Sunopta Inc (STKL) 2014 Q3 法說會逐字稿

Good morning, and welcome to SunOpta Incorporated third-quarter FY14 earnings conference call. By now, everyone should have access to the earnings press release that was issued after the close of business yesterday. The release is available on the Investor Relations portion of SunOpta's website at www.SunOpta.com. This call is being webcast and a transcription will be available on the Company's website.

As a reminder, please note that prepared remarks which will follow contain certain forward-looking statements, and management may make additional forward-looking statements in response to your questions. These statements do not guarantee future performance and, therefore, undue reliance should not be placed upon them. We refer you to all of the risk factors contained in SunOpta's press release issued yesterday, the Company's third-quarter FY14 quarterly report on Form 10-Q that will be issued at the close of business today, and other filings with the Securities and Exchange Commission for more detailed discussion of the factors that could cause actual results to differ materially from those projections in any forward-looking statements.

Finally, we would also like to remind listeners that the Company may refer to certain non-GAAP financial measures during the teleconference. A reconciliation of non-GAAP financial measures was included with the Company's press release, issued yesterday. Also note that, unless otherwise stated, all figures discussed today are in US dollars, and are occasionally rounded to the nearest million. I now would like to turn the call over to SunOpta's CEO, Steve Bromley.

Thanks, and good morning, everyone. On the call with me today are Rob McKeracher, our Vice President and Chief Financial Officer; and Rik Jacobs, our President and Chief Operating Officer. This morning, I will provide you with a brief overview of our third-quarter 2014 financial results, and an update on our key strategic initiatives. Then Rob will discuss our financial performance in more detail, and Rik will provide an update on our operations. Finally, I will provide some brief closing remarks, and then we'll open up the call to questions.

We remained focused on our core strategies during the third quarter and continued to realize the benefits of our operational realignment and repositioned go-to-market strategy. Our business segments posted solid growth in revenues, and we are pleased that each of our core foods operating segments generated higher revenues in the third quarter versus the prior year.

This positive revenue growth, combined with our 140-basis-point gross margin improvement and operating margin expansion of 80 basis points versus the prior year, helped fuel our earnings performance in the third quarter. We are pleased with our continued execution against our stated objective of growing our top line, while at the same time improving our margin profile. We achieved these results despite additional investments in people and infrastructure to support our future growth opportunities.

Our third-quarter and year-to-date revenues were led by higher demand for internationally-sourced organic raw materials, both domestically and abroad, and continued growth in consumer-packaged categories, including aseptic beverages and retail frozen-food products. Consistent with prior quarters, our growth more than offset lower commodity grain pricing and volume.

We continue to experience positive industry trends and, importantly for us, momentum is being driven across product categories, customers and geographies. Consumers are increasingly buying natural and organic products, and our product portfolio is well positioned to capitalize on these opportunities. Many consumer trends, such as clean labeling, eating healthier at home, and healthy portable snacking, all support continued growth in the categories we serve.

Our diversified integrated foods platform has enabled us to build a leadership position in the organic and non-GMO industry. This, combined with our management team's consistent focus on our three core strategies of becoming a pure-play natural and organic foods company, growing our value-added consumer products and ingredients portfolio, and leveraging our integrated platform, will continue to drive our long-term performance.

So, with that, I'll turn the call over to Rob, who will dive into the numbers. Rob?

Thanks, Steve, and good morning, everyone. I will focus more specifically on our financial results for the third quarter and three quarters ended October 4, 2014.

For the third quarter of 2014, we reported record revenues of $319 million, an increase of 5.2% compared to revenues of $303 million during the third quarter last year. Excluding the impact of changes, including commodity prices, foreign exchange rates, and downtime due to aseptic facility expansions, consolidated revenues increased 10.1%, and SunOpta foods revenues increased 11% versus the prior year.

