Okay, it looks like we're live. I hear that mic. We are live. Okay. Oh, all right, guys. Thanks for sticking with us. Well, the other side room is now closed down, so I think for the rest of the day, we're just gonna be running it out down the single track in this room. Up next, we have a story of a company that's still relatively new and young in the public markets, and let me wind it back a little bit. Many of you probably know the movie When Harry Met Sally. It was pretty popular in the late 1980's, early 1990's. Few, however, know the story about what happened when Bill met Sally. The Bill in this story was William Utz. He and Sally fell madly in love, and as you'd expect with any good romantic drama, soon married, after which magic was born. The magic of this instance, though, was a potato chip. They humbly, but perhaps not so creatively, labeled as the UTZ branded chips. They started selling these in 1921. Flash forward over 100 years later, and the company has become far larger and more diverse. Instead of Bill and Sally, we now have Howard and Ajay as the face of the company, at least for this audience today. I'm referring, of course, to Howard Friedman, the company's newly minted CEO, and Ajay Kataria, the firm's CFO. With that, please welcome them on stage. Thank you. He's the muscle, I'm the brains, or the other way around. We'll find out. Yeah, yeah. I didn't know about this Bill or Sally story either until just the other day when I pulled up your website. Yeah. I was like, "Okay, we could have fun with that. That's an awesome way of telling the story, by the way. For sure. Yeah, yeah. It's a good romantic story, and mid-. Yeah. I don't think most people really appreciate that you're operating a portfolio of brands that are over 100 years old. These aren't new startup brands, although they're growing like some new startup brands with the growth you've had. Before we get into all that, Howard, you're a new face to the audience here. I've known of you because of your experience at Post and your experience before then, but, this is my first opportunity to meet you today. Why don't we start with a little bit of a bio. Walk us through where you're coming from, what your backstory is, what brought you here. I've been in the food industry for about 25 years. I spent the early years of my career as an Army officer, both domestically and overseas, and then went to Kraft, and I spent the next 21 years in a variety of brand management jobs and started in the cereal business, worked in beverages. If you were a Crystal Light On The Go fan back in the day, that was my first opportunity to drive, like, real meaningful growth at a level that was, you know, at that point not been seen before. Transitioned to a coffee new product business where I worked on Tassimo. That's actually where I had at least peripherally first met Roger K. DeRomedis, who's obviously on our board. Spent the rest of my time at Kraft in the cheese and meat businesses. Worked on a small separation from Mondelēz and then the integration with Kraft Heinz. Left there and then actually went to Post Holdings, which was a great experience for me, you know, to go from a very large company to a smaller but still pretty large company. I started in the cereal business again, kind of a nice homecoming after having started there in Kraft back in the day. Spent about four years there and finished as the Chief Operating Officer. You know, Post is a great experience. Rob runs a great shop. I learned a lot and exposure to the capital markets, just kinda watching somebody who knows how to do it. You know, Utz became an obvious next step for me. I have been here, routine onboarding started in October, where I went through the supply chain and visited all of our plants and then started in earnest, December 15th, 'cause nothing says Merry Christmas to a new staff like a new boss. Kind of why I'm. Yeah, there you are. Okay. Great, great backstory. Were you there at Post when they went through the price reset? I actually started right after what we affectionately called Project Tide. Okay. In fact, I interviewed with an outgoing division president at the time, who had been impacted by the reset. Uh-huh. I started about three months later. It's one of the more interesting case studies. There's a few case studies back from that era. You had, like, the Frito-Lay, Eagle Snack Food battle. The reset in cereal was a big one that not a lot of people are aware of. For sure. That's a topic for another day. I just, I didn't realize you had started there. Yeah, yeah. I got distracted. I do that a lot. Can be flighty. It's interesting experiences, big companies, sort of then this capital allocator, holding company. Now you're at Utz. By the way, do you pronounce it Utz or Utz? Utz. That's what I say, but I've had some other people, "No, it's German heritage. You gotta pronounce it Utz. Yeah, it's, I mean, it's an ongoing debate amongst several of us. If, you know, Dylan would probably call it Utz. I am a New Yorker from Long Island originally, so it was Utz for me. Okay. I'm from Texas. That's Utz. Yeah. Kidding. Yeah. I'm from upstate New York, and it's Utz for me too. Okay, now you're at this company. Compare and contrast. Like, I would love to hear what's different about, like, the people, the process, good and bad. Like, what are things you're like, "Oh, this is awesome," and then where you're like, "Oh, this isn't