Earnings call transcript Q4 2022

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Operator

Thank you for standing by, and welcome to the Sovos Brands Fourth Quarter and Fiscal Year 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there'll be a question-and-answer session. [Operator Instructions] As a reminder, today's call is being recorded.

I will now turn the conference to your host, Mr. of President Vice Levine, Investor Relations. Josh ahead, go sir. Please

Josh Levine

joining Good year Brands Sovos thank XXXX for afternoon you us fourth conference on call. and earnings quarter and fiscal

Officer; Lachman, On and are call Hall, Todd the Chief Financial today Executive and Officer. Chris Chief President

should X:XX everyone the to the The well after available release p.m. ended Eastern access the out this as earnings that as can on XX, Time. will company's XXXX, today's have ir.sovosbrands.com went for be also supplemental afternoon period and now, and conclusion By the archived release December call, at at found slides for webcast approximately a website be replay. press shortly of

as begin, that and remind everyone it, let risks forward-looking as today's such, we does statements uncertainties. me currently the we include see contains Before environment and discussion based on

If as to remember materially see could undertakes well obligation to actual update earnings its you to the no release discussion results forward-looking most cause of you as will the these statements. Please filings, the that these forward-looking future. revise in factors Brands' a SEC refer statements company company's Sovos from or recent differ

comparable reconciliation provide on non-GAAP measures. the make references with will of these measures. of to have included to GAAP investors and most the release business perspective measures full non-GAAP financial believe earnings We useful underlying a number growth that of financial a We trends our the in measures

prior XX period to XXXX period otherwise XX, note year consumption Please ended data consumption the the on unless growth will that all week comparable versus noted. and dollar call cited as of today's refer December

and for a confusion, quarter organic lastly, XXXX fiscal week excludes week. basis fourth And the that XX comparable represents extra and growth the avoid net sales year any growth on XX to

as XXrd fiscal Benders XXXX, in and XXXX. adjusted sales growth net organic sales to growth is week For Birch and guidance our the expectations, net including calculated growth pertaining discussions for

the turn like now would I call to Todd. over that, With to

Todd Lachman

double-digit Rao’s I'm results excited rapid our growth. carried net to volume quarter is March with to our performance that and highlighted today very of Josh. share XXXX. you continued sales outstanding fourth strong billion Thanks, by for XXXX, into $X

greater fourth Chris and I will Hall full outlook. provide year hand quarter over on as our XXXX our it as to to detail well then initial

Sovos leading in accelerating Brands with XX.X%, the net up to fourth another delivered quarter. XX.X% year in of growth sector XXXX sales organic

In of fact, first Brands the growth sales organic net the Sovos was in Rao’s XXXX. the quarter for since quarter highest and

opposed price, Importantly, us performance to our top line primarily differentiates our food packaged which from the highly was majority volume as of by driven peers.

Specifically, volume respectively. XX% and XX.X% growth and to year quarter contributed full fourth

line And adjusted top carried line very respectively prior results and by January and that the quarter this year profit strength It's important a EBITDA February operating with year. XX% against impressive start of equally we with translated sales dollars The versus highlight our bottom our way, into results into adjusted of has delivered fourth gross and net coming momentum in environment. challenging XX% strong. the in of the to

constraints overcome to chain a tenaciously supply inflation. challenges responded rapid Our supply during of teams global and year

Our customer and yogurt service levels are or now for above target at sauce levels.

a of the on automation of beginning objectives the than delivering our slate productivity since projects healthier time cost are inventories are any savings and and robust at in pandemic. Our position

our $X end towards driving the fiscal of resources to Rao’s billion allowing and divested also We Birch focus of beyond. net sales on XXXX, us Benders at

in us and portfolio prior as a organic growth and more seeing adjusted guidance versus help our sales much Benders, will year. net would've in year achieve XXXX. organic continued talk XX.X% for EBITDA will our net of growth Birch simpler about the been are Chris And momentum full our Excluding double-digit sales we business

strength of billion the XX% The runway Brands volume net impressive for of Sovos surpassing opportunity franchise organically another ahead. sales, the led and fourth the quarter. XX% full had year, the of the $X.X Rao’s long Rao’s and to underscores accelerating in up still growth of year

quintupled XX% we we acquired household only penetration have since in household awareness for brand penetration with is still today the XXXX, XX%. Rao’s While at just

plans distribution XXXX, future. marketing to and consumption as grow by up Total new for driven led R&D a dollar years broad we franchise XX.X%, velocities. adding increased XX.X% XX.X% of versus Rao’s households household With sustainable categories. can prior into led drive basis to of the by are across and quarter spend our all fourth that the volume result grew year, Rao’s Total and base unit to growth confident in double-digits gains we XXX penetration continue growth points

the milestones XX.X% $X.X achieved first during up brand sauce the was number time, notable improvement brand. rate A remarkable billion, Measured for share number seven reaching year. from surpassed any when acquired two versus ranked category. we retail growth fastest points the versus sauce scaled for year, XXX the dollar of the basis sales XXXX. and Rao’s position Rao’s The pasta pizza And the in for a brand XXXX. the XX.X% up

highlighting awareness our peers, While soft unit massive for penny superior all velocities well while share, opportunity profits providing average, Rao’s ahead. the dollar household the category below are the penetration are retailer, and double

