Good morning, and welcome to SunOpta's Second Quarter Fiscal 2017 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, 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 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 laws. Finally, we would also 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. And now I'd like to turn the conference call over to SunOpta's CEO, David Colo.

Good morning and thank you for joining us. On the call with me today is Rob McKeracher, our Chief Financial Officer. This quarter marks another important step in SunOpta's journey. Our Value Creation Plan has brought an intense focus to the strategic direction of the company and our recently rebuilt leadership team is fully engaged. With these foundational aspects in place, during the second quarter, the entire organization was able to become fully engrossed in the actions to support the Value Creation Plan, which we expect will ultimately, lead to sustainable profitable results. This quarter, we took meaningful action against all four pillars of our Value Creation Plan, including sharpening our portfolio focus by announcing the exit from resealable pouch products, improving our operational execution via the implementation of food safety, quality and productivity programs, enhancing our go-to-market effectiveness via the build-out of a new food service distribution network, and ensuring the benefits of these efforts are sustainable via process and systems improvements. Before I detail our progress on the Value Creation Plan, let me begin by briefly discussing our second quarter performance against the key indicators of our transformation. As a reminder, we expect Phase 1 of our transformation to be marked by gross margin expansion and increased investment in SG&A, while we work to build a pipeline of new commercial opportunities to drive growth in the future phases of the Value Creation Plan. In this context, our second quarter results depict our continued progress, as we generated sequential improvement in both gross margin and EBITDA margin in the quarter despite higher SG&A costs as we continue to reinvest into the business. Adjusted EBITDA for the quarter was $19.4 million, a modest improvement from the first quarter while down compared to a good performance a year ago. We generated…

Thanks, Dave. I'll take you through the rest of the key financial statistics as well as balance sheet and cash flow metrics for the second quarter. As Dave mentioned, second quarter revenue was $336.5 million, a 3.4% decline as reported or 0.6% excluding the impact on revenues from changes in commodity-related pricing, foreign exchange rates 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 $149.4 million, a decline of 5.7% compared to $158.5 million in the second quarter of 2016. Excluding the impact of commodity-related pricing and foreign exchange, Global Ingredients revenue decreased 1.2%. The revenue decline reflected lower volumes of specialty raw materials, driven by a reduction in contracted acres as well as lower roasted sunflower and other ingredient sales due, in part, to customer losses stemming from the 2016 recall. The Consumer Products segment generated revenues of $187 million during the second quarter of 2017, a decrease of 1.4% compared to $189.6 million in the second quarter of 2016. Excluding the impact of the fire at a third-party pouch processing facility, revenues in Consumer Products decreased 0.2% compared to the second quarter of 2016. This decrease largely reflects a 2.3% decline in our Healthy Fruit platform as a result of lower frozen fruit sales due to decline in consumer consumption as well as a 1.1% decline in the Healthy Beverage platform due to the loss of a significant private label account we reported earlier this year, which was partially mitigated by strong aseptic sales in the food service channel and continued growth in the premium juice category. The revenue declines in fruit and beverage were offset by an 11.2% increase in the Healthy Snacks platform adjusted for…

Thanks Rob. Before we begin Q&A, I want to reiterate that we are on track with our targeted productivity savings, and continue to make progress against the Value Creation Plan. Let me reiterate what we will do. We will focus on food safety, quality and execution. We will be focused and decisive as we execute our strategic plan. We will focus on long-term value creation. And we will make decisions with a long-term focus even if those decisions do not maximize near-term earnings. With that, let me turn the call over to the operator to facilitate Q&A. Operator?

[Operator Instructions] Our first question comes from the line of Amit Sharma with BMO Capital Markets.

Hi good morning everyone.

Good morning.

Hi Amit.

Dave just a couple of maybe more detail on the narrower long-term question. You said bar and the pouch business of $4 million drag, so you got rid of the pouch business, how much of a drag is the bar business at this point? And what are some of the strategic alternatives available for this business?

