Q4 2021 Sovos Brands Inc Earnings Call

Good day, and thank you for standing by and welcome to the Silver Springs fourth quarter 2021 earnings Conference call.

Welcome to the

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I would now like to hand, the conference over to your Speaker today, Chris Mandeville, managing director of Investor Relations. Please go ahead.

Good morning, and thank you for joining us on Sobos Brand's fourth quarter and fiscal year 2021 earnings conference call. On the call today are Todd Lachman, president and chief executive officer, and Chris Hall, chief financial officer.

Good morning, and thank you for joining us on Star Wars brands fourth quarter and fiscal year 2021 earnings Conference call.

On the call today are Todd <unk>, President and Chief Executive Officer, and Chris Hall, Chief Financial Officer.

Speaker Change: By now, everyone should have access to the earnings release for the fiscal year ended December 25th, 2021, that went out this morning at approximately 7 a.m. Eastern time.

By now everyone should have access to the earnings release for the fiscal year ended December 25th 2021 that went out this morning at approximately seven am eastern time.

Speaker Change: Press release, as well as supplemental slides, can be found on the company's website at ir.sovosbrands.com. And shortly after the conclusion of today's call, a webcast will be archived and available for replay.

Release, as well as supplemental slides can be found on the company's website at IR dot. So most brand's dotcom and shortly after the conclusion of today's call and webcast will be archived and available for replay.

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

Before we begin let me remind everyone that today's discussion contains forward looking statements based on the environment as we currently see it.

And as such does include risks and uncertainties.

Speaker Change: If you refer to the company's earnings release, as well as its most recent SEC filings, you will see a discussion of factors that could cause Sobo's brand's actual results to differ materially from these forward-looking statements.

If you refer to the company's earnings release as well as most recent SEC filings you will see a discussion of factors that could cause service brands actual results to differ materially from these forward looking statements.

Speaker Change: Please remember the company undertakes no obligation to update or revise these forward-looking statements in the future.

Please remember the company undertakes no obligation to update or revise these forward looking statements in the future.

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

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

Speaker Change: Lastly, please note that all consumption data cited on today's call will refer to dollar consumption as of the 13-week period ended December 26, 2021, in growth versus the prior year, unless otherwise noted. With that, I'd now like to turn the call over to Todd. Thanks, Chris.

Lastly, please note that all consumption data stated on today's call refer to dollar consumption at the 13 week period ended December 26, 2021 and growth versus the prior year unless otherwise noted with that I'd now like to turn the call over to Todd.

Thanks, Chris and good morning, everyone.

Todd Lachman: 2021 proved to be an exceptional year for Silversprance.

2021 proved to be an exceptional year for silver was branch.

Todd Lachman: And I want to thank the entire Sovo's team and all of our partners for working tirelessly during this landmark year.

And I want to thank the entire <unk> team and all of our partners for working tirelessly during this landmark year.

Todd Lachman: Notably, our frontline heroes who come to work every day to produce our absolutely delicious Sobos products.

Notably our frontline heroes, who come to work every day to produce are absolutely delicious sell both products.

Todd Lachman: We achieved many important milestones, such as becoming the number two brand of the pasta and pizza sauce category and successfully completing our IPO last fall.

We achieved many important milestones such as becoming the number two brand in the pasta and pizza sauce category and successfully completing our IPO last fall.

Todd Lachman: We also delivered record financial performance and exceeded our full-year guidance, generating over $719 million in net sales and $115 million in adjusted EBITDA.

We also delivered record financial performance and exceeded our full year guidance generating over $719 million in net sales and $115 million and adjusted EBITDA.

Todd Lachman: This represents 25% plus annual growth and marks all-time highs for both metrics.

This represents 25% plus annual growth and marked all time highs for both metrics.

Todd Lachman: We also had a very strong finish to the year, highlighted by double-digit growth for the top and bottom line in Q4.

We also had a very strong finish to the year highlighted by double digit growth for the top and bottom line in Q4.

Todd Lachman: These results reflect our team's unwavering commitment to profitable long-term growth, even in the face of today's very dynamic environment.

These results reflect our team's unwavering commitment to profitable long term growth.

Even in the face of today's very dynamic environment.

Todd Lachman: We are very pleased with the continued volume growth across our portfolio as distribution and household penetration continue to expand for our disruptive high growth, one of a kind branch.

We are very pleased with the continued volume growth across our portfolio as distribution and household penetration continued to expand for our disruptive.

High growth one of a kind brands.

Todd Lachman: For today's call, I'd like to begin with a few fourth quarter highlights to underscore the ongoing strength of our business, as well as offer some thoughts on our advantage positioning heading into 2022. I will then turn it over to Chris Hall to discuss our financial results and outlook in greater detail before opening it up to your questions.

For today's call I'd like to begin with a few fourth quarter highlights to underscore the ongoing strength of our business as well as offer some thoughts on our advantage positioning heading into 2022.

I will then turn it over to Chris Hall to discuss our financial results and outlook in greater detail before opening it up to your questions.

Chris Hall: Beginning with our largest brand, Rayos was the fastest growing center store brand of scale over the past two years.

Beginning with our largest brand rayos was the fastest growing center store brand of scale over the past two years.

Chris Hall: The strength and momentum of this brand continues behind further distribution and velocity increases.

The strength and momentum of this brand continues behind further distribution and velocity increases.

Chris Hall: As we exited the fourth quarter, I am tremendously proud to announce that Raios became the number two pasta and pizza sauce brand in dollar consumption.

As we exited the fourth quarter I am tremendously proud to announce that rayos became the number two pasta and pizza sauce brand and dollar consumption.

Chris Hall: marking a new all-time high of 15.4 percent share as of the four-week period ended 12-26.

<unk>, a new all time high of 15, 4% share as of the four week period ended 12 26.

Chris Hall: We have gained share in every four-week period since our acquisition in 2017.

We have gained share in every four week periods since our acquisition in 2017.

Chris Hall: And these results represent a 220 basis point share improvement over the last 12 months as dollar growth was up over 28% compared to down nearly 7% for the category.

And these results represent a 220 basis points share improvement over the last 12 months as dollar growth was up over 28% compared to down nearly 7% for the category.

Chris Hall: I'm particularly proud of the fact that not only

I'm, particularly proud of the fact that not only we.

Chris Hall: where our gains broad based across our entire SAS portfolio, all channels, and all regions, but they were also driven on the back of double digit unit, dollar, TDP, and velocity gains.

Where our gains broad based across our entire <unk> portfolio.

Channels and all regions, but they were also driven on the back of double digit unit dollar Pvp and velocity gains, which is in Stark contrast to the category where units are down mid single digits and price has been the driving force behind dollar growth.

Chris Hall: which is in stark contrast to the category where units are down mid single digits and price has been the driving force behind dollar growth.

Chris Hall: Our household penetration gains are equally impressive, as we've increased penetration of our SOS to 10.9 percent, up over 260 basis points versus the same time last year.

Our household penetration gains are equally impressive as we've increased penetration of our source to 10, 9%.

Over 260 basis points versus the same time last year.

Chris Hall: This has been achieved despite Rayo Sauce having less than half the distribution and awareness of its top competitors, highlighting the considerable multi-year runway we still have to support further share and household penetration.

This has been achieved despite rayos source, having less than half the distribution and awareness of its top competitors highlighting the considerable months multiyear runway, we still have to support further share and household penetration gains.

Chris Hall: To offer additional context to our future distribution opportunity, I'd like to point you to slide nine of our earnings deck, where we highlight just how underpenetrated we are relative to our rate of productivity.

To offer additional context to our future distribution opportunity I'd like to point you to slide nine of our earnings deck, where we highlight just how underpenetrated, we are relative to our rate of productivity.

Chris Hall: As you can see, we still only have 11 pasta and pizza sauce items on shelf versus 17 to 22 for our top two branded competitors. These 11 items represent only an 8% share of average shelf.

As you can see we still only have 11 pasta and pizza sauce items on shelf versus 17 to 22 for our top two branded competitors. These 11 items represents only an 8% share of average shelf compared to our dollar share of over 15%.

Chris Hall: compared to our dollar share of over 15%. No other sauce brand of scale has as big of a delta.

No other source brand of scale has as big of a delta.

Chris Hall: when you have 18 SOS items consistently in the top two quintiles on velocities like we do.

When you have 18 source items consistently in the top two quintiles on velocities like we do.

Chris Hall: This represents a compelling argument for why retailers should continue to allocate more shelf space to the Rayos brand going forward.

This represents a compelling argument for why retailers should continue to allocate more shelf space to the rayos brand going forward.

Chris Hall: As an additional leg to our long-term growth of the Rao's pasta and pizza sauce offering, we are commencing a new ventures program in 2022 under the leadership of Risa Cortella, our executive vice president of the dinners and sauces segment.

As an additional leg to our long term growth of the rayos pasta and pizza sauce offering we are commencing a new ventures program in 2022 under the leadership of recent curtailing, our executive Vice President of the dinners and sauces segment.

Chris Hall: amongst many growth levers that we look forward to unveiling in the coming year, this program will be inclusive of international, where we plan to begin with expansion into neighboring North American markets, such as Mexico and Puerto Rico, as well as optimizing our route to market in Canada.

Amongst many growth levers that we look forward to unveiling in the coming year. This program will be inclusive of international.

Where we plan to begin with expansion into neighboring North American markets, such as Mexico, and Puerto Rico, as well as optimizing our route to market in Canada.

Chris Hall: Panning out to the broader RAO's offering, our efforts to extend RAO's strong brand equity of authentic Italian cuisine into new categories and drive household penetration have proven to be successful.

Panning out to the broader rayos offering our efforts to extend <unk> strong brand equity.

<unk> Italian cuisine into new categories and drive household penetration have proven to be successful.

Chris Hall: Healthy consumption trends didn't stop with our sauce business, as soups and pasta continue to see growth across all metrics.

The consumption trends didn't stop with our sauce business as soups and pass to continue to see growth across all metrics.

Chris Hall: sales dollars, dollar share, units, TVPs, and velocities, even after roughly three years in market.

Sales dollars dollar share units Tvp's and velocities, even after roughly three years in market.

Chris Hall: Our Total Frozen Entree Portfolio, which includes Rayos and Michelangelos, also demonstrated considerable outperformance. Also growing dollar sales, share, units, TDPs, and velocity.

Our total frozen entre portfolio, which includes rayos and michelangelos also demonstrated considerable outperformance also growing dollar sales share units Tdp's and velocities both brands contributed nicely to our 20% plus growth in dollars and.

Chris Hall: Both brands contributed nicely to our 20% plus growth in dollars and units versus 11% and 1% respectively for the category, yielding further evidence that the two brands are proven to be complementary on shelf and incremental to growth.

Units versus 11% and 1% respectively for the category.

Yielding further evidence that the two brands are proving to be complementary on shelf and incremental to growth.