awesome," and then, "Here are some things I can bring from my past experience and port them over"? Yeah. You know, Kraft was a great place to start and, you know, one of the things that is amazing about starting there was the variety and breadth of things you get your hands on, right? You get your hands into finance, manufacturing, supply chain, brand building, kind of the whole suite of capabilities. One of the things I would say that is fundamentally different, I would have given a lot to have had the speed, accountability, and risk appetite that you get in a smaller company because you're chasing, not being chased. You know, one of the first things that comes across is this is a company that is very motivated to grow, very motivated to tackle new problems, and yet still open to new blood, new perspective. You know, when I look at the company now, we have a huge growth opportunity in front of us, both on the top line as well as on the margin, but what we really have is a very tight culture of people who want to win and who want to compete. Sometimes that means we underappreciate some of the levels of sophistication maybe that we should go, invest in, and then we find out, and we invest, and we make things easier. Sometimes, it is sort of the dynamic of attacking new geographies and winning. When I got here, you know, all of the right ingredients are there. I think we are still early in our growth story. I would say our finesse, our touch at times is still being developed. We got a lot of data now that we have, given the new ERP system, and learning how to put it to use and learning how to put it to work is a work in progress. We're light years ahead of where we were even a couple of years ago when we put it in. Okay. I wanna dig in more into that growth, and start maybe with the marketing angle. You came up through a traditional brand management ladder that existed. Mm-hmm. once upon a time, I was doing the same. I'm sorry. In the end, well, the cool thing was I got promoted every 18 months because there's so many goddamn layers. There's also a lot of bureaucracy that comes with that. Sure. Now you're an organization that seems to have historically been much more of a sales-driven organization. Mm-hmm ...as one would expect with a DSD-oriented business. What role does marketing play, and where do you plan on taking that or changing that if you plan to change it at all? Yeah. Look, I think when you run a DSD company, there are certain things that have to be true. It is a, it's an incredible capability. It's very muscular and central to how we meet our consumer and our customer expectations. The balance of marketing versus sales, I think, is, something that we'll continue to work through. I think marketing's role in a company like ours is what it is everywhere, which is to understand the consumer, be able to fulfill its unmet needs and drive awareness and desirability. Whether that's new products or innovation or communication, those are things that have to be true for any consumer packaged goods company to work. I think for us, marketing, that is where marketing needs to remain focused. Ultimately, the route to market, you know, we are a DSD/DTW hybrid, and we will remain that way. DSD is so fundamentally important to who we are. It will be pretty much forever, I would expect. Mm-hmm. The marketing side, you've got some... I guess Roger has and Dylan had some targets out there... Mm-hmm ...of taking marketing from around 1% of sales as a spend level to something at 3%-4%. Yeah. Do you now own those, or have you gone through and said, "I get the direction, but the level should be different," or how are you thinking about that? Yeah. What I said publicly the first time was that over time, we would get from 1 to 3 to 4, which is consistent with those targets. Those targets were de-derived as we look at our near-in competition and what they are spending. I think it is reasonable for us to expect a similar share of voice over time. I think what's important for us is making sure that that marketing is effective, that it's a tool that actually has understanding and returns, and that's why, you know, we just have time to invest in making sure we have the capabilities and the consumer understanding before we turn to, you know, what we consider traditional marketing techniques and tactics. Okay. How long does that take? That doesn't sound like it takes that long. It sounds like you lean on some external agencies, you get a couple hires in place. Sure within a few quarters, you could have that muscle. Yeah. I would say within a few quarters you could have that muscle, then it's about working and practicing and making sure that you have an expectation of returns. Sure. We're lucky that if you look across our business system, whether it is consumer or supply chain or within the trade, we have a lot of investment opportunities, and marketing will compete for those dollars similarly to make sure that we're making the best decision for both the company as well as for our shareholders. I don't think you'll see us at 3%, 4% in the next year or two, but I think what you will see is a steady progression of investment as we are confident in where we're going and as the market requires it, that we that will drive greater pull, as I've called it earlier, versus push as we enter new geographies. Usually I've been structuring these conversations almost like a P&L, where I start with