Sovos Brands, Inc.

Good day, and thank you for standing by. Welcome to the Sovos Brands' fourth quarter 2021 earnings conference 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 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Chris Mandeville, Managing Director of Investor Relations. Please go ahead.

Good morning, and thank you for joining us on Southwest Brand's fourth quarter and fiscal year 2021 earnings conference call. On the call today are Todd Lockman, President and Chief Executive Officer, and Chris Hall, Chief Financial Officer. By now, everyone should have access to the earnings release for the fiscal year ended December 25, 2021, that went out this morning at approximately 7 a.m. Eastern Time. Press release, as well as supplemental slides, can be found on the company's website at ir.sovosbrands.com. And shortly after the conclusion of today's call, a webcast will be archived and available for replay. Before we begin, let me remind everyone that today's discussion contains forward-looking statements based on the environment as we currently see it, and as such, does include risks and uncertainties. If you refer to the company's earnings release, as well as its most recent SEC filings, you will see a discussion of factors that could cause SoBus Brand's actual results to differ materially from these forward-looking statements. Please remember the company undertakes no obligation to update or revise these forward-looking statements in the future. We will make a number of references to non-GAAP financial measures. We believe these measures provide investors with useful perspective on the underlying growth trends of the business and have included in our earnings release a full reconciliation of non-GAAP financial measures to the most comparable GAAP measures. Lastly, please note that all consumption data cited on today's call will refer to dollar consumption as of the 13-week period ended December 26, 2021, and growth versus the prior year, unless otherwise noted. With that, I'd now like to turn the call over to Todd.

Thanks, Chris, and good morning, everyone. 2021 proved to be an exceptional year for Sobos Brands, And I want to thank the entire Sovos team and all of our partners for working tirelessly during this landmark year, notably our frontline heroes who come to work every day to produce our absolutely delicious Sovos products. We achieved many important milestones, such as becoming the number two brand in the pasta and pizza sauce category and successfully completing our IPO last fall. We also delivered record financial performance and exceeded our full year guidance, generating over $719 million in net sales and $115 million in adjusted EBITDA. This represents 25% plus annual growth and marks all-time highs for both metrics. We also had a very strong finish to the year. highlighted by double-digit growth for the top and bottom line in Q4. These results reflect our team's unwavering commitment to profitable long-term growth, even in the face of today's very dynamic environment. We are very pleased with the continued volume growth across our portfolio as distribution and household penetration continue to expand for our disruptive, high-growth, one-of-a-kind brands. For today's call, I'd like to begin with a few fourth quarter highlights to underscore the ongoing strength of our business, as well as offer some thoughts on our advantage positioning heading into 2022. I will then turn it over to Chris Hall to discuss our financial results and outlook in greater detail before opening it up to your questions. Beginning with our largest brand, Rao's was the fastest growing center store brand of scale over the past two years. The strength and momentum of this brand continues behind further distribution and velocity increases. As we exited the fourth quarter, I am tremendously proud to announce that Rao's became the number two pasta and pizza sauce brand in dollar consumption, marking a new all-time high of 15.4% share as of the four-week period ended 12-26. We have gained share in every four-week period since our acquisition in 2017. And these results represent a 220 basis point share improvement over the last 12 months, as dollar growth was up over 28% compared to down nearly 7% for the category. I'm particularly proud of the fact that not only were our gains broad-based across our entire SaaS portfolio, all channels, and all regions, but they were also driven on the back of double-digit unit, dollar, TDP, and velocity gains, which is in stark contrast to the category where units are down mid-single digits and price has been the driving force behind dollar growth. Our household penetration gains are equally impressive as we've increased penetration of our sauce to 10.9%. up over 260 basis points versus the same time last year. This has been achieved despite Rayo Sauce having less than half the distribution and awareness of its top competitors, highlighting the considerable multi-year runway we still have to support further share and household penetration gains. To