Armanino Foods Dist Inc

Good afternoon, everyone, and thank you for standing by. Welcome to the Armanino Foods of Distinction Second Quarter 2026 Earnings Conference Call. During today's presentation, all participants will be in a listen-only mode. Following the prepared remarks, the call will be open for questions. This conference call is being held today, Tuesday, August 11, 2026, and the earnings press release accompanying this conference call was issued after the market closed today. Joining us on the call are Armanino Foods President and Chief Executive Officer Deanna Jurgens and Chief Financial Officer Andrew Leonard. Before we begin, I would like to remind everyone that some of the statements management makes on this call are forward-looking statements that reflect management's current expectations about future operating and financial results. Although management believes these expectations and assumptions are reasonable, They remain subject to significant risks and uncertainties, and actual results could differ materially from what is stated or implied today. For more information, please refer to the company's forward-looking statement section in today's press release and the additional disclosures in the company's quarterly and annual reports. The forward-looking statements made on this call speak only as of today, and the company undertakes no obligation to update them except as required by law. With that, it is my pleasure to turn the call over to Armanino Foods President and Chief Executive Officer Deanna Jurgens. And Deanna, the floor is yours.

Thank you, Luke, and thank you to everyone for joining us today. It is a pleasure to welcome you to Armanino Foods' second quarter 2026 earnings conference call. For many of you, this is the first time you are hearing directly from me, and it is the first earnings call that I have had the privilege of addressing our shareholders and the broader market. So before we turn to the quarter, I want to spend a few minutes on three things. Who Armanino Foods is, why I believe so deeply in the opportunity in front of us, and why I am convinced that this is exactly the right moment in our company's history. So let me start with the company itself, because we are welcoming a number of new investors to our story. Armanino is a leading producer and marketer of premium frozen Italian and specialty foods. We are best known as the maker of America's favorite pesto, and today we are the leading pesto supplier to the food service industry in the United States. Our portfolio reaches well beyond pesto. It spans a wide range of sauces that we sell primarily to food service and industrial customers across North America and select international markets, chiefly produced in a British retail consortium global standards grade AA facility with rigorous quality standards. Ours is a family story and it is one I am proud to carry forward. In the 1880s, the Armanino family arrived in San Francisco, California from Northern Italy, bringing two things, their skills in farming and the family's basil pesto recipe. By the end of the 1960s, that family business had grown from a local farm into a national herb supplier. And in the 1980s, Armanino became the first company to bring classic Genovese pesto to the retail market and is now one of America's favorite flavors, basil pesto. That heritage sits on top of a financial profile that I believe is rare for a company of our size. We have grown net sales at a compounded annual growth rate of over 10% since 2019 at margins that meaningfully outperform our industry benchmarks. We generate strong cash flow and operate with a clean balance sheet that carries no debt. We pay a quarterly cash dividend and have repurchased $12 million of our shares in the last two years, and we continue to reinvest in the business to support our next phase of growth. In short, Armanino is a strong and highly profitable company. Our opportunity now is to build on that foundation and scale it. So that brings me to why I am here. I joined Armanino as President and Chief Executive Officer in May of 2025. Over the past year, I have spent considerable time with our employees, customers, suppliers and partners, and on our plant floor. And everything I have seen has only deepened my conviction in this company. My background has been built around growing and scaling consumer and food businesses. Most recently, I served as Chief Sales Officer at Bondwell Americas, where I led a fresh produce business of roughly $650 million in revenue and helped drive its largest branded share gains in five years. Before that, I served as President of North America and Global Chief Growth Officer at Beyond Meat, where I led international expansion and built commercial partnerships around the world. Earlier in my career, I held executive leadership roles at Rodan and Fields and PepsiCo. That experience is directly relevant to what we are building here at Armanino. We have a leadership position built over decades. We have products and a brand that chefs know and trust. And we compete in categories where many of the most important consumer and operator trends are moving in our direction. Operators are looking for greater menu innovation. Consumers increasingly want old, authentic, and globally inspired flavors. and Professional Kitchens need high quality products