Utz Brands Q3 2025 Earnings Call - Insignia DSD acquisition primes California expansion

Trevor, Investor Relations/Moderator: Good morning, and thank you for joining us today for our pre recorded discussion of our third quarter twenty twenty five earnings results. Joining me on the call today are Howard Friedman, CEO and B. K. Kelley, EVP and CFO. In addition, this morning at 09:30 a.

M. Eastern Time, we will host a live question and answer session, which you can access via webcast on our Investor Relations website. Please note that some of our comments today will contain forward looking statements based on our current view of our business, and actual future results may differ materially. Please see the forward looking statement disclaimer in the earnings materials and our recent SEC filings, which identify the principal risks and uncertainties that could affect future performance. Today, we will discuss certain adjusted or non GAAP financial measures, which are described in more detail in this morning’s earnings materials.

Reconciliations of non GAAP financial measures and other associated disclosures are contained in our earnings materials and posted on our Investor Relations website. Finally, the company has also posted presentation slides and additional supplemental financial information on our Investor Relations website. And now, I’d like to turn the call over to Howard.

Howard Friedman, CEO: Good morning, everyone, and thank you, Trevor. I’ll kick off today’s call with our third quarter business update, after which BK will provide detailed financial commentary. Before we get started, I would

Trevor, Investor Relations/Moderator: like to thank all of

Howard Friedman, CEO: our hardworking associates across the country for their dedication to us. The results we have achieved this year are indicative of your commitment and hard work. To start, I’d like to touch on some exciting news. We completed the acquisition of Insignia International’s direct store delivery assets, which represents a major step in our westward expansion strategy and unlocks significant opportunities in California. This acquisition gives us established DSD routes across California and strengthens our Midwest presence through Insignia’s distribution infrastructure.

California represents the largest salty snack market in The U. S. At $4,100,000,000 in retail sales, yet we currently generate about $79,000,000 there, representing just 1.9% market share. When you compare that to our expansion market average of 3% share or Florida, where we’ve achieved 4.3% share, you can see the substantial white space opportunity ahead of us. We look forward to beginning the rollout of our brands on these new routes in early twenty twenty six and expect our California expansion initiative to help sustain our above category organic net sales growth.

Our top line performance remained strong this quarter with net sales growth of 3.4%, led by branded salty snacks organic net sales growth of 5.8%. Please note that as there were no acquisitions or divestitures impacting the third quarter, organic net sales growth is equal to reported net sales growth. This marks our seventh consecutive quarter of growth in branded salty snacks and an improved mix shift as our branded salty snacks portfolio now represents 89% of our total net sales. Marking our ninth consecutive quarter of share growth, we gained both dollar and volume share in the salty snacks category for the thirteen week period ended 09/28/2025, as measured by Circada MULO with convenience. Our performance was again driven by the momentum of our Power four brands.

Our strong consumption results reflect sustained momentum of Boulder Canyon, strong gains and expansion geographies, including from Huts, our largest brand and Target and promotional investments. We posted 4.8% dollar consumption growth in the quarter, driven by 3% volume growth compared to categories 0.2% dollar decline. Our Power4 brands increased 7.1% in retail sales dollars, driven by 4.4% volume gains. We believe that Cercona MULLO plus convenience captures approximately 85 of our reported branded salty snacks organic net sales. As we mentioned, branded salty snacks organic net sales grew 5.8% in the third quarter.

Now turning to our core geographies, we captured both dollar and volume share relative to the salty snacks category. Total company retail sales dollars in core geographies increased 1.7% with Power four brands leading at 3.1% versus the flat total salty category performance. Total company retail volumes increased by 1.1%, while Power four brands performed even better at 2%, outpacing the category’s 1% volume decline. While Boulder Canyon was the leading growth driver in core markets, we also saw dollar and volume share growth in Zacks potato chips, UDS pretzels and UDS cheese. Momentum in our expansion geographies continued this quarter with total company and our Power four brands capturing both dollar and volume share.