Alfredo category as launching growth consumption and single-digit of and be new consumer pizza retail sauce I'm unit that we year. be elevated Seeking momentum, later shelves some arrabbiata pasta flavor will and four caramelized quarter, Rao’s experiences specifically as X% unit sauce the increased culinary to build ahead To fourth XX.X% for portfolio. Rao’s hitting in will sauce demands the vodka respectively share this by at on coming home, with well growth. flattish also innovations For our high excited and to within dollar sauces, cheese meet onion, arrabbiata

Products them happen stop to try this And the to if you be feel Expo week, to Natural by at out. free

XX.X% quarter, categories dollars brand combined these of and category Rao’s of each all and growth least continued at pasta and generating the categories, respectively. growing for runway unit categories or of dollar reflecting well household in With to in and beachhead newer ahead consumption material shares Our soup, each units dollar frozen, at and penetration are of in XX%, XX.X% grow the ahead. business below X% their our Rao’s

second and whole pizza food the select category across half we in and milk of continue disruption. cheese range a restaurant This a oven sauce frozen large are XXXX, the and extension results, frozen retailers. to to brand fragmented with offer crust expanding made of Rao’s across authentic XXXX. differentiated exciting opportunity offering test successful quality natural market Rao’s Due right case-led in A mozzarella In to premium store. of conducted test be pizza Rao’s nationally we'll consumer brick a of an the the for is a pizzas

low a single-digits pricing dollar Turning our basis and quarter driving growth. the with noosa, crew the yogurt in to consumption mix on business

our in We with brand. exciting first outside delighted announce year have fourth exclusively recent retailer. momentum our into periods, data recently We're four some Angelo’s category of growth skews pasta continue brand's to the to the the of straight improve strategy for promotional innovation bolstering launched We towards the for fine sauce select news Michael introducing a new freezer, seen consumption and also tune our a brand. the mid-price

by Sovos This leverages price foods quality eating Sicilian Michael Foti authentically new to offering Nonna recipes inspired occasions great of Angelo’s high uses made matriarch, year Brands This by and capture brand's points. Italian line with XXX more at ingredients delicious allows tasting the old sauces heritage. multiple

Birch and this brand categories we the we a resulted reduction to see that We partners. company as disclosed growth compete you a Benders in incremental for which saw, opportunity the In divested nearly as highly the Food our January, which Hometown we by Company, XX%. in retail likely in

resources our value creation our and to more most ongoing are opportunities, pleased $X to allow portfolio of sales we us we beyond. and XXXX. towards Our investment In notably efforts accelerating momentum meaningful as fiscal very performance XXXX create focused with enter billion net direct to summary, and a more Rao’s

We are of by brands what for by portfolio Rao’s. future the led excited holds our

year portfolio growth. and sales, importantly, trajectory growth double-digit organic EBITDA will focus enable net another and robust of adjusted Our brand

to building, support and brand increases This outlook sector capabilities, innovation includes helping growth-oriented leading notably sustain us continued in our growth. investments

on hand guidance I our as as will for the Chris and now XXXX. over more details quarter well it for year to

Chris Hall

good and Todd, everyone. you, Thank afternoon,

sales the increased organic of on XX.X% X.X% $XXX.X and year basis, volume price, have total net organic growth million would an XX.X% driven excluding XX.X%. full been full our or XX.X% by year For Benders, Birch

XX.X%. by quarter growth or XX.X% $XXX.X our Benders, week consolidated XX% the price. Fourth the driven of over and volume million, fourth of $XX.X quarterly week XX.X% organic to net total sales a growth million would’ve added increase our excluding Birch XX.X% excluding quarter extra $XX.X million The prior was been organic XX.X% growth period, or extra year

remained Rao’s nearly our at categories across portfolio, Looking a perspective, key all from grew and brand driver. we the

annual brand our a on our is XXXX. basis XX% is sales. net an accounting XX.X% in fastest also up Rao’s Rao’s for nearly As reminder, now growing organic largest our brand of

our and And the Sauces EBITDA. our account Dinner majority segment of for

measured quarter, line by growth. the net first or approximately was growth net XX% This XX-week XX% Rao’s was total For that on a in performance driven consumption XX.X% sales generally channels increased organic basis. sales with comparable and our

third, new we the distribution Year. gains Second, wins. that XXXX of ahead during channel from events some growth strong will and we New behind early non-measured sale benefit And pipeline us particularly saw distribution benefited

Benders. was down Michael up Angelo’s, up Beyond sales X.X%, noosa Rao’s, for X.X%. fourth net Birch basis, down Birch was Angelo’s for and the and an On X.X% Benders down organic total was quarter X.X% grew growth noosa Michael in XX.X%, X.X% for

as impact increased inflation. of year-over-year. Adjusted gross and profit pricing growth offset productivity as low-double of than $XX.X million XX.X% more Double-digit savings or digit the $XX million volume well

Adjusted year XX.X% generated margins expectations, margin gross still point a gross a improvements improve growing half, to of We ahead the basis to the we prior first during meaningful in reflecting XX.X% versus line. second for well on above reflecting made of period. XX.X% slightly year the gross our the with while top commitment our half our margins margin XXX decline were quarter

delivering and Our automation are running, in CapEx improved savings manufacturing cost up enabled plant now levels. service and our projects Austin

tailwind that and the of provide XXXX. first efforts our combination of the half pricing we Finally, enter XXXX productivity will note in a as

investments adjusted talent expenses operating over million inclusive and $X.X selling capabilities. our growth $XX.X million support enabling marketing or year XX.X% by of to primarily and increased prior driven period, by of the

