UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 2, 2022April 1, 2023

OR

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________to    to __________.

Commission file number: 001-34198

SUNOPTA INC.

(Exact name of registrant as specified in its charter)

CANADA

Not Applicable

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

7078 Shady Oak Road


Eden Prairie, Minnesota, 55344

(952) 820-2518

(Address of principal executive offices)

(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ☒Accelerated filer ☐
Non-accelerated filer ☐Smaller reporting company ☐
(Do not check if a smaller reporting company)Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.              ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐                            No ☒

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Shares

STKL

The Nasdaq Stock Market

Common Shares

SOY

The Toronto Stock Exchange

The number of the registrant's common shares outstanding as of AugustMay 5, 20222023 was 107,725,647.115,419,623.

SUNOPTA INC.

FORM 10-Q

For the Quarterly Period Ended July 2, 2022April 1, 2023

TABLE OF CONTENTS

PART I

FINANCIAL INFORMATION

Item 1.Financial Statements (unaudited)
 Consolidated Statements of Operations for the quarters ended April 1, 2023 and two quarters ended JulyApril 2, 2022 and July 3, 202165
 Consolidated Balance Sheets as at July 2, 2022April 1, 2023 and January 1,December 31, 202276
 Consolidated Statements of Shareholders' Equity as at and for the quarters ended April 1, 2023 and two quarters ended JulyApril 2, 2022 and July 3, 202187
 Consolidated Statements of Cash Flows for the quarters ended April 1, 2023 and two quarters ended JulyApril 2, 2022 and July 3, 2021108
 Notes to Consolidated Financial Statements119
 
Item 2Management's Discussion and Analysis of Financial Condition and Results of Operations2119
Item 3Quantitative and Qualitative Disclosures about Market Risk3931
Item 4Controls and Procedures3931

PART IIOTHER INFORMATION
Item 1PART IILegal ProceedingsOTHER INFORMATION
Item 141Legal Proceedings32
Item 1ARisk Factors4132
Item 6Exhibits4132

Basis of Presentation

Except where the context otherwise requires, all references in this Quarterly Report on Form 10-Q ("Form 10-Q") to the "Company," "SunOpta," "we," "us," "our" or similar words and phrases are to SunOpta Inc. and its subsidiaries, taken together.

In this report, all currency amounts presented are expressed in thousands of United States ("U.S.") dollars ("$"), except per share amounts, unless otherwise stated. Other amounts may be presented in thousands of Canadian dollars ("C$") and Mexican pesos ("M$").

Forward-Looking Statements

This Form 10-Q contains forward-looking statements that are based on management's current expectations and assumptions and involve a number of risks and uncertainties. Generally, forward-looking statements do not relate strictly to historical or current facts and are typically accompanied by words such as "anticipate," "estimate," "target," "intend," "project," "potential," "predict," "continue," "believe," "expect," "can," "could," "would," "should," "may," "might," "plan," "will," "budget," "forecast," the negatives of such terms, and words and phrases of similar impact. Forward-looking statementsimpact and include, but are not limited to, references to future financial and operating results, plans, objectives, expectations, and intentions; the direct and indirect effects of the current global macroeconomic environment, including supply chain and labor challenges, inflation, and rising interest rates, as well as potential impacts of the COVID-19 pandemic and the Russia-Ukraine war, and the extent of the effect of these events on our operational and financial performance in future periods; fluctuations in foreign currency exchange rates and commodity pricing, and general economic and political conditions globally and in the markets in which we do business; our plans and expectations regarding capital expansion projects, including our expectation that our Midlothian, Texas, facility will be operational in late 2022; our expectations regarding the future profitability of our plant-based and fruit-based businesses, including anticipated results of operations, revenue trends, and profitgross margin profiles; the expected impact of the inflationary cost environment on our business, including raw material, packaging, labor, energy, fuel and transportation costs; the expected impact of pricing actions on sales volumes and gross margins; the expected impact of cost containment measures and productivity initiatives; our expectations regarding customer demand, consumer preferences, competition, sales pricing, availability and pricing of raw material inputs, and timing and costscost to complete capital expansion projects; our ability to successfully execute on our capital investment plans, and the viability of those plans; the adequacy of internally generated funds and existing sources of liquidity, such as the availability of bank financing; the anticipated sufficiency of future cash flows to enable the payments of interest and repayment of debt, working capital needs, planned capital expenditures; and our ability to obtain additional financing or issue additional debt or equity securities; our intentions related to the potential sale of selected businesses, operations, or assets; our expectations regarding the sale of our Oxnard, California, frozen fruit processing facility, including timing to close and proceeds on sale; adequacy of existing sources of funds to meet financing needs, and availability of alternative financing sources; the outcome of litigation to which we may, from time to time, be a party;party; and other statements that are not historical facts. These forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are based on certain assumptions, expectations and analyses we make in light of our experience and our interpretation of current conditions, historical trends and expected future developments, as well as other factors that we believe are appropriate in the circumstances.

SUNOPTA INC.3July 2, 2022 Form 10-Q

Whether actual results and developments will be consistent with and meet our expectations and predictions is subject to many risks and uncertainties. Accordingly, there are important factors that could cause our actual results to differ materially from our expectations and predictions. We believe these factors include, but are not limited to, the following:

  • the impact of global macroeconomic conditions on our business and financial results;
  • product liability suits, recalls and threatened market withdrawals that may arise or be brought against us;
  • food safety concerns and instances of food-borne illnesses that could harm our business;
  • litigation and regulatory enforcement concerning marketing and labeling of food products;
  • significant food and health regulations to which we are subject;
  • ability to realize some or all of the anticipated benefitsuncertainties, including those set forth under Part I, Item 1A "Risk Factors" of our capital investment plans;
  • ability to successfully consummateAnnual Report on Form 10-K for the fiscal year ended December 31, 2022, under Item 1A. "Risk Factors" of this report, and achievein our other filings with the anticipated benefits from acquisitionsU.S. Securities and divestitures;
  • ability to obtain additional capital as required to achieve expected growth rates;
  • the potential for impairment charges for goodwill or other intangible assets;
  • the highly competitive industry in which we operate;
  • that our customers may choose not to buy products from us;
  • the potential loss of one or more key customers;
  • changes and difficulty in predicting consumer preferences;
  • our ability to effectively manage our supply chain;
  • volatility in the prices of raw materials, packaging, freight, fuel, and energy;
  • the availability of organic and non-genetically modified ingredients;
  • unfavorable growing and operating conditions due to adverse weather conditions;
  • an interruption at one or more of our manufacturing facilities;
  • technology failures that could disrupt our operations and negatively impact our business;
  • the potential for data breachesExchange Commission and the need to comply with data privacy and protection laws and regulations;Canadian Securities Administrators
  • the loss of service of our key executives;
  • labor shortages or increased labor costs;
  • technological innovation by our competitors;
  • ability to protect our intellectual property and proprietary rights;
  • changes in laws or regulations governing foreign trade or taxation;

SUNOPTA INC.43July 2, 2022April 1, 2023 Form 10-Q
  • agricultural policies that influence our operations;
  • substantial environmental regulation and policies to which we are subject;
  • new laws or regulations or changes in laws or regulations governing climate change;
  • fluctuations in exchange rates, interest rates and the prices of certain commodities; and
  • exposure to our foreign operations and suppliers.

All forward-looking statements made herein are qualified by these cautionary statements, and our actual results or the developments we anticipate may not be realized. Our forward-looking statements are based only on information currently available to us and speak only as of the date on which they are made. We do not undertake any obligation to publicly update our forward-looking statements, whether written or oral, after the date of this report for any reason, even if new information becomes available or other events occur in the future, except as may be required under applicable securities laws. The foregoing factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this report. For a more detailed discussion of the principal factors that could cause actual results to be materially different, you should read our risk factors in Item 1A, Risk Factors, included elsewhere in this report and our Annual Report on Form 10-K for the fiscal year ended January 1, 2022. Additional information about these factors and about the material factors or assumptions underlying such forward-looking statements may be found under Item 1A. "Risk Factors" of our Annual Report on Form 10-K for the fiscal year ended January 1, 2022, under Item 1A. "Risk Factors" of this report, and in our other filings with the U.S. Securities and Exchange Commission and the Canadian Securities Administrators.

SUNOPTA INC.54July 2, 2022April 1, 2023 Form 10-Q

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

SunOpta Inc.

Consolidated Statements of Operations


For the quarters ended April 1, 2023 and two quarters ended JulyApril 2, 2022 and July 3, 2021
(Unaudited)


(All dollar amounts expressed in thousands of U.S. dollars, except per share amounts)

   Quarter ended  Two quarters ended 
 July 2, 2022 July 3, 2021  July 2, 2022  July 3, 2021 
 $ $  $  $ 
Revenues (note 12)243,531 202,273  483,704  409,913 
Cost of goods sold208,633 175,937  420,815  353,588 
Gross profit34,898 26,336  62,889  56,325 
Selling, general and administrative expenses24,304 22,720  46,239  43,594 
Intangible asset amortization2,612 2,532  5,224  4,726 
Other expense, net (note 8)1,540 4,661  1,827  6,276 
Foreign exchange loss (gain)(127) (639)  (599)  197 
Earnings (loss) from continuing operations before the following6,569 (2,938) 10,198  1,532 
Interest expense, net3,132 1,631  5,662  3,291 
Earnings (loss) from continuing operations before income taxes3,437 (4,569) 4,536  (1,759)
Income tax expense (benefit)939 (3,651) 1,384  (2,513)
Earnings (loss) from continuing operations2,498 (918) 3,152  754 
Earnings (loss) from discontinued operations (note 11)(814) -  2,752  - 
Net earnings (loss)1,684 (918) 5,904  754 
Dividends and accretion on preferred stock (note 6)(760) (744) (1,515) (2,697)
Earnings (loss) attributable to common shareholders924 (1,662) 4,389  (1,943)
           
Basic and diluted earnings (loss) per share (note 9)          
From continuing operations0.02 (0.02) 0.02  (0.02)
From discontinued operations(0.01) -  0.03  - 
Basic and diluted earnings (loss) per share0.01 (0.02) 0.04  (0.02)
           
Weighted-average common shares outstanding (000s) (note 9)          
Basic107,622 105,676  107,510  100,898 
Diluted108,667 105,676  108,495  100,898 
  Quarter ended 
  April 1, 2023  April 2, 2022 
  $  $ 
       
Revenues (note 13) 223,880  240,173 
Cost of goods sold 195,677  211,817 
       
Gross profit 28,203  28,356 
Selling, general and administrative expenses 25,430  22,210 
Intangible asset amortization 2,446  2,612 
Other expense, net 35  287 
Foreign exchange gain (2,211) (472)
       
Earnings from continuing operations before the following 2,503  3,719 
Interest expense, net 5,812  2,530 
       
Earnings (loss) from continuing operations before income taxes (3,309) 1,189 
Income tax expense (benefit) (note 9) (4,686) 187 
       
Earnings from continuing operations 1,377  1,002 
Earnings from discontinued operations -  3,566 
       
Net earnings 1,377  4,568 
Dividends and accretion on preferred stock (note 7) (704) (755)
       
Earnings attributable to common shareholders 673  3,813 
       
Basic and diluted earnings per share (note 10)      
Earnings from continuing operations 0.01  0.00 
Earnings from discontinued operations -  0.03 
Earnings attributable to common shareholders(1) 0.01  0.04 
       
Weighted-average common shares outstanding (000s) (note 10)      
Basic 110,014  107,399 
Diluted 113,107  108,359 

(See accompanying notes(1) The sum of the individual per share amounts may not add due to consolidated financial statements)

SUNOPTA INC.

6

July 2, 2022 Form 10-Q
SunOpta Inc.

Consolidated Balance Sheets

As at July 2, 2022 and January 1, 2022
(Unaudited)

(All dollar amounts expressed in thousands of U.S. dollars)

  July 2, 2022  January 1, 2022 
  $  $ 
ASSETS      
Current assets      
Cash and cash equivalents 553  227 
Accounts receivable, net of allowance for credit losses of $902 and $889, respectively 83,804  84,702 
Inventories (note 2) 261,899  220,143 
Prepaid expenses and other current assets 17,493  16,638 
Income taxes recoverable 9,861  8,259 
Assets held for sale (note 3) 11,591  - 
Total current assets 385,201  329,969 
       
Property, plant and equipment, net 264,690  219,537 
Operating lease right-of-use assets (note 4) 40,990  47,245 
Intangible assets, net 143,216  148,440 
Goodwill 3,998  3,998 
Other assets 5,827  5,930 
Total assets 843,922  755,119 
       
LIABILITIES      
Current liabilities      
Accounts payable and accrued liabilities 143,102  121,430 
Income taxes payable 711  - 
Current portion of long-term debt (note 5) 23,055  9,760 
Current portion of operating lease liabilities (note 4) 9,933  12,203 
Total current liabilities 176,801  143,393 
       
Long-term debt (note 5) 273,493  214,843 
Operating lease liabilities (note 4) 37,084  39,028 
Long-term liabilities -  2,241 
Deferred income taxes 13,510  22,485 
Total liabilities 500,888  421,990 
       
Series B-1 preferred stock (note 6) 28,442  28,145 
       
SHAREHOLDERS' EQUITY      
Common shares, 0 par value, unlimited shares authorized,      
107,686,953 shares issued (January 1, 2022 - 107,359,826) 438,668  436,463 
Additional paid-in capital 26,254  23,240 
Accumulated deficit (151,693) (156,082)
Accumulated other comprehensive income 1,363  1,363 
Total shareholders' equity 314,592  304,984 
Total liabilities and shareholders' equity 843,922  755,119 

(See accompanying notes to consolidated financial statements)

SUNOPTA INC.

7

July 2, 2022 Form 10-Q
SunOpta Inc.

Consolidated Statements of Shareholders' Equity

As at and for the quarters ended July 2, 2022 and July 3, 2021
(Unaudited)

(All dollar amounts expressed in thousands of U.S. dollars)

              Accumulated    
              other    
        Additional  Accumulated  comprehensive    
  Common shares  paid-in capital  deficit  income  Total 
  000s  $  $  $  $  $ 
Balance at April 2, 2022 107,579  437,451  24,042  (152,617) 1,363  310,239 
Employee stock purchase plan 22  145  -  -  -  145 
Stock incentive plans 86  1,072  (876) -  -  196 
Withholding taxes on stock-based awards -  -  (882) -  -  (882)
Stock-based compensation -  -  3,970  -  -  3,970 
Net earnings -  -  -  1,684  -  1,684 
Dividends on preferred stock -  -  -  (609) -  (609)
Accretion on preferred stock -  -  -  (151) -  (151)
Balance at July 2, 2022 107,687  438,668  26,254  (151,693) 1,363  314,592 
                   
              Accumulated    
              other    
        Additional  Accumulated  comprehensive    
  Common shares  paid-in capital  deficit  income  Total 
  000s $  $  $  $  $  
Balance at April 3, 2021 103,612  418,822  33,340  (148,022) 1,363  305,503 
Share issuance costs -  (25) -  -  -  (25)
Employee stock purchase plan 18  207  -  -  -  207 
Stock incentive plans 3,496  16,421  (12,078) -  -  4,343 
Withholding taxes on stock-based awards -  -  (666) -  -  (666)
Stock-based compensation -  -  4,370  -  -  4,370 
Net loss -  -  -  (918) -  (918)
Dividends on preferred stock -  -  -  (609) -  (609)
Accretion on preferred stock -  -  -  (135) -  (135)
Balance at July 3, 2021 107,126  435,425  24,966  (149,684) 1,363  312,070 
SUNOPTA INC.

8

July 2, 2022 Form 10-Q

SunOpta Inc.

Consolidated Statements of Shareholders' Equity (continued)

As at and for the two quarters ended July 2, 2022 and July 3, 2021
(Unaudited)

(All dollar amounts expressed in thousands of U.S. dollars)

     Accumulated 
     other 
   AdditionalAccumulatedcomprehensive 
 Common sharespaid-in capitaldeficitincomeTotal
 000s$$$$$
Balance at January 1, 2022107,360436,46323,240(156,082)1,363304,984
Employee stock purchase plan53279---279
Stock incentive plans2741,926(1,614)--312
Withholding taxes on stock-based awards--(971)--(971)
Stock-based compensation--5,599--5,599
Net earnings---5,904-5,904
Dividends on preferred stock---(1,218)-(1,218)
Accretion on preferred stock---(297)-(297)
Balance at July 2, 2022107,687438,66826,254(151,693)1,363314,592
       
     Accumulated 
     other 
   AdditionalAccumulatedcomprehensive 
 Common sharespaid-in capitaldeficitincomeTotal
 000s$$$$$
Balance at January 2, 202190,194326,54537,862(147,741)1,363218,029
Exchange of Series A preferred stock, net of share issuance costs of $28712,63387,188---87,188
Employee stock purchase plan28333---333
Stock incentive plans4,27121,359(14,502)--6,857
Withholding taxes on stock-based awards--(6,737)--(6,737)
Stock-based compensation--8,343--8,343
Net earnings---754-754
Dividends on preferred stock---(2,260)-(2,260)
Accretion on preferred stock---(437)-(437)
Balance at July 3, 2021107,126435,42524,966(149,684)1,363312,070

(See accompanying notes to consolidated financial statements)

SUNOPTA INC.

9

July 2, 2022 Form 10-Q
SunOpta Inc.

Consolidated Statements of Cash Flows

For the quarters and two quarters ended July 2, 2022 and July 3, 2021
(Unaudited)

(Expressed in thousands of U.S. dollars)

 Quarter endedTwo quarters ended
 July 2, 2022July 3, 2021July 2, 2022July 3, 2021
 $$$$
CASH PROVIDED BY (USED IN)    
Operating activities    
Net earnings (loss)1,684(918)5,904754
Earnings (loss) from discontinued operations(814)-2,752-
Earnings (loss) from continuing operations2,498(918)3,152754
Items not affecting cash:    
Depreciation and amortization9,3728,91018,78516,953
Amortization of debt issuance costs396349771634
Deferred income taxes2,128(4,331)2,208(3,494)
Stock-based compensation3,9704,3705,5998,343
Impairment of long-lived assets (note 8)-2,962-2,962
Other1,634(167)1,745(336)
Changes in operating assets and liabilities (note 10)(22,452)(50,322)(19,171)(71,978)
Net cash provided by (used in) operating activities of continuing operations(2,454)(39,147)13,089(46,162)
Investing activities    
Additions to property, plant and equipment(37,038)(7,306)(62,760)(16,603)
Proceeds from sale of assets2,978-4,1821,350
Additions to intangible assets-(25,073)-(25,073)
Net cash used in investing activities of continuing operations(34,060)(32,379)(58,578)(40,326)
Net cash used in investing activities of discontinued operations(6,324)-(6,324)(13,380)
Net cash used in investing activities(40,384)(32,379)(64,902)(53,706)
Financing activities    
Increase in borrowings under revolving credit facilities (note 5)31,06770,24420,762111,829
Borrowings of long-term debt (note 4)18,2064,15541,1034,641
Repayment of long-term debt (note 4)(5,174)(5,855)(7,569)(9,940)
Payment of debt issuance costs(53)(543)(559)(2,371)
Proceeds from the exercise of stock options and employee share purchases3414,5505917,190
Payment of withholding taxes on stock-based awards(882)(666)(971)(6,737)
Payment of cash dividends on preferred stock (note 6)(609)(609)(1,218)(4,029)
Payment of share issuance costs-(25)-(287)
Net cash provided by financing activities of continuing operations42,89671,25152,139100,296
Net cash used in financing activities of discontinued operations---(200)
Net cash provided by financing activities42,89671,25152,139100,096
Increase (decrease) in cash and cash equivalents in the period58(275)326228
Cash and cash equivalent, beginning of the period495754227251
Cash and cash equivalents, end of the period553479553479

Non-cash investing and financing activities (notes 4 and 10)rounding.

(See accompanying notes to consolidated financial statements)

SUNOPTA INC.5April 1, 2023 Form 10-Q
SunOpta Inc.

