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Good morning. And welcome to the TreeHouse Foods, Inc. Second Quarter 2023 Conference Call. Please note that this call is being recorded. All lines have been placed on listen-only mode. After the speakers remarks, there will be a question-and-answer session. [Operator Instructions]. Thank you. I will now turn the call over to Colleen [ph]. You may begin your conference.

Good morning. And thanks for joining us today. Our press release and earnings deck, both issued this morning, are available in the Investor Relations section of our website at treehousefoods.com. Before we begin, we would like to advise you that all forward-looking statements made on today's call are intended to fall within the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are based on current expectations and projections and involve risks and uncertainties that may cause actual results to differ materially from our forward-looking statements. Information concerning those risks is contained in the company's filings with the SEC. On October 3, 2022, we completed the divestiture of a significant portion of our Meal Preparation business. Consistent with the prior three quarters, we will discuss our results on an adjusted continuing operations basis. A reconciliation of non-GAAP measures to their most direct comparable GAAP measures can be found in today's press release and the appendix tables of today's earnings deck. With that, let me turn the call over to our Chairman, CEO and President Mr. Steve Oakland for his opening remarks.

Thank you, Colleen. And good morning, everyone. I'm pleased to be here today to discuss our second quarter financial results, our outlook for the remainder of the year and outline how Treehouse continues to execute against our strategy and track towards our long term targets. Treehouse today is a stronger, more focused company, following the actions we took to transform our business. And this is demonstrated in our second quarter and first half performance. Further, the positive momentum that we've generated so far this year gives us confidence in our ability to deliver on the remainder of 2023 and continue to create value for our shareholders for years to come. Now, taking a look at slides three and four in our deck. We've outlined key takeaways for the second quarter and presented a summary of our results versus the guidance we provided. First, we delivered a year-over-year net sales increase of 4.1% that exceeded our guidance for the quarter. In addition, we improved adjusted EBITDA by nearly 44% at the high end of our guidance. Second, we are delivering improved execution and consistency. We are continuing to drive better service, returning to target levels of 98% across most of our categories in the quarter. Our supply chain investments and the implementation of our TMOS initiatives are supporting our results. We're also successfully building depth and leadership in higher growth, higher margin categories. You can see our strategy in action with our recent acquisition of the Northlake coffee facility that closed in June. This transaction enables Treehouse to drive greater category depth in our coffee business and strengthen our strategic capabilities. Third, we have purposefully positioned Treehouse at the intersection of two incredibly powerful long-term consumer trends – the growth of private label groceries in North America and the consumer shift towards snacking. In addition, we continue to benefit from current macroeconomic tailwinds. Finally, with our strong first half performance and our outlook for the remainder of the year, we're raising our 2023 revenue guidance and narrowing our full-year adjusted EBITDA range to $360 million to $370 million. This updated outlook, which Pat will cover in more detail, takes into account the contributions from our coffee facility acquisition. The next two slides provide some context on the current macroenvironment and private brands. On slide 5, you can see how retailers are increasing shelf prices to reflect inflation, particularly in categories in which Treehouse operates. The absolute dollar savings for a basket of private brands groceries continues to be significant and is even higher today than when we spoke last quarter. To put it into perspective, when you look at our categories, a shopper would save approximately $22 when purchasing a basket of private brands, as compared to the same products offered by national brands. Private brands have gained share for 79 consecutive weeks. And on slide six, you can see that unit share reached an all-time high for the second quarter, thus consistently outperforming national brands. At the same time, average price gaps remain above historic levels, which is reflective of the importance retailers are continuing to place on private brands. As consumers experience pressure from increasing shelf prices, the significant price gaps are not only a strong indicator of the value proposition private brands offer, but also a tremendous opportunity for Treehouse. Indeed, retailers are increasing their investments in our snacking and beverage categories to drive trial and loyalty among consumers. And we expect that to continue going forward. Before I turn the call over to Pat, I want to share an update on our sustainability efforts. ESG is an important focus area for many of our customers. Our ability to deliver on our ESG initiatives not only represents a competitive advantage that positions Treehouse as a better strategic partner for our customers, but it also supports our prioritization of enhanced execution and operational performance. Last week, we published our new ESG goals, which have been adjusted to reflect the transformation of our business following our divestiture in October of last year. As you know, this divestiture meaningfully reduced our manufacturing and distribution footprint, which has enabled us to set new goals, such as reducing our scope 1 and 2 carbon footprints by 25% by 2030, and set a reduction target for scope 3 by the end of 2025. We look forward to updating you on our progress against these goals in the future. Turning back to our second quarter results, I'm proud of all our team has accomplished. We are executing on our strategy and are well positioned to deliver on our targets for the back half of the year and capitalize on the significant growth prospects ahead. With that, I'll turn the call over to Pat.