Yes. Amit, it's Rob. I'll start with your answer. In the first half, there were definitely a $4 million drag coming from both those facilities. It'd be fair to assume it's roughly split 50/50 in terms of where the drag comes from. And unfortunately, the facility has performed to our expectation. What you'll see over the back half year, and we announced that we expect the sale of the pouch asset to happen or to close in the fourth quarter. You will see that continue in our P&L. In other words, we'll continue to have sales and continue to have profit from those sales and the continued business on our P&L until the point that we divest it. We do expect that to improve over the back half year before divestiture but not really create any meaningful contribution in any way for us because it's inherently why we're divesting in that business. And I'll turn the call back over to Dave to answer your question on bars.

Yeah.

On the bar business I think our immediate actions are to correct the issues that we have within the facility and get it back to a profitable business. I think long term, we have some very important customers that we service out of that facility. Our goal is to get back to a point where we can service them and generate a meaningful profit for our company. And that's the whole purpose of the rapid recovery program that we have in place, and we'll continue to look to ways to optimize that business as we go forward.

Just so we should expect these two to remain a drag for the same magnitude in the back half as well. And then just related to that, as you exit the pouch business, what does it do to your obligation to Plum as part of your agreement with them?

Yes. Amit, it'd be fair to expect that neither business is going to contribute. I don't anticipate the drag being as significant over the back half, but we certainly aren't expecting a contribution from them. And so I think that would set up that expectation. And in terms of our obligation to Campbell's as part of the settlement last year, obviously, we're going to work with our customer to settle all our main obligations under that agreement and that will happen in the back half of this year.

If you sell the pouch business, would those obligation transfer to the new buyer? Or are you still obligated?

No it’s not obligation. There'll be no transfer. It's our obligation to settle, and obviously, we'll take care of that here in the back half. If you recall, that was the second quarter of last year, we took the full accrual for that obligation. So you should not expect the resolution or the settlement of that agreement to have any meaningful downside P&L impact.

Got it, okay that is great. And just one more for you Dave. You mentioned that sales growth may be not the primary focus at this time. Can you elaborate on that a little bit? What's the thinking behind that? Is it simply a transitional thought as you fix some of the underlying operations? Or is that a shift in how you would view SunOpta going forward?

Yeah, it is consistent with what we have communicated previously. Our focus in Phase 1, as we have said, is to get the operational issues result in the company focusing on improving food service quality, employee safety and customer service while we go after driving productivity and manufacturing, procurement and logistics cost reductions. So that's been our immediate focus. We are building out, as we spoke to, our commercial organization, and they're actively working on building the pipeline for new revenue growth opportunities. We think that realistically, those will start hitting as we go into fiscal year 2018. Part of that also is tied to just the cycle that's involved with some of the categories that we compete in and when the opportunities are to actually participate in new business. But it's very consistent with what we've said on the last couple of quarterly calls on what our approach is.

Got it. Thank you so much.

Sure

[Operator Instructions] Our next question come from the line of Jon Andersen with William Blair.

Hi, good morning everybody.

Good morning Jon.

Hey Jon.

I want to bit kind of follow-up on Amit’s last question. Dave, if you – looking at the progress to date on the Value Creation Program, how would you characterize the progress on the safety and kind of quality dimensions of the program? And are you also seeing improvement in service levels, putting pouches and bars aside, I mean, the overall kind of progress towards a higher level of service capability relative to your customer base? Are you kind of happy with the progress? Is it moving along as expected? And part of the reason for the question is just trying to kind of anticipate to what extent there may be some exposure from additional customer transitions or whether it's pretty good about kind of where you're sitting relative to the operational effectiveness piece.