Chris Hall: Collectively, we have grown household penetration for the total RAOS franchise by 300 basis points to over 13 percent since the prior year period, with our frozen entree offering, which is less than 15 months old, already the second greatest driver to these gains. Turning to our second largest brand, Noosa, consumption

Collectively we have grown household penetration for the total rayos franchise by 300 basis points to over 13% since the prior year period with our frozen entre offering which is less than 15 months old already the second greatest driver to these gains.

Turning to our second largest brand new.

Consumption trends in the quarter were once again strong.

Chris Hall: Our dollar sales grew at over 2.5 times the spoonable yogurt category, while our unit velocities remained category leading, up over six times faster versus the category.

Our dollar sales grew at over two five times and a suitable yogurt category.

While our unit velocities remained category, leading up over six times faster versus the category.

Chris Hall: These results are a testament to our continued investment to grow the core, as well as our marketing efforts that are strongly weighted to digital, along with our highly differentiated taste-led yogurt.

These results are a testament to our continued investment to grow the core as well as our marketing efforts that are strongly weighted to digital along with our highly differentiated taste led yogurt.

Chris Hall: It's also worth noting that NUSA is delivering such outperformance against a yogurt category that is experiencing low to mid single-digit dollar growth that is in contrast to years prior.

It's also worth noting that <unk> is delivering such outperformance against the yogurt category that is experiencing low to mid single digit dollar growth that is in contrast to years. Prior importantly nuclear has grown in excess of this for the last 14 four week periods. These.

Chris Hall: Importantly, NUSA has grown in excess of this for the last 14 four-week periods.

Chris Hall: These gains are absent of any pricing, which we expect to begin realizing by the end of Q2.

These gains are absent of any pricing, which we expect to begin realizing by the end of Q2.

Chris Hall: against this backdrop and because of the renewed focus to which we have on our core NUSA offering, we have a strong foundation to build from and are excited about our prospects for continued growth in 2022.

Against this backdrop and because of the renewed focus to which we have on our core news offering we have a strong foundation to build from and are excited about our prospects for continued growth in 2022.

Chris Hall: This will also include our entry into the ice cream category with frozen yogurt gelato, which I'll touch upon shortly.

This will also include our entry into the ice cream category with frozen yogurt, gelato, which I will touch upon shortly.

Chris Hall: Before I do so, I want to emphasize the strength of our overall Sovos Brands portfolio.

Before I do so I want to emphasize the strength of our overall so most brands portfolio.

Chris Hall: at a time where most of the center store is lacking unit growth.

At a time, where most of the center store is lacking unit growth.

Chris Hall: In our three largest categories of sauce, yogurt and frozen, which represents over 90% of our portfolio, we saw positive dollar and unit growth that meaningfully outperformed our respective categories in the quarter.

In our three largest categories of source yogurt, and frozen which represents over 90% of our portfolio. We saw a positive dollar and unit growth that meaningfully outperformed our respective categories in the quarter.

Chris Hall: Specifically, on dollar consumption, sauce, represented by the Rayos Grant, grew by 30% in the fourth quarter, versus 3% for the category.

Specifically on dollar consumption source represented by the Rayos Grand grew by 30% in the fourth quarter versus 3% for the category.

Chris Hall: Yogurt, represented by the Noosa brand, grew by 13% compared to 7% for the category. And finally, frozen, which includes Rao's and Michelangelo's entrees as well as Birchbender's waffles, grew by a combined 27% compared to 10% for the combined category.

Yogurt represented by the new sub brand grew by 13% compared to 7% for the category and finally frozen which includes rayos and michelangelos entrees as well as birch vendors waffles grew by a combined 27% compared to 10% for the combined categories.

Chris Hall: To help bring this outperformance to life, the combination of sauce, yogurt, and frozen for Sobos brands grew dollar consumption by over 25% versus 8% for the categories in aggregate.

To help bring this outperformance to life the combination of source yogurt and frozen for Sogou brands grew dollar consumption by over 25% versus 8% for the categories in aggregate.

Chris Hall: yet we have not even come close to fully realizing price across our portfolio when compared to the majority of our packaged food peers.

Yet we have not even come close to fully realizing price across our portfolio when compared to the majority of our packaged food peers.

Chris Hall: Consumers across all regions of the country and income groups are clearly voting with their wallets, as well as their preference for great tasting, clean label products.

Consumers across all regions of the country and income groups are clearly voting with their wallets as well as their preference for great tasting clean label products.

Chris Hall: As society settles into a new norm, we believe this will benefit at-home consumption in light of a permanent shift to working from home for many within the labor pool. While trying to maintain a high quality of life, consumers are seeking value, and this is exactly where our Sobos portfolio of one-of-a-kind brands delivers.

As society settled into a new norm. We believe this will benefit at home consumption in light of a permanent shift to working from home for many within the labor pool, while trying to maintain a high quality of life consumers are seeking value and this is exactly where our surplus portfolio of one of a kind brands delivers.

Chris Hall: As consumers have reduced away-from-home eating occasions, they have sought out premium in-home replacement.

As consumers have reduced away from home eating occasions, they have sought out premium in home replacements.

Chris Hall: In this context, we are well positioned to continue to deliver robust growth, given our runway for distribution and potential to increase brand awareness.

In this context, we are well positioned to continue to deliver robust growth given our runway for distribution and potential to increase brand awareness.

Chris Hall: As part of our growth playbook, we take our one-of-a-kind brands and selectively extend them into new categories in order to grow their TAM.

As part of our growth playbook, we take our one of a kind brands and selectively extend them into new categories in order to grow their Tam.

Chris Hall: The successes we have seen in Soups, Pasta and now Frozen for Reyes are a clear example of our playbook at work.

The successes, we have seen in soups pasta and now frozen for Rayos are a clear example of our playbook at work.

Chris Hall: And because all of our brands share similar key attributes, we are confident in our ability to take the Sovos Playbook to the rest of our portfolio.

Because all of our brands share similar key attributes we are confident in our ability to take the <unk> playbook to the rest of our portfolio.

Chris Hall: In Q1 2022 alone, we will expand our addressable market by nearly $7 billion to $33 billion with the entree into the ice cream category with Newsom.

In Q1, 2022 alone, we will expand our addressable market by nearly $7 billion to $33 billion with the entre into the ice cream category with Newsome.

Chris Hall: With a strong momentum in our core yogurt business, we are very excited by our recent launch of Noosa Frozen Yogurt Gelato into the $7 billion ice cream category with a truly unique and absolutely delicious product.

With a strong momentum in our core yogurt business. We are very excited by our recent launch of new supposing yogurt gelato into this $7 billion ice cream category with a truly unique and absolutely delicious product while still early we can share that we're running ahead of our initial sell in <unk>.

Chris Hall: While still early, we can share that we're running ahead of our initial sell-in expectation.

Expectations.

Chris Hall: Beyond this introduction, we have a very strong pipeline of innovation for not only additional adjacent categories, but also continue to continually bolster our core that will support profitable growth for years to come.

Beyond this introduction, we have a very strong pipeline of innovation for not only additional adjacent categories. But also continue to continually bolster our core that will support profitable growth for years to come.

Chris Hall: In addition to our organic growth, we are continuing to evaluate acquisition targets that complement our portfolio and are accretive to our growth and margin.

In addition to our organic growth we are continuing to evaluate acquisition targets that complement our portfolio and are accretive to our growth and margins. We have a proven track record of growing through M&A and we will continue to leverage our scalable platform to further unlock growth opportunities and synergies.

Chris Hall: We have a proven track record of growing through M&A and will continue to leverage our scalable platform to further unlock growth opportunities and synergies that create value for our shareholders over the long term.

<unk> that create value for our shareholders over the long term.

Speaker Change: To lead our efforts on this front, we've recently announced that Tom Lee will be joining Sovos Brands as Senior Vice President of M&A and Strategy.

To lead our efforts on this front, we've recently announced that Tom Lee will be joining service brands as senior Vice President of M&A and strategy.

Speaker Change: Tom comes to us from J.P. Morgan, where he was a senior investment banker advising companies in the consumer packaged food sector over the last 10 years and has led numerous M&A and capital markets transactions, including our own IPO last fall.

Tom comes to Us from JP Morgan, where he was a senior investment banker advising companies in the consumer packaged food sector over the last 10 years and has led numerous M&A and capital markets transactions, including our own IPO last fall. So Keith is already very familiar with us.

Speaker Change: So he is already very familiar with us, our ethos, and our strategy.

Our ethos and our strategy.

Speaker Change: And we are excited to work alongside him as he joins us later this month following the completion of his garden lease.

And we are excited to work alongside him as he joins US later this month following the completion of his garden leave.

Speaker Change: Before I conclude, I'd like to touch upon the current operating environment as well as provide an update on the startup of our Alma facility.

Before I conclude I'd like to touch upon the current operating environment as well as provide an update on the startup of our Alabama facility.

Speaker Change: As has been widely discussed and similar to our peers across the industry, we are facing a confluence of supply chain and inflationary headwinds.

As has been widely discussed and similar to our peers across the industry, we are facing a confluence of supply chain and inflationary headwinds.

Speaker Change: several of which have intensified in recent months. Specifically.

Several of which have intensified in recent months.

Specifically in the last 90 days.

Speaker Change: We have the Omicron variant end of the picture, producing elevated supply chain disruption and near-term cost and operating pressures related to raw materials, particularly dairy and proteins, logistics, and labor.

We had the Alba criterion entered the picture producing elevated supply chain disruption and near term cost in operating pressures related to raw materials, particularly dairy and proteins logistics and labor.

Speaker Change: And now the Russian-Ukraine crisis brings with it heightened uncertainty to the operating environment as well as incremental costs.

And now the Russia, Ukraine crisis brings with it heightened uncertainty to the operating environment as well as incremental costs.

Speaker Change: As a result, in addition to the pricing and productivity initiatives that we discussed on our Q3 call, we will be taking further pricing on a new set of products affected by the end of Q2.

As a result in addition to the pricing and productivity initiatives that we discussed on our Q3 call. We will be taking further pricing on a new set of products are affected by the end of Q2.

Speaker Change: In the past 90 days, we have also worked tirelessly to identify additional cost-savings opportunities. As we sit here today, and with what we currently know, we believe these actions will be sufficient to manage inflation this year.

In the past 90 days, we have also worked tirelessly to identify additional cost savings opportunities as we sit here today and with what we currently know we believe these actions will be sufficient to manage inflation this year.

Speaker Change: However, we are actively monitoring what continues to be a challenging and evolving operating environment and we will remain nimble to any adverse impacts to our business that may warrant additional action.

However, we are actively monitoring what continues to be a challenging and evolving operating environment and we will remain nimble to any adverse impacts to our business that may warrant additional actions.

Speaker Change: As a means to fortifying and domesticating our Rayo sauce supply chain, I'm pleased to announce that we are beginning production of Rayo sauce and our Alma Georgia facility this month with expectations of ramping to full production during Q2.

