Good morning, and welcome to SunOpta’s First Quarter Fiscal 2018 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 the 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 like to remind listeners that the company may refer to certain non-GAAP financial measures during this conference. The 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 now like to turn the conference call over to SunOpta’s CEO, David Colo.

Good morning and thank you for joining us. With me this morning is Rob McKeracher, our Chief Financial Officer. We had an encouraging first quarter, generating revenue growth and improved profitability across our Global Ingredients, Healthy Beverage and Healthy Snacks portfolios. As expected, these improvements were mapped by softer sales and margins in the Healthy Fruit platform. As we discussed last quarter, we have a plan in place to improve financial performance in frozen fruit, which will take time. However, we continue to make good progress in all parts of the plan, and we are well prepared for a successful start to the strawberry season at our California plants. We continue to capture incremental EBITDA improvements through the Value Creation Plan and converted several opportunities in our sales pipeline during the quarter, which is bolstering our confidence and returning to consolidated revenue growth in the second half of the year. Let me review the first quarter highlights and then provide an update on the Value Creation Plan. First quarter revenue was $312.7 million, down 5.3% as reported or down 1.6%, excluding the impact of commodities, currencies and removing the impact of the bar and pouch lines of business. First quarter adjusted EBITDA was $12.4 million, which includes $2.8 million of timing-related losses on commodity hedge contracts related to cocoa. Rob will provide more detail on this side in his prepared remarks. In the Global Ingredients segment, we reported a 7.7% year-over-year increase in revenue or a 4.1% increase, excluding the impact of commodities and currencies. The growth was driven by strong demand for internationally sourced Organic Ingredients, including sales growth in the U.S. and European markets. Our sales contract book is larger than last year’s, and we are confident with the growth outlook in Organic Ingredients. In our North American…

Thanks, Dave. I will take you through the rest of the financial results as well as balance sheet and cash flow metrics for the first quarter. As Dave mentioned, first quarter revenue was $312.7 million, a 5.3% year-over-year decline as reported, excluding the impact on revenues from changes in commodity related pricing and foreign exchange rates, and removing the impact of the bar and pouch lines of business revenue declined 1.6%. The Global Ingredients segment generated revenues from external customers of $136.3 million, an increase of 7.7% compared to $126.6 million in the first quarter of 2017. Excluding the impact of changes in commodity and foreign exchange, revenues in Global Ingredients increased 4.1%. The increase in revenue reflected strong demand for internationally sourced organic ingredients, which grew 15.3% during the quarter, driven by higher volumes of seed, oils, grains and cocoa. This growth was partially offset by lower volumes in North American source grains and seed products which declined 18.5% during the quarter, mainly as a result of our exit from certain specialty soy products. The Consumer Products segment generated revenues of $176.3 million during the first quarter of 2018, a decrease of 13.3% compared to $203.4 million in the first quarter of 2017. Excluding the impact of commodity prices and removing the impact of the bar and pouch lines of business, revenues in the first quarter decreased by 5.5%. The decline in revenue primarily reflects 17.1% lower sales in frozen fruit, due to ongoing declines in consumer demand, reduced distribution to certain retail customers and timing of deliveries to a large food service customer. The revenue of frozen fruit was partially offset by 4.9% growth in our beverage platform, driven by continued growth in the food service channel for aseptic nondairy and in the retail channel for broth products…

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

Hi, good morning, everyone.

Yes, good morning.

Rob, just a quick clarification. So second quarter EBITDA now expected to be down year-over-year a little bit, but for the full year should we still expect you to add at least $20 million of EBITDA versus 2017?

We expect $20 million through productivity initiatives versus 2017, that’s correct.

And as we look at the percentage from the operating business, how much of that should we expect to flow through?

We don’t give guidance on the full year EBITDA. What we’re commenting on in the prepared remarks is trying to give folks a sense of the weight of the fruit pressure we’re experiencing right now and working through, and so that’s going to be the primary driver of pressure in the second quarter. This quarter obviously, we posted a $12.4 million adjusted EBITDA number, I believe last – during the second quarter it was a little over $19 million. So that kind of gives the range for the second quarter. But really what you’ve got is a situation where we’re confident of delivering our productivity $20 million. We’re seeing good growth and progression of margins certainly in the beverage and in the snacks, and I think the timing related pressures and Global Ingredients in that platform and really our main source of pressure is fruit.

Can you quantify the margin pressure in that business through the first half? Like, how much – how many million dollars of EBITDA is lost and not going to be recovered, at least this year?

