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Welcome to the Treehouse Foods Fourth Quarter 2023 Conference Call. [Operator Instructions]. At this time, I would like to turn the call over to Treehouse Foods for the reading of the Safe Harbor statement.

Good morning, and thank you for joining us today. Earlier this morning, we issued our earnings and posted our earnings deck, both of which are available within 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. A reconciliation of non-GAAP measures to their most direct comparable GAAP measures can be found in the release and the appendix tables of today's earnings deck. With that, let me now turn the call over to our Chairman, CEO, and President, Mr. Steve Oakland.

Thank you, Matt, and good morning, everyone. Please join me in welcoming Matt as our new Investor Relations Officer. Today, I will share with you our fourth quarter and full year 2023 financial results, as well as provide a highlight of our 2024 guidance. On Slide 3, you can see key takeaways for the quarter, but I want to start by discussing some highlights from the year. Fiscal 2023 represented our first full year operating as a more simplified private brand snacking and beverages company. With this sharpened focus, we successfully executed on our strategic priorities, including initiatives to build depth in our higher growth, higher margin categories, better optimize our supply chain and improve our service levels. As a result, we finished the year with a stronger portfolio, enhanced capabilities and depth, all while investing in our supply chain to better align it with these priorities. We delivered annual net sales growth of 4%, and adjusted EBITDA growth of 25%. We're also executing on our capital allocation strategy, which is balanced across investments in the business, maintaining a strong balance sheet, and returning capital to shareholders. We used our balance sheet strength to return $100 million of capital to our shareholders by a share repurchase in 2023. This is in addition to and did not impede the capital allocated to strategically invest across the businesses. Importantly, our reshaped portfolio and enhanced strategic focus will enable us to gain share and increase our competitive relevance across an industry with strong consumer tailwinds. Specifically, the private brand market outperformed relative to national brands again this quarter, which we will discuss in further detail shortly. We remain confident we are well positioned to capture the opportunities ahead for private brands, with our focus on delivering growth. That being said, we realize that execution across the businesses remains paramount in the near term, both for our customers and for our shareholders. We are investing in our supply chain to drive consistency and predictability, and I believe these capabilities provide significant opportunity to achieve even better performance for Treehouse in the coming year. Turning now to brief summary of our fourth quarter results on Slide 4. As a reminder, late in the third quarter, we were impacted by a broth recall and some discreet supply chain disruption that occurred in our pretzels and cookies businesses, which will extend into our fourth quarter results. In the fourth quarter, we spent significant dollars to restore our broth facility, and we will provide more detail later on how we plan to restart that business in the first half of 2024. With all of this considered, net sales came in at nearly $911 million, which, while down year-over-year, was in line with our expectations, given the supply chain issues I just mentioned. Adjusted EBITDA of $108.4 million, which was just above the midpoint of the guidance range, reflects our continued progress against supply chain savings initiatives across the businesses. Pat will provide greater detail on our outlook for the full year of 2024, where we expect net sales in the range of $3.43 billion to $3.5 billion, representing flat to 2% year-over-year growth. This topline guidance reflects the impact from the current restart of our broth facility, which we expect to continue to pressure results in the first half of the year. We are laser focused on restoring our broth business to full production, and we are currently executing a turnaround plan that when complete, will result in a world-class facility, much like our other broth operations in Richmond Hill, Ontario. Given this backdrop, we expect our volume growth to be stronger in the second half of the year. Additionally, we expect adjusted EBITDA in the range of $360 million to $390 million. Again, Pat will provide more detail. With that, I'll dive into our strategic update. Throughout the year, Treehouse continued to advance our portfolio strategy in an effort to focus on higher growth, higher margin categories. As detailed on Slide 5, we are in an advantaged position today across most of our categories. In 2023, we invested capital with a focus on enhancing our competitive positioning, driving consistency of execution in our supply chain, building out capabilities where we see significant growth opportunities. We also furthered our portfolio strategy by making investments in seasoned pretzels, coffee, and pickles, which are all growth categories. This is an addition to the divestiture of a non-core snack bars business, which we completed earlier this year. Now, moving on to our supply chain initiatives. we have continued to invest directly into our supply chain, as you can see on Slide 6, which we believe strengthens our competitive positioning and partnerships with our customers. We remain diligent on implementing our TMOS strategy and other supply chain initiatives. These efforts have contributed to improved execution and margin performance, including 130 basis points of adjusted gross margin expansion this year. Continued progress on these supply chain initiatives in the coming years should allow us to further expand margins. I'm happy to share that in 2023, our TMOS initiatives resulted in a five-point increase of our overall equipment effectiveness, or OEE, compared to the prior year. And in 2024, we are off to a strong start, with even more cost savings projects in place. Additionally, we are in the early stages of our procurement savings exercise, which continues to progress according to plan. Importantly, our scale enables us to build strategic relationships with our suppliers. In this environment, with total category volumes lower and private brands growing, we are finding our current and potential supply base eager to do business with Treehouse. Additionally, we are making progress in our network optimization plans. These plans are designed to drive future margin improvement. We're currently migrating a portion of our single serve coffee operations to our new coffee center of excellence in Northlake, Texas, which will simplify our network and deliver planned synergies by eliminating one facility. We are pleased with the progress we're making on these initiatives, which are designed to drive margin improvement in future quarters. We are on track to achieve gross supply chain savings of approximately $250 million through 2027, which will support our long-term growth operations. Next, I would like to provide some context on the broader trends surrounding the industry and private brands. As you have heard from other CPG companies, the macro environment continues to be challenged by inflationary pressure and general economic concerns among consumers. The net effect of these has resulted in overall lower