Good morning. I'm Leah Jordan, the U.S. Food Retail Analyst at Goldman Sachs Group... and it is my pleasure to introduce... the management team of Utz Brands. We have Howard Friedman, Chief Executive Officer... and Ajay Kataria, Chief Financial Officer. Thank you both for joining us today. Pleasure to be with you. Thank you. Great. And then, for everyone joining us, just a quick refresher on Utz... it is a pure play U.S. salty snack company... with a portfolio of products... across potato chips, tortilla chips, pretzels, and other snacks... under a variety of brands... highlighting its four power brands... our Utz, On The Border, Zapp's, and Boulder. With that, let's get started. Great. Howard, you have been at Utz for a little over a year now. What have been some of the bigger challenges, and what have been some of the bigger wins? Yeah, look, I mean, we're a great company, and we've been growing quite nicely for, you know, over 100 years, right? And so it's been a business that has been able to be grown through acquisition over time, and, you know, has underpinned by a pleased but never satisfied culture. Probably the biggest surprise to me was how clear the company understood its relative strengths and opportunities, and even through the interview process and all of the things that I was, I was told that they largely came to be true, which was, which was exciting. I think obviously the operating environment has become a little bit more dynamic over the last, you know, call it 15-18 months, and watching the company kind of sort and build its capabilities and invest behind its brands and its portfolio strategy and seeing some of those results come has been certainly the biggest source of pride. I think the company and the management team has, you know, we've invested in revenue management and marketing. We've invested in supply chain optimization, and all of those benefits are really coming through as you're starting to see some of our results and some of the things that we're planning to do as we go forward. Clearly the biggest wins. I think the biggest surprise is just how much opportunity that there continues to be for this business and for these brands as we continue to look to expand over the course of the next few years. Thanks, I think that's a great setup for today, and we'll dig into all of those topics. I think you talked about the dynamic environment that you're operating in, and we've seen growth in the salty snacking category slow to start the year, so could you comment on the trends that you've been seeing and how you think the category progresses throughout the rest of the year? Yeah, I mean, I think the first thing so we had an Investor Day in December of last year, and one of the things that we said at the time was we took a position that we thought the category would be basically a 2% category with basically flat volume and about 2% of price. And you know that was a step back from what we've seen historically in the category, and what we saw at least in the first quarter of the year is that our predictions and our forecasts have largely been in line with actually what we've experienced. So that's been you know actually encouraging from our our standpoint and it was really built on a couple of things, one we thought that you know the first quarter pricing of the prior year which was not small we would have to anniversary. The consumer was going to be under pressure when you whether it be through SNAP or through the rest of or the rest of the pricing environment that we would continue to see a more moderated consumer and that we would begin to see channel shifting variety seeking price point shopping and and that has largely been what we have experienced. I think as you go through the rest of the year I think as the consumer laps become a little bit easier. I think this category has always been a marketing innovation and growth category and I think you're going to continue to see communication innovation and and growth be the priority before people go to pure price as an example. And I think that you know I've said this and I think some of our. Our peer companies have said it as well is we would expect that... we'll continue to mature through the course of the year back into a more normalized environment... your definition of normal is... your own obviously. That's very helpful, thank you. I think as you mentioned, you know, value-seeking behavior by consumers, and we talked about the... the more moderate trends in the category... you know, what have you seen across the competitive environment overall... has there been any... any shift or irrational behavior just given this... more moderate trends for the category? Yeah, look, I think one of the things that makes this category so attractive both to retailers and to consumers is it and, you know, arguably one of the best performing in the grocery store is that it tends to be rational with rational competitors. What has historically been true is the category spends time investing in brands building its relationship with consumers and competes accordingly. We have not, while the category has certainly become more pricing and promotional in nature and everybody can see kind of where it is, it still remains a very rational category overall, and