We generated operating income of $12.7 million during the third quarter, up 29% from $9.8 million in the same period last year. The growth in operating income was driven by increased volume and margins on organic raw materials, improved performance in our sunflower operations, and increased contribution from higher-margin aseptic beverage and frozen private-label retail products.

These positive factors were partially offset by lower margins on specialty corn; increased SG&A in support of the growth of the business; and, within the consumer products segment, costs associated with beverage facility expansions; lower plant utilization in our premium-juice operation during the retrofit of this facility; and increased competitive pressures in the resealable-pouch market. Opta Minerals also continued to expense pricing pressures, predominantly on industrial mineral products.

For the third quarter of 2014, we reported adjusted earnings from continuing operations of $8 million, or $0.12 per diluted common share, compared to adjusted earnings in the same period last year of $4.8 million, or $0.07 per share. A tabular presentation of adjusted earnings from continuing operations can be found in our press release that was issued after the close of business yesterday.

Included in our third-quarter 2014 results was a non-cash charge of approximately $8.4 million after-tax, or $0.12 per diluted common share, representing a write-down of the carrying value of our non-core investment in Mascoma Corporation. On October 31, 2014, Mascoma sold assets related to its yeast business, in exchange for cash and royalty rights, based on future revenues generated by the purchaser. After assessing the fair value of the remaining business, including the estimated value of the royalty stream, we determined that the carrying value of our investment in Mascoma was impaired. After accounting for this non-cash charge, we realized a GAAP loss from operations for the third quarter of 2014, of $0.4 million, or $0.01 per common share.

Also included in our third-quarter 2014 results -- however, not factored into the adjusted earnings I just mentioned -- was $2 million in costs within the consumer product segment associated with aseptic beverage facility expansion, and the retrofit of our premium-juice facility, partially offset by a gain of approximately $0.9 million, or $0.6 million after minority interest, related to a tax recovery recorded by Opta Minerals. During the third quarter of 2014, we realized EBITDA of $18.7 million, as compared to $15.3 million during the third quarter of 2013.

Turning to our year-to-date performance for a moment, we reported record revenues of $990 million for the first three quarters of 2014, an increase of 10.4%, versus revenues of $897 million last year. Note that FY14 will be a 53-week year, and the extra week fell in the first quarter. Consolidated revenues increased 11.4% and SunOpta foods revenues increased 13.3% versus the prior year, excluding this extra week of sales, as well as the impact of changes including commodity prices, foreign exchange rates, and facility downtime.

Year-to-date adjusted earnings from continuing operations were $22.8 million, or $0.33 per diluted common share, compared to adjusted earnings of $17.1 million, or $0.25 per share, in the first three quarters of 2013. Taking into account the impact of the previously mentioned impairments on our investment in Mascoma, as well as other income of $0.6 million after-tax, we realized GAAP earnings from operations of $15 million, or $0.22 per common share, during the first three quarters of 2014.

On a year-to-date basis, our results include approximately $4.4 million in costs within the consumer products segment associated with the retrofit of our premium-juice operation and aseptic beverage facility expansions. EBITDA was $59.3 million in the first three quarters of 2014, compared to $50.2 million in the prior year.

The Company's balance sheet remains strong, and we continue to generate strong operating cash flows in the third quarter of 2014. Our improved earnings and working capital efficiency led to cash provided from operations of $18 million in the third quarter, and $38.6 million year to date. As a result, total debt has been reduced by $40.1 million over the last three quarters, resulting in net debt of $143.3 million at October 4, 2014.

On October 14, 2014, we completed the refinancing of our European credit facility, which supports the growth -- sorry, which supports the working capital needs of the international components of our global sourcing and supply segment. The new facility provides for a total of EUR92.5 million in financing via an EUR80-million revolving credit facility and a EUR12.5-million facility to be used for three other facilities for currency, commodity, and letter of credit requirements.

