Sovos Brands, Inc.

Thank you for standing by and welcome to the Sovos Brands fourth quarter and fiscal year 2022 earnings conference call. At this time, all participants are on a listen-only mode. After the speaker's presentations, there will be a question and answer session. To ask a question at that time, please press star 11 on your telephone. As a reminder, today's call is being recorded. I would now turn the conference to your host, Mr. Josh Levine, Vice President of Investor Relations. Please go ahead, sir.

Good afternoon, and thank you for joining us on SoBus Brand's fourth quarter and fiscal year 2022 earnings conference call. On the call today are Todd Lackman, President and Chief Executive Officer, and Chris Hall, Chief Financial Officer. By now, everyone should have access to the earnings released for the period ended December 31st, 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 SoBus Brands' 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. Please note that all consumption data cited on today's call will refer to dollar consumption as of the 13-week period ended December 25, 2022, and growth versus a prior year comparable period unless otherwise noted. And lastly, to avoid any confusion, organic net sales growth for the fourth quarter and fiscal year 2022 represents growth on a 13 and 52 week comparable basis that excludes the extra week. For discussions pertaining to fiscal 2023, including our guidance and growth expectations, organic net sales growth is calculated as net sales growth adjusted for birch vendors and the 53rd week in 2022. With that, I would now like to turn the call over to Todd.

Thanks, Josh. I'm very excited today to share with you our outstanding results for 2022. Highlighted by double-digit volume growth, Rayo's continued rapid march to $1 billion of net sales, and our strong fourth quarter performance that has carried into 2023. I will then hand it over to Chris Hall to provide greater detail on our fourth quarter and full year, as well as our initial 2023 outlook. Sovos Brands delivered another year of sector-leading growth in 2022, with organic net sales up 19.5%, accelerating to 28.4% in the fourth quarter. In fact, organic net sales growth in the quarter was the highest for Sovos Brands and Rayos since the first quarter of 2021. Importantly, our top line performance was driven primarily by volume as opposed to price, which highly differentiates us from the majority of our packaged food peers. Specifically, volume contributed 10.8% and 16% to full year and fourth quarter growth, respectively. And by the way, this momentum has carried into the start of the year. with net sales in January and February coming in strong. The strength of our fourth quarter top line translated into equally impressive bottom line results, with adjusted gross profit and adjusted EBITDA dollars of 29% and 40%, respectively, versus prior year. It's important to highlight that we delivered our results against a very challenging operating environment. Our teams responded tenaciously to overcome supply chain challenges during a year of global supply constraints and rapid inflation. Our customer service levels for sauce and yogurt are now at or above target levels. Our robust slate of automation and productivity projects are delivering on cost savings objectives. And our inventories are in a healthier position than at any time since the beginning of the pandemic. We also divested Birch Vendors at the end of fiscal 2022, allowing us to focus our resources on driving Rayos towards $1 billion of net sales and beyond. Excluding Birch Vendors, our full year organic net sales growth would have been 23.5% versus prior year. And as Chris will talk more about, the continued momentum we are seeing in our business and a much simpler portfolio will help us achieve our guidance of double-digit growth for organic net sales and adjusted EBITDA in 2023. The volume-led growth of Sobo's brands underscores the strength of the Rayos franchise and the long runway of opportunities still ahead. Rayos had another impressive year, surpassing half a billion dollars of net sales. of 35% organically for the full year and accelerating to 45% in the fourth quarter. While we have quintupled household penetration for Rao's since we acquired the brand in 2017, household penetration is still just 15% today with awareness at only 58%. With plans to grow our marketing and R&D spend double digits in 2023, we are confident that we can continue to drive years of sustainable volume led growth into the future. Total rail franchise dollar consumption for the fourth quarter group, 24.8% led by 16.6% unit growth driven by broad based gains and distribution and velocities. Total rail household penetration increased to 15.2% up 210 basis points versus prior year, as a result of adding new households across all categories. Rayostos achieved notable milestones during the year. Measured retail sales surpassed half a billion dollars, up 26.9% versus 2021, the fastest rate of growth for any scaled brand in the category. And for the first time, Rao's was the number two ranked pasta and pizza sauce brand, reaching a 14.7% dollar share for the year, up 150 basis points versus 2021, a remarkable improvement from the number seven position when we acquired the brand. While unit share, household penetration, and awareness are all well below our peers, Rao's sauce dollar velocities are double the category average while providing superior penny profits for the retailer, highlighting the massive opportunity ahead. For the fourth quarter, Rayo's dollar and unit consumption in sauce increased by 20.3% and 8% respectively, with high single-digit unit growth coming in ahead of slattish category growth. To build on our momentum, I am also excited to share that we will be launching some new flavor innovations within the Rayo sauce portfolio, seeking to meet consumer demands for elevated culinary experiences at home. Specifically, caramelized onions, vodka arrabbiata, and four-cheese Alfredo pasta sauces, as well as arrabbiata pizza sauce, will be hitting retail shelves later this year. And if you happen to be at the Natural Products Expo this week, feel free to stop by to try them out. Our newer Rayos Beachhead categories of soup, pasta, and frozen all continued to grow well ahead of their categories in the quarter, generating combined dollar and unit consumption growth of 45.5% and 41.1% respectively, with our business in each category growing dollars and units at least 30%. Household penetration and dollar shares are at or below 2% for the Rao's brand in each of these categories, reflecting material runway ahead. In the second half of 2022, we conducted a test of Rao's frozen pizza across select retailers. Due to successful test market results, we will be expanding nationally in 2023. A range of brick oven crust frozen pizzas made with Rao's authentic pizza sauce and whole milk mozzarella cheese are a differentiated, case-led premium offering in a large and fragmented category ripe for disruption. This is a natural extension of the Rayo's brand and an exciting opportunity to continue to offer the consumer restaurant-quality food across the store. Turning to Noosa, our yogurt business grew consumption low single digits on a dollar basis in the quarter, with pricing and mix driving the growth. We continue to fine-tune our promotional strategy and have seen our consumption data improve in recent periods, bolstering our momentum towards a fourth straight year of growth for the brand. We're also delighted to announce some exciting news for the Michelangelo's brand. We recently launched the brand's first innovation outside of the freezer, introducing four new mid-price SKUs into the pasta sauce category exclusively with a select retailer. This new line of delicious sauces uses 100-year-old recipes inspired by Michelangelo's Sicilian matriarch, Nonna Foti, and leverages the brand's authentically Italian heritage. This allows Sogo's brand to capture more eating occasions by offering great tasting foods made with high-quality ingredients at multiple price points. We see this as a highly incremental growth opportunity for the company and our retail partners. In January, as you likely saw, we disclosed that we divested the Birchbenders brand to Hometown Food Company, which resulted in a reduction in the categories in which we compete by nearly 50%. Our ongoing efforts to create a more focused portfolio allow us to direct more resources and investment towards our most meaningful value creation opportunities, notably accelerating Rayos to $1 billion of net sales and beyond. In summary, we are very pleased with our fiscal 2022 performance and momentum as we enter 2023. We are excited by what the future holds for our portfolio of brands led by Rayos. Our growth trajectory and focus brand portfolio will enable another year of double-digit organic net sales, and importantly, robust adjusted EBITDA growth. This outlook notably includes continued increases in growth-oriented investments to support brand building, innovation, and capabilities, helping us sustain our sector-leading growth. I will now hand it over to Chris for more details on the quarter and year, as well as our guidance for 2023.