As a means to fortifying and domesticating, our rayos saw supply chain I am pleased to announce that we are beginning production of rayos source in our Alabama, Georgia facility. This mud with expectations of ramping to full production. During Q2 Alamo will serve as a key source of supply for rayos sauce, providing ample capacity and flexibility.

Speaker Change: Alamo will serve as a key source of supply for Rayos sauce, providing ample capacity and flexibility to support our rapid growth and reducing our exposure to the volatile ocean freight markets while retaining the unique attributes that makes Rayos a one-of-a-kind sauce.

Ability to support our rapid growth and reducing our exposure to the volatile ocean freight markets, while retaining the unique attributes that makes rayos, a one of a kind sauce.

Speaker Change: In summary, the strength of our underlying business is evident. We had a record year financially. We made major gains in market share and household penetration for our core offerings. And I am very proud of all that we have accomplished in 2021.

In summary, the strength of our underlying business is evident we had a record year financially we made major gains in market share and household penetration for our core offerings and I am very proud of all that we've accomplished in 2021.

Speaker Change: While the operating environment remains highly fluid and supply chain pressures will persist into 2022, we will continue to execute on our plan to relentlessly pursue outsized top-line growth, leveraging our growth-oriented capabilities and organizations.

While the operating environment remains highly fluid and supply chain pressures will persist into 2022, we will continue to execute on our plan to relentlessly pursue outsized top line growth leveraging our growth oriented capabilities and organization, while protecting our margins through <unk>.

Speaker Change: while protecting our margins through pricing actions and productivity initiatives.

Reising actions and productivity initiatives. In addition to our expectations for continued strong growth in volume. We are confident that we are taking the actions needed to support another year of strong profitable growth in 2022 with that let me hand, it over to Chris for more details on the quarter and our fiscal year 2000.

Speaker Change: In addition to our expectations for continued strong growth and volume, we are confident that we are taking the actions needed to support another year of strong profitable growth in 2022. With that, let me hand it over to Chris for more details on the quarter and our fiscal year 2022 outlook.

22 outlook.

Chris Hall: Thank you, Todd, and good morning to everyone on today's call. I am very pleased to report strong fourth quarter results, as well as our beat to our four-year guidance for both net sales and adjusted EBITDA, capping off a milestone year for Sovos Brands as we moved into the public domain.

Thank you Todd and good morning to everyone on today's call I am very pleased to report strong fourth quarter results as well as our beat to our full year guidance for both net sales and adjusted EBITDA capping off a milestone year for service brands as we moved into the public domain.

Chris Hall: Fourth quarter, total net sales of $189.2 million increased by $27.5 million, or 17% compared to the same period last year, led by strong volume growth across core categories, soft, yogurt, and frozen.

Fourth quarter total net sales of $189 2 million increased by 27 5 million or 17% compared to the same period last year led by strong volume growth across core categories source yogurt and frozen.

Chris Hall: At the brand level, Rayo's net sales increased by 25% this quarter, on top of 93% growth realized in Q4 2020. This robust growth was driven by strong consumption and continued market share gains across the Rayo's portfolio of sauce, soup, pasta, and frozen entrees.

At the brand level Rayos net sales increased by 25% this quarter on top of 93% growth realized in Q4 2020. This robust growth was driven by strong consumption and continued market share gains across the rayos portfolio of source.

Nope.

Pasta and frozen entrees.

Chris Hall: Adding to Rayo's success in frozen entrees, Michelangelo's increased roughly 10 percent, modestly trailing 15.5 percent consumption growth, which we take as a healthy indicator that our tiered premium approach in frozen entrees is working well.

Adding to array of success in frozen entrees, Michelangelo's increase roughly 10% modestly trailing 15.5% consumption growth, which we take as a healthy indicator at our tiered premium approach and frozen entrees is working well.

Chris Hall: Newsfinet sales grew nearly 2% in the quarter, with consumption up 13%, which was the brand's fastest-growing quarter since acquisition.

<unk> net sales grew nearly 2% in the quarter with consumption up 13%, which was the brand's fastest growing quarter since acquisition.

Chris Hall: The delta in net sales to consumption is due to a non-repeat of a key customer event performed in Q4 2020.

The Delta in net sales to consumption is due to a non repeat of a key customer events performed in Q4 2020.

Chris Hall: Unit velocity trends continue to be category leading at a rate of 3.5 times faster than the total category, as we focus on assortment optimization on shelf and building brand awareness.

Unit velocity trends continue to be category, leading at a rate of three five times faster than the total category as we focus on assortment optimization on shelf and building brand awareness.

Chris Hall: Finally, Birchbenders contributed $10 million to net sales this quarter. Unit consumption of Birchbenders frozen waffles was up 13% and baking mixes was up 7.8%, both of which continued to outpace their respective categories on unit sales in Q4, behind distribution growth, and as consumers adopt our brand.

Finally, birch vendors contributed $10 million to net sales this quarter unit consumption of birch vendors frozen waffles was up 13% and baking mixes was up seven 8% both of which continued to outpace their respective categories on unit sales in Q4 behind <unk>.

Distribution growth and as consumers adopt our brand.

Chris Hall: Pancake mix unit consumption at negative 6.6 percent continued to be down, but ahead of the category at negative 7.4 percent.

Pancake mix unit consumption at negative six 6% continued to be down but ahead of the category at negative seven 4%.

Chris Hall: As expected and guided to on our Q3 call, gross margins realized a notable sequential improvement to 31.4% of net sales versus Q3 2021.

As expected and guided to on our Q3 call gross margins realized a notable sequential improvement to 31, 4% of net sales versus Q3 2021.

Chris Hall: versus the prior year period, margins were down 220 basis points.

Versus the prior year period margins were down 220 basis points.

Chris Hall: due largely to continued industry-wide challenges, including higher logistics costs, inflation, and increased promotional support, particularly when compared to abnormally lower spending levels in Q4 2020.

Due largely to continued industry wide challenges, including higher logistics cost inflation and increased promotional support, particularly when compared to abnormally lower spending levels in Q4 2020.

Chris Hall: These headwinds were partially offset by favorable mix, as well as productivity realized during the quarter.

These headwinds were partially offset by favorable mix as well as productivity realized during the quarter.

Chris Hall: Adjusted operating expenses of $42.5 million increased by $2.9 million, or 7%, over the prior year period, primarily due to $1.6 million in variable sales expense in light of our strong top-line growth.

Adjusted operating expenses of $42 5 million increased by $2 9 million or 7% over the prior year period, primarily due to $1 6 million in variable sales expense in light of our strong topline growth.

Chris Hall: as well as public company costs, which were $1.3 million in the quarter, and not recognized in the prior year period as we were private at that time.

As well as public company costs, which were $1 3 million in the quarter and not recognized in the prior year period as we were private at that time.

Chris Hall: Adjusted EBITDA for the quarter increased approximately 10% to $26.5 million, or 14% of net sales.

Adjusted EBITDA for the quarter increased approximately 10% to $26 5 million or 14% of net sales.

Chris Hall: versus 24.2 million or 14.9% in the prior year period.

Is $24 2 million or 14, 9% in the prior year period.

Chris Hall: However, results for the quarter include $1.3 million in public company costs, which did not exist in the prior year period.

However results for the quarter included $1 $3 million in public company costs, which did not exist in the prior year period.

Chris Hall: If we look at this on a comparative basis and burn Q4 2020 results, with a similar level of public company costs.

We look at this on a comparative basis and burned in Q4 2020 results with a similar level of public company costs.

Chris Hall: Last year's fourth quarter adjusted EBITDA margin would have been 80 basis points lower.

Last year's fourth quarter, adjusted EBIT margin would have been 80 basis points lower.

Chris Hall: This apples-to-apples comparison would imply only a 10 basis point reduction in adjusted EBITDA margin for Q4 2021.

So it's apples to apples comparison would imply only a 10 basis point reduction in adjusted EBITDA margin for Q4 2021.

Chris Hall: Q4 income tax expense was a $4.5 million benefit compared to an income tax cost of $2 million in the prior year period.

Q4 income tax expense was a $4 5 million benefit compared to an income tax cost at $2 million in the prior year period.

Chris Hall: The decrease in our income tax expense is primarily attributable to an increase in deductible expenses for tax purposes.

The decrease in our income tax expense is primarily attributable to an increase in deductible expenses for tax purposes.

Chris Hall: Net loss for the quarter was $3.8 million or $0.04 per diluted share compared to a loss of half a million or a penny per diluted share in the prior year period.

Net loss for the quarter was $3 8 million or <unk> <unk> per diluted share compared to a loss of a half a million or a penny per diluted share in the prior year period.

Chris Hall: Adjusted net income came in at $13 million, and adjusted EPS was $0.13 per diluted share compared to $10.8 million and $0.14 per diluted share in the prior year period.

Adjusted net income came in at $13 million and adjusted EPS was <unk> 13 per diluted share compared to $10 8 million and 14 cents per diluted share in the prior year period.

Chris Hall: Please note that our Q4 2021 adjusted EPS is based on a fully diluted share count of 100.3 million shares.

Please note that our Q4 2021 adjusted EPS is based on a fully diluted share count of 103 million shares.

Chris Hall: While in Q4 2020, we only used 74.1 million shares. This difference reflects the timing of our September 2021 IPO, as well as the subsequent exercise of our green shoe.

While Q4 2020, we only used $74 1 million shares.

Difference reflects the timing of our September 2021, IPO as well as the subsequent exercise of our green shoe.

Chris Hall: Now, turning to our balance sheet, at the end of the quarter we had a cash balance of $66.2 million and total debt was $481.5 million.

Now turning to our balance sheet at the end of the quarter, we had a cash balance of $66 2 million and total debt was $481 5 million.

Chris Hall: bringing our net leverage down to 3.6 times adjusted EBITDA as the primary use of our IPO and Green Shoe proceeds were used to reduce debt by roughly $300 million in Q4.

Bringing our net leverage down to three six times adjusted EBITDA as the primary use of our IPO and green shoot proceeds were used to reduce debt by roughly $300 million in Q4.

Chris Hall: This flexibility on our balance sheet, as well as our robust cash generation, put us in a good position to potentially accelerate growth and unlock incremental shareholder value through a credo high growth M&A that makes business and financial sense.

The flexibility of our balance sheet as well as our robust cash generation put us in a good position to potentially accelerate growth and unlock incremental shareholder value through accretive high growth M&A that makes business and financial set.

Chris Hall: Turning to our fiscal year 2022 guidance, we expect.

Turning to our fiscal year 2022 guidance.

We expect.

Chris Hall: net sales of $800 million to $815 million, which represents approximately 11 to 13 percent growth, and is expected to be fairly balanced between volume and price mixed.

Net sales of $800 million to $815 million, which represents approximately 11% to 13% growth and is expected to be fairly balanced between volume and price mix.

Chris Hall: Adjusted EBITDA of $116 to $122 million, or approximately 1% to 6% growth versus the prior year.