The increased facility size will be used to support the rapid growth within our international sourcing and supply operations. At October 4, 2014, we had approximately $135 million in unused capacity within our debt facilities, and our consolidated net debt is at its lowest level since the end of FY10. We are forecasting to generate positive operating cash flows during the fourth quarter of 2014, and the cash generated, along with the available capacity I just mentioned, provides the Company with sufficient resources to support our various growth projects and potential acquisitions.

With that, I'll now turn the call over to Rik, who will discuss our third-quarter operational performance in more detail. Rik?

Thanks, Rob. Good morning, everyone. I'm going to discuss the performance of the three segments in SunOpta foods that you already know: global sourcing and supply; value-added ingredients; and consumer products.

So, let's start with global sourcing and supply. The revenue increased 7.4% and that supported both the gross margin and operating margin expansion of 360 basis points. As Rob mentioned, when you strip away the changes in the commodity pricing in foreign exchange, the real growth rate here was 13.6%. The categories that did particularly well were organic alternative sweeteners, chia, quinoa, fruit, vegetables, and feed products, and that was offset to some degree by lower volumes of non-GMO corn and soy.

I mean the margin expansions versus prior year is due to three key factors: one, our factories are operating better, especially the cocoa factory in the Netherlands; two, we've turned around the sunflower business versus last year, partially as a result of the right-sizing efforts with the shutdown and sale of two locations in the Midwest; and, three, is mix, the growth in higher-priced organic raw material categories.

In our value-added ingredients segment, revenues increased approximately 4%. Gross margins expanded 290 basis points, and we're pleased with our operating margin expansion of 140 basis points versus the prior year. Top-line performance came from higher volume in food ingredients, which continue on a positive trajectory, and higher volumes of oils and grain ingredients. That's partially offset by lower starch and lower contract manufacturing sales.

Our margin performance in the quarter reflects better plant performance across the board, and is helped by increased production volume of fruit and grain-based ingredients. In the third quarter, we launched our recently developed OPTASMOOTH in soluble fiber in a nutritional beverage. Initial feedback has been positive, but it's just too early to draw definitive conclusions. And I'm sure you are aware it takes time for innovation to have an impact in this segment.

So, then, on consumer products segments. Revenues increased 3.6%. However, if you're going to peel back the onion, the real underlying growth rate in this segment was about 10%. As we've indicated for some time, our aseptic facilities are at capacity in a growing market, which is why we're investing in more processing and filling lines using the latest technologies. During the quarter, both the Alexander and the Modesto facilities were impacted by downtime, as we prepared these facilities for further growth. This has led to lost revenues of approximately $6 million during the quarter.

Having said that, there's also some sub-segments in our consumer products group that are not performing as well as our aseptic and retail frozen businesses. In our fruit snack, one of our customers lost distribution with a large retailer. And, in our pouch business, the market has excess capacity, leading to competitive market dynamics, both from a volume and a margin perspective. So, going forward, we expect to see an improvement in our segment margin performance through the growth of our healthy beverage and healthy snack portfolios.

A few things I want to point out which will help generate future top- and bottom-line growth: first, the addition of incremental aseptic capacity, starting with Modesto in early 2015; second, the ramp-up of our juice plant in San Bernardino that we are now finally commissioning; and, third, our healthy fruit, protein, and pouch snack businesses, which have a solid innovation pipeline, which should translate to higher revenues over the next few quarters.

Our team remains very customer-focused and continue to develop new ways to bring innovative, value-added packaged products and processes to market, leveraging our global raw material sourcing and supply, and value-added ingredient capabilities. So, in closing, we're pleased with the increase in operating margins in our food business we are seeing year over year. And, as you hopefully already noted, the overall growth in operating margins versus prior year are improving at an ever-steeper rate, and the opportunities we're working on should increase margins going forward.

So, that concludes my segment review. I'm going to turn it back over to Steve for some brief closing remarks.