Yeah, we feel very good about the advancements and progress we're making in food safety, quality, employee safety and, in particular, customer service to our customers as well. I made some comments in the prepared remarks that our service levels have improved as a result of our new sales and operations planning process. And we've seen significant improvement in both, what we call, case fill rate as well as on-time delivery performance across all categories of our business, and we'll continue to improve. But right now, Jon, I'd say we're at levels that are pretty much meeting customer expectations. So we've done a very good job, in a relatively short period of time, getting back to kind of industry-expected service levels to our customers. And on food safety and quality, I'd say we've made significant progress over the last quarter. Some of the new talent that we've brought onboard has made a significant impact. We're seeing improvement across all of our facilities, and I just think all the new processes we have in place and the execution against those is continuing to put us in a much better position than where we've historically been.

And in terms of, when you think about the revenue or sales, kind of white space opportunities, you mentioned food service a number of times in building out your go to- market capability in food service. You also mentioned control brands, and I think that might be an emphasis more on private label as opposed to kind of co-packing business, which I know you've had significant position in historically. Can you talk a little bit about, again, if you look at sales opportunities in to 2018, we’re the principal focus lies.

Yeah, I think our co- man businesses are important to us as a company, so we'll continue to make sure we maintain good relationships there and service those customers effectively. But what we're – where we're also going to put an increased focus is definitely in the food service channels because we see a lot of potential opportunity there because we're very underdeveloped in food service. And then also, at retail, whether it's – control brands or the store brands for our customers, we see tremendous opportunity there as well, really, in all channels. Whether it's mass, traditional grocery, the natural channel et cetera. We see significant opportunities there. The other area that we're – we have our eye on and need to make sure that we stay focused and participate in the growth is in the e-commerce channel. So I think you'll see us, Jon, continue to make sure we provide great service to our co-manufacturing customers, focus on growing both distribution and retail as well as food service.

Okay, and then within the fruit business, I mean, to what extent are you – as you interpret kind of the consumer demand trends in frozen fruit at retail, I understand that the industrial portion of the business has been strong and the custom business has been strong. What are your expectations or kind of read on what's happening in that category and how you're positioned? Obviously, with the investments you're making in the Mexican facility, you're looking to kind of put more behind that. But it's been a little bit uneven, I think, in terms of consumer demand, and I'm just trying to understand if that's something you'd still view as transitory or if maybe we're coming off a few years of outsized growth and settling into something a little more muted.

I think as we’ve discussed previously, the category is reacting, I think, to significant pricing that's been taking over the last couple of years and probably reached the tipping point last fall going into the winter months. And we're seeing that the last four and 12 week periods and in fact in the last two 12 week periods private label starting to come back in the category, but we're not taking that for granted. What we've done is we've done an A&U study on the category. We've learned some things as a result of that, that we're going to be exploring. But I think we do expect growth to come back to this category, but we're going to probably have to work harder to achieve the growth. And maybe historically – and the way we're going to do that is by focusing a little bit more on innovation and bringing some new innovation to the category, improving some of the quality of the offerings in the category and even looking at some portability options from an innovation perspective to some of the consumers. It's no mystery. If you walk into any grocery retailer, there is more of an emphasis around the perimeter of the store on fresh options in both fruit and produce. And I think we need to do a better job in this category of making sure that the frozen options meet the same quality and taste expectations that the consumer is receiving in fresh. And then we need to work on our packaging formats to help with that. We need to work on packaging from a portability and reusability aspect as well. And we need to bring some innovation to the category as far as how the product is used and some of the benefits it provides. So we're still very bullish on this category. The reason we're making investments is because we believe in the category. We also want to make sure we are the leader in this category. We want to make sure, going forward, that we're the low-cost producer in category bringing the highest quality and highest service levels and the leading innovation to the category over time. So that is our focus.

Great thank you very much.

Sure.

[Operator Instructions] And I'm not showing any further questions at this time, I’d like to turn the call back to Mr. Colo for any closing remarks.

Thank you, operator, and thank you all for participating in our second quarter conference call. I look forward to speaking with you in the future and updating you each quarter on our progress as we unlock the opportunity and value in SunOpta. Have a great day.

Thank you. Ladies and gentleman thank you for your participation in today's conference. This concludes the program, and you may now disconnect. Everyone have a great day.