Adjusted EBITDA of $1 $16 million to $122 million or approximately 1% to 6% growth versus the prior year net.

Chris Hall: net interest expense of $23 to $25 million.

Net interest expense of $23 million to $25 million.

Chris Hall: an adjusted effective tax rate of approximately 25%

And adjusted effective tax rate of approximately 25%.

Chris Hall: And capital expenditures of approximately 2.5% of net sales primarily focused on automation and other productivity projects at our manufacturing facilities, as well as growth enabling initiatives.

And capital expenditures of approximately two 5% of net sales primarily focused on automation and other productivity projects at our manufacturing facilities as well as growth enabling initiatives.

Chris Hall: Two items worth noting for comparability's sake are, one, 2022 will be a 53-week period versus 52 weeks observed in 2021.

Two items worth noting for comparability sake are one 2022 will be a 53 week period versus 52 weeks observed in 2021.

Chris Hall: Embedded in our guidance, we expect this additional week to contribute roughly $15 million or 2% to the top line.

Embedded in our guidance, we expect this additional week to contribute roughly $15 million.

Our 2% to the top line.

Chris Hall: while we plan to reinvest any variable profit generated from this extra week to support future growth.

While we plan to reinvest any variable profit generated from this extra week to support future growth.

Chris Hall: And two, as we were a public company for only three months out of fiscal year 2021.

And two as we were a public company for only three months of fiscal year 2021.

Chris Hall: Public company costs will weigh more heavily on our adjusted EBITDA growth in 2022.

Public company costs will weigh more heavily on our adjusted EBITDA growth in 2022.

Chris Hall: If one were to fully burden fiscal 2021 results with an equivalent $6 million of public company costs.

If one were to fully burden in fiscal 2021 results with an equivalent of $6 million of public company costs expected in 2022, our adjusted EBIT growth will be approximately 5% to 10% versus the 1% to 6% previously mentioned.

Chris Hall: Expected in 2022, our adjusted EBITDA growth would be approximately 5 to 10% versus the 1 to 6% previously mentioned.

Chris Hall: Excluding the impact of a 53rd week in Q4, we anticipate Total Sobos Brand's quarterly net sales growth to be fairly consistent and in line with our long-term algorithm in the high single-digit range.

Excluding the impact of a 50 <unk> week in Q4, we anticipate total service brands quarterly net sales growth to be fairly consistent and in line with our long term algorithm in the high single digit range.

Chris Hall: Underpinning this outlook, our core sauce, yogurt, and frozen businesses will continue to serve as the primary drivers, representing approximately 80 percent of our growth in 2022.

Underpinning this outlook, our core source yogurt and frozen businesses will continue to serve as the primary drivers.

Presenting approximately 80% of our growth in 2022.

Chris Hall: While volume will serve as the basis of our net sales growth, pricing, as we view it warranted in the current environment, will play an increasing role in the coming year.

While volume will serve as the basis of our net sales growth pricing as we view it warranted in the current environment will play an increasing role in the coming year.

Chris Hall: Since our Q3 call in early November , we have seen a continuation of higher costs for certain input costs such as milk, chicken, and packaging.

Since our Q3 call in early November we have seen a continuation of higher costs for certain input costs, such as milk chicken and packaging.

Chris Hall: while the combination of robust demand for our products and recent disruption from Omicron, as well as the Russia-Ukraine crisis, have further exacerbated near-term distribution and supply chain pressure.

While the combination of robust demand for our products and recent disruption from <unk> as well as the Russia, Ukraine crisis.

Further exacerbated near term distribution and supply chain pressures.

Chris Hall: To combat what we now anticipate will be high single-digit inflation for the year versus mid-single-digit previously, we are taking more aggressive net revenue management actions.

To combat what we now anticipate will be high single digit inflation for the year versus mid single digit previously we are taking more aggressive net revenue management actions.

Chris Hall: Having already informed you of list price increases on nearly two-thirds of our portfolio,

Having already informed you of list price increases on nearly two thirds of our portfolio.

Chris Hall: New pricing actions recently announced have us touching all brands with list price increases by the end of Q2.

New pricing actions recently announced have us touching all brands with list price increases by the end of Q2.

Chris Hall: We also continue to work diligently to eliminate our least efficient promotions while keeping a maniacal focus on velocities and unit growth.

We also continue to work diligently to eliminate our least efficient promotions, while keeping a maniacal focus on velocities and unit growth.

Chris Hall: In addition to our deep pipeline of productivity initiatives, that includes automation in our manufacturing facilities, optimization of our co-manufacturing network, packaging value engineering, and further,

In addition.

<unk> to our deep pipeline of productivity initiatives that includes automation in our manufacturing facilities optimization of our co manufacturing network packaging value engineering and further competitive procurement actions.

Chris Hall: we have identified a number of incremental cost-saving activities to help mitigate expected inflationary pressures in 2022.

We have identified a number of incremental cost saving activities to help mitigate.

<unk> inflationary pressures in 2022.

Chris Hall: Due to our expectation that supply chain pressures will remain for the foreseeable future and given the timing of our net revenue management actions, productivity, and incremental cost savings efforts, we expect gross and adjusted EBITDA margins to be down in the first half of 2022 versus the prior year period.

Due to our expectation that supply chain pressures will remain for the foreseeable future and given the timing of our net revenue management actions productivity and incremental cost savings efforts, we expect growth in adjusted EBITA margins to be down in the first half of 2022 versus the prior.

Your year period.

Chris Hall: While we expect to grow Q1 net sales by high single digits against the 40% plus year-ago comparison, we are not immune to the inflationary environment, and pressures to our margins will be most impacted in Q1 by the following.

While we expect to grow Q1, net sales by high single digits against a 40% plus year ago comparison, we are not immune to the inflationary environment and pressure to our margins will be most impacted in Q1 by the following.

Chris Hall: increased input costs such as dairy, chicken, and packaging.

Increased input cost such as dairy chicken and packaging.

Chris Hall: Continued supply chain costs and logistical constraints.

Continued supply chain cost and logistical constraints.

Chris Hall: and a full quarter of public company costs that were not realized in the comparable prior year period.

And a full quarter of public company cost that were not realized in the comparable prior year period.

Chris Hall: Our projections assume pricing on the majority of our input costs consistent with current levels throughout the course of the year.

Our projections assume pricing on the majority of our input costs consistent with current levels throughout the course of the year.

Chris Hall: while we actually anticipate further increases in certain oil-based materials.

While we actually anticipate further increases and certain oil based materials.

Chris Hall: As we progress into the second half, the benefits from our various pricing actions and productivity initiatives should ramp.

As we progressed into the second half the benefits from our various pricing actions and productivity initiatives should ramp, allowing for margin improvement in Q3 and Q4.

Chris Hall: allowing for margin improvement in Q3 and Q4.

Chris Hall: That said, if circumstances worsen relative to our forecast, we are fully prepared to take additional actions as warranted. Additionally...

That said if circumstances worsen relative to our forecast we are fully prepared to take additional actions as warranted.

Additionally, let me emphasize.

Chris Hall: that we will continue to prioritize securing supply in order to meet our strong demand and maintain momentum on driving household penetration and awareness.

That we will continue to prioritize securing supply in order to meet our strong demand and maintain momentum on driving household penetration and awareness.

Chris Hall: From a balance sheet perspective, given our cash on hand, strong fundamentals and expectations for solid operating cash flow, we are confident that we will continue to delever in the coming year.

From a balance sheet perspective, given our cash on hand strong fundamentals and expectations for solid operating cash flow. We are confident that we will continue to delever in the coming year.

Chris Hall: Barring any M&A, we expect our leverage will approach three times by year-end.

Barring any M&A, we expect our leverage will approach three times by year end.

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

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

Thanks, Chris.

Todd Lachman: 2021 was truly an extraordinary year for Sovos Brands, both operationally and financially.

2021 was truly an extraordinary year for Somos, France, both operationally and financially.

Todd Lachman: I want to thank all of our associates and team members for managing through these challenging times and their contributions to the company's success to date.

I want to thank all of our associates and team members for managing through these challenging times and their contributions to the company's success to date.

Todd Lachman: As we move into 2022, we are energized and excited by what lies ahead. The operating environment will remain demanding, and we don't discount the potential for further actions being needed if conditions justify it.

As we move into 2022, we are energized and excited by what lies ahead.

The operating environment will remain demanding we don't discount the potential for further actions being needed if conditions justify it.

Todd Lachman: However, we are highly confident in our ability to rise to the occasion.

However, we are highly confident in our ability to rise to the occasion.

We have the right brands.

Todd Lachman: one-of-a-kind, authentic, and absolutely delicious high-growth brands that consumers love, yet they are still relatively underdeveloped with considerable runway for growth in distribution, awareness, and household penetration. We have the right

One of a kind authentic and absolutely delicious high growth brands that consumers love yet they are still relatively underdeveloped with considerable runway for growth and distribution awareness and household penetration we have the right strategy.

Todd Lachman: The proven and repeatable Sovos Playbook, capable of accelerating growth and expanding brand white space.

Proven and repeatable <unk> playbook capable of accelerating growth and expanding brand white space, we have the right platform.

Todd Lachman: we have the right platform, one that is scalable and well-suited for future accretive M&A.

One that is scalable and well suited for future accretive M&A.

Todd Lachman: And most importantly, we have the right people who are excited, committed, and motivated by what we are creating, a different type of food company.

And most importantly, we have the right people, who are excited committed and motivated by what we are creating a different type of food company. One that is growing faster than any other food company of scale in the U S.

Todd Lachman: one that is growing faster than any other food company of scale in the U.S.

Todd Lachman: With that, Chris and I are now available to take your questions. Operator. Thank you. As a reminder to ask a question, you will need to press star 1.

With that Chris and I are now available to take your questions operator.

Yeah.

Thank you.

A reminder to ask a question you will need to press star one of your telephone to withdraw your question press the pound key.

Standby, while we compile the Q&A roster.

Our first question is from Brian Holland with Cowen Your line is open.

Speaker Change: Yeah, thanks. Good morning. I was curious if you could help us think about, you know, the top line guide for 2022 as I look at sort of my forecast.

Yes. Thanks. Good morning, I was just curious if you could help us think about.

The topline guide for 2022 as I look at sort of my forecast.

Speaker Change: you know, and sort of dimensionalize this. I'm thinking about consumption. I'm thinking about price. I'm thinking about selling. You know, if we think about since you've become public.

It's sort of Dimensionalize. This I'm thinking about consumption of thinking about price I am thinking about salad.

If we think about since you've come public.

Speaker Change: What, where have you been most positively impacted? I mean, is it just the, I guess I'm thinking about where that Delta is. Is it just the price or is it maybe the selling for something like Noosa frozen yogurt that may have exceeded expectations?

Where have you been most positively impacted I mean is it just the I guess I'm thinking about where that Delta is is it just the price.

Or is it maybe the sell in for something like new soft frozen yogurt that that may have exceeded expectations.

