Utz Brands, Inc.

Good morning. My name is Audra, and I will be your conference operator today. At this time, I would like to welcome everyone to the Utz Brands, Inc. fourth quarter 2022 earnings call. Today's conference is being recorded. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the star key followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. At this time, I would like to turn the conference over to Kevin Powers, Senior Vice President, Investor Relations. Please go ahead.

Good morning, and thank you for joining us today. All on the call today are Howard Freeman, Chief Executive Officer, Ajay Kataria, Chief Financial Officer, and Carrie DeVore, Chief Operating Officer. Howard 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 the principal risks and uncertainties that could affect future performance. Before I turn the call over to Howard, 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 Howard.

Thank you, Kevin, and good morning, everyone. It's great to be here with you today, and I'm excited and thankful to have joined us. It's a company I have known and a brand I have enjoyed for over 30 years. I'm grateful to Dylan and my fellow board members for my appointment and for the warm welcome. Us is a long proud heritage and together with the more than 3000 associates across the country, I'm confident we can do great things to build upon the strong foundation Dylan established. To kick off today's call, I thought I'd begin with several early observations about the company that reinforces this was the right decision for me and also what has me excited about our future. Just to share a few, I have found our team to be very eager to learn new things and attack any problem. I appreciate the pleased but not satisfied mindset and how seriously they take ownership of the role they play in the success of our company. This kind of work ethic has built us into what it is today and will continue to reward our customers, consumers, associates, and shareholders. In addition, our associates did a great job improving the company's foundation since going public. And it's remarkable what's been executed in nearly two and a half years. Examples include upgrading talent, implementing a new ERP, strategic M&A to address subcategory gaps and capacity, expanding distribution, and investments in supply chain capabilities and technology. All of these efforts are in the early stages and have well-positioned us for future growth. From a capability standpoint, while I've been in the food industry for over 25 years and my background is in direct-to-warehouse, it's become very apparent that our hybrid distribution model is a real strategic asset. My focus is simply to help better lever this model to unlock further growth opportunities. From a marketing standpoint, today we spend just a modest 1% of sales that has been more focused historically on sponsorships. We've made good strides to shift that mix over the last year and a half. We have a real opportunity to increase our marketing investments over time and shift more capabilities from consumer push to consumer pull activities. And finally, while our margins have been impacted by historically high inflation, The company did a good job executing rounds of pricing actions. It's encouraging that we are now offsetting cost inflation, and as our margin enhancing activities begin to drop more to the bottom line, I am very confident in our short-term, medium, and long-term margin opportunities. Before I turn to our fourth quarter results, I think it's important to take a moment to reflect on what the organization accomplished in 2022. 2022 was a year of gradual recovery and one where we exceeded our original financial expectations while also building for the future. Net sales of over $1.4 billion increased 19% over the prior year as us experience a period of prolonged hyper growth, which has developed the confidence that our portfolio can compete and win. In addition, in 2022, we drove market share gains across our largest channel, the grocery channel, and across our largest subcategory, potato chips. Implemented pricing initiatives and delivered on our productivity goal of 3% of cost of goods sold to enhance margins, manage costs, and provide the required fuel for reinvestment. Significantly increased our market penetration with our expansion into more than 1,300 public stores. And this is an exciting partnership that we will look to expand. Implemented network optimization projects to unlock capacity and lower costs. I'd like to highlight the purchase of our new manufacturing location in Kings Mountain, North Carolina, which we are converting into a flexible, fully operational snack food production facility, which will contribute to higher margins and capacity over time. And finally, we completed the process of bringing all UTS facilities under the same ERP system. This platform is already yielding enhanced data and analytics to enable more timely and informed decisions to improve execution. Again, a really great job all around by the team to execute against our key objectives amidst a challenging environment. Turning to our fourth quarter financial results, our momentum continued in the quarter as we again delivered results that were ahead of our expectations. Net sales increased 18%, adjusted gross margins expanded 220 basis points, and adjusted EBITDA increased 17%. Our performance was led by continued strong consumer demand as our category remains resilient, combined with our revenue management actions and our productivity initiatives that are now fully offsetting inflation. Critically, these actions are providing the necessary benefits for continued investments in our people, brands, selling infrastructure, and supply chain capabilities. Looking at our IRI retail consumption trends in the quarter, we increased sales by over 14%, which is our fourth consecutive quarter of double digit growth. And as we expected, our growth slightly lagged the overall salty snacks category as certain subcategories have been impacted by lapping strong activity in the mass channel. As we expected, some of these dynamics impacted the fourth quarter and are expected to continue into the first half of 2023. Even as we left strong growth in the prior year, our power brands continued their momentum with growth over 15%. Our top three largest brands grew double digits as our flagship Hutz brand grew 16%, on the border grew 10%, and Zapps grew 70% behind innovation and improved supply. From a subcategory perspective, we gained share and delivered over 20% growth across both potato chips and pretzels, which combined represent about 60% of our retail sales. For both subcategories, we saw broad-based strength across most channels and geographies led by Utz and Zapp's brands. For tortilla chips, as I mentioned earlier, we are lapping very strong activity in Mass Channel, where on-the-board sales are more heavily weighted. For perspective, on this year-over-year comparison, on-the-border tortilla chip sales grew nearly 20% in NAS in the fourth quarter of 2021 and nearly 30% in the first quarter of 2022. As we move further along in 2023, we expect our tortilla chip performance to improve. With respect to pork rinds, we have a strong Golden Flake pork brand with a loyal following across the southeastern region of the United States. While pork is a small percentage of our sales, it's an important power brand to us, and as we continue to scale up production in our new Kings Mountain facility, I expect to return growth this year. From a geography perspective, we continue to make progress penetrating our white space opportunities while improving execution in our core. In the core, which represents over 60% of our sales, we grew over 14%, with our flagship US brand up 13%, and on the border tortilla chips up nearly 25%. Zapp's sales increased about 85%, again, led by innovation and better supply. Beyond the core, we continued our momentum in the emerging region as sales increased over 20%, which has been benefiting from our Publix expansion that began in mid-2022. We will continue to look for opportunities to expand our penetration led by large national grocers throughout 2023 and beyond. Finally, our expansion geographies are currently more weighted toward the mass channel, and this impacted our share performance, giving the lapping of strong activity. Of note, as we continue to refine our retail sales reporting, next quarter we plan to collapse our emerging and expansion geographies into one single expansion geography. Now, I'd like to turn the call over to Ajay for our financial discussion, and then I'll make some concluding remarks before we open it up for questions. Ajay?