SunOpta (STKL) - 2024 Q1 - Quarterly Results

Executive Summary & Highlights SunOpta reported strong Q1 2024 results with significant revenue growth, improved profitability, and an increased fiscal year outlook First Quarter 2024 Performance Overview SunOpta reported strong Q1 2024 results, with revenue from continuing operations increasing 18% to $182.8 million, earnings turning positive to $3.8 million, and Adjusted EBITDA rising 21% to $22.6 million | Metric | Q1 2024 | Q1 2023 | Change (YoY) | | :-------------------------------- | :-------- | :-------- | :----------- | | Revenue from continuing operations | $182.8M | $155.0M | +18% | | Earnings from continuing operations | $3.8M | -$2.8M | Turnaround | | Adjusted EBITDA from continuing operations | $22.6M | $18.7M | +21% | CEO Commentary CEO Brian Kocher highlighted excellent broad-based revenue growth, driven by capacity investments and operational improvements, leading to an increased 2024 outlook - Excellent revenue growth across products, customers, and channels, driven by healthy, broad-based demand[6] - Progress in capacity investments and operational improvement initiatives supporting significant volume growth and gross margin improvement[6] - Increased 2024 outlook based on strong Q1 results, operational excellence, robust pipeline, and business momentum[6] First Quarter 2024 Financial Results This section details SunOpta's first-quarter 2024 financial performance, including revenue, profitability, earnings, and Adjusted EBITDA analysis Revenue Analysis Revenues increased 18.0% to $182.8 million, primarily driven by a 23.5% favorable volume/mix impact, partially offset by price reductions and the exit of the smoothie bowls category | Metric | Q1 2024 | Q1 2023 | Change (YoY) | | :----- | :-------- | :-------- | :----------- | | Revenues | $182.8M | $155.0M | +18.0% | - Revenue increase driven by 23.5% favorable volume/mix impact, partially offset by 5.0% price reduction due to commodity pass-throughs and 0.6% from smoothie bowls exit[7] - Volume growth observed in oat milks, creamers, protein shakes, broths, teas, and fruit snacks[7] Profitability Gross profit increased to $31.7 million with a 17.4% margin, while operating income significantly improved to $10.2 million, despite a decrease in adjusted gross margin due to depreciation and reserves | Metric | Q1 2024 | Q1 2023 | Change (YoY) | | :-------------------- | :-------- | :-------- | :----------- | | Gross Profit | $31.7M | $24.1M | +31.8% | | Gross Profit Margin | 17.4% | 15.5% | +1.9 pp | | Operating Income | $10.2M | $0.5M | +$9.7M | | Operating Income Margin | 5.6% | 0.3% | +5.3 pp | - Adjusted gross margin decreased by 180 basis points to 17.5% due to incremental depreciation of new production equipment and higher inventory reserves, partially offset by favorable plant utilization[9] Earnings Performance Earnings from continuing operations turned positive to $3.8 million, with diluted EPS at $0.03, despite a loss from discontinued operations, while adjusted earnings slightly increased to $1.9 million | Metric | Q1 2024 | Q1 2023 | Change (YoY) | | :------------------------------------------------ | :-------- | :-------- | :----------- | | Earnings (loss) from continuing operations | $3.8M | -$2.8M | Turnaround | | Diluted EPS from continuing operations | $0.03 | -$0.03 | Turnaround | | Loss (earnings) from discontinued operations | -$1.4M | $4.2M | -$5.6M | | Adjusted earnings from continuing operations | $1.9M | $1.8M | +$0.1M | Adjusted EBITDA Adjusted EBITDA from continuing operations increased by 20.8% to $22.6 million, representing 12.3% of revenues, up from $18.7 million (12.0% of revenues) in the prior year period | Metric | Q1 2024 | Q1 2023 | Change (YoY) | | :--------------------------------------- | :-------- | :-------- | :----------- | | Adjusted EBITDA from continuing operations | $22.6M | $18.7M | +20.8% | | Adjusted EBITDA Margin | 12.3% | 12.0% | +0.3 pp | Balance Sheet and Cash Flow Total assets stood at $671.8 million and total debt at $258.8 million, with operating cash flow increasing to $7.4 million and investing activities significantly reduced to $4.2 million | Metric | March 30, 2024 | Dec 30, 2023 | | :------------------------------------ | :------------- | :------------- | | Total Assets | $671.8M | $669.4M | | Total Debt | $258.8M | $263.2M | - Cash provided by operating activities of continuing operations increased to $7.4 million (Q1 2024) from $6.7 million (Q1 2023), mainly due to higher operating income[14] - Cash consumed by investing activities of continuing operations decreased significantly to $4.2 million (Q1 2024) from $25.4 million (Q1 2023), reflecting completion of major capital projects (e.g., Midlothian facility) and $3.3 million from smoothie bowls sale[14] 2024 Outlook SunOpta is raising its fiscal 2024 outlook, now expecting revenue between $685-$715 million and Adjusted EBITDA between $88-$92 million, reflecting stronger growth projections | Metric | Prior Outlook (millions) | Revised Outlook (millions) | | :-------------------------------- | :----------------------- | :----------------------- | | Revenue | $670 - $700 | $685 - $715 | | Adj. EBITDA from continuing operations | $87 - $92 | $88 - $92 | | Revenue growth | 6% - 11% | 9% - 13% | | Adj. EBITDA from continuing operations growth | 11% - 17% | 12% - 17% | Company Overview SunOpta Inc. is an innovative and sustainable manufacturer specializing in organic, plant-based products, serving various channels and producing its own brands - SunOpta is an innovative and sustainable manufacturer of organic, plant-based beverages, fruit snacks, nutritional beverages, broths, and tea products[18] - Products are sold through retail, club, foodservice, and e-commerce channels, serving leading brands, retailers, and coffee shops[18] - Company also produces its own brands: Sown, Dream, and West Life[18] Non-GAAP Financial Measures This section defines SunOpta's non-GAAP financial measures and provides reconciliations for adjusted gross margin, adjusted earnings, and Adjusted EBITDA Definition and Exclusions SunOpta uses non-GAAP measures to provide consistent performance comparisons by excluding items not indicative of operating performance, such as acquisition costs, start-up costs, and restructuring charges - Non-GAAP measures (adjusted gross margin, adjusted earnings, Adjusted EBITDA) are used to provide consistent performance comparison by excluding items not indicative of operating performance[25][28] - Excluded items may include acquisition/divestiture costs, start-up costs of new facilities, restructuring charges, asset impairment charges, legal settlements, and related tax effects[17][19] Adjusted Gross Margin Reconciliation Q1 2024 reported gross margin was 17.4%, adjusted to 17.5% after accounting for 0.2% in start-up costs related to plant expansions | For the quarter ended | March 30, 2024 | April 1, 2023 | | :-------------------- | :------------- | :------------ | | Reported gross margin | 17.4% | 15.5% | | Start-up costs | 0.2% | 3.7% | | Adjusted gross margin | 17.5% | 19.3% | - Q1 2024 start-up costs (0.2%) related to the ramp-up of a third line at the Midlothian plant and expansion at the Modesto facility[27] Adjusted Earnings and Adjusted EBITDA Reconciliation Adjusted earnings from continuing operations for Q1 2024 were $1.9 million, primarily adjusted by excluding a $1.8 million gain on sale and adding back $0.3 million in start-up costs, leading to an Adjusted EBITDA of $22.6 million | For the quarter ended | March 30, 2024 | April 1, 2023 | | :------------------------------------------------ | :------------- | :------------ | | Earnings (loss) from continuing operations | $3,837 | -$2,827 | | Adjusted earnings from continuing operations | $1,931 | $1,794 | | Adjusted EBITDA from continuing operations | $22,566 | $18,673 | - Key adjustments for Q1 2024 