J & J Snack Foods Corp.

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the J&J Snack Foods fiscal year 2023 second quarter earnings office call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone keypad. At this time, I would like to turn the conference over to Mr. Norberto Aja of Investor Relations. Sir, please begin.

Thank you, Operator, and good morning, everyone. Thank you for joining the J&J Snack Foods Fiscal 2023 Second Quarter Conference Call. We'll start in just a minute with management's comments and your questions, but before doing so, let me take a minute to read the State Barber language. This call contains 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, and our anticipated financial performance, as well as industry-wide supply constraints and the ongoing impact of COVID-19 on our business. These statements are neither promises or guarantees that involve known and unknown risks, uncertainties, and other important factors that may cause results, performance, or achievements to be materially different from many future results, performance, or achievements expressed or implied by the forward-looking statements. Factors discussed in our annual report in Form 10-K for the year ended September 24, 2022, and other filings with the Securities and Exchange Commission has caused 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 estimates as to the date of this call, May 2, 2023. While we would like to update forward-looking statements at some point in the future, we disclaim any obligation to do so, even if subsequent events cause earnings to change. In addition, we may also reference certain non-GAAP metrics on the call today, including adjusted EBITDA, operating income, or earnings per share. all of which are reconciled to the nearest gap metric in the company's earnings press release, which can be found in the investor relations section of our website. Joining me on the call today is Dan Fashioner, our chief executive officer, along with Mr. Ken Plunk, our chief financial officer. Following management's prepared remarks, he will go ahead and open the call for a question and answer session. With that, I would now like to turn the call over to Mr. Dan Fashioner, J&J Snack Foods, Chief Executive Officer. Please go ahead, Dave.