that provide consistency while reducing labor and complexity. Those trends align extremely well with what Armanino does best. Over the past year, we have strengthened our leadership team, sharpened our growth strategy and begun investing in the infrastructure needed to support a much larger business. We are now moving from strengthening the foundation to accelerating growth. With that context, let me turn to the financials where we delivered another strong quarter of growth and profitability. In the second quarter of 2026, we delivered net sales of approximately 21.7 million, an increase of 8.5%, over the prior year quarter and the highest net sales in the company's history. Gross margin expanded approximately 260 basis points to 48.3% and we generated net income of approximately 4.9 million or 16 cents per diluted share. These results reflect continued strength in our core food service business, new customer acquisition, expanded distribution, favorable product mix, and disciplined pricing. But what is particularly encouraging to me is that we are beginning to see tangible results from the growth strategy we put in place last year. As we have outlined in our investor materials and annual report, our growth strategies are centered on four priorities. First, investing in our core U.S. food service business. Second, cross-selling our broader portfolio of globally inspired sauces. Third, expanding our national account business. And fourth, accelerating our international growth. We made meaningful progress against each of those priorities during the quarter. Starting with U.S. Food Service, we continue to see strong momentum across both our core business and new customer opportunities. Pizza restaurants remain an important customer segment for Armanino. Earlier this year, we had a successful showing at Pizza Expo, and we are now working on new limited-time offerings and partnerships with pizza chains including Blaze, Fazoli's, Villa Pizza, and King Street. We also had meaningful wins through several of our partner brands that expanded our reach into retail. During the quarter, products featuring Armanino sauces secured national distribution at both Walmart and Kroger in prepared meals, creating another avenue for our products to reach consumers at scale. These wins demonstrate the breadth of the opportunity in front of us. We can grow directly with food service operators while also supporting our customers and partners as they expand their own products into new channels and points of distribution. Another important growth opportunity is expanding the breadth of our sauce portfolio beyond our offerings today. This month, we launched our new Calabrian Chili Sauce, which has already generated strong customer interest and is in the process of being incorporated into new menu items across the U.S. Calabrian Chili demonstrates the broader opportunity within our portfolio. While pesto remains the foundation of our business and a category where we hold a leadership position, we believe our culinary expertise, manufacturing capabilities, and customer relationships can support meaningful growth across a much wider range of globally inspired sauces. National accounts are another major growth opportunity for Armanino. We had two significant wins during the quarter. First Smoothie King, a health-focused chain that is expanding its food offering, launched a chicken pesto flatbread featuring Armanino basil pesto as a core menu item across approximately 1,300 locations nationwide. This represents an important national account win and demonstrates the relevance of our products well beyond traditional Italian restaurant menus. Second, we continue to expand our relationship with Wonder, a rapidly growing business with approximately 140 locations that continues to scale nationally. Wonder has already launched our basil pesto and romesco sauces, and we recently finalized commercialization of two new salad dressings scheduled to launch in September, pomegranate vinaigrette and royal miso. The introduction of salad dressings is strategically important. It demonstrates our ability to take existing capabilities and expand successfully into adjacent product categories, creating another potential avenue for long-term growth. International also delivered an important milestone in the quarter. Our international segment recorded its largest quarter of shipments in the company's history, driven by increasing demand from our existing business in Asia. We continue to believe international represents a meaningful long-term growth opportunity for Armanino. Across all four of these growth priorities, the common thread is execution. We are getting closer to our customers. We are collaborating more actively with them, we are bringing more innovation to the table, and we are increasingly leveraging the full breadth of Armanino's culinary and operational capabilities. The result is a larger and more diversified pipeline of opportunities than this company has historically pursued. I also want to discuss one of the most significant investments in Armanino's history, our new manufacturing facility in Mountain House, California. In May, we signed a 15-year lease for approximately 91,000 square foot facility located just east of the San Francisco Bay Area in California's Central Valley. This facility represents much more than