Ladies and gentlemen, thank you for standing by. And welcome to the Utz Brands, Inc. Third quarter 2020 Earnings Conference Call. At this time all participants are in listen-only mode. And after the speaker's presentation, there will be a question-and-answer session. [Operator Instructions] I'd now like to turn the conference over to your speaker today, Anna Kate Heller from Investor Relations. Go ahead please, Ms. Heller.

Good morning and thank you for joining us on Utz Brands third quarter fiscal year 2020 earnings conference call. On the call today are Dylan Lissette, Chief Executive Officer and Cary Devore, Chief Financial Officer. During this call management they 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 the forward-looking statements. Please refer to Utz Brands prospectus on Form S-1 filed with the Securities and Exchange Commission and the company's press release issued this morning for detailed discussion of the risks 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 a comparable GAAP numbers to the non-GAAP numbers provided and reconciliations of the non-GAAP results to the GAAP financial measures. The company has also prepared presentation slides and additional supplemental financial information, which are posted on Utz Investor Relations website. You may want to refer to the slides during today's call. This call is being webcast and archive of that will also be available on the website. And now, I'd like to turn the call over to Dylan Lissette.

Thanks, Anna Kate. Hello, everyone. I'm Dylan Lissette and I've been with Utz for 25 years and CEO since 2013. I'm very excited to kick-off our first earnings call as a public company after our successful business combination with Collier Creek in August. Since our inception nearly 100 years ago as a family business, Utz has developed a strong portfolio of iconic consumer brands, a solid competitive position in our core geographies, and a tremendous history of consistently industry leading performance across economic cycles with over 40 years of consecutive sales growth. The strength of our brands, our dedicated employee base, and our unique action oriented culture has driven our growth and enabled us to move confidently to our new chapter as a public company. My sincere appreciation and congratulations to all of our associates for this achievement. On behalf of our associates, our management team and our board of directors, I'd like to welcome all of our new investors, you can rest assured that we'll continue to work hard to build our business sustainably and responsibly for all of our stakeholders over the long-term as we've always done. After I conclude my remarks on the state of Utz, I will turn things over to Cary who will discuss our Q3 financial results and guidance for 2020. After that, we will open up the call for questions. Before I begin though, I would like to turn to COVID-19 and take a moment to extend my deepest gratitude to all of our associates and business partners who have worked incredibly hard to keep Utz running safely and efficiently throughout the pandemic. My deepest condolences and thoughts go out to those who are affected by the Coronavirus and their loved ones. As a consumer staples business, we are very fortunate that COVID…

Thank you, Dylan. And good morning, everyone. It's great to be speaking with you on our first earnings call as a public company. Our net sales grew 24.2% in the third quarter, driven by acquisitions of 15.9%, volume of 9.7%, price mix at 1.2%, which were partially offset by the impact of higher discounts to independent operators, which reduced the growth rate by 2.5%. As we outlined during our roadshow, we are in the process of converting company on DSD routes to independent operator routes. And as we make these conversions, we no longer incur certain selling costs, such as the route professional’s compensation, but instead we pay a sales discount independent operators. This has the effect of decreasing that sales and gross profit. But it results in higher EBITDA and margins over the long-term. Growth in the quarter was driven by our Power Brands, which grew reported sales by 10% compared to the prior year, excluding the impact of IO discounts, and acquisitions. The grocery, mass and club channels which account for approximately 70% of our total sales and our three geographies, core, expansion and merging, each of which experienced meaningful growth. As Dylan noted earlier, we had a very strong margin performance in the quarter. Our growth and adjusted gross profit margin of 313 basis points, led to an increase in our adjusted EBITDA margin of approximately 173 basis points to 15.4% for the third quarter, dissecting the increase in adjusted EBITDA margin for the third quarter of it, versus volume, which was the biggest driver of the margin increase, contributing approximately 130 basis points of margin growth. Price mix was the second largest driver, contributing approximately 100 basis points, which reflects stable to growing average selling prices, and more weighting toward both Power Brands as a group…

Thanks, Cary. Again, thank you very much for joining us today on our first earnings call. We are excited about everyone who has become a shareholder of Utz. And we look forward to continuing to create value for all of our stakeholders. I’d now like to ask the operator to open up the call for questions.

