Good morning. And welcome to SunOpta’s Second Quarter Fiscal 2021 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 call 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. Our second quarter results of nearly 10% revenue growth and 61% EBITDA growth demonstrates the strength of our strategy and the quality of our execution against our corporate priorities. These priorities are portfolio transformation, accelerating customer-centric innovation and doubling the plant-based business. We continue to emphasize topline growth in our plant-based business and improving profitability in fruit-based. The significant revenue increases we are realizing in plant-based beverages reflect our competitive advantages combined with continued strong consumer demand. In our fruit-based business unit, the progress we continue to make is being driven by internal efforts to optimize customers, capacity, operating costs and pricing. Before I begin unpacking our Q2 results, let me offer three key takeaways from the quarter. First, the momentum in plant-based beverages remains strong and continues to be led by oak-based products and by our core customers. Second, based on our business development pipeline with existing and new customers, we remain optimistic about the long term growth prospects for our plant-based portfolio. Third, though we remain very focused on co-manufacturing, our portfolio of own brands in plant-based is also performing well, delivering solid gains, helping us bring innovation to market faster and increasing in importance in both revenue and margin. Let me first start with a high level view of key accomplishment from the second quarter and then I’ll share some of the details by segment. Overall, second quarter results were ahead of the outlook we shared with you on the Q1 call. For the second quarter total revenue was up 9.7% versus Q2 2020 to $202.3 million and up 17.5% compared to Q2 2019. Gross margin improved by 40 basis points to 13% and adjusted EBITDA…

Thank you very much, Joe, and good morning, everyone. We’re excited to report another solid quarter. As Joe mentioned, second quarter revenues of $202.3 million, were up 9.7% year-over-year, as strong volume gains led to a 21.4% increase in plant-based, while fruit-based had a modest decline of 1.9%, as we continue to focus on rationalizing marginally profitable business. Adjusted EBITDA increased 60.8% to $16.1 million as our strategic focus on growing the plant-based and optimizing fruit created significant leverage across our business. Gross profit was $26.3 million for the second quarter of 2021, an increase of $3.1 million or 13.2%, compared to $23.3 million during the second quarter of 2020. The plant-based segment accounted for $3.2 million of the increase in gross profit due to higher volumes, the addition of the Dream and WestSoy brands and productivity improvements within our plant-based beverage and ingredient operations. Gross profit in the fruit-based segment was basically flat, as lower volumes of retail frozen fruit, higher strawberry and transportation costs, and unfavorable foreign exchange impacts from a stronger Mexican peso were largely offset by volume growth in fruit snacks and fruit-based toppings along with productivity gains in the plants. As a percentage of revenues, second quarter gross margin was 13%, compared to 12.6% a year ago, a 40-basis-point increase. The plant-based segment gross margin was 17.9% down only 30 basis points from last year. This is a very strong result considering plant-based absorbed 110 basis points of depreciation expense associated with the capacity expansions we added in the fourth quarter and 40 basis points of increased transportation costs. These headwinds were almost entirely offset by increased revenue and productivity gains, reflecting our investments to drive scale and efficiency. Raw material pricing did not have a material impact on plant-based gross margins because of the…

[Operator Instructions] And your first question comes from Andrew Strelzik with BMO.

Hey. Good morning. Thanks for taking the question. My first one is about your commentary around the competitive mode and competitive dynamics and it certainly sounds from the data points that you provided like everything is in a good place and you mentioned some ways that you’re building your competitive installation. But can you talk about what drives your competitive mode where you’re -- what you’re doing to build that competitive installation and if you’ve seen any changes in competitive dynamics kind of over the last several months or quarters?

Thanks, Andrew, and good morning. In terms of changes in the competitive landscape we have not seen anything material so far this year. In terms of how we view our competitive differentiation in the marketplace, we were particularly proud of the strength of our R&D organization and our ability to partner with big CPG companies to drive innovation and deliver the quality that they expect day in and day out. Second is we have very deep long relationships with our customers. And third, we believe we have a very advantage supply chain, and certainly, the project that we referenced in Texas is a major strategic unlock for us against our priority of doubling the plant-based business. The supply chain advantages that affords us along with adding capabilities, as well as cost and sustainability differentiators is going to be just a further strengthening of our business model. This gives us a plant in or within 100 miles of four of the five biggest states in the U.S. with Texas of course being the second biggest state in the U.S., and so we’re excited about that as a further insulator for the business.

Okay. That’s helpful. And then, on the outlook for the fruit-based segment, is the change from a topline perspective relative to what you’ve communicated prior. Is that really related to the pricing that you mentioned or are you seeing some underlying improvements, whether it’s in the fruit snacks that you mentioned or otherwise that the outlook underlying is actually improved?

Yeah. We, as referenced, were optimistic and have great momentum in the fruit snacks business. Frozen fruit in 2020 had some pretty major volatility from a COVID standpoint. And so we’re seeing some return to normalization, if you will, in the retail landscape and so we think those two factors combined afford us the opportunity to deliver a pretty solid back half number relative to the SKU and customer rationalization that we’ve done.

Sure. That makes sense. And then just lastly from me, is there any other detail you can provide on the kind of mega facility that you’re talking about with respect to either costs or products or I know you’re expanding your R&D capabilities with the new facility using the new headquarters. So I am not sure if that plays into it, but just any kind of color around that would be helpful? Thank you.

Yeah. I think we’ll get into unpacking that as we get kind of closer. I mean we’re at the stage now, I mean, we’re on the doorstep hopefully of signing a lease here and we’ve done site election. We have kind of broad understanding around capabilities that we’re going to put in. But this facility is really on a unlock for growth in 2023 and beyond. And so, I think, it’s probably more appropriate for us to kind of hold on specific there until we get closer. So hopefully that makes sense.

Yeah. Absolutely. Thank you very much.

Your next question comes from Jon Andersen with William Blair.

Hey. Good morning, Joe and Scott.

Good morning, Jon.

Good morning.

Okay. A lot of areas we could go into. Let me start by asking a little bit about foodservice, which was a strong channel for you in the quarter, obviously, you’re getting help from the kind of the rebound in that channel. You did call out a customer in the prepared comments, I think, your largest customer in reference to oat-based products, I think, you’re supplying oat-based products for them. Is that new and is that durable?

Yes. That is new. With oat we started shipping out to Starbucks in the middle of the second quarter. We’re playing a secondary supplier role there. We were pleased that we were able to step in and help our largest customer with one of our SunOpta branded products. I know some of the folks on the call haven’t seen that product in stores and have asked us about it. So we were -- we felt fortunate that we were able to step in and help them. In terms of durability, we would fully expect that we will be in a position to continue to help them well into 2022.

Okay. Thanks. That’s super helpful. And then, you mentioned that, I thought, it was interesting you kind of called out brands -- your own brands in the -- a little bit more I think than you have in the past, even noting they’re playing an increasingly important role in the portfolio from a contribution perspective. Could you talk a little bit more about that and how you kind of do that in a way that allows you to remain kind of customer agnostic as well.

Yeah. Obviously, with the acquisition in mid-April, the revenue that we realized was 100% incremental. And so, brands delivered -- just the acquisition delivered 5 points of the 21 points of growth that you would have seen and so we felt it was appropriate to call that out. I would tell you to-date our brand initiatives have been additive with no subtraction. The integration is going well, the sales volume is coming in exactly as we’ve expected. We’re very focused on non-cannibalistic growth levers and trying to push on non-cannibalistic activities with respect to our large co-manufacturing customers. And really what I can tell you is, since the acquisition, all of the activities with our major co-manufacturing customers have all been around deepening and lengthening our partnership.

Okay. Thank you on that. And I did also want to ask, sorry, I am circling back around too, you made a comment on a multiyear extension with the -- to co-man for the largest, I think, oat milk brand in the U.S. Did I hear that one right and is that a -- how new is that and what kind of duration or visibility does that that new arrangement kind of provide you? Is that kind of part of the calculus for the geenfield facility in Texas, you’ve just seeing in aggregate more demand, longer relationship durations from big customers in plant-based?

That is not a new relationship for us. That has been a longstanding relationship with the company that is currently running the leading national brand in oat milk in the U.S. and it was a multiyear extension.

Okay. I guess, the last question, I’ll pass it on, is around just outlook. I think, last quarter -- I may be a little off on this, but last quarter you may have said, that you expected strong double-digit EBITDA growth in 2021. I think today you said EBITDA growth without the double-digit. I might just be parsing words, but has the outlook changed at all in terms of EBITDA in the second half or for the full year relative to your initial expectations or expectations as of last quarter? Thank you.

Hey, Jon. It’s Scott. Good morning. I’d say, no, the outlook has not changed. I think what we want to recognize is that the comps obviously get a lot tougher in the back half. I think I pointed out that 60% of last year’s EBITDA was in the second half. So, no change in outlook, just on a comparative basis the 10% of comps, that’s really the takeaway.

Okay. Thanks very much.

Your next question comes from Alex Fuhrman with Craig-Hallum Capital.

Great. Thanks very much for taking my question. I wanted to talk a little bit more about oat milk, I think, that’s pretty amazing that it’s driving half of your revenue growth in plant-based considering it’s still a relatively small category. Can you talk about where that growth is coming from, is that in more grocery or foodservice? And then as we think about the capacity you have coming online over the next year or two both the new Texas project that you alluded to today, as well as some of the other previously announced projects that haven’t come online yet, how much of that new capacity is going to be related to oat?