included a $1.8 million gain on sale of smoothie bowls product line (excluded) and $0.3 million in start-up costs (added back)[30][31] Additional Information This section provides details on the conference call, forward-looking statements disclaimer, and company contacts Conference Call Details SunOpta hosted a conference call on May 8, 2024, at 5:30 P.M. Eastern time to discuss the first quarter financial results, with a live webcast available on their website and a replay archived for approximately 90 days - Conference call held on May 8, 2024, at 5:30 P.M. ET to discuss Q1 financial results[16] - Live webcast accessible via SunOpta's investor relations website; replay available for ~90 days[16] Forward-Looking Statements Disclaimer This section contains forward-looking statements about fiscal 2024 financial performance, subject to various risks and uncertainties, with no obligation for the company to update them - Forward-looking statements include expectations for strong growth in revenue and Adjusted EBITDA from continuing operations for fiscal 2024[20] - Statements are based on estimates and assumptions, subject to risks such as supply chain disruptions, customer demand changes, commodity pricing, and operational issues[20] - Company undertakes no obligation to publicly correct or update forward-looking statements, except as required by law[20] Contacts Contact information for investor relations and media relations is provided - Investor Relations: Reed Anderson, ICR, 646-277-1260, investors@sunopta.com[21] - Media Relations: Claudine Galloway, SunOpta, 952-295-9579, press.inquiries@sunopta.com[21] Consolidated Financial Statements This section presents the unaudited consolidated statements of operations, balance sheets, and cash flows for the specified periods Consolidated Statements of Operations Presents the unaudited consolidated statements of operations for the quarters ended March 30, 2024, and April 1, 2023, detailing revenues, costs, profits, and earnings per share Consolidated Statements of Operations (in thousands) | | Quarter ended | | :--- | :--- | | | March 30, 2024 | April 1, 2023 | | | $ | $ | | Revenues | 182,848 | 154,969 | | Cost of goods sold | 151,101 | 130,890 | | Gross profit | 31,747 | 24,079 | | Selling, general and administrative expenses | 22,988 | 23,069 | | Intangible asset amortization | 446 | 446 | | Other expense (income), net | (1,800) | 42 | | Foreign exchange gain | (51) | (11) | | Operating income | 10,164 | 533 | | Interest expense, net | 6,050 | 5,664 | | Earnings (loss) from continuing operations before income taxes | 4,114 | (5,131) | | Income tax expense (benefit) | 277 | (2,304) | | Earnings (loss) from continuing operations | 3,837 | (2,827) | | Earnings (loss) from discontinued operations | (1,417) | 4,204 | | Net earnings | 2,420 | 1,377 | | Dividends and accretion on preferred stock | (433) | (704) | | Earnings attributable to common shareholders | 1,987 | 673 | | Basic and diluted earnings (loss) per share | | | | Earnings (loss) from continuing operations | 0.03 | (0.03) | | Earnings (loss) from discontinued operations | (0.01) | 0.04 | | Earnings attributable to common shareholders | 0.02 | 0.01 | | Weighted-average common shares outstanding (000s) | | | | Basic | 116,033 | 110,014 | | Diluted | 117,558 | 110,014 | Consolidated Balance Sheets Presents the unaudited consolidated balance sheets as of March 30, 2024, and December 30, 2023, detailing assets, liabilities, and shareholders' equity Consolidated Balance Sheets (in thousands) | | March 30, 2024 | December 30, 2023 | | :--- | :--- | :--- | | | $ | $ | | ASSETS | | | | Current assets | | | | Cash and cash equivalents | 1,487 | 306 | | Accounts receivable | 67,823 | 64,862 | | Inventories | 92,000 | 83,215 | | Prepaid expenses and other current assets | 20,435 | 25,235 | | Income taxes recoverable | 4,070 | 4,717 | | Current assets held for sale | 2,542 | 5,910 | | Total current assets | 188,357 | 184,245 | | Restricted cash | 9,066 | 8,448 | | Property, plant and equipment, net | 317,084 | 319,898 | | Operating lease right-of-use assets | 106,667 | 105,919 | | Intangible assets, net | 21,415 | 21,861 | | Goodwill | 3,998 | 3,998 | | Other assets | 25,174 | 25,055 | | Total assets | 671,761 | 669,424 | | LIABILITIES | | | | Current liabilities | | | | Accounts payable and accrued liabilities | 95,900 | 96,650 | | Notes payable | 16,648 | 17,596 | | Current portion of long-term debt | 24,882 | 24,346 | | Current portion of operating lease liabilities | 16,403 | 15,808 | | Total current liabilities | 153,833 | 154,400 | | Long-term debt | 233,874 | 238,883 | | Operating lease liabilities | 100,500 | 100,102 | | Deferred income taxes | 378 | 505 | | Total liabilities | 488,585 | 493,890 | | Series B-1 preferred stock | 14,637 | 14,509 | | SHAREHOLDERS' EQUITY | | | | Common shares | 464,817 | 464,169 | | Additional paid-in capital | 32,413 | 27,534 | | Accumulated deficit | (330,700) | (332,687) | | Accumulated other comprehensive income | 2,009 | 2,009 | | Total shareholders' equity | 168,539 | 161,025 | | Total liabilities and shareholders' equity | 671,761 | 669,424 | Consolidated Statements of Cash Flows Presents the unaudited consolidated statements of cash flows for the quarters ended March 30, 2024, and April 1, 2023, detailing cash flows from operating, investing, and financing activities Consolidated Statements of Cash Flows (in thousands) | | | Quarter ended | | :--- | :--- | :--- | | | March 30, 2024 | April 1, 2023 | | | $ | $ | | CASH PROVIDED BY (USED IN) | | | | Operating activities | | | | Net earnings | 2,420 | 1,377 | | Earnings (loss) from discontinued operations | (1,417) | 4,204 | | Earnings (loss) from continuing operations | 3,837 | (2,827) | | Items not affecting cash: | | | | Depreciation and amortization | 8,576 | 7,050 | | Amortization of debt issuance costs | 229 | 407 | | Deferred income taxes | - | (4,850) | | Stock-based compensation | 5,299 | 3,892 | | Gain on sale of smoothie bowls product line | (1,800) | - | | Other | (97) | 603 | | Changes in operating assets and liabilities, net of divestitures | (8,642) | 2,389 | | Net cash provided by operating activities of continuing operations | 7,402 | 6,664 | | Net cash used in operating activities of discontinued operations | (2,133) | (2,797) | | Net cash provided by operating activities | 5,269 | 3,867 | | Investing activities | | | | Additions to property, plant and equipment | (7,548) | (25,395) | | Proceeds received from sale of smoothie bowls product line | 3,336 | - | | Net cash used in investing activities of continuing operations | (4,212) | (25,395) | | Net cash provided by (used in) investing activities of discontinued operations | 6,300 | (62) | | Net cash provided by (used in) investing activities | 2,088 | (25,457) | | Financing activities | | | | Increase in borrowings under revolving credit facilities | 250 | 5,573 | | Repayment of long-term debt | (4,782) | (9,899) | | Borrowings of long-term debt | - | 18,693 | | Proceeds from notes payable | 33,424 | 10,662 | | Repayment of notes payable | (34,373) | (5,433) | | Proceeds from the exercise of stock options and employee share purchases | 314 | 289 | | Payment of withholding taxes on stock-based awards | (86) | (249) | | Payment of cash dividends on preferred stock | (305) | (818) | | Payment of share issuance costs | - | (87) | | Net cash provided by (used in) financing activities of continuing operations | (5,558) | 18,731 | | Net cash provided by financing activities of discontinued operations | - | 3,090 | | Net cash provided by (used in) financing activities | (5,558) | 21,821 | | Increase in cash, cash equivalents and restricted cash in the period | 1,799 | 231 | | Cash, cash equivalents and restricted cash, beginning of the period | 8,754 | 679 | | Cash, cash equivalents and restricted cash, end of the period | 10,553 | 910 |