XX.X%, of prior up $X.XX EBITDA QX versus $XX.X per prior diluted or was basis a million, EBITDA loss Adjusted XX.X% million, period. the compared XX was share points while of the per negative year for the to quarter increased $XX.X period. diluted adjusted Net million or year in million $XX share $X.X loss versus margin or negative XXXX, $X.XX

income asset of to $XX.X $X.XX was income net diluted the in $X.XX million fourth The and loss on share in sale quarter EPS this to Adjusted per QX $XX Birch due was net compared XXXX. the adjusted divestiture. largely was and year’s related diluted million to loss share, per Benders adjusted

On per basis, a income cash cash and debt of full $XXX.X net the million $X.XX year was total end $XXX.X diluted share. adjusted quarter, million. equivalents were and the or $XX.X million was fourth At

times. progress was leverage We’re net year-end proceeds very quarter, our the which pleased the driven by EBITDA well generation year on from finished Birch Better and with Benders as in than expected the as cash the at leverage, X.X strong divestiture.

enormous gives to Our our brands. us further flexibility strong in cash invest position

I would for with negligible, to $XX.X provide line total a by elevated bottom EBITDA were the into fiscal adjusted results detail now performance On year Benders. basis, relatively quarter. on with Birch like consistent million, brand net an full reinvestment reflecting sales XXXX year some

some to turn that now in underlying of I our it. fiscal support the XXXX outlook will assumptions

of $XXX adjusts XX% for Birch Specifically organic million. XXXX. million net are in we to This sales for Benders week range to $XXX net and reflects of XX%, a guiding growth sales, XXrd which the to

be across year’s and as the growth our moderating last actions. balanced to expect price with We we during price volume year

assume We macroeconomic will challenges the materialize. potential given also normalize elasticities that could that

overall we our similar Lastly, promotional to be in XXXX. cadence pleased and XXXX anticipate our with are to strategy

we EBITDA, is improvement adjusted we reflecting XX%. a are year, that the margin offset by will growth full of guidance moderate for productivity Embedded For pricing to this inflation. digit million range and million of mid-single fully guiding $XXX expect to gross to in $XXX driven X%

double-digit our our supporting marketing and strong specifically opportunity capitalize will investments, in help to ahead. increase multi-year growth people, increase a R&D. capabilities This us on and also the We brands, includes

the to million. the $XX are Below of we in expense net line, be to million interest $XX guiding range

cap a As have at half we effective the while rate. floating our an interest half other reminder, X.X% is debt

in be our XX%. adjusted XX% rate expect of We effective to to tax the range

For annual slide see and a items, please on guidance summary Investor our Relations other of XX deck Slide these earning website. posted our in

we expect for first expectations year. of to the of the year. on in our organic net Finally, I the second would growth double-digit like some both the color provide Overall, phasing half and sales

margin and the year expect half more For and we and first adjusted EBITDA, between a as of balanced first expansion EBITDA second half, in higher dollars be result, be in the should to the XXXX. than growth

back now some me the final over turn remarks. Let to call for Todd

Todd Lachman

Chris. Thanks,

generated of We bottom to are very XXXX. net in sales achieved XX% on catapulted for line our the team frontline results. come growth possible deliver volume and our proud and Rao’s. year-on-year support of led without great $X that these billion business None We of sales this what March growth, forward every been our to employees to would’ve strong and work day we incredible

top discussed bottom comprehensive look and against line we executing we forward, for are the deliver plans we the XXXX. As growth confident in in to double-digit

your questions. that, are With and Chris take available to Operator? I now

Operator

of first Instructions] [Operator Goldman JPMorgan. you. Thank Ken comes from question Our

open. Your is line

Ken Goldman

thank Hi, Good you. afternoon.

Todd Lachman

Ken. Hey,

Ken Goldman

was the too? some I there And mentioned new that out in about we that some how are you we items pipeline first think the Just cadence of think or fills curious as should and some distribution? gave modeling quarter in quarter, that just amount about there, offsets pull know ship for you Chris, should the essentially big but the we quarter

Chris Hall

you, we Ken. distribution get did nice We the as thank year. here some very Hey, gains kickoff

seeing We’re XXXX out we impact at it because What beat did results? seeing on that impact our a it up results week we’re have call a from some week. that after consumption of I immaterial we our our week in consumption but that end shipped for the had ramping did pipeline, that – after guidance, on growth QX space. for our an QX would want won’t that It account of to

of a pipeline to on reflect So a reduction small based I anything QX wouldn’t fill.

Ken Goldman

it. Got

your these Okay. is lack Angelo’s and better if And I’m taking some on going premium mid-tier? Michael for more going of guess seen, introduction we’ve now not level but about my the them level entry they’re premium? particular I brands a Thank of of ton against with combat you’re Or to is where this sauce, sort I you. how of well level. have of expectations. is that into kind performing doing reasonably of then to anything sort second talked entry in, truly phrase, I’m curious And where in you sort small and this share, coming doing of and be a that a that just sauce question,

Todd Lachman

No, It’s I – I hey mean, Ken, are how think you doing? Todd.

level it and actually call a one can I You premium. kind of mid-tier or same. entry think the bit they’re

have about So and honestly, we’re and opportunity. and talk through. mean, yes, a competitive is some space see that’s we company Rao’s a that as through entrance mean, fire growing look, area I I’ll an I there been on that in that subsequently. Clearly that sauce

range tested this been it to and we’ve distinct we’ve we conceptually, there But for which at equity. about Michael to we’ve for Angelo’s, while out have, less like $X-ish, park, opportunity price looking which tested about to was wise product mainstream that’s a but XX% a leverage to premium hitting price this $X felt the Rao's. – that XX% the and that another is of to average of average-ish keeps perspective,