Thanks, Rik. In summary, we're pleased with our third-quarter and year-to-date financial performance. Our balance sheet is strong, and we're generating strong cash flows, as Rob mentioned. Our progress stems from our organizational alignments, which are yielding improvements in our performance, and we'll continue to drive sales growth and margin expansion.

We have solid opportunities for continued expansion, and we're very excited that, that will contribute to both the top and bottom line. Going forward, our team remains focused on the growth of our portfolio of natural and organic foods offerings, the further refinement of our cost structure to drive additional operational improvements, and the prudent evaluation of potential acquisition opportunities, supported, of course, by our strong balance sheet and future cash flow generation.

We remain focused on pursuing all options to maximize shareholder value. As Rob mentioned, Mascoma completed the sale of its yeast business. The realization of proceeds on this transaction is consistent with our strategy to divest our non-core assets so we can invest further in our natural and organic foods platform. In addition, the review of strategic alternatives for Opta Minerals continues, and we remain committed to bringing this to a successful conclusion.

In closing, our unique market position enables us to benefit from the increasingly growing, global healthy foods and beverage industry. This dynamic, with solid execution of our core strategies, provides us with a strong platform to deliver consistent and sustainable earnings growth, and, in turn, shareholder value. We continue to realize improvement across our business from our operational realignment and repositioned go-to-market strategy, which we believe will only strengthen our business in 2015 and beyond.

So that concludes our prepared remarks. I'd like to thank you for joining us on the call today. And, with that, Rob, Rik and I are available to take your questions, so I'll turn it back to the operator.

(Operator Instructions)

Scott Van Winkle, Canaccord Genuity.

So first on the aseptic expansion, can you give us the magnitude, maybe on a percentage basis, what -- how much higher capacity will be in February of next year?

Yes. We are installing a processor over there, and today we have two processors in the facility, and this is processor number three. And so that would basically be an expansion, $20 million, $30 million at least, right away.

Okay. $20 million to $30 million in sales?

Yes. And then obviously, we are now adding more lines as well, Scott. So the processor will unlock the capacity that we have in the facility, and then we're going to add more lines.

And let me think about that a little bit and if I can -- just give a little bit of a bridge on that one. If you take away those one-time costs that we're incurring as we're expanding, San Bernardino and the aseptic, the margins from the foods business go basically from 4 to about 5. Then you add capacity on the aseptic. You fill up the San Bernardino plants.

And the cost initiatives that are really starting to take some hold in our factories are performing better and better, and we're now really attacking the rest of the supply chain as well, if you like. So still see solid growth going forward.

Yes. And how much volume was going through the San Bernardino facility before you went through the expansion project?

About $10 million, $15 million.

Yes. And that on the other end is going to be 2 or 3X that in capacity?

Yes. Exactly.

Perfect.

And then on the pouch side, you're talking about over capacity and pricing. Is the over capacity a function of weaker consumer demand, or that the growth has slowed, or is it an overbuild on the packaging side?

I think there's two things going on over there. We have innovated, together with some of our customers, to basically enter into new product categories. Right?

These protein-filled pouches, et cetera, et cetera. And quite honestly, those pouches are not reaching the expectations of us nor those of our customers so that's a little bit of a slowdown.

And what we're really finding out through more and more research that is becoming available and that we're doing ourselves is that these pouches in terms of their appeal to the consumers are kind of limited to babies and toddlers, if you like. That is where about 90% of the usage that you're seeing out there, off the pouches that we have today.

So and then, if you look at that, it's the capacity that has been installed into the market over the last couple of years, has been tremendous. So now you have a temporary situation, where you have some over capacity in the market, and as I think everybody will appreciate, that makes it challenging to increase your margins and your volumes.

Got you.

And then last question, on commodities, we think about you've given the sourcing growth, ex-commodity changes, was higher than the reported growth. What should we think about for the next 12 months or so about the impact of pricing raw materials into your sourcing business? Or commodity prices, volumes, are they favorable unfavorable? How will that flow through the P&L, do you think?