Hey, Brian how are you doing to Chad Todd Lachman good morning.

Speaker Change: So, just getting to your question, I mean, the headline answer it's volume and, you know, I'll highlight now sort of getting into the Q and a is.

So just getting too.

Your question I mean, the headline answer its volume.

And.

I'll highlight now sort of getting into the Q&A is.

Speaker Change: I mean honestly in stark contrast to our peers, we are driving volume growth.

Honestly in Stark contrast to our peers, we are driving volume growth.

Speaker Change: And, you know, as we look at, you know, growth in 2021, as we're looking at 2022, the majority of our growth is coming from our core businesses. That would be sauce, then yogurt, and then frozen. But as I've been highlighting, you know, again, we are driving volume growth. If we just look at Q4, Rayo's volume growth up 29 percent. This is Rayo's sauce in a category down five.

And as we look at.

Growth in 2021 as we're looking at 2022, the majority of our growth is coming from our core businesses that would be source and in yogurt, and then frozen, but as I've been highlighting again, we're driving volume growth. If we just look at Q4 rayos volume growth up 29.

This is ray a source in the category down five or.

Our soup business in Q4 up 28% and volume down 2% for the category and if you look at just our pasta dry pasta business up 53% in volume down 5% on the.

Speaker Change: In Q4, up 28% in volume, down 2% for the category.

Speaker Change: And if you look at just our pasta, dry pasta business up 53% in volume down 5% on the, you know, from a, from a volume standpoint. And then, you know, even if you look at our yogurt business up about 7% in units and Q4 down 1% and that's continuing, you know, Brian , as we look at.

From a from a volume standpoint, and then even if you look at our yogurt business up about 7% in units in Q4 down 1% and Thats continuing.

Brian as we look at.

Speaker Change: Just the most recent data that we have, 13 weeks ended 227, Rayo Sauce, 31% in volume, down 4% in the category. Soup up 34%. We don't talk a lot about soup, but in 2021, Rayo Soup was the only brand to grow volume, in the category of all the top 10 brands.

Just the most recent data that we have 13 weeks ended 227, rayos source, 31% and volume down 4% in the category soup up 34%, we don't talk a lot about soup, but in 2021 Rayos soup was the only brand to grow volume.

In the in the category of all the top 10 brands.

Speaker Change: And importantly, there is so much more meat on the bone, for lack of a better expression. You look at RAOS, and we massively increased household penetration this year up to 10.9 percent. You can see in the data on SOS, 13 percent for total RAOS. We've been increasing household penetration by 60 to 70 basis points per quarter.

And importantly, there is so much more meat on the bone for lack of a better expression you look at rayos and we massively increased household penetration this year up to 10, 9% you can see in the data on source, 13% for total rayos, we've been increasing household penetration by 60 to 70 basis points.

For quarter I know there were some talking about we just need to increase it 70 to 80 basis points per year.

Speaker Change: I know there was some talking about, you know, we just need to increase it 70 to 80 basis points per year. You know, we're blowing that away. We've more than doubled our household penetration over the last several years. You saw that in regards to just our.

Blowing that away we've more than doubled our household penetration over the last several years you saw that in regards to just our average number of items 11 versus 17% to 22% for the top two competitors awareness very very low. So we are very very confident in the high end of our sales growth range.

Speaker Change: Average number of items 11 versus 17 to 22 for the top two competitors. Awareness very, very low. So we are very, very confident in the high end of our sales growth range. We will prioritize growth and feeling very positive. And then there is pricing to come.

We will prioritize growth and feeling very positive and then there is pricing to come on our business as we've talked about you've got rayos source.

Speaker Change: on our business as, you know, we've talked about, you've got Rayo Sauce.

Speaker Change: Um, pricing being reflected now, as we talked about, we've taken pricing now across all brands and all portfolios, but, you know, really the headline here again, and start contrast to our peers is volume growth. And we see that volume growth continuing through this year in well, into the next year and beyond and Christian additional perspective on the pricing side price volume. Yeah, no, absolutely. So, um, you know, as we, uh, we spoke on our Q3 earnings call that we had announced.

Pricing being reflected now as we've talked about we've taken pricing now across all brands in the whole portfolios, but.

Really the headline here again in Stark contrast to our peers is volume growth that we see that volume growth continuing through this year and well into next year and beyond and Christine any additional perspective on the pricing side price volume Yeah, no absolutely. So.

Yes.

We spoke on our Q3 earnings call, we had announced pricing.

Christian: pricing across a portion of our business, roughly two-thirds of the business.

Cross a portion of our business roughly two thirds of the business.

Christian: Since that time, given the surge in inflation that we've all experienced industry-wide over the last several months, we have announced additional pricing and at this point have touched or will touch here over the next couple of months all of our brands and really across basically all of our categories.

Since that time, given the surge in inflation that that we've all involve experienced industry wide over the last several months.

We have announced additional pricing.

And at this point have touched I will touch here over the next couple of months all of our brands and really across basically all of our categories.

Christian: So we see pricing as we continue to progress across really late Q1 into Q2. By the end of Q2, we will see pricing across all brands.

We see pricing as the continued progress across really late Q1 into Q2 by the end of Q2, we will see pricing across all brands.

Christian: our combination of our pricing actions.

Our combination of our pricing actions, coupled with the productivity actions, we talked about last call and incremental initiatives that we now have in flight. We will believe we will be covering the majority of the inflation certainly across the year, there will be a lag across H one as we <unk>.

Christian: Coupled with the productivity actions we talked about last call and incremental initiatives that we now have in flight, we believe we'll be covering the majority of the inflation certainly across the year. There will be a lag across H-1 as we implement these programs, so we will see higher margins the back half of the year than we will in the first half of the year, and we have factored all that into the guidance that we have provided here today.

These programs. So we will see higher margin in the back half of the year that it will in the first half of the year and we have factored all that into the guidance that we've provided here today.

Speaker Change: Yeah, thanks for the time, Chris. Appreciate all that color and then maybe just kind of a bigger picture question as we move forward.

Yes.

Appreciate all that color and then maybe just kind of a bigger picture question as we move toward.

Speaker Change: You know, I get asked about the premiumized portfolio that you own and how that might fare in an increasingly inflationary environment. You know, sort of interesting that private label remains under pressure. I think that's supply constraints to some extent. But, you know, with higher gas prices, I wonder how you think about, and if you've looked at historically, how brands such as those you own,

Sure.

I get asked about the premium is portfolio that youre going on and how that might compare in an increasingly inflationary environment.

Sort of interesting that private label remains under pressure I think thats a supply constraint to some extent.

But.

With higher gas prices I Wonder, how you think about and if you if you've looked at historically how brands such as those you own.

Speaker Change: perform in those types of environments. I'm thinking about the trade between eating out and eating at home. Two questions there. How do you think those brands have performed in those instances? Also, how you plan to market that value proposition to consumers?

Perform in those types of environments that I'm thinking about the trade between sort of eating out and eating at home and so two questions. There. How do you think those brands performed in those instances and also how you plan to market that value proposition to consumers.

Speaker Change: Sure, Brian , so, you know, just in 1 point really quickly in the categories in which we compete sauce, yogurt, frozen entrees, private label has a very low dollar share category versus going to be average for center store. So that's point number 1 private label is, you know, it's not a large player in those categories, but then getting to your.

Sure Brian So just at one point really quickly in the categories in which we compete source yogurt frozen entrees private label has a very low dollar share of category versus kind of.

The average for center store, So that's point number one private label.

As you know, it's not a large player in those categories, but then getting tier.

Speaker Change: You know, your broader question, I know we've talked about this, you know, previously.

Your broader question I know we've talked about this.

Previously these.

Speaker Change: These are brands that fare well in a down economy. You know, in a broader economic slowdown, consumers cut back on travel and leisure spending, including restaurants.

These are brands that fare well in a down economy.

Broader economic slowdown consumers cut back on travel and leisure spending, including restaurants, and they look to sub the restaurant meals with high quality replacements.

Speaker Change: and they look to sub their restaurant meals with high quality replacements. As we've looked over time over the last, even when we acquired the Raios brand, we looked back at the previous 10 years, almost a perfect correlation that the economy down, Raios goes up, et cetera. Now, Raios has been going up regardless. I think as you saw the fastest growing brand in the center store, any brand above a hundred million dollars in sales over the last two years.

As we've looked over time over the last even when we acquired the <unk> brand. We look back at the previous 10 years, almost a perfect correlation of the economies down Rayos goes up et cetera, now risks Raymond has been going up regardless. So I think as you saw the fastest growing brand in the center store any brand above a $100 million in sales over the last two years.

Speaker Change: But consumers are looking for restaurant quality products like ours that are perfectly suited to capture that occasion.

But consumers are looking for restaurant quality products like ours that are perfectly suited to capture that occasion.

Speaker Change: You know, just a dinner at home with Rayo's pasta, a Harbiata sauce, about, you know, $12, $14, depending on.

At dinner at home with Rayos pasta Arrabbiata source.

12, $14, depending on where you are where you live where you shop versus going out to Asia.

Speaker Change: where you live, where you shop, you know, versus going out to a

Speaker Change: you know, an Italian restaurant that can cost a lot, lot more of that. Same with whether it's breakfast with Birchbender's pancakes or noosa, etc. So.

And Italian restaurant that can cost a lot more of that same with whether it's breakfast with birch vendors pancakes or news et cetera. So what we're seeing is our products, which are cleaner label absolutely delicious.

Speaker Change: You know, what we're seeing is our products, which are cleaner label, absolutely delicious. They're highly substitutable with restaurant.

They're highly substitutable with restaurant occasions, I mean, if you would take rayos or even raised a great example, we were growing robustly before COVID-19 , we grew even faster during the COVID-19 surge and we're lapping the COVID-19 surge.

Speaker Change: I mean, if you look, take rails or even, you know, raise a great example, we were growing robustly before coven. We grew even faster during the coven surge and we're lapping the coven surge, you know, in the thirty to forty percent range. So, we see cooking at home is here to stay as habits and practices have changed and in that recessionary environment, you know, we have full confidence that our products are exactly what the consumer.

And the 30% to 40% range. So we see cooking at home is here to stay as habits and practices have changed and then that recessionary environment.

We have.

Confidence that our products are exactly what the consumers.

Speaker Change: you know, would want. Lastly, as I've talked about before...

Would want and lastly, as I've talked about before.

Speaker Change: Um, you know, our products are highly differentiated. They are not me to mainstream brands that are easily substitutable. There is no sauce like Ray is in regards to its taste and quality. You new yogurt taste lead, you know, everybody else is playing the game. How much taste can we take out of yogurt? You know, we're looking to put taste into the yogurt and that's behind the strong growth of the news businesses as well. So anyway, I think that would hit that 1. Great, thanks. That's a lot.

Our products are highly differentiated they are not meet to mainstream brands that are easily substitutable.

There is no source like radios in regards to its taste and quality.

<unk>, new <unk> yogurt taste led.

