Good morning and welcome to SunOpta’s First Quarter Financial 2017 Earnings Conference Call. By now everyone should have access to the earnings press release that was issued this morning and is available on Investor Relations page at 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 morning, the company’s annual report filed on Form 10-K and other filings with the Securities and Exchange Commission for all 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 maybe required under applicable security laws. Finally, we would like to remind listeners that the company may refer to certain non-GAAP financial measures, such as adjusted earnings and adjusted EBITDA during the 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. And I’d now like to turn the conference over to SunOpta’s CEO, David Colo.

Good morning and thank you for joining us. I am joined today by Rob McKeracher, our Chief Financial Officer. Let me begin by briefly discussing our first quarter performance and then I will update you on progress against the value creation plan. Adjusted EBITDA for the quarter was $18.9 million, up from $9.4 million during the fourth quarter and compared to $22.1 million a year ago. We generated a sequential improvement in adjusted EBITDA margin and adjusted EBITDA dollars during the first quarter relative to the fourth quarter. As we have previously discussed, there were significant nonstructural costs incurred as we are front-end loading the work on the value creation plan. However, we expect these nonrecurring costs to moderate as 2017 progresses. Gross margin for the quarter, on an adjusted basis, was 11.9% compared to an adjusted gross margin of 11.6% a year ago and increased 400 basis points from the fourth quarter adjusted gross margin of 7.9%. Compared to the first quarter of 2016, revenue declined 3.1% on an adjusted basis. However, we experienced 10.9% growth versus the fourth quarter of 2016, which despite some seasonality, is an encouraging recovery for the quarter. As we discussed last quarter, there has been a sharp drop in consumer demand for frozen fruit due primarily to higher on-shelf prices in the freezer in contrast to an oversupply that peaked in the fresh market in late 2016. These unfavorable market conditions have impacted the entire IQF fruit industry, including our business. As a result, we experienced a 12% decline – revenue decline in the healthy fruit in the first quarter. In addition, the very strong growth we experienced in the first quarter of 2016 made for a difficult comparison. Looking ahead, we are noticing some positive signs on the horizon for frozen fruit.…

Thanks Dave. I will take you through the rest of the key financial statistics as well as balance sheet and cash flow metrics of the first quarter. As Dave mentioned, first quarter revenue was $330 million, a 6.3% decline as reported or 3.1% excluding the impact on revenues from changes at commodity related pricing, foreign exchange rates, the estimated impact of the sunflower recall and the estimated impact on the snacks platform due to a fire at a third-party pouch processing facility in 2016. The global ingredients segment generated revenues from external customers of $130.3 million, a decline of 10.8% compared to $146 million in the first quarter of 2016. Excluding the impact of commodity related pricing, foreign exchange and the estimated impact of the sunflower recall, global ingredients revenue decreased 5.2%. The revenue decline reflected lower volume of specialty raw materials driven by a reduction in contracted acres and lower volumes of internationally sourced ingredients, mainly due to weather related delays and accessing to raw materials from Eastern Europe and lower sales volume of low margin animal feed. The consumer product segment generated revenues from external customers of $199.7 million during the first quarter of 2017, a decrease of 3.2% compared to $206.3 million in the first quarter of 2016. Excluding the impact of a fire at the third-party pouch processing facility, revenues in consumer products decreased 1.6% compared to the first quarter of 2016. This decrease largely reflects a 12% decline in our healthy food platform as a result of lower retail IQF sales due to a decline in consumer consumption, partially offset by increased sales of custom fruit formulations. The lower frozen fruit sales were partially offset by a 3.9% increase in aseptic beverage sales and a 34% increase in sales of shelf stable and refrigerated juice…

Thanks, Rob. As we have previously discussed, the value creation plan will have three distinct phases. During the first phase, we don’t expect meaningful revenue growth. However, we expect to generate increased gross margin as a percentage of revenue. This will be partially offset by increased investment in SG&A. As I mentioned earlier, this investment is necessary to build the foundation for consistent profitable growth. For the second and third phases, we expect revenue to increase as our go-to-market initiatives take hold driving incremental gross profit dollars. In addition, we expect continued gross margin expansion as a result of improved utilization in our plants and the benefit from our productivity initiatives. The investment in SG&A will be complete by the second phase. And by the third phase, we expect to leverage our SG&A investment further enhancing EBITDA margins. Finally, in Phase 3, the effective growing revenue and expanding margins is anticipated to result in substantial free cash flow generation. We look forward to updating you each quarter on our progress. With that, I will turn it back to the operator to facilitate Q&A. Operator?