additional square footage. It is an investment in the future scale, efficiency, and capabilities of Armanino Foods. Today, our operations are spread across two leased facilities in Hayward, California, together with separate third-party cold storage. The Mountain House facility will allow us to bring ingredient and packaging storage, production and finished goods storage together under one roof. We expect that consolidation to meaningfully improve operating efficiency while giving us substantial capacity to support future growth. We expect to begin the facility build out in the third quarter and are targeting a transition of production from our current facility during the second quarter of 2027. We expect total investment in the project to be approximately $20 million. Importantly, because of the strength of our balance sheet, we expect to fund this investment with cash on hand and do not currently plan to raise capital to finance the project. We are making one of the most important investments in the company's history while maintaining financial independence and preserving strategic flexibility. We will provide additional updates as the project progresses. but I want shareholders to understand what this facility represents. It is the physical foundation for the scale we intend to build over the coming years. So before I hand the call to Andrew, one quick note for our shareholders. As you may have seen from the proxy statement we sent last week, we will be holding our annual meeting of shareholders virtually on September 16th, 2026. We value the chance to connect with our owners directly, so please mark your calendars, review your proxy materials when they arrive, and make sure your votes are counted. We look forward to hearing from you. But with that, I will turn the call over to our Chief Financial Officer, Andrew Leonard, to walk through the financial results in more detail. Andrew?

Thank you, Deanna, and good afternoon, everyone. I will walk through our second quarter 2026 financial results. As Deanna mentioned, net sales for the second quarter of 2026 increased 8.5% to 21.7 million, compared to 20.0 million in the same quarter last year. The increase is driven primarily by continued momentum in our core U.S. food service and international businesses. Gross profit increased 14.8% to 10.5 million, and Gross Margin was 48.3% compared to 45.6% in the prior year period. The increase in margin primarily reflected favorable product mix, pricing actions and continued operational efficiencies. Operating expenses were $4.1 million compared to $2.8 million in the prior year period. The majority of the $1.3 million increase was due to strategic investments in leadership talent and other capabilities to support our growth plan. But $576,000, or about 46% of the increase, was related to our new facility. I will speak more about that shortly. including the facility-related expenses, operating income increased 1.4% to $6.4 million, representing operating margin of 29.5%. Net income increased 1% to 4.9 million, or 16 cents per diluted share, compared to 4.9 million, or 15 cents per diluted share, in the same quarter last year. With the signing of the lease on our new facility in Mountain House and the beginning of the build-out project, This quarter we are introducing two non-GAAP financial metrics, non-GAAP operating income and non-GAAP net income, to help investors understand the underlying performance of our business during this period when we will be incurring a number of non-operational expenses related to our facility relocation project. The facility-related expenses that will be included in these adjustments will include accelerated depreciation of the leasehold improvements at our current facilities in Hayward, California, as required by GAAP accounting, legal expenses related directly to the facility and the build-out project, retention bonuses for our production team, project-related insurance coverage, and the rent on the Mountain House property during the build-out. In addition, our GAAP metrics will also adjust for stock compensation expense related to the equity incentive plan adopted in 2025 due to its non-cash nature. For Q2, our non-GAAP operating income increased 15% compared to the prior period to $7.3 million, representing non-GAAP operating margin of 34%. Non-GAAP net income, which adjusts the excluded expenses at our reported tax rate, grew 14% to $5.6 million. I encourage you to review the additional disclosure in our press release and quarterly report regarding the use of non-GAAP metrics. Turning to the balance sheet, we ended the quarter with $27.3 million in cash and cash equivalents and no debt. This figure reflects the return of $6 million to shareholders during the quarter in the form of the dividend paid in April and $4.5 million of share repurchases during the quarter, which completed the $12 million repurchase program authorized by the Board in 2024 and 2025. Overall, we feel comfortable that our debt-free balance sheet, together with our strong and consistent cash generation, gives us the flexibility to invest in our new facility, fund our growth initiatives, and continue returning capital to shareholders. That completes my financial review. I will now turn the call back to Deanna for some closing remarks before we open the line for questions. Deanna?