the competition has not been doing anything that we would consider, you know, inconsistent with what we would have expected. I think for us personally, you know, we're excited about the innovation that we're bringing, you know, we're bringing Zapp's flavored pretzels. Utz is going to enter into the flavored pretzel category as well. Zapp's is going to be bringing out a new potato chip SKU as well. We have Boulder Canyon, which is continuing its march across the country as well as across the category with the introduction of Canyon Poppers as well. So you know we and then you know our advertising and consumer we are increasing 40%+ this year in basically our brand investments, which will be consistent with our two philosophies, really. One is we make money before we spend it and we'll build our brands over time but our business overnight. So you know from our perspective the category looks to be where it should be and the competition seems to be behaving the way we would anticipate. Great, thank you. I also wanted to go back to one of your earlier comments about... customers kind of shifting channels that they're shopping in... Sure. You called out on the last call... some weakness in the small format... Mm-hmm. Stores. Can you talk about the challenges in that channel specifically... and what adjustments are you making? Yeah, so you know we started... you know, if you look at traditional tracked channels, it's about 70% of our business and the remaining 30% is in untracked. And as you look at our business overall, our small format and untracked channel business has been a little bit more challenged... and it's really rooted in two businesses... it's Zapp's potato chips and Golden Flake potato chips specifically. And that... what we talked about was as consumers are shopping both channels and price ladders, it's really important that you get the right price point on that rung of the ladder. And in these particular cases we'd made an assortment change a couple of years ago... where we took what was basically a 4.75- or 4.65-ounce SKU... and we upsized it to 8-ounce which obviously as you upsize the SKU, you also increase the price. Well for those SKUs that decision wound up we're seeing a penalty for that right now because we're not on the right point on the ladder. Now the good news is we didn't discontinue those items we have them in our fleet we are selling them, and so it's really a question of just shifting the assortment back. That's happening now and should continue to progress through Q2 and Q3, but that's really what we were speaking to specifically. Great thank you. Sure. That helps. As we talk about growth of the category... Utz has been outgrowing the category overall recently... and expanding geographically is a part of your strategy. Can you talk about the progress that you've made on that... and the white space opportunity you still see? Yeah, so I think we feel very good about the distribution opportunity. We are fortunate that our growth is not predicated purely on the category because there is as much white space. We are more or less skewed basically Mississippi East. We have items all over the country, but if you were to look at it at a point of distribution where you're proud of the total presentation I use average items carried, we have far fewer of them as you go westward. You know in our core on average like take Utz, Utz would have as many as 23-26 SKUs on a shelf. Boulder Canyon where it's shelved in about call it 16% of the geography's got about 3. Zapp's has got you know also about 35% of the ACV also some similar to 3. On The Border we'll have 60-something% distribution but also only 3-4 SKUs. So in our core we have an opportunity to bring those items... bring out the rest of our portfolio... in and try and increase the number of... of items carried. You're seeing right now... On The Border is growing its distribution is up... about 10% in our core... and its total volume is up about 25% in our core. So that strategy has been working. As you move westward Utz will have a similar level of ACV but will only have 7 items on average on the shelf. Again Zapp's will have a little bit more distribution call it in the 40s but still the same number of items. So we think that there is a and Boulder Canyon and On The Border also similarly. So we think that from a growth perspective, we have both a distribution depth, average items carried in outside of our core, for our power brands to increase in our core the same. And then we've made investments in Michigan and in Texas. Michigan is route infrastructure. In Texas we bought back the distribution rights of On The Border, which is its largest geography. And what typically happens there is you see better performance overall, but also retailer confidence as we begin to have better service and in-stock conditions and in-store conditions for our items as they become the priority of effort to then have a conversation about further distribution gains. Great, that's very helpful. Thank you. And then just wanting to go back to your conversation around... innovation. Yep. You guys have made some investments across flavors and capturing occasions. Just where are we in the process of the distribution for this year on all of that innovation, and