J & J Snack Foods Corp.

Good morning, and welcome to the J&J Snack Foods second quarter earnings conference call. My name is Brandon, and I'll be your operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, during which you may dial 01 if you have a question. Please note it is 01, not star 1. As a reminder, this conference is being recorded, and I will now turn it over to Noberto Aja, Investor Relations at J&J Snack Foods, and you may begin, sir.

Thank you, Operator, and good morning, everyone. Thank you for joining the J&J Snack Foods Fiscal 2022 Second Quarter Conference Call. We'll get started in just a minute with management's comments and your questions. But before doing so, let me take a minute to read the safe harbor language. This call will contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements made on this call that do not relate to matters of historical fact should be considered forward-looking statements, including statements regarding management's plans, strategies, goals, and objectives, our anticipated financial performance, industry-wide supply constraints, and the expected impact of COVID-19 on our business. These statements are neither promises nor guarantees, but involve known and unknown risk, uncertainties, and other important factors that may cause or actual results and performance or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements. Factors discussed in our annual report on Form 10-K for the year ended September 25, 2021 and other filings with the Securities and Exchange Commission could cause actual results to differ materially from those indicated by the forward-looking statements made on this call today. Any such forward-looking statements represent management's estimate as of the date of this call, May 3, 2022. While we may elect to update such forward-looking statements at some point in the future, we disclaim any obligation to do so, even if subsequent event causes our views to change. In addition, we may also reference certain non-GAAP metrics, including adjusted EBITDA, which is reconciled to the nearest GAAP metric in the company's earnings release, which can be found in the investor relations section of our website at jjsnack.com. With us on the call today are Dan Fatchner, our Chief Executive Officer, and Mr. Ken Plunk, our Chief Financial Officer. Following management's prepared remarks, we will open the call for questions. With that, I would now like to turn the call over to Dan Fatchner, J&J Snack Foods' Chief Executive Officer. Please go ahead, Dan.