Thank you, Roberto. And good morning, everyone. We appreciate you joining us to discuss our fiscal 2023 second quarter results. I'm pleased to report that our positive momentum continued in the fiscal second quarter, as sales this quarter was the highest second quarter sales in company history and was driven by strong demand across all three business segments. While the year began with ongoing economic and inflationary challenges for our industry, it is clear that consumers continue to show strong demand for iconic brands and diverse offerings of fun and indulgent products. We saw marked improvements in unit volumes in fiscal Q2, including strong performances in soft pretzels, churros, frozen novelties, and frozen beverages, higher volumes combined with the impact of price increases enacted in fiscal 2022 resulted in a 20% increase in net sales to 337.9 million. J&J also generated healthy year-over-year improvements across several key performance metrics, including gross margin and distribution expenses, resulting in strong earnings growth for the quarter. Taking a closer look at our segment performance, food services increased 23.8% to 218.3 million, including approximately 16 million in dip and dot sales and 3.3 million of sales related to new products and expanded customer placements. Overall, segment growth reflects a 28.3% rise in soft pretzels, a healthy 42.8% increase in churros, and a more than 264% increase in frozen novelties, including incremental dip and dot sales. Retail sales increased 13.7% to 46.4 million, including 2.5 million of sales related to the recent launch of our super pretzel, filled knots, and the expansion of handhelds with the major retailer. Retail segment growth was also driven by strong sales in frozen novelties, soft pretzels, and biscuits. Frozen beverage sales increased 13.7% to 73.2 million, reflecting an 18.2% rise in beverage sales led by strong consumption trends across amusement, restaurant, retail, and food service venues. as well as a healthy rebounding theater channel. Machine repair and maintenance revenues increased 7.5% versus the prior year, while equipment sales increased 9.4% on the back of healthy customer installation volume. While overall inflation has stabilized, we continue to experience year-over-year pressures on key commodity inputs such as flour, oil, eggs, mixes, and sugar. We estimate inflationary impacts of approximately 9% compared to a year ago, as our industry continues to manage through these historically high cost pressures. Despite these continued challenges, we delivered 26.8% gross margin in fiscal Q2 23, which compares favorably to the 23.2% gross margin in the prior year. Overall gross margin improvement reflects the benefits of our pricing action last year and the early impact of our initiatives to improve cost management and productivity. We are aggressively investing and positioning J&J for its next phase of growth, and it is clear that our strategy is delivering results. So before turning the call over to Ken, I'll briefly touch on the excellent work our teams have done and continue to do to optimize our business for the future starting with sales marketing and product innovation very proud of this group we remain focused on leveraging consumers affinity for our brand to prioritize growth of our core products while also capitalizing on opportunities for increased product innovation and extensions across all three business segments We are gaining placements in key channels, including theaters, QSR, casual dining, and retail, leading to market share gains in our core products with several notable achievements in Q2. Icy, America's number one frozen beverage brand, continues to gain share in the QSR and fast casual channels. The team is currently working on several customers to test the placement of Icy in the venues representing incremental placement opportunities. The Icy rollout across Moe's Southwest Grill is also progressing well with 95 locations installed to date and a total of 200 locations by calendar year end. In terms of product innovation, we launched Icy and Flush Puppy branded frozen pops across major retailers in late Q2, and the initial response has been very, very positive. Last quarter, we announced a new relationship with Checkers to install 800 new machines. To date, we've installed about 250 machines, with the remainder targeted to be completed by the end of July. Our Super Pretzel brand remains the soft pretzel category leader across channels. We continue to see significant growth opportunities in both food service and retail channels. We are expanding placement of our existing pretzel products and excited to be launching new Super Pretzel branded filled knots, Bavarian sticks, and mini dogs in retail later this summer. Our expanded production capabilities enable us to aggressively grow our Super Pretzel business. Our frozen novelty brands, including Luigi's Italian Ice, Whole Fruit, and Dogsters, also experienced healthy dollar and unit growth during the second quarter. We're also seeing solid sales momentum of these brands with key retail partners. We are also extremely pleased with the early success of our Hola Churros brand, with sales growing 43% this quarter and a healthy 37% year to date. As America's number one producer of churros, we see significant near and long-term growth opportunities of our branded products with major U.S. food distributors, as well as the QSR, fast casual, and retail channels. We expect to launch the Hola Churro brand in our retail channel in 2023 with the first shipments to commence in September. Finally, while the second quarter is a seasonally slow period for Dippin' Dots, we've made significant progress expanding into new channels and positioning the business for a very strong summer. The Dippin' Dots team worked quickly to install freezers in over 290 Regal theaters and plans for additional locations in the third quarter. The team also secured a test with AMC Theaters and another theater chain which plans to be in 200 plus locations in the back half of the year. We have a strong pipeline of opportunities as we leverage the breadth of our customer base and execute our cross-selling strategy. In terms of product innovation, we continue to find new ways to leverage the combined power of our brands by recently launching an Icy branded cherry and blue raspberry Icy Dippin' Dots flavor in March. This new product is Diff & Dot's best product launch ever, exceeding the best by over 40% unit growth. Also, we continue to evaluate Diff & Dot's branded frozen novelty product for retail channel. Turning to our operating initiatives, we have taken a number of actions over the last couple of years to increase efficiency and expand our capabilities to grow this business. operationally we continue to expand our production capacity and now have five new automated lines supporting growth opportunities in churros pretzels and frozen novelties a sixth line will be added in q3 this added capacity supports our aggressive plans to grow sales of our core products in addition we are completing the geographic optimization of our distribution and warehousing network by consolidating to a handful of locations, including three new state-of-the-art distribution centers. The first RDC will open in June in Terrell, Texas, while the other two are expected to come online later this year and early next year. The opening of these new RDCs will allow us to go from 30-plus shipping locations to somewhere between six and eight strategically located facilities, and will significantly reduce our reliance on third parties for storage and logistics management. Two of these RDCs will also include freezer capacity for Diff & Dodge products to support expanding growth opportunities and more efficient distribution capabilities. This aligns with our strategic initiatives announced in fiscal 2022. including the implementation of a new ERP system and the outsourcing of our shipping logistics to NFI. This supply chain transformation will play a pivotal role in reducing distribution costs and providing better service to our customers. We are confident that these combined initiatives position us for strong sales growth, improved operational efficiencies, and reduce distribution costs and provide the platform to deliver incremental profitability. As it relates to M&A, the integration of Dippin' Dots into the J&J systems, processes, customer channels, operations is going just as planned. Also, we continue to evaluate potential M&A opportunities that complement our brand portfolio and our business model. In summary, We are confident that the foundation we are building is further strengthening the long-term competitiveness of our business and positioning J&J to deliver new levels of growth and shareholder returns. We have strong growth momentum heading into the back half of fiscal 2023, supported by our core brands and products. Strategically, the team is focused on transforming the business. investing in our brands and capacity to grow while implementing initiatives to help us operate more efficiently. Our leadership team is aligned around these strategic initiatives, and the organization is excited about the opportunities ahead of us to continue building on J&J Snack Foods' long-term record growth and success. I would now like to turn the call over to Ken Plunk, CFO, to review our financial performance. Ken?