Thanks, Steve. And good morning. I'd like to start by expressing my gratitude to the entire Treehouse team for their hard work and diligent execution in servicing our customers and delivering another successful quarter. Starting with our second quarter results on slide 7, we continue to benefit from greater focus and improved execution with solid performance across all our key financial metrics. Net sales grew by 4% to $844 million. Adjusted EBITA increased by nearly 44% to $76.4 million and adjusted EBITDA margin of 9.1% expanded 250 basis points versus last year. Turning to slide 8, we've provided a look at our year-over-year revenue drivers on a quarter-to-date and a year-to-date basis. Overall, these revenue drivers played out slightly better than we anticipated. Pricing drove the top line, contributing double-digit growth versus the prior year. This reflects our cumulative efforts to recover inflation. Volume and mix declined versus the prior year. Our performance in the second quarter was in part timing related. Recall that last quarter, we talked about how our ability to restore service levels faster than anticipated in certain categories enabled us to fulfill customer shipments in the first quarter that were initially planned for the second quarter. To better understand our results without the timing impact between quarters, we provided a look at our year-to-date volume and mix performance, which was down approximately 4%. A portion of this decline was driven by consumption as unit sales are down across total food and beverage. Private brands, while also down on a unit basis, are performing modestly better. Also recall that approximately 15% of our business is co-manufacturing, which supports brands. In addition, we continue to lap prior exits of low margin business and distribution losses. On slide 9, I'll take you through our adjusted EBITDA drivers. Volume and mix, including absorption, was down $3 million in the quarter. PNOC, pricing net of commodities, was positive once again as we continue to recover inflation, contributing $61 million versus last year. Operations and supply chain were a headwind of $31 million versus last year. We've made great progress in stabilizing our supply chain network and returning service levels back to target of 98% in most of our categories. That progress has been, in part, due to increased investment around labor retention and engagement in our manufacturing facilities. We continue to be focused on executing our supply chain savings initiatives to bring these costs down over time. In addition to our labor investments, we also took the opportunity in the second quarter to invest in the resiliency of our machinery with increased repairs and maintenance spending. These items drove an increase in our costs for this quarter, in particular that we've highlighted on slide 9. Importantly, as a result of this investment, we expect our throughput to benefit in the second half of the year, which is our seasonal peak. Lastly, SG&A and foreign currency impacts contributed negative $4 million. Turning to slide 10, I'd like to give you a better look at the progress we are making in our operations. As I noted, we've returned our service levels back to target, which you can see on the left hand side of the slide. In addition, we continue to be on track with our plans to deploy our Treehouse Management Operating System, also known as TMOS, across our manufacturing network by the end of 2024. To date, at the 16 facilities where we have meaningfully implemented our TMOS initiatives, we are seeing consistent year-over-year improvement in our overall equipment effectiveness, as you can see on the right hand side of the slide. Half of those facilities have delivered greater than 5% improvement in OEE and three facilities have delivered double-digit improvement. We will remain focused as we continue our TMOS rollout across the network and expect our improved operating effectiveness to enable greater throughput, reduced downtime, and improve our profitability over time. Turning to slide 11, our balance sheet remains strong. I'll highlight that our use of the revolving credit facility ticked up in the quarter, primarily to finance the acquisition of the Northlake, Texas coffee facility. In addition, we have continued to invest in inventory to service our customers. Importantly, we ended the second quarter with liquidity of over $280 million between the remaining availability under the revolver and our cash position. We continue to be at the low end of our target leverage range of 3 to 3.5 times. Turning now to our guidance on slide 12. We are raising our full-year net sales outlook from 6% to 8% year-over-year growth to 7.5% and 9.5% growth. This increase primarily reflects the incremental volume from the acquisition of the Northlake, Texas coffee facility. The coffee acquisition is contributing to our top line in the second half of the year, and we anticipate seeing benefits to our profitability over time as we integrate the business. With our strong performance in the first half and our outlook for the remainder of the year, we are narrowing our adjusted EBITDA guidance to a range of $360 million to $370 million. We also expect net interest expense to be in the range of $27 million to $32 million, reflecting our increased use of the revolving credit facility that I previously noted and continue to expect CapEx of $130 million. With regard to the remainder of the year, we expect our top line growth to be driven primarily by volume and mix, including the volume from the coffee acquisition. It's worth noting that the pricing contribution will step down in the second half of the year, as we lap additional pricing actions taken last year. With that, on slide 13, we expect third quarter net sales to be in the range of $950 million to $970 million, representing approximately 10% growth at the midpoint versus last year. In terms of profit, we expect third quarter adjusted EBITDA to be in the range of $81 million to $89 million, representing approximately 11% growth at the midpoint versus last year. Our full year adjusted EBITDA guidance captures the expectation for strong momentum in our business operations to continue in the fourth quarter. We expect sequential and year-over-year improvement in gross margin to be driven primarily by our TMOS and supply chain savings initiatives. In addition, to help you model operating expenses, we've assumed our full-year adjusted EBITDA guidance, we will have about $5 million to $7 million in temporary operating expenses, resulting from the expected wind down of substantial portions of the transition services agreement related to the Meal Preparation divestiture. Following the expiration of the TSA agreement, we expect to implement cost reduction actions that will offset this. We expect to have more clarity around the timing of the TSA wind down and related implications to operating expenses when we report our third quarter results in November. With that, let me now turn it back over to Steve.

