our greenfield plant in Texas remains on budget and on track for an end-of-year startup. Net-net as a result of continuing momentum in the business, we are increasing our 2022 guidance to reflect strong year-to-date results and continued confidence in our outlook. Scott will further break out the details later in the call. Third quarter revenues rose nearly 16% on a consolidated basis, driven largely by pricing. We continue to see solid volume gains in our key growth categories of plant-based milks, and especially oat milk, and also fruit snacks. We have three levers that drive volume growth, category growth, share growth, and TAM expansion. While we are seeing some short-term moderation in category growth, we are more than compensating for this by pulling harder on share gains via new and existing customers and TAM expansion. Growth margin of 13.7% was up 190 basis points versus last year despite 140 basis points of pricing dilution headwind. While margins continue to benefit from broad efforts to optimize input costs and production levels, the year-over-year expansion in our fruit-based business was especially strong. This strength reflects the importance of earlier initiatives around skew rationalization and consolidating our manufacturing footprint, coupled with robust growth in our fruit snacks business. Production output in our plants and service levels continue to be strong and all of our capacity expansion projects are complete or on track. Inflation remains a significant headwind, but we've been able to mitigate much of the impact with earlier pricing actions. In the third quarter, we incurred approximately $25 million of increased costs, and similar to the past couple quarters, we were able to recover the overwhelming majority of this with higher prices. At this point in time, we see some costs trending up and some trending down, which in aggregate suggests there will not be a need for broad brush price increases in 2023. Now we'll turn to our segment results. starting with plant-based, where we remain focused on three strategic priorities. Number one, strengthening and fortifying our competitive advantages. Number two, winning in oat milk to capitalize on the consumer trend and increase our participation in refrigerated beverages. And third, building a balanced, multi-pronged, go-to-market business that includes co-manufacturing, private label, and owned brands. In our plant-based business unit, revenues were up 20% to $138 million in the third quarter, our 16th consecutive quarter of revenue growth, and very similar to the plus 22% we delivered in the first half. On a TTM basis, we have grown this business 50% in the last 24 months. These results benefit from our unique agnostic approach to winning in the category. We have balance across food service and retail. We have our own brands to bring innovation to market. We co-manufacture for major national brands. We manufacture products for private label, and we sell ingredients. We aren't an almond milk company or an oat milk company. We manufacture almost every type of plant-based milk, from oat and almond to soy to cashew milk. This approach, combined with our competitive advantages, continues to fuel growth. When we look at the core plant-based milks product group, stripping out tea, broth, and sunflower, revenues increased 25%. And this part of the portfolio represents approximately 70% of our plant-based business unit. Our tea business also remains strong with growth of 50%, an acceleration from Q2, reflecting strong customer demand. We saw a single-digit decline in broth as we prioritized profitability and overlapped some non-repeating business from 2021. This 25% growth in plant-based milks was broad-based with four of our five product types experiencing growth. Oat was once again the largest contributor to growth with revenue from all oat products up 68%. Oat is now the number one product type in our portfolio, passing almond milk for the top spot. Most of this increase was volume driven, reflecting consumer growth and our strong partnerships with the biggest, fastest growing brands in the category. Our oat barista products and food service contributed significantly to this 68% growth. The growth of these barista products is a testimony to our R&D capability as we have quantitatively demonstrated for customers that our oat barista products are functionally superior to other products in the market. Coconut milk was up mid 30% versus last year, again fueled by food service, with roughly half of the increase stemming from volume. Almond and soy grew low to mid single digits as higher price realization more than offset moderation in volume. Looking at the results by customer channel, retail was up 16% reflecting strong growth in mass and club. Food service was especially strong in Q3 with revenues up 30% driven, as I mentioned, by oat-based offerings. Looking at the business from a go-to-market standpoint, the fastest growth continued to be in our branded business where revenues were up 41% versus a year ago. including volume gains of 33%. This growth was fueled by a doubling of our dream brand, which benefited from distribution gains from our top customers. The largest part of our business, our command business, grew a solid 16% in Q3. Innovation continues to be a key factor in our growth, and new products or new customers accounted for approximately 15% of our revenue increase in the third quarter led by large CPGs. Next, I'll provide some context on the plant-based milk category and its recent performance based on retail scan data. We continue to see solid growth in plant-based milk category. In the latest 13 weeks, total plant-based milk dollar sales grew 12% while units declined 2%. Private label units are flat and dollars are growing plus 7%, representing a 15% share of the category. Category growth continues to be driven by oat milk, with units growing 12% and dollars