– tomato we’re equity. That’s an like is – Angelo’s offering except based opportunity that’s simmered now with area to just Michael a what very a our we real ingredients. a are leverage different slow products nice Michael was The felt that though whole right sauce

which plus Rao's analog. So getting both at canola packaging, That’s label, oil, tomato plus high that very private plus Rao's, different something differentiated sure But of dehydrated sugar, that. plus texture the mainstream, it’s proposition, we’ve to paste label mainstream albeit sauce. as made verse a premium as onions, that’s is not than water, you’re

only source players. And the your end all the will of in of day, come volume the with X% of units, from Rao's, proportionally

So one. this versus be customer that only the we Angelo’s XX%-ish, in starting from XX%, of larger coming I’ll XX% competitive, competition which will Rao's. Michael one units from the be entry, the source with off We’ll is

we’re come. see our to So thing to excited this this we for do. to really a smart what’s while We’ve a eyes and as space see on had

Ken Goldman

Thank you.

Todd Lachman

Thank you, Ken.

Operator

of [Operator you. of next from question Instructions] comes Thank the Barclays. Lazar Andrew line Our

is line open. Your

Andrew Lazar

everybody. afternoon, Good

Todd Lachman

Hello, Andrew.

Andrew Lazar

One first. quick clarification

fill it pipeline immaterial say did XQ earlier, that you to XQ the was With about sales material talking or sales? you to were

Todd Lachman

material QX, for was it in quarter tremendous No, a as was Yes. Rao's seen immaterial, for to which not the business you’ve and general.

Andrew Lazar

Got it.

So differential quarter? was in or shipments a much the in not of there between and so fourth much consumption for Rao's

Todd Lachman

No. Yes.

reports consumption roughly When seeing shipments see at well. reports, pure drivers for lower our consumption in you’ll IR XX% than we’re shipments which up in our our So look really that. for and QX a was you as retail, there’s is mirrors few

across right full up took but And few in across our categories our favorable in Rao's quarter guidance a particularly customer to Rao's as really both good thought, of there event for year. all a really So as not very, uptick strong a QX. and totality that other also that’s distribution a very within what’s non-measured just We and from that channels. we line shipments, the true, the were to year for across we consumption flight a had previous in the that well had up QX the really we single the seeing building and picked We across outlets business. beat our had and

Andrew Lazar

Thanks for that.

Chris Hall

Yes.

we quarter at is in that If the XX% as market, what the in seeing because weeks XX look prior XXX, data TDPs fresh up an quarter. the were year-on-year ended versus up last fourth X% for about I example the just give year. fourth and sauce material using gain that I’ll we’re up, important. really perspective, build think just I me is Let is distribution now you

and gains about is been was have But million as there these brand to win distribution distribution major with major So I’ll talking further I’ve total $XXX others that more opportunities a very we that about a in sales, gains chat, you lot, calls on is of that’s bit. Andrew, – and franchise. for organically and a that again, still now meaningful on talk that

But in right the XX%. now, end

increased right and so we exact months gain. XXX of gains in that on not points, now our to up meaningfully us over we’ll next see in almost in basis in total two we’re penetration those year-on-year basis both And is, seeing quarter, consumption playing to XXX what and we about sauce, on points household the from franchise penetration And distribution but between increase call, basis to quote XXX talk through going we those XX.X% points into number, most importantly are XX.X%.

Andrew Lazar

Got Because appreciate it. what That’s through great Chris, digit pricing and moderate, care sounds inflation and the account take you’ve just that things for would the going that theory, What in And it’s some I I’m takes but that you’re looking of could Obviously, be than even things. hear. year. are not some should I for we probably about? detail. taking I gross that margin us recovery, then puts you of for to just mid-single thought think think the the margin potential briefly maybe productivity around gross into to could the greater like got coming XXXX. walk would’ve

Chris Hall

when sit improvement of here we’re a material we our margin. XXXX versus HX, pleased as with all, we So very HX gross our in today, saw first

wind a efforts bit about as place, starting and across talked in earlier that to had into half somewhat the XXXX. and we actions the delayed in back the year, our which productivity pricing little been year were our As had take took spread really

So see across the given half of half margin first the the year. back than the definitely in more year of that improvement we

the half the of our greater the result in will than a the in that, EBITDA half growth be As of second year. of first year

the flight to we’ve view, – inflation. weighted pricing on and on balance front expansion the right will of see margin mid again, drive with productivity We and/or dealt have that point we the across for digit XXXX. do that XXXX, the in in the that digits planned inflation heavily an year now, more of of moderating low half. actions more we’re across double in we the the year, believe single productivity and the From And first are range

now. have seen, round just may here the through take in some pricing late the in did We you we that’s last year. marketplace But a latest passed in year February

additional in high digit about net and we if low through to see of volume XXXX. digit pricing, heavily flow single half think pricing the year. mid-single some sales totality double you So more first XXXX talked of again the growth, the be will again, growth of digit, we And weighted that’ll

Andrew Lazar

Great, thanks very much.