Thanks, Pat. I'd like to end where I began, which is that Treehouse house is incredibly well positioned due to the transformative changes we made to our portfolio and the tailwinds we're seeing across private label snacking and beverage. Our first half performance is reflective of the positive momentum underway and underpins our confidence in our team's ability to deliver on our full-year outlook and our long term targets, which are noted on slide 14. These themes are a continuation of what we discussed at our recent Investor Day. We believe that our strategy provides significant opportunity to create shareholder value, and look forward to updating you on our progress. With that, let's open the call up to your questions. Operator?

[Operator Instructions]. Your first question comes from Rob Dickerson with Jefferies.

I guess just first question, just housekeeping, is just the contribution from the Northlake facility this year. Are you are you providing those numbers?

Rob, I think the majority of the increase on our revenue guidance this year will be the contribution from the Northlake facility. From a profit standpoint, I think we indicated that's sort of a modest $1 million to $2 million headwind that we've incorporated into our guidance. And then, over time, as we integrate that business and get the benefits of the vertical integration, we'll start to see the profit tick up in terms of contribution. But for this year, as we continue to put them on our systems and the like, that contribution is somewhat modest.

I guess just more broadly, look, while I respect the timing shift, Q1, Q2, as you filled orders in Q1, I'm just curious, as we kind of step back and we think about food volumes overall and then kind of how private label fitting into the construct, like, is there anything you're seeing kind of in the overall marketplace that suggests maybe consumption is a little bit softer, maybe it continues to get softer? Or maybe you think you could actually see a little bit positive momentum as you get through the back half, given some of the other kind of macro consumer pressures that are expected?

I think a couple things. I would take you back to the slides on our deck on share gain, right? Private label continues to gain share in this environment. The consumer is cautious. Total volumes are down. But private label is performing significantly better. Why we can guide the back half of a little better volume is because, if you remember, last year was the most disrupted we were in the third and fourth quarter. So our service levels, we didn't service the demand that was in front of us. Our supply chain is in a very different place. So, we have great line of sight to the demand in the back half. And we feel comfortable that we're going to be able to fill more of it than we did a year ago. So our guidance assumes that. If the economy does come towards us and there's continued consumer shift, but the trends we see continue and you get a little bit of organic growth just from consumer takeaway, that would be on top of what we've guided.

Your next question comes from Matt Smith with Stifel.