[Operator Instructions] And our first question comes from the line of Andrew Lazar with Barclays. Go ahead, please. Your line is open.

Morning, everybody.

Morning.

Thanks for the question. I guess to start off with, I know that the company's productivity target is to reach levels, productivity levels of call it 3% to 4% of cost of goods annually, sort of several years from now, with identified supply chain opportunities of about $50 million to sort of jumpstart the program as you ramp up on this productivity. I guess what the margin expansion that you saw this quarter, would you say there's increased visibility to that $50 million in supply chain saves? And if so, you know, is it possible that you reach that 3% to 4% of sales of COGS target, if you will, maybe more quickly than you had initially anticipated?

Hey, Andrew, thanks for the question. This is Cart, I would say you know, we're currently still around the 1% in productivity, the margin, you know, increase you saw this quarter is due to higher net sales, volume scale we have in our manufacturing footprint, larger packet sizes, things of that nature. But we are making significant progress toward that 3% to 4% target. We've stood up the team, we've identified the projects. And we'll provide you more details when we give 2021 guidance. But 2021 will provide a meaningful step in terms of getting from where we are today to that 3% to 4%.

Great, thanks for that. And then, as you talked about in the presentation, you gained share not just in sort of expansion in emerging markets, but in core as well, trying to get a sense of what drove those share games and if that's something you expect moving forward and you know, I asked because you've already have obviously a pretty high share and penetration levels in those core markets. And so we had kind of conservatively assume that most of the growth in share ultimately comes from expansion and emerging, but obviously was good to see share gains in core as well. So just trying to get a better handle on what drove that? Thank you.

Yeah. Thanks, Andrew. This is Dylan. I mean core has always been in the area that we have a lot of opportunity to grow. And it's always been an area that obviously, when we do grow, it will endure quite well to our financials because of the proximity to manufacturing and whatnot. So I think a lot of that is our DSD system. I think a lot of it is our connection to the retailers. I think a lot of it is our Power Brands that we're investing and innovating behind. And so our relationships with our core, grocery, retailers have been very well through you know, throughout the last nine months and through the COVID-19 and the flexibility of our DSD has really done well as on top of it. So I think we'll expect to ideally continue to get a higher percentage of growth from emerging and expansion, but, really can lean on our core to develop solid sort of, you know, mid single digit growth as well.

Great. Thanks very much.

Our next question comes from line of Brian Holland with DA Davidson. Go ahead, please. Your line is open.

Well, thanks. Good morning, and congratulations on getting to this point. Maybe if I could just start with the non-track channels, which still seem a little bit softer than maybe what I was looking for in the model. So I'm just curious, if you could maybe talk about kind of the sequential progress it trends in that channel. You know, kind of broad based from what we started to see initially from lockdown post, you know, the early days of COVID, kind of where we are today, and maybe how you see that kind of going forward in the interim, as we still kind of await maybe a second wave here and potential impacts from that?

Yeah, Brian. Its Cary. Good question. So we're about 25% to 30% unmeasured, we have narrowed the gap, narrowed in Q3 as we expected it to narrow. So I think we the, you know, if you kind of look at the IRI to the net sales performance pro forma, that delta is smaller in Q3 than it was in Q2, and that's reflecting some improvement in unmeasured, that were significantly impacted by COVID-19. But when you really break down the differential, it's really driven by two things, it's your unmeasured, which is we dug into it a little bit, in Power and Foundation brands. Power Brands are about 20% unmeasured, in foundation brands are about 40$ to 45% unmeasured. So if you look at the Power Brands, our Power Brand IRI growth is tracking much closer to overall IRI, then the Foundation is, so it's really Foundation that brings it down. So when you look at that, you know, 500 basis point plus gap between IRI and pro forma net sales, I would say about half of that is driven by unmeasured channels. And of that half about 70% is due to the Foundation brands. And then the remaining gap between IRI and net sales, pro forma net sales growth is IO discounts, predominantly, you know, our IO discounts increased 25% year-over-year, and that's a reflection of the IO conversion. So as we - that will always create a gap until we're fully converted. But I think we're making progress and narrowing the gap. And I think we should see some sequential improvement and barring any changing kind of the COVID environment right now. And demand trends, I think we'll continue to see sequential improvement and we'll see that gap narrow.