Thank you, Mr. Colo. [Operator Instructions] Our first question comes from Jon Andersen with William Blair. Your question please.

Good morning, everybody. Thank you. David, maybe I will start with the last comment you made around the value creation plan and the three phases. It’s helpful to understand kind of what to expect within each of those phases in terms of revenue margins, profitability and cash flow. Do you have any thoughts you can help us with respect to the timing or duration of those three phases that you described or is it just too early at this point?

Yes. I think John, as we kind of discussed on the last call, I think the first phase we are viewing is a 12 to 18-month process and then the second and third phase anywhere from the 18 to 36 month phase. So we are really a little over a quarter into this process. But I think those are fairly realistic timeframes as we see them today.

Excellent. Okay. Shifting gears, on the consumer products business, talk a little bit more if you would about the frozen fruit kind of business, the category trends in general? And to what extent we should be really encouraged or thinking about maybe better consumption trends going forward based on some of the latest four-week data – have we kind of worked through the pricing issue at this point or are there more kind of pressures to come? But just talk a little bit about what you are seeing there and what your expectations maybe for that business are maybe moved through the year?

Sure. Yes, I think as we have discussed previously what we think was a big driver of some of the category decline was this – the pricing actions that have been taken over the last few years and IQF fruit have been relatively significant. And last year, there was somewhat of an anomaly that occurred in that there was an oversupply of fresh fruit, which delayed the harvest, if you will, going to the IQF fruit, which caused our IQF fruit costs to go up. We had to take pricing obviously at retail to offset that and it created a pretty good gap between IQF pricing and fresh pricing at retail. We think that’s what’s driven down the IQF consumption to-date. As we are coming into kind of the new fruit harvest season here and we have taken some actions to normalize pricing, we think that, that’s what’s maybe driving some of the growth back into the private label category. It’s early. We had one quad week that showed this kind of trend starting to reverse. But even the quad weeks prior to this one, we saw that although the category was declining, it was declining at a lower rate, if you will. So one quad week doesn’t a trend make, but we think as the pricing returns to more historical levels and the delta between IQF fruit pricing and fresh gets back to historical levels, we are encouraged that we think the category might continue to grow.

And we are hearing from others that there maybe – maybe a renewed focus at least among some large fruit retailers on private label as a way to improve the economics of their stores and also create a price halo and provide a certain level of differentiation. Is this something that you are seeing in potentially not just within fruit, but broader across your consumer products portfolio and is that an opportunity for you going forward?

Yes. I mean, I think, private label offers tremendous value. And we are very encouraged by some of the trends in private label broadly. So I think with our portfolio, we are well positioned to take advantage of that. We have good diversification in the portfolio to take advantage of it. And I think, with our new go-to-market approach that we are taking by focusing on key customers in key channels and bringing kind of more intelligence to our customer base with how we have added additional talent in the organization to be more knowledgeable about the consumer and the categories that we compete in, we see – we think there is some good potential growth opportunities for us.

Okay. If I can squeeze a couple more and I will get back in the queue. On the beverage business, there are some transitions going on. And you mentioned this in your prepared comments, there is a wind down of one piece of business, but it sounds like you have had some wins in other parts of the beverage business. Could you help us a little bit with maybe how the impact of this transition will play out over the next quarter or two, so that we are kind of prepared for that and can quantify it as well as possible in our models?

Yes. I think we will probably see a slight dip in revenue over the next couple of quarters and then as some of this new business takes hold that should start offsetting it. We are anticipating for the year to be relatively flat on the beverage versus prior year.

Great. Okay, last one for me. The portfolio work that you are doing and continue to do, is there any kind of update there with respect to potentially bigger kind of simplification decisions? Just your thoughts as you have kind of continue to kind of work through the portfolio and look for opportunities to kind of get more focused improved profitability? Thanks.

Yes, nothing significant, Jon, versus what we spoke to in the last quarter. We continue to look for opportunities to call out unprofitable SKUs and product lines and things of that nature. That work will always be something that we do on an ongoing basis, but nothing significant to report at this point.

Thank you. [Operator Instructions] Our next question comes from Amit Sharma with BMO Capital Markets. Your question please.

Hi, good morning everyone.