offer additional context to our future distribution opportunity, I'd like to point you to slide nine of our earnings deck. where we highlight just how underpenetrated we are relative to our rate of productivity. As you can see, we still only have 11 pasta and pizza sauce items on shelf versus 17 to 22 for our top two branded competitors. These 11 items represent only an 8% share of average shelf compared to our dollar share of over 15%. No other sauce brand of scale has as big of a delta. When you have 18 sauce items consistently in the top two quintiles on velocities like we do, this represents a compelling argument for why retailers should continue to allocate more shelf space to the Rao's brand going forward. As an additional leg to our long-term growth of the Rao's pasta and pizza sauce offering, we are commencing a new ventures program in 2022 under the leadership of Risa Critella, our executive vice president of the dinners and sauces segment. Amongst many growth levers that we look forward to unveiling in the coming year, this program will be inclusive of international. where we plan to begin with expansion into neighboring North American markets, such as Mexico and Puerto Rico, as well as optimizing our route to market in Canada. Panning out to the broader RAO's offering, our efforts to extend RAO's strong brand equity of authentic Italian cuisine into new categories and drive household penetration have proven to be successful. Healthy consumption trends didn't stop with our sauce business, as soups and pasta continue to see growth across all metrics. Sales dollars, dollar share, units, TVPs, and velocities, even after roughly three years in market. Our total frozen entree portfolio, which includes Rao's and Michelangelo's, also demonstrated considerable outperformance. also growing dollar sales, share, units, TDPs, and velocities. Both brands contributed nicely to our 20% plus growth in dollars and units versus 11% and 1% respectively for the category, yielding further evidence that the two brands are proving to be complementary on shelf and incremental to growth. Collectively, We have grown household penetration for the total Rao's franchise by 300 basis points to over 13% since the prior year period, with our frozen entree offering, which is less than 15 months old, already the second greatest driver to these gains. Turning to our second largest brand, Noosa. Consumption trends in the quarter were once again strong. Our dollar sales grew at over 2.5 times the spoonable yogurt category. while our unit velocities remained category leading, up over six times faster versus the category. These results are a testament to our continued investment to grow the core, as well as our marketing efforts that are strongly weighted to digital, along with our highly differentiated taste-led yogurt. It's also worth noting that Noosa is delivering such outperformance against a yogurt category that is experiencing low to mid-single-digit dollar growth that is in contrast to years prior. Importantly, Noosa has grown in excess of this for the last 14 four-week periods. These gains are absent of any pricing, which we expect to begin realizing by the end of Q2. Against this backdrop, and because of the renewed focus to which we have on our core NUSA offering, we have a strong foundation to build from and are excited about our prospects for continued growth in 2022. This will also include our entry into the ice cream category with frozen yogurt gelato, which I'll touch upon shortly. Before I do so, I want to emphasize the strength of our overall Sobos Brands portfolio. at a time where most of the center store is lacking unit growth. In our three largest categories of Sauce, Yogurt, and Frozen, which represents over 90% of our portfolio, we saw positive dollar and unit growth that meaningfully outperformed our respective categories in the quarter. Specifically, On dollar consumption, sauce, represented by the Rayos brand, grew by 30% in the fourth quarter versus 3% for the category. Yogurt, represented by the Noosa brand, grew by 13% compared to 7% for the category. And finally, frozen, which includes Rayos and Michelangelo's entrees as well as Birchbender's waffles, grew by a combined 27% compared to 10% for the combined categories. To help bring this outperformance to life, the combination of sauce, yogurt, and frozen for Sobos brands grew dollar consumption by over 25% versus 8% for the categories in aggregate. Yet we have not even come close to fully realizing price across our portfolio when compared to the majority of our packaged food peers. Consumers across all regions of the country and income groups are clearly voting with their wallets as well as their preference for great-tasting, clean-label products. As society settles into a new norm, we believe this will benefit at-home consumption in light of a permanent shift to working from home for many within the labor pool. While trying to maintain a high quality of life, consumers are seeking value, and this is exactly where our Sobos