what can we expect to see for more innovation going forward? Yeah, look, so we've started the distribution now. It really started in, call it, the end of Q1, early Q2 for sort of our traditional fleet... so the Zapp's flavored pretzels and Utz flavored pretzels are out now. I think you'll see a little bit more progression in distribution gains over the course of the rest of the year, some of our capturing of occasions... things like the Zapp's Halloween multi-pack variety pack that we'll be bringing out obviously will come later... and then within the club stores you'll also see rotations in and out of both innovation and some of our traditional items. So you know early days. I think what we feel good about is the category. We have plenty of room to play. Hot and spicy is a fast growing segment and we will have a Mike's Extra Hot... This year to capitalize on what we did last year with Mike's Hot Honey, and you know I think we'll continue to see hot and spicy innovation as we go forward. Then on you know seasonal ins and outs we've had a great deal of success, but you know we're thinking more broadly. We have a great innovation team now in place to be able to start to think about where else can we go as we continue to build these brands and take them to their full potential. Great. You know as we're talking about investments and innovation just switching over to another investment... your marketing spend you noted it's ticking up kind of 40% this year from the 1% of sales last year... can you talk about where you're focusing that incremental investment this year... and what is the right level of spending longer term? Yeah, so I'll start with... we believe that long-term an appropriate share of voice for our business is call it 3%-4.4% of... advertising and consumer spend. And that has been consistent from even the days if you went back to our original SPAC documents... we had suggested that the brands could that we could invest 3%-4% and build these brands. And I think that that... position remains the same over time. You know we're not going to do it overnight because it doesn't... make a lot of sense to us as we're kind of building our capabilities and gaining confidence in... both the tools and tasks that we need to do to form marketing as well as the brands that we're investing in. This year we started with... a Zapp's campaign that just broke in... or in March and then we'll be bringing out an Utz campaign also through the second quarter and then that investment will build over the rest of the year. We have been consistent with our philosophy around sales. Overnight we've been investing in digital and e-commerce. If you look at our e-commerce trends over basically the last year we've been seeing steady improvement and acceleration in those trends because we actually spent the time to understand what it took to compete there, cleaned up our portfolio to make sure that we were discoverable and shoppable and then we've started to invest and the nice thing about retailer.com or Instacart or any of those is they're highly measurable and attributable so you can make the investment and you can see how we're doing and if there's greater opportunity we can increase the pressure. Or if we're happy with what we believe the returns to be we can hold what we have. All of those capabilities have been built over the last basically 15 months... and... you know we're... we're confident that we are... just getting started there. Great, thank you, and I think as we're talking about costs, maybe we can... move over to some input costs because over the last couple of years they've been very significant. Yeah. With the level of inflation that we've seen, but we're seeing that start to moderate this year. Can you talk about what you're seeing across your various commodity costs today, and how are you planning for the rest of the year? Yeah, so we are expecting 2024 to be about flat on overall inflation, and when we talk about inflation we track commodities, labor, and transportation inflation in one basket. We'll expect commodities to be deflationary overall, and then labor and transportation, you know, inflationary in a normal environment as you would expect. Commodities specifically, we are expecting potatoes to be about flat, slightly inflationary, and then a lot of our cooking oils are deflationary. There are certain commodities such as olive oil which is still inflationary, and we are kind of, you know, managing that with the rest of the commodity basket. From a labor standpoint, the environment is normalized, sort of what we expected in, you know, pre- we're seeing pre-COVID availability and inflation is at a normal level, and then transportation similarly is also at a normal level. Great. That's very helpful. Thank you. Then I want to move on to a bigger topic for you guys around the productivity and supply chain. Productivity has been one of the biggest drivers for gross margin expansion recently. You've been optimizing your supply chain network over the past couple of years, and more recently sold five of your manufacturing plants. So after all of these moves, you know, where is capacity utilization across your network today, and what are the next steps within your overall productivity initiatives? Yep. So capacity