Operator

next Galbo Our of line Thank from of Bank you. of Instructions] question America. the [Operator comes Peter

Your open. is line

Peter Galbo

the Good Great, everyone. taking thanks. afternoon, for questions. Thanks

Todd Lachman

Peter. Hey,

Peter Galbo

an Chris, wanted EBITDA this year, just put that. EBITDA think level can an second you any I the guess, you heard line. the given may the the to if just I kind versus year of more it guidance sales correctly flowing surprised in and maybe around split make down not on of And question basis, prepared little I more EBITDA that just sure your remarks, start be XXXX. on of to of for even is, mentioned I the organic that to on there’s part a numbers that growth I’m to

I as just you that do a in one that’s ramp, in to said expense, anything more us can well. of on think the help of probably you that some but capabilities marketing as

Chris Hall

points. – growth productivity. and bit we of to in do the We mid-year-ish and That’s in anticipate do margin and more And XXXX XXXX what’ll to mentioned, Sure. roughly first EBITDA XXXX half the year both drive XXXX, on of little growth the played XX%-ish was because line. out, we In the of later EBITDA a balance across were in you’re pricing It how I versus more on has HX. just more as us our right year. profit coming Yes. of with

you even XX%. split all closer anticipate not to getting we but would the an XXXX, XX-XX, way maybe think see I to

up in those and supporting gross we rates. on the in legacy more it’s we XXXX the the are in you’re of EBITDA primarily line, we as where a right, XXXX. Rao's ramp historical significant in that make kind noosa marketing And below marketing then again And reinvestments line, see will margin did within

fact, behind, there. investing to that’s we’re R&D, facility attached just Austin, opened in down facility, up in a we new R&D our plant

there. building so new capabilities And we’re out

adding – for required successful. have XXXX. continue were roles importantly, critical needed, that are those we in to roles more the to but tools We be We’ll add

and We’re like that mining like, retailers, building that. data things with relationships things master data,

to below we’re the quite investments see EBITDA those why and margin anticipate the make the gross we So is the line, that that continuing you’ll on not that expansion line on margin line.

Todd Lachman

points, making The invested playbook no Peter, an our build is ten-fold way Rao's invest, points mentally is importantly, we X,XXX Rao's to there’s to use by from for that the simple”. But percentage a brand our And that. $X the And give to But we’ve basis is the sales on to physical net this beyond. billion that for physically year-on-year going XX% just this, business Todd, through $X XXXX, in And through XX%, year-on-year. highlighted more to to that a and available brand that long-term and hey, we households question just building are in available do is and increased add the is minds Rao's increased proxy, way a perspective to the you distribution. is “that building mental we’re blow awareness mark. and I’ll and and billion availability of awareness brand, just as I’ll through

order it in a which distribution, the across in But competes. all our brand we to obsessed notably, we whatever to growth awareness we categories and organization drive have leading and of can look do

have increase plans XXXX XXXX We year-on-year invest versus than we larger in XXXX in XXXX. now did in to a

talked of with to when distribution it gains that we similar combine will volume differentiated to lead that’s gains And to that brand. lead going growth what’s So in confident and driving. are the the chunky just you I highly awareness we’re household the about,

our that you you Slide put the As really volume. on X how can vis-à-vis in website, drive peers, that’s up we see

units, household in penetrated awareness. X% dollar top only only have still but penetration, it’s to we it’s Now have in XX% runway XX% getting granted, regards only just brand two in our we a share, Rao's, full brand in now distribution. number in major major, the lower skews And but to

Peter Galbo

you Todd, Todd, from And have as some Great. getting maybe how about where Can Thanks, you’re and use there’s proceeds kind sale. Thanks. I the that target talk maybe the a are now thinking in about the Chris from the down today? you slides think down, interest you just of getting there. expense for just color proceeds Birch and follow-up, of a and leverage leverage burden

Chris Hall

you Yes, bet.

So, we are very on below quarter our pleased finishing the progress Xx. leverage with

had That really million balance I a first year. X.Xx think the sheet brands. below behind of reinvest our of foremost at we our end guided and the that lot us on $XXX sitting too flexibility and to allows

that’s improve Our capital, top seeing to secure the we expands that’s those brands – profitability, core the drive making are to into could be we current either drive investments take that we’re where line expand to where to expansion as growth that our TAM which supply. efforts. It could

growing. at growing the were rates are We

closed Making We we across out sure inventory levels increase we’re demand in that important. XXXX. very the position could our inventory. did And on we is meet improve a adequately – year, nice the as

money potential the M&A to if financial the continue in the as invest will business and Down road, makes we’ve foremost. it and we past first to talked where that’s So and then delever. primarily sense,

operated from We’ve lot with than to done a cash we’ve prudently. business. typically the higher are we acquisitions. delever. we’re – But We’ll We that debt. servicing debt we’ve up generate when to managed X%, X.X%, We’ve we very of X%, where continue now, operated the gone our happy

manage capital we’ll how allocations. that’s so And our

Peter Galbo

guys. Thanks

Operator

Instructions] Jason [Operator from comes next you. the Thank of English Our line question of Sachs. Goldman

Your line is open.

Jason English

already. ground covered lot a guys, Hey we of

go margins? the than margin of Or into throw driving push has and to look influenced notoriously your lower, initiatives gross would’ve otherwise we structurally how you just growth, reasonable great Gross profit So question. frozen, to? price that one naturally the category, be lower out the gross at I’m a going maybe is margin where as still but now a back and expansion mixing in into lower lower rate point Michael get just margins, back can mixing Should reference history can Angelo’s a to have which perhaps that been? So point. expect we

Chris Hall

Yes. No, let’s go strides if back you back time, to do were go XXXX, great we to making pre-COVID, even in just back gross our margins. in

that productivity has XXXX. You I our XX.X% might Colorado, surpassed making margin we run that was across got two in our margin were entree. as the inflation Italian lag we think plants pricing, produces recall, that frozen and noosa produces ran about hit, HX which talked we investments And in high in And the XX%, Austin, up as has which on at have we fact, it XX%. delayed we gross

building we back way will XX% what believe we’re So be we up better as progress. to and our