Consolidated Balance Sheets
As at April 1, 2023 and December 31, 2022
(Unaudited)
(All dollar amounts expressed in thousands of U.S. dollars)

  April 1, 2023  December 31, 2022 
  $  $ 
       
ASSETS      
Current assets      
Cash and cash equivalents 910  679 
Accounts receivable, net of allowance for credit losses of $649 and $584, respectively 86,124  74,903 
Inventories (note 2) 200,557  207,047 
Prepaid expenses and other current assets 15,239  15,688 
Income taxes recoverable 3,896  4,040 
Total current assets 306,726  302,357 
       
Property, plant and equipment, net 339,529  322,391 
Operating lease right-of-use assets (note 3) 81,097  82,564 
Intangible assets, net 133,200  135,646 
Goodwill 3,998  3,998 
Deferred income taxes 8,562  3,712 
Other assets 5,013  5,184 
Total assets 878,125  855,852 
       
LIABILITIES      
Current liabilities      
Accounts payable and accrued liabilities (note 4) 112,944  108,511 
Notes payable (note 5) 5,229  — 
Income taxes payable 404  957 
Current portion of long-term debt (note 6) 43,807  38,491 
Current portion of operating lease liabilities (note 3) 13,199  13,074 
Total current liabilities 175,583  161,033 
       
Long-term debt (note 6) 282,371  269,993 
Operating lease liabilities (note 3) 76,670  77,557 
Total liabilities 534,624  508,583 
       
Series B-1 preferred stock (note 7) 14,147  28,062 
       
SHAREHOLDERS' EQUITY      
Common shares, no par value, unlimited shares authorized,
115,379,620 shares issued (December 31, 2022 - 107,909,792)		 461,132  440,348 
Additional paid-in capital 21,874  33,184 
Accumulated deficit (155,015) (155,688)
Accumulated other comprehensive income 1,363  1,363 
Total shareholders' equity 329,354  319,207 
Total liabilities and shareholders' equity 878,125  855,852 

(See accompanying notes to consolidated financial statements)

SUNOPTA INC.610April 1, 2023 Form 10-Q

SunOpta Inc.

Consolidated Statements of Shareholders' Equity
As at and for the quarters ended April 1, 2023 and April 2, 2022
(Unaudited)
(All dollar amounts expressed in thousands of U.S. dollars)

  Common shares  Additional
paid-in capital		  Accumulated
deficit		  Accumulated
other
comprehensive
income		  Total 
  000s  $  $  $  $  $ 
                   
Balance at December 31, 2022 107,910  440,348  33,184  (155,688) 1,363  319,207 
Exchange of Series B-1 preferred stock, net of share issuance costs of $87 (note 7) 6,089  14,019  -  -  -  14,019 
Employee stock purchase plan 25  160  -  -  -  160 
Stock incentive plan 1,356  6,605  (6,476) -  -  129 
Withholding taxes on stock-based awards -  -  (8,726) -  -  (8,726)
Stock-based compensation -  -  3,892  -  -  3,892 
Net earnings -  -  -  1,377  -  1,377 
Dividends on preferred stock -  -  -  (514) -  (514)
Accretion on preferred stock -  -  -  (190) -  (190)
Balance at April 1, 2023 115,380  461,132  21,874  (155,015) 1,363  329,354 
  Common shares  Additional
paid-in capital		  Accumulated
deficit		  Accumulated
other
comprehensive
income		  Total 
  000s  $  $  $  $  $ 
                   
Balance at January 1, 2022 107,360  436,463  23,240  (147,738) 1,363  313,328 
Employee stock purchase plan 31  134  -  -  -  134 
Stock incentive plan 188  854  (738) -  -  116 
Withholding taxes on stock-based awards -  -  (89) -  -  (89)
Stock-based compensation -  -  1,629  -  -  1,629 
Net earnings -  -  -  4,568  -  4,568 
Dividends on preferred stock -  -  -  (609) -  (609)
Accretion on preferred stock -  -  -  (146) -  (146)
Balance at April 2, 2022 107,579  437,451  24,042  (143,925) 1,363  318,931 

(See accompanying notes to consolidated financial statements)

SUNOPTA INC.July 2, 20227April 1, 2023 Form 10-Q
SunOpta Inc.

Consolidated Statements of Cash Flows
For the quarters ended April 1, 2023 and April 2, 2022
(Unaudited)
(Expressed in thousands of U.S. dollars)

  Quarter ended 
  April 1, 2023  April 2, 2022 
  $  $ 
       
CASH PROVIDED BY (USED IN)      
       
Operating activities      
Net earnings 1,377  4,568 
Earnings from discontinued operations -  3,566 
Earnings from continuing operations 1,377  1,002 
Items not affecting cash:      
Depreciation and amortization 9,998  9,413 
Amortization of debt issuance costs 407  375 
Deferred income taxes (4,850) (178)
Stock-based compensation 3,892  1,629 
Other 603  111 
Changes in operating assets and liabilities (note 11) (7,560) 3,191 
Net cash provided by operating activities of continuing operations 3,867  15,543 
       
Investing activities      
Additions to property, plant and equipment (25,842) (25,722)
Proceeds from sale of sunflower business (note 11) 385  - 
Proceeds from sale of property, plant and equipment -  1,204 
Net cash used in investing activities of continuing operations (25,457) (24,518)
       
Financing activities      
Increase (decrease) in borrowings under revolving credit facilities (note 6) 8,812  (10,305)
Borrowings of long-term debt (notes 3 and 6) 18,693  22,897 
Repayment of long-term debt (note 3) (10,048) (2,395)
Proceeds from notes payable (note 5) 10,662  - 
Repayment of notes payable (note 5) (5,433) - 
Proceeds from the exercise of stock options and employee share purchases 289  250 
Payment of withholding taxes on stock-based awards (249) (89)
Payment of cash dividends on preferred stock (note 7) (818) (609)
Payment of share issuance costs (87) - 
Payment of debt issuance costs -  (506)
Net cash provided by financing activities of continuing operations 21,821  9,243 
       
Increase in cash and cash equivalents in the period 231  268 
Cash and cash equivalent, beginning of the period 679  227 
Cash and cash equivalents, end of the period 910  495 
       
Non-cash investing and financing activities (notes 3 and 11)      

(See accompanying notes to consolidated financial statements)

SUNOPTA INC.8April 1, 2023 Form 10-Q

SunOpta Inc.

Notes to Consolidated Financial Statements


For the quarters ended April 1, 2023 and two quarters ended JulyApril 2, 2022 and July 3, 2021
(Unaudited)


(All tabular amounts expressed in thousands of U.S. dollars, except per share amounts)

1. Significant Accounting Policies

Basis of Presentation

These interim consolidated financial statements of SunOpta Inc. (the "Company" or "SunOpta") have been prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X promulgated under the Securities Exchange Act of 1934, as amended, and in accordance with United States ("U.S.") generally accepted accounting principles ("U.S. GAAP") for interim financial information. Accordingly, these condensed interim consolidated financial statements do not include all of the disclosures required by U.S. GAAP for annual financial statements. In the opinion of management, all adjustments considered necessary for fair presentation have been included and all such adjustments are of a normal, recurring nature. Operating results for the quarter and two quarters ended July 2, 2022April 1, 2023 are not necessarily indicative of the results that may be expected for the full fiscal year ending December 31, 202230, 2023 or for any other period. The interim consolidated financial statements include the accounts of the Company and its subsidiaries and have been prepared on a basis consistent with the annual consolidated financial statements for the year ended January 1,December 31, 2022. For further information, refer to the consolidated financial statements, and notes thereto, included in the Company's Annual Report on Form 10-K for the fiscal year ended January 1, 2022.

Fiscal YearDecember 31, 2022 (the "2022 Form 10-K").

As described in notes 1 and 23 to the consolidated financial statements included in the 2022 Form 10-K, certain amounts previously reported for the quarter ended April 2, 2022 have been revised.

Fiscal Year

The fiscal year of the Company consists of a 52- or 53-week period ending on the Saturday closest to December 31. Fiscal 2023 is a 52-week period ending on December 30, 2023, with quarterly periods ending on April 1, 2023, July 1, 2023 and September 30, 2023. Fiscal year 2022 iswas a 52-week period ending on December 31, 2022, with quarterly periods ending on April 2, 2022, July 2, 2022, and October 1, 2022. Fiscal year 2021 was a 52-week period ending on January 1, 2022, with quarterly periods ending on April 3, 2021, July 3, 2021, and October 2, 2021.

2. Inventories

 July 2, 2022 January 1, 2022  April 1, 2023 December 31, 2022 
 $ $  $ $ 
Raw materials and work-in-process 162,331  143,381  123,981  124,168 
Finished goods 107,791  81,546  84,527  90,381 
Inventory reserves (8,223) (4,784) (7,951) (7,502)
 261,899  220,143  200,557  207,047 

3. Assets Held for Sale

On July 6, 2022, the Company finalized an agreement to sell its frozen fruit processing facility located in Oxnard, California, for gross proceeds of $16.5 million, payable in cash on the closing of the transaction, which is expected to occur in the third quarter of 2022. As at July 2, 2022, the carrying value of the related property, plant and equipment assets of $11.6 million has been reclassified and reported as held for sale on the consolidated balance sheet. In the third quarter of 2022, the Company expects to recognize a pre-tax gain on the sale of the facility of approximately $4 million, net of estimated costs to sell.

4.3. Leases

The Company leases certain manufacturing plants, warehouses, offices, machinery and equipment, and vehicles. At the lease commencement date, the Company classifies a lease as a finance lease if it has the right to obtain substantially all of the economic benefits from the right-of-use assets, otherwise the lease is classified as an operating lease.

SUNOPTA INC.

119

July 2, 2022April 1, 2023 Form 10-Q

SunOpta Inc.

Notes to Consolidated Financial Statements

For the quarters ended April 1, 2023 and two quarters ended JulyApril 2, 2022 and July 3, 2021

(Unaudited)

(All tabular amounts expressed in thousands of U.S. dollars, except per share amounts)

The following tables present supplemental information related to leases:

  Quarter ended 
  April 1, 2023  April 2, 2022 
  $  $ 
Lease Costs      
Operating lease cost 3,410  3,211 
Finance lease cost:      
Depreciation of right-of-use assets 3,760  1,888 
Interest on lease liabilities 2,421  773 
Net lease cost 9,591  5,872 
  Quarter ended  Two quarters ended 
  July 2, 2022  July 3, 2021  July 2, 2022  July 3, 2021 
  $  $  $  $ 
Lease Costs            
Operating lease cost 3,093  3,180  6,304  6,752 
Finance lease cost:            
Depreciation of right-of-use assets 2,677  1,556  4,565  2,811 
Interest on lease liabilities 1,052  806  1,825  1,240 
Sublease income -  (153) -  (281)
Net lease cost 6,822  5,389  12,694  10,522 
  April 1, 2023  December 31, 2022 
  $  $ 
Balance Sheet Classification      
Operating leases:      
Operating lease right-of-use assets 81,097  82,564 
       
Current portion of operating lease liabilities 13,199  13,074 
Operating lease liabilities 76,670  77,557 
Total operating lease liabilities 89,869  90,631 
       
Finance leases:      
Property, plant and equipment, gross 168,663  157,801 
Accumulated depreciation (24,254) (20,494)
Property, plant and equipment, net 144,409  137,307 
       
Current portion of long-term debt 35,756  33,283 
Long-term debt 84,361  90,796 
Total finance lease liabilities 120,117  124,079 
 
  Quarter ended 
  April 1, 2023  April 2, 2022 
  $  $ 
Cash Flow Information      
Cash paid (received) for amounts included in measurement of lease liabilities:      
Operating cash flows from operating leases 3,405  3,082 
Operating cash flows from finance leases 2,421  773 
Financing cash flows from finance leases:      
Cash paid under finance leases(1) 9,369  2,394 
Cash received under finance leases(2) (5,407) (18,723)
       
Right-of-use assets obtained in exchange for lease liabilities:      
Operating leases 226  399 
Finance leases -  14,680 
       
Right-of-use assets and liabilities reduced through lease terminations or modifications:      
Operating leases -  (1,949)
  July 2, 2022  January 1, 2022 
  $  $ 
Balance Sheet Classification      
Operating leases:      
Operating lease right-of-use assets 40,990  47,245 
Current portion of operating lease liabilities 9,933  12,203 
Operating lease liabilities 37,084  39,028 
Total operating lease liabilities 47,017  51,231 
       
Finance leases:      
Property, plant and equipment, gross 116,764  66,060 
Accumulated depreciation (14,912) (10,348)
Property, plant and equipment, net 101,852  55,712 
Current portion of long-term debt 22,114  9,760 
Long-term debt 73,815  43,034 
Total finance lease liabilities 95,929  52,794 
     Quarter ended  Two quarters ended 
  July 2, 2022  July 3, 2021  July 2, 2022  July 3, 2021 
  $  $  $  $ 
Cash Flow Information            
Cash paid (received) for amounts included in measurement of lease liabilities:            
Operating cash flows from operating leases 2,963  3,207  6,045  6,952 
Operating cash flows from finance leases 1,052  898  1,825  1,425 
Financing cash flows from finance leases:            
Cash paid under finance leases(1) 5,175  1,907  7,569  5,253 
Cash received under finance leases(2) (14,554) -  (33,277) - 
             
Right-of-use assets obtained in exchange for lease liabilities:            
Operating leases 317  16,275  716  17,289 
Finance leases 2,746  -  17,426  29,906 
             
Right-of-use assets and liabilities reduced through lease            
terminations or modifications:            
Operating leases -  -  (1,949) - 
Finance leases -  -  -  (686)
SUNOPTA INC.

1210

July 2, 2022April 1, 2023 Form 10-Q

SunOpta Inc.

Notes to Consolidated Financial Statements

For the quarters ended April 1, 2023 and two quarters ended JulyApril 2, 2022 and July 3, 2021

(Unaudited)

(All tabular amounts expressed in thousands of U.S. dollars, except per share amounts)

(1) Represents repayments under finance leases recorded as a reduction of the lease liability and reported in repayment of long-term debt on the consolidated statements of cash flows.

(2) Represents cash advances received by the Company under finance leases related tofor the construction of right-of-use assets controlled by the Company, which related to the buildout of the Company's new plant-based beverage facility in Midlothian, Texas, in the first quarters of 2023 and 2022, as well as cash proceedsthe buildout of the Company's executive office and innovation center located in Eden Prairie, Minnesota, in the first quarter of 2022. Cash received under sale and leaseback transactions accounted for as financings, which arefinance leases is reported in borrowings of long-term debt on the consolidated statements of cash flows.

  April 1, 2023  December 31, 2022 
Other Information      
Weighted-average remaining lease term (years):      
Operating leases 12.6  12.8 
Finance leases 3.5  3.5 
       
Weighted-average discount rate:      
Operating leases 8.7%  8.7% 
Finance leases 8.2%  8.2% 
  July 2, 2022  January 1, 2022 
Other Information      
Weighted-average remaining lease term (years):      
Operating leases 7.6  7.4 
Finance leases 3.4  4.3 
       
Weighted-average discount rate:      
Operating leases 5.0%  5.0% 
Finance leases 7.5%  6.6% 

  Operating leases  Finance leases 
  $  $ 
Maturities of Lease Liabilities      
Remainder of 2022 5,054  12,628 
2023 10,185  29,173 
2024 8,312  29,109 
2025 6,290  26,881 
2026 5,247  13,539 
Thereafter 21,643  492 
Total lease payments 56,731  111,822 
Less: imputed interest (9,714) (15,893)
Total lease liabilities 47,017  95,929 
  Operating leases  Finance leases 
  $  $ 
Maturities of Lease Liabilities      
Remainder of 2023 10,326  29,259 
2024 12,461  43,851 
2025 11,679  37,851 
2026 10,754  24,900 
2027 9,727  3,566 
Thereafter 152,740  - 
Total lease payments 207,687  139,427 
Less: imputed interest (117,818) (19,310)
Total lease liabilities 89,869  120,117 
5. Long-Term Debt
  July 2, 2022  January 1, 2022 
  $  $ 
Asset-based credit facilities:      
Revolving credit facilities 176,715  153,293 
Term loan facility 19,432  11,606 
Total asset-based credit facilities 196,147  164,899 
Finance lease liabilities (see note 4) 95,929  52,794 
Other 4,472  6,910 
Total debt 296,548  224,603 
Less: current portion 23,055  9,760 
Total long-term debt 273,493  214,843 

Asset-Based Credit Facilities4. Accounts Payable

The Company is party to a supplier finance program with a third-party financial institution, which is offered to certain of the Company's major suppliers. Under this arrangement, the Company agrees with a supplier on the contractual payment terms for the goods the Company procures regardless of whether the supplier elects to participate in the program. If a supplier does participate in the program, the supplier determines, at its own discretion, which invoices, if any, it wants to sell to the financial institution in order to be paid earlier than the contractual payment terms provide. A supplier's voluntary inclusion of an invoice in the program has no bearing on the Company's payment terms, which remain the original due date of the supplier invoice, or the amounts it pays the financial institution, and the Company has no economic interest in a supplier's decision to participate in the program. In addition, the Company has not pledged any assets to the financial institution as it relates to the program. Amounts due to suppliers that elected to participate in the program are included in accounts payable and accrued liabilities on the Company's consolidated balance sheets. As at April 1, 2023, the Company had outstanding payment obligations to these suppliers of $19.6 million confirmed under the program. Payments of obligations associated with the program are reported as operating cash flows on the Company's consolidated statements of cash flows.

5. Notes Payable

Commencing in the first quarter of 2023, the Company is financing certain purchases of trade goods and services through a third-party extended payables facility. Under this facility, a third-party intermediary advances the amount of the scheduled payment to the supplier based on the invoice due date and issues a short-term note payable to the Company for the face amount of the supplier invoice. Interest accrues on the note payable from the contractual payment date of the supplier invoice to the extended due date of the note payable, as specified by the negotiated terms of the facility. The Company does not maintain any form of security with the third-party intermediary. As at April 1, 2023, the Company had outstanding principal payment obligations to the third-party intermediary of $5.2 million, which is recorded as notes payable on the Company’s consolidated balance sheet. Proceeds from, and repayments of the notes payable associated with this facility are reported as financing cash flows on the Company’s consolidated statements of cash flows.

SUNOPTA INC.

11

April 1, 2023 Form 10-Q

SunOpta Inc.

Notes to Consolidated Financial Statements

For the quarters ended April 1, 2023 and April 2, 2022

(Unaudited)

(All tabular amounts expressed in thousands of U.S. dollars, except per share amounts)

6. Long-Term Debt

  April 1, 2023  December 31, 2022 
  $  $ 
Asset-based credit facilities:      
Revolving credit facilities 142,921  137,253 
Term loan facility 56,356  43,748 
Total asset-based credit facilities 199,277  181,001 
Finance lease liabilities (see note 3) 120,117  124,079 
Other 6,784  3,404 
Total debt 326,178  308,484 
Less: current portion 43,807  38,491 
Total long-term debt 282,371  269,993 

Asset-Based Credit Facilities

On December 31, 2020, the Company entered into a Second Amended and Restated Credit Agreement (the "Credit Agreement"), as amended by the First Amendment, dated as of April 15, 2021, the Second Amendment, dated as of July 2, 2021, and the Third Amendment, dated as of February 25, 2022, and the Fourth Amendment, dated as of September 2, 2022, among the Company, SunOpta Foods Inc. ("SunOpta Foods"), the other borrowers and guarantors party thereto, and the lenders party thereto (the "Lenders"). As part of the Credit Agreement, the Lenders provided a five-year, $230 million asset-based revolving credit facility, subject to borrowing base capacity (the "Tranche A Subfacility"), a two-year, $20 million first-in-last-out tranche, subject to a separate borrowing base applicable to certain eligible accounts receivable and inventory with advance rates separate from the Tranche A Subfacility (the "Tranche B Subfacility", and together with the Tranche A Subfacility, the "Revolving Credit Facilities"), and a five-year, up to $75 million delayed draw term loan facility which cancould be used for borrowings on or prior to March 31, 2023 (the "Term Loan Facility," and together with the Revolving Credit Facilities, the "Asset-Based Credit Facilities"), to finance certain capital expenditures. The Tranche A Subfacility includes borrowing capacity for letters of credit and provides for borrowings on same-day notice, including in the form of swingline loans.

SUNOPTA INC.

13

July 2, 2022 Form 10-Q

SunOpta Inc.