Appreciate all the color Cary. And then maybe just kind of pivoting over to the acquisition. If I look at your portfolio, a lot of new several iconic brands, I look, the HK Anderson acquisition is bringing you capabilities. I'm curious are these capabilities, can they be leveraged against the Power Brands? And if so, what would be sort of a timeline for maybe introducing new products, et cetera under one of your larger banners?

Yeah, this is Dylan. Thanks for the question. For sure, I mean, HK is a unique opportunity for us that we were able to extract from Conagra. We believe it has, on the backs of our platform, a lot of growth opportunity for top line sales. Into 2021, we think also that we can utilize the co-manufacturing arrangements and agreements that came with the acquisition to help us really innovate, I think from a timeline perspective, we will definitely be seeing order innovation in 2021. Under that filled pretzel category, I think to your question about how it factors into Power Brands, that is definitely on our slate, where we can take some of that knowledge and capability and move it into Power Brands like us, and expand on that. So we have a sort of multifaceted DSD and DTW approach, director to warehouse approach on that brand, as well as the Utz power brands. So without giving away all of the secrets as to how we'll do that in 2021, we do think that with $100 million sub-category opportunity of filled pretzels we’ll be able to take significant share there and grow that, which is really a creative, I don't think it's cannibalizing, really to what we have as well.

I'll leave it there. Thanks a lot gentlemen.

Thank you.

Our next question comes from the line of Rupesh Parikh from Oppenheimer. Go ahead please. Your line is open.

Good morning. Thanks for taking my question. So I had a question just on the club channel. So your growth did under paste the channel. So I am just curious, what's driving that? And what are some of the opportunities to narrow the gap versus the gap versus the channel?

Yeah, I don't think there's anything in particular that's driving the underperformance. I mean, we continue to do very well in club. The - we've been, you know, we had outperformed it earlier in the year. So, Dylan, I don't know if you have any other thoughts on that. But I think club continues to be a strong performer or us.

Yeah, I mean, if you look at the year-to-date numbers being up 14.5%, I think most people would be very happy with that, the club was up a little bit as a category or as a channel was up a little bit more than we were. Club is something we've been in for 20 plus years, I've been here 25 years. And I think we started in club before I got here. We've been in it for quite some time. We have a very broad portfolio of items and skews. It's a very item-driven channel, where as opposed to like food and grocery where you have perhaps hundreds of skews across food and grocery, club is very item-driven. And so there are some opportunities there where, you know, if you do have a lapping of a program from the year before, you might get negatively impacted just because of the skew-by-skew basis. And I think last year, in 2019, during that period, we had a very large MDM, in one of the club markets that might have affected a little bit. But - so it's great performance, the way we look at it. We continue to innovate around club. We've been very good at performing in club over a very long time. And we've got a lot of innovation. So I mean, I look at that as just a, you know, a slight underperformance to the category. But we continue to believe that that's, you know, its going to be very positive as we go forward.

Right. And then maybe just one follow up question, and I know you're not ready to provide guidance for next year. But just curious, just given what you've seen with repeat rates, how are you guys feeling about some of the stickiness some this year, as we look towards next year?

