Utz Brands, Inc.

Ladies and gentlemen, thank you for standing by. And welcome to the Utes Brands Incorporated Second Quarter 2021 Earnings Conference Call. At this time, all attendees are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. And to ask a question during the session, you will need to press star 1 on your telephone. If you require any further assistance, please press star 2. Thank you. Now, I would like to hand it over to Mr. Kevin Powers, Senior Vice President of Investor Relations. Sir, please go ahead.

Good morning, and thank you for joining us today. On the call today are Dylan Lissette, Chief Executive Officer, and Kerry DeVore, 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 the risk factors in Uxbrand's most recent quarterly report, Fine with the Securities and Exchange Commission, as well as the risks highlighted in the company's 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 provided in reconciliations of the non-GAAP results to the GAAP financial measures. Finally, the company is also preparing presentation slides and additional supplemental financial information, which are posted at 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 of it will be also available on our website. And now, I'd like to turn the call over to Dylan. Dylan?

Thanks, Kevin. Good morning, everyone, and welcome to our second quarter earnings call. Let's begin with a few key messages on the quarter. In the second quarter, our net sales on a two-year basis continue to gain momentum as we lap the impact from COVID-19 in the prior year. Our net sales increased 6.1% on a two-year CAGR basis, which was an increase from 4.3% in the first quarter. From an IRI retail sales perspective, growth accelerated to 6.5% versus 5.9% in Q1, and we are also beginning to see our sales strengthen in channels that were most negatively impacted by COVID-19 in 2020. For example, our food service sales increased nearly 60% versus last year, with other areas like discount and specialty seeing strong double-digit growth. While we expect our sales momentum to continue into the second half of the year, the strong recovery of the U.S. economy is having a broad-based impact on supply chains. Consistent with what you've heard around the food industry, the costs to serve our customers are increasing, and our key input costs are higher than we originally expected. This is largely due to higher commodity, transportation, and labor inflation. As a result, we are currently reducing our full year adjusted EBITDA outlook for fiscal 2021. On that note, please be aware that we are aggressively taking the steps necessary to mitigate these cost pressures and our pricing actions and productivity initiatives are well underway. To be clear, we have been increasing pricing across our network and we are leaning into our productivity initiatives to offset these inflation headwinds. but the benefits of these actions will lag the costs. And as noted previously, we will see the benefit of these initiatives in the second half of 2021 with meaningful carryover benefit into 2022. As we manage through this environment, we remain focused on the long-term health of our brands, and we continue to prioritize investments to capitalize on our significant continued and future growth opportunities. Among these growth opportunities is our strategic M&A, as our scalable platform has proven to generate both meaningful cost and revenue synergies. We believe our pure play snacking focus makes us the logical consolidator in the salty snack category, and there is inherent optionality in our platform, as we can consider small tuck-ins, medium-sized acquisitions, or potentially larger transformative opportunities. We continue to focus our M&A efforts on businesses that will either facilitate geographic expansion, increase our presence in key subcategories or channels, and of course, those that deliver strong synergies. Our acquisition pipeline remains very robust, and we will continue to prioritize opportunities that are creative and strategic to our long-term goals. Lastly, on July 26th, we announced promotions to our executive leadership team that will accelerate our ability to grow and strengthen our organization. These changes will provide us with the optimal organizational structure to best position us to drive continued top and bottom line growth. Among these changes, Carrie DeVore is being promoted to Chief Operating Officer, and Ajay Kataria, our current EVP of Finance and Accounting, is being promoted to Chief Financial Officer. Both changes are effective this October 4th. In addition, we welcomed Teresa Shea as our general counsel right after July 4th, promoted Shane Chambers to chief growth officer, and promoted Jim Spanagle to chief people officer. Turning to the numbers in the second quarter, net sales grew over 23% in the quarter, which reflects the positive contribution from our acquisitions and from price mix. This growth was partially offset by lapping the impact