Notes to Consolidated Financial Statements

For the quarters and two quarters ended July 2, 2022 and July 3, 2021

(Unaudited)
(All tabular amounts expressed in thousands of U.S. dollars, except per share amounts)

The Tranche A Subfacility and Term Loan Facility mature on December 31, 2025. Commencing in March 2023, the Term Loan Facility is repayable in monthly installments equal to 1/84th of the then-outstanding principal amount of the Term Loan Facility outstanding as at March 31, 2023, with the remaining amount payable at the maturity thereof. The Tranche B Subfacility matures on April 15, 2024, with amortization payments of $2.5 million, payable at the end of each fiscal quarter, commencing with the fiscalfirst quarter ending March 31,of 2023, with the remaining amount payable at the maturity thereof. Each repayment of Tranche B Subfacility loans will resultresults in an increase of the Lenders' commitments under the Tranche A Subfacility, provided that such increases will not cause the aggregate Lenders' commitments under the Tranche A Subfacility to exceed $250 million.

Borrowings under the Asset-Based Credit Facilities bear interest based on various reference rates, including the Secured Overnight Financing Rate, plus applicable margins, which are set quarterly based on average borrowing availability for the preceding fiscal quarter. For the two quartersquarter ended July 2, 2022,April 1, 2023, the weighted-average interest rate on all outstanding borrowings under the Asset-Based Credit Facilities was 2.99%6.95% (April 2, 2022 - 2.42%).

As at July 2, 2022,April 1, 2023, the Company was in compliance with all covenants of the Credit Agreement.

SUNOPTA INC.

12

April 1, 2023 Form 10-Q

SunOpta Inc.

Notes to Consolidated Financial Statements

For the quarters ended April 1, 2023 and April 2, 2022

(Unaudited)

(All tabular amounts expressed in thousands of U.S. dollars, except per share amounts)

6.7. Series B-1 Preferred Stock

As at July 2, 2022,On April 15, 2020, the Company and SunOpta Foods had 30,000entered into a subscription agreement (the "Series B Subscription Agreement") with Oaktree Organics, L.P. and Oaktree Huntington Investment Fund II, L.P. (collectively, "Oaktree") and Engaged Capital, LLC, Engaged Capital Flagship Master Fund, LP and Engaged Capital Co-Invest IV-A, LP (collectively, "Engaged"). On April 24, 2020, pursuant to the Series B Subscription Agreement, SunOpta Foods issued 15,000 shares of Series B-1 preferred stock issuedPreferred Stock to each of Oaktree and outstanding, with a current liquidation preferenceEngaged for aggregate consideration of $1,015 per share, or $30.4$30.0 million in the aggregate. At any time, the Seriesand 30,000 shares total (the "Series B-1 preferred stock may be exchanged, in whole or in part, into the number of shares of the Company's common stock ("Common Shares"Preferred Stock") equal to, per share of Series B-1 preferred stock, the quotient of the liquidation preference divided by an exchange price of $2.50. On or after April 24, 2023, SunOpta Foods may cause the holders of the Series B-1 preferred stock to exchange all of their shares of Series B-1 preferred stock if the volume-weighted average price of the Common Shares during the then preceding 20 trading day period is greater than 200% of the exchange price then in effect.. Preferred dividends accrue daily on the Series B-1 preferred stock at an annualized rate of 8.0% of the liquidation preference prior to September 30, 2029, and 10.0% of the liquidation preference thereafter. In eachFor the second quarter of the first two quarters of 2022, the Company paid quarterly cash2020, SunOpta Foods elected to pay dividends on the Series B-1 preferred stock of $0.6 million,in kind and, as a result, the aggregate liquidation preference increased to $30.4 million, or approximately $1,015 per share.

On March 3, 2023, Engaged exercised their right to exchange all of their shares of Series B-1 Preferred Stock for 6,089,331 shares of the Company's common stock ("Common Shares") at July 2, 2022,an exchange price of $2.50, together with a cash payment to adjust for fractional Common Shares, plus accrued and unpaid dividends.as of the date of exchange. The Common Shares exchanged represented approximately 5.3% of the Company's issued and outstanding Common Shares on a post-exchange basis. After the exchange, the exchanged shares of Series B-1 Preferred Stock previously held by Engaged were cancelled and SunOpta Foods is no longer required to pay dividends on those shares. In addition, in connection with the exchange of the Series B-1 Preferred Stock, the Company accrued unpaid dividendsredeemed all Special Shares, Series 2 of $0.6the Company that were held by Engaged. Upon the exchange, the Company derecognized the $14.1 million carrying amount of the Series B-1 Preferred Stock previously held by Engaged, net of $1.1 million of unamortized issuance costs, and recognized a corresponding amount for the second quarterCommon Shares issued on exchange, less common share issuance costs of 2022, which are recorded$0.1 million.

As at April 1, 2023, SunOpta Foods had 15,000 shares of Series B-1 Preferred Stock issued and outstanding to Oaktree. At any time, Oaktree may exchange the Series B-1 Preferred Stock, in accounts payable and accrued liabilities onwhole or in part, into the consolidated balance sheet. Atnumber of Common Shares equal to, per share of Series B-1 Preferred Stock, the quotient of the liquidation preference divided by the exchange price of $2.50. On or after April 24, 2023, SunOpta Foods may cause Oaktree to exchange all of their shares of Series B-1 Preferred Stock if the volume-weighted average price of the Common Shares during the then preceding 20 trading day period is greater than 200% of the exchange price then in effect. In addition, at any time on or after April 24, 2025, SunOpta Foods may redeem all of the Series B-1 preferred stockPreferred Stock for an amount per share equal to the value of the liquidation preference at such time, plus accrued and unpaid dividends.

In the first quarter of 2023, the Company paid cash dividends on the Series B-1 Preferred Stock of $0.6 million in the aggregate to Oaktree and Engaged related to the fourth quarter of 2022, together with a cash dividend $0.2 million paid to Engaged for the period from January 1, 2023 to March 3, 2023. As at April 1, 2023, the Company accrued unpaid dividends to Oaktree of $0.3 million for the first quarter of 2023, which are recorded in accounts payable and accrued liabilities on the consolidated balance sheet. The carrying value of the Series B-1 preferred stockPreferred Stock, net of unamortized issuance costs, is being accreted to the redemption value through charges to accumulated deficit, which amounted to $0.3$0.2 million for the two quartersquarter ended JulyApril 1, 2023 (April 2, 2022 (July 3, 2021 - $0.3$0.1 million).

7.8. Stock-Based Compensation

During the two quartersquarter ended July 2, 2022, 1,750,935April 1, 2023, the Company issued 1,242,659 Common Shares, net of 1,057,041 Common Shares withheld for taxes, in connection with the vesting of 2,299,700 performance share units ("PSUs") werepreviously granted to certain employees under the Company's 2022 Short-Term Incentive Plan ("STIP"), which vestselected employees. The vesting of these PSUs was subject to the Company achieving a predetermined measure of adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") for fiscal 2022 and subject to each employee's continued employment with the Company through March 31, 2023 (the requisite service period)the respective vesting dates (the "EBITDA PSUs"). The weighted-average grant-date fair value of each EBITDA PSU was estimated to be $5.27 based on the closing price of the Common Shares on the dates of grant. As at July 2, 2022, the remaining compensation cost related to these EBITDA PSUs not yet recognized as an expense was determined to be $6.7 million, which will be amortized over the remaining requisite service period.

SUNOPTA INC.

1413

July 2, 2022April 1, 2023 Form 10-Q

SunOpta Inc.

Notes to Consolidated Financial Statements

For the quarters ended April 1, 2023 and two quarters ended JulyApril 2, 2022 and July 3, 2021

(Unaudited)

(All tabular amounts expressed in thousands of U.S. dollars, except per share amounts)

On March 30, 2022, all outstanding EBITDA PSUs previously granted to certain employees of the Company in connection with the Company's 2021 STIP were cancelled because the fiscal year 2021 performance condition was not achieved. No compensation expense was recognized related to these EBITDA PSUs.

The following table summarizes all EBITDA PSU activity for the two quartersquarter ended July 2, 2022:April 1, 2023:

     Weighted- 
     average grant- 
  EBITDA PSUs  date fair value 
Non-vested, beginning of period 2,355,431 $4.80 
Granted 1,659  9.37 
Vested (2,299,700) 4.78 
Cancelled (57,390) 5.52 
Non-vested, end of period - $- 

The total intrinsic value of the EBITDA PSUs that vested in the first quarter of 2023 was $18.0 million.

     Weighted- 
     average grant- 
  EBITDA PSUs  date fair value 
Non-vested, beginning of period 670,171 $11.77 
Granted 1,750,935  5.27 
Vested (58,235)  4.91 
Cancelled (619,357) 12.93 
Non-vested, end of period 1,743,514 $5.06 

During the two quarters ended July 2, 2022, 92,877 restricted stock units ("RSUs"), 522,878 PSUs and 1,761,118 stock options were granted to selected employees under the Company's 2022 Long-Term Incentive Plan ("LTIP"). The RSUs vest in three equal annual installments beginning on May 5, 2023, and each vested RSU entitles the employee to receive one Common Share without payment of additional consideration. The vesting of the PSUs is dependent on the Company's total shareholder return ("TSR") performance relative to food and beverage companies in a designated index during the three-year period commencing January 1, 2022 and continuing through December 31, 2024, and the employee's continued employment with the Company through May 5, 2025. The TSR for the Company and each of the companies in the designated index will be calculated using a 20-trading day average closing price as of December 31, 2024. The percentage of vested PSUs may range from 0% to 200% based on the Company's achievement of predetermined TSR thresholds. Each vested PSU entitles the employee to receive one Common Share without payment of additional consideration, with the Board of Directors having the option to settle vested PSUs in whole or part in cash in lieu of Common Shares. As at July 2, 2022, the Company had the intent and ability to settle the PSUs in Common Shares. The stock options vest ratably on each of the first through third anniversaries of the grant date and expire on the tenth anniversary of the grant date. Each vested stock option entitles the employee to purchase one Common Share at an exercise price of $5.91, which was the closing price of the Common Shares on May 5, 2022.9. Income Taxes

The grant-date fair valueIn determining its quarterly provision for income taxes, the Company uses an estimated annual effective tax rate of each RSU was estimated to be $5.91approximately 25%, which is based on expected annual earnings and statutory tax rates in the closing pricevarious jurisdictions in which the Company operates. Certain significant or unusual items are separately recognized in the quarter in which they occur and can be a source of the Common Sharesvariability on the dateeffective tax rates from quarter to quarter, including excess tax benefits from stock-based compensation. In addition, the Company's effective tax rate may change from period-to-period based on recurring and non-recurring factors including the jurisdictional mix of grant. A grant-date fair valueearnings between countries and between states within the U.S., enacted tax legislation, and tax audit settlements, as well as the impact of $8.48limitations on the deductibility of executive and stock-based compensation. The effective tax rate recognized for the quarter ended April 1, 2023 was estimated141.6%, compared with 15.7% for each PSU using a Monte Carlo valuation model,the quarter ended April 2, 2022. The variation in the interim effective tax rates from the annual effective tax rate was mainly due to the impact of stock-based compensation included in pre-tax earnings in the respective periods, and a grant-date fair valuethe recognition of $3.48 was estimated for each stock option usingexcess tax benefits related to the Black-Scholes option pricing model. The following table summarizesvesting of stock-based awards in the assumptions used to determine the fair valuesfirst quarter of the PSUs and stock options granted under the 2022 LTIP.2023 (see note 8).

  PSUs  Stock options
Grant-date stock price$5.91 $5.91
Exercise price NA $5.91
Dividend yield 0%  0%
Expected volatility(a) 67.8%  61.6%
Risk-free interest rate(b) 2.8%  3.0%
Expected life (in years)(c) 2.7  6.0

(a)Determined based on the historical volatility of the Common Shares over the performance period of the PSUs and expected life of the stock options.

(b)Determined based on U.S. Treasury yields with a remaining term equal to the performance period of the PSUs and expected life of the stock options.

(c)Determined based on the performance period of the PSUs and the mid-point of vesting (three years) and expiration (ten years) for the stock options.10. Earnings Per Share

Basic and diluted earnings per share were calculated as follows (shares in thousands):

  Quarter ended 
  April 1, 2023  April 2, 2022 
Basic Earnings Per Share      
Numerator for basic earnings per share:      
Earnings from continuing operations$1,377 $1,002 
Less: dividends and accretion on preferred stock (704) (755)

Earnings from continuing operations attributable to common shareholders

 673  247 
Earnings from discontinued operations -  3,566 
Earnings attributable to common shareholders$673 $3,813 
       
Denominator for basic earnings per share:      
Basic weighted-average number of shares outstanding 110,014  107,399 
       
Basic earnings per share:      
Earnings from continuing operations$0.01 $0.00 
Earnings from discontinued operations -  0.03 
Earnings attributable to common shareholders(1)$0.01 $0.04 
SUNOPTA INC.

1514

July 2, 2022April 1, 2023 Form 10-Q

SunOpta Inc.

Notes to Consolidated Financial Statements

For the quarters ended April 1, 2023 and two quarters ended JulyApril 2, 2022 and July 3, 2021

(Unaudited)

(All tabular amounts expressed in thousands of U.S. dollars, except per share amounts)

As at July 2, 2022, the remaining compensation cost related to RSUs, PSUs and stock options granted under the 2022 LTIP not yet recognized as an expense was determined to be $10.5 million, which will be recognized on a straight-line basis over the remaining requisite service period ending May 5, 2025.
  Quarter Ended 
  April 1, 2023  April 2, 2022 
Diluted Earnings Per Share      
Numerator for diluted earnings per share:      
Earnings from continuing operations$1,377 $1,002 
Less: dividends and accretion on preferred stock (704) (755)
Earnings from continuing operations attributable to common shareholders 673  247 
Earnings from discontinued operations -  3,566 
Earnings attributable to common shareholders$673 $3,813 
       
Denominator for diluted earnings per share:      
Basic weighted-average number of shares outstanding 110,014  107,399 
Dilutive effect of the following:      
Stock options, restricted stock units and performance share units(2) 3,093  960 
Series B-1 Preferred Stock(3) -  - 
Diluted weighted-average number of shares outstanding 113,107  108,359 
       
Diluted earnings per share:      
Earnings from continuing operations$0.01 $0.00 
Earnings from discontinued operations -  0.03 
Earnings attributable to common shareholders(1)$0.01 $0.04 

8. Other Expense, Net

The components of other expense (income) were as follows:

     Quarter ended  Two quarters ended 
  July 2, 2022  July 3, 2021  July 2, 2022  July 3, 2021 
  $  $  $  $ 
Facility closure costs(1) 1,287  2,962  1,287  4,394 
Settlement losses, net(2) 283  163  283  163 
Asset impairment charges -  -  260  - 
Employee termination costs(3) -  1,161  -  1,161 
Divestiture costs(4) -  291  -  474 
Other (30) 84  (3) 84 
  1,540  4,661  1,827  6,276 

(1) Facility closure costs

ForThe sum of the quarter and two quarters ended July 2, 2022, expense primarily relatesindividual per share amounts may not add due to the relocation of certain equipment from the Company's held-for-sale Oxnard, California, fruit processing facility to its Mexican facility.

For the quarter and two quarters ended July 3, 2021, expense represents asset impairment charges related to the exit from the Company's South Gate, California, fruit ingredient processing facility. In addition, for the two quarters ended July 3, 2021, expense includes costs to complete the exit from the Company's Santa Maria, California, frozen fruit processing facility.rounding.

(2) Settlement losses, net

For the quarter and two quarters ended July 2, 2022 and July 3, 2021, expense represents net losses incurred on the settlement of certain legal and contractual matters.

(3)Employee termination costs

For the quarter and two quarters ended July 3, 2021, expense represents termination costs for employees impacted by the closure of the Company's fruit ingredient processing facility.

(4)Divestiture costs

For the quarter and two quarters ended July 3, 2021, expense relates to professional fees incurred in connection with post- closing matters related to the 2020 divestiture of the Company's global ingredients business, Tradin Organic.

SUNOPTA INC.

16

July 2, 2022 Form 10-Q

SunOpta Inc.

Notes to Consolidated Financial Statements

For the quarters and two quarters ended July 2, 2022 and July 3, 2021

(Unaudited)
(All tabular amounts expressed in thousands of U.S. dollars, except per share amounts)

9. Earnings (Loss) Per Share

Basic and diluted earnings (loss) per share were calculated as follows (shares in thousands):

    Quarter ended  Two quarters ended 
  July 2, 2022  July 3, 2021  July 2, 2022  July 3, 2021 
Basic Earnings (Loss) Per Share            
Numerator for basic earnings (loss) per share:            
Earnings (loss) from continuing operations$2,498 $(918)$3,152 $754 
Less: dividends and accretion on preferred stock (760) (744) (1,515) (2,697)

Earnings (loss) from continuing operations attributable to common shareholders

 1,738  (1,662) 1,637  (1,943)
Earnings (loss) from discontinued operations (814) -  2,752  - 
Earnings (loss) attributable to common shareholders$924 $(1,662)$4,389 $(1,943)
             
Denominator for basic earnings (loss) per share:            
Basic weighted-average number of shares outstanding 107,622  105,676  107,510  100,898 
             
Basic earnings (loss) per share:            
From continuing operations$0.02 $(0.02)$0.02 $(0.02)
From discontinued operations (0.01) -  0.03  - 
Basic earnings (loss) per share$0.01 $(0.02)$0.04 $(0.02)
             
Diluted Earnings (Loss) Per Share            
Numerator for diluted earnings (loss) per share:            
Earnings (loss) from continuing operations$2,498 $(918)$3,152 $754 
Less: dividends and accretion on preferred stock (760) (744) (1,515) (2,697)

Earnings (loss) from continuing operations attributable to common shareholders

 1,738  (1,662) 1,637  (1,943)
Earnings (loss) from discontinued operations (814) -  2,752  - 
Earnings (loss) attributable to common shareholders$924 $(1,662)$4,389 $(1,943)
             
Denominator for diluted earnings (loss) per share:            
Basic weighted-average number of shares outstanding 107,622  105,676  107,510  100,898 
Dilutive effect of the following:            

Stock options, restricted stock units and performance share units(1)

 1,045  -  985  - 
Preferred stock(2) -  -  -  - 
Diluted weighted-average number of shares outstanding 108,667  105,676  108,495  100,898 
             
Diluted earnings (loss) per share:            
From continuing operations$0.02 $(0.02)$0.02 $(0.02)
From discontinued operations (0.01) -  0.03  - 
Diluted earnings (loss) per share$0.01 $(0.02)$0.04 $(0.02)

(1)    For the quarter and two quarters ended July 2, 2022,April 1, 2023, stock options and RSUs to purchase or receive 2,544,112 (July 3, 20212,243,349 (April 2, 2022 - 263,134) and 2,551,746 (July 3, 2021 - 260,634)1,122,466) potential common shares respectively, were anti-dilutive because the assumed proceeds exceeded the average market price of the Common Shares for the respective periods. In addition, for the quarter and two quarters ended July 3, 2021, 2,764,865 and 4,317,118 potential common shares, respectively, were excluded from the calculation of diluted loss per share due to their effect of reducing the loss per share. Dilutive potential common shares consist of stock options, RSUs, and certain contingently issuable PSUs.

SUNOPTA INC.

17

July 2, 2022 Form 10-Q

SunOpta Inc.

Notes to Consolidated Financial Statements

For the quarters and two quarters ended July 2, 2022 and July 3, 2021

(Unaudited)
(All tabular amounts expressed in thousands of U.S. dollars, except per share amounts)

(2)(3) For the quarter ended April 1, 2023 and two quarters ended JulyApril 2, 2022, and July 3, 2021, it was more dilutive to assume the Series B-1 preferred stockPreferred Stock was not converted into Common Shares and, therefore, the numerator of the diluted earnings (loss) per share calculation was not adjusted to add back the dividends and accretion on the Series B-1 preferred stockPreferred Stock and the denominator was not adjusted to include the 6,089,333 and 12,178,667 Common Shares issuable on an if-converted basis as at JulyApril 1, 2023 and April 2, 2022, and July 3, 2021.respectively.

SUNOPTA INC.

15

April 1, 2023 Form 10-Q

SunOpta Inc.