Everybody else is playing the game how much taste can we take out of yogurt, we're looking to put taste into the yogurt and that's behind the strong growth of the new businesses as well so.

Anyway, I think that would have hit that one.

Great. Thanks best of luck.

You've got <unk>.

Our next question comes from Jason <unk> with Goldman Sachs. Your line is open.

Speaker Change: Hey, good morning, folks. Thanks for stopping in.

Hey, good morning folks thanks for calling in.

Speaker Change: Let's see, congrats on the continued demand and sales success, it's impressive, it's great to see. Obviously, your results in Outlook highlight that you're not immune from some of the cost pressures out there, but I wanted to dig in a little bit more on that. I think you said fiscal 22 guidance predicated on high single-digit inflation. Is that as a percentage of your input cost or is that a percentage of COGS overall?

Let's see congrats on the continued demand and sales success.

So it's great to see.

Obviously your results and outlook highlight that youre not immune from some of the cost pressures out there, but I wanted to dig in a little bit more on that I think you said fiscal 'twenty two guidance predicated on high single digit inflation is that as a percentage of your input costs are as a percentage of Cogs overall.

Speaker Change: This is Chris. That is a percent of our total cost-of-sale structure, so including our raw material, packaging, co-man, internal manufacturing, which would include our plant overheads as well as our labor costs. So that's an all-in rate. Our actual inflation on pure commodities would be higher than that high single digit, but as you absorb it across the total base, you're at that high single digit.

Yes, Brian this is Chris.

That is a percent of our total cost of sales structure, so, including our raw material packaging.

Co man internal manufacturing, which would include our plant overheads as well as our labor costs. So thats, an all iterate our actual inflation on sure commodities would be higher than that high single digit, but as you absorb it across the total base here at that high single digits.

Speaker Change: Thank you. That's a surprisingly large number given.

Thank you.

And the large number given.

Speaker Change: what we kind of view as a relatively fixed cost structure on RAOS. What is happening with RAOS? Are you making concessions to your partner there to help them out in this situation? And is that contributing to that inflation rate?

What was.

Kind of viewed as a relatively fixed cost structure on <unk>, what is happening with red Oak are you making.

Sessions to to your partner there to help them out in this situation is that contributing to that inflation rate.

Speaker Change: As we've discussed before, we have a fabulous relationship with La Regina. The quality of the product, both when it's produced in Italy or soon in the U.S., is obviously a key driver of the Rao's growth that we've been experiencing.

Yeah as you know as we've discussed before we are we have.

We have a fabulous relationship with La Regina.

The quality of the product.

<unk> produced in Italy, or soon in the U S is obviously a key driver of the rayos growth that we've been experienced.

Speaker Change: As we continue to work with La Regina, we do support in various ways to ensure we get the product supply we need to meet this 30% plus growth that we've been experiencing.

As we continue to work with with La Regina.

We do support in various ways to ensure we get the product supply we need to meet this 30, plus 30% plus growth that we've been experiencing in doing so we have and will continue to pay for accelerated lanes shipping lanes Cross Atlantic lanes.

Speaker Change: In doing so, we, we have, and we'll continue to pay for accelerated lanes, shipping lanes, cross Atlantic lanes, you know, we'll lean in as we did much. So in Q3 of last last year, less than Q4 again to ensure that product supply that we have, as you well know, the, the operating environment remains volatile.

We will lean in as we did.

Much though in Q3 of last last year less in Q4 again to ensure that product supply that we have as you well know the yes, the operating environment remains volatile.

Speaker Change: we have incorporated into our projections.

We have incorporated into our projections.

Speaker Change: Current levels that we're seeing in the marketplace across our commodities, in fact, have included a potential uptick in oil-based, oil-derivative things like resin or packaging.

The current levels that we're seeing in the marketplace across our commodities.

Fast have included.

Actual uptick in oil base oil derivative things like resin or packaging.

Speaker Change: So that's in our guidance factored in today. So why we, you know, we're not opening up as much before the contract we do have in place with La Regina, we will lean in and support when and as needed. And that is factored into our guidance.

So that in our guidance factored in today. So why we're not opening up as mentioned before the contract. We do have in place with La Regina, we will lead in support when and as needed and that is factored into our guidance.

Speaker Change: So you mentioned the freight lanes that you're leaning in and helping with there and some sort of contemplation of oil derivatives. You didn't mention tomato costs. The California Tomato Growers Association negotiated a 20% increase for fall delivery of tomatoes here in the U.S. I'm guessing if they can renegotiate today and light aware fertilizer and the fuel for their tractors is going to be running that that would probably be closer to 30 or 40 percent.

So you mentioned the freight lanes that you're leaning in and helping with their <unk>.

Sort of contemplation of oil derivatives, you Didnt mentioned tomato caused through the California, tomato growers associations negotiate a 20% increase for fall delivery of Tomatoes here in the U S. I'm guessing if they can renegotiate today in light of where fertilizer and the fuel for their tractors is going to be running that that would probably be closer to 30 or 40%.

Speaker Change: I imagine your partners over there, La Regina, are going to face similar pressure. Is it prudent for us to assume that you're going to have to absorb higher tomato prices into next year, even though I appreciate the fixed cost nature of your contract?

<unk>.

I imagine.

Partners over there leveraging our kind of space similar pressure.

Is it prudent for us to assume that youre going to have to absorb higher tomato prices into next year, even though I appreciate the fixed cost nature of your contracts.

Speaker Change: We, uh, so we, you know, the majority of our tomatoes, certainly those used for, for rayos that are perturbed over in Italy.

So the majority of our tomato certainly those used for for rayos that are procured over in Italy.

Speaker Change: You know, very, very much advantaged with our co-packer as that he has a very large tomato business and that tomatoes that we use are grown right there locally, very near our plant. So we don't anticipate any increase in our tomatoes that are used for our Rayos production. We do buy tomatoes domestically as well.

Very very much advantaged with our co packer as that.

He is a very large tomato business and the tomatoes that we use are grown right there locally.

Near our plan. So we don't anticipate any any increase at our at our Tomatoes, they're abused for our rayos production, we do buy tomatoes domestically as well for things like our frozen entrees or Italian frozen entrees, we are 100% covered on our tomato purchases across 2022.

Speaker Change: for things like our frozen entrees, our Italian frozen entrees.

Speaker Change: We are 100% covered on our tomato purchases across 2022, so we think we're, we're in good shape that there is additional tomato inflation. Got it. Okay. Thanks. I'll pass it on. Thank you. Thanks. Jason.

So we think we're in good shape that there is additional tomato deflation.

Got it okay. Thanks, I'll pass it on.

Thank you thanks, Jason.

Our next question comes from Andrew Lazar with.

Barclays. Your line is open hi.

Good morning.

Good morning, Good morning, Andrew.

Speaker Change: I think, like most of your peers, obviously you expect a back-half-weighted EBITDA year as it will take some time for pricing and productivity to sort of catch up. In trying to get, I guess, a better sense of how much flexibility you're building into the plan, I guess, how would you see gross margin playing out for the full year? And to the extent you can provide some sort of weighting between first half and second half EBITDA, that would be helpful.

I think like most of your peers, obviously, you expect a back half weighted EBITDA year as it will take some time for pricing and productivity to sort of catch up.

And trying to get a better sense of how much flexibility you're building into the plan I guess, how would you see gross margin playing out for the full year.

And to the extent you can provide some sort of waiting.

Between first half and second half EBITDA that'd be helpful.

Speaker Change: Very good. So as I mentioned, we have factored into our projections for the year.

Very good so.

As I mentioned, we have factored into our projections for the year.

Speaker Change: commodity packaging costs as we're seeing in the marketplace today. So we're not assuming that we're going to see improvement across the back half the year. Now, our year-over-year comparisons are more favorable as you work across 2022, as we really saw the inflationary pressures really tick up.

Commodity packaging costs as we're seeing in the marketplace. Today. So we're not assuming that we're going to see improvement across the back half of the year now our year over year comparisons are more favorable as you work across 2022, as we really saw the inflationary pressures really tick up.

Speaker Change: somewhat in Q2 of last year, but really into Q3 and Q4. So, as we move into Q1, we will see a rate of decline on our margins, fairly similar to what we saw in Q3 on the gross margin line. That will then improve sequentially across the year as our overlaps do get easier. And more importantly, as our pricing actions, many of which hit in Q2,

Somewhat in Q2 of last year, but really into Q3 and Q4. So as we move into Q1, we will see our rate of decline.

Our margins fairly similar to what we saw in Q3 on the gross margin line that will then improve sequentially across the year of as our overlaps do get easier and more importantly, as our pricing actions many of which hit in Q2.

Speaker Change: And our productivity initiatives, again, may that hit in Q2 and beyond, we spoke a lot of those actions were taken primarily at our internal manufacturing plants. For instance, the automation we're putting in down in our Austin plant. Those will hit more aggressively in Q3 and Q4 as well.

And our productivity initiatives again may that hit in Q2 and beyond we spoke a lot of those actions were taken.

Primarily at our internal manufacturing plants for instance, the automation, we're putting in down is done at our Austin plant those will hit more aggressively in Q3 and Q4 as well so as we think about the year as you mentioned, Andrew very much back half.

Speaker Change: So as we think about the year, as you mentioned, Andrew, very much back half weighted, and we will see margin declines year over year in the first half, and then we'll see that improvement over the second half.

Weighted and we will see margin declined year over year in the first half.

We'll see that improvement over the second half.

Speaker Change: And then, I guess lastly, you know, obviously you talked about how strong volumes have been across the portfolio. As more of the pricing flows through, what type of assumptions are you building in for, you know, into the plan for elasticity? I guess, would you, would your assumptions call for, you know, volume growth to just sort of slow a bit sequentially from obviously pretty heavy, pretty heady numbers as more pricing flows through? Or how do you, how do you build that in? Thank you.

And then.

I guess lastly, obviously you talked about how strong volumes have been across the portfolio and its more of the pricing flows through what type of assumptions are you building in for into the plan for elasticity I guess would you.

Assumptions call for volume growth to just sort of slow a bit sequentially from obviously pretty heavy pretty heady numbers as more pricing flows through or how do you. How do you build that in thank you.

Speaker Change: You bet. So, as we put Rayo's SOS pricing in LPI late Q4 into Q1, the very, very good news there is we're seeing very minimal impact on elasticities. Todd mentioned volume growth, volume still hanging very, very, very much in line with what we saw before the pricing. So, we have very, very positive response so far to the pricing that's in the marketplace.

You bet, so as we put radio soft pricing in LTI late Q4 into Q1, but very very good news. There is we're seeing very minimal impact on elasticity as Todd mentioned volume growth volume still hanging very very good.

Very much in line with what we saw before the pricing. So we are very very positive.

Response, so far the price gets in the marketplace, we have modeled elasticity yet at more traditional rates.

Speaker Change: We have modeled elasticity at more traditional rates when we factored into our guidance.

What we factored into our guidance.