Yes. In the first quarter, we’ve quantified $3.5 million of costs that I laid out in my prepared remarks. They aren’t sort of volume dependent, if you will, so they are costs related to things like access storage, right? Our inventory is at a higher level than what otherwise we require for the current demand forecast. We’re also incurring increased freight, storage, handling, a variety of costs as we consolidate warehouses and as we reposition fruit, really to be putting ourselves in the spot where we can service our customers effectively. As well as yield cost. Again, really, a service matter for customers. So when you add all that up there’s about $3.5 million that sits inside of the first quarter, that does not include the pressure that also comes from fixed cost coverage, which is not as efficient as it was, because we’re not packing as much fruit this year. If that makes sense, Amit.

Yes, it definitely does. And then second quarter we expect a similar magnitude of loss from frozen fruit? Or lost EBITDA?

Yes, we expect the pressure to be sustained through the second quarter. We really – the way that the fruit business works is we need to get to the 2018 pack plan. So fruit – as Mexico, of course, started a couple of months ago, but the bulk in – at the California fruit is about to come off the field in very near term here. And so really, your opportunity to get back, let’s say an equilibrium in terms of where your fruit position is relative to your demand isn’t till after you go through the pack season, which is why we’re kind of guiding towards fourth quarter being where we see the pressure letting off.

Got it. And then Dave, it’s certainly encouraging performance or improvement in aseptic business. Good to see new volume. Can you just help us quantify maybe in terms of numbers where that business is? And where it was when it was running as efficiently as it could, like several years ago at this point?

Yes. I’m not sure I understand the exact nature of the question, but let me answer it this way, Amit, and you let me know if I answered it. But, we feel really good about the progress we’ve made on the business over the last year. I think, in the prepared remarks we called out kind of a case study to help people understand all the impact that the Value Creation Plan is making, particularly, on that business and we feel that we can do the same across all of our businesses. But I think, what – one way to look at it is from a utilization perspective, I think we started last year out as below 50% utilization of these facilities. As you exit the first quarter here, we’re at about a 70% utilization and that’s on a continuous operation basis across all three of our facilities. So we see good momentum in the business, the revenues are picking up given the conversions we’ve had in the sales opportunity pipeline that I spoke to. Obviously, as we increase our capacity utilization, the plant costs are dropping in line as we expected. Operationally the plants are doing a very good job on making sure that we minimize cost of nonconformance. Yields are improving, overall equipment effectiveness is improving, and we still remain to have a very robust sales opportunity pipeline that we’re chasing on that business. All of that’s led to the capacity expansion that we spoke to. Because as you know, we need to make investments, literally a year plus in advance to support the expected growth that we see in that business. So that’s what triggered the $22 million investment that we spoke of as well.

That’s really helpful. Just wondering to get a little bit better flavor for the margin structure. And, obviously, frozen fruit is hiding the improvement here, and the – if you look at the total CPG segment, but if you just look that your aseptic business, where are operating margins or EBITDA margins, generally where you want to go now versus where they were when you were running it pretty efficiently before the loss of Coal Back [ph] business back in 2015 and 2016?

Yes, let me try to answer that. I will approach the answer there with – we’re not in a position to disclose discrete margins on the lines of business. Our segment reporting does – we do report CPG as one segment. But you’re bang on that certainly the pressure in fruit is offsetting improved margin profile inside of the beverage business. If I’m to give you a kind of a scales magnitude, moving from more of a 50%, 55% utilization into more of 70% utilization, you’re talking anywhere from 200 to 400 basis points on margin, kind of mix-dependent a little bit, but we are seeing improvement there, but that’s just a volume piece. We are seeing also improvement when it comes to improved operating efficiencies. So things like better yield performance, less cost of nonperformance, as we once referred to it and other things. So certainly what is hitting us in many regards as to the downsize in fruit, we’re benefiting from year-over-year in beverage and snacks.

Got it. Thanks so much.

Our next question comes from the line of Jon Andersen with William Blair. Your line is now open.

Hey, good morning, everybody.

Hey, Jon.

Well, if it weren’t for this pesky fruit business, we’d be in great shape. Congrats on the performance on the rest of the portfolio. I wanted to ask first, it sounds like you’ve had a number of new business wins in the past quarter, which suggest the commercial pipeline is converting well. Can you talk a little bit, David, about the feedback or the discussions that you’re having with retailers that are kind of leading to those wins? Is this SunOpta coming to the table with better pricing, more innovative product? Is it retailers have more confidence in your kind of capabilities from a service perspective? What’s driving this and what level of conversion are you seeing? And what level do you kind of want to aspire to down the road?

