SunOpta Inc. (NASDAQ:STKL) Q1 2019 Earnings Conference Call May 8, 2019 9:00 AM ET Company Participants Joe Ennen - CEO Robert McKeracher - VP & CFO Conference Call Participants Amit Sharma - BMO Capital Markets Jon Andersen - William Blair & Company Chris Krueger - Lake Street Capital Markets Operator Good morning and welcome to SunOpta's First 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 ...

Financial Data and Key Metrics Changes - In Q4 2018, revenue was $320.5 million, a 9.6% increase as reported, but a 16% increase when excluding commodity-related pricing and foreign exchange impacts [43] - Adjusted EBITDA for Q4 2018 was $9.1 million, compared to $9.4 million in the prior year [54] - The company reported a loss attributable to common shareholders of $99 million or $1.13 per share, compared to a loss of $119.4 million or $1.38 per share in Q4 2017 [53] Business Line Data and Key Metrics Changes - Global Ingredients segment revenue grew 15.5%, with international organic ingredients sourcing up 17.1% and domestic raw material sourcing up 11.3% [16] - Consumer Products segment revenue increased by 16.3%, driven by 17.8% growth in Healthy Beverage and 17.3% growth in Healthy Fruit [16] - Healthy Snacks revenue grew 22.3% for the full year 2018, but was softer in Q4 due to seasonal factors [27] Market Data and Key Metrics Changes - Sales of frozen fruit into retail and food service channels were up 20% in dollars and 33% in volume compared to Q4 2017 [28] - The company experienced a significant increase in shipments for school lunch programs, contributing an estimated $7 million to $8 million in revenue in Q4 [78] Company Strategy and Development Direction - The company aims to be the most innovative provider of organic ingredients and Healthy Fruit solutions, aligning with consumer trends towards organic and non-GMO foods [5] - The top priority for 2019 is to drive long-term margin improvements through a fruit margin optimization plan [9] - The company is focused on operational efficiency and expansion, targeting $10 million in productivity-driven cost reductions in 2019 [40] Management's Comments on Operating Environment and Future Outlook - Management acknowledged that the performance of the Healthy Fruit business has not met expectations and emphasized the need for a change in leadership to accelerate sales and improve margins [68] - The company expects limited growth in adjusted EBITDA in the first three quarters of 2019, with improvements anticipated in the fourth quarter [62] - Management remains confident in the ability to generate sustainable growth and is focused on restoring profitability in the fruit business [20] Other Important Information - The company sold its North American specialty and organic soy and corn business for $66.5 million, allowing for a focus on areas with long-term growth potential [11] - The company recognized an $81.2 million noncash goodwill impairment related to frozen fruit operations in Q4 2018 [53] - Total debt at the end of Q4 2018 was $509.2 million, with expectations for cash interest expense of $30 million to $32 million in 2019 [57][58] Q&A Session Summary Question: Why was the former CEO David Colo let go? - Management indicated that overall results were the main factor, and the board believed it was time for a leadership change to better serve the company's goals [67] Question: Will operational metrics change with new leadership? - Management confirmed that while they are not as far along as desired, the focus remains on accelerating sales and generating increased gross margin and profit [68] Question: What are the headwinds affecting CPG margins? - Management noted that the biggest headwind is the fruit business, which has seen a significant decline in margins, impacting overall profitability [70] Question: Can you provide more detail on the fruit business performance? - Management highlighted that while revenue increased, volume growth outpaced revenue growth due to sales price reductions, with a significant seasonal program contributing to Q4 results [78] Question: What are the next steps for the fruit margin optimization plan? - Management outlined that the next steps include capital investments in automation and innovation to improve efficiency and restore profitability [82]