the sales side and we leg down to margins, but I'm gonna deviate from that structure a bit and jump over to margins because you talked about the spending, the investment opportunities. Well, to invest you've gotta have the funds, and right now there's been a lot of that's been eaten away with gross margin degradation. Yeah. Ajay, how do we get recovery back on gross margins? I mean, what's happening with productivity, which I know has actually jumped up pretty nicely. What do you see on input cost? Where have they been? Where are they today? Where are they going? Yeah. The dynamic in the last, you know, few quarters has been, you know, inflation and then pricing to catch on inflation. What we are seeing now is price net of inflation is where we want it to be. The focus now shifts to productivity. Our, as Howard mentioned, our cost out opportunity, productivity opportunity is more than normal. You have seen us deliver 2% in 2021, 3% in 2023, and now we are on 2022, and now we are ramping up to closer to 4% of cost of goods productivity in 2023. That productivity is a build-out of our program. We started out with manufacturing and continuous improvement, built out logistics, which delivered a lot last year as we stood up a team. logistics is stepping up this year as well. we have more opportunity around procurement. We built out a procurement team today this year to drive procurement productivity. all of those areas are building up. We are very happy with how that capability is building, and what you're gonna see is more of that in the future years, and we'll sort of, you know, continue to ramp up there. Can this 4% level, is that something we could expect to be repeated? In, you know, about 2, 3 years ago, we said we wanna get to 3%-4% by 2023. Yep. we are there now. We should maintain these levels for at least 2024, that we can see right now. From there on, it's gonna be, you know. The normal course of business is productivity as a% of cost needs to cover for inflation and that's what we will strive to achieve. yes, you know, low single-digit% as a cost is to be normal. Often we have these companies, they give us productivity numbers, and I don't wanna call them fake, but they're fake. I will call them fake. There's a degree of fakeness in them. Like, a lot of it's cost avoided. Right. It's like, "Hey, I'm buying corn below the market price. Mm-hmm. Of course you are. You're freaking huge. You should buy below the market price. Right. Right. They'll call that productivity rather than truly, like, a structural cost out. When you give us the 4% or the 3% or 3%-4%, is that real cost removal, like structural cost removal, or is there a portion of it that is just sort of cost avoidance, not really, not really generating true savings or true profit for the business? It is real cost out. you know, we are taking cost out of the system, and you are correct that that's how, some of the companies would do. Let me remind you, in the last two years, as we started out this program, we were in a hyperinflationary environment, so there was a lot less opportunity for the team to sort of build that muscle of... Sure ... of growth and net. We have been sort of doing cost out math all along. There's the thing called COVID, which probably disrupted the organization. Right. Right. ... a bit, like, too. Yeah. Yep. Some labor issues out there. Yeah. okay. These are real and substantial savings. I remember when you guys first came out, there was savings numbers out there. I was a little skeptical until I looked at your cash flow statement and I realized, my goodness, there's been no CapEx into this business in years. Yeah. Is that the source of the opportunity? Like, "Hey, the assets are just a bit antiquated. We haven't invested in the best equipment, the best process, the right automation, any of that. Yeah. Yes, and more. We have a ton of opportunity in terms of automation. There is a lot of work that is done in our manufacturing facility warehouses by humans that can be done with some automation. Just besides automation, the basic continuous improvement mindset, the basic blocking and tackling around logistics, you know, warehousing, etc. You know, the core muscle around how do you look at procurement, how do you access all of those opportunities, those are there. That's what I would call the organic opportunity. There is the inorganic opportunity of network optimization. As we look at our plant network, distribution network, we have a ton of work to do in terms of consolidating, and enhancing our capacity in areas. Yeah. I would just add, I don't think it's really surprising as you know, we talked earlier about how quickly we were growing. I don't think it's surprising that in the pursuit of growth, especially when you are a much smaller company, you'll tolerate certain costs because you just can't get at them yet. I think as we've gotten to scale, to Ajay's point, we've been able to invest in those capabilities to get at some of these costs that we would have tolerated historically. Yep. No, it's great to see them playing through the P&L. The other big driver of margins, you mentioned price net of cost. Right. You've got the price in the system. I know you were a little slow to move. You know, you've clearly moved, and you're gaining that price realization. There's some concern, this is a concern, industry-wide concern. I think it's less of a concern for you because you