Notes to Consolidated Financial Statements

For the quarters ended April 1, 2023 and April 2, 2022

(Unaudited)

(All tabular amounts expressed in thousands of U.S. dollars, except per share amounts)

11. Supplemental Cash Flow Information

  Quarter ended 
  April 1, 2023  April 2, 2022 
  $  $ 
Changes in Operating Assets and Liabilities      
Accounts receivable (11,606) (15,435)
Inventories 6,490  1,803 
Accounts payable and accrued liabilities (2,587) 13,815 
Other operating assets and liabilities 143  3,008 
  (7,560) 3,191 
       
Non-Cash Investing and Financing Activities      
Change in additions to property, plant and equipment included in accounts payable and accrued liabilities (1,152) (5,776)
Change in accrued withholding taxes on stock-based awards included in accounts payable and accrued liabilities 8,477  - 
Change in accrued dividends on preferred stock included in accounts payable and accrued liabilities (305) - 
Change in proceeds receivable from sale of sunflower business(1) 385  - 
Change in accounts payable and accrued liabilities related to discontinued operations -  6,324 

(1)On October 11, 2022, the Company completed the sale of 100% of the assets and liabilities of its sunflower business and related roasted snacks operations for net proceeds of $8.2 million, of which $0.4 million was related to the settlement of the final working capital adjustment, which was received in the first quarter of 2023.

10. Supplemental Cash Flow Information

     Quarter ended  Two quarters ended 
  July 2, 2022  July 3, 2021  July 2, 2022  July 3, 2021 
  $  $  $  $ 
Changes in Operating Assets and Liabilities            
Accounts receivable 14,416  5,118  (1,019)  (10,385) 
Inventories (43,924) (64,514) (41,756) (82,108)
Accounts payable and accrued liabilities 13,571  7,420  27,111  14,920 
Other operating assets and liabilities (6,515) 1,654  (3,507) 5,595 
  (22,452) (50,322) (19,171) (71,978)
Non-Cash Investing and Financing Activities            

Change in additions to property, plant and equipment included in accounts payable and accrued liabilities

 337  1,397  (5,439) (617)

Change in accounts payable and accrued liabilities related to discontinued operations

 (6,324) -  -  (13,380)
Change in accrued dividends on preferred stock -  -  -  (1,769)
Change in accrued debt issuance costs -  -  -  (1,690)

11.12. Commitments and Contingencies

Legal Proceedings

Various current and potential claims and litigation arising in the ordinary course of business are pending against the Company. The Company believes it has established adequate accruals for liabilities that are probable and reasonably estimable that may be incurred in connection with any such currently pending matter. In the Company's opinion, the eventual resolution of such matters, either individually or in the aggregate, is not expected to have a material impact on the Company's financial position, results of operations, or cash flows. However, litigation is inherently unpredictable and resolutions or dispositions of claims or lawsuits by settlement or otherwise could have an adverse impact on the Company's financial position, results of operations, and cash flows for the reporting period in which any such resolution or disposition occurs.

Arbitration Proceedings

On January 31, 2022, Amsterdam Commodities N.V. ("Acomo") submitted a Request for Summary Arbitral Proceedings to the Netherlands Arbitration Institute, which was later amended on February 16, 2022, asserting alleged claims against the Company and its subsidiaries, Coöperatie SunOpta U.A. and SunOpta Holdings LLC, relating to a dispute regarding the allocation of the purchase price Acomo paid to acquire the shares of The Organic Corporation B.V. and the membership interests of Tradin Organics USA LLC in connection with the closing of the transactions contemplated by the Master Purchase Agreement entered into by Acomo, the Company and the aforementioned subsidiaries on November 25, 2020 (the "Transaction"). On May 25, 2022, the parties entered into a definitive Settlement Agreement to resolve all outstanding matters related to the Master Purchase Agreement, following which the Request for Summary Arbitral Proceedings was withdrawn. In connection with the Settlement Agreement, the Company recognized a loss from discontinued operations of $0.8 million for the quarter ended July 2, 2022 and earnings of $2.8 million for the two quarters ended July 2, 2022, which reflected the estimated tax benefits resulting from the final allocation of the purchase price between the share capital of The Organic Corporation B.V. and the membership interests of Tradin Organics USA LLC, partially offset by a cash payment of $5.9 million from the Company to Acomo to settle certain post-closing adjustments related to the Transaction, as well as professional fees incurred in connection with the arbitration proceedings.

SUNOPTA INC.

1816

July 2, 2022April 1, 2023 Form 10-Q

SunOpta Inc.

Notes to Consolidated Financial Statements

For the quarters ended April 1, 2023 and two quarters ended JulyApril 2, 2022 and July 3, 2021

(Unaudited)

(All tabular amounts expressed in thousands of U.S. dollars, except per share amounts)

12.13. Segment Information

The composition of the Company's operating and reportable segments is as follows:

  • Plant-Based Foods and Beverages includes plant-based beverages and liquid and powder ingredients, (utilizingutilizing oat, almond, soy, coconut, rice, hemp, and other bases),bases, as well as broths, teas, and nutritional beverages. In addition, Plant-Based Foods and Beverages includesthe sunflower business, which packaged dry- and oil-roasted inshell sunflower and sunflower kernels and the processing and sale ofprocessed raw sunflower inshell and kernel for food and feed applications.applications, was part of this segment until it was divested on October 11, 2022.
  • Fruit-BasedFruit-Based Foods and Beverages includes individually quick frozen ("IQF") fruit for retail, (includingincluding strawberries, blueberries, mango, pineapple, and other berries and blends)blends, and IQF and bulk frozen fruit for foodservice, (includingincluding toppings, purées, and smoothies).smoothies. In addition, Fruit-Based Foods and Beverages includes fruit snacks, including bars, twists, ropes, and bite-sized varieties, and fruit smoothie bowls.

Corporate Services provides a variety of management, financial, information technology, treasury, and administration services to each of the Company's operating segments.

When reviewing the operating results of the Company's operating segments, management uses segment revenues from external customers and segment operating income/loss to assess performance and allocate resources. Total segment operating income/loss includes general and administrative expenses incurred by Corporate Services and excludes other income/expense items. In addition, interest on corporate debt and income taxes are not allocated to the operating segments.

Segment Revenues and Operating Income

ReportableOperating segment operating results for the quarters ended April 1, 2023 and two quarters ended JulyApril 2, 2022 and July 3, 2021 were as follows:

     Quarter ended  Two quarters ended 
  July 2, 2022  July 3, 2021  July 2, 2022  July 3, 2021 
  $  $  $  $ 
Revenues from external customers            
Plant-Based Foods and Beverages 145,912  111,359  281,423  230,810 
Fruit-Based Foods and Beverages 97,619  90,914  202,281  179,103 
Total revenues from external customers 243,531  202,273  483,704  409,913 
             
Segment operating income (loss)            
Plant-Based Foods and Beverages 12,196  8,641  20,292  21,958 
Fruit-Based Foods and Beverages 3,211  (1,447)  3,995  (3,341) 
Corporate Services (7,298) (5,471) (12,262) (10,809)
Total segment operating income 8,109  1,723  12,025  7,808 
             
Other expense, net (see note 8) (1,540) (4,661) (1,827) (6,276)
Interest expense, net (3,132) (1,631) (5,662) (3,291)
Earnings (loss) from continuing operations before            
income taxes 3,437  (4,569) 4,536  (1,759)
  Quarter ended 
  April 1, 2023  April 2, 2022 
  $  $ 
Revenues from external customers      
Plant-Based Foods and Beverages 129,350  135,511 
Fruit-Based Foods and Beverages 94,530  104,662 
Total revenues from external customers 223,880  240,173 
       
Segment operating income (loss)      
Plant-Based Foods and Beverages 8,277  8,461 
Fruit-Based Foods and Beverages 1,785  784 
Corporate Services (7,524) (5,239)
Total segment operating income 2,538  4,006 
       
Other expense, net (35) (287)
Interest expense, net (5,812) (2,530)
Earnings (loss) from continuing operations before income taxes (3,309) 1,189 
SUNOPTA INC.

1917

July 2, 2022April 1, 2023 Form 10-Q

SunOpta Inc.

Notes to Consolidated Financial Statements

For the quarters ended April 1, 2023 and two quarters ended JulyApril 2, 2022 and July 3, 2021

(Unaudited)

(All tabular amounts expressed in thousands of U.S. dollars, except per share amounts)

Disaggregation of Revenue

The following table presents a disaggregation of revenues by operating segment based on categories used by the Company to evaluate sales performance:

 Quarter ended Two quarters ended  Quarter ended 
 July 2, 2022 July 3, 2021 July 2, 2022 July 3, 2021  April 1, 2023 April 2, 2022 
 $ $ $ $  $ $ 
Plant-Based Foods and Beverages   
Beverages and broths 114,898  87,494  223,520  182,980  127,319  108,622 
Plant-based ingredients 9,712  7,578  19,438  15,422  2,031  9,726 
Sunflower and roasted snacks(1) 21,302  16,287  38,465  32,408  -  17,163 
Total Plant-Based Foods and Beverages 145,912  111,359  281,423  230,810  129,350  135,511 
                  
Fruit-Based Foods and Beverages                  
Frozen fruit and fruit-based ingredients 74,164  75,076  157,657  146,890  68,911  83,493 
Fruit snacks and smoothie bowls 23,455  15,838  44,624  32,213  25,619  21,169 
Total Fruit-Based Foods and Beverages 97,619  90,914  202,281  179,103  94,530  104,662 
      
Total revenues 243,531  202,273  483,704  409,913  223,880  240,173 

(1) Reflects revenues of the Company's former sunflower business and related roasted snacks operations, which were sold on October 11, 2022.

Segment Assets

Total assets by operating segment as at July 2, 2022April 1, 2023 and January 1,December 31, 2022 were as follows:

 July 2, 2022 January 1, 2022  April 1, 2023 December 31, 2022 
 $ $  $ $ 
Plant-Based Foods and Beverages 370,417  301,065  402,763  384,507 
Fruit-Based Foods and Beverages 378,798  368,976  349,654  347,678 
Corporate Services 83,116  85,078  125,708  123,667 
Assets held for sale (note 3) 11,591  - 
Total assets 843,922  755,119  878,125  855,852 

Segment Depreciation and Amortization

Depreciation and amortization by operating segment for the quarters ended April 1, 2023 and two quarters ended JulyApril 2, 2022 and July 3, 2021 was as follows:

 Quarter ended Two quarters ended  Quarter ended 
 July 2, 2022 July 3, 2021 July 2, 2022 July 3, 2021  April 1, 2023 April 2, 2022 
 $ $ $ $  $ $ 
Plant-Based Foods and Beverages 4,572  3,881  9,006  7,015  5,440  4,434 
Fruit-Based Foods and Beverages 3,380  3,861  7,061  7,630  3,216  3,681 
Corporate Services 1,420  1,168  2,718  2,308  1,342  1,298 
Total depreciation and amortization 9,372  8,910  18,785  16,953  9,998  9,413 
SUNOPTA INC.2018July 2, 2022April 1, 2023 Form 10-Q

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Financial Information

The following Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") should be read in conjunction with the interim consolidated financial statements, and notes thereto, for the quarter ended July 2, 2022April 1, 2023 contained under Item 1 of this Quarterly Report on Form 10-Q and in conjunction with the annual consolidated financial statements, and notes thereto, contained in the Annual Report on Form 10-K for the fiscal year ended January 1,December 31, 2022 (the "Form 10-K"). Unless otherwise indicated herein, the discussion and analysis contained in this MD&A includes information available to August 11, 2022.May 10, 2023.

Certain statements contained in this MD&A may constitute forward-looking statements as defined under securities laws. Forward-looking statements may relate to our future outlook and anticipated events or results and may include statements regarding our future financial position, business strategy, budgets, litigation, projected costs, capital expenditures, financial results, taxes, plans and objectives. In some cases, forward-looking statements can be identified by terms such as "anticipate," "estimate," "target," "intend," "project," "potential," "predict," "continue," "believe," "expect," "can," "could," "would," "should," "may," "might," "plan," "will," "budget," "forecast," or other similar expressions concerning matters that are not historical facts, or the negative of such terms are intended to identify forward-looking statements; however, the absence of these words does not necessarily mean that a statement is not forward-looking. To the extent any forward-looking statements contain future-oriented financial information or financial outlooks, such information is being provided to enable a reader to assess our financial condition, material changes in our financial condition, our results of operations, and our liquidity and capital resources. Readers are cautioned that this information may not be appropriate for any other purpose, including investment decisions.

Forward-looking statements contained in this MD&A are based on certain factors and assumptions regarding expected growth, results of operations, performance, and business prospects and opportunities. While we consider these assumptions to be reasonable based on information currently available, they may prove to be incorrect. These factors are more fully described in the "Risk Factors" section at Item 1A of the Form 10-K and Item 1A of Part II of this report.

Forward-looking statements contained in this commentary are based on our current estimates, expectations, and projections, which we believe are reasonable as of the date of this report. Forward-looking statements are not guarantees of future performance or events. You should not place undue importance on forward-looking statements and should not rely upon this information as of any other date. Other than as required under securities laws, we do not undertake to update any forward- lookingforward-looking information at any particular time. Neither we nor any other person assumes responsibility for the accuracy and completeness of these forward-looking statements, and we hereby qualify all our forward-looking statements by these cautionary statements.

Unless otherwise noted herein, all currency amounts in this MD&A are expressed in U.S. dollars. All tabular dollar amounts are expressed in thousands of U.S. dollars, except per share amounts.

Overview

We procure, process, and package plant-based and fruit-based food and beverage products for sale to retailers, foodservice operators, branded food companies, and food manufacturers. The composition of our operating and reportable segments is as follows:

  • •Plant-Based Foods and Beverages - We offer a full line of plant-based beverages and liquid and powder ingredients, (utilizingutilizing oat, almond, soy, coconut, rice, hemp, and other bases),bases, as well as broths, teas, and nutritional beverages. In addition, we packageour former sunflower business, which packaged dry- and oil-roasted inshell sunflower and sunflower kernels and we process and sellprocessed raw sunflower inshell and kernel for food and feed applications.applications, was part of this segment until it was divested on October 11, 2022.

  • •Fruit-Based Foods and Beverages - We offer individually quick frozen ("IQF") fruit for retail, (includingincluding strawberries, blueberries, mango, pineapple, and other berries and blends)blends, and IQF and bulk frozen fruit for foodservice, (includingincluding toppings, purées, and smoothies).smoothies. In addition, we offer fruit snacks, including bars, twists, ropes, and bite-sized varieties, as well as fruit smoothie bowls.

SUNOPTA INC.2119July 2, 2022April 1, 2023 Form 10-Q

Current MacroeconomicGlobal Economic Conditions and Inflationary Cost Environment

WeOur businesses continue to be exposed to macroeconomic pressures including supply chain and labor challenges, inflation, and rising interest rates, as well as potential impacts from the persistent COVID-19 pandemic and the Russia-Ukraine war. We have been successful, however, in mitigating the effects of the supply chaincurrent global macroeconomic environment, including elevated inflation, higher interest rates, and shifts in consumer demand.

  • Inflation - Inflation in the first quarter of 2023 declined from the highs in 2022 but remains elevated. We expect this inflationary environment to continue throughout 2023. We believe that we will be able to continue to mitigate the impact of inflationary costs increases for raw materials, packaging, labor, issuesenergy, fuel, and transportation through pricing actions we have taken with our customers to date and further pricing actions that adversely affectedwe may implement as needed. However, the efficiencyeffect of our operationscustomers passing on higher prices to the end consumers has impacted and may continue to impact the level of consumption of our products.
  • Interest Rates - Loans under our credit agreement bear interest at a variable rate, and the interest rate on our outstanding indebtedness has increased as market interest rates have risen, starting in the second half of 2021 and first quarter of 2022, resulting in improved plant utilization and production output in the second quarter of 2022, and enabling us2022. These higher interest rates, together with a higher outstanding debt balance related to alleviate the shortfallcapital investments, have led to an increase in our customer order fulfillment. In addition, through the pricing actionsinterest expense, which we took to offset inflation pressures on raw materialsexpect will continue.
  • Consumer Demand - Recent economic conditions have reduced household savings and packaging, as well as fuel costs and freight rates, we effectively passed-through most of these higher input costs to our customers during the second quarter of 2022. We were also able to largely absorb other inflationary impacts on labor costs and utility rates, as well as any remaining unrecovered raw material cost inflation, through the improved efficiency of our manufacturing plant operations. However, despite the actions we have taken to date, we may continue to experience further supply chain and labor challenges, and inflation impacts on our operationsresulted in future periods. In addition, the current economic inflation is impacting purchasing behaviors, as consumers reduce discretionarychanges in consumer spending andpatterns, with a shift to lower pricedlower-cost retailers and product alternatives.alternatives, together with a streamlining of purchases. As a result, some of the categories we serve have experienced a softening of demand, for certain of our products and from certain of our customers, mainly within our frozen fruit business, which has had,negatively impacted on our sales volumes and mix. These consumption trends may continue to have a negativean impact on our results of operations. In addition, recent changes to U.S. monetary policy, including higher interest rates, have increased our current cost of borrowing and may limit our access to additional sources of financing to support our operations and investment plans.business.

Assets Held for Sale

On July 6, 2022, we finalized an agreement to sell our frozen fruit processing facility located in Oxnard, California, for gross proceeds of $16.5 million, payable in cash on the closing of the transaction, which is expected to occur in the third quarter of 2022. The sale of the Oxnard facility was facilitated by our efforts to expand the production capacity and capabilities of our frozen fruit operations in Mexico, including the relocation of certain equipment from the Oxnard facility to Mexico, together with the diversification of our fruit sourcing from California to Central and South America.

SUNOPTA INC.22July 2, 2022 Form 10-Q

Consolidated Results of Operations for the Quarters Ended JulyApril 1, 2023 and April 2, 2022 and July 3, 2021

   July 2, 2022  July 3, 2021  Change  Change 
For the quarter ended $  $  $  % 
Revenues            
Plant-Based Foods and Beverages 145,912  111,359  34,553  31.0% 
Fruit-Based Foods and Beverages 97,619  90,914  6,705  7.4% 
Total revenues 243,531  202,273  41,258  20.4% 
             
Gross Profit            
Plant-Based Foods and Beverages 23,940  19,896  4,044  20.3% 
Fruit-Based Foods and Beverages 10,958  6,440  4,518  70.2% 
Total gross profit 34,898  26,336  8,562  32.5% 
             
Gross Margin            
Plant-Based Foods and Beverages 16.4%  17.9%     -1.5% 
Fruit-Based Foods and Beverages 11.2%  7.1%     4.1% 
Total gross margin 14.3%  13.0%     1.3% 
             
Segment operating income (loss)(1)            
Plant-Based Foods and Beverages 12,196  8,641  3,555  41.1% 
Fruit-Based Foods and Beverages 3,211  (1,447)  4,658  321.9% 
Corporate Services (7,298) (5,471) (1,827) -33.4% 
Total segment operating income 8,109  1,723  6,386  370.6% 
             
Other expense, net 1,540  4,661  (3,121) -67.0% 
Earnings (loss) before the following 6,569  (2,938) 9,507  323.6% 
Interest expense, net 3,132  1,631  1,501  92.0% 
Income tax expense (benefit) 939  (3,651) 4,590  125.7% 
Earnings (loss) from continuing operations(2),(3) 2,498  (918) 3,416  372.1% 
Loss from discontinued operations (814) -  (814) - 
Net earnings (loss) 1,684  (918) 2,602  283.4% 
Dividends and accretion on preferred stock (760) (744) (16) -2.2% 
              
Earnings (loss) attributable to common shareholders(4)  924  (1,662) 2,586  155.6% 
  April 1, 2023  April 2, 2022  Change  Change 
For the quarter ended $  $  $  % 
             
Revenues            
Plant-Based Foods and Beverages 129,350  135,511  (6,161) -4.5% 
Fruit-Based Foods and Beverages 94,530  104,662  (10,132) -9.7% 
Total revenues 223,880  240,173  (16,293) -6.8% 
             
Gross Profit            
Plant-Based Foods and Beverages 20,165  20,345  (180) -0.9% 
Fruit-Based Foods and Beverages 8,038  8,011  27  0.3% 
Total gross profit 28,203  28,356  (153) -0.5% 
             
Gross Margin(1)            
Plant-Based Foods and Beverages 15.6%  15.0%     0.6% 
Fruit-Based Foods and Beverages 8.5%  7.7%     0.8% 
Total gross margin 12.6%  11.8%     0.8% 
             
Segment operating income (loss)(2)            
Plant-Based Foods and Beverages 8,277  8,461  (184) -2.2% 
Fruit-Based Foods and Beverages 1,785  784  1,001  127.7% 
Corporate Services (7,524) (5,239) (2,285) -43.6% 
Total segment operating income 2,538  4,006  (1,468) -36.6% 
             
Other expense, net 35  287  (252) -87.8% 
Earnings from continuing operations before the following 2,503  3,719  (1,216) -32.7% 
Interest expense, net 5,812  2,530  3,282  129.7% 
Income tax expense (benefit) (4,686) 187  (4,873) -2605.9% 
Earnings from continuing operations 1,377  1,002  375  37.4% 
Earnings from discontinued operations -  3,566  (3,566) - 
Net earnings(3),(4) 1,377  4,568  (3,191) -69.9% 
Dividends and accretion on preferred stock (704) (755) 51  6.8% 
             
Earnings attributable to common shareholders(5) 673  3,813  (3,140) -82.3% 
 
SUNOPTA INC.20April 1, 2023 Form 10-Q

(1)Gross margin is a measure of gross profit (equal to revenues less cost of goods sold) as a percentage of revenues. We use a measure of gross margin that excludes non-capitalizable start-up costs included in cost of goods sold that are incurred in connection with capital expansion projects. We are completing the largest capital expansion in our company's history, including the construction of our new plant-based beverage facility in Midlothian, Texas, which officially opened in February 2023, together with other major capital expansion and productivity enhancement projects currently underway. Start-up costs related to these projects have had, and are expected to continue to have, a significant impact on the comparability of reported gross margins, which may obscure trends in our margin performance. As a result, we use this measure of adjusted gross margin to evaluate the underlying profitability of our revenue-generating activities within each reporting period. We believe that disclosing this non-GAAP measure provides investors with a meaningful, consistent comparison of our profitability measure for the periods presented. However, the non-GAAP measure of adjusted gross margin should not be considered in isolation or as a substitute for gross margin calculated based on gross profit determined in accordance with U.S. GAAP. The following table presents a reconciliation of adjusted gross margin from reported gross margin calculated in accordance with U.S. GAAP.