utilization in our network is right around 70% today and that is because the 5 plants that we divested we're still co-manufacturing in those facilities. Once we insource that volume into our you know existing 8 facilities we expect that utilization to go up to closer to 80% and that 80% utilization also then ties to where we want to be in terms of how much sales is produced in each of these facilities. Our goal is to get to about $180 million of retail sales produced per facility and that sort of lines up with the 80% utilization that we are trying to get to. So that's the that's the overall network piece of productivity that we committed to delivering at Investor Day. And you know if you go back to Investor Day our productivity program was... laid out to deliver $135 million over 3 years... which is about $45 million per year... 15 of those 45 every year was supposed to come from network which is... the 5 plant divestitures and insourcing of this volume. Great. Just building on that discussion, I mean you have this multi-year plan on the productivity, but at your Investor Day you also laid out a longer term even a margin target of 16% in 2026, which compares to 13% you reported last year. So could you help just build, you know, how you think about the path to getting there in 2026, what are the biggest drivers and what are maybe some potential sources of upside? Yeah. So if you follow along the $135 million over three years, that's 45 per year... that's about 300 basis points of sales. That's the... that's the opportunity margin opportunity we are creating through our productivity program. We intend to take that 300 basis points of margin, invest about 200 basis points back into the business... and that investment is going into... marketing... advertising and consumer as we talked about... distribution... you know, paying for... paying for that distribution infrastructure... and building out capabilities as well. We'll also cover some inflation as we, you know, work through the next three years... and net out about 100 basis points to... to EBITDA margin expansion. Productivity program is... is built around the four areas of manufacturing... logistics, procurement and network optimization... and as we have talked about at Investor Day... We have done a lot of work on logistics already. So So a lot of work in front of us is around procurement, manufacturing, and network optimization, and you have seen us make some progress on all of those fronts, you know, this year. Great, thank you. That's very helpful. And just building on that conversation around the plant divestitures... you know, that along with other actions you've taken have helped kind of improve your balance sheet flexibility... which is another focus for you... but you still sit above your long term target of 3-4 times... so when do you expect to reach that target and what are the steps are you taking to get there? Yeah. So we laid out a goal to get to three times leverage by the end of 2026 when we talked about at the Investor Day. Our new goal is to get to three times leverage by end of 2025, and you know you will see us deliver about 3.6x this year of full turn improvement compared to where we finished last year, and we are already showing that path with our Q1 results. So all of this is possible. We are getting to those goals a year earlier than what we said at Investor Day because of the accelerated actions we have taken in terms of plant divestitures and paying down debt in the last three or four months. Yeah, and I think we talked earlier about bigger wins. I think one of the things that's been exciting if you go back to what we promised at Investor Day a lot of the things that we said that we were going to go do over the duration are actually happening a little bit faster because of some of the portfolio shaping actions that we took. And you know we'll remain optimistic that you know we'll be able to continue to now focus on driving growth while we continue to deliver the cost but things are happening a little bit quicker which is encouraging to us right now. Yep. That's great. Thank you. And then with this kind of... debt paydown plan in place... how does that fit into your overall capital allocation strategy as well? Yeah, so our capital allocation is to invest in growth, followed by debt paydown, followed by dividends and share buybacks. So it lines up very nicely with our capital allocation strategy, because as Howard mentioned, the plans that we laid out at Investor Day required us to drive growth by freeing up capital through cost improvement through productivity actions, and we have accelerated those productivity actions therefore freed up capital to invest towards our growth a lot faster than we anticipated. So you know you will see us you know run that play in the next three years. Great, and I think, building on the capital allocation discussion, you know, we have to talk about M&A because it's been a part of your growth historically. You know, it's enabled expansion to the geographic reach as we talked about as well as category breadth. So, could you just talk about your M&A strategy and how do you view the opportunity set out there today? Yep. So you have seen us in the last three or four years do M&A for geography, subcat