Yeah, I mean, I think in general, the stickiness, you know, we like it. I mean, we look at new households, we look at repeat rates. And the customers and the households that we're gaining through our brands, especially our Power Brands, it's very positive for us. So I think, the way that we look at it going forward is, we're picking up new customers, and we're retaining those customers. We have very iconic long lived brands that have been around for a long time that consumers love. And as we gain new households, we're creating stickiness. We're also investing in the fourth quarter, as I'm sure you're aware into a lot of media and a lot of social, digital consumer marketing and innovation that will hopefully continue to drive that new household penetration and also maintain or really increase the repeat rates as well.

Great, thank you.

Our next question comes from the line of Michael Lavery with Piper Sandler. Go ahead please. Your line is open.

Morning. Thank you.

Morning.

When you look at the transition to the IOs and adjusting that timeline a little bit, how should we think about the pacing or the trajectory of the discount? And when - would this quarter's level be indicative of what we should expect over the next few or might not accelerate any? How do you think that'll play out?

Yeah, I think the trend will continue, certainly. We're going to convert approximately 70% call it of the remaining routes at the end of this year, we’ll target and get those converted in ‘21. And then finishing up, you know, the remaining 100 or so in 2022. So we still feel very good about the plan, and we're executing it well. But yeah, it will continue to be a headwind, until we kind of finish the conversion and then lap it completely.

And just by magnitude, would this quarter be about the pace of - I'm sure there's a little volatility, but is that about what we should expect over the next several quarters?

I'd have to go back and look at the last couple quarters and provide you with some further thinking. But yeah, I don't think there's any reason to say that this quarter was an anomaly percent.

Okay, great. And just on the 1.7 million new consumers, do you have a sense of how that might break down geographically? Is that driven more by core markets or some of the expansion areas?

Actually more weighted towards expansion in emerging, South, Midwest territories, like that. Core certainly is seeing new buyers, but more weighted outside the core.

Okay, great. Thank you very much.

Yeah. Thank you.

[Operator Instructions] Our next question comes from the line of Robert Moskow with Credit Suisse. Go ahead, please. Your line is open.

Hi, thanks for the question. I was wondering if you've gone deeper into the data on how much of that growth is coming from distribution gains versus velocity gains. And if you had any - provide us to show that you know that your velocity is good in the emerging markets, it's just buying the shelf space and can engender more distribution to come?

Yeah, I think - I don't have specifics to share with you. But we do - we are seeing distribution of velocity gains. You know, people are buying more, products are doing well. And we're seeing stickiness in our - outside our core market. So I think we continue to do well and picking up new customers across the country. So I think there's positive tailwinds in kind of both areas.

Okay. So they're both up distribution and velocity?

Overall, we're seeing gains in both.

Okay. Can you can you break it down between emerging markets versus core markets or is emerging markets just the distribution is - it's growing…

Yeah, I can't - I don't have it at my fingertips right now. But I can follow up with you Rob.

Okay, but I would say high level is that, as you do look at the difference between the growth that we're experiencing in kind of ties into one of the earlier questions about core’s versus expansion, versus emerging, I mean, if you do look at the expansion in emerging markets, I mean, some of those are areas that we as a brand have been in for well over a decade, right, it's not like totally new areas, its our velocity and our share pickup, and our sales results are doing quite well in those areas. So I think we could get very specific if you'd like to offline, if you have a particular data point that you're looking at. But as we look at many of this sub - you know, we dial in literally into some of the IRI markets that make up those emerging and expansion markets. We're doing quite well. We're outpatient in the category, and we continue to just become a larger and larger part of the share of that - of those markets.

Okay. And quick follow up. You mentioned increased media investment in fourth quarter more digital marketing, you’re historically more of a push marketer than a pull marketer. Is there anything that you've seen in terms of tactics that are new and able to reach specific consumers with their digital marketing and 4Q? Just to try to maximize the retention?