So have our were anticipated, the activities, efforts had back ahead just originally can there. those at the initiatives little of pre-COVID, May opportunities take we bit the us, call we intent it we have believe every than place that longer levels in that a would us low-XXs. and get would we but we back get to we

Jason English

apologize, questions. one of a bit stuff. helpful the during And That’s distracted I I got Okay. little

may two already You on But this. questions addressed have debt.

at that the lot $XXX high I been that given debt, rates locked, a had cash, you aren’t And we it X%. the you I million First, why are? that’s rate locked, strike how have of read thought generate guess, down not had paying

lock So we interpreted be rate. it wrongly a I think X% to a of

is that heard locked say it’s you I think X.X% component at? is today capped I what

Chris Hall

X%. at the The is portion That’s locked floating X.X%, right. LIBOR is

the So total of X.X%. that’s

Jason English

Is apologies. – that my continue,

Chris Hall

debt, great we on – again, down And of cash have the do the it flexibility. does we Sure. us that give then paying

sitting as We’re way, holding By pretty earn onto on a good it we we’re it’s rate do it. today. just the

we onto progress, yes, we the make Do think like hold will and make generate we that the to delever will most back right decisions on, As it again, provides use go truly it? that do we – those We’ll that? the flexibility is us. we And we – cash. now continue highest we cash, we of

Jason English

Okay.

Okay. Thank you.

Chris Hall

Thank you.

Operator

moment, One Thank you. please.

Suisse. question of next the comes from of Robert Our Moskow line Credit

open. is Your line

Robert Moskow

was, quantify you Texas year, provides? remind remember had supplier. of last a Thanks. me first I dollar disruption to much quarter question one think I guess, to comp that some storms, to how seem is, of in it what half that? chain easy amount XXXX in an And I having any do Can at with you supply

Chris Hall

Yes. our is at our the Thanks, business. And Austin an provider, also area, Austin. then also in down Yes, winter was it in pasta impacted had the so that which frozen Rob. event storm we

So well were – in struggling It dinners to the Omicron then, pasta for was get QX. and as well. as we by the was there way, really

quarter, first So us all end importantly the of more canceled of all the those really at of quarter, into is when the second hit we our promotions. which but

QX. will are there in don’t I see call it again, – but QX, Across I we up impact material be an running So back can’t you’ll think now. and

then service the Our our down about the lines, manufacturing automate frozen. in shape really to delayed all investments the levels making almost to in the past Austin year. we’re lot of the on We’ve it part gotten the are a had way talked end back good at XXXX plant to of and

starting of we’re and up that are hourly lines now The running taking headcount there is the great and benefits boosted see of to the plant, really capacity. a out news those

in But for was to year going – XXXX. whatever in model QX. that’s would not tailwind great a material I for in that’s volume last us So impact lost a

Robert Moskow

EBITDA? What about

Chris Hall

thing. weren’t I during The time. cost experience would high. really Again, sales the that any We significant. didn’t same costs incremental that would that say

EBITDA, not large dollar impact So line top from or would assess year. for I would a that last storm either I the not –

Robert Moskow

it? with in felt it a it Like, again in creating a not I did XXXX. non-measured tough you to regarding I material fourth year, why a it’s just make would in A you decide to channel Well, do going second this to really XXXX? Is want figured ask. so Okay. do And customer comparison are question, And this big last you I quarter. sure promotion customer?

Todd Lachman

– we’re unmeasured is this hey, guess, you shops. the – the in is of whatever. of mean, I my ubiquitous Well, only all, I wants our because our Yeah, I sales distribution every philosophy thought know the – like, is which we, in team I Todd. about difference first it in outlet Rob, it’s talking consumer and mean, it’s single measured I versus want sauce net of reason is

those are big of universe volume some that notably the come, those customers those some are unmeasured events. in And

in need the and the the end quarter every done and right behind right – to I’ve I now just what’s it never then get this and in distribution places, I just we hey, been your strategically the events, understand it question, think one next of about, day, grow year. to out in how year-on-year we right to I’ve in the year. lap to need So while figure quarter every by we our business

distribution Rao’s answer perfect a not items. the right are make that’s just we your sure saying know looking to I all have just I’m now ubiquitous full question, of So and that we that to

what to tasting average some run the We’re if vis-à-vis pasta laughing will so that. our then events that in competition. if the the XX still some versus QX, opportunities peers, sauce well, world’s under for And XX causes consumer’s to to us And we we in competition, we large XX-plus-percent mouths, be distributed call best more it. get indigestion versus the XX% items regards awareness into do have for

up is that you our on it. Our of mean but with Rob be don’t team to kind all to that, is flipping mindset. I

Chris Hall

just growth, you seen HX. I’ll shift little was we that real HX top might event add – in low-double-digit an and the an made but in it guiding comments – just to timing, a overwhelmingly successful of and event. we And we – was we – bit It are it have was line to well. a a enhancement both in to previously, in our do Rob, as

Todd’s support we’re seeing comments, not to as an can’t that overlap. just So that overlap we

Robert Moskow

Okay. you. Thank

Todd Lachman

Thanks, Rob.

Operator

please. moment, Thank you. One

line of Piper Michael question from Lavery Sandler. Our the next of comes

line is open. Your

Michael Lavery

afternoon. Good you. Thank

Chris Hall

Michael.