of the peak prior year COVID-19 sales increases, which were most pronounced in the second quarter of 2020. In addition, adjusted gross profit grew 17% and adjusted EBITDA grew 10% as margins were impacted by the key input cost increases I described earlier. In addition, I'll note that our adjusted EBITDA performance reflects a higher marketing spend in the quarter as we invest more in our prior brands for long-term growth, as well as public company costs in 2021 that didn't exist in the prior year period, given that it was a private company. Now, let's turn to our recent IRI retail sales trends and results. Consistent with the first quarter, given the significant outperformance of its brands versus the salty snack category in the early months of COVID-19 pandemic last year, we believe that evaluating our results on a two-year basis is the best indicator of overall performance. As we lock the peak COVID-19 pantry stocking period of 2020, we are driving strong two-year growth rates that continue to accelerate as we move throughout the year. Our power brand's momentum is growing, with sales on a two-year CAGR basis accelerating to 8.8% for the 12-week period ending July 11th, versus 7.7% for the 12-week period ended April 18th of 2021, both of which outpaced the broader salty snack category by over 100 basis points. Importantly, during the same time periods, our foundation brand declines have slowed to minus 1.8% versus minus 3%, even as we continue to reduce our emphasis on these brands. As mentioned in previous calls, the move towards power brands and away from foundation brands is many times driven by working through the transition that occurs when we acquire foundation brands as part of an acquisition, including those acquired in the ConAgra DSD snacks and Vintners acquisitions, for example, and actively work to rationalize and right-size the portfolio by inserting key UTS power brands into the market. This strategy is to amplify our focus on the power brands, which we believe can scale nationally, which helps us to capitalize on the significant white space opportunities that exist. To that end, our investments in marketing and innovation are focused on these faster-growing brands, and we are increasing spend in digital and e-commerce, and Uplonster will be launching key innovation introductions. Turning to our growth drivers in the quarter, we continue to grow sales in a two-year CAGR in all five of our key salty subcategories and in salsa and queso. We also gained overall share during the period across potato chips, tortilla chips, and pork rinds, which comprised about 70% of our retail sales. In addition, as we evaluate our emphasis on our power brands, we delivered two-year market share gains in our power brands across four of our five major subcategories, as well as greater than category growth in our salsa and queso brands. During the quarter, we also made significant progress driving geographic expansion. We continue to focus on large population areas in our expansion and emerging geographies, and we continue to drive our Power Brands growth across the U.S. VR platform. For the 13-week period ended July 4th in the expansion and emerging geographies, we drove double-digit growth on a two-year CAGR basis for both the total UTS portfolio and for our power brands, which outpace the category by approximately 400 to 500 basis points in each area. As noted previously, we believe the revenue opportunities in our expansion and emerging markets is significant with every one percentage point of share gains in these geographies representing approximately 200 million of incremental retail sales opportunities. Looking at our core performance over the last two years, Our total portfolio growth trends are behind the category, and as noted in Q1, this is primarily due to declines in our good health brand and the impact of our foundation brands, both of which are more heavily weighted to our core. These two factors combined accounted for about two-thirds of our performance gap to the category in our core. That being said, we continue to be focused on the core and have a targeted set of actions that we are executing to drive improvement as we move throughout the year, and we remain focused on this area of opportunity and improvement. In our analysis of near-term IRI data, we do see our results beginning to improve, and the gap to the category is starting to close, signaling that our actions are beginning to take root. In addition, we are seeing significant growth of the On the Border brand in the core with very solid growth rates on a two-year CAGR basis over six of the last seven four-week quads. You can see the On the Border results I'm speaking of on slide 13 later in the deck. Wrapping up our retail sales insights with a look at our channel growth, we continue to drive two-year positive sales growth across every major channel with power brand share gains in grocery and C-store, as well as double-digit sales growth in club. In the