J & J Snack Foods Corp.

Welcome to the J&J Snack Food fiscal third quarter 2022 earnings conference call. My name is Cheryl and I will be your operator for today's call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session. During the question and answer session, if you have a question, please press 01 on your touch tone phone. As a reminder, this conference is being recorded. I will now turn the call over to Norberto Adja, Investor Relations for J&J Snack Foods, so you may begin.

Thank you, operator, and good morning, everyone. Thank you for joining the J&J Snack Foods fiscal 2022 third 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 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, and 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 risks, uncertainties, and other important factors that may cause our actual results, 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. Any such forward-looking statements represents management's estimates as of the date of this call, August 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 events cause reviews to change. In addition, we may also reference certain non-GAAP metrics, including adjusted EBITDA, operating income and earnings per share, which is reconciled to the nearest gap 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 Pachner, our chief executive officer, Ken Plunk, our chief financial officer. And joining us remotely, we have Linwood Mallard, our chief marketing officer, Bob Cranmer, our Senior Vice President of Operations, Steve Avery, our Senior Vice President and Chief Operating Officer of ISEE, Bjorn Leiser, Senior Vice President of Sales, James Hamill, VP of Corporate Controller, and Michael Pollner, our SVP and General Counsel. Following management's prepared remarks, we will open the call for a question and answer session. With that, I would now like to turn our call over to Dan Pashner, Jane Jason Ackwood's Chief Executive Officer. Please go ahead, Dan.

