SunOpta, Inc.

Greetings, and welcome to Synopta's second quarter 2023 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 call is being recorded. I would now like to turn the conference over to your host, Reed Anderson with ICR. Thank you. You may begin.

Good afternoon, and thank you for joining us on Synopta's second quarter fiscal 2023 earnings conference call. On the call today are Joe Annen, Chief Executive Officer, and Scott Hawkins, 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 Synopta's website at www.synopta.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 Synoptic'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 set 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 that unless otherwise stated, all figures discussed today are in U.S. dollars and occasionally rounded to the nearest million. Please note, in the prepared remarks to follow, the company will generally exclude the impact of the divestments done for our business. I'd now like to turn the call over to Joe.

Good afternoon, and thank you for joining us today. We signaled last quarter that Q2 was going to be soft. It proved to be more challenging than we anticipated. The nature of the headwinds are short-term in nature and do not reflect Synopta's long-term potential. Several of the issues we encountered in Q2 were related to broader factors affecting our industry and similar companies. The three specific issues are category softness in track channels, broth and frozen fruit, and third, timing of new business. To be specific, we had 10 new business opportunities that informed our guidance. Six of them are contracted and happening, but are slower to commercialize slash ramp up than we planned. Two are on pace and two of them didn't materialize. Let me offer some key takeaways before we begin unpacking the quarterly results. I'll group them into one-time events, concerns, and bright spots. There are two significant one-time events that impacted the quarter. The first being the frozen fruit recall. This was a significant distraction for the team in Q2. And while the financial impact wasn't huge, with insurance covering a significant majority of the cost, it undoubtedly consumed a sizable portion of leadership's time within the quarter. The second is the previously communicated $7 million of one-time plant-based revenue from Q2 of 2022 that we overlapped. Importantly, adjusting for this overlap, our core packaged plant-based milk growth was 10% in Q2. In terms of concerns, several of our co-manufacturing customers experienced soft volume in the quarter, resulting from tracked channel headwinds. This not only impacted big existing customers, but also impacted the plans of two of our entrepreneurial growth-oriented new customers we were planning to onboard in the second half of 2023. In terms of bright spots in the quarter, we continue to see strength from our core growth levers, strong growth with several of our largest customers, fruit snacks, oat milk, and Texas. We remain very confident in our ability to deliver our long-term guidance. At several investor events, I've outlined our five strategic imperatives. A brief update against these will help you understand our continued optimism. Our first imperative is fortifying our competitive advantages. Within PlantBase, we continue to win a larger share of customers' business because of our customer value proposition, our ability to execute, and our capacity additions, all of which gives our customers runway for growth and redundancy of supply. Capacity ads in oat milk, fruit snacks, tea, and Texas in general have all attracted share expansion and new customers. I will share some specifics to underline this point. We are growing share at our largest customer in both tea and oat milk with dream oat milk sales up 89%. By the end of the year, we will be the exclusive supplier for both of our major tea customers for the first time ever. We also signed a contract extension with our largest national brand customer through 2028 And beginning in 2024, we will be their exclusive U.S. supplier. These share gains, along with other new business wins, demonstrates our real competitive advantages. Our second imperative is expanding the TAM of the business. Our biggest TAM expansion is our entry into the $5 billion nutrition beverage category. And this new business will deliver growth in the second half of 2023 in 2024, and it represents a major long-term white space for us. We are still in the ramp-up phase of producing this product. We are meeting our customers' expectations for volume production, and we expect to continue to accelerate towards our long-term run rate by the end of the year. Third is portfolio transformation. Over the last several years, we have made material progress transforming the portfolio from commodity-oriented to a focus on value-added manufacturing. We have flipped the portfolio from 70-30 commodity value-added to 30-70, and we are absolutely focused on continued transformation. Fourth is sustainability. We are making real progress as evidenced by upgrades from two of the most respected rating agencies. We believe strong sustainability reporting around scope one and two will be a competitive advantage as it becomes a must-have for our customers. Lastly, our culture is a significant point of difference for us. We have built a team that has a real passion to win, is focused on customers and execution. These are the things that will propel us forward. I mentioned the category softness. In plant-based, we are seeing more bifurcation between retail and food service. We do not believe nor have we seen a structural change in consumers' attitudes towards plant-based milks. The category has over 50% household penetration and a 10-year CAGR of 10%. There are enduring demand drivers, such as lactose intolerance, taste preferences for plant-based milks over milk from a cow, and health benefits both for the individual and the planet. I believe the retail category headwinds are a short-term function of the inflationary environment and its impact on real wages. We know plant-based milks are more expensive. For example, in a leading retailer, plant-based milk is five cents an ounce compared to dairy milk at two cents an ounce. As inflation softens, we would expect a return to growth And this view is supported by research, which project a double digit kegger for the category over the next decade as millennials and Gen Z fully take center stage as the drivers of the U.S. economy. While the quarter was disappointing, our business development pipeline contains several significant new opportunities. This, along with significant share gains in existing customers that I outlined previously, along with TAM expansion, gives us confidence in our long-term growth plans. Our snacks capacity expansion is on track for the end of Q3, and we are excited that we will be able to continue to drive growth in this business. In closing, as a major shareholder myself, I share your frustration with the current stock price performance. TTM EBITDA is more than 50% higher than what it was the last time the stock traded at these levels. Our major capital projects are complete Cash flow is positive. We are a much stronger company than our share price suggests. I will end by saying that we have grown the plant-based business 87% in the last 48 months, and we have more than doubled our fruit snacks business in that same timeframe. We are in the right categories with the right value propositions. We have demonstrated executional capabilities. We've built great manufacturing assets, and our team's passion to win is stronger than ever. We are excited about the future of Synopta and look forward to improved results in future quarters. Now we'll turn the call over to Scott to take us through an update on the key commercial activities and the rest of the financials. Scott?