operate in growing categories. For the industry at large, there's concern of, hey, 3 quarters from now we'll be laughing at all this price growth. Right. There won't be more pricing in the system. Growth will be predicated on volume or mix. There's very little volume mix growth in the industry, growth is gonna stall out. I imagine you think about that as well, like, price is not gonna be this large of a contributor going forward. Is there the risk that it actually flips negative? That you get some deflation, you start to spend it back? Could you actually still see some degree of evergreen net price through revenue growth management initiatives? I think there is a, you know, standard operating procedure. There is about half a point to a point of price stack architecture, mix optimization opportunity in a business like this. We have a portfolio that is expanding, and through acquisitions we have inherited some opportunities to optimize that mix, whether it's customer mix, go-to-market mix, or product portfolio mix. There will be opportunity to some extent. Are we gonna get to a deflationary environment? What does that do from a list price standpoint? You know, that is to be seen. Okay. I've Last quarter you reported results and we saw the two-year stack price trend actually sequentially step down, which optically looking at it looks like some price investment quarter- on- quarter. Right ... net price investment, which kinda come in the form of trade. I know we talked last quarter after the quarter, it's like, no, that wasn't it. There's some other stuff happening. Maybe for the benefit of the audience or those listening, you can just explain the other things that were going on. Yeah. That's a, that's a good point of clarification and to understand. As we, as we look at, you know, price flow-through, we are doing a lot of other things in the portfolio that change our mix, whether that's go-to-market mix or product mix or, you know, our SKU rationalization and downward actions. Those mix actions, you know, they are either margin neutral, such as go-to-market and product, or they are margin enhancing, such as our SKU rationalization activities, but they'd look different on the net sales line. For example, you know, if we have a mix shift from, say, a cheese barrel to a family-sized potato chip package. That is a margin neutral mix shift, but that will look different on the net sales line because the price per pound is different. You know, that would be an example, and go to market as well. You know, we are growing our business with DSD as we activate customers like Publix, that's primarily DSD. That shifts mix to DSD from DTW, which is a good thing in the long run for the growth of the business and the stickiness and the expansion within the marketplaces. That is a margin accretive activity that then looks different on the net sales line, which is where the mix plays through. Okay. how do you, how do you balance the presumably tension with your DSD operators between the warehouse delivered product and the DSD? Like, where do you draw the line, and how do you balance the growth between both? I think both distribution methods are important in their own way and for a reason. You know, DTW gets you the reach, and DSD gets you the density in a marketplace. You know, you want to access some of the white space with DTW, but then you also wanna offer a superior execution and merchandising play with DSD. There is definitely a balance. You know, we like to think that we wanna play the board and sort of keep our options open. Okay. Over the last couple of years, you've been moving from a company-operated DSD network to an independent operator network. I understand the balance sheet benefits of this, and you're able to sell the route, but you get cash in. The asset intensity now sits on somebody else's balance sheet. Right ...an operator. The cost, though, is you don't get the leverage, right? That's a big piece of leverage out there. There's a lot of fixed costs sitting on those trucks. When you're able to buy a business and put more volume in that truck, there's a lot of leverage. When you're able to pick up more routes and drive more volume, any way, shape, or form through that truck, you get a lot of leverage. Why does it make sense for you to have more out there, therefore allowing the independent operators to benefit from that leverage rather than you owning them and you driving the leverage within your own company and your own P&L? It's a symbiotic relationship. If you have an independent operator route which is owned by an individual, you know, they are motivated in more ways than an employee would to grow that business. Mm-hmm. They will drive that growth, and as they drive that growth, you know, both parties benefit, you know. Our company benefits, our P&L benefits, as well as their own P&L, so to say, you know, benefits. I think the scale benefit is there. It may not be, you know, directly in terms of leveraging that one truck, that one asset, but, you know, the way we think about it is it then becomes more about leveraging that distribution partnership as opposed to the as-asset itself. Okay. Yeah, I can see that. You see it in market, too, when you talk to some of the guys. When I see them in store, they're hungry. Yeah. They're hungry. It's their business. Yeah and they're feeding their family. Yeah ...they're scrappy as a result. Especially in times like the