Speaker Change: We are seeing the marketplace, not just for Covos, but across the industry, we have seen favorable elasticities. We do know there is, you know, there has been some more softness more recently than there was initially. So, we were fairly conservative in our elasticity assumptions. We feel like we factored it in accurately into the projection that we've provided. Again, the great news is we continue to see tremendous volume growth on the Rayo sauce that we took the pricing on initially.

We we are seeing the marketplace not just for <unk>, but across the industry. We have seen favorable estis cities that we do know there is.

Yes, there has been some more softness more recently that there was initially so we were fairly conservative elasticity assumptions, we slightly factored in accurately into the projections that we provided again the great News is we continue to see tremendous volume growth on the radio sauce that we took the pricing on initially Andrew I'll just.

Speaker Change: you know, build on that.

Build on that so.

Speaker Change: The full impact of the, you know, the full list price increase on Raos is not fully reflected, but ARPs are going up. And as Chris said, we've not seen any statistically significant fluctuation Raos elasticity through a recent study since implementing the LPI. And while I know there's a lot of other noise in the data that I'll share right now, if you just look at the 4 week.

The full impact of the.

The full list price increase on rayos is not fully reflected but.

Arpus are going up.

As Chris said, we've not seen any statistically significant fluctuation rayos elasticity through a recent study since implementing the LTI and while I know, there's a lot of other noise in the data that I'll share right. Now if you just look at the four weeks.

Speaker Change: Ending 227

Pending.

227 unit growth on <unk>, 25% last four weeks, 31% last 13 weeks. So thats over the time period that the LTI has been reflected and if you look at that speed.

Speaker Change: unit growth on REOs, 25% last four weeks, 31% last 13 weeks. So that's over the time period that the LPI has been reflected. And if you look at the, it's basically equal to, or slightly above,

Basically equal to or slightly above our unit sales growth on source in the 13 weeks ended 12 26, if I look at unit velocity in Q4 versus Q1 this year for the most recent data.

Speaker Change: Our unit sales growth on sauce in the 13 weeks ended 1226 if I look at unit velocity in q4 Versus q1, you know this year for the most recent data, you know

Speaker Change: As of 2 weeks ago, it's, it's roughly flat. It's about 13% for both of those periods. So we are tracking this closely, but we haven't seen a drop off on unit growth or unit velocity to date. Thank you so much. Yep.

As of two weeks ago, it's roughly flat at about 13% for both of those periods. So we are tracking this closely but we haven't seen a drop off on unit growth or unit velocity to date.

Thank you so much.

Yes.

Our next question comes from Chris <unk> with Stifel. Your line is open.

Hi, good morning.

Hey, Chris Gordon, Chris Hi.

Speaker Change: Hi, I just had a quick question, a follow on to Andrew's question in relation to.

I just had a quick question a bit of a follow on to Andrew's question in relation to you.

Speaker Change: your kind of first half, second half saving, you have some really incredible momentum right now in the business on the top line. So it would seem like the first half of the year would have some of your strongest revenue growth as well. I just want to get a sense of, as we think about that coming into the year, if that first half of the year, stronger revenue growth period, and then related to that, how much of the EBITDA margin pressure you see, like in the first half of the year, is that all driven by gross margin? Or is there anything on the SG&A side that's affecting that as well?

You're kind of first half second half phasing.

We have some really incredible momentum right now in the business on the top line. So it would seem like the first half of the year would have some of your strongest revenue growth as well.

To get a sense of.

As we think about that coming into the year is that first half of the year stronger revenue that period, and then related to that how much of the EBITDA margin pressure you see like in the first half of the year is that all driven by gross margin was there anything on the SG&A side, if I can as well.

Speaker Change: Yeah, so thank you. Thank you, Chris. Yeah, as we as we operate across the year, you know, also of importance to us is maintaining the investments that we're making, you know, to continue the top line growth. So we will invest behind marketing, R&D, even slotting costs.

Yes so.

Thank you Chris Yes, as we as we operate across the year also of <unk>.

Important to us is maintaining the investment that we're making to continue the top line growth. So we will invest behind marketing R&D, even slotting costs to make sure we're getting the distribution gains both on our core as well as the new products new product launches.

Speaker Change: to make sure we're getting the distribution gains, both on our core, as well as the new product launches, such as Gelato, which is actually launching right now, and off to a very good start. So we will maintain those investments across the year. We see the top line.

Such as Gelato, which is actually launching right now and out to a very good start.

We will maintain those investments across the year, we see the topline fairly consistent quarter to quarter with the guidance provided high single digits.

Speaker Change: fairly consistent quarter-to-quarter with the guidance provided high single digits across the year where the consumption that you're seeing year-to-date would be very consistent with that outlook for us. On the productivity

No.

Across the year were.

The consumption that youre seeing year to date would be very consistent with that with that outlet for us on the productivity front.

Speaker Change: Uh, it will be more back half loaded as we continue to implement our, our, um, not just our, you know, our cap X enabled capital projects permanently within our own internal plans. But as we start up Alma here, as Todd had mentioned previously, as we have.

It will be more back half loaded.

As we continue to implement our our not just our capex enabled.

Capital projects, primarily within our own internal plans, but as we startup alma here as Todd had mentioned previously as we have value engineering ideas in our packaging such as reduced the weights of resins things like that.

Speaker Change: value engineering ideas in our packaging, such as reduce the weights of resins, things like that. So we do see a ramp up on productivity in the back half of the year.

So we do see a ramp up on productivity in the back half of the year and then finally I will mention this year you will we are in.

Speaker Change: And then finally, I will mention this year we are incorporating public company costs.

Corporate and public company costs that we did not experience back in 2021 until Q4, so there will be higher.

Speaker Change: that we did not experience back in 2021 until Q4. So there will be higher, you know, OPEX expenses across the first three quarters as we incorporate those costs into our P&L.

Opex expenses across the first three quarters as we as we incorporate those costs into our into our P&L.

Speaker Change: Okay, thank you for that. And just one other quick question was on the new products. You obviously launched gelato. I have not tried it yet, but I do look forward to that. Just a couple of the other new products, there's some of you have slated for, at least initially had slated for later this year. Are those still on track? Can you talk about maybe the ones you expect should come later this year?

Okay. Thank you. Thank you for that and just one other quick question was on the new products you Havent see once gelato and they tried to get but I do look forward to that.

A couple of other new products, there's some you've split it for at least initially slated for later this year are those still on track are there can you talk about maybe the ones you shouldn't.

It should come later this year.

Speaker Change: Sure. Hey Chris, this is Todd. So, you know, first I would say, you know, starting with NUSA.

Sure.

Chris This is tod so.

First I would say.

Starting with new stuff.

Todd Lachman: Nusa Gelato is that, you know, that's off to a very strong start, you know, sort of mentioned it in the opening, opening remarks, selling stronger than expected.

New to gelato is that.

That's off to a very strong start sort of mentioned in the opening.

<unk> remarks, selling stronger than expected.

Todd Lachman: kind of half joke that rumor has it was the head of Expo West.

Kind of half joke fifth rumor has it it was the hit of Expo West.

Todd Lachman: Last week in regards to sampling line going going around the whole expo. So

Last week in regards to sampling line going going around the whole Expo. So the sell in this just just started it's very it's very early but as of what we know today and as I said.

Todd Lachman: The selling has just started. It's very early, but as of what we know today, and as I said.

Todd Lachman: Um, you know, we're very excited about that launch the 2nd, 1 that was out for, you know, this year that we've launched it into limited customers is birch vendors cookies into the end of the cookie category. So, you know, with some of our.

We're very excited about that launch the second one that was out for this year that we've launched into limited customers is birch vendors cookies into the into the cookie category, So with some of our launches.

Todd Lachman: We launched them into limited distribution, which is what we've done with Birchbunder's Cookies, which, you know, similarly, we start, you know, launches with a smaller core retailer group.

We launched them into limited distribution, which is what we've done with <unk> cookies, which.

Emily we start launches with a smaller core retailer group.

Todd Lachman: Uh, the 2nd area that I would that I would talk about, I think you're referring to as we've talked about several.

The second area that I would add that it would talk about I think you're referring to as we've talked about.

Several times rayos into the frozen Pizza section.

Todd Lachman: rails into the frozen pizza section.

Todd Lachman: We're looking at that 23, 24. So we are on track to launch into that next new category, but we're being judicious about when that timing, you know, might be. And the last area that I would say, you know, Chris, is just the focus on the core. You will continue to see innovation from us on our sauce business.

We're looking at that $23 24. So we are on track to launch into that next new category, but we're being judicious about when that timing.

B and the last area that I would say Chris is just the focus on the core you will continue to see innovation from us on our sauce business.

Todd Lachman: whether it's a limited reserve line on line with a column.

Whether it's our limited reserve line online with a column.

Todd Lachman: Calabrian, you know, chili sauce or white truffle sauce or.

Calabrian chili sauce, or white truffle sauce or.

Todd Lachman: you know, basically a new pizza sauce item, et cetera. You know, you're gonna continue to see innovation in the sauce category. We're now the number two brand.

Basically our new pizza sauce item et cetera, youre going to continue to see innovation in the SaaS category. We're now the number two brand.

Todd Lachman: And it's important that we continue to bring innovation across pack sizes, across our flavorings, as well as NUSA yogurt, as well as frozen. So.

And it's important that we continue to bring innovation across pack sizes across our flavorings as well as new yogurt as well as frozen. So yes, we have Tam expansion, but honestly just as if not more importantly, we've got massive opportunity within the core categories that we play in and I wanted to double click on that one.

Todd Lachman: Yes, we have ham expansion. But honestly, just as if not more importantly, you know, we've got massive opportunity within the core categories.

Todd Lachman: You know that we plan and I want to double click on that one point because I know.

Because I know.

Todd Lachman: We just talked about elasticity and one, again, very unique element to Sovos.

We just talked about elasticity in one again very unique element to silver.

Todd Lachman: that does help counter the potential effects of elasticity is the massive penetration upside on all of our businesses.

It does help sort of counter the potential effects of elasticity as the massive penetration upside on all of our businesses. So.

Todd Lachman: So while yes, there might be an effect of higher pricing at some point in time, what we have that is very unique is a brand like Rayo's growing 30 to 40% with distribution gains is the fact that we are only an 11% of households and we're getting households in chunks. So that's a very nice counter and upside to us as we continue throughout and into future years.

While yes, there might be an effect of higher pricing at some point in time, what we have that is very unique as a brand like radio is growing 30% to 40% with distribution gains was the fact that we are only 11% of households, and we're gaining households in chunks. So that's a it's a very nice counter an upside to us.

As we continue throughout and into future years.

Thank you for that.

Thanks, Chris.

Our next question comes from Noah <unk> with Jpmorgan. Your line is open.

Speaker Change: Hi, good morning. Thanks for the question. I was curious if you could help us with some color on how we should be thinking about your annual sales bills, either by brand or by category, kind of what are your expectations for growth?