First of all, as you will recall, at the end of the third quarter last year, we entered with a long position while the market was going down. The market is going down quite steeply this year as well, as everybody that can follow the markets you can see. And I'm talking more about soy, corn, sunflower, the domestic stuff. We don't have a long position right now, so that should help us out.

And as the market goes down, we basically sell it on a certain spread, if you like. So from a dollar perspective it should be a little bit, pretty much the same. From a percentage perspective, it should be a bit higher. That's kind of on a non-GMO organic domestic portfolio.

If you then look internationally, and you look at the sesames, the chias, the coconut sugar, the coffee, the cocoa and stuff like that, it's -- that's a very broad portfolio, so I think it's difficult to say broad brush whether or not that's going up or going down. You saw cocoa going up a lot when you had Ebola scares and now it starts to come down again, for example, right? So that's a little bit too difficult to pinpoint, Scott.

Okay. Great. Thank you.

Christine Healy, Scotiabank.

I just wanted to follow-up on the question on the resealable pouches, and maybe I missed it in your opening comments, Rik, but it seems like the pouch opportunity may not be as good as he once hoped, when Allentown came up. Do you plan on still trying to expand the pouch volumes at that lower margin, or are there other products that you could possibly process at the Allentown to fill the capacity?

It's both, Christine. We will be putting -- we will filling up that factory, and we will be coming out with a separate announcement on that, I think, within the next four weeks or so. So we're going to fill up that facility with other equipment. But at the same time, the lines that we have, both on the West Coast and on the East Coast, we're going to fill those up one way or the other.

Okay. So the existing lines that you have dedicated to pouches will remain dedicated to pouches, and you'll feel fill them up, but the rest of the capacity at Allentown, you'll announce that you're doing something different, different products there?

Look, if you have a situation where you have over capacity in the market it doesn't make a lot of sense for us to then put more pouch lines in. That's -- of the same. But there are other alternatives that would work very well in the Allentown facility, and we, as everybody will realize, we just yesterday had our Board meeting and have gotten approvals and go--aheads on what else we're going to do, so we'll come out with some announcements on that.

Okay. Makes sense. Thanks. I just wanted to confirm.

And then turning to the consumer products segment, margins in that segment, on my calculations are tracking about 8% when you strip out the plant upgrade costs. So it's still quite a bit below the targeted 12% to 14%.

But Rik, in your comments, you still seem confident that you can increase the margins in that segment with Modesto and the juice plant. Do you believe you can fully close the margin gap through organic means, gradual plant expansions, top line growth? Or do you think it will require acquisitions to really move the needle for that segment?

Look, I think we are really looking at the overall foods business, right? And how that margin is going to fall between the different segments that might be a little bit different as we source more and more of our stuff, for example, through our own global sourcing and supply group.

But if you are just saying in the overall foods business, we have basically said look, we want to reach at the end of next year, about an 8% operating margin, and if you then bridge from where we are today to where we want to be in the overall foods business at 8%, today without these one-time costs, our operating margins are about 5% already. Right? Those one-time costs are now going to go way.

Then we just talked about the capacity expansion in aseptic that starting in Modesto in February. That is a significant uptick, because that is a very good segment for us, as everybody realizes. Then you're going to have to real the ramp-up of San Bernardino, and we are commissioning San Bernardino right now.

Obviously, that facility's been out of the air for 1.5 years so it's going to take us a little bit of time to fill that plant up. I wouldn't expect miracles overnight over there. But by the end of next year, we should have a full San Bernardino.

Then if you look at all the cost initiatives that we're taking in our operations, plus the innovation pipeline, it makes me confident that we remain on track on the overall food business. Does that mean 12% consumer products or 11% consumer products? That, I think, is the range I guess that you're talking about.

It should be our highest margin product because this is where we add the most value to our customers. But we remain committed to overall foods at 8% operating.

Okay. And last one for Rob.

