Utz Brands, Inc.

Good morning and welcome to Utz Brand's third quarter 2022 earnings conference call. All participants are in a listen only mode. After the speaker's presentation, we will conduct a question and answer session. To ask a question, you'll need to press star followed by the number one on your telephone keypad. As a reminder, this conference call is being recorded. I would now like to turn the call over to Kevin Powers, head of investor relations. Please go ahead, Mr. Powers.

Good morning and thank you for joining us today. On the call today are Dylan Lissette, Chief Executive Officer, Ajay Kataria, Chief Financial Officer, and Carrie DeVore, Chief Operating Officer. Dylan and Ajay will make prepared comments this morning, and all three will be available to answer questions during our live Q&A session. Please note that some of our comments today will contain forward-looking statements based on our current view of our business and actual future results may differ materially. Please see our recent SEC filings, which identify their principal risks and uncertainties, that could affect future performance. Before I turn the call over to Dylan, I just have a few housekeeping items to review. Today we will discuss certain adjusted or non-GAAP financial measures, which are described in more detail in this morning's earnings materials. Reconciliations of non-GAAP financial measures and other associated disclosures are contained in our earnings materials and posted on our website. Finally, the company has also prepared presentation slides and additional supplemental financial information, which are posted on our investor relations website. And now, I'd like to turn the call over to Dylan.