COVID dynamic environment that we were in, we were better off having independent operator partners in those times because they were motivated to go out and deliver the product in spite of COVID, as opposed to, you know, if you had an employee network, we would've had to incentivize the employees in different ways to go do that. Did you pick up some unnatural market share as a result? Transitory market share because of that advantage? There were definitely benefits to, and lumpiness to, you know, different companies' ability to supply at different times. There was some benefit in terms of, you know, how the supply situation was and our ability to meet demand while, you know, another party may not be able to meet demand and that may not have been able to meet demand at that time. Yeah, I also think that it was a great trial event for customers with us. Right. I mean, we were a business that was growing and had aspirations to scale. When you can provide the product and when your distribution arm is able to get into the store and meet what their customers want, it certainly opened some doors for us that maybe wouldn't have been opened as easily. Yeah. We penetrated a lot of households in that time. Okay. Some of that's with existing products, some it's with other product, right? You've innovated. You are now into the... You've been in pretzels for a long time. You took the Zapp's brand into pretzels more recently. Yep. You acquired On The Border, which allowed you to meaningfully expand your tortilla chip business. Where do we stand in terms of portfolio breadth now? Are there still holes in the portfolio you look and say, 'Gosh, we really gotta fill in this void or fill in this void,' and if so, what are those voids? Look, we feel, we went from basically an UTZ-branded company into a house of brands. To your point, we now have Zapp's and On the Border are two businesses that we're very happy with. You know, if you look across now, I think we're happy with most of our power brands. There are some pockets of subcategories we still have opportunities. You know, we're still underrepresented in popcorn as an example, is a place where we think we can go. Generally speaking, we have both brands and items in most of the majority of the other subcategories that we're really happy with. Okay. popcorn on the come, maybe a bigger push there. the other push is gonna be geographies. Sure. You guys have been pushing, right? Like, as we think about, I don't know what the right measure is, maybe ACV. What% of ACV are you able to access with your existing distribution network? I, if you look at our total ACV, like, take our portfolio and you say, "Do we have an item in every store?" We would be about 90% distributed. If you look at how that distribution looks, if you look at On The Border, Utz, and Zapp's, On The Border and Utz are about 60% and Zapp's is at about 40%. We have a lot of not only the ability to penetrate some places where we already exist, but a lot of head space really as you sort of start looking westward for us. I think that for us becomes the next leg of our growth story is, you know, how quickly can we get due west 'cause I think on... The fact is 1 point of share is about $200 million in revenue, as we think about growth potential moving forward. We'll wanna stay in our core. We're gonna compete there, but our goal would be to expand distribution and capture share as we continue to look westward. It always looks good on paper. You say, "Oh, of course, this business can expand out. Sure. Those of us who've been doing this for too long will remember the case studies of IBC or Sara Lee and Fresh Breads, where they just said, "Yeah, we're gonna go national too. Like, why not? Right. Well, crap, you put a truck out there and the truck isn't full, it's an upside down P&L. It's hard with a DSD to expand that reach. What is your approach? What's your strategy to make that happen? I... You're right. It's always easier to contemplate selling where you don't sell today and say, "How... Look at how big we could be if we did." Right? If it were that easy, everybody would do it. Look, our approach has been, You've seen this with us as we went into Florida, we look to partner with an anchor customer that has experience with us and understands our business, Where we start out slow, so we actually have some consumer and shopper evidence that in fact we are accretive to the portfolio, that we are actually accretive to the customer itself. We're not just, you know, moving peas around the plate. You take the... You look to the... We look to anchor customers and then figure out how to then build our presence there and then surround them within a geography. That would be, you know, entering the customer and then looking at all of the places around it so we have scale and route economics that justify our IOs buying in and investing into the business. It can sometimes start with distributors, at which point once we get to scale and everybody's happy with it, we can then do the buyback, which you've seen us do. It takes some time and effort to make sure that everybody is clear on what the numbers say so that our IO feels good about having a business, our customer feels good that we're adding to the category, and we feel good that our brands are meeting their full potential in that box as we go. Any questions from the audience? We've got seven, eight minutes left. Great. We had a