Just curious on your conversations with retailers, given the strong private label performance, even as price gaps are expanding here with private label pricing at a higher rate than brands at the moment, when we get to the second half of the year, do you expect that price gap dynamic to shift? And are you having conversations with retailers indicating that they're going to lean into private label, given some of the volume weakness we're seeing across various categories?

Yeah. I think private label actually allows retailers to show a value proposition. Overall, price points are so high. In that slide in our deck where we show that if you buy a basket of our goods versus a basket of branded goods, the branded good number is $80. That's a that's just a big headline number. So the retailer is interested in in showing their consumer value, and so private label gives them that opportunity. We know there'll be more promotion from both brand and private label this fall. And we're really excited about that. We have not been able to promote private label in our key seasonal categories in a couple of years. So I think you'll see private label merchandise, you'll see private label promoted this fall. I think the retailer is doing that to send that message to their consumer that there is value in their store.

Maybe a follow-up for Pat. When we think about the impact of the expiring TSAs and the incremental drag on EBITDA in the fourth quarter, is that something that will carry on into next year as you put cost savings programs into place to offset that stranded overhead?

I think there's a little uncertainty for us. That timing, it's our expectation – and we put that out there to help you model in terms of how we were thinking about the year. And so, we'll take action. It'll take us a few months to go implement that. Do we think there'll be significant impacts overall to our profit from exiting the TSA? We don't. But it may take us a little bit of time just depending upon when in the fourth quarter. We exit, and so we'll get back to you as we get through Q3 earnings because we'll have better line of sight at that point. But at this point, we don't see significant impacts from the TSA.

Given the complexity of taking a business the size we sold off of our systems and putting them on theirs, setting that date on a pin is really hard to do. So once we have a better line of sight to the exact timing. When you do your models, we want you to know that we expect both strong sales and strong margins in the fourth quarter. And there'll be a little bit of drag, and we want you to understand that'll probably hit our SG&A line in the quarter, assuming that, in fact, that's when it happens. And that's what we assume right now. And that's what we budgeted, frankly, all year.

Your next question comes from Bill Chappell with Truist.

[Technical Difficulty] for Q2 volumes. Did you give [Technical Difficulty] volume?

Bill, you're breaking up. What I heard you ask, hopefully I'm correct here is, did we give any color on what drove the volume in Q2?

Correct.

I'd probably chunk that into a couple of pieces we tried to cover. I think, one, we saw – like others have experienced, we've seen overall consumption down just a little bit. And I would say the other bigger impact would be the timing challenge that we talked about where we felt the pipeline up a little bit in Q1, and that obviously impacted Q2 sales, which we anticipated when we guided. And then thirdly, we did exit some lower margin business that we've talked about. And so, this quarter is sort of the last quarter where we'll lap some of those exits and distribution losses that we talked about. So we see a line of sight towards more volume growth in the second half of the year, starting in Q3.

I guess I'm trying to understand how much of it was decline in consumption versus the other two parts.

I think it's kind of hard to say. We had a full channel when we ended first quarter, given how strong our service was and how strong their order pattern was. And then, the categories being down a point or two. I think our categories were down 1 to 2 points in consumption for the – if you look at the measured data. So somewhere in the middle of those two things was the bulk of it.

As a follow-up to that, just trying to understand, do you think that's more of a year-over-year in terms of mobility trend or are you seeing something in certain categories that is the change?

Oh, no. I think private label is performing really well in its category. We talked about that. You've got them – almost got 80 weeks of share gain. And so, private label is doing fine in its categories. I think the consumer is just cautious. And as I said in the earlier comment, we feel good about the back half because we see the demand signal that we're getting, and we know that our supply chain is in a better position to fulfill that demand. So if private label continues to gain share, it's not unreasonable to think that those units will turn positive. If that does, that's above what we've guided to. But I think we can meet the numbers we put out just with our improved service on the demand we see right now.

There are no further questions at this time. With that, I will turn the call back to Steve Oakland.

Well, I'd like to thank you all for being with us today. I know it's a busy day. We are getting ready to go into our seasonal peak and we look forward to sharing that information with you after our third quarter results. I know there's a lot of IR events going to happen in the next few months and hopefully we'll see you in person. If not, we'll talk to you soon. Take care.