Yes, I think what’s driving the conversion and the success in our sales pipeline, Jon, is all of the things you mentioned. It’s the – it’s literally the Value Creation Plan and the benefits of all the work that the team has been doing over the last year plus coming to life. I think, the short answer is, if you have a good plan, if you have good leadership working against the plan, you’re typically, over time, going to start to see the benefits of that work. And that’s what we’re experiencing, it’s happening. We’ve developed – we’re – I say we’ve done a pretty good job in rebuilding our relationships with our key customers as well as penetrating opportunities with new customers across all of our product categories. That has led to a lot of these opportunities. I think we’re rebuilding the confidence with our customer base in our quality as well as our customer service capabilities, both of which have improved significantly over the last year. So with that comes credibility and the opportunity to get back in front of customers and be viewed as a long-term strategic partner. And we couple that also with some good innovation that we’re bringing to the table across some of these different customers in different channels, and that’s leading to some of these conversions. I would add to that, I think we’re just beginning in this regards, we continue to have a pretty robust sales pipeline across all of our product categories and with some of the expansion that we spoke to in aseptic as well as the commercialization of our new roasted snacks facility, the bringing on in the commercialization of our organic cocoa processing facility in Holland. We have a lot of potential in front of us. And even in fruit in the recent weeks we’re starting to see some new wins and good key wins for our fruit business, which again, gives us confidence that a lot of the work that we’re doing in our fruit business is starting – we’re starting to realize the benefits with our customer base and recognize, I know you guys all noticed, but in store brands in particular, it’s a long week cycle to get to business back with customers. So if you’ve had historical quality in service issues, you kind of get one kick at the can per year to try to get that right and the timing of when those opportunities open up to you obviously influences when you’re going to have the ability to regain the business and start growing the business again. And we’ve seen a couple of key wins here in the last couple of weeks in our frozen fruits business that give us confidence that we’re going to be able to accelerate that as we go throughout the year.

Would those be second half shipments? The newer wins in fruit.

Yes, exactly, they actually are. The majority of it will hit towards the end of Q3 and going into Q4.

Great. Second topic on your beverage business, which is obviously performing well. Are you seeing an evolution of your beverage business? I think on the aseptic side, one of the nut-based beverages have moved – may be been more action in the refrigerated section in nut-based beverages, but are you able to kind of navigate this transition either by, it sounds like category expansion in the broth may be more work with food service operators, but how is that playing out in terms of the composition of your aseptic beverage business? And as part of the capacity expansion or the investments you’re making in capacity to bring on new capabilities to do maybe new packaging types as well as just enhance the capacity of your existing product lines?

Yes, we – I think as we spoke in the prepared remarks, what’s going on in the beverage business is, I think the team has done a good job in identifying an adjacent category, which is broth. We also have a pretty good tea business that is growing. So it’s the combination of getting into different product categories as well as the benefit of our multi-channel focus in nondairy aseptic. One of the benefits, I think, we have as a company is we sell from a contract manufacturing perspective, we sell into the food service channel, we obviously sell into retail. And we see good opportunities in all of those categories in the nondairy platform in particular, but also primarily in the retail channels on the broth category. And in the tea business we’re seeing some pretty good growth primarily on our food service business. So I think the diversification that we’ve done in the portfolio is allowing us to grow the category quite nicely. From an investment perspective, the capacity we’re adding, it does give us additional capability to do different product forms, what we call hard-to-batch products, which are basically – could be nondairy primarily products that have higher solid content levels to deliver a specific nutritional benefit that’s part of the capacity expansion includes that additional capability. The other piece of it adds further processing and filling capacity that allows us to basically leverage and reposition some of our different package formats across our three-plant network and puts us in a better position to continuously be a low-cost supplier to our customer base. So there’s significant benefit that comes with the investment.

Okay, last one for me. Just as you think about the three-year plan or Phase 1, 2 and 3 and the value creation program. I think, you’ve talked – at least somewhat broadly in the past about the desire to add revenue by 2020 and it sounds like we’re going to start growing on a consolidated basis in the second half of this year, so we’re moving in that direction. But also bring the margins of the business up to – close to I think a 10% kind of level on EBITDA margin basis. Given what you’re seeing in the marketplace, given what you’ve kind of worked on internally, from an operational and process improvement perspective and then thinking about fruit and the hopeful – hopefully the eventual recovery in fruit. Is there any need to kind of rethink that? Is that still a realistic set of objectives by kind of the 2020 time frame? Or do we need to be thinking out a little bit further at this point?

