Good morning, and welcome to SunOpta's First Quarter Fiscal 2020 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 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, 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 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 over to SunOpta's CEO, Joe Ennen.

Good morning, and thank you for joining us today. With me on the call is Scott Huckins, our Chief Financial Officer. We had an outstanding first quarter, delivering revenue of $335.9 million, which represents 13% adjusted revenue growth year-over-year. We generated nearly 400 basis points of gross margin improvement versus a year ago and more than doubled adjusted EBITDA. Adjusted EBITDA for the quarter was $24.3 million, the second-highest quarterly adjusted EBITDA in the company's history, up from $11.1 million in the prior year. The improved results represent traction in our turnaround plan and the key initiatives we have put into place over the last year. We are more focused on our customers than ever before, we are executing our productivity plans and we are controlling costs. Progress and improved execution is evident in each of our three segments. We generated $35 million of operating cash flow in the quarter and we reduced total debt by over $20 million from year-end. Combined with the recent $30-million preferred equity raise, we have significantly improved our liquidity position while also improving our profit and cash flow profile. As we announced a few weeks ago, we completed a $30-million preferred equity raise with two of our largest investors. This is a reflection of their confidence in the business outlook and provides us the capital to support continued investment in our plant-based business unit. There is a total commitment of $60 million from these investors that we have the option, at our discretion, to access over the coming months. We continue to invest behind our most promising and high-return opportunities while deemphasizing lower-margin, lower-return-on-capital segments of our business. We are executing well and have successfully adapted to the day-to-day challenges of the current COVID-19 pandemic. I will touch on this in a moment, but…

Thank you very much, Joe, and good morning, everyone. Let me walk through gross profit and the rest of the income statement, given Joe's discussion of the commercial activities and revenue during the quarter. I will also cover our balance sheet and cash flow results. First, as Joe mentioned, we had a strong revenue performance with double-digit growth. We saw some fairly significant puts and takes from COVID-19 in the quarter, and I will give you our estimates of the impacts as we walk through each line item on the P&L. We estimate that $7 million to $10 million of our revenue came from COVID-19, consistent with our prior estimated range. Gross profit was $43.7 million for the first quarter of 2020, an increase of $15.5 million or 55%, compared to $28.2 million during the first quarter of 2019. The plant-based segment accounted for $10.6 million of the increase in gross profit, mainly reflecting revenue growth, plant productivity efforts and higher capacity utilization. Fruit-based segment was responsible for $3.1 million of the gross profit improvement, reflecting pricing initiatives, productivity improvements and increased revenue. Global Ingredients contributed the remaining $1.8 million of improvement. We estimate that COVID-19 added approximately $3 million of gross profit in the quarter. That came from margin on the additional sales and a roughly $2-million commodity hedging gain in March in our Global Ingredients segment. The commodity hedge was in a modest loss position prior to COVID. The negative impact to gross profit from the 2019 weather-related shortfall in the fruit-based business was in line with our previous expectation. We recognized a $1.9-million impact during the first quarter and anticipate approximately $1 million to $2 million in the second quarter. As a percentage of revenues, first quarter gross margin was 13%, compared to 9.2% last year, a…

[Operator Instructions]. Your first question comes from Jon Andersen with William Blair.

Yes, hi, good morning guys.

Good morning, John.

Good morning, John.

Congratulations on the start to the year. I guess maybe I'll start with the plant-based business. You saw terrific growth in the quarter; you've seen terrific growth, frankly, there for the past couple of quarters, a few quarters. And I'm wondering if you can give us a little bit more color around the various product categories or the components of that business, where you're seeing particular pockets of strength? And then I think the second question on plant-based is, the extraction capacity that you're bringing online, what's the opportunity around that? I know that that will probably not really come to fruition until 2021 given that the capacity comes online late in 2020, but how do you think about the market opportunity around that extraction capacity and how quickly you can fill that?

Sure. In terms of where we're seeing the first part of your question, where we're seeing strength in the plant-based business, it is certainly across every customer, both existing customers and new, so we're doing a good job on the business development front. Roughly 2/3 of the growth in the first quarter, 2/3 of the growth came from existing customers. And importantly, 1/3 of the growth came from new customers, and we see a similar balance between new products and existing products. So really, strength across the board. Last quarter, we spent considerable time unpacking the underlying consumer drivers of the plant-based business and we certainly continued to see and experience those tailwinds in the first quarter, so really, in summary, just strength across the board. On the extraction side, I'll explain it this way. We produce think of it as like a concentrated base that you then add water to, to make it in the form that you would pour it out of a carton from. There's two opportunities I mean, on one side of the business, we produce the concentrated base. We then add water and package it aseptically ourselves. There is obviously a significant business done in plant-based milks that is outside of products that are packaged aseptically; if you think about the refrigerated aisle and the gable-top-carton-style packaging, we will sell producers or manufacturers the concentrated base, which to which they then add water and put it in their package format, be it a carton, a bottle, etc. So that's how that business is going to be monetized, is think of it as an ingredients sale.

Okay, interesting. And is that how does it work? You have capacity coming online. How much visibility do you have into your ability to kind of sell out or sell into that capacity in 2020? Does it come online quickly because you have arrangements kind of in place, or is it a longer business development timeline?

It's we feel good about where we are right now with our business development efforts against that. Part of the thesis for that investment was, we were experiencing we have a small extraction capability right now, and we were experiencing significant demands, customer interest and demands certainly in excess of what we could produce, and that was really the underlying premise for making the capital investment. So we feel good about our ability to stand up that plant and we certainly wouldn't expect it to be full on Day one, but we do have customer commitments that'll allow us to open that facility up and start running.

Terrific. Again on plant-based, could you talk about the mix of that business? It sounds like it skews more away from home or food service. Is that the case? And then, if so, how are you thinking about the return of that larger customer in food service for your plant-based beverages? Is that looking like it's going to be happening here over the next several weeks? And how should we yes, I mean, what's your expectation around that piece of it, the food service side?

Yes. So our plant-based business in total is call it roughly 60% retail, 40% food service. We do a significant business in that food service channel with large coffee chains. I won't wade into speaking for individual customers, but there's been some recent public announcements from some of the bigger coffee chains about their plans over this week and in the coming weeks to start to aggressively reopen their outlets, and so we're optimistic. Obviously the big question mark will be, how quickly do consumers/customers return? But we're encouraged by their announcements and we're ready to supply.

Great. Okay. So shifting over to the excuse me, the fruit business, strong quarter in sales and margin progression. It sounds like very much in line with the kind of cadence that you've described for some time now. Is there and I understand it's very early, but is there anything you can talk about with respect to fruit availability and/or pricing more broadly? I guess just in the both in the context of what you've seen year-to-date in Mexico and early in California, and also in light of the fact that there's probably less fruit going into food service, maybe less demand for fresh fruit, which may have an impact, I would guess, on the fruit availability for the freezer market, which is where you primarily play, I believe.

Yes. Good question. You're absolutely correct in that the food service contraction has impacted the fresh market pretty significantly, and so we remain optimistic that the supply of fruit is going to be within historical ranges. And as far as pricing goes, again, pricing is in historical ranges, about where we would have forecasted it to be at this point in the year. So we're it's not there's no real concerns on either the pricing front or the supply front as it relates to the California fruit season.

Okay. And it sounds like, from your commentary, that there have been some there's been some nice progress on both demand from existing customers, but perhaps also pricing. I know this was an area that you really emphasized when you came in, that there was probably a better way to kind of think about structuring pricing arrangements with customers to take some of the volatility out. Maybe you could provide a little bit more color around whether that's happened, to what extent you've been able to make that happen. And how much of the demand that you're seeing, maybe, in fruit right now is this stock-up or at-home acceleration given the COVID situation?

Yes. So the fruit business is more retail-oriented than food service. Call it 75% retail, 25% food service. So we definitely benefited toward the end of March with some stock-up-type purchases and saw that, but we were having a strong quarter 11 weeks into the quarter, before really the COVID orders started slamming the system. So, it didn't all come in the last two weeks of the quarter, so it's pretty strong growth. And we've seen inventories kind of pull back on our side with these strong orders have really helped us work through some of that expensive 2019 inventory and put us in a strong position going into this 2020 season.

Great. All right, I have a couple more here. I don't know how many people we have in the queue, but I will do want to ask about Global Ingredients, because that, too, you've made solid progress in the quarter, and how much of this is coming from better performance, better productivity out of the Crown of Holland plant, the cocoa processing facility? I think there might have been some headwinds that you experienced last year there that maybe you've kind of overcome. And then you did mention that there was one facility, I think the avocado oil plant in Ethiopia, that's not up and running. Maybe you could give us a little bit more color around your expectations for that, and just the Sanmark acquisition in general.

Yes. So the Crown of Holland throughput and output, the operations team in Holland, have done a great job in getting that plant up and running and into a very nice productivity zone for the business, and a sizable percentage of our pickup in gross margin in the quarter was a result of that. And we're encouraged by the continued progress that's being made. As it relates to our avocado facility, not a massive portion of our revenue, but it's something that we spoke about on previous calls, and so wanted to touch on it. The availability of public transportation in Ethiopia, the closing of public transportation, has made it difficult for our workers to get to our production facility, and as such, we made the decision to close until public transportation resumes in Ethiopia.

Okay. The last one from me is really, some of the forward-looking commentary that you provided at the end of the prepared comments, I just wanted to make sure I understood this clearly. So understand the rationale for kind of a flatter year-over-year top line in Q2. On the EBITDA comment, do you does that am I interpreting in that right that you mean EBITDA dollars increase on a year-over-year basis for the rest of the year, or EBITDA dollars increase sequentially? How do we interpret that?

Hey, Jon. It's Scott. I'll take that one. So I think the comment was that we'd see some muted levels of growth, as Joe just talked about, but notwithstanding that, on a year-over-year basis, we would expect still to produce meaningful year-over-year EBITDA dollar improvement.

Terrific super helpful. Thank you, guys. Again, great start to the year. Congrats

Your next question comes from Mark Smith with Lake Street Capital.

Hi guys. A lot of mine have been answered, but wanted to talk kind of big picture. Food supply chain is certainly in the news, seeing issues in dairy, especially meats. Can you guys talk about any potential risks that you see out there outside of some of the fruit things that you've talked about? But more so potential opportunities that you see in the short term and long term.

Yes. So we don't anticipate any supply chain disruptions. I touched on fruit. On the plant-based side of things, we've had pretty decent crop weather in the U.S. so far this year, as far as planting goes, for the whey and oats. So no material disruption expected there. As it relates to opportunities, I think that the opportunities that we have in front of us are really about keeping up with consumer demand, and we continue to experience I know there were some news articles recently about the meat shortages and the shift over to plant-based. Again, we've been seeing that trend for the better part of a decade with consumers on a slow migration toward plant-based and substituting dairy products with plant-based. And so it's representing a great trial opportunity for us as people stock up. We saw, with concerns around and people wanting to pantry-load, the aseptic side of it, which is obviously shelf-stable, benefited from that consumer behavior, and we hope that the new trial that we got in the first quarter translates into loyal consumers going forward.

Okay. And we're kind of in unprecedented times, but if you can look a little bit into your crystal ball at consumer behavior, as we've seen this shift kind of forced shift to home-based food away from food service, how sticky do you think these consumers can be and how much you can hold onto them and kind of home-based grocery food versus a migration back to food service once it reopens?

Yes, I mean, I think we will return to, I think, the pre-COVID-19 kind of pattern between food service and retail. The question of when is that's the $64-trillion question that I wish I could give you a great answer to, but unfortunately my crystal ball is a little cloudy this morning.

No problem. And then last one from me, and sorry if I missed it during the commentary, but can you give any insight into kind of FX, what you expect from currency impact here, maybe near-term in Q2 but maybe even as we look through the rest of the year?

Sure. It's Scott. Good morning. We realized a oh, call it a $2-million unrealized impact from the decline of the peso. It's I'm no better a currency forecaster than anybody else, but we did take the step of trying to protect ourselves a bit from that, or if you will, lock in that benefit, meaning, because we have production facilities in Mexico and a lot of peso-denominated costs, we would actually root for a weak peso. So we've taken some steps to try to preserve that relationship for the balance of the year. I guess the only other comment to make, probably, today would be, the euro has been weak of recent vintage, down in the 1.09%-type area, so that's at least been comparatively more consistent. So, those be my thoughts.

Okay, great. Thank you.

At this time, there are no further questions. I will now hand the call back to Joe Ennen for closing remarks.

Great, thank you, operator, and thank you all for participating in our first quarter conference call. I look forward to speaking with you in the future and appreciate your interest and support in SunOpta. Have a great day.

That concludes today’s conference. Thank you for your participation. You may now disconnect.