We achieved strong total company retail sales growth of 9.2%, which significantly outpaced the salty snack category decline of 0.3% in these markets, driven by ongoing distribution gains and higher velocities. Brands contributing to our growth in expansion markets included UTS, Boulder Canyon and Golden Flake pork rinds. Our expansion geographies represent 45% of total company retail sales for Surcana data, reflecting our sustained progress. We believe the growth runway remains substantial as our market share average of 3% in expansion markets versus 6.6 in our core markets illustrates the opportunity ahead. This quarter saw four of our expansion markets exceed 4% market share: Florida, Illinois, Colorado and Missouri.

The average growth of these four markets on a fifty two week basis, according to Connet, Buello, with Convenience, averages 6.4 year over year. We believe this demonstrates that some of our larger expansion markets are continuing to show healthy growth well above the category. The California investment I discussed earlier represents an acceleration of our westward expansion strategy. California’s scale as the nation’s largest salty snack market represents approximately 10% of national consumption, creates a unique opportunity to apply our expansion playbook in a larger market. We’re confident that the acquisition of Insignia’s DSDS assets provides the foundational infrastructure to accelerate growth in a market where our current 1.9% share sits well below our expansion market average, reinforcing the significant white space opportunity that lies ahead.

From a subcategory perspective, our measured channel share gains for the total company were led by potato chips and pork. In potato chips, our total retail sales grew 16.7% versus a category decline of 1.7. Our performance was largely driven by Boulder Canyon growth and UDS potato chips in extension geographies. In tortilla chips, our retail sales declined 7.4% versus a subcategory decline of 0.7%. Our sales performance came in lower than the subcategory primarily due to softness in On the Border.

We believe we’ve isolated the issues impacting the brand and are actively addressing. In pretzels across our total portfolio, our retail sales declined 0.6%, which was lower than the subcategory increase of 3.3%, but our UDS branded pretzels grew 3.4%, slightly ahead of the subcategory. In cheese snacks, our retail sales decreased 1.3% versus a subcategory increase of 0.2%. Ups branded cheese snacks growth of 2.1% outpaced the category but was offset by declines in other brands. In pork rinds category, we significantly outperformed the market with retail sales growth of 12.8% compared to just 3.3% for the overall subcategory.

This strong performance was driven by Golden Flake velocity gains. Our Boulder Canyon brand continues to outperform and gain share both in natural and conventional channels with growth of 35201% in the third quarter, respectively. We believe consumers are connecting with the brand and are appreciating its better for you attributes and great tastes. To share a few statistics with you, Boulder Canyon has the number one selling salty snack SKU in the natural channel over the last four, thirteen, year to date, and fifty two weeks. It is also the number one potato chip brand in total natural channel year to date.

With Boulder Canyon’s ACV currently at 53% according to the Strakonen Mule with Convenience versus

Trevor, Investor Relations/Moderator: some of

Howard Friedman, CEO: our larger brands near 80%, we believe there remains significant growth potential ahead. Shelf space gains awarded for 2026 makes us confident in Boulder Canyon’s continued growth trajectory. On the marketing front, we increased investment year over year in the quarter. We also made the decision to allocate some incremental dollars to retail media. Retail media spend in the third quarter increased 37% versus last year.

Our commitment to higher levels of marketing investment remains as we have increased year to date marketing spend by nearly 30 on top of a 68% increase in the full year 2024. We believe our household penetration statistics continue to support our investment in a more meaningful share of voice. For the fifty two week period ended 09/28/2025, versus the comparable prior year period, our household penetration increased 167 basis points to 50%. Buyers have increased by 2,600,000 to 65,300,000, and buyer repeat rates increased by 60 basis points to 70.1%. We are advancing our commitment to quality and transparency by planning to eliminate all FTC callers from our entire product portfolio by the 2027.

Today, approximately 80% of our products are already free of these artificial colors. This initiative aligns with consumer preferences for cleaner, simpler ingredients, while maintaining the authentic flavors our consumers love. Our third quarter performance underscores the effectiveness of our approach, focusing on advantaged growth through branded salty snacks, our powerful brands and expansion geographies. The Westward Growth Initiative highlighted by today’s California expansion announcement exemplifies how we’re building scale in high value markets. Our sustained investment in the Power4 brands continues to yield compelling results with meaningful share capture across both core and expansion territories.