growing 29%. Oat milk is now 21% of the plant-based milks category. Almond milk remains the dominant market share leader in the category with a 61 share and saw dollar sales grow 8%. We remain confident in the long-term growth potential of plant-based milks. Plant-based milks is a $3 billion category in the U.S. with a 10-year CAGR of approximately 8%, and the underlying drivers of this sustained growth are incredibly durable. First, people who drink plant-based milks prefer the taste versus cow milk and won't switch back to cow milk if they don't like the taste just to save 10 cents a glass. It's far more likely that these consumers will switch within the plant-based milk category for value. Second, for the one-third of Americans who are lactose intolerant, switching from plant-based milks to milk from a cow will make them uncomfortable or sick, so that isn't an option for them. Third, plant-based milk consumers understand and value the health benefits of these products. When you think about these three category drivers from a consumer's point of view, you can understand the durability of the consumer demand drivers. While consumers will certainly find ways to save money, like changing where they shop, how often they eat out, or trading down to less expensive private label products, they are less likely to leave the plant-based milk category. Consistent with most food and beverage categories, we have seen consumers destocking their pantries as a result of the current economic environment. But we believe this is short-term, and we are seeing unit trends improve in the latest data. New capacity projects continue to be on track with expectations relative to timing and budget. As we have outlined many times, there are six capital projects that produce the doubling of our capacity from 2020. Five of the six are complete and contributing to growth. The most recent of the five being an expansion in Modesto, which came online a month ago, as expected. As it relates to Texas, we hosted our board of directors three weeks ago at our new plant, and everything is looking great. I will share a comment from one of our directors and I quote, I've been in hundreds of food plants in my 30 plus years in the business and this is the most impressive plant I have ever seen. All of the equipment for the first line is installed and we are in the process of running the equipment for qualification and validation. At this point, the second line is on or maybe even a bit ahead of schedule. As it relates to business development, we continue to feel good about 2023 utilization with more than 50% of the capacity plan. Obviously, this will benefit the back half of 2023 more than the front half. As a reminder, we will expand our TAM with the addition of the 330 milliliter production line that gets us into the protein shake category. This TAM expansion is one of our five strategic imperatives, and we are now under contract for five years with one of the leading brands in the category. The plant management team is in place, training of new employees is underway, and we anticipate the first production run in the next seven weeks. Given a very challenging environment, going from a dirt field to fully operational in roughly 15 months is an incredible achievement, something which we are all very proud of. Moving on to our fruit-based segment, recall our three strategic priorities are, 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 reengineering, and aggressive cost takeouts. And three, evolving the portfolio via mixed shift and innovation towards more value added offerings. In the third quarter, fruit-based revenues increased 10% to $92 million, led by the continued strength of our margin-advantaged fruit snacks business, as frozen was essentially flat, with higher price realizations offsetting anticipated volume declines. We were very pleased with the Q3 gross margin of 12.3%, as the strategies we have been focused on for the last several years are manifesting in the numbers. The year-over-year revenue growth rate of our fruit snacks business was an impressive 52%, and the overwhelming majority of the revenue increase was driven by higher volumes. In roughly three years, we've grown our fruit snacks business, which includes our smoothie bowls, by 125% to around $100 million of annual revenue. We remain very positive on the outlook for 2023 and beyond. and we continue to leverage our innovation capabilities and expand capacity. Growth in snacks is very reflective of our balanced customer portfolio, and we continue to see solid gains across large CPGs as well as large retail customers. In our frozen business, revenue was up fractionally versus a year ago, as higher price realization served to offset the volume declines we had expected. A significant portion of the overall fruit segment gross profit margin improvement came from frozen. This is a strong indication of the power of our profit recovery strategies. Our efforts to build a low-cost business model focused on top customers, de-risking the business, and building pricing credibility with our customers are paying dividends. 12.3% gross margin in fruit is the highest margin we've seen in five years. and we are confident these strategies have created a more stable, profitable business unit. In summary, our passionate team continues to execute extremely well against our core strategic priorities and deliver solid results despite a challenging macro environment. Underlying demand remains solid, and we are well positioned to continue driving revenue growth improving profitability and capturing additional share by leveraging the power of our platform to rapidly scale. We remain committed to our long-term growth algorithm of an annual double-digit plant-based revenue and profit increases and increasing returns on invested capital. Now we'll turn the call over to Scott to take us through the rest of the financials. Scott?