Good morning.

David, just going back to the frozen fruit segment, I mean, I think you are signaling that the price delta between fresh and frozen is at the heart of this sales compression that we are seeing in that business. But the question really is that this probably is not the first time we have seen these price gaps perhaps narrow as much as they have in this environment. Can you go back and maybe talk about some of the previous times when this happened and how long did it take for frozen business to come back or frozen growth to come back and also the margin recovery associated with that?

Sure. It’s Rob. I’ll try and take that just based on SunOpta’s experience following the acquisition of sunrise growers early in the fourth quarter of ‘15. 2015 was a similar dynamic where prices in the freezer continue to grow and we did see actually in our first quarter, post-acquisition, a little bit of price elasticity, but it came back quite quickly in the first quarter of ‘16 and we attribute a big part of that due to the fact that the disparity between fresh and frozen was not as great then. But fruit prices have been on the rise for a number of years preceding the 2016 harvest. What we had is a situation in ‘16 where the dynamic if you will, on supply and demand and if you remember back in the second quarter last year, where one of our big headwinds is the fact that the growing conditions allowed for dairy growers to really service the fresh market longer. It really pushed and like what I would say considered to be a more extreme kind of 10-year extreme between the delta between fresh and frozen, both supply and then of course price. So while there has been ups and downs, I mean clearly in a business like this you are going to have this dynamic going on. We consider 2016 to be a fairly extreme event. And so from our perspective, as prices appear to be coming down and as we are hopeful and are expecting that delta decreases, consumers will migrate back to growth out of the freezer, because of the convenience and because of the usage occasions and everything else that we think will continue to drive that category long-term.

And then I think last quarter you mentioned some of the things that you could perhaps do to improve pricing in that, maybe local IQF production in Mexico, can you elaborate on that a little bit, if pricing does remain a concern in this category, what other things SunOpta do to mitigate that?

I think with our manufacturing and distribution network, we are well positioned. We do have a facility in Mexico. We are optimizing the throughput and the capacity of that facility. We may look to further expand that facility to take advantage of the cost economics. We also have a facility in the Midwest that allows us to bring fruit in from either Mexico or California, package it there and then hit the East Coast very economically. So those are some of the things that we have historically done and we will continue to emphasize going forward to try to make sure we stay cost competitive.

Got it. And then David, just broader question, as you are meeting with your top customers and laying out the vision for the reformed or change SunOpta, what’s the consistent feedback, I mean is there a clear need for SunOpta to be a different company or what are you hearing from them – from your customers in terms of hey these are the top two or three things that if SunOpta did, then I think we can have a better strategic relationship, rather than just a price based transaction.

Yes. There is very strong demand for the products that SunOpta supplies to the market. The very consistent theme that I have heard since I have been hearing from our customers is that we haven’t been done as reliable as supplier as they would like and that comes brown to a couple of areas, primarily customer service, meaning that our fill rates to our customers and our on-time delivery performance to our customers has not been at the level that’s satisfactory. So that’s why you have heard me speak to the sales and operations planning processes that we put in place to ensure that we have the right product at the right time for our customers. That’s been a very consistent message as well as just making sure that we consistently produce a quality product and a food safe product for our customers. Those two things have kind of been the Achilles heel of the company and that’s why you see us putting so much focus and emphasis on those particular items.

And just to elaborate on that, what’s the reward if you do or if you are able to make substantial improvement in these two areas?

I think it’s what we have spoken to relative to the value creation plan. And the timing of getting the foundational elements of this company set up properly, that’s going to enable us to be operationally sound and execute consistently day in and day out. And I think as a result of that over time, we will continue to grow our top line in a more cost effective company, which should generate expanded margins and improved growth in EBITDA.

Got it. Thank you so much.

Thank you.

Thank you. Our next question comes from Chris Krueger with Lake Street Capital, your question please.

Hi, good morning.

Hi Chris.

Hi. Back to your aseptic beverage business, I know you have had multiple expansions in recent years, I know you are winding down large customer, but bringing on some other new customers, I was just wondering where your – how much capacity do you have and what’s your utilization rate right now and where do you see that going by the end of the year?

Yes. I mean the good news is we have plenty of capacity. I think we are running around probably 60%, 65% utilization. And we expect that similar to the revenue story we told earlier about beverage, we think it will be relatively flat top line for the year, so that utilization is going to stay roughly in that range. But we are building a robust pipeline of ideas to grow the top line in the business. So over the next – as we get into 2018 and beyond, we expect that utilization factor to increase.