Yes, I’ll take that one, Jon. I do think that’s still realistic. The modeling that we’ve done in respect to the trajectory that we’re seeing the business is on and the pacing, other than fruit, really, is in line with where we want it to be. We’re very confident that we can address fruit and get it there, but the nature of that business requires us to go through a bit of an investment year, if you will, in 2018 to rightsize the inventories and get back a level where we can be more nimble, if you will, with our margins and then get back to growth in the category through innovation. So that’s why in the prepared remarks, David referred to the case study, we’re bringing those same processes, the same level of discipline, if you will, to fruit that we’ve done with beverage. So while a different category, we’re confident in being able to return that business to growth and growing margins as well.

Great, thanks a lot. Look forward to seeing you in a few weeks.

Thank you.

Thanks.

Our next question comes from the line of Chris Krueger with Lake Street Capital. Your line is now open.

Good morning.

Good morning, Chris.

Just a quick question on the aseptic broth opportunity. If you looked at your pipeline of conversations and discussions and potential new customers and new wins, how has that evolved over the last 12 months or grown?

Chris. We’ve – the broth category in general, it’s on a measured basis. It’s about a $900 million category and it’s been growing anywhere from 8% to 10% over the last year. So it’s a significantly sized category and one that we obviously, see good potential in. And as we targeted different categories for sales opportunities it was definitely one that was at the top of the list. And we’ve seen good conversion on a lot of those opportunities with some major accounts. So we continue to have opportunity in that category but we’ve also had good success to date converting some of those sales opportunity pipelines, and we see that category continuing to have good growth potential in the forward years as well.

If you look at the competitive environment for that category, what are your advantages? Is it the innovations in the different flavors? Or how should we look at that?

Yes. I think it’s our innovation capabilities, it’s our both – capability to provide both organic and conventional products and again, it’s our three-plant network that puts us in a position to be able to basically be a low cost – a low total landed cost provider that, I think, that’s a competitive advantage we have versus the majority of our competitors in that space.

All right, that’s all I have. Thank you.

Thank you, Chris.

[Operator Instructions] We have a follow-up question from the line of Amit Sharma with BMO Capital Markets. Your line is open.

Thank you so much for picking the follow-up. Dave, just wanted to circle back on the frozen. Can you give us an update on how is the strawberry crop in California this year? And as you laid out the case for recovery in that business in the back half or to the fourth quarter, how much of that is continued on where the crop comes and how the price gets out of impression frozen?

Okay. The crop this year is off to a – as far as converting from fresh to freezer, which we use freezer strawberries, it’s off to a bit of a slow start because of the weather patterns that have played out this year. What happened earlier in the year is the growing conditions were near ideal in Southern California, and we thought at that time that actually there was going to be too much fresh strawberry supply and that the market was actually going to convert to freezer earlier than it normally does. And then rains and cooler weather came to California and that completely stalled that out and it’s put the growers in a position where they’ve had to extend their fresh season to try to make up for the lost revenue that they incurred during that weather pattern, if you will. What we’re anticipating is that the fields will start sticking bird over the next couple of weeks and we’ll start to get back to normal receipt level on strawberries. We don’t anticipate having a shortfall in the crop that’s necessary to meet our needs for this year. However, we are seeing the strawberry costs go up a bit as due to the delay and the need for processors like ourselves to post some prices to get the growers to start to convert. To the extent that, that allows or is necessary, we’ll have to consider that in our pricing considerations as we go forward as the point to potentially offset that increased cost.

Doesn’t that help you though to – so if your fresh prices on higher, the gap between frozen is wider and that helps you push your inventories out?

Yes, I think it’s more – what we’re learning is it’s more about the availability of supply of fresh on a year-around basis that tends to drive more of the consumption pattern from frozen into fresh, the pricing obviously is also a component of that. Based on the prices spread that we’re seeing right now though, I don’t know that there’s going to be a significant enough gap between fresh and frozen to create that dynamic on it.

Got it. Okay, that’s really helpful. Thank you, that’s all I have.

Thank you.

And I’m showing no further questions in queue at this time. I’d like to turn the call back to Mr. Colo for any closing remarks.