  April 1, 2023  April 2, 2022 
  Plant-Based  Fruit-Based     Plant-Based  Fruit-Based    
  Foods and  Foods and     Foods and  Foods and    
For the quarter ended Beverages  Beverages  Consolidated  Beverages  Beverages  Consolidated 
Reported gross margin 15.6%  8.5%  12.6%  15.0%  7.7%  11.8% 
Start-up costs(a) 4.4%  0.0%  2.6%  0.3%  0.0%  0.2% 
Adjusted gross margin 20.0%  8.5%  15.2%  15.3%  7.7%  12.0% 

(a)Represents incremental direct costs incurred in connection with plant expansion projects and new product introductions before the project or product reaches normal production levels, including costs for the hiring and training of additional personnel, fees for outside services, travel costs, and plant- and production-related expenses. For the first quarter of 2023, start-up costs mainly related to the ramp-up of production at our new plant-based beverage facility in Midlothian, Texas. For 2022, start-up costs mainly related to the hiring and training of new employees for the Midlothian facility, together with the integration of the acquired Dream and West Life brands.

(2) When assessing the financial performance of our operating segments, we use an internal measure of operating income/loss that excludes other income/expense items determined in accordance with U.S. GAAP. This measure is the basis on which management, including the CEO, assesses the underlying performance of our operating segments.

We believe that disclosing this non-GAAP measure assists investors in comparing financial performance across reporting periods on a consistent basis by excluding items that are not indicative of our operating performance. However, the non-GAAP measure of operating income/loss should not be considered in isolation or as a substitute for performance measures calculated in accordance with U.S. GAAP. The following table presents a reconciliation of segment operating income/loss to "earnings (loss) from continuing operations before the following,"following" on the consolidated statements of operations, which we consider to be the most directly comparable U.S. GAAP financial measure.

        Plant-Based  Fruit-Based       
   Foods and  Foods and  Corporate    
   Beverages  Beverages  Services  Consolidated 
 For the quarter ended $  $  $  $ 
 July 2, 2022            
 Segment operating income (loss) 12,196  3,211  (7,298)  8,109 
 Other expense, net (203) (1,145) (192) (1,540)
 Earnings (loss) before the following 11,993  2,066  (7,490) 6,569 
              
 July 3, 2021            
 Segment operating income (loss) 8,641  (1,447) (5,471) 1,723 
 Other income (expense), net 219  (4,112) (768) (4,661)
 Earnings (loss) before the following 8,860  (5,559) (6,239) (2,938)
  Plant-Based  Fruit-Based       
  Foods and  Foods and  Corporate    
  Beverages  Beverages  Services  Consolidated 
For the quarter ended $  $  $  $ 
April 1, 2023            
Segment operating income (loss) 8,277  1,785  (7,524) 2,538 
Other income (expense), net -  7  (42) (35)
Earnings (loss) from continuing operations before the following 8,277  1,792  (7,566) 2,503 
             
April 2, 2022            
Segment operating income (loss) 8,461  784  (5,239) 4,006 
Other expense, net (43) (10) (234) (287)
Earnings (loss) from continuing operations before the following 8,418  774  (5,473) 3,719 
 
SUNOPTA INC.2321July 2, 2022April 1, 2023 Form 10-Q

We believe that investors' understanding of our financial performance is enhanced by disclosing the specific items that we exclude from segment operating income/loss.income (loss). However, any measure of segment operating income/lossincome (loss) excluding any or all of these items is not, and should not be viewed as, a substitute for operating income/lossincome (loss) prepared under U.S. GAAP. These items are presented solely to allow investors to more fully understand how we assess financial performance.

(2)(3) When assessing our financial performance, we use an internal measure of netadjusted earnings determined in accordance with U.S. GAAP that excludes specific items recognized in other income/income or expense, and other unusual items that are identified and evaluated on an individual basis, which due to their nature or size, we would not expect to occur as part of our normal business on a regular basis. We believe that the identification of these excluded items enhances the analysis of the financial performance of our business when comparing those operating results between periods, as we do not consider these items to be reflective of normal business operations. The following table presents a reconciliation of adjusted earnings from earnings (loss) from continuing operations, which we consider to be the most directly comparable U.S. GAAP financial measure.

     July 2, 2022     July 3, 2021 
     Per Share     Per Share 
For the quarter ended $  $  $  $ 
Earnings (loss) from continuing operations 2,498     (918)    
Dividends and accretion on preferred stock (760)     (744)    
Earnings (loss) from continuing operations attributable to common shareholders 1,738  0.02  (1,662)  (0.02) 
Adjusted for:            
Facility closure costs(a) 1,287     -    
Business development costs(b) 616     1,434    
Start-up costs(c) 281     -    
Costs related to exit from fruit ingredient processing facility(d) -     4,123    
Other(e) 253     247    
Net income tax effect(f) (640)    (4,022)   
Adjusted earnings 3,535  0.03  120  0.00 
  April 1, 2023  April 2, 2022 
     Per Share     Per Share 
For the quarter ended $  $  $  $ 
Earnings from continuing operations 1,377     1,002    
Dividends and accretion on preferred stock (704)    (755)   
Earnings attributable to common shareholders 673  0.01  247  0.00 
Adjusted for:            
Start-up costs(a) 6,425     440    
Business development costs(b) 731     183    
Other expense, net 35     287    
Net income tax effect(c) (1,873)    (239)   
Adjusted earnings 5,991  0.05  918  0.01 

(a) Facility closureFor the first quarter of 2023, start-up costs mainly related to the relocationramp-up of certain equipment fromproduction at our held-for-sale Oxnard, California, frozen fruit processingnew plant-based beverage facility to our Mexican facility,in Midlothian, Texas, which were recorded in other expense.cost of goods sold ($5.8 million) and SG&A expenses ($0.6 million). For the first quarter of 2022, start-up costs mainly related to the hiring and training of new employees for the Midlothian facility, together with the integration of the Dream and West Life brands, which were recorded in cost of goods sold and SG&A expenses.

(b) Represents third-party costs associated with business development activities, including costs related to the evaluation, execution, and integration of external acquisitions and divestitures, internal expansion projects, and other strategic initiatives. For the second quarterfirst quarters of 2023 and 2022, these costs related to our inaugural Investor Day held in June 2022 ($0.5 million), as well as specific business transactions under consideration, which were recorded in SG&A expenses. For the second quarter of 2021, these costs were mainly related to the transition of the Dream and WestSoy brands, acquired in April 2021, and professional fees incurred in connection with post-closing matters related to the 2020 divestiture of our global ingredients business, Tradin Organic, which were recorded in SG&A expenses ($1.1 million) and other expense ($0.3 million).

(c)Represents incremental direct costs incurred in connection with plant expansion projects and new product introductions before the project or product reaches normal production levels, including costs for the hiring and training of additional personnel, fees for outside services, travel costs, and plant- and production-related expenses. For the second quarter of 2022, start-up costs mainly related to new employee hires for our plant-based beverage facility under construction in Midlothian, Texas, which were recorded in cost of goods sold ($0.2 million) and SG&A expenses ($0.1 million).

(d)For the second quarter of 2021, represents asset impairment charges and employee termination costs related to the exit from our South Gate, California, fruit ingredient processing facility, which were recorded in other expense.

(e)For the second quarters of 2022 and 2021, other mainly reflects the settlement of certain legal and contractual matters.

(f) Reflects the tax effect of the preceding adjustments to earnings calculated based on the statutory tax rates applicable in the tax jurisdiction of the underlying adjustment.

We believe that investors' understanding of our financial performance is enhanced by disclosing the specific items that we exclude to compute adjusted earnings. However, adjusted earnings is not, and should not be viewed as, a substitute for net earnings from continuing operations prepared under U.S. GAAP. Adjusted earnings is presented solely to allow investors to more fully understand how we assess our financial performance.

(3)(4) We use a measure of adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA")EBITDA when assessing the performance of our operations, which we believe is useful to investors' understanding of our operating profitability because it excludes non-operating expenses, such as interest and income taxes, and non-cash expenses, such as depreciation, amortization, and stock-based compensation, as well as other unusual items that affect the comparability of operating performance. We also use this measure to assess operating performance in connection with our employee incentive programs. We define adjusted EBITDA as segment operating income plus depreciation, amortization, and stock-based compensation, and excluding other unusual items as identified in the determination of adjusted earnings (refer above to footnote (2)(3)). The following table presents a reconciliation of segment operating income and adjusted EBITDA from earnings (loss) from continuing operations, which we consider to be the most directly comparable U.S. GAAP financial measure.

SUNOPTA INC.2422July 2, 2022April 1, 2023 Form 10-Q
 July 2, 2022 July 3, 2021  April 1, 2023 April 2, 2022 
For the quarter ended $  $  $  $ 
Earnings (loss) from continuing operations 2,498  (918)
Earnings from continuing operations 1,377  1,002 
Income tax expense (benefit) 939  (3,651) (4,686) 187 
Interest expense, net 3,132  1,631  5,812  2,530 
Other expense, net 1,540  4,661  35  287 
Total segment operating income 8,109  1,723  2,538  4,006 
Depreciation and amortization 9,372  8,910  9,998  9,413 
Stock-based compensation 3,970  4,370  3,892  1,629 
Business development costs(a) 616  1,143 
Start-up costs(b) 281  - 
Start-up costs(a) 6,425  440 
Business development costs(b) 731  183 
Adjusted EBITDA 22,348  16,146  23,584  15,671 

(a) Business development activities were related to our Investor Day andFor the exploration of potential strategic opportunities in the secondfirst quarter of 2022, and the integration of the Dream and WestSoy brands in the second quarter of 2021, which costs were recorded in SG&A expenses.

(b)For the second quarter of 2022,2023, start-up costs mainly related to the ramp-up of production at our new employee hires for our plant-based beverage facility under construction in Midlothian, Texas, which were recorded in cost of goods sold.sold ($5.8 million) and SG&A expenses ($0.6 million). For the first quarter of 2022, start-up costs mainly related to the hiring and training of new employees for the Midlothian facility, together with the integration of the Dream and West Life brands, which were recorded in cost of goods sold and SG&A expenses.

(b)For the first quarters of 2023 and 2022, business development costs were recorded in SG&A expenses.

Although we use adjusted EBITDA as a measure to assess the performance of our business and for the other purposes set forth above, this measure has limitations as an analytical tool, and should not be considered in isolation, or as a substitute for an analysis of our results of operations as reported in accordance with U.S. GAAP. Some of these limitations are:

  • •adjusted EBITDA does not reflect interest expense, or the cash requirements necessary to service interest payments on our indebtedness;

  • •adjusted EBITDA does not include the recovery/payment of taxes, which is a necessary element of our operations;

  • •although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and adjusted EBITDA does not reflect any cash requirements for such replacements; and

  • •adjusted EBITDA does not include non-cash stock-based compensation, which is an important component of our total compensation program for employees and directors.

Because of these limitations, adjusted EBITDA should not be considered as a measure of discretionary cash available to us to invest in the growth of our business. Management compensates for these limitations by not viewing adjusted EBITDA in isolation, and specifically by using other U.S. GAAP and non-GAAP measures, such as revenues, gross profit, segment operating income/loss,income (loss), net earnings, and adjusted earnings to measure our operating performance. Adjusted EBITDA is not a measurement of financial performance under U.S. GAAP and should not be considered as an alternative to our results of operations or cash flows from operations determined in accordance with U.S. GAAP, and our calculation of adjusted EBITDA may not be comparable to the calculation of a similarly titled measure reported by other companies.

(4)(5) In order to evaluate our results of operations, we use certain non-GAAP measures that we believe enhance an investor's ability to derive meaningful period-over-period comparisons and trends from our results of operations. For example, as described above under footnote (1), we evaluate our gross margins on a basis that excludes the impact of start-up costs. In particular,addition, we exclude specific items from our reported results that due to their nature or size, we do not expect to occur as part of our normal business on a regular basis. These items are identified above under footnote (2)(3), and in the discussion of our results of operations below. These non-GAAP measures are presented solely to allow investors to more fully assess our results of operations and should not be considered in isolation of, or as substitutes for an analysis of our results as reported under U.S. GAAP.

RevenuesInclusive of the impact of the divestiture of our sunflower business in the fourth quarter of 2022, total revenues for the quarter ended July 2, 2022 increasedApril 1, 2023 decreased by 20.4%6.8% to $243.5$223.9 million from $202.3$240.2 million for the quarter ended July 3, 2021,April 2, 2022, reflecting 31.0%a 4.5% revenue growthdecline in the Plant-Based Foods and Beverages segment and 7.4%a 9.7% revenue growthdecline in the Fruit-Based Foods and Beverages segment. The change in revenues from the secondfirst quarter of 20212022 to the secondfirst quarter of 20222023 was due to the following:

  Plant-Based  Fruit-Based       
  Foods and Beverages  Foods and Beverages  Consolidated 
  $  %  $  %  $  % 
2021 revenues 111,359     90,914     202,273    
Price 15,289  13.7%  9,477  10.4%  24,766  12.2% 
Volume/Mix 19,264  17.3%  (2,772) -3.0%  16,492  8.2% 
2022 revenues 145,912  31.0%  97,619  7.4%  243,531  20.4% 
SUNOPTA INC.23April 1, 2023 Form 10-Q
  Plant-Based  Fruit-Based       
  Foods and Beverages  Foods and Beverages  Consolidated 
  $  %  $  %  $  % 
2022 revenues 135,511     104,662     240,173    
Price 12,064  8.9%  1,339  1.3%  13,403  5.6% 
Volume/Mix (1,062) -0.8%  (11,471) -11.0%  (12,533) -5.2% 
Divestiture of sunflower business (17,163) -12.7%  -  -  (17,163) -7.1% 
2023 revenues 129,350  -4.5%  94,530  -9.7%  223,880  -6.8% 

Note: percentages may not add due to rounding.

For the quarter ended July 2, 2022,April 1, 2023, the 31.0% increase4.5% decrease in revenues for the Plant-Based Foods and Beverages segment reflected a 13.7%12.7% revenue loss related to the divestiture of the sunflower business, together with an unfavorable volume/mix impact of 0.8%, partially offset by an 8.9% overall increase in pricingpricing. The unfavorable volume/mix was mainly due to lower external sales of plant-based ingredients due to a customer transferring part of its business to a second-source supplier and a favorable volume/mix impactincreased internal demand for oat base (a $7.9 million decrease to revenues). On the other hand, we saw strong year-over-year growth in our plant-based beverage portfolio, mainly from oat milks and creamers, and coconut and soy milks, along with strong growth in teas, partially offset by lower volumes of 17.3%everyday broths (a $6.8 million net increase to revenues). The increase in pricing was driven by certainmainly reflects the wrap-around benefit of pricing actions taken with customers in 2022 to offset inflationary cost increases, together with the pass-through effect of higher sunflower commodity pricing. Volume/mix was favorable mainly due to growth from our oat-based product offerings, and other varieties of plant-based beverages and teas, including strength in our branded portfolio, partially offset by softer volumes of sunflower.increases.

SUNOPTA INC.25July 2, 2022 Form 10-Q

For the quarter ended July 2, 2022,April 1, 2023, the 7.4% increase9.7% decrease in revenues for the Fruit-Based Foods and Beverages segment reflected an unfavorable volume/mix impact of 11.0%, partially offset by a 10.4% overall1.3% increase in pricing. The volume/mix impact reflected lower volumes of frozen fruit, as retail customers manage inventories in response to softer consumer demand and foodservice customers experiencing slower traffic in light of current economic conditions, together with the impact of one-time incremental volumes from a frozen fruit customer in the first quarter of 2022 that did not recur, partially offset by strong demand for fruit snacks and new business for our line of smoothie bowls. The increase in pricing reflecting the benefit ofmainly reflected pricing actions taken with customers in the second half of 2021 and first quarter of 2022 to offset commodity inflation incurred on fruit inventories and other inflationary impacts to operating expenses. The increase in pricing was partially offset an unfavorable volume/mix impact of 3.0%, which reflected decreased consumer demand for retail frozen fruit due to higher prices resulting from inflation, together with lower volumes due to our portfolio rationalization efforts, partially offset by strong demand for fruit snacks and the introduction of smoothie bowls.cost increases.

Consolidated gross profit increased $8.6decreased $0.2 million, or 32.5%0.5%, to $34.9$28.2 million for the quarter ended July 2, 2022,April 1, 2023, compared with $26.3$28.4 million for the quarter ended July 3, 2021.April 2, 2022. Consolidated gross margin for the quarter ended July 2, 2022April 1, 2023 was 14.3%12.6% compared to 13.0%11.8% for the quarter ended July 3, 2021,April 2, 2022, an increase of 13080 basis points. Adjusted gross margin on a consolidated basis for the quarter ended April 1, 2023 was 15.2% compared to 12.0% for the quarter ended April 2, 2022, an increase of 320 basis points.

Gross profit for the Plant-Based Foods and Beverages segment increased $4.0decreased $0.1 million to $23.9$20.2 million for the quarter ended July 2, 2022,April 1, 2023, compared with $19.9$20.3 million for the quarter ended July 3, 2021,April 2, 2022, while gross margin decreasedincreased 60 basis points to 16.4%15.6% in the secondfirst quarter of 20222023 from 17.9%15.0% in the secondfirst quarter of 2021. The 150-basis point decrease in2022. In the plant-based gross margin mainly reflected an estimated 215 basis-point decline due to the dilutive effectfirst quarter of pass-through pricing to recover cost inflation on raw materials and packaging, together with unrecovered raw material cost inflation due to the lag in pricing adjustments, together with higher labor and utility costs, increased inventory reserves and higher depreciation expense. In addition,2023, we incurred start-up costs of $0.2$5.8 million (0.2%(4.4% gross margin impact) in connection withrelated to our new plant expansion in Midlothian, Texas. AllTexas, compared with $0.4 million (0.3% gross margin impact) of start-up costs incurred in the first quarter of 2022. Excluding the impact of these factors were partially absorbed through higher production volumescosts, adjusted gross margin for the Plant-Based Food and plant utilizationBeverages segment was 20.0% in the first quarter of 2023, compared to 15.3% in the first quarter of 2022. The 470-basis point increase in adjusted gross margin reflected an approximately 170-basis point improvement following the divestiture of our lower-margin sunflower commodity business, together with the wrap-around benefit of pricing actions taken in 2022 to recover input cost inflation, and the positive gross margin impact of a mix shift in our plant-based ingredient operations, with increased internal use of oat base to support our beverage business and ingredient operations.lower external sales.