We continue to believe that these initiatives will allow us to outperform the category over the medium and long term. With that, I’ll turn it over to BK, who will walk you through our financial results and guidance in more detail.

B.K. Kelley, EVP and CFO: Thank you, Howard, and good morning, everyone. In the third quarter, our net sales increase of 3.4% was led by volume mix growth of 4.5%. This was partially offset by lower pricing of 1.1%, which was in line with our expectations. We were pleased to deliver branded salty snacks organic net sales growth of 5.8% led by volume mix growth of 7%. Organic net sales in our non branded and non salty snacks declined 13.1.

We made the intentional decision in Q3 to right size our partner brand portfolio in certain regions, as we continue to emphasize our branded salty business. We delivered strong margin performance with adjusted EBITDA up 11.7%, adjusted earnings per share rising 9.5%, and adjusted gross profit margin expansion of two ten basis points. Our productivity initiatives drove these gains, allowing us to offset other supply chain costs and inflation and fund our continued SD and A investments. Adjusted EBITDA margin expanded by 120 basis points to 16%. Productivity savings contributed four eighty basis points to adjusted EBITDA margin expansion and volume mix contributed 30 basis points.

This was partially offset by 80 basis points in price, two eighty basis points of increased supply chain costs and inflation, 10 basis points of higher marketing spend, and 20 basis points of selling, distribution, administrative expenses. We did experience some modest supply chain inflation in the quarter attributable to some transient factors related to the season’s potato crop in our region and certain tariff policy changes. The crop of potatoes we sourced near the East Coast had some weather related challenges during the summer. However, we have largely seen these headwinds normalized during the fall. Adjusted SDMA expense increased 5.7% versus the prior year quarter or 50 basis points as a percentage of net sales.

This increase was largely driven by planned investments in marketing, selling and capabilities, partially offset by a decrease in delivery costs. In the quarter, we pursued other efficiency measures and productivity initiatives within SDNA. We are confident that our model gives us ample flexibility to pursue productivity and efficiency in both COGS and SD and A to offset inflation, fund reinvestment, and drive margin expansion. We have a number of initiatives underway, especially in technology aimed at enhancing how the organization operates, driving greater efficiency, productivity, and long term capability. Our supply chain transformation will largely conclude with the closure of the Grand Rapids, Michigan manufacturing facility in early twenty twenty six.

We are confident that the initiatives we highlight last quarter are progressing well with significant automation like central palletizing adding to our largest facilities in Hanover, Pennsylvania. We believe that our network of seven main facilities will serve our needs well into the future with room for growth. While capital expenditures and transformation costs associated with consolidating our network during the past two years have been meaningful, we expect these investments will deliver a modernized asset base and a structurally improved cost position. During the quarter, we incurred certain one time costs tied to our supply chain transformation. As we prepare to divest Grand Rapids, consolidate production to other facilities, launch major automation projects, and continue progress on our Kings Mountain, North Carolina build out.

We remain on track to deliver on our productivity target of approximately 6% of adjusted COGS for 2025 as our supply chain investments continue to generate meaningful productivity. Turning to cash flow and the balance sheet. Cash provided by operations for the thirty nine weeks ended 09/28/2025 was $47,300,000 as we began to realize our seasonal working capital release. Capital expenditures year to date were 89,200,000.0 and reflect spending to support our supply chain transformation and modernization initiatives. We have paid $28,800,000 in dividends and distributions to shareholders year to date.

Regarding the balance sheet, cash on hand was $57,700,000 Liquidity, including access to our revolver, remained strong at $197,700,000 giving us ample financial flexibility. Net debt at quarter end was 807,900,000.0 and our net leverage ratio was 3.9 times trailing twelve months, normalized adjusted EBITDA of 207,200,000.0. We made progress from the second quarter with leverage declining sequentially. I will go into more detail on our deleveraging plan shortly. Now turning to our outlook.