Okay. And then it’s been while since I have heard an update on the aseptic pouch business, can you tell us what’s going on with that?

Yes, sure. Chris, I mean – so that [indiscernible] obviously I commented in my remarks that we did loose one, the smaller side of that, if you will, by way of a fire at the third-party co-packing facility last year. But the pouch business in Allentown, I think that folks were generally where we have a fairly concentrated customer list there. But it remains important part of the portfolio in the snacks business. We are not seeing a great deal of growth there right now. We are fairly full in terms of our utilization of that facility, but it’s an area where we continue to evaluate. We see opportunities potentially for innovation and yes, it will be a focus.

Alright. Thank you.

Thanks.

Thank you. And we have a follow-up question from Mr. Amit Sharma from BMO Capital Markets. Your line is open.

Hi. Thank you so much for taking the follow-up. Just two quick ones from me David, you mentioned potentially some products rationalization, is there a way for you to quantify the size or perhaps the timing of that. And then the second one is related to custom fruit, it looks like that part of the business is still growing, can you talk about what is the relative size of that business and what’s the trend in that?

Yes. On the product rationalization, not really prepared to give any quantitative aspect to that. It’s more of an ongoing process that we will look at our entire portfolio, look at any potential SKU our product rationalization for unprofitable items. That’s pretty much the extent of that at this point. On the custom formulation, the fruit business, that is a – we like that business. It’s a very much a solution sales type business where we work very proactively with our customer base to develop customized formulations to meet their specific needs. And it’s been a – we do see some pretty good growth in that business. We expect to try to continue to leverage the capabilities of that business for growth and we like the margin structure in the business.

Got it. Thank you so much.

Thank you.

Thank you. I show no further questions. I would now like to turn the call back over to Mr. Colo – apologies, we have one additional question from Mr. Anderson with William Blair. Your line is open.

Hi. Thanks for taking the additionals. The EBITDA enhancement items that you have identified, you spoke to in the prepared comments and quantified in the press release, have those – have any of those been realized to-date or are those benefits that have been identified that will be delivered as you move through 2017. And then the second part of my question is, with respect to the non-structural costs, are you still thinking about that as a $20 million investment in the year, I know it’s kind of front end loaded to the first half, I think and does that kind of role off as we get into 2018? Thanks.

Sure. Thanks Jon. It’s Rob, I will take that one. So yes, in terms of the kind of the implemented, if you will, savings that we have generated from the pillars of value creation plan think of that as essentially – actually taking a great example will be the San Bernardino closure where we have taken the action. We have concluded the action. We can – the way we are approaching is that we want to make sure there is enough of a run rate on our P&L and we have actually got an auditing function that goes into audits that in fact the savings that we were expecting are there. We can see them and frankly, that they will stick to the P&L. And so that’s kind of the approach that we are taking as we start to report against let’s say, how we are making against let’s say how we are making against a $30 million objective as you were to add up what we have put out in the there in the prepared comments that come up to $7.5 million. So, you can expect to see most of that certainly arrive in 2017. Obviously, the amount that arrives in here is very dependent on when we implement and start realizing the benefit from these initiatives. So that’s something you can expect that we will continue to do quarter-after-quarter as we want to give folks the ability to see how we are making from a dollars perspective at least against the value creation plan. In terms of the costs, we are – we have basically guided that we expect $20 million of nonstructural costs to land this year in support of the value creation plan. You are right, it is front-end loading. We have incurred about $14.5 million out of that $20 million, so far. What you will see in the press releases is $3 million that relates to San Bernardino that we are attributing to the value creation plan, but frankly that was the 2016 decision and ‘16 event. So, there is about $5.5 million to go and I think you can expect to see most of that come through here in the second and third quarter. I expect all that spending to subside after 2017.

Thank you.

Thank you. I show no further questions. I would like to turn the call back over to Mr. Colo for closing remarks.

Thank you, operator and thank you for participating in our first quarter conference call. I look forward to speaking with you in the future and updating you in our progress as we unlock the opportunity and value in SunOpta. We are well positioned in the right categories at the right time with the right assets and now with the right team. Thank you.

Thank you. Ladies and gentleman that does conclude today’s conference. Thank you very much for your participation. You may now disconnect. Have a wonderful day.