Thank you, Roberto, and good morning, everyone. We appreciate you joining us this morning to discuss our third quarter results. We are pleased with our overall performance, which extends the top-line growth we have seen across our business this fiscal year and further reflects the ongoing recovery of our customers. It is evident from our results that we have addressed the headwinds we encountered during our new ERP system launch in February, which temporarily impacted the fiscal Q2 performance of our food service and retail segments. I want to give a special thanks and recognition to the enormous effort of our team members who worked tirelessly to quickly resolve this issue. Thank you for that. Taking a look at the third quarter, revenue of $380.2 million was an all-time quarterly record, representing a 17.2% growth versus the prior year period and an over 35% increase versus our second quarter revenue. When compared to third quarter of 2019, revenue was up over 16%. On a year-to-date basis, revenue for the first nine months of fiscal 2022 totaled $980.2 million, or 19.3% increase versus the first nine months of fiscal 2021. These top line results were led by market growth across all three business segments and across just about every product line. Sales were consistently strong across each month of the quarter. Starting with food service, we saw continued growth in this segment across the board, including soft pretzels, frozen novelties, churros, handhelds, and bakeries. Our business continues to leverage strong core products and innovation to capture new customer opportunities in channels like convenience, QSR, and amusement. Our retail segment also enjoyed strong growth, posting 61 million in sales and growing 13% compared to the same quarter last year and over 46% compared to the same period in fiscal 2019. As was the case with food service, sales were strong across all categories, including handheld, frozen novelties, biscuits, and soft pretzels. Frozen novelties is a great story this year as we add SKUs and gain additional placement in leading retailers led by Luigi's, Dogsters, and Icy. Our frozen beverages, segment also saw strong growth with sales increasing 23.5% versus Q3 2021, led by beverages growing 37% and equipment up 17%. Volume in restaurants and amusement were up double digit versus the prior year. And theaters, while still down compared to pre-COVID performance, is improving as consumers go back to the movies to see top box office releases such as Top Gun, Minion, and Jurassic World. We continue to see strong growth opportunities in QSR, fast casual, and convenience for both beverages and service. We are winning new customers, bringing new products to market, continuing to find ways to leverage our brands, refining our go-to-market strategy, and working to satisfy our customers each and every day. Our Q3 top line results only reinforce our confidence in our strategies and the potential we see for added growth. Our business is strong. We have made significant progress improving gross margins to 28.7% this quarter, but we continue to experience inflationary pressures across many areas of our business from sourcing key ingredients such as flour, eggs, dairy, oils, chocolates, and meats, to packaging and distribution costs. Cost of these key raw ingredients increased almost 10% versus the prior quarter, continuing to put pressure on our manufacturing. We've responded by implementing our second price increase early in the quarter and have already communicated a third high single-digit increase that will take effect late in the fourth quarter. These actions, combined with our focus on improved margin mix and cost initiatives, led to higher gross margins this quarter and are expected to drive further margin improvements as we close the year. We also continue to face historic cost pressures in our supply chain, where we saw both sequential and year-over-year increases driven by higher truck driver wages and rising carrier storage and fuel costs. In order to offset these pressures, we have a number of cost reduction initiatives underway in R&D, procurement, plant operations and distribution that we expect to offset some of these cost pressures over the next few months and into the next year. Our team is focused on reducing costs across the business as we transform how we operate and improve efficiencies across the business. As it relates to customer wins, we continue to cultivate a healthy pipeline of new business, including a new recently launched Churro LTO at Sonic, I see expansion with new customers such as Moe's and Peter Piper Pizza, a new pretzel stick with Quick Trip in the convenience channel, and an introduction of a fantastic new pretzel dog at McKellister's Deli. Additionally, as we move to the back to school time of year, we're optimistic about recapturing business in the K through 12 channel in core snack categories that softened a bit during COVID. On our service side of our business, we are targeting new opportunities, leveraging our IC service network, and continuing to see strong demand and growth opportunities with existing customers, including America's leading coffee retailers, convenience stores, and movie theaters. Regarding product launches and innovation, we are leveraging the IC brand in sugar cookies in both in-store bakery and in individually wrapped single-serve packaging. And we remain highly focused on our Super Pretzel brand as we expand winning products at retail while introducing new filled pretzel bites and filled pretzel knots in fiscal Q1 of 2023. Our Dogsters brand continues to see strong profitable growth as we expand the brand with key retailers. Our marketing team is focused on strengthening the brand's positioning and we'll launch an entirely new campaign in 2023, celebrating the special relationship that dog lovers have with their dogs and reminding them not to forget their best friend when shopping the Novelty Isle. We're anticipating continued strong growth driven by further expansion at retail and this new fully integrated marketing campaign. We will also launch our new brand, Hola Churros, starting in fiscal Q4 after debuting the new brand at the National Restaurant Association in May. We're excited to roll out the new brand with a full suite of marketing and sales tools. Turo's is a significant opportunity for us, having grown 38% in just the past four years across American menus. And according to Data Essentials, growth will continue in every segment within food service, including a projected 8.5% within casual dining restaurants, 4.5% in fast casual, and nearly 4% in QSR. J&J is already the largest domestic producer of churros, and creating a new branded product provides us with a unique and valuable opportunity to grow share. Trending at 78% awareness in the U.S., they offer strong margins are easy to prepare for operators such as quick serve restaurants, movie theaters, and adventure parks. Regarding the operating and consumer backdrop, from our vantage point, all indications point to consumers seeing value in our product while spending more time outdoors, including at leisure and entertainment venues. As our results indicate, consumers are visiting restaurants, amusement parks, live venues, theaters and convenience stores, travel venues, and public spaces in great numbers. For example, theme park attendance remains resilient despite recent macro volatility as domestic and international consumers are vacationing more with their families. Major live event organizers are reporting attendance above pre-pandemic levels, as well as higher spending on food and beverage. a significant revenue segment for us. We are seeing levels approaching 75% of pre-pandemic attendance levels, while seeing marked upticks and new cap for spending as moviegoers indulge in their favorite snacks. As it relates to M&A, we could not be more excited to have completed the $223 million acquisition of Dippin' Dots. We believe the combination of the two companies will be a game changer given the almost seamless alignment of Dippin' Dots with our frozen novelty and our frozen beverage businesses. We have already begun to leverage our relationships in key food service and entertainment channels, identifying opportunities to expand distribution of the Dippin' Dots brand. Operationally, we've already started working with Dippin' Dots team on integrating the two companies. And I'm pleased to report that everything is working just as planned. As we move further along the integration process, we are confident in our ability to gain meaningful revenue and cost synergies and create value for our shareholders. In closing, we remain extremely optimistic about our future given the resilience of our products and brands, the strength across our core products, the success of our new product offerings, our ability to expand our customer footprint, and a terrific addition to the J&J family with the acquisition of Dippin' Dots. I would now like to turn the call over to Ken Plunk, CFO, to review our financial performance. Ken?