Hi, good morning, Thanks for the question.

Okay. Thank you can help us with some color on how we should be thinking about your annual sales either by brand or by category kind of what is your expectations for growth.

What would be helpful. Thank you.

Speaker Change: Sure. Hey, Nori, good to talk to you. You know, I think what we can, we don't, you know, provide guidance per brand, you know, per se, but I would just say.

Sure.

Good to talk to you I think what we can we don't provide guidance per brand per say, but I would just say.

Speaker Change: 80% of our growth this year will come from sauce, frozen entrees.

80% of our growth this year will come from source.

Frozen entrees.

And core yogurt.

Speaker Change: So again, 80% of our growth will come from sauce, then frozen, and then yogurt.

So again, 80% of our growth.

Will come from source than frozen and then yogurt. What I'll also say is it is very clear as you can see in the consumption data.

Speaker Change: What I will also say is, you know, it's very clear as you can see in the consumption data.

Speaker Change: uh you know we have rayos growing robustly um just from a saw that

We have rayos growing robustly just from what you saw that.

Speaker Change: Uh, well, I think, you know, we've mentioned rails, 420Million dollars of net sales in 2021 up 34%.

Well I think we've mentioned rayos $420 million of net sales in 2021 up 34%.

Speaker Change: That's total Rayo's brand, if I just look at Rayo's sauce through the most recent period.

That's total rayos brand if I just look at rayos source through the most recent period.

Speaker Change: You know, we've got last 13 weeks, Rao's sauce dollars going 36%, Rao's soup going 33%, Rao's pasta going 28%, and Rao's frozen, you know, up to $1,000 a pound.

We've got last 13 weeks rayos source dollars growing 36% Rayos suite going 33%, rayos pasta going 28% and rayos frozen.

60.

Speaker Change: 60, 63% all over those periods. So, you know, clearly we are driving the rail as business hardness, not just by distribution, it's by marketing support, it's by innovation across, you know, the portfolio, doing the same with NUSA yogurt, again, driving distribution, driving marketing gains, et cetera, and on the frozen portfolio. And we've talked NUSA, you know, gelato, which is not included in that 80%. So, you know, that's, those are the highlights that I would provide.

62, 63% all over those periods. So clearly we are driving the business hard and it's not just by distribution despite marketing support.

It's by innovation across the portfolio doing the same with Lucy yogurt again, driving distribution driving marketing gains et cetera, and on the frozen portfolio and we've talked <unk>.

Gelato, which is not included in that 80%. So that's those are the highlights that I would provide there.

Speaker Change: Great, thank you. And then as a follow-up, I just, I wanted to get some more color on your international expansion plan. Why is now the right time to be expanding outside of the US? And then what's the timeline on this and how much is it expected to add to top line in 2022?

Great. Thank you.

Then as a follow up.

I wanted to get some more color on your international expansion. Yeah. Why is now the right time to the expanding outside of the U S. And then what's the timeline on this and how much does the next bucket.

Top line in 2022.

Speaker Change: Sure, yeah, I think the highlight for 2022.

Sure.

I think the highlight for 2022.

Speaker Change: you know, not much. I mean, it's very small. We're, you know, what we've highlighted here, I think, you know, we discussed, you know, previously is we are putting the foundation in this year for international expansion, sort of building the foundation of the house and framing them over using a house analogy, framing the house, doing whatever next year in 2023, to really begin to pay dividends.

Not much I mean, it is very slow.

What we've highlighted here I think we discussed.

Previously as we are putting the foundation in this year core international expansion and sort of building the foundation of the house.

<unk> Overusing your house analogy for him in the house doing whatever next year in 2023 that really begin to pay dividends.

Speaker Change: But really in neighboring North American markets, you know, we should have a larger share in Canada. We've had successes there with select customers. We're putting in the, you know, the infrastructure there to really drive RAO's.

But really in neighboring North American markets.

We should have a larger share in Canada, we've had successes there with select customers, we're putting in the.

The infrastructure there to really drive rayos more robustly in Canada in Mexico in Theater Rico.

Speaker Change: more robustly in Canada, in Mexico, in Puerto Rico.

Speaker Change: We've had success with some select customers distributing in certain markets. There has been pull, as we've talked about, Rayo's brand.

We've had success with some select customers distributing in certain markets. There has been pull as we've talked about rayos brand.

Speaker Change: you know, is pretty much known now around the world. And there's been a lot of asks for us to supply, you know, RAOS, but we're being selective because right now the number one opportunity for us is in the U.S. market, first and foremost on sauce.

<unk> is pretty much no now around the world and Theres been a lot of asked for us to supply rayos, but were being selective because right now the number one opportunity for US is in the U S market first and foremost on source then.

Speaker Change: then on yogurt, then on frozen, but in the other areas of RIOs as well. But really little to no incremental benefit this year, but we are putting the foundation in this year so we can really drive some strong growth in 2023 and beyond.

Yogurt that on frozen, but in the other areas rayos as well but.

Really little to no incremental benefit this year, but we are putting the foundation in this year. So we can really drive some strong growth in 2023 and.

And beyond.

Helpful. Thank you.

Thank you. Our next question comes from Ross <unk> with Credit Suisse. Your line is open.

Speaker Change: I think that's me. Just maybe a couple of things here. Can you quantify how much you think the ALMA savings are going to be for the back half of the year when that gets started? And then also, I think you said that you budgeted further premiums for shipping lanes from overseas for 2022. Can you give us a sense of, is it going to be higher than it was in 2021?

I think that's me.

I just.

Maybe a couple of things here can.

Can you quantify how much you think the AMA savings are going to be for the back half of the year when that gets started.

And then also.

I think you said that you budgeted further premiums for shipping lanes from overseas for 2022 can you give us a sense of is it going to be higher than it was in 'twenty one.

Speaker Change: Is that related to the high ocean freight you have to pay or is it related to volume like how much how much of an increase do you expect in that?

Is that related to the high Ocean freight you have to pay or is it related to volume like like how much how much of an increase do you expect in that.

In that bucket.

Speaker Change: Yes, very good. So once Alma's up and running, there's a few different advantages that we're going to get from that. I think first and foremost is a positive impact to cash flow.

Yes, very good.

So with all those up and running.

In a few different advantages that we're going to we're going to get from that I think first and foremost is a positive impact to cash flow.

Speaker Change: As we will have local production, we will not need to hold on to as much safety stock. We think we can take a couple weeks out of our system there, and we can react to immediate demand opportunities with that production here out of Atlanta, out of Georgia. So that's the first benefit of it.

As we will have local production, we will not need to hold onto as much safety stock. We think we can take a couple of weeks out of our out of our system. There and we can react to immediate demand opportunities with that but that production here here out of Atlanta.

Georgia, So that's the first benefit of the cash flow.

Speaker Change: Secondly, we do procure some of our sauces, our ran sauce domestically today, things such as meat, meat-based items. We will have cost reductions versus that balance of production that's made in the U.S. today, and Alma can produce 20 to 30 percent of our requirements as we work across 2022 once it's fully running.

Secondly, we do procure some of our sauces, our Renaissance domestically today things.

Such as meat meat based items.

We will drill we will have cost reductions versus that balance of production thats, mainly U S. Today.

And almost can produce 20% to 30% of our requirements as we look across 2022 was up fully running so.

Speaker Change: So we'll see productivity on that front, and we'll see the balance sheet improvement, again, from that inventory management that will improve. That is factored into our numbers as we shared with you today.

So we will see productivity on that front and we will see the balance sheet improvement again from that inventory management that will improve that is factored into our numbers as we shared with you today.

Speaker Change: And then on the freight lanes, we're taking that on a week-by-week, month-by-month basis.

And then on the on the freight lane.

We're taking that on a week by week month by month basis, we are seeing the pressure right. Now. So we are we are leaning in and we.

Speaker Change: We are seeing the pressure right now, so we are leaning in.

Speaker Change: And we as I mentioned will continue to do so whether it's more or less than we did last year You know is yet to be determined

As I mentioned, we will continue to sell whether it's more or less than we did last year is yet to be determined given the volatility that we're seeing with.

Speaker Change: given the volatility that we're seeing with first Omicron early in the year and now some of the global tensions that we're experiencing. We will just manage that as we progress across the year, and we'll react accordingly just to ensure that we have the supply that we need.

With first omicron earlier in the year and now from the global tensions that were experiencing but we will just manage that as we progress across the year and then we will react accordingly, just to ensure that we have the supply that we need and then an advantage again of having the Alamo plant up and running is we can be much more selective on the rates.

Speaker Change: And then an advantage, again, of having the Alma plan up and running is we can be much more selective on the rates we pay, whether to expedite shipments or not.

We pay to other to expedite shipments or not.

Speaker Change: We won't need to as much as we may have had to in the past because we'll have that local production So that's going to be another benefit that will realize through our P&L

We won't need to as much as we may have had in the past because we'll have that local production. So that's going to be another benefit that we'll realize.

Through our P&L, you're just one other comment there hey, Rob good morning.

Speaker Change: Yeah, just, you know, one other comment there. Hey, Rob, good. Good morning. Good to good to good to hear from you.

Good to hear from you.

Speaker Change: You know, look on on Alma, we are absolutely thrilled that we're going to have a state of the art. I call it a mirror facility to what we have.

On outlook, we are absolutely thrilled that we are going to have a state of the art I called a mirror facility to what we have in Italy. The same kettles the same equipment.

Speaker Change: Same kettles, the same equipment, I mean, under the leadership of our supply chain team from Kirk Jensen and Felice Romano of La Regina. I mean, we're just, we're thrilled about what we've created in Alma. It'll be running sauce this March, full production as we as we head into Q2, and it'll just be a real benefit for us to have a, again, a mirror facility of that beautiful facility over in Italy operating here in Alma, Georgia. So very, very exciting.

Under the leadership of our supply chain team from Kirk Jensen and fleet, Jay Romano of of La Regina.

I mean, we're just we're thrilled about what we've created in Alba.

Running source. This March full production as we as we head into Q2 and.

And it will just be a real benefit for us to have a again, a mirror facility of that beautiful facility over and over in Italy operating here an element, Georgia, so very very exciting.

Speaker Change: I want to move into closing remarks. Honestly, thanks again for your participation, interest in Sovos. Great talking to everybody this morning. Incredibly proud of what we've accomplished in 2021, and we're excited to continue the strong execution against our priorities as we drive growth and increase shareholder value in 2022 and beyond. Have a great week and speak to all of you soon.

I want to move into closing closing remarks.

Honestly, thanks again for your participation interest and <unk>, great talking everybody. This morning incredibly proud of what we've accomplished in 2021 and we're excited to continue the strong execution against our priorities as we drive growth and increase shareholder value in 2022 and beyond having a great. We can speak to all of you soon.

This concludes today's conference call. Thank you for participating you may now disconnect.

Speaker Change: This concludes today's conference call. Thank you for participating. You may now disconnect.

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