Utz Brands, Inc.

Good day, and thank you for standing by. Welcome to the Utz Brands' first quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during a 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 zero. I will now let the HANA conference over to your speaker today, Kevin Powers, Head of Investor Relations. Thank you. Please go ahead.

Good morning, and thank you for joining us today. On the call today are Dylan Lissette, Chief Executive Officer, and Carrie DeBoer, Chief Financial Officer. During this call, management may make forward-looking statements within the meaning of the federal securities laws. These statements are based on management's current expectations and involve risks and uncertainties that could differ materially from actual events and those described in these forward-looking statements. Please refer to these risk factors in our most recent quarterly report filed with the Securities and Exchange Commission, as well as the risks highlighted in our press release issued this morning for a detailed discussion of the risk that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today. Please note, management's remarks today will highlight certain non-GAAP financial measures. Our earnings release also presents the comparable GAAP numbers to the non-GAAP numbers and reconciliations of the non-GAAP results to the GAAP financial measures. Finally, the company has also prepared presentation slides and additional supplemental financial information, which are posted on us's investor relations website. You may want to refer to these slides during today's call. This call is being webcast, and an archive will be available on our website. And now, I'd like to turn the call over to Dylan. Dylan?

Thanks, Kevin, and good morning, everyone. In the first quarter, we continued to execute against our value creation strategies to position the company for long-term success. Our net sales increased 18% and our adjusted EBITDA grew 30% and we remain on track to deliver on our full year 2021 sales and profitability targets. As we lap our significant outperformance versus the category in the early weeks of the COVID-19 pandemic last year, our retail sales increased 5.9% on a two-year CAGR basis and showed continued strength across our platform. Importantly, our new buyers and repeat rates showed strength, and they increased versus prior year and remained consistent with where we ended fiscal 2020. We continue to further penetrate key channels like e-commerce and convenience, and we are driving distribution gains in our emerging and expansion geographies. In addition, we went live on our ERP implementation that will better enable our growth platform to scale, and we remain on target to increase productivity from 1% to 2% of cost of goods sold in 2021. Lastly, we continue to execute on our strategy of making a creative, strategic acquisition focused on U.S.-branded snacking and delivering strong synergies. To that end, earlier this week, we announced the acquisition of Festida Foods, which is the largest manufacturer of our on-the-border tortilla chip brand. We expect this acquisition to close in the second quarter of 2021, and on that note, our M&A pipeline continues to remain robust as we expect to continue to enhance our growth, capabilities, and margin profile with value-enhancing acquisitions. Looking a little closer at the numbers in the first quarter, net sales grew over 18% in the quarter, and we estimate that the February snowstorms had a 200 to 300 basis points impact on our growth rate. Importantly, our pro forma net sales increased over 4% on a two-year CAGR basis, and this included about a 1% impact from the storms. As it relates to our view for the full year, our first quarter results were relatively in line with our expectations, and we continue to expect sales to increase sequentially, as planned, into the second quarter, and we remain on track to deliver our full-year results. From a profitability perspective, adjusted gross margins expanded to nearly 39% and adjusted EBITDA margins increased to over 14% of sales, reflecting the addition of Truco, which generates a strong adjusted EBITDA margin. Before we dive into our IRI retail sales results, I'd like to take a minute to revisit how COVID-19 impacted our results in 2020. This should provide some helpful context for our first quarter 2021 results and for how we expect our sales cadence to play out this year. As we kick off 2021, we begin to lap significant market share gains that we experienced in early 2020. During the early pantry loading stages of the COVID-19 pandemic, we reacted quickly to maintain and grow in stock positions, which better enabled our retail customers to meet immediate and heightened consumer demand. For example, in the four-week period ended April 19, 2020, the category grew 10%, while Utz brands grew 25%. As we moved through the remainder of the year, we maintained strong sales momentum and saw share gains, and we gained new buyers of Utz products, which increased by 3 million to approximately 61 million at the end of 2020. Not only did we add more buyers of Boots products relative to the prior year, but we also increased our rate of repeat purchases. This continues to suggest stickiness amongst our new buyers and consistent with our long-term value creation strategy, we will increase our marketing brand investments to better enable buyer retention. In 2021, we will significantly increase our working media spend and invest in highly targeted media buys on platforms like Snapchat and TikTok. Additionally, we will invest in both our expansion and emerging geographies to support new distribution as we grow. Now let's take a few minutes to discuss our IRI retail sales trends and results. Given the significant outperformance versus the salty snack category in the earlier months of the COVID-19 pandemic last year, we believe that evaluating our results on a two-year basis is a better indicator of overall performance. That will be our approach this quarter. And to that end, as we lap COVID-19 pantry stocking, we are driving very strong two-year growth rates led by our power brands, which continue to outperform the category. From a retail sales perspective, for the 13-week period ending April 4th of 2021, our power brand's momentum continued growing at a two-year CAGR of 7.6% versus the salty snacks category growth of 6%. Foundation brands declined 4.3%, and this is consistent with our strategy to continue to emphasize our collective efforts around our power brands. Additionally, over the past two years, we have grown power brands from approximately 84% of sales to 87%. And as noted, we will continue to focus our marketing and innovation efforts around our power brands, which remains a critical focus for our company. Turning to our growth drivers in the quarter, we grew sales on a two-year CAGR in five of