Good morning, and welcome to SunOpta's Fourth Quarter Fiscal 2019 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 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 US dollars and are occasionally rounded to the nearest million. And now, I'd like to turn the conference call over to Sunopta 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 are pleased with how we closed out 2019 as our fourth quarter results demonstrated strong progress in our efforts to turn around the business. Adjusted for disposed operations; in Q4 we doubled adjusted EBITDA on a year-over-year basis, delivering $16.4 million against last year's $8.2 million, and generated strong sequential growth from $9.9 million in the third quarter. Adjusted revenue was up slightly and gross profit increased by over 50% versus the prior year. This gross profit improvement along with savings from the previously announced corporate reorganization powered our improvement in EBITDA. These results drove a $24.1 million sequential reduction in total debt and aided our successful effort to extend the maturity of our $360 million ABL to March of 2022. Our EBITDA growth was driven by outstanding performance in our plant-based food and beverage business unit along with delivering what we said we would deliver in the frozen fruit platform. While the results in Global Ingredients were pressured by several non-systemic external and internal factors, we feel these pressures are largely behind us and we expect solid improvement in 2020. Total company gross profit was up over 50% year-over-year driven by plant-based foods and beverages, and fruit. As I noted, we delivered on our fruit expectations this quarter returning to slightly positive gross margins. While we are pleased with our progress, we are certainly not yet satisfied and see considerable opportunity to further improve. The corporate reorganization announced in Q3 is on-track to reduce SG&A by $8 million to $10 million on an annualized basis. Besides providing cost savings, the reorg has provided real value by improving the organizations speed and effectiveness, driving a culture of entrepreneurialism…

Thank you very much, Joe, and good morning, everyone. It's a pleasure to speak with you today. 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. Gross profit was $33.4 million for the fourth quarter of 2019, an increase of $12.1 million or 57% compared to $21.3 million during the fourth quarter of 2018. The plant-based segment accounted for $10.5 million of the increase in gross profit, mainly reflecting revenue growth, plan to productivity efforts, and higher capacity utilization. Gross profit also benefited from improved results in the fruit-based segment. The negative impact to gross profit from the weather related shortfall in the fruit-based business was in line with our previous communication for the fourth quarter. We recognized a $4.4 million impact during the fourth quarter, and now anticipate $22 million to $23 million of total impact, slightly below the midpoint of the $20 million to $30 million range previously communicated. To date, we have incurred $17.7 million of costs, and anticipate approximately $4 million to $5 million in the first half of 2020. The majority of this impact will fall in Q1, as we sell through fruit that was more costly to produce in 2019. The gross profit growth in the plant and fruit-based segments during the fourth quarter of 2019 was partially offset by decreased gross profit within the global ingredients segment of $2.5 million, of which $1.6 million was related to the corn and soy business sold in early 2019. The remaining $0.9 million was primarily driven by the revenue headwinds Joe touched on in his comments. As a percentage of revenues, fourth quarter gross margin was 11.3% compared to…

[Operator Instructions] Your first question comes from the line of Jon Andersen with William Blair. Your line is now open.

Good morning. I guess I wanted to start with the new plant-based food and beverage segment and specifically within that, the growth that you saw in the quarter 25, mid-20 growth, I think on an adjusted basis was actually a little stronger than that. And I'm hoping you can give us a little bit more color on the drivers of that growth, distribution, what kind of velocity improvements you're seeing shelf and maybe a little bit more color around how much beverages is contributing to that, how much broth is contributing that just so we get a little bit better sense of how you arrived at that, because it's a terrific number obviously.

Great. John. So the 25% revenue growth was- the majority of the growth was on the plant-based beverage side versus broth. So that was the last part of your question was the balance between plant-based beverage and broth. The majority of the growth was in plant-based beverages. Relative to where the growth is coming from, it’s great to say it's coming across the board, it's coming from existing customers. It's coming from new customers. It's coming from new items and it's coming from growth and existing items. So we're seeing literally growth in every single dimension and every single cut of the business.