Michael Lavery

and come La Could cost think supply back sourced about that? favorability does and Just that’s should the if it’s chain if Angelo’s touch the want the or to on costs sauce. more it on for you profile and it’s Michael Regina, to or How just we through have not, both? how perhaps volatility,

Todd Lachman

Sure.

would to of good first emphasized Regina, all, I Rao’s before. Michael, no Sourced Mike. sauce but that as have, La similar through volatility be talking you, with

Michael Lavery

You too.

Todd Lachman

Angelo’s highlight, et time, herbs tomato. It’s the cetera, though Michael than different ripened a regards formula from just call we same Rao’s. a all lot It cook specific different It’s highly vine tomatoes, of seasonings, to is a with attributes. That it to Rao’s mainstream/private different that’s ingredient of uses, uses cetera. shorter breed different slow Italian label. That’s et said, of a sauce in sort important than what oil, different Rao’s olive simmered different spec, very – and rosada Italian is a kettle cook

Michael Lavery

similarly it’s Rao’s. say it’s allow to price it Regina, different La for fair? if fair relative better recipe Is a a things – cost the got it’s attractive where And point, at economics least than got be and to would its from profile that still even that it’s that different

Todd Lachman

fair. That’s

Michael Lavery

share? And on can share. gave touch volume Rao’s you you the just know I

evolve But how of your I way? has they If can because dollar that the had cadence can you us least its share, and just ways some you. remind you think you have Can give fluctuations could us might missed drivers then different that about drive set at competitive that know how approach share it, some seasonal for just to there, I it. the remind

Todd Lachman

interesting, highly to other or working businesses so there higher than treats quarter. the year a share seasonal seasonal the even that some you Halloween it XX.X% used ended I'm pet We – is, of it. is dollar really in that don't to I but It's think Sure. element candy at on may full like a shocks,

bit through I a and QX. pretty and some, QX more joke, came a sort categories QX thinking like, worked months phasing back, like but But, a my just I'm that I to colder I've all versus little in I you're have flashing So QX mean, regards I'm mean, the we my still I just on. business months, seeing don't just before of think of towards mean warmer eyes history darn robust to

If to you things of of constant quarter-on-quarter just of constant all at other is Rao's difficult consumption a sort now, of increased because every uptick phasing distribution. a it's QX kind QX, the look little penetration bit cetera, data, increased like on awareness and for add No. more Chris in to the something? household than et QX, But QX, about Hall category, due like is seeing you're

Okay. I thought was me. at he looking

Michael Lavery

lot. a Thanks Great.

Todd Lachman

Michael? help, that Does

Michael Lavery

helpful. Yes, no, that’s

Todd Lachman

Okay.

Operator

please. moment, One you. Thank

of question next Jon the William comes Our line Blair. of from Andersen

Your line is open.

Jon Andersen

Hi, thanks. the Thanks questions for guys.

quick Wondering cadence that when investment bit Or talk you the across particular year? by well? you improvement couple kind R&D? behind could through little considering cadence there expecting gross And a kind margin Are the should consider incremental it if sequential be any line, Just about the ones. kind talk is about quarter as then through year. or quarter year? we the of there rate more evenly the building timing Is gross a margin move factors to OpEx as a spread Thanks. is on us more you spending related that brand to and for of anything of you

Chris Hall

agro as the of the – the for because evenly year the seeing main year-over-year. really will of is Thanks. we're the across more XXXX. will is half the board, coming sure. year, things margin, hearing the And then in there think which that increase look example, of point be And about us it's be are HX you going out that you would pretty that HX paper have I at Yes, a that first here On spread year. It across gross majority there like cross inflation QX you're products, I think, strong the like and year, XXXX, is increase, to tomatoes, season the crop hit that into in new fruit. this over

single-digit mid the inflation year, of the the we across pretty tailwind year. get of the So in that half first much benefit pricing the

our about more half and OpEx, traditionally efforts. marketing have I been gross And think EBIT investments below then back how that's we margins. – loaded our highest on So we've

of that's across the see spend. years OpEx, the I across across Other percent as going would the half think, with it total be type marketing cadence seen our of than a year. that you more year think first that, I pretty the spread same but marketing to prior of the will in evenly you'll much a more be have

Jon Andersen

Thanks. That's one One quick helpful. follow-up.

Thanks. done you've the Just what XXXX XX are is kind XX for expectations well. of that work kind any expansion color noosa, TAM – thinking over months jewel and are the about on at your in of this the noosa extremely of performing here some just past for that you're crown plans to are how how and maybe Rao's obviously wondering point? and I'm

Todd Lachman

is Sure. Todd. talking. Hi, thanks a Good lot, This Jon.

and noosa quarter. quite so been averaged things, brand, with net fourth we're the sales is on honestly X% on this contributor, mentioned single-digit We've us. It now a I've CAGR headline and a think really acquisition but very calls. we're nice the couple has a in years grew pleased at previous for – We brand a about X.X% three So, good I noosa. mid