Can you talk to us about your capital projects? CapEx to date is only $12.5 million so it's well below your guidance was $30 million to $35 million. Have some projects been pushed out, or is Q4 going to be a big CapEx quarter? Can you talk about that?

Sure thing.

There is a little bit of a push out, as Rik mentioned, some of the new expansions, the big dollars to be spent in Modesto are more into the first quarter of 2015. As well, there's some elements of financing that have taken some of the capital out of our cash flow so to speak, so the spend and the overall commitment of building and increasing capacity is still pretty much there. But yes, the overall out-of-pocket fuel cash flows is lower, so when we add operating leases, Christine, that leaves it off our balance sheet.

Okay. Great. Thanks so much, guys.

(Operator Instructions)

Tim Tiberio, Miller Tabak.

Just wanted to follow back on the aseptic beverage category. It's clear that obviously you are capacity constrained, but can you maybe just speak to what you're seeing as, from an overall industry perspective? Are you seeing the overall industry as constrained, as well?

Maybe you can just give us a sense of how you see that developing over the next 12 months? And maybe you can also just give us a better sense of what the barriers to entry are in aseptic beverage, versus some of your other consumer product groups?

Yes. So if you look at the overall industry dynamics, let's first -- we are in non-dairy, and also now in dairy, and we are in nutritional. If you look at those categories overall, we should see 10% to 12% growth rates on non-dairy. Nutritional is growing 15% to 20%, something to that.

We have made tremendous investments. If you look at the investments that we're making in Modesto right now, that's going to be more than $20 million right there. A processing unit that we're putting in to be able to process -- we paired up with the filling lines that were putting in. A processing unit like that is going to run close to $10 million. And that's just a unit, you're not talking about the building.

So and then on top of that, there's a heck of a lot of know-how that we've built up as a company. And I would argue with you that we are the highest-quality most reliable aseptic contract manufacturer out there, and that's not only because I'm saying that. If you also see that.

If you look at Modesto two years ago we did about 10 SKUs, maybe? Right now that factory's doing 45. And couple of years ago, it was three customers. Now it's more than 10 customers.

Perfect.

And I guess going back to the question of organic versus M&A growth, even with these additional lines that are being added, based on the growth numbers that you're talking about, is this a scenario where you may even have to look at M&A to really keep up with the growth? And are there any attractive potential assets, even out there in the market?

Yes. You know what? We evaluate targets on an ongoing basis. And I think we have about three of them right now, that we are trying to get across the finish line.

But as Steve already commented in his prepared remarks, we have to also be prudent. When we find something that is strategically very appealing to us, and what do we mean by that? That goes into our core of healthy beverages and healthy snacks, we are prepared to pay a high multiple for that. But not to the degree where we can't make it accretive anymore in year two.

It doesn't have to be accretive in year one for us. It has to be accretive in a fairly short period of time, right? If it's truly strategic and right in the core of our business.

But I think everybody on the line knows how high the multiples have been for some of the companies in the organic space. I think one of the more recent ones was, I think Annie's at 4 times their annual sales. Well, those kind of levels, it becomes a little bit challenging to make that accretive for us.

Great. Just one last question.

I think several quarters back, you had talked about potentially looking at further rationalization in the fiber ingredient plant network. But we've seen very strong operating trends in the quarter.

Can you frame that up for us at this point? Has anything changed significantly within the fiber ingredients business that would maybe give you pause to pursue further rationalization at this point?

If you look at the value-added ingredients, it's obviously bigger than fiber alone, right? And the real driver of the growth in the revenue, as well as on the margin, is really our fruit business. So the fruit ingredient business. That is really performing very strong.

The fiber is fairly flat right now. So if it's fairly flat, and we have access excess capacity, we need to continue to look at what is the right way forward with that business? And that definitely includes looking at potential rationalizations, as well.

Great. Thanks for your time.

Chris Krueger, Lake Street Capital.