our key salty subcategories, and we also drove double-digit sales gains in salsa and queso. From a share perspective, we gained share across potato chips, tortilla chips, and pork rinds over the two-year period, which comprised about 65% of our retail sales. In potato chips and tortilla chips, Our two largest categories, we significantly outpaced the category, highlighted by growth in ZAPs of nearly 24%, and our newest power brand, On the Border, continued to outpace the tortilla subcategory, growing 7.2%. During the quarter, we also successfully continued our century-long strategy of continued geographic expansions. Even as we faced very difficult comparisons to prior year, we drove year-over-year growth in our expansion and emerging geographies while driving significant outperformance versus the category on a two-year basis. We continue to benefit from the geographic expansion efforts that have been underway for decades, and our acquisitions are helping to fuel this expansion. The strategy is enabling incremental growth for our power brands, which remained underdeveloped in our emerging and expansion geographies, leading to continued white space for future growth and expansion. From a core perspective, over the last two years, our total portfolio growth trends are below the category, but more importantly, our power brands' performance within the core is nearly in line with the category. Our overall core performance is driven by both the decline in our good health brand and the negative impact of our foundation brands, both of which are more heavily weighted to our core. For an additional frame of reference, our power brands in the core, excluding good health, increased 5.5% on a two-year CAGR basis, which outpaced category growth of 4.9% in the core by about 60 bps. It's important to know that we have a targeted set of actions that we are executing to drive improvement in the core for our power brands as we move throughout the year, and we remain focused on this area of opportunity. In addition, core performance will benefit from unlocking beyond the border distribution opportunity. Wrapping up our retail sales insights with a look at our channel growth, we continue to drive two-year share gains in grocery, club, and C-Store. Looking specifically at grocery, which showed strong growth through COVID-19, our power brands grew nearly 10%, significantly outpacing the two-year category growth of 6.7%. Our most under-penetrated channels, namely mass and C-Store, remain a continued opportunity for future growth. We are focused on expanding our C-Store presence through new retailer wins and strengthen distributor relationships, and we have seen share growth for the UTS platform with growth in the UTS brand, our TGIF brand, and our ZAPS brand, which generated tremendous two-year growth of about 25% in this important channel. In MAS, we are focused on driving distribution by leveraging our national scale, unlocking our DSD sales force, and selling an expanded brand portfolio. In MAS, we underperformed the overall category on a two-year basis, primarily due to our on-the-border brand. Excluding on-the-border, UTSC grew 7.4% for the two-year period. We expect the trends in mass to normalize as the year progresses and as some of our larger direct programs in 2021 take place after the first quarter. And we are confident in our continued opportunities for success and growth in this very important channel. Before I turn the call over to Carrie, I'll make just a few final remarks on our acquisition progress. This is a key element of our value creation story, given our unique positioning within the category and our team's ability to execute well on M&A, and I'll share a few thoughts on our progress. Truco and Vintners are our two most recently closed acquisitions, and the teams are working very well together. We are deploying our proven integration playbook, and we remain on track to deliver our expected cost synergy targets across manufacturing, procurement, and SG&A. From a revenue synergy perspective, we are also very pleased with our early progress. We see opportunities abound for the on-the-border brand within our DSD system, and we are winning new customers and gaining placement in new channels. We are seeing new distribution for on-the-border across multiple channels such as grocery, drug, C-store, and dollar. To that end, we recently gained placement for new and incremental DSD distribution for on-the-border with a key small format customer that has the potential to reach nearly 10,000 stores. We remain very excited about the contributions that this wonderful tortilla chip and salsa dip brand will bring to us long-term, especially in our core geographies. From a Vintners perspective, we believe the brand and the platform will benefit from our DSD management oversight and focus, and we are leveraging the Vintners DSD network to introduce more of our power brands into Chicago and the Midwest. For example, within a month of closing on Vintners, we began shipping those power brands into the Vintners DSD system, and we are seeing strong early reads on growth for these brands, and we are driving continued market share gains in the region. Lastly, I'd like to discuss our latest strategic acquisition, Pestida Foods. We are very excited about this announcement and the value that this brings to our company. Pestida, located in Grand Rapids, Michigan, is the leading manufacturer of tortilla chips, corn chips, and pellet snacks, and is the largest co-packer of tortilla chips for our on-the-border brand. We expect that this acquisition of Pestida will enable strong supply chain productivity and synergies, and enhance our ability to expand on an accelerated basis both beyond the border brand and other Oats brands geographically in the Midwest. Over time, we intend to invest in additional production capabilities in the manufacturing plant to support growth in other Southeast Snack subcategories, and we expect that this will enhance our ability to better service current and future retail customers in that area. We also recognize the importance of Festida's current longstanding customers and we look forward to continuing to service them going forward. In summary, I'm very proud of our first quarter results. This is our third quarter of reporting as a public company, and we continue to drive our long-term value creation strategies that we believe will continue to enhance both short-term and long-term shareholder value. In a quarter with a mix of challenges and great accomplishments, I continue to be very thankful for the tremendous efforts from our entire team. We have built the third largest branded salty snack platform in the U.S., and we continue to drive forward as we embark on what we call our next century of growth. And now I'd like to turn the call over to Kerry DeVore, our Chief Financial Officer. Kerry?