grocery channel, which is approximately 50% of our retail sales, our power brands grew 8.3%, outpacing the two-year category growth of 6.7%. In our most underpenetrated channels, namely mass and convenience, both remain a continued opportunity for future growth, and we are excited about the progress we are making in these important channels. In mass, while we underperformed the overall category in a two-year basis, our growth accelerated to 6.8% versus 3.7% in Q1, and our gap to the category was nearly reduced in half. We are very excited about our growth opportunities in this dynamic channel and look forward to sharing more with you on this later. And as travel continues to resume around the country, our convenience store trends are improving, and sales grew year over year, nearly 15% and nearly 7% on a two-year CAGR basis. We are expanding distribution and strengthening distributor relationships, and the Western United States remains a key white space opportunity for us. Looking ahead to the second half of the year, our sales momentum is truly building. And we are excited about the progress that we are making across several areas. Here are just a few highlights. We are lapping the extraordinary surge in demand during the peak COVID-19 pantry loading period in the second quarter of 2020. And we are beginning to enter a more normalized comparison period to the prior year. We have positive space and facing gains coming in Q4 with a critical mass retailer as we leverage the strength of our now broader UTS and on-the-border portfolio. Our C-Store and food service channels are rebounding quickly, and C-Store remains a large channel opportunity for us with only a current 3.4% share. We are accelerating power brand sales through key innovation like UTS Twisters and Zapp Thins. and introducing new on-trend flavors for the on-the-border gifts, like Southwestern bean and jalapeno ranch, as well as on-the-border queso tortilla chips, amongst other innovation ideas. And finally, we expect to deliver a strong holiday season, with holiday item sales expected to grow versus last year, as the traditionally strong holiday season for us was muted by COVID-19 in 2020. Finishing our review of our retail sales data, you can see by the recent four-week IRI and ULO C-trends that sales momentum is building with our power brands, and the foundation brand performance is improving as well. And finally, before I turn the call over to Carrie, I'll make just a few final remarks on our Truco acquisition progress. As a reminder, Truco, also known as On the Border, was our largest acquisition in the history of us and we closed on this on December 14th of 2020. From an integration standpoint, many of our milestones on the on-the-border acquisition are being hit, and the teams continue to work well together. We are six-plus months into bringing these two organizations together, and we see opportunities abound for the on-the-border brand within our sales platform, and this is amplified with the recent transition from a third-party DSD distributor to the UPS DSD distribution system for a number of states, effective about a week and a half ago on August 1st. We believe that this will drive even more future gains for the brand as we both vertically manufacture and distribute this strong brand, and we believe this will help to unlock even more revenue opportunities. It's important to note that on-the-border tortilla chips have only a 50% ACV across the U.S., And we are leveraging the OOTS sales force and the route to market system to drive increasing growth and unlock revenue synergies. And we are seeing new distribution for on the border across multiple channels, such as grocery, drug, convenience, and dollar. And our core OOTS geographies remain a big revenue opportunity for this brand. As you will note on the accompanying chart, the two-year CAGR four-week numbers show continued progress and growth, with recent trends climbing into the 15 to 20-plus percent range on a two-year basis in our core, as well as very strong results in both emerging and expanding. Finally, we are driving manufacturing efficiencies within our vertical integration initiatives, and we recently insourced some on-the-board production into our Hanover plant, with future plans to bring even more production into both Birmingham in the second half of 2021 and Hanover in Q1 of 2022 to support this elevated demand and complement our current command network. Finally, we're also excited about the test introduction of on-the-border soft tortillas, which we will be testing in a subset of the national retailer stores as we believe the on-the-border brand equity can expand into the growing $1.9 billion soft tortilla market, and we look forward to seeing the results. In short, we are very excited about the opportunities the on-the-border brand will continue to bring to our portfolio across all of our geographies. And now, I'd like to turn the call over to Kerry DeVore, our Chief Financial Officer. Kerry?