Today we are updating our 2025 outlook that we discussed on our second quarter earnings call in July. We now expect organic net sales growth of approximately 3% compared to the prior expectation of 2.5% or better, reflecting year to date outperformance. We are reiterating our adjusted EBITDA guidance of 7% to 10% growth and our adjusted EPS guidance of 7% to 10% growth. As a reminder, we expect fourth quarter adjusted EBITDA to exceed third quarter levels by a few million dollars, reflecting the scale and impact of productivity initiatives launched this year and the continued ramp of cost efficiencies into Q4. We continue to expect an effective normalized tax rate of between 17 to 19% and interest expense of approximately 46,000,000.

We continue to expect capital expenditures to be 100,000,000 with the majority focused on our supply chain transformation and delivering accelerated productivity savings. The financial impact of the Insignia DSD acquisition is included in our 2025 outlook and does not have a meaningful impact on our 2025 financials or balance sheet. As I mentioned previously, our net leverage ratio was 3.9 times at the end of the third quarter and we remain confident in approaching three times at fiscal year end twenty twenty five. We are focused on the cash flow generation potential of the business and have several initiatives in process that will help us achieve our year end leverage targets. I will be very specific on this.

First, we have working capital initiatives underway that we believe should improve our seasonal release in the fourth quarter. Second, the EBITDA growth expected based on our full year guidance will contribute to deleveraging. Third, we plan to divest excess real estate as part of our supply chain consolidation and modernization, with the most notable assets being the Grand Rapids facility and several buildings in Hanover. We have received indications of interest in these properties and believe this process will be completed by year end. These planned real estate sales enabled by our supply chain work will serve to partially offset some of the capital spending and transformational costs we have experienced this year.

Fourth, we believe our cash business transformation costs related to supply chain are largely behind us and will start to dissipate in Q4, more fully normalizing as we enter 2026. As we are approaching year end, I’d like to give some other preliminary commentary about 2026. Our free cash flow will be a key focus for us going forward. While organic sales growth and margin expansion remain important, I believe there is significant opportunity to improve free cash flow and returns on invested capital as we exit peak CapEx and complete our supply chain transformation. Currently, expect capital expenditures to come down meaningfully from the $100,000,000 we’ll spend this year to a preliminary range of between 60 and 70,000,000 in 2026.

Additionally, we have started working to further optimize our 2026 capital plans with the aim of giving us more flexibility in an uneven category backdrop and improving cash flow. We will also expect leverage to be below three times towards the 2026. We look forward to sharing more on this in February. With our supply chain transformation winding down, we expect our productivity program to normalize from the 6% of adjusted costs we’ve achieved for two consecutive years to a still best in class three to 4% range. As we move beyond this peak investment and project phase.

We believe 2026 remain at or above the high end of the three to 4% range due to the benefits of projects completed in the 2025, including the Grand Rapids closure. As I mentioned earlier, we are looking at other efficiency initiatives across the organization with the aim of working more productively enabled by technology. As relates to our California expansion, we do anticipate that we’ll make some incremental investments in 2026 to support a successful result and generate early top line momentum in this key market. Looking ahead, we plan to provide our detailed 2026 guidance in February, which will include more specifics around the long term free cash flow generation capabilities of the business. With that, I’ll turn it back to Howard for closing remarks.

Howard Friedman, CEO: Thank you, BK. I’m proud of the third quarter results and the momentum we continue to build across our business. We believe our consistent execution is paying off with another quarter of strong volume growth and progress that positions us well for sustained success. The Insignia acquisition exemplifies our disciplined approach to growth, particularly in high opportunity markets like California. Our productivity initiatives are driving meaningful margin expansion that we’re partially reinvesting to fuel long term growth while delivering our goals.

With supply chain transformation largely behind us, BK walked you through some new elements of our story that we’re excited about, including improving free cash flow generation and harvesting returns from the significant CapEx cycle of the past two years. As we head into the 2025, we remain focused on executing our proven playbook, strengthening our powerful brands, expanding our geographic footprint and delivering exceptional value to consumers and shareholders. On behalf of everyone at us, I want to thank you for your ongoing confidence in our team as we continue bringing our beloved snack brands to new markets and new consumers coast to coast.