question out there. Just make sure you press the button on the microphone right in front of you. Thank you. Hi. Cameron Johnson, Neuberger Berman. Thank you. I think your rationalization, that program now is expected to be a 3% headwind, which is up previously from I think a 2% headwind. Is that going to enhance margins faster? You know, how do you kind of view that program kind of impacting the P&L from? Yeah. So the short answer is yes. The entire thesis of the SKU rationalization program is that we want to access better mix on our margins. We just have to work through the rationalization and see those margins come through on a lag. What the reason why we are in year two, or I would say, you know, fourth or fifth quarter of this program is because, you know, through time, for example, RW Garcia, we acquired a lot of smaller businesses that came with their SKU portfolio. We needed to rationalize that portfolio, especially around private label brands that we were producing in our facilities as a result of those acquisitions, so that we can, you know, optimize for margin, optimize for capacity, and right size the portfolio. We're gonna work through that towards by the end of this year. That will be sort of the hard scrub is gonna be done largely by the end of this year. Beyond that, it's just a normal, you know, mixed management, portfolio management. Like any other CPG, you add SKUs with innovation, you prune some of your long tail of SKUs, and on balance, you know, you're running a good, healthy SKU portfolio. Any other questions out there? Do you have a follow-on? Cool. Okay. The, the geographic reach, the slow steady expansion, the calculated expansion, use of distributors sometimes, there's also been an inorganic component where some instances you've gone out and you've effectively bought access to a market. Yep. Do you see more opportunities like that on the forward? Maybe we can use that to segue more broadly in M&A. M&A has been a big part of the growth story in the last couple of years. Is it, is it gonna remain a major part of the growth story in the next few years? Yeah. I mean, I like M&A where, and I'm sure you've heard this answer from people in my seat before, where 1 plus 1 equals more than 3. Our strategy has historically been to invest in brands to get into subcategories where we are underrepresented, to secure supply, although at the moment our supply is secure, we did a couple of acquisitions a year back. The last point is to access geographies where we maybe aren't either routes or a competitor that has a presence that then allows us to move through. We did that in Chicago the last couple of years. I don't actually think those priorities don't change for us over time. I think at the moment we got plenty to do, but if we have an opportunity to accelerate our expansion into another market and create certainty, it's obviously something we would take a look at. On the organic side, you know, you're capturing market share with innovation, with investment, with marketing. It sort of looks like you had a bit of a complicit competitor out there in Snyder's-Lance for a couple of years as that company was integrating, they were targeting margin expansion. Is that an unfair perspective? It looks like they're now leaning in more aggressively to reprioritizing share, not just margin. Are you seeing the competitive intensity build? I... Look, I think we love to compete and we love competition. Certainly over the last couple of years, there's been a variety of reasons why some of our competitors maybe weren't as intense as they have been. What I would say is we are fortunate in salty, where competitors are rational. It's not sort of a race to the bottom, but rather it is a race to innovate and be able to drive overall consumer interest in the category which is there. Yes, I certainly see the competition paying more attention to both us and to the market overall. We certainly expect that to continue. I like our chances to compete on the merits. Okay. last question from me. capital allocation. We talked about M&A. you still have a lot of leverage, though, at, I think, 5.4x or so on our measure, our EBITDA calc. is 3x-4x still the right target? What's the timeframe that's gonna get you there? How much of a priority is paying down debt right now, particularly given where rates are? 3x-4x is still the long-term target. We are targeting to improve leverage by half a ton this year compared to where we had finished last year. You know, from a capital allocation standpoint, our priorities have not changed. We still have an outsized opportunity in terms of growth and margin, and we want to continue to invest in growth first, followed by debt paydown. That said, you know, there is a super majority of our debt portfolio is fixed on the interest rate side below 5%. We have about $280 million of debt that is variable. We are keeping an eye on that. Awesome. Anything that we didn't talk about that you'd wanna share with the audience? We covered a lot of ground. We did. no, look, I mean, we're very excited about our future. I think that, if you look at the business overall and the opportunities that are in front of us, we've gone from a very small regional player sort of 20 years ago to somebody of scale. We're excited about the next leg of the growth and, appreciate the time. Yeah, it's an exciting story. Thank you so much for coming. Thank you. Really appreciate it.