Yeah, I mean, we announced the selection of the Sasha Group, which is VaynerX media company to be our advertising and media partner as we go forward. And I don't know if you know much about them, but they're very oriented towards, towards sort of the new world of advertising and marketing to create that higher pole versus our more traditional push style marketing. So they're very creative and very fast moving. And I think that's really where we're orienting our mindset towards is to spend dollars, where we see what works, and then we follow that and continue down that path, as opposed to, you know, doing what may have been a more, you know, in the years past a more traditional form of advertising and marketing, where you, you know, you do one major campaign and you play that major campaign out for six months. This is going to be a much more smaller campaign, see what works and then build upon each. So we're really excited, because a lot of that spend will start to really occur, you know, kind of today, forward right into November and December is we really ramped up with that spending. And then we'll see how that works. We wanted to be meaningful, we wanted to be high ROI. We wanted to be highly oriented towards social and digital, we wanted to tie into e-commerce, because we do believe that there's more of a 360 type of advertising loop that falls into e-commerce as well. So that's really where we're trying to worry as to, you know, and spend money on that, as well as ramping up our innovation in our insights that we're targeting the right people with our spends.

Our next question comes from the line of Wendy Nicholson with Citi. Go ahead, please. Your line is open.

Hi, good morning. My first question has to do with Popcorn, and you're doing so well across the board in every other category, it seems. So I'm just wondering, why is Popcorn an anomaly? Do you think you can fix that organically? Or do you need to go outside to make an acquisition? Or is that just a matter of time and focus?

Yeah, that's a great question. I think we - you know, self-admitted that we have some weakness in Popcorn. We think there's a lot of opportunity there. If you go back to our investor roadshow presentations, we kind of identified that we had opportunity in Tortiyahs!, as well as Popcorn to grow relative to our size, relative to the category, right. So we're under weighted in Tortiyahs! And in popcorn. We have focused on Tortiyahs! It's a larger subset of the overall Salty Snack, I believe it's in the four plus billion subcategory of salted snacks, where popcorn is only 1.5 billion. So we wanted to focus on Tortiyahs! first. And so that we're, you know, not trying to do all things at once. We're really trying to be good at everything we do. And so we're focusing on Tortiyahs! Now we've got our own internal brand called TORTIYAHS! that's grown over 150%. We've migrated towards you know that as a brand to grow. We obviously know that Popcorn is an area for improvement. We've got some package design stuff that's sort of coming soon, that will help to prop that up as a sub category for us. But we do look that there's - you know, there are opportunities, we either have to in the future create something on our own, or there may be M&A opportunities. And so we - that's part of our playbook and part of our strategy to organically grow where we can, but also to look at M&A as opportunities to take care of sort of that underweight in certain subcategories.

Fair enough. Okay. And then my second question just has to do with kind of the bigger picture retail environment. I mean, a lot of retailers have said, they haven't wanted to do shelf realignments or change shelf space on and there hasn't been as much promotional activity just during the COVID period. Can you give us a sense of kind of what your experience has been and do you start to see a pickup in promotional activity? Or maybe comment or just what you're seeing at retail? Thanks.

Yeah, I would say at retail, very high level, very macro. It feels to me like things kind of return to normal in August, September, October, I mean, on level of what we're seeing in terms in terms the traditional print advertising, the promotional schedules, the - salted snacks is a very promotional display and activity-driven category, right, every high impulse. We have a lot of fish [ph] traffic going through food, grocery club and mass today. And honestly, I think, you know, from a promotional perspective, it does seem like they're things have somewhat returned to normal. We're still doing the traditional advertising and display activity that we've always done. So I would think from our perspective, it is more of a return to normal over the last few months.

Superb. Thanks so much.

Yeah.

And there are no further questions in queue. I'd like to turn the call back over to Dylan Lissette for closing remarks.

Thank you very much. It was an exciting quarter for us. Our team came together and did phenomenal, especially in the face of all that is happening in the world around us from the COVID perspective. And I just wanted to thank all of our associates, all of our team, and thank you very much for a great first quarter. And I appreciate everyone joining us today as we had our inaugural third quarter 2020 earnings call. Thank you.

Ladies and gentlemen, this does conclude today's conference call. We thank you for your participation. You may now disconnect.