Another question on the aseptic beverage business. What has been your actual growth rate in that business, the last say, two years, if you can give that?

We've never disclosed it publicly, but the fastest we've been able to keep up with capacity.

You know what? This is sort of a roundhouse number, but it's well over 30%, 35% CAGR.

Okay.

Within the last year I think we will have added something like $50 million worth of business.

How much of a percentage of your consumer products business has that's grown to become?

A little bit more than half.

Okay.

Moving on from that. On your segmented breakdown, your corporate services, your expenses there were $3.3 million. Seems to have kind of accelerated this year versus last year.

What's driving that at how should we look at that going forward?

Chris, one of the good news stories in that line is year over year, because of the improved performance in the business, we're accruing a much higher level of incentives, bonus incentives given our results versus where we're targeting internally, and where those things are. So that is well over half of the jump in that line.

The balance of the jump in that line are related to our realignment and additional professional resources that we've added to really position the Company to go through this next growth phase. And I'm talking about operations personnel and R&D innovation personnel, M&A personnel, that have been added over the last year.

So it's professional personnel, combined with just a higher incentive being accrued this year versus the prior year, when our results were obviously not up to what we were expecting internally, and thus, the accruals were different.

Okay.

Then one last question, back to the value-added ingredients. I think I've asked this before, but a couple years ago, you announced the rice fiber product. Has that really made much progress?

We're selling the rice fiber now more than what we have before. It's basically a gluten-free fiber, right? So that makes it attractive to people.

So yes, we're selling it. To some -- yes. I don't think we can divulge company names, but some very interesting names that we're selling it to. So it's more and more.

Good to know. That's all I've got. Thanks.

Ron Rubin, Rubin Capital Investments.

In regards to the Mascoma write down, I guess last year you took a write down I know it's a non-cash item, but it was about $21.5 million, if I remember correctly, and today it's another $8.5 million. What's the remaining value or is there any remaining value for your holding?

So a little bit of history there first, Ron.

Just, you're probably aware of this, when we sold SunOpta BioProcess in 2010, because we decided, we realized, that our core business is natural and organic foods and being in a biomass processing business that's focused on cellulosic ethanol didn't fit with the Company. So we sold our interest to Mascoma.

And took back -- we have no book value on the business, and we took back stock in Mascoma. No cash. And at that time, we recorded a large gain. The value accreted under accounting was around $33 million for the Company. Non-cash, when we set that up, in our results we immediately said to everyone, back that out of our results, it's a non-cash gain, and there's nothing gained until we actually get cash proceeds.

Then last year, based on the market dynamics -- in 2010 we got good value for the business because cellulosic ethanol was hot, hot, hot. I think most people are aware that the rollout of cellulosic ethanol has been much slower and much more difficult, and kudos to the management team at Mascoma who really changed their business model to adapt from being a very high asset business model to an asset-light model, and out selling their bioengineered yeast products in both corn to ethanol and in the cellulosic ethanol, but of course, cellulosic ethanol has not done well.

When you take a look at cellulosic ethanol companies, a public company that was involved in cellulosic ethanol, KiOR, went bankrupt yesterday. So we took a write-down last year, to really mark that investment back to what would be a fair market value at that time, based on the market. So what is has happened now is that Mascoma have sold their yeast business for cash and royalties, et cetera. The business is then left with a number of assets, and cash, as well.

And so you'll see on our balance sheet -- so we've written it down. We have on our balance sheet what the estimated cash proceeds will be. And that's $4.8 million. And then the cash proceeds -- some of the cash proceeds will start before the end of November.

Okay. And wait, so the carrying value of what you have is $4.8 million, or what you're getting out of this --?

Carrying value was $4.8 million and Ron, that's the estimated cash that comes initially, as well as the estimated revenue streams that come from royalties over the next years.

And in regards to the acquisitions, we've talked about it a couple times here on the conference, as far as you mentioned, you had three targets. But generally what size companies are you looking at? Is there a specific size that you looking for?