or acquiring capacity for production, and you know we are substantially sort of you know done with that portfolio shaping. What we are now doing is optimizing our current portfolio both in terms of plant networks as well as you know everything else. So from here on out you know we are going to be looking for M&A that is transformative in nature and you know really has a step change into our portfolio. While we are focused on delivering the plans that we laid out at Investor Day, if a meaningful M&A opportunity comes into play we are prepared to use the full capital structure that's available to us, including our equity and debt, to go access it. Yeah, and the only thing I'll add is, look, we're very pleased with where the business is right now. Right, so we have plenty of organic opportunities to grow. We have an idiosyncratic expansion opportunity. We have no shortage of places, no lack of opportunities to drive greater levels of organic growth as we go forward. So, you know, and the other thing is that, to Ajay's point about leverage earlier, you know, we are pleased that we've got our leverage. It is no longer the discussion that we're having when we come to these conferences. We're within the range with a clear path to deleverage a year earlier. So, you know, things have to be really it. M&A comes when it comes to steal Ajay's quote. But at... At the moment, we're quite happy with the portfolio that we have, and so it would need to be something... that really, you know, made sense for us. Otherwise, we'll be sticking to our knitting. Okay, great. That's... that's very helpful. Thank you. Then I just wanted to go back for our last question... talking about the geographic expansion when you moved out west... you know, you've talked about how... the retailer discussions are evolving, but just any update in more detail there... and then following up to that, you know, we're hearing more from retailers. They're pushing back... a little bit more against suppliers today. You know, obviously you guys have been outgrowing the category, so how does that fit into... entering... new retailers as well? Right. Yeah, look, I think first we'll start with the nature of the retailer conversations. We're very fortunate because we are a player of sufficient enough scale that we can talk to the retailer about a portfolio of options from pork rinds to potato chips to pretzels to cheese balls to variety packs, like kind of you name it. We can offer them a full range of options. The other thing is that where we go we tend to stick and we add something to the category. We tend to add households. We add to the basket. We can shape our portfolio of brands to meet their unique strategy and then we tend to invest in driving consumer awareness so we bring an advertising consumer support to support our brands as well. The net result of that tends to be share gains for the retailer, households, as well as more units going through the category, which... today a lot of the conversation is around how do we gain households, how do we drive... share gains, and how do we get units. And so I think we offer a... pretty credible solution... to the retailer, and they can look at their own data... not just ours, like we can sell with facts, and we can show them a fact-based... history of what happens when we enter, but we can also typically point to their sales because we're talking about national grocers... who we have relationships with in different geographies already... and so they they are used to what it is that we... we tend to provide, and they can look at their own data. That makes the conversation very constructive, and we also offer two different ways. It's a... We can. They can pull in. They want to bring us into the geography, and we can build around them, or we can push in. We invest in route infrastructure and surround the geography, and then are able to expand, and both of those are ways for us to be able to offer a retailer a solution depending on what it is that they want. What we want is more of a distribution gain and breadth that is meaningful enough to be able to make those investments. And so it's a very collaborative conversation of, okay, we need, call it 18-19 SKUs across our power brands. We can't just enter into one subcat with 3 SKUs or we're not going to be successful, and that conversation tends to be incredibly productive, and then the last piece is our IOs. Right, we have to then find the route support and find the infrastructure and find people who want to put their own capital at risk to be able to carry our items into those grocery stores and when that wheel spins and you know we feel pretty good about where it is today. We'll continue to see gains. Michigan and Texas are the areas where you know we've talked about. We'll continue to build out the Midwest in and around the Chicagoland area as well, and then we are looking opportunistically at a couple of geographies right now and a couple of incremental classes of trade where we're testing some items with retail partners, and we're very optimistic. Okay, that's great. I think that's all the time we have today. Thank you, Howard and Ajay, for your time. This was wonderful insight into your company. Thank you, everyone, for joining us. Thank you. Thank you.