Sovos Brands, Inc.

The conference will begin shortly. To raise your hand during Q&A, you can dial star 1 1. Ladies and gentlemen, thank you for standing by, and welcome to Service Brand's third quarter fiscal year 2022 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 this session, you will need to press star 1-1. Please be advised that today's conference may be recorded. I would now like to hand the conference over to your speaker host, Josh Levine. Please go ahead.

Good afternoon and thank you for joining us on SoBus Brands' third quarter fiscal year 2022 earnings conference call. On the call today are Todd Lachman, President and Chief Executive Officer, and Chris Hall, Chief Financial Officer. By now, everyone should have access to the earnings release for the period ended September 24, 2022 that went out this afternoon at approximately 4 p.m. Eastern Time. The 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 also 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 Sobo's 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 that 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 September 25, 2022, and growth versus the prior year comparable period, unless otherwise noted. With that, I would now like to turn the call over to Todd.

Thanks, Josh. I would like to start off today's call by discussing a few highlights on the quarter and then provide an update on the current operating environment before turning it over to Chris Hall for greater detail on our third quarter results, as well as our updated outlook for the remainder of the year. First, I would like to highlight the recent one-year anniversary of our IPO. I couldn't be more proud of our performance over the last four quarters, having delivered 16% organic sales growth on an LTM basis and recently passing $800 million of net sales. Growth has largely been volume-led in a period when most of our peers have not only been almost entirely reliant on pricing, but also are without the ample opportunities we have to drive strong, sustainable growth. Our growth is particularly impressive in light of the challenging operating conditions for our industry. Our largest brand, Rayos, continues to grow robustly, passing $500 million of net sales and growing 30% on an LTM basis. And from a profit perspective, we have been able to essentially maintain our EBITDA despite experiencing double-digit inflation and numerous disruptions to our supply chain while simultaneously stepping up investments to support our growth. This has truly been a remarkable last 12 months of tenacity and perseverance against a very challenging operating environment. We purposely built a team of agile, energetic, and talented leaders and have benefited from their industry experience and growth mindset. We continue to add to our already strong team. We've recently announced that Yuri Aramita has joined Silver's Brands as our Chief Growth Officer. Yuri brings with him proven leadership and experience in building and scaling brands globally. most recently at Reckitt, where he successfully ran their North America hygiene business through the pandemic, and prior to that at P&G, where he spent over 20 years in multiple country and category leadership positions. The confidence we have in our team and their proven ability to execute is a key reason we can sustain our sector-leading growth rates. Looking to our third quarter results, we delivered another solid quarter, generating 16.9% organic sales growth. Pricing was up 14.4%, primarily the result of the previously discussed list price increases we've taken year to date. Volume increased 2.5%. inclusive of a negative eight-point headwind to total company volumes from lapping two large volume-driving events from a year ago for the Noosa and Michelangelo's brands that we did not repeat this quarter. And as expected, our gross and EBITDA margins showed nice sequential progress amidst persistently elevated inflation, even as we continued to support our brands with robust investment. Our core business, Sauce, Yogurt, and Frozen, which represent 90% of our portfolio, delivered strong dollar consumption growth rates of over 17%. Sauce grew dollar consumption 24.3%, once again ahead of the category. Yogurt grew 3.6%, supported by pricing. And finally, Frozen, which includes entrees as well as waffles, grew 16.1%. A nice acceleration versus last quarter as our in-market support normalized and supply chain performance improved. Shifting to our largest brand, Rayos surpassed $500 million in LTM net sales this quarter and is now over seven times larger than when we acquired it five years ago. Rayos continues to be one of the fastest-growing center store brands of scale in the U.S., and is well on its way to reaching $1 billion of annual net sales. For the quarter, TotalRail's franchise dollar consumption grew 27.7%, led by nearly 20% unit growth that was driven by broad-based gains in distribution and velocities. Total Rayo's household penetration increased by 230 basis points versus prior year to 14.8% as a result of adding new households across all categories. Specific to FOSS, Rayo's dollar consumption increased by 24.3%. This rate of growth translated into a 100 basis point increase in dollar share versus the prior year to 14.1%. as dollars and units were driven by velocity and distribution gains. Unit growth of 15% came in well ahead of the last category unit growth. Importantly, Rao Sauce has only a 5.3% share of category units today, further highlighting the immense upside potential for this brand. Additionally, household penetration for Rao Sauce continues to grow. finishing the quarter up 160 basis points versus the same time last year to 11.8%. In addition to sauce, Rao's continues to build its newer beachheads in soup, pasta, and frozen, categories that we see as highly incremental opportunities for the brand. In totality, these businesses have now surpassed a combined $100 million of IRI-measured annual net sales, with dollar growth up nearly 50% year-over-year on an LTM basis, as well as in the third quarter. Consumption is being led by double-digit volume growth across all three categories as we implement our Sobos Brands Playbook. working to increase physical availability on store shelves and then supporting them by growing awareness. While our market shares and household penetration levels today are relatively modest in the context of these multibillion-dollar categories, we see material growth opportunities for the Rayos franchise in these and other categories for years to come. Turning to NUSA, Our yogurt business once again grew consumption mid-single digits on a dollar basis, with pricing and mix driving the growth. Much like the broader yogurt category, we are increasingly benefiting from a greater shift towards larger sizes as consumers seek out value. We will continue to focus on fundamentals to ensure we grow in this large and competitive category while providing new and delicious offerings for consumers. Lastly, on Birchbenders, sales trends were largely as expected. Our teams are working hard to improve performance as we continue to experience challenge trends in the core keto offerings. Shifting the supply chain, performance across manufacturing and logistics operations saw a marked improvement versus last quarter, with service rates approaching target levels on sauce, yogurt, and frozen. On inflation, although we are starting to see cost increases moderate in some areas of our business, we continue to realize elevated inflationary pressures across our cost basket, most notably in dairy, glass, and pasture inflation from our North American co-packers. To offset these costs, in addition to our pricing actions taken to date, we are executing against our full suite of productivity projects. including the automation of multiple packaging lines in our frozen plant in Austin, internalization of fruit prep at our Noosa plant in Colorado, and other process improvements across our entire network. These actions will help improve our margins over time. And as we've stated in the past, we will not hesitate to respond with additional actions if warranted by the market. In summary, we are very pleased with our top-line growth year-to-date and confident in our growth trajectory. As a result, we are once again raising our sales guidance for the year by $15 million, or two points of growth, at both ends of the range. We are excited by what we have achieved so far this year and what the future holds for our portfolio of brands, led by Reyes on the path to $1 billion of annual net sales. While we will not be offering any concrete guidance for 2023 today, know that we will remain focused on capitalizing on the opportunities to drive household penetration by expanding distribution and awareness, and we will continue to make strategic investments from a position of strength, spending behind sales, marketing, innovation, supply chain, and other necessary capabilities to drive growth for our one-of-a-kind brands, even in the face of a challenging cost environment. I will now hand it over to Chris for more details on the quarter and our updated perspective to year end.