Thank you, Kevin, and good morning, everyone. I'm pleased to report that our momentum continued in the quarter, and we again delivered results that were ahead of our expectations. Consumer demand remains robust for our brands and our products, driving record third-quarter net sales. We have found that during both times of recession And when times are good, consumers reach for fun and indulgent snacks that they feel come at a modest price point and our products are well positioned for continued success in a perpetually growing category. Furthermore, in line with our seasonality, both adjusted gross margins and adjusted EBITDA margins improved sequentially. In addition, we are successfully managing inflation as the combination of our revenue management actions and our productivity initiatives are now fully offsetting high inflation. These actions are providing the fuel to ramp up continued investments in our people, our brands, our selling infrastructure, and our planning capabilities. For example, we are increasing our working media spend compared to last year, as well as elevated merchandising and point of purchase support and spend. Given the close to 250 plus DSD routes that we have added year to date, We are investing in growing our selling organization, which includes people and new distribution centers, for example, to support our growth long term. And finally, we have an increasing spend behind our planning capabilities to include investments in our people and processes to support our integrated business management initiatives and revenue management programs to ultimately provide a strong foundation for continued future growth, efficiency, and capabilities. We believe these collective efforts will drive value for our retail partners and best position us to capitalize on our white space opportunities and drive consistent organic growth. Bringing this all together and based on our performance year to date, our current business momentum and what we're seeing currently regarding limited price elasticities, we are once again raising our net sales and adjusted EBITDA outlook for the full year. Our cost visibility and forecasting capabilities continue to improve, And I'm incredibly proud of our team's execution against the expectations we put in place at the beginning of the year. Briefly touching on our third quarter financial results, total net sales grew approximately 16%, which reflects our strong organic growth of 12.6%, as well as the contribution benefit from our acquisitions of 4.7%. I'm impressed with these results as we continue to drive strong net sales growth, even as we continue to simplify our portfolio. Turning to our retail consumption trends in the quarter, for the 13-week period, our positive sales results continued with our third consecutive quarter of double-digit retail consumption growth, and we increased retail sales 17.2%. And, as we expected, our retail sales growth in the 13-week period slightly lagged the overall salty snack category. As noted in our second quarter earnings call, certain subcategories were impacted by the lapping of strong promotional features in the mass channel in the prior year, and as expected, some of these timing dynamics continued into the third quarter. That being said, even as we lapped very strong growth in the prior year, our power brands continued this strong momentum in the quarter with growth of 17.4%. Six of our nine power brands delivered double-digit growth, and to just highlight a few, Our flagship Oots brand, which is about 52% of sales, grew more than 22%. Zaps grew 29%, and On the Border grew about 12%. In addition, our foundation brands had a very strong 16-plus percent growth rate in the quarter. In short, a very strong showing across our brands. Turning to our growth drivers in the quarter by subcategory, we delivered double-digit growth in retail sales across our three major subcategories of potato chips, tortilla chips, and pretzels, which represent about 75% of our retail sales. In addition, we once again drove share gains in our largest and most important subcategory, potato chips, with robust growth of nearly 30% led by strength across the grocery, mass, and C-store channels. Important to note, in tortillas, our on-the-border brand delivered over 50% growth in the last quarter in the grocery channel. This is a channel that the OTB brand has historically been underweight in, and we are excited to see these strong results in this important channel as the brand benefits from our route to market into this channel prove out. Salsa and queso, a subcategory for us that is currently approaching $100 million in annualized retail sales, also continue to significantly outperform once again with growth of 22% and 65% respectively. And as I mentioned earlier, our overall sales were impacted by the lapping of very strong promotional features in the Mass Channel in the prior year. This is most pronounced in our tortilla chips and cheese subcategories whose sales are more heavily weighted towards the Mass Channel. I will also note that pork ranch, which only represent about 5% of our retail sales, is something that our team is actively working to address the supply chain opportunities to unlock their full potential. And as we ramp port production capabilities in our Kings Mountain facility, you will see that this new and modern facility should significantly help to address these supply chain opportunities. In the quarter, we also continue to make great progress driving geographic expansion while also continuing to improve our execution in our core markets. we delivered double-digit retail sales growth across all of those geographies. In our core, which represents over 60% of our retail sales, retail sales increased over 18%, with our flagship Utz brand up 20%, on-the-border tortilla chips up nearly 30%, and zaps up 22%. Beyond the core, we continued our momentum with double-digit sales increases in both emerging and expansion. In our emerging geography, which is our second largest geographic area, sales increased a robust 20.6%, with our UTS brand growing over 34%, even as we lapped significant above-market growth of 23% in the prior year. And, consistent with the earlier context we shared related to our tortilla chip sales performance against the overall category, and given the weighting of on-the-boarder brand in our expansion geographies, and laughing strong promotional features in the mass channel the prior year, this impacted sales growth in the quarter in expansion. Importantly, our flagship Butch brand continues to show that its brand strength travels across the United States and was again up nearly 30% in the expansion geography, and similar to the emerging geography, was building on the prior year's growth of 21%. Also, in the developing Better For You segment of Salty Snacks, We thought it was important to share that our retail sales in the natural channel increased by over 19% in the third quarter, significantly outpacing category growth of approximately 10%. Our main BFY or better for you brands in the natural channel are Boulder Canyon and Good Health. And we now have the number three ranking in the salty snack category in terms of retail sales in the natural channel as measured by spins. The Boulder Canyon brand also continues to deliver record sales in the traditional MULO C IRI reporting as well. Finally, I wanted to take a few minutes to reflect on the momentum we've been building over the past few years as we mature as a public company. We have been on an impressive growth journey marked by rapid expansion in our scale, geographic reach, and our portfolio of brands and products. Since going public in August of 2020, our team has worked incredibly hard in the midst of challenging times, COVID-19 lockdown, supply chain disruptions, historically high inflation, with a laser focus on doing what's right for our customers and doing what's right for our business for both the short term and also, most importantly, the long term. Over two years ago, we entered the public market so that we could create an even stronger national platform of snacking brands that would be able to delight customers across the United States. I believe we've been executing very well across these strategies since going public, with strong progress across several areas. Just to name a few, since 2019, we have increased annual retail sales from about 970 million to over 1.55 billion. Our market share has gone from 3.8 to 4.6 percent And we've improved our salty snack category ranking from the fourth largest brand platform in the U.S. to now the third largest. In addition, we have improved our share in major channels that we had set out to focus on moving from number four to number three in mass and from number three to number two in club. We've also expanded into key subcategories like tortilla chips, where we essentially had no share in 2019. And now we're up to almost 4% of share, driven by the acquisition of the on-the-border brand, which is approaching $300 million in annual retail sales over the last 52 weeks. Finally, we've grown our UTS buyers or households from $48 million to $63 million, and we have continued to expand our DSD network from about 1,650 routes to over 2,100 routes today. all the while converting from RSP to IO, moving from about 77% independent operator or IO in 2019 to about 91% independent operator today. All of these results are a true testament to our brand strength and to the incredible talents of our collective team of over 3,000 Utz associates that are dedicated to delivering on so many fronts to our continued success. Bringing it all together, I'm incredibly confident that the foundation we've built over the past few years has us uniquely positioned to continue to succeed for generations to come. So looking ahead, I've never been more excited about our growth opportunities as our business turns the corner after a challenging period. Butch has never been stronger, our growth opportunities continue to be multifaceted, and our management team is succeeding across so many fronts. To that end, We have strong growth momentum in the resilient and growing salty snack category. We are continuing to make investments to support our significant white space growth opportunities. Our margins are recovering as revenue management and productivity are now fully offsetting inflation. And our recent acquisitions are enabling increased scale of manufacturing capabilities to efficiently support our strong demand. And finally, before I turn the call over to Ajay, I just wanted to make a few additional comments about our CEO transition that is currently underway. As we announced in early October, I am incredibly excited to pass the baton to Howard Friedman as our new CEO in mid-December. Having led some of our country's most iconic brands and with his established track record of profitable growth, I believe Howard is the ideal leader to leverage our momentum and take us to the next level. For me personally, I'm looking forward to my transition to executive chairman and then eventually chairman of the board is I will remain very actively involved in the company, helping to guide the company in various areas of importance, from corporate governance to business strategy. Over the coming months, I will continue to work closely with Howard, our management team, and our board to help ensure a smooth transition and to maintain the continuity of Utz's heritage and forward growth momentum. With that, I'd now like to turn over the call to Ajay Kataria, our CFO. Ajay?