Gross profit for the Fruit-Based Foods and Beverages segment increased $4.5 million to $11.0was $8.0 million for each of the quarterquarters ended JulyApril 1, 2023 and April 2, 2022, compared with $6.4 million for the quarter ended July 3, 2021, andwhile gross margin increased to 11.2%8.5% in the secondfirst quarter of 20222023 from 7.1%7.7% in the secondfirst quarter of 2021, despite an estimated 70 basis-point decline due to the dilutive effect of pass-through pricing to recover commodity cost inflation. Excluding this pricing effect, fruit-based2022. The 80-basis point improvement in gross margin reflected the benefits of portfolio rationalizations for frozen fruitstrong sales and manufacturing cost savings from the consolidationproduction performance of our fruit processing facilities in 2021,snacks business, together with improved pricing and reduced inventory losses within our frozen fruit operations due to improved handling processes. These factors were partially offset by increases in freight and storage rates, a higher mix of low-marginlower margin bulk fruit juice sales andto right-size frozen fruit inventories and improve working capital efficiency, together with manufacturing inefficiencies and inventory losses duerelated to excess spoilage during handling.smoothie bowl production.

For the quarter ended July 2, 2022,April 1, 2023, we realized total segment operating income of $8.1$2.5 million, compared with $1.7$4.0 million for the quarter ended July 3, 2021.April 2, 2022. The $6.4$1.5 million increasedecrease in total segment operating income reflected highera $3.2 million increase in SG&A expenses, together with slightly lower gross profit, as described above, partially offset by a $1.6 million increase in SG&A expenses.above. The increase in SG&A expenses was mainly due to incremental 2022 incentive plan accrualshigher employee compensation costs, including variable stock-based compensation expense based on performance, and higher business development costs. These factors were partially offset by lower employee compensation costs related to headcount reductions in our frozen fruit operations in August 2021 and lower business development expenses related to costs incurred to acquire the Dream and WestSoy brands in April 2021. In addition, we recognized an unfavorable year-over- yeara favorable year-over-year foreign exchange impact related to our Mexican operations of $0.5$1.7 million.

SUNOPTA INC.24April 1, 2023 Form 10-Q

Further details on revenue, gross profit and segment operating income/loss variances are provided below under "Operating Segment Information."

OtherNet interest expense was $1.5increased by $3.3 million to $5.8 million for the quarter ended July 2, 2022,April 1, 2023, compared with other expense of $4.7$2.5 million for the quarter ended July 3, 2021. Other expense in the second quarter of 2022 mainly reflected costs to relocate certain equipment from our held-for-sale Oxnard, California, frozen fruit processing facility to our Mexican facility, while other expense in the second quarter of 2021 mainly reflected plant closure costs related to our fruit ingredient processing facility.

Net interest expense increased by $1.5 million to $3.1 million for the quarter ended JulyApril 2, 2022, compared with $1.6 million for the quarter ended July 3, 2021, resulting from an increase in outstanding debt to finance capital expansion projects, together with the impact of higher interest rates. Interest expense capitalized as part of the construction cost of property, plant and fund working capital requirements.equipment was $0.3 million and $0.1 million in the first quarters of 2023 and 2022, respectively.

IncomeWe recognized an income tax expense was $0.9benefit of $4.7 million on a pre-tax earnings from continuing operationsloss of $3.4$3.3 million for the quarter ended July 2, 2022,April 1, 2023, compared with an income tax benefitprovision of $3.7$0.2 million on a pre-tax loss from continuing operationsearnings of $4.6$1.2 million for the quarter ended July 3, 2021.April 2, 2022. Excluding the impact of non-deductible executive and stock-based compensation and the recognition of excess tax benefits related to the vesting of stock-based awards in the first quarter of 2023, our effective tax rate was approximately 25% in each of the first quarters of 2023 and 2022.

Earnings from continuing operations for the quarter ended July 2, 2022April 1, 2023 were $2.5$1.4 million, compared with a lossearnings of $0.9$1.0 million for the quarter ended July 3, 2021.April 2, 2022. Diluted earnings per share from continuing operations attributable to common shareholders (after dividends and accretion on preferred stock) was $0.02$0.01 for the quarter ended July 2, 2022,April 1, 2023, compared with a lossdiluted earnings per share $0.02of $0.00 for the quarter ended July 3, 2021.April 2, 2022.

SUNOPTA INC.26July 2, 2022 Form 10-Q

We recognized a lossEarnings from discontinued operations of $0.8$3.6 million (diluted earnings per share of $0.03) for the quarter ended JulyApril 2, 2022, which waswere related to the settlement of the purchase price allocation and other post-closing matters in connection with the 2020 divestiture of our global ingredients business, Tradin Organic (see note 11 to the unaudited consolidated financial statements included in this report.)Organic.

We realized earnings attributable to common shareholders of $0.9$0.7 million (diluted earnings per share of $0.01) for the quarter ended July 2, 2022,April 1, 2023, compared with a lossearnings attributable to common shareholders of $1.7$3.8 million (diluted lossearnings per share of $0.02)$0.04) for the quarter ended July 3, 2021, whichApril 2, 2022. Earnings attributable to common shareholders included dividends and accretion on our Series B-1 preferred stock of $0.8$0.7 million and $0.7$0.8 million in the secondfirst quarters of 20222023 and 2021,2022, respectively.

For the quarter ended July 2, 2022,April 1, 2023, adjusted earnings were $3.5$6.0 million, or $0.03$0.05 earnings per diluted share, compared with adjusted earnings of $0.1$0.9 million, or $0.00$0.01 earnings per diluted share for the quarter ended July 3, 2021.April 2, 2022. Adjusted EBITDA increased $7.9 million, or 50.5%, for the quarter ended July 2, 2022 was $22.3April 1, 2023 to $23.6 million, compared with $16.1$15.7 million for the quarter ended July 3, 2021.April 2, 2022. Adjusted earnings and adjusted EBITDA are non-GAAP financial measures. See footnotes (2)(3) and (3)(4) to the table above for a reconciliation of adjusted earnings and adjusted EBITDA from earnings (loss) from continuing operations, which we consider to be the most directly comparable U.S. GAAP financial measure.

Operating Segment Information

Plant-Based Foods and Beverages            
For the quarter ended April 1, 2023  April 2, 2022  Change  % Change 
             
Revenues$129,350 $135,511 $(6,161) -4.5% 
Gross profit 20,165  20,345  (180) -0.9% 
Gross margin 15.6%  15.0%     0.6% 
             
Operating income$8,277 $8,461 $(184) -2.2% 
Operating margin 6.4%  6.2%     0.2% 
 
Plant-Based Foods and Beverages            
For the quarter ended July 2, 2022  July 3, 2021  Change  % Change 
             
Revenues$145,912 $111,359 $34,553  31.0% 
Gross profit 23,940  19,896  4,044  20.3% 
Gross margin 16.4%  17.9%     -1.5% 
             
Operating income$12,196 $8,641 $3,555  41.1% 
Operating margin 8.4%  7.8%     0.6% 
SUNOPTA INC.25April 1, 2023 Form 10-Q

Plant-Based Foods and Beverages contributed $145.9$129.4 million in revenues for the quarter ended July 2, 2022,April 1, 2023, compared to $111.4$135.5 million for the quarter ended July 3, 2021, an increaseApril 2, 2022, a decrease of $34.6$6.1 million, or 31.0%4.5%. The table below explains the increasedecrease in revenues:

Plant-Based Foods and Beverages Revenue Changes   
Revenues for the quarter ended July 3, 2021$111,359 
Sales volume growth for oat-based product offerings, and other varieties of plant-based beverages and teas, including strength in our branded portfolio, together with the benefit of certain pricing actions taken to offset input cost inflation 29,538 
Increased commodity pricing for sunflower, partially offset by lower volumes 5,015 
Revenues for the quarter ended July 2, 2022$145,912 
Plant-Based Foods and Beverages Revenue Changes
Revenues for the quarter ended April 2, 2022$135,511
Impact of the divestiture of the sunflower business in the fourth quarter of 2022(17,163)
Lower external sales of plant-based ingredients due to a customer transferring part of its business to a second-source supplier and increased internal demand for oat base(7,695)
Wrap-around benefit of pricing actions taken in 2022 to offset inflationary cost increases, together with sales volume growth for oat milks and creamers, coconut and soy milks, and teas, partially offset by lower volumes of everyday broths18,697
Revenues for the quarter ended April 1, 2023$129,350

Gross profit in Plant-Based Foods and Beverages increaseddecreased by $4.0$0.1 million to $23.9$20.2 million for the quarter ended July 2, 2022,April 1, 2023, compared to $19.9$20.3 million for the quarter ended July 3, 2021.April 2, 2022. The table below explains the increasedecrease in gross profit:

SUNOPTA INC.Plant-Based Foods and Beverages Gross Profit Changes27
Gross profit for the quarter ended April 2, 2022July 2, 2022 Form 10-Q$20,345
Increase in start-up costs related to our new plant in Midlothian, Texas(5,354)
Impact of the divestiture of the sunflower business(239)
Higher volumes and pricing for plant-based beverages, together with increased internal use of oat base to support our beverage business, partially offset by higher input costs, increased inventory reserves, and incremental depreciation of new production equipment for capital expansion projects5,413
Gross profit for the quarter ended April 1, 2023$20,165
Plant-Based Foods and Beverages Gross Profit Changes   
Gross profit for the quarter ended July 3, 2021$19,896 
Higher volumes and pricing for plant-based beverages and ingredients, partially offset by increased manufacturing plant spend, including unrecovered inflationary increases in raw material costs and utility and freight rates, and higher wages to retain employees and costs to hire and train new employees, together with higher inventory reserves, incremental depreciation of new production equipment for capital expansion projects, and start-up costs incurred for our plant expansion in Midlothian, Texas 3,336 
Higher pricing spreads for sunflower, partially offset by lower volumes 708 
Gross profit for the quarter ended July 2, 2022$23,940 

Operating income in Plant-Based Foods and Beverages increaseddecreased by $3.6$0.2 million to $12.2$8.3 million for the quarter ended July 2, 2022,April 1, 2023, compared to $8.6$8.5 million for the quarter ended July 3, 2021.April 2, 2022. The table below explains the increasedecrease in operating income:

Plant-Based Foods and Beverages Operating Income Changes   
Operating income for the quarter ended July 3, 2021$8,641 
Increase in gross profit, as explained above 4,044 
Lower third-party consulting costs related to the acquisition of the Dream and WestSoy brands in April 2021, partially offset by increased travel, and brand marketing and advertising expenses 553 
Increase in corporate cost allocation, mainly related to incremental 2022 incentive plan accruals allocable to operating segment employees (1,042)
Operating income for the quarter ended July 2, 2022$12,196 
Plant-Based Foods and Beverages Operating Income Changes
Operating income for the quarter ended April 2, 2022$8,461
Increase in corporate cost allocation(510)
Decrease in gross profit, as explained above(180)
Lower employee compensation costs, partially offset by higher research and development and sales and marketing expenses506
Operating income for the quarter ended April 1, 2023$8,277

Looking forward, assuming economic conditions, including inflation pressures, do not significantly worsen,Despite the revenue headwind of lower external sales volumes of plant-based ingredients and the impact of the divestiture of the sunflower business in 2022, we anticipate year-over-year revenue growth for our Plant-Based Foods and Beverages operating segment for fiscal 2023, compared with fiscal 2022. Revenue growth is expected in the second half of 2022, compared2023 with capacity gains across our aseptic network, including the second halfcommencement of 2021, driven by higher expected output fromcommercial production on the 330-milliliter packaging line at our manufacturing facilities,Midlothian, Texas, facility, together with the expectedstart-up of other capacity expansion projects at our other aseptic facilities. In addition, we expect the wrap-around benefit of customer pricing actions taken toin 2022, and potential pricing actions in 2023 as needed, will effectively offset input cost inflation. We expect these pricing actions, together with an anticipated improvement inimproved plant operating performance,utilization and the divestiture of the lower-margin sunflower commodity business, to drive a year-over-year gross margin improvementimprovements in our plant-based operations in 2022,2023, excluding the impact of start-up costs related to our new 285,000 square foot plant-based beveragethe Midlothian facility, under construction in Midlothian, Texas. Despite challenges due to supply chain issues, we believe we remain largely on track with our original estimate to begin operations at this facility in late 2022, with the ramp-up of commercial productionas well as other capacity expansion projects expected to commencecome online in the first quarter of 2023. The statements in this paragraph are forward-looking statements. See "Forward-Looking Statements" above. SeveralVarious factors could adversely impact our ability to meet these forward-looking expectations, including the extent and duration of inflation headwinds; our ability to continue to pass through price increases to our customers to offset inflationary pressures; the impact of price inflation on consumer buying behavior and demand for plant-based beverage alternatives to dairy;beverages; our ability to successfully execute on our capital expansion projects, including our ability to commencethe ramp-up of commercial production at our Midlothian Texas, facility, in the first quarter of 2023, and the viability of those projects; and other factors described above under "Forward-Looking Statements."

Fruit-Based Foods and Beverages            
For the quarter ended July 2, 2022  July 3, 2021  Change  % Change 
             
Revenues$97,619 $90,914 $6,705  7.4% 
Gross profit 10,958  6,440  4,518  70.2% 
Gross margin 11.2%  7.1%     4.1% 
             
Operating income (loss)$3,211 $(1,447)$4,658  321.9% 
Operating margin 3.3%  -1.6%     4.9% 
SUNOPTA INC.2826July 2, 2022April 1, 2023 Form 10-Q
Fruit-Based Foods and Beverages            
For the quarter ended April 1, 2023  April 2, 2022  Change  % Change 
             
Revenues$94,530 $104,662 $(10,132) -9.7% 
Gross profit 8,038  8,011  27  0.3% 
Gross margin 8.5%  7.7%     0.8% 
             
Operating income (loss)$1,785 $784 $1,001  127.7% 
Operating margin 1.9%  0.7%     1.2% 

Fruit-Based Foods and Beverages contributed $97.6$94.5 million in revenues for the quarter ended July 2, 2022,April 1, 2023, compared to $90.9$104.7 million for the quarter ended July 3, 2021, an increaseApril 2, 2022, a decrease of $6.7$10.2 million, or 7.4%9.7%. The table below explains the increasedecrease in revenues:

Fruit-Based Foods and Beverages Revenue Changes   
Revenues for the quarter ended July 3, 2021$90,914 
Higher sales volumes and pricing for fruit snacks and incremental revenue from the introduction of smoothie bowls 7,617 
Lower retail sales of frozen fruit due to the impact of higher prices on consumer demand, together with lower volumes due to our portfolio rationalization efforts, partially offset by the benefit of pricing actions taken to offset commodity inflation incurred on fruit inventories and inflationary impacts to operating expenses (912)
Revenues for the quarter ended July 2, 2022$97,619 
Fruit-Based Foods and Beverages Revenue Changes
Revenues for the quarter ended April 2, 2022$104,662
Lower sales volumes of frozen fruit to retail and foodservice customers, together with the impact of one-time incremental volumes from a frozen fruit customer in the first quarter of 2022 that did not recur, partially offset by increased bulk fruit sales(14,582)
Higher sales volumes and pricing for fruit snacks and incremental volumes of smoothie bowls4,450
Revenues for the quarter ended April 1, 2023$94,530

Gross profit in Fruit-Based Foods and Beverages increased by $4.5 million to $11.0was $8.0 million for each of the quarterquarters ended JulyApril 1, 2023 and April 2, 2022, compared to $6.4 million for the quarter ended July 3, 2021.2022. The table below explains the slight increase in gross profit:

Fruit-Based Foods and Beverages Gross Profit Changes   
Gross profit for the quarter ended July 3, 2021$6,440 
Improved margin profile from portfolio rationalizations and reduced manufacturing cost base within our frozen fruit operations, together with higher pricing for retail frozen fruit, partially offset by lower sales volumes, together with increases in freight and storage rates, a higher mix of low-margin fruit juice sales, and frozen fruit inventory losses due to excess spoilage during handling 3,220 
Higher sales, production volumes, and pricing for fruit snacks 1,298 
Gross profit for the quarter ended July 2, 2022$10,958 
Fruit-Based Foods and Beverages Gross Profit Changes
Gross profit for the quarter ended April 2, 2022$8,011
Higher sales volumes and pricing for fruit snacks, together with increased production volumes and plant efficiencies in our fruit snack operations, partially offset by manufacturing inefficiencies and inventory losses related to the ramp-up of smoothie bowl production251
Lower sales and production volumes of frozen fruit for retail and foodservice customers, together with a higher mix of lower margin bulk fruit sales, partially offset by improved pricing and reduced inventory losses due to excess spoilage during handling(224)
Gross profit for the quarter ended April 1, 2023$8,038
SUNOPTA INC.27April 1, 2023 Form 10-Q

Operating income in Fruit-Based Foods and Beverages increased by $4.7$1.0 million to $3.2$1.8 million for the quarter ended July 2, 2022,April 1, 2023, compared to an operating loss of $1.4$0.8 million for the quarter ended July 3, 2021.April 2, 2022. The table below explains the increase in operating income:

Fruit-Based Foods and Beverages Operating Income Changes   
Operating loss for the quarter ended July 3, 2021$(1,447)
Increase in gross profit, as explained above 4,518 
Lower employee compensation costs due to a workforce reduction in August 2021, partially offset by an unfavorable foreign exchange impact within our frozen fruit operations in Mexico 274 
Increase in corporate cost allocation, mainly related to incremental 2022 incentive plan accruals allocable to operating segment employees (134)
Operating income for the quarter ended July 2, 2022$3,211 
SUNOPTA INC.Fruit-Based Foods and Beverages Operating Income Changes29
Operating income for the quarter ended April 2, 2022July 2, 2022 Form 10-Q$784
Favorable foreign exchange impact within our frozen fruit operations in Mexico, partially offset by higher SG&A expenses1,628
Increase in gross profit, as explained above27
Increase in corporate cost allocation(654)
Operating income for the quarter ended April 1, 2023$1,785

Looking forward, assuming economic conditions, including inflationary pressures, do not significantly worsen,While we expect that the pricing actions taken onexperienced a softening of demand for retail frozen fruit to offset commodity inflationin the first quarter of 2023, we anticipate higher revenues and inflationary impacts to operating expenses, together with the benefit of a reduced manufacturing cost base within our frozen fruit operations (including cost savings and efficiencies expected to be achieved following the sale of our Oxnard, California, frozen fruit processing facility), will result in gross margin improvement inprofit for our Fruit-Based Foods and Beverages operating segment for fiscal 2023, compared with fiscal 2022, driven by the expected completion of capacity expansion projects in our fruit snacks operations in the second half of 2022, compared2023 to meet unfilled demand, together with the second half of 2021. However, we anticipate that higher prices and inflationary headwinds may continue to impact overall retail demand forstable frozen fruit in the second half of 2022. We have successfully completed our 2022 prime fruit seasons in Mexico and California with the overall results comparing favorably to 2021 in terms of volumes and pricing. Within our fruit snacks operations, we expect strong revenue and profit growth in the second half of 2022, compared with the same period in 2021, driven by volume gains and pricing actions for core fruit snack products, and further commercialization of our smoothie bowl line. However, while capital expansion projects are underway in our fruit snacks operations to meet current unfilled demand, we expect that existing capacity constraints will limit the growth potential for this business through the first half of 2023.volumes. The statements in this paragraph are forward-looking statements. See "Forward-Looking Statements" above. SeveralVarious factors could adversely impact our ability to meet these forward-looking expectations, including the extent and duration of inflation headwinds, and the impact on consumer buying behavior and overall demand for frozen fruit; the outcome of our pricing actions with customers, including the softening of consumer demand due to higher retail prices; our ability to achieve the anticipated cost savings and efficiencies from our manufacturing network consolidation; our ability to successfully commercialize our smoothie bowl product line; our assessment of future capacity requirements in fruit snacks operations;fruit-based products; our ability to successfully execute on our capital expansion projects, and the viability of those projects; our ability to successfully migrate our smoothie bowl production and achieve anticipated volume gains and cost savings; and other factors described above under "Forward- Looking"Forward-Looking Statements."