Some we dramatic ago immensely profitability from that really Rao’s. pre-increase unfold and [ph] fund to call a the growth of it the that to don't to – year in milk boost acquired is pricing when turbo business the you improvement areas help sort of visibility us it's in of a benefited

from pricing acquisition noosa increased. been year, around for as nice very growth even low full to The consumption real all So consistent a digits us. dollar mid contribution has the single

talk growth brands But We et obviously into year. yogurt different category worked it’s putting unique We that this that that we’ve while its unapologetically competitiveness. competitors got ensure is are as we brand. next regards headed taste taste taking in and or We’re to sure talked taste a in. promotional plan, to think talked trumpet on noosa, continue to cetera as we did in of a we’ve is and going to yogurt the to last contributor. other regards make But yogurt. before, highly it’s the out call, we’ve differentiated It’s and in the that the consumption growth led

is in variety But that We’ve than well launching performed something always constantly us. is of and categories. than year there I’d And on for it’s been Ice the and results different have digit year growth a say launch from albeit we’re a smaller the fine customers headline the regards It And as said a us difference consistent, is a similar we’re pizza. In why also TAM gelato, some nice honestly to this was hasn’t The as mixed. expectations tuning. business cream this done customers that to well. have contributor been that’s launch we mix. beyond. mid-single

lemon and a got chocolate large we’re accepted that cookies We’ve this items launching have new the three and variety cream, bar, mint of customers that chip. year,

cream of support variety really we it’s ice a year that whatever to drive a for that items customers But noosa. we’re shelf. some that continue think customers that initiative, forward, go for or but important indicator going meaningful of have like to on got we’ve seven And we unfortunately have now on shelf. of not all of have our some So else, as learn sales this it our an don’t one

else I there, what So Jon? can tell you

Jon Andersen

appreciate the good going luck No, Super all I forward. and that’s color helpful. great.

Chris Hall

of Hey, year. in Jon. One clarification half first on gross the the the margin sequencing of

QX note margin highest promotional and our Just lower quarter. quarter will historically, be to the because continue it’s

So similar, quarter I overall the of lowest QX but think see we’ll the the QX, be still last will year. year, QX versus as rate margin for QX improvement across and QX

Operator

you. Thank

open. of the Sarang Again, of comes question next line from Vora, Vora Telsey Our is line your Sarang Group.

Sarang Vora

outside at I the is you. quarters. very growing contribute category is almost question the Rao’s second these my categories will well. of growth these that Thank assume Rao’s Rao’s you Great. past to several as look as all stuff of think categories, billion billion then, the half strong And guys. $X Great look the pie versus pizzas Great sauce at in brand. like the do you How quarter frozen When you sauce sauce mix XXXX? $X have? mean, fair it in that guidance outside

Todd Lachman

Sure.

talking This So but Chris the will good Todd. second is to point, you. hit

of Rao’s So XX% today. sauce about is

math we to on modeling billion. $X our techniques would that using assume get rough being, I We’re and based detailed just

But at billion. that you today, just where growth $X be be still sauce of a sauce major going XX%. sauce is growth. where to I the driver is our look will about XX%, if talking sauce You’re mean,

depending is well. this when talked been top I’ll haven’t now very almost of got, fourth years. still which has newer, four use date for on I call of This year you emphasize beachheads, we know, exact doing And year, fourth as all frozen. Dry the you on start is talk you’ve of pasta beachheads, we soup. the which third, mean, this the market are on about in And that, the a the lot on very,

That for have all last versus growing beachheads amount [ph] noosa been million a ran XX% these combined robustly. sales year. while, retail So year of prior they’re there but $XXX up

And up. have That’s a the And of billion heard on. it’s could a is we about our pizza those all sure then ticking I’ll business. our I’m there, we’ve some talk we as you any that’s are I mean, script, testing frozen in other $X.X business And on category. out you’ve is got be of about for pizza the is a that So what share sites now. mean, pizza, from important area those that which pizza sizable launched us. the I one two delivered do we’ve are better can calls frozen than talked not testing that math. pizza

roughly It’s home been else It’s retailers, your everything is because significantly of with and and it the while a what super today than price. bit fees in promoted less inflation, that. pie test is a four down XXXX for a that to shelf, premium the delivered a little below on. going cost But delivery

a case And super driving what’s made value delivered get So, premium the the necessarily the real reason that that’s of ago. home frozen absolutely you success [ph] clear in a by delicious four wasn’t today. And of a artisan the pizza is pizza that versus sector. we Rao's believe it’s business that can fact an years

part look that. billion, being you’ve $X got a at you if of So, the sauce core

pizza, got then other got You’ve the got you’ve some elements. and you’ve beachheads,

still talked We’ve percentage although go albeit number that’s et XX%, only Why is driver But last for sauce. awareness the up up I’ll significantly. XX still opportunities penetration light back, XX%, only year. international one Household up Rao's, cetera. some is points

uptick is raising albeit on share months in only of an Unit X%, significantly We’re growing first year. year two the the year.

cohort We is debt also we every, grew share penetration income other of only every grew The in I’ll QX income States last robustly versus basically and measured brand brands. top in demographic, four United the we geography add the and were nearly single every that the grew that point in household across generational last year. demographic,

on a and line and onward why feel we’ve bottom for focused XXXX. year, momentum heading the upward. guidance and key double business into maniacally sauce are got that top that we And So, very growing reason about good we that’s the digit

Sarang Vora

great. I mean, some can’t luck. products. That’s to new try wait Good

Todd Lachman

Thank you.

Chris Hall

you. Thank

Operator

no back call I’ll for further this showing closing over turn any Thank at Lachman questions to I’m the Todd remarks. time. you.

Todd Lachman

again many Josh look forward out joining in our coming engaging thanks reach of for to for to the Hey, everybody Awesome. to have you We free showing Please feel story. interest evening in and with Until discussions. a take and us care. weeks. follow-up great then,

Operator

Thank conference. and conclude does you. for you Thank Ladies all this gentlemen, participating. today’s

may great You Have day. disconnect. a now

Sovos Brands (SOVO) 8 Mar 232022 Q4 Earnings call transcript