Thank you, Norberto, and good morning, everyone. We appreciate you joining us this morning to discuss our second quarter results. J&J Snack Foods had a number of accomplishments throughout the quarter, including new customer wins, successful product launches, and expanding product distribution. We delivered an all-time high second quarter net sales of nearly $282 million, despite the unexpected challenges related to the early February implementation of a new ERP system. We intentionally planned the ERP system launch during fiscal Q2, which as many of you know, our seasonally slowest volume quarter. The implementation created unforeseen temporary operational, manufacturing, and supply chain challenges that affected the performance of our food service and retail segments during the quarter. Our frozen beverage segment, which already runs on JD Edwards' platform, was unaffected by the implementation. You've heard us talk about picking up some big boulders in order to best position J&J for the future. And the ERP system was the largest and most necessary change required to strengthen our supply chain. Having a robust ERP platform provides a more seamless, integrated process from raw materials through production, warehousing, inventory management, and electronic order fulfillment. It is also vital to supporting many of the key initiatives we have discussed over the past several quarters, focused on increasing operational efficiencies, expanding capacity, accelerating our growth, and improving margins. We are confident that this system will strengthen our operating infrastructure and deliver meaningful benefits to our customers and shareholders today and for many years to come. We estimate that these issues had a one-time impact on fiscal second quarter sales of approximately $20 million and approximately $4.5 million in operating income. Taking the one-time impact of the ERP implementation, sales across food service and retail would have grown by approximately 11%, with overall sales growing by approximately 18%, along with the improved results across much of the rest of the income statements. While we are disappointed by the impact that this had on our Q2 results, I am proud of the way that our team stepped up to resolve these issues and to serve our customers. Thanks to their efforts, our business has accelerated in April, and we are confident that these issues were isolated this quarter and should not have any further material impact going forward. As we have discussed on prior calls, our industry continues to experience sustained inflationary pressures across the supply and production chain. Rising costs from sourcing ingredients and manufacturing to packaging and distribution continue to pose a significant headwind to our margins and bottom line. For the quarter, key product ingredients like flour, eggs, dairy, oils, chocolates, and meats increased by more than 10% to our cost just three months ago. To offset these challenges, we implemented two price increases, totaling a 9% to 10% increase, and we expect to institute a third round in the near future that would most likely become effective sometime during our fiscal fourth quarter. Our most recent price increase did not take full effect until early April and was therefore only partially reflected in our second quarter results. As a reminder, many of our partners and customers require a 60-day notice before a price increase can be implemented. And at the same time, we are aggressively implementing numerous cost reduction initiatives across procurement, R&D, production, and distribution to drive additional efficiencies and cost savings. We remain confident in our plans to build stronger margins in this business as we execute on a mix of price increases and ever sharper promotional strategies, as well as a disciplined initiatives to reduce costs. Despite these near-term challenges, we remain extremely optimistic about J&J's future. The biggest affirmation of our growth opportunity is the strength of our products and brands, which are beloved by customers of all ages and backgrounds. Incremental distribution across all classes of trade, together with continuous innovation, and enhanced brand marketing will remain key levers for further accelerated growth. As Ken will discuss in greater detail, we generated record second quarter net sales, and it was our third consecutive quarter of net sales exceeding pre-COVID levels. Now, commenting on each of our three segments, food services continues to see healthy results, led by strong growth in our pretzels and churro products, as well as in our handheld which despite having a difficult comp versus the prior year, still grew by 2.6%. Key drivers of this performance were organic growth, aided by continuous food service recovery, as well as accelerated pace and new customer wins. Other product lines, such as frozen novelties, were impacted by the ERP delays and saw a 31% decline in Q2. However, I'm pleased to report that frozen novelty sales have experienced a rebound in April. Our retail segment, which was also impacted by the ERP delays, as well as a challenging comparison versus a strong performance in the prior year. Net sales in our retail segment increased 19% versus the comparable 2019 period. Despite the ERP impact, led by sales of our pretzel products, For the full portfolio, we expect positive effects of current and new distribution gains, increased promotional activity, and the effects of the price actions to drive momentum for our third and fourth quarter. Moving to our frozen beverage segment. This segment was not impacted by the various ERP disruptions. Thus should be more reflective the underlying momentum in our business. Sales grew by 50%. versus Q2 of 2021 to 64.4 million from 42.9 million. We are seeing strong growth, not only in our IC products, but also in the sales and servicing of machines. As it relates to customer wins, we continue to have a healthy pipeline of new customers, including Moe's, Peter Piper Pizza, and Landmark Cinemas, as well as continued strong demand and growth opportunities with existing customers, including America's leading coffee retailer, convenience stores, and movie theaters. Now let's talk more about product launches and innovation. We recently launched a gelato line under our Luigi's brand with flavors including mint chocolate, Italian cannoli, and sweet cream churro. In our frozen beverages, we have some great new icy flavors being released. In retail, we are piloting and researching new icy sandwich cream cookies. We are also preparing to launch new super pretzel filled bite flavors and a sweet cinnamon pretzel line extension later this year. We also are getting ready to launch a new churro brand in food service. This will be supported by fresh graphics and targeted promotions. Churros are trending up with 78% awareness in the U.S., offer solid margins, and are easy to prep for operators such as quick-serve restaurants, movie theaters, and adventure parks. Finally, we continue to see significant opportunity in the pet segment. Recent selling and promotional focus on Dogsters has resulted in a significantly 22-point gain in ACV at retail and a 14% increase in sales. As we focus efforts on Dogsters through fiscal 2022, will build this momentum in 2023 with a new fully integrated marketing campaign as it relates to m a we continue to be highly focused and disciplined in our approach we are actively evaluating opportunities that will be accretive to our business fit within our portfolio and complement our areas of expertise we are confident that there are opportunities for us to grow inorganically and hope to be in a position to extend our long and successful track record on the acquisition front in the near future. In closing, while there is no doubt that the operating environment remains highly dynamic, our strategy remains the same, to execute for sustainable growth through strength and capabilities in operations, innovation, marketing, and execution. Looking ahead, consumer spending remains healthy despite macroeconomic challenges, And we continue to see strong demand for our products as a growing number of consumers return to their favorite amusement parks, restaurants, retailers, and outdoor venues. One trend that stands out is that consumers are more willing than ever to treat themselves and enjoy our products inside or outside their home. We expect these positive trends and the operating and financial benefits of our recent initiatives to become more visible in our results as we move into the second half of fiscal 2022. I would now like to turn the call over to Ken Plunk, CFO, to review our financial performance. Ken?