Corporate Services          
For the quarter ended July 2, 2022  July 3, 2021  Change % Change  April 1, 2023 April 2, 2022 Change % Change 
         
Operating loss$(7,298)$(5,471)$(1,827) -33.4% $(7,524)$(5,239)$(2,285) -43.6% 

Operating loss at Corporate Services increased by $1.8$2.3 million to $7.3$7.5 million for the quarter ended July 2, 2022,April 1, 2023, compared to a loss of $5.5$5.2 million for the quarter ended July 3, 2021.April 2, 2022. The table below explains the increase in operating loss:

Corporate Services Operating Loss Changes   
Operating loss for the quarter ended July 3, 2021$(5,471)
Incremental 2022 incentive plan accruals based on performance, together with costs related to our 2022 Investor Day of $0.5 million (3,459)
Increase in corporate cost allocations, mainly related to the portion of the incremental 2022 incentive plan accruals allocable to operating segment employees 1,176 
Lower variable stock-based compensation, related to the timing of annual grants under our incentive plans 456 
Operating loss for the quarter ended July 2, 2022$(7,298)
Corporate Services Operating Loss Changes
Operating loss for the quarter ended April 2, 2022$(5,239)
Higher variable stock-based compensation, based on improved performance(2,263)
Higher employee compensation and business development costs(1,186)
Increase in corporate cost allocations, mainly related to headcount and salary increases1,164
Operating loss for the quarter ended April 1, 2023$(7,524)

Corporate cost allocations mainly consist of salaries of corporate personnel who directly support the operating segments, as well as costs related to our enterprise resource management system. These expenses are allocated to the operating segments based on (1) specific identification of allocable costs that represent a service provided to each segment and (2) a proportionate distribution of costs based on a weighting of factors such as revenue contribution and the number of people employed within each segment.

SUNOPTA INC.30July 2, 2022 Form 10-Q

Consolidated ResultsLiquidity and Capital Resources

From time to time, as part of Operations forour ongoing efforts to improve working capital efficiency, we utilize, at our sole discretion, supplier finance programs offered by some of our major customers that allow us to sell our receivables from the two quarters ended July 2, 2022 and July 3, 2021

  July 2, 2022  July 3, 2021  Change  Change 
For the two quarters ended $  $  $  % 
             
Revenues            
Plant-Based Foods and Beverages 281,423  230,810  50,613  21.9% 
Fruit-Based Foods and Beverages 202,281  179,103  23,178  12.9% 
Total revenues 483,704  409,913  73,791  18.0% 
             
Gross Profit            
Plant-Based Foods and Beverages 43,920  43,054  866  2.0% 
Fruit-Based Foods and Beverages 18,969  13,271  5,698  42.9% 
Total gross profit 62,889  56,325  6,564  11.7% 
             
Gross Margin            
Plant-Based Foods and Beverages 15.6%  18.7%     -3.1% 
Fruit-Based Foods and Beverages 9.4%  7.4%     2.0% 
Total gross margin 13.0%  13.7%     -0.7% 
             
Segment operating income (loss)(1)            
Plant-Based Foods and Beverages 20,292  21,958  (1,666) -7.6% 
Fruit-Based Foods and Beverages 3,995  (3,341) 7,336  219.6% 
Corporate Services (12,262) (10,809) (1,453) -13.4% 
Total segment operating income 12,025  7,808  4,217  54.0% 
             
Other expense, net 1,827  6,276  (4,449) -70.9% 
Earnings from continuing operations before the following 10,198  1,532  8,666  565.7% 
Interest expense, net 5,662  3,291  2,371  72.0% 
Income tax expense (benefit) 1,384  (2,513) 3,897  155.1% 
Earnings from continuing operations(2),(3) 3,152  754  2,398  318.0% 
Earnings from discontinued operations 2,752  -  2,752  - 
Net earnings 5,904  754  5,150  683.0% 
Dividends and accretion on preferred stock (1,515) (2,697) 1,182  43.8% 
             
Earnings (loss) attributable to common shareholders(4) 4,389  (1,943) 6,332  325.9% 

(1)The following table presentscustomers to such customers' financial institutions, on a reconciliation of segment operating income/loss to "earnings (loss) from continuing operations before the following," which we considernon-recourse basis, in order to be paid earlier than our payment terms with the most directly comparable U.S. GAAP financial measure (refer to footnote (1) tocustomer provide at a discount rate that leverages those customers' favorable credit ratings. Utilizing these programs reduces our accounts receivable balances, improves our cash flows, and reduces the "Consolidated Resultscost of Operations for the Quarters Ended July 2, 2022 and July 3, 2021" table regarding the use of this non-GAAP measure).

  Plant-Based  Fruit-Based       
  Foods and  Foods and  Corporate    
  Beverages  Beverages  Services  Consolidated 
For the two quarters ended $  $  $  $ 
             
July 2, 2022            
Segment operating income (loss) 20,292  3,995  (12,262) 12,025 
Other expense, net (246) (1,155) (426) (1,827)
Earnings (loss) from continuing operations before the following 20,046  2,840  (12,688) 10,198 
             
July 3, 2021            
Segment operating income (loss) 21,958  (3,341) (10,809) 7,808 
Other expense, net (80) (5,477) (719) (6,276)
Earnings (loss) from continuing operations before the following 21,878  (8,818) (11,528) 1,532 

We believe that investors' understanding ofservicing these receivables with our financial performance is enhanced by disclosing the specific items that we exclude from segment operating income. However, any measure of operating income excluding any or all of these items is not, and should not be viewed as, a substitute for operating income prepared under U.S. GAAP. These items are presented solely to allow investors to more fully understand how we assess financial performance.revolving credit facility.

SUNOPTA INC.3128July 2, 2022April 1, 2023 Form 10-Q

(2)The following table presents a reconciliation of adjusted earnings from earnings from continuing operations, which we consider to be the most directly comparable U.S. GAAP financial measure (refer to footnote (2) to the "Consolidated Results of Operations for the Quarters Ended July 2, 2022 and July 3, 2021" table regarding the use of this non-GAAP measure).

  July 2, 2022  July 3, 2021 
     Per Share     Per Share 
For the two quarters ended $  $  $  $ 
Earnings from continuing operations 3,152     754    
Dividends and accretion on preferred stock (1,515)    (2,697)   
Earnings (loss) from continuing operations attributable to common shareholders 1,637  0.02  (1,943) (0.02)
Adjusted for:            
Facility closure costs(a) 1,287     -    
Business development costs(b) 799     1,786    
Start-up costs(c) 721     -    
Costs related to exit from fruit ingredient processing facility(d) -     4,123    
Restructuring costs(e) -     1,432    
Other(f) 540     247    
Net income tax effect(g) (879)    (4,262)   
Adjusted earnings 4,105  0.04  1,383  0.01 

(a)Facility closure costs mainly related to the relocation of certain equipment from our held-for-sale Oxnard, California, frozen fruit processing facility to our Mexican facility, which were recorded in other expense.

(b)Represents third-party costs associated with business development activities, including costs related to the evaluation, execution, and integration of external acquisitions and divestitures, internal expansion projects, and other strategic initiatives. For the first two quarters of 2022, these costs related to our inaugural Investor Day held in June 2022 ($0.5 million), as well as specific business transactions under consideration, which were recorded in SG&A expenses. For the first two quarters of 2021, these costs were mainly related to the transition of the Dream and WestSoy brands, acquired in April 2021, and professional fees incurred in connection with post-closing matters related to the 2020 divestiture of our global ingredients business, Tradin Organic, which were recorded in SG&A expenses ($1.3 million) and other expense ($0.5 million).

(c)Represents incremental direct costs incurred in connection with plant expansion projects and new product introductions before the project or product reaches normal production levels, including costs for the hiring and training of additional personnel, fees for outside services, travel costs, and plant- and production-related expenses. For the first two quarters of 2022, start-up costs mainly related to new employee hires for our plant-based beverage facility under construction in Midlothian, Texas, and the integration of the Dream and WestSoy brands, which were recorded in cost of goods sold ($0.6 million) and SG&A expenses ($0.1 million).

(d)For the first two quarters of 2021, represents asset impairment charges and employee termination costs related to the exit from our South Gate, California, fruit ingredient processing facility, which were recorded in other expense.

(e)For the first two quarters of 2021, represents costs to complete the exit from our Santa Maria, California, frozen fruit processing facility, which were recorded in other expense.

(f)For the first two quarters of 2022, other mainly reflects the settlement of certain legal and contractual matters, together with asset impairment charges. For the first two quarters of 2021, other mainly reflects the settlement of certain legal and contractual matters.

(g)Reflects the tax effect of the preceding adjustments to earnings calculated based on the statutory tax rates applicable in the tax jurisdiction of the underlying adjustment.

(3)The following table presents a reconciliation of segment operating income and adjusted EBITDA from earnings from continuing operations, which we consider to be the most directly comparable U.S. GAAP financial measure (refer to footnote (3) to the "Consolidated Results of Operations for the Quarters Ended July 2, 2022 and July 3, 2021" table regarding the use of this non-GAAP measure).

  July 2, 2022  July 3, 2021 
For the two quarters ended $  $ 
Earnings from continuing operations 3,152  754 
Income tax expense (benefit) 1,384  (2,513)
Interest expense, net 5,662  3,291 
Other expense, net 1,827  6,276 
Total segment operating income 12,025  7,808 
Depreciation and amortization 18,785  16,953 
Stock-based compensation 5,599  8,343 
Business development costs(a) 799  1,312 
Start-up costs(b) 721  - 
Adjusted EBITDA 37,929  34,416 

(a)Business development activities were related to our Investor Day and the exploration of potential strategic opportunities in the first two quarters of 2022, and the integration of the Dream and WestSoy brands in the first two quarters of 2021, which costs were recorded in SG&A expenses.

(b)For the first two quarters of 2022, start-up costs mainly related to new employee hires for our plant-based beverage facility under construction in Midlothian, Texas, and the integration of the Dream and WestSoy brands acquired in April 2021, which were recorded in cost of goods sold.

SUNOPTA INC.32July 2, 2022 Form 10-Q

(4)Refer to footnote (4) to the "Consolidated Results of Operations for the Quarters Ended July 2, 2022 and July 3, 2021" table regarding the use of certain other non-GAAP measures in the discussion of our results of operations below.

Revenues for the two quarters ended July 2, 2022 increased by 18.0% to $483.7 million from $409.9 million for the two quarters ended July 3, 2021, reflecting 21.9% revenue growth in the Plant-Based Foods and Beverages segment and 12.9% revenue growth in the Fruit-Based Foods and Beverages segment. The change in revenues from the first two quarters of 2021 to the first two quarters of 2022 was due to the following:

  Plant-Based  Fruit-Based       
  Foods and Beverages  Foods and Beverages  Consolidated 
  $  %  $  %  $  % 
2021 revenues 230,810     179,103     409,913    
Price 24,917  10.8%  20,682  11.5%  45,599  11.1% 
Volume/Mix 21,961  9.5%  2,496  1.4%  24,457  6.0% 
Acquisition 3,735  1.6%  -  -  3,735  0.9% 
2022 revenues 281,423  21.9%  202,281  12.9%  483,704  18.0% 

Note: percentages may not add due to rounding.

For the two quarters ended July 2, 2022, the 21.9% increase in revenues for the Plant-Based Foods and Beverages segment reflected a 10.8% overall increase in pricing, a favorable volume/mix impact of 9.5%, and 1.6% of incremental revenue in the first quarter of 2022 related to the acquisition of the Dream and WestSoy brands in April 2021. The increase in pricing was driven by certain pricing actions taken with customers to offset inflationary cost increases, together with the pass-through effect of higher sunflower commodity pricing. Volume/mix was favorable mainly due to growth from our oat-based product offerings, and other varieties of plant-based beverages and teas, including strength in our branded portfolio, partially offset by softer volumes of sunflower.

For the two quarters ended July 2, 2022, the 12.9% increase in revenues for the Fruit-Based Foods and Beverages segment reflected an 11.5% overall increase in pricing and a favorable volume/mix impact of 1.4%. The favorability in price reflected the benefit of pricing actions taken in the second half of 2021 and first quarter of 2022 to offset commodity inflation incurred on fruit inventories and inflationary impacts to operating expenses. The favorable volume/mix impact reflected strong demand for fruit snacks and the introduction of smoothie bowls, partially offset by decreased consumer demand for retail frozen fruit due to higher prices resulting from inflation, together with lower volumes due to our portfolio rationalization efforts.

Consolidated gross profit increased $6.6 million, or 11.7%, to $62.9 million for the two quarters ended July 2, 2022, compared with $56.3 million for the two quarters ended July 3, 2021. Consolidated gross margin for the two quarters ended July 2, 2022 was 13.0% compared to 13.7% for the two quarters ended July 3, 2021, a decrease of 70 basis points.

Gross profit for the Plant-Based Foods and Beverages segment increased $0.9 million to $43.9 million for the two quarters ended July 2, 2022, compared with $43.1 million for the two quarters ended July 3, 2021, while gross margin decreased to 15.6% in the first two quarters of 2022 from 18.7% in the first two quarters of 2021. The 310-basis point decrease in the plant- based gross margin included an estimated 180 basis-point decline due to the dilutive effect of pass-through pricing to recover cost inflation on raw materials and packaging. The remaining gross margin impact reflected unrecovered raw material cost inflation due to the lag in pricing adjustments, together with higher labor and utility costs, increased inventory reserves and higher depreciation expense. In addition, the reported plant-based gross margin was negatively impacted by start-up costs of $0.6 million (0.2% gross margin impact) incurred in connection with our plant expansionefforts to extend payment terms with our major suppliers to enhance cash flows, we facilitate our own voluntary supplier finance program through a third-party financial institution, by which a participating supplier may elect to sell an invoice to the financial institution in Midlothian, Texas,order to be paid earlier than the contractual payment terms provide (see note 4 to the unaudited consolidated financings statements included in this report.) Additionally, we are financing certain other purchases of goods and services through an extended payables facility, by which a third-party intermediary settles the integrationsupplier invoice on the contractual due date, and we pay the intermediary the face amount of the Dream and WestSoy brands. These negative factors were partially offset by higher production volumes and plant utilization in our plant-based beverage and ingredient operations.

Gross profit for the Fruit-Based Foods and Beverages segment increased $5.7 million to $19.0 million for the two quarters ended July 2, 2022, compared with $13.3 million for the two quarters ended July 3, 2021, and gross margin increased 200 basis points to 9.4% in the first two quarters of 2022 from 7.4% in the first two quarters of 2021, despite an estimated 80 basis-point decline due to the dilutive effect of pass-through pricing to recover commodity cost inflation. Excluding this pricing effect, fruit-based gross margin reflected the benefits of portfolio rationalizations for frozen fruit and manufacturing cost savings from the consolidation of our fruit processing facilities in 2021, partially offset by increases in freight and storage rates, a higher mix of low-margin fruit juice sales, and frozen fruit inventory losses due to excess spoilage during handling.

SUNOPTA INC.33July 2, 2022 Form 10-Q

For the two quarters ended July 2, 2022, we realized total segment operating income of $12.0 million, compared with $7.8 million for the two quarters ended July 3, 2021. The $4.2 million increase in total segment operating income reflected higher gross profit, as described above, partially offset by a $2.6 million increase in SG&A expenses and a $0.5 million increase in amortization expense related to our acquisition of the Dream and WestSoy brand name intangible assets in April 2021. The increase in SG&A expenses was mainly due to a special one-time recognition bonus of $1.6 million to reward employees for improved performance in the first quarter of 2022,invoice, together with incremental 2022 incentive plan accruals based on performance. These factors were partially offset byinterest, at a $2.1 million reduction in variable stock-based compensation because the performance condition under our 2021 incentive plan was not achieved, together with lower employee compensation costs related to headcount reductions in our frozen fruit operations in August 2021, and lower business development expenses related to costs incurred to acquire the Dream and WestSoy brands in April 2021. In addition, we recognized a favorable year-over- year foreign exchange impact related to our Mexican operations of $0.8 million.

Further details on revenue, gross profit and segment operating income/loss variances are provided below under "Operating Segment Information."

Other expense was $1.8 million for the two quarters ended July 2, 2022, compared with other expense of $6.3 million for the two quarters ended July 3, 2021. Other expense in the first two quarters of 2022 mainly reflected costs to relocate certain equipment from our held-for-sale Oxnard, California, frozen fruit processing facility to our Mexican facility, while other expense in the first two quarters of 2021 mainly reflected plant closure costs related to the consolidation of our fruit processing facilities.

Net interest expense increased by $2.4 million to $5.7 million for the two quarters ended July 2, 2022, compared with $3.3 million for the two quarters ended July 3, 2021, resulting from an increase in outstanding debt to finance capital expansion projects and fund working capital requirements.

Income tax expense was $1.4 million on pre-tax earnings from continuing operations of $4.5 million for the two quarters ended July 2, 2022, compared with income tax benefit of $2.5 million on a pre-tax loss from continuing operations of $1.8 million for the two quarters ended July 3, 2021. Excluding the impact of stock-based compensation and other non-deductible expenses included in pre-tax earnings, our effective tax rate was 27.5% in the first two quarters of 2022, compared with 24.9% in the first two quarters of 2021.

Earnings from continuing operations for the two quarters ended July 2, 2022 were $3.2 million, compared with earnings of $0.8 million for the two quarters ended July 2, 2022. Diluted earnings per share from continuing operations attributable to common shareholders (after dividends and accretion on preferred stock) was $0.02 for the two quarters ended July 2, 2022, compared with a loss per share $0.02 for the two quarters ended July 3, 2021.

Earnings from discontinued operations of $2.8 million for the two quarters ended July 2, 2022, were related to the settlement of the purchase price allocation and other post-closing matters in connection with the 2020 divestiture of our global ingredients business, Tradin Organiclater date (see note 115 to the unaudited consolidated financial statements included in this report.).

We realized earnings attributable to common shareholders of $4.4 million (diluted earnings per share of $0.04) for the two quarters ended July 2, 2022, compared with a loss attributable to common shareholders of $1.9 million (diluted loss per share of $0.02) for the two quarters ended July 3, 2021, which reflected dividends and accretion on preferred stock of $1.5 million and $2.7 million in the first two quarters of 2022 and 2021, respectively. The decline in preferred stock dividends and accretion reflected the exchange of all of the shares of Series A preferred stock for shares of our common stock in February 2021. Outstanding preferred stock since February 2021 consists entirely of our Series B-1 preferred stock.

For the two quarters ended July 2, 2022, adjusted earnings were $4.1 million, or $0.04 per diluted share, compared with adjusted earnings of $1.4 million, or $0.01 per diluted share for the two quarters ended July 3, 2021. Adjusted EBITDA for the two quarters ended July 2, 2022 was $37.9 million, compared with $34.4 million for the two quarters ended July 3, 2021. Adjusted earnings and adjusted EBITDA are non-GAAP financial measures. See footnotes (2) and (3) to the table above for a reconciliation of adjusted earnings and adjusted EBITDA from earnings from continuing operations, which we consider to be the most directly comparable U.S. GAAP financial measure.