In the past you mentioned you're looking for relatively larger transactions. And in the past is that still the same? Is there a range of sizes of companies that you're looking at?

Yes. So Ron, I can tell you that there's big ones and little ones. And some of the smaller ones, if they strategically fit and by smaller, $25 million to $50 million revenue type companies that are a nice strategic fit, we're not against looking at those. As you and I have chatted in the past, we would like to do more meaningful larger acquisitions, and so we're certainly involved in processes for those, as well.

The balance sheet is strong. We have $135 million, and we can just turn around and borrow it. It's available within the facilities that we have, and of course when you're acquiring businesses, they come with assets as well, that you can borrow against. So we're in a good position to do larger deals, and as Rik has said, we've got a number that are in our pipeline and being evaluated.

We are quite disciplined, and by disciplined, I mean we want businesses that strategically fit within the core of what we're doing. And that the valuation is reasonable, so that we can build value off it. We haven't done a lot of acquisitions over the last couple of years.

Quite frankly, one of those reasons was, we've been so darn busy. We've expanded six facilities over the last two years. So we have had a lot of resources expanding internally. But we're quite confident in our ability to go out and do some of those acquisitions, and so we're working hard to hopefully complete some of those.

Okay.

And nothing -- as you know, Ronnie, nothing's cheap these days.

Yes. I think with the way the market is right now, everything has gone up in value but I guess if it makes sense --

Absolutely.

For our goals.

So just going back to the Mascoma, so I guess the overall valuation you're putting on the entire Company is somewhere around $25 million after this recent sale they've made? If your carrying value is about $4.8 million?

What's the answer to that?

You're trying to look at from what our percent percentage of ownership is, and back into it?

Yes.

You'd be in the zone I guess, but really the approach towards how did we land with on $4.8 million as an estimated carrying value is really more based on the residual assets, and what we think SunOpta will receive in proceeds as those are liquidated. So it's a little bit of a different approach in terms of valuation, now, for that remaining business.

Ron, the enterprise value would be higher, because keep in mind that they have to discharge the debt that they have, right? There was debt that was there as well that needed to be discharged. So I guess that's more the market cap.

Right. I guess I'm just trying to figure out, as far as if they sold these assets that they recently have, it's still the core business is still there, in essence.

So if the business itself is still the same as it's been in the past, I guess I'm trying to figure out why it's gone down in value so much. And why the big need of lowering the value of it so much in the last year or so, last year by $21 million, another $8 million now. So --

Look, you know what, Ron? In all fairness to them, the markets are tough. It's tough to raise money in those markets, now.

So companies like Mascoma and look -- there's only so much that I can say about Mascoma but they're like a lot of companies that are in that space right now, who are wondering where their next fund raise is going to come from, and that sort of thing. So personally, I think what Mascoma did was extremely prudent. And there's still assets, there's still a business there that can be managed and liquidated, or they can do as they please, but we're very pleased with what they did.

Right. And last question.

In regards to the Opta Mineral I know you mentioned in the release that it's still being evaluated. In regards to timing, is it still something that you expect to happen within the next 45 days, before the end of the year? Or is it something that you think is probably going to carry into the first or maybe second quarter of 2015?

Ron, that's a really hard one to put my finger on, and I'd be guessing if I was to try and put a timing on it. Look, the results in the third quarter were tougher. But they've got some really good things happening with new business, et cetera.

And we remain committed to moving forward in the process. And we're just moving forward and continuing in the process. And can it be done -- it's just not real practical for me to try and predict the timing.

All right. Good quarter.

I'm not showing any further questions in the queue at this time. I'd like to turn the call back over to management for closing remarks.

Great. Listen, thanks everyone for joining the call, and thanks for the questions. We appreciate you taking the time today.

We're excited about our Company and where we're going, and we look forward to chatting with everyone again soon. So thanks for joining the call and we'll talk to you soon.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a good day.