Great. And that volume growth obviously drove a significant step up in your margins in that segment during the quarter. Could you talk a little bit about where you are with respect to beverage capacity assuming you're expecting strong growth in that part of the business to continue in 2020 again, where are you from a capacity standpoint today on beverages and is there additional CapEx or investment required in square footage or lines, as we look forward?

So from a capacity standpoint, we have the capacity in 2022 to deliver a similar growth rate to what we delivered in 2019 full year, and the additional capacity expansion that we just announced. Those three projects in aggregate, we'll certainly give us line of sight to continued growth into 2021 in 2022.

Could you talk a little bit more about the three projects, I think one is focused more on extraction, the other two you mentioned today, I don't think you mentioned the focus of those specifically, but I would like to understand a little bit more if you could just revisit the extraction capacity, the spending and what you anticipate that extraction capacity - what spectrum allow you to do, how big is that market opportunity for you once that's in place? And then, a little bit more color around what these two other projects are, it would be helpful.

Sure. So on the extraction side and just to give a little bit of color from a process standpoint, what exactly that is. So that is the first stage of making a plant-based beverage, where you start with- literally start with the grains, whether it's oats or soy, and you create an enzymatic reaction that separates the soluble and insoluble components of the grain, to which then you can add water and create a viscosity that is a pleasant beverage. That extraction capability for us is a significant revenue driver and margin driver. We see that as potentially a $40 million to $50 million business. The other two projects that we announced are more in the processing and filling of the core business, the core filling and processing side of the business.

Okay, that's super helpful. Just so I understand then, on the extraction side, when will that capacity be in place, when will you begin to commercialize that product and where is that done? Is that done in one of the three facilities, aseptic facilities that you own right now or is this a separate location?

So that project is in Alexandria, Minnesota and it comes online mid-Q4, start production has made Q4. So we would not expect a significant revenue bump in the fourth quarter from that but start-up is in the fourth quarter and we are on track for that project.

Terrific. And then the other two projects would be in place by the end of the year, presumably helping you support growth in 2021.

Exactly.

Okay. I hope I'm not overdoing it, I'm going to ask quite a few questions here. I'm not sure how many people you have in the queue, but if you need to stop me, stop me. So, on broth, just sticking with plant-based, so broth it sounds like your execution in broth was good through the holiday season. Where does that business sit today in your minds on, on a run rate basis and how much, as your last year, the introduction of raw through your entry into the category, where does that business go from here? Does that continue to grow at a double-digit rate, is it moderate from here with better margins? Just talk about that part of the business.

I mean, we're happy with the margins on the broth business. They're not quite as strong as the plant-based beverage side of things, but we're certainly happy with them. And yes, we will continue to be aggressive in in the broth space that provides a nice kind of seasonality add to the plants, that allows us to get great capacity utilization across the year and is a nice tuck-in, if you will, from an overall capacity standpoint. And our focus is really on driving plant-based beverages as the core of the business, but the broth business provides a nice capacity addition and tuck-in, which allows us to be incredibly price-competitive across the whole landscape of products that we produce.

Okay. Shifting over to fruit-based foods for a minute. Encouraged by the commentary you had that a margin effort is kind of on track at this point. Can you remind us, gross margins were up slightly which was as planned this quarter, how should we think about the progression sitting here today, what you know today, the progression of gross margin in that fruit segment as you move through 2020? Because I know there is the possibility of sub-step changes as you work through the higher cost fruit from last year, and hopefully start to the dip into some of the benefits of the automation et cetera associated with the new harvest. So could you give us your thoughts on the cadence of gross margin improvement from here in that business?

So, where we sit today, we mentioned that we had a slight positive gross margin in frozen fruit and it is our goal to exit the year in the double digits range. And so, you can just think about sort of bridging from low single digits towards the ten. We feel like certainly within the components of the fruit business that we control specifically, the conversion components and building out grower relations et cetera, that we feel like we're in a good shape. Obviously, we're sitting here today in February and the heart of the California season is May, June, July. And so, with what we know today, we're feeling cautiously optimistic, but we're not in the season. But our prep work, the automation we've installed are real significant, will be very significant contributors to our ability to drive margin and all of that automation has been installed. It's been tested and we are very encouraged by the test results that we saw from the pilot testing, if you will.