SUNOPTA INC.34July 2, 2022 Form 10-Q

Segmented Operations Information

Plant-Based Foods and Beverages            
For the two quarters ended July 2, 2022  July 3, 2021  Change  % Change 
             
Revenues$281,423 $230,810 $50,613  21.9% 
Gross profit 43,920  43,054  866  2.0% 
Gross margin 15.6%  18.7%     -3.1% 
             
Operating income$20,292 $21,958 $(1,666) -7.6% 
Operating margin 7.2%  9.5%     -2.3% 

Plant-Based Foods and Beverages contributed $281.4 million in revenues for the two quarters ended July 2, 2022, compared to $230.8 million for the two quarters ended July 3, 2021, an increase of $50.6 million, or 21.9%. The table below explains the increase in revenues:

Plant-Based Foods and Beverages Revenue Changes   
Revenues for the two quarters ended July 3, 2021$230,810 
Sales volume growth for oat-based product offerings, and other varieties of plant-based beverages and teas, including strength in our branded portfolio, together with the benefit of certain pricing actions taken to offset input cost inflation 40,821 
Increased commodity pricing for sunflower, partially offset by lower volumes 6,057 
Incremental revenue in the first quarter of 2022 related to the acquisition of the Dream and WestSoy brands in April 2021 3,735 
Revenues for the two quarters ended July 2, 2022$281,423 

Gross profit in Plant-Based Foods and Beverages increased by $0.9 million to $43.9 million for the two quarters ended July 2, 2022, compared to $43.1 million for the two quarters ended July 3, 2021. The table below explains the increase in gross profit:

Plant-Based Foods and Beverages Gross Profit Changes   
Gross profit for the two quarters ended July 3, 2021$43,054 
Higher volumes and pricing for plant-based beverages and ingredients, including the incremental contribution in the first quarter of 2022 from the acquisition of the Dream and WestSoy brands in April 2021, partially offset by increased manufacturing plant spend, including unrecovered inflationary increases in raw material costs and utility and freight rates, and higher wages to retain employees and costs to hire and train new employees, together with higher inventory reserves and incremental depreciation of new production equipment for capital expansion projects, and start-up costs incurred for our plant expansion in Midlothian, Texas 737 
Higher pricing spreads for sunflower, partially offset by lower volumes 129 
Gross profit for the two quarters ended July 2, 2022$43,920 

Operating income in Plant-Based Foods and Beverages decreased by $1.7 million to $20.3 million for the two quarters ended July 2, 2022, compared to $22.0 million for the two quarters ended July 3, 2021. The table below explains the decrease in operating income:

SUNOPTA INC.35July 2, 2022 Form 10-Q
Plant-Based Foods and Beverages Operating Income Changes   
Operating income for the two quarters ended July 3, 2021$21,958 
Increase in corporate cost allocation, mainly related to incremental 2022 incentive plan accruals allocable to operating segment employees (2,084)
Incremental amortization of the acquired Dream and WestSoy brand name intangible assets in the first quarter of 2022, together with increased brand marketing and advertising, and travel expenses, partially offset by lower third-party consulting costs related to the acquisition of the Dream and WestSoy brands in April 2021 (448)
Increase in gross profit, as explained above 866 
Operating income for the two quarters ended July 2, 2022$20,292 
Fruit-Based Foods and Beverages            
For the two quarters ended July 2, 2022  July 3, 2021  Change  % Change 
             
Revenues$202,281 $179,103 $23,178  12.9% 
Gross profit 18,969  13,271  5,698  42.9% 
Gross margin 9.4%  7.4%     2.0% 
             
Operating income (loss)$3,995 $(3,341)$7,336  219.6% 
Operating margin 2.0%  -1.9%     3.9% 

Fruit-Based Foods and Beverages contributed $202.3 million in revenues for the two quarters ended July 2, 2022, compared to $179.1 million for the two quarters ended July 3, 2021, an increase of $23.2 million, or 12.9%. The table below explains the increase in revenues:

Fruit-Based Foods and Beverages Revenue Changes   
Revenues for the two quarters ended July 3, 2021$179,103 
Higher sales volumes and pricing for fruit snacks and incremental revenue from the introduction of smoothie bowls 12,411 
Benefit of pricing actions taken to offset commodity inflation incurred on fruit inventories and inflationary impacts to operating expenses, partially offset by lower retail sales of frozen fruit due to the impact of higher prices on consumer demand, together with lower volumes due to our portfolio rationalization efforts 10,767 
Revenues for the two quarters ended July 2, 2022$202,281 

Gross profit in Fruit-Based Foods and Beverages increased by $5.7 million to $19.0 million for the two quarters ended July 2, 2022, compared to $13.3 million for the two quarters ended July 3, 2021. The table below explains the increase in gross profit:

Fruit-Based Foods and Beverages Gross Profit Changes   
Gross profit for the two quarters ended July 3, 2021$13,271 
Improved margin profile from portfolio rationalizations and reduced manufacturing cost base within our frozen fruit operations, together with higher pricing for retail frozen fruit, partially offset by lower sales volumes, together with increases in freight and storage rates, a higher mix of low-margin fruit juice sales, and frozen fruit inventory losses due to excess spoilage during handling 5,075 
Higher sales, production volumes, and pricing for fruit snacks 623 
Gross profit for the two quarters ended July 2, 2022$18,969 
SUNOPTA INC.36July 2, 2022 Form 10-Q

Operating income in Fruit-Based Foods and Beverages increased by $7.3 million to $4.0 million for the quarter ended July 2, 2022, compared to an operating loss of $3.3 million for the quarter ended July 3, 2021. The table below explains the increase in operating income:

Fruit-Based Foods and Beverages Operating Income Changes   
Operating loss for the two quarters ended July 3, 2021$(3,341)
Increase in gross profit, as explained above 5,698 
Lower employee compensation costs due to a workforce reduction in August 2021, together with a favorable foreign exchange impact within our frozen fruit operations in Mexico 1,905 
Increase in corporate cost allocation, mainly related to incremental 2022 incentive plan accruals allocable to operating segment employees (267)
Operating income for the two quarters ended July 2, 2022$3,995 
Corporate Services             
For the two quarters ended July 2, 2022  July 3, 2021  Change  % Change 
Operating loss$(12,262)$(10,809)$(1,453) -13.4% 

Operating loss at Corporate Services increased by $1.5 million to $12.3 million for the two quarters ended July 2, 2022, compared to a loss of $10.8 million for the two quarters ended July 3, 2021. The table below explains the increase in operating loss:

Corporate Services Operating Loss Changes   
Operating loss for the two quarters ended July 3, 2021$(10,809)
Incremental 2022 incentive plan accruals based on performance, and one-time recognition bonus of $1.6 million recognized in the first quarter of 2022 to reward employees for improved performance, together with costs related to our 2022 Investor Day of $0.5 million (6,548)
Lower variable stock-based compensation, mainly because the performance condition under our 2021 incentive plan was not achieved 2,744 
Increase in corporate cost allocations, mainly related to the portion of the incremental 2022 incentive plan accruals allocable to operating segment employees 2,351 
Operating loss for the two quarters ended July 2, 2022$(12,262)

Liquidity and Capital Resources

On December 31, 2020, we entered into a five-year credit agreement, as amended, for a senior secured asset-based revolving credit facility in the maximum aggregate principal amount of $250 million, subject to borrowing base capacity. As at July 2, 2022,April 1, 2023, we had outstanding borrowings under the revolving credit facility of $176.7$142.9 million (January 1,(December 31, 2022 - $153.3$137.3 million), including a $17.5 million FILO term loan (December 31, 2022 - $20.0 million), and available borrowing capacity of approximately $71$41 million (January 1, 2022 - $67$50 million). Commencing in the first quarter of 2023, we are making amortization payments on the principal amount of the FILO term loan of $2.5 million each quarter, with the remaining amount payable at the maturity thereof on April 15, 2024.

The credit agreement also providesprovided a five-year, up to $75 million delayed draw term loan, to be used for capital expenditures, which maycould be drawn upon up to March 31, 2023. As at July 2, 2022,March 31, 2023, we had $19.4utilized $57.0 million drawn on the term loan facility mainly to partially finance the purchase of equipment for our new plant-based beverage facility in Midlothian, Texas, facility. as well as certain other equipment purchases. Commencing in March 2023, we are repaying the term loan facility in monthly installments of $0.7 million, with the remaining amount payable at the maturity thereof on December 31, 2025. As at April 1, 2023, the principal amount outstanding under the term loan facility was $56.4 million (December 31, 2022 - $43.7 million).

For the quarter ended April 1, 2023, the weighted-average interest rate on all outstanding borrowings under our asset-based credit facilities was 6.95% (April 2, 2022 - 2.42%), reflecting increases in short-term interest rates.


For more information on our asset-based credit facilities, see note 56 to the unaudited consolidated financial statements included in this report.

During the first two quarters of 2022,As at April 1, 2023, we recognized additionalhad outstanding finance lease liabilities of $120.1 million (December 31, 2022 - $124.1 million), with a weighted-average implicit interest rate of 8.25% and a weighted-average remaining lease term of 3.5 years. Additions to finance leases in the amountfirst quarter of $50.7 million, mainly2023 were related to the buildoutsfinal buildout of our Midlothian, Texas, facility, and our executive office and innovation center located in Eden Prairie, Minnesota, together with the addition of new processing equipment at our Allentown, Pennsylvania, plant-based beverage facility, and plant improvements at our Alexandria, Minnesota, plant-based beverage facility. For more information on our operating and finance lease obligations, including maturity dates, see note 43 to the unaudited consolidated financial statements included in this report.

SUNOPTA INC.37July 2, 2022 Form 10-Q

As at July 2, 2022,April 1, 2023, our subsidiary, SunOpta Foods Inc., ("SunOpta Foods") had 30,00015,000 shares of Series B-1 preferred stock issued and outstanding. The Series B-1 preferred stock currently has a liquidation preference of approximately $1,015 per share and is exchangeable into shares of our common stock at an exchange price of $2.50 per share.share, which presently equates to approximately 6,089,333 common shares. Cumulative preferred dividends accrue daily on the Series B-1 preferred stock at an annualized rate of 8.0% of the liquidation preference, prior to September 30, 2029, which presently equates to quarterly dividend distributions of approximately $0.6 million, and 10.0%$0.3 million. At any time, the holders of the liquidation preference thereafter. Series B-1 preferred stock may elect to exchange their shares of Series B-1 preferred stock into shares of our common stock. In addition, since April 24, 2023, SunOpta Foods may cause the holders of the Series B-1 Preferred Stock to exchange all of their shares of Series B-1 preferred stock into shares of our common stock if the volume-weighted average trading price of our common shares during the then preceding 20 trading day period is greater than 200% of the $2.50 exchange price per share.

For more information on the Series B-1 preferred stock, see note 67 to the unaudited consolidated financial statements included in this report.

There have been no material changes outside the normal courseWe estimate cash expenditures of business$35 million to $45 million on identified capital projects in fiscal 2023, including $25.8 million spent in the naturefirst quarter of 2023, mainly related to the completion of our contractual obligations since January 1, 2022.Midlothian, Texas, facility. We funded our cash capital expenditures in the first quarter of 2023 using our term loan facility, together with cash advances under finance leases and our revolving credit facility. In addition, we estimate approximately $20 million of non-cash capital investments in 2023, consisting of capitalized finance lease right-of-use assets.

We believe that our operating cash flows, including the selective use of supplier finance programs and expected net proceeds from the sale of our Oxnard, California, frozen fruit processingextended payables facility to improve payment terms, together with our revolving and term loan credit facilities,facility, and access to lease financing, will be adequate to meet our operating, investing, and financing needs for the foreseeable future, including the 12-month period following the issuancefiscal period end of our financial statements.statements included in this report. However, in order to finance significant investments in our existing businesses, or significant business acquisitions, if any, that may arise in the future, we may need additional sources of cash that we could attempt to obtain through a combination of additional bank or subordinated financing, a private or public offering of debt or equity securities, or the issuance of common stock. There can be no assurance that these types of financing would be available at all or, if so, on terms that are acceptable to us. In addition, we may explore the sale of selected operations or assets from time to time to improve our profitability, reduce our indebtedness, and/or improve our position to obtain additional financing.

SUNOPTA INC.29April 1, 2023 Form 10-Q

Cash Flows

Summarized cash flow information for the periods ended JulyApril 1, 2023 and April 2, 2022 and July 3, 2021 is as follows:

 For the quarter ended 
 For the quarter ended  For the two quarters ended  April 1, 2023 April 2, 2022 Change 
 July 2,
2022
$		 July 3,
2021
$		 Change
$		  July 2,
2022
$		 July 3,
2021
$		 Change
$		  $ $ $ 
Net cash flows provided by (used in):        
Operating activities of continuing operations (2,454) (39,147) 36,693  13,089  (46,162) 59,251  3,867  15,543  (11,676)
Investing activities of continuing operations (34,060) (32,379) (1,681) (58,578) (40,326) (18,252) (25,457) (24,518) (939)
Financing activities of continuing operations 42,896  71,251  (28,355) 52,139  100,296  (48,157) 21,821  9,243  12,578 
Discontinued operations (6,324) -  (6,324) (6,324) (13,580) 7,256 

Operating Activities of Continuing Operations

Cash provided by operating activities decreased $11.7 million from the first quarter of 2022 to the first quarter of 2023. The decrease in cash used in operating activitiesprovided mainly reflected an unfavorable working capital change of continuing operations of $36.7$10.8 million, for the quarter ended July 2, 2022, comparedtogether with the quarter ended July 3, 2021, and the increase in cash provided by operating activities of continuing operations of $59.3 for the two quarters ended July 2, 2022, compared with the two quarters ended July 3, 2021, reflected a normalization of frozen fruit inventory purchasesimpact in the current year periods, compared with a needfirst quarter of 2023 of start-up costs related to replenish those inventories in the corresponding periods of 2021, following a shortfall in supply in 2020. In addition, we have improved working capital efficiency through the selective use of early payment programs offered by some of our major customers, and improved payment terms with certain of our suppliers. These factors were partially offset by the year-over-year impact of higher commodity prices for frozen fruit and sunflower seeds,Midlothian, Texas, facility, and higher inventory levels requiredcash interest expense on borrowings to support the growth of our plant-based beverage and fruit snacks platforms.finance capital expenditures.

SUNOPTA INC.38July 2, 2022 Form 10-Q

Investing Activities of Continuing Operations

Cash used in investing activities increased $0.9 million from the first quarter of continuing operations increased $1.7 million and $18.3 million for2022 to the first quarter and two quarters ended July 2, 2022, respectively, compared with the corresponding periods of 2021.2023. Investing cash flows mainly reflected additions to property, plant and equipment, of $37.0 million and $62.8 million in the second quarter and first two quarters of 2022, compared with additions of $7.3 million and $16.6 million in the corresponding periods of 2021. Capital expenditures in 2022 were mainly related toincluding the construction of our new plant-based beverage facility in Midlothian, Texas, facility, the completion of our executive office and innovation center, and expansion projects within our plant-based and fruit snacks operations. Investing cash flows for the quarter and two quarters ended July 3, 2021, included $25.1 million paid to acquire the Dream and WestSoy brand name intangible assets.Texas.

Financing Activities of Continuing Operations

Cash provided by financing activities of continuing operations decreased $28.4increased $12.6 million and $48.2 million forfrom the first quarter and two quarters ended July 2,of 2022 respectively, compared withto the corresponding periodsfirst quarter of 2021.2023. The decreasesincrease in cash provided mainly reflected reduced levelsan increased level of incremental revolver borrowings requiredunder our revolving credit facility and net proceeds from notes payable associated with the extended payables facility to fund changes in working capital in the current year periods,first quarter of 2023, partially offset by increaseda reduced level of borrowings of long-term debt, as capital projects are completed and repayments commence on the related to term loan and lease financing for capital projects.financing.

Discontinued Operations

Cash used in investing activities of discontinued operations of $6.3 million for the quarter ended July 2, 2022, related to the settlement of the purchase price allocation and other post-closing matters in connection with the 2020 divestiture of Tradin Organic, while cash used in investing activities of discontinued operations of $13.4 million for the two quarters ended July 2, 2022, related to the settlement of transaction costs accrued in connection with the Tradin Organic sale.

Critical Accounting Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, related revenues and expenses, and disclosure of gain and loss contingencies at the date of the financial statements. The estimates and assumptions made require us to exercise our judgment and are based on historical experience and various other factors that we believe to be reasonable under the circumstances. We continually evaluate the information that forms the basis of our estimates and assumptions as our business and the business environment generally changes.

There have been no material changes to the critical accounting estimates disclosed under the heading "Critical Accounting Estimates" in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," of the Form 10-K.

SUNOPTA INC.30April 1, 2023 Form 10-Q

Item 3. Quantitative and Qualitative Disclosures about Market Risk

For quantitative and qualitative disclosures about market risk, see Part II, Item 7A, "Quantitative and Qualitative Disclosures about Market Risk," of the Form 10-K. There have been no material changes to our exposures to market risks since January 1,December 31, 2022.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management has established disclosure controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934, as amended (the "Exchange Act") is recorded, processed, summarized and reported within time periods specified in the Securities and Exchange Commission's rules and forms. Such disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management to allow timely decisions regarding required disclosure.

SUNOPTA INC.39July 2, 2022 Form 10-Q

Under the supervision and with the participation of our management, including our Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), we conducted an evaluation of our disclosure controls and procedures (as such term is defined under Rule 13a-15(e) promulgated under the Exchange Act) as of the end of the period covered by this quarterly report. BasedAs a result of the material weaknesses in internal control over financial reporting identified and described in Item 9A of our Annual Report on this evaluation, our CEO and our CFO concluded thatForm 10-K for the fiscal year ended December 31, 2022, our disclosure controls and procedures were not effective as of July 2, 2022.April 1, 2023.

Notwithstanding the identified material weaknesses, management has concluded that the consolidated financial statements included in this Quarterly Report on Form 10-Q fairly represent in all material respects our financial condition, results of operations and cash flows at and for the periods presented in accordance with U.S. GAAP.

ChangesRemediation Plan for Material Weaknesses in Internal Control Overover Financial Reporting

OurThe Company is in the process of improving its policies and procedures relating to the preparation and review of the consolidated income tax provision and recognition of deferred tax assets related to stock-based compensation. Management plans to enhance its internal controls by adding controls to ensure proper review and assessment of business activities impacting the provision and completeness and accuracy of data used in preparing the consolidated tax provision and deferred tax assets.

The material weaknesses will not be considered remediated until the applicable remedial controls operate for a sufficient period of time and management withhas concluded, through testing, that these controls are operating effectively. As a result of the participationmaterial weakness relating to the annual consolidated income tax provision and recognition of our CEOdeferred tax assets, we believe the remediation will occur in the fourth quarter of fiscal 2023 and CFO, has evaluated whether any change inwill strengthen our internal control over financial reporting (as such term is definedand will prevent a reoccurrence of the material weaknesses described in Item 9A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

Changes in Internal Control over Financial Reporting

Other than the actions taken under Rule 13a-15(f) promulgated under the Exchange Act) occurred during the quarter ended July 2, 2022. Based on that evaluation, management concluded that"Remediation Plan for Material Weaknesses in Internal Control over Financial Reporting"discussed above, there were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the quarter ended July 2, 2022April 1, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

SUNOPTA INC.4031July 2, 2022April 1, 2023 Form 10-Q

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

For a discussion of legal proceedings, see note 1112 to the unaudited consolidated financial statements included under Part I, Item 1 of this report.

Item 1A. Risk Factors

Certain risks associated with our operations are discussed in Item 1A "Risk Factors" of our Annual Report on Form 10-K for the year ended January 1,December 31, 2022. There have been no material changes to the previously reported risk factors as of the date of this quarterly report. Our previously reported risk factors should be carefully reviewed in connection with an evaluation of our Company.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

See note 7 to our financial statements under Item 1 of Part I above for a description of our March 3, 2023 issuance of 6,089,331 common shares in exchange for shares of Series B-1 Preferred Stock of SunOpta Foods Inc. The issuance was exempt from registration pursuant to Rule 506(b) promulgated under the Securities Act of 1933, as amended, because all the of the purchasers were accredited investors.

Item 6. Exhibits

The following exhibits are included as part of this report.

10.1†ExhibitForm of Stock Option Award Agreement, dated May 5, 2022, between the Company and Joseph Ennen (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on May 9, 2022.)Description
10.2†Form of Performance Share Unit Award Agreement, dated May 5, 2022, between the Company and Joseph Ennen (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on May 9, 2022.)
  
31.1*Certification by Joseph D. Ennen, Chief Executive Officer, pursuant to Rule 13a - 14(a) under the Securities Exchange Act of 1934, as amended.
  
31.2*Certification by Scott Huckins, Chief Financial Officer, pursuant to Rule 13a - 14(a) under the Securities Exchange Act of 1934, as amended.
  
32*Certifications by Joseph D. Ennen, Chief Executive Officer, and Scott Huckins, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350.
  
101.INS*Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File as its XBRL tags are embedded within the Inline XBRL document
  
101.SCH*Inline XBRL Taxonomy Extension Schema Document
  
101.CAL*Inline XBRL Taxonomy Extension Calculation Linkbase Document
  
101.DEF*Inline XBRL Taxonomy Extension Definition Linkbase Document
  
101.LAB*Inline XBRL Taxonomy Extension Label Linkbase Document
  
101.PRE*Inline XBRL Taxonomy Extension Presentation Linkbase Document
  
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

†Indicates management contract or compensatory plan or arrangement.

*Filed herewith.

SUNOPTA INC.4132July 2, 2022April 1, 2023 Form 10-Q

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 SUNOPTA INC.
  
Date: August 11, 2022May 10, 2023/s/ Scott Huckins
 Scott Huckins
 Chief Financial Officer

(Authorized Signatory and Principal Financial Officer)
SUNOPTA INC.4233July 2, 2022April 1, 2023 Form 10-Q