portfolio of one-of-a-kind brands delivers. As consumers have reduced away-from-home eating occasions, they have sought out premium in-home replacements. In this context, we are well-positioned to continue to deliver robust growth given our runway for distribution and potential to increase brand awareness. As part of our growth playbook, we take our one-of-a-kind brands and selectively extend them into new categories in order to grow their TAM. The successes we have seen in soups, pasta, and now frozen for Rayos are a clear example of our playbook at work. And because all of our brands share similar key attributes, we are confident in our ability to take the Sovos Playbook to the rest of our portfolio. In Q1 2022 alone, we will expand our addressable market by nearly $7 billion to $33 billion with the entree into the ice cream category with Noosa. With a strong momentum in our core yogurt business, We are very excited by our recent launch of Noosa Frozen Yogurt Gelato into the $7 billion ice cream category with a truly unique and absolutely delicious product. While still early, we can share that we're running ahead of our initial sell-in expectations. Beyond this introduction, we have a very strong pipeline of innovation for not only additional adjacent categories, but also to continually bolster our core that will support profitable growth for years to come. In addition to our organic growth, we are continuing to evaluate acquisition targets that complement our portfolio and are accretive to our growth and margins. We have a proven track record of growing through M&A and will continue to leverage our scalable platform to further unlock growth opportunities and synergies that create value for our shareholders over the long term. To lead our efforts on this front, we've recently announced that Tom Lee will be joining Sovos Brands as Senior Vice President of M&A and Strategy. Tom comes to us from J.P. Morgan, where he was a senior investment banker advising companies in the consumer packaged food sector over the last 10 years and has led numerous M&A and capital markets transactions, including our own IPO last fall. So he is already very familiar with us, our ethos, and our strategy. And we are excited to work alongside him as he joins us later this month following the completion of his garden leaf. Before I conclude, I'd like to touch upon the current operating environment as well as provide an update on the startup of our Alma facility. As has been widely discussed and similar to our peers across the industry, we are facing a confluence of supply chain and inflationary headwinds, several of which have intensified in recent months. Specifically, in the last 90 days, We have the Omicron variant, end of the picture, producing elevated supply chain disruption and near-term cost and operating pressures related to raw materials, particularly dairy and proteins, logistics, and labor. And now the Russian-Ukraine crisis brings with it heightened uncertainty to the operating environment as well as incremental costs. As a result, in addition to the pricing and productivity initiatives that we discussed on our Q3 call, we will be taking further pricing on a new set of products affected by the end of Q2. In the past 90 days, we have also worked tirelessly to identify additional cost savings opportunities. As we sit here today and with what we currently know, we believe these actions will be sufficient to manage inflation this year. However, we are actively monitoring what continues to be a challenging and evolving operating environment, and we will remain nimble to any adverse impacts to our business that may warrant additional actions. As a means to fortifying and domesticating our Rao Sauce supply chain, I'm pleased to announce that we are beginning production of Rao Sauce in our Alma, Georgia facility this month, with expectations of ramping to full production during Q2. Alamo will serve as a key source of supply for Rayos Sauce, providing ample capacity and flexibility to support our rapid growth and reducing our exposure to the volatile ocean freight markets while retaining the unique attributes that makes Rayos a one-of-a-kind sauce. In summary, the strength of our underlying business is evident. We had a record year financially, We made major gains in market share and hassle penetration for our core offerings, and I am very proud of all that we have accomplished in 2021. While the operating environment remains highly fluid and supply chain pressures will persist into 2022, we will continue to execute on our plan to relentlessly pursue outsized top-line growth, leveraging our growth-oriented capabilities and organizations. while protecting our margins through pricing actions and productivity initiatives. In addition to our expectations for continued strong growth and volume, we are confident that we are taking the actions needed to support another year of strong profitable growth in 2022. With that, let me hand it over to Chris for more details on the quarter and our fiscal year 2022 outlook.