Okay. And you recently put a new GM in place over - I think over the fruit business. Can you talk about why and - why that individual, just - you know, why that change and what this individual brings to the table?

Sure. He was someone who we moved over from the trodden side of the business and has spent basically a decade and a half on the fruit business from a global commodity trading standpoint. So he brings just an incredible wealth of knowledge into the agriculture side of the business, the grower side of the business, global pricing, price competition and really has been a great help to us in understanding the global marketplace, global pricing and the agriculture side of the business.

The one large foodservice customer that you referenced that really drove the decline in the top line in fruit, is that a customer loss that is ongoing or was it more of a timing issue? How should we think about that impacting the fruit business going forward?

It's behind us. So there is no significant overlap in 2020 on that business. It's a very lumpy order pattern and it's basically behind us.

Great. Okay, thanks. Last one for me. I know you had a good announcement around the balance sheet and extending and redoing the facility. What is your roadmap as you think about at a high level? What should we be expecting from a debt refinancing perspective at this point? If you've done what you wanted to do for the time being and then when maybe would you look at addressing the second lien? Thanks.

John, it's Scott. Good morning. I think we've done what we wanted to do to answer that part of the question. The way I think about this is the second lien notes are 11 quarters out and so pragmatically that really leaves us with seven quarters to address that instrument. I think the focus across 2020 is to continue to improve the business and drive EBITDA.

Great, thank you so much for the questions. Appreciate it and good luck going forward.

Thank you.

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

Hi, good morning. All right. A lot of my questions are answered but now there's these three segments. Can you give us an idea of what your longer-term gross margin and EBITDA margin goals are for each of those three segments?

Sure. I think as you think about each of the segments, I think the outlook is pretty consistent with what we've previously shared. The Global Ingredients business, I think the margin targets there are low teens. Joe has commented on what we're trying to do with the other fruit business. We're obviously trying to recover the profitability of that business exiting 2020 in the low double-digit category and obviously very, very pleased with what we've seen in the plant-based segment. I would say that the margin print there is pretty indicative of what we'd expect at a go-forward basis.

All right. Then just two more questions. In the broth category, can you talk a little bit about the market? I believe there is some signs that it's always been kind of a bold category that wasn't growing that much but you're going to hopefully gain some share. Has that category actually been growing more?

Believe it or not, that category has been growing double digits for the last several years. We think one of the main drivers of that has been the instant pot. Believe it or not, where I think it was the number one gifted item this Christmas and basically every recipe for an instant pot requires a couple of two of chicken broth, beef broth or vegetable broth and so we have seen pretty significant growth in what you would kind of otherwise think of as a fairly sleepy category. The second consumer driver of that category is interest in bone broth. There has been a lot of movement and consumer interest in bone broth and nutrition benefits of that and so the category has also seen renewed consumer interest driven by the nutrition profiles in bone broth.

All right. Last question, I know you talk a lot about- in the plant-based area, a lot about oatmeal being a big category in the last couple of years. Are there any other maybe early-stage emerging categories for something that we should keep our eyes open for that maybe could start to become meaningful and a couple of years?

A little bit of category landscape, soy and almond milk are by far the big drivers of category volume. Oat is really from an overall market share within plant-based beverages is really the explosive growth, so there's been a lot written about it and we've certainly talked about it but from oat as a market share percentage in the category, there is volumes and volumes of share left to go for oat. So we would really see oat as the answer to your question. There is tremendous runway left in that. If there is anything we see glimmering on the horizon, it might be hemp milk but that would be probably a half a decade away.

All right. I got it. That's all I got. Thank you.

Okay, thank you.

This concludes today's question-and-answer session. I'd like to turn the call back to Mr. Ennen for closing remarks.

Great, well thank you all for participating in our fourth quarter call. Look forward to speaking to you in the future and appreciate your interest and support in Sunopta. Have a great day.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.