So, on the first part of your question, food service or retail, the answer is, yes. We’re seeing strong oat growth in both retail sales, co-manufactured brands is that predominantly sell into retail. So that was a strong growth driver, growth lever, excuse me, as well as significant growth in our foodservice sales of oat milk. So both channels were strong drivers of oat. Certainly relative to the capacity additions that is a network answer in that, yes, those projects will absolutely enable further growth in oat milk.

Okay. Great. That’s really helpful. And then just thinking about your different customers and channels, it sounds like retail grocery store business continues to be strong, even as you’re lapping tough comps related to the pandemic last year. What does that look like as you kind of move into the third quarter and fourth quarter, presumably foodservice is going to continue to recover on the other end of the pandemic. Are you expecting maybe some choppiness as kind of the push and pull between retail and foodservice plays out or has it been pretty much smooth sailing so far as the channels shift?

Q2 -- the Q2 overlap in foodservice was by far the biggest overlap anomaly that we experienced last year and so we would see it returning to more historical levels and more traditional overlaps. And that’s why we’ve shared some of the 2019 numbers as we’ve gone through this, as well as obviously, it’s a little bit easier to compare to the pre-COVID dynamics of the business than always trying to explain the crazy overlaps from last year.

Great. That’s really helpful. Thank you.

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

Hi, guys. A couple of questions for me, first off, you’ve talked about inflationary pressures that you’re seeing kind of across the Board. Can you talk about your ability to take price in your branded products?

Yeah. As Scott referenced, we’ve not experienced any major inflationary pressures on the branded side of things. What I would say is, obviously, the U.S. retailers are certainly on the receiving end of significant price increases from many, many, many brands, so I don’t think it would be an odd conversation if we found ourselves in, call it six months time having to go into the grocery retail environment and take a price increase. But as Scott referenced, as we sit today, we do not foresee any material inflationary pressures on our branded products that would require us to take a price increase.

Okay. Great. And then, as we look at the fruit business you guys talked about some of the headwinds that you face there. Anything you can give us on kind of your outlook and what it would take to turn this business profitable again?

Yeah. I mean, I’ll offer kind of a summary of the season, I mean we met our path plan. So we processed as much fruit as we need for the next 12 months. The plants ran better than prior year, but the cost of the fruit, meaning the price that we paid to the growers was significantly higher than previous years, really as a result of just the really skinny inventory positions that everybody in the industry had produced a bit of a pricing frenzy if you will that lasted for the entire season. We obviously feel like over time we can get that pricing moved through to our customers, but we pay for the fruit all upfront and then we realize the pricing over 12 months. So, but in total, I mean, we feel like we can get the majority -- the vast majority of that higher cost fruit passed on to our customers, it’s just not an overnight activity. So, Scott, anything to add there?

Yeah. I would say, it perspective helpful. I think the two headwinds right are, as Joe just accurately summarized, fruit pricing, but also the peso strengthening is also a bit headwind, because remember we’ve got a large facility, we’ve just run 50% more fruit through down in Mexico. I think when I reflect on, I am pleased that, I think, we’ve pulled the right strategic levers, 3 times more sourcing of fruit in South America, 50% more processing in Mexico, that’s obviously cost advantaged relative to our U.S. footprint, then automation running through those plants, the footprint consolidation and the SKU at work we have done. I think we’ve pulled the appropriate levers. I think the key will be just the time scale of the development of those price increases.

And looking at the fruit snack business that’s doing well, is there just not enough to really drive that business higher to make up for some of the headwinds that you faced in other places? And then if you can talk about the new food bowl business, is that just a timing or that’s going to take a couple of quarters before we see any impact from those new products?

Yeah. I mean, we -- the fruit snacks business is a small but mighty growth lever for the business right now that we are looking to continue to invest in and drive expansion. And we’re incredibly bullish about the innovation potential in that business and the customer relationships that we have. So it is kind of full steam ahead on the fruit snacks business. It’s not as large as our frozen business, and therefore, just the levering effect will take some time. In terms of the bowls products, we share that in the context of one of our three strategic priorities and fruit is moving towards more value-added portfolio of products. And so, yeah, I mean, we have the product in distribution right now, but it certainly takes, I would say, north of four quarters for retailers to do resets, authorizations, et cetera. So, unfortunately, they are not aligned in their timing as to when they do reset, but we’ve had great reception for the product so far.

Excellent. Thank you, guys.

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

Great. Well, thank you, everyone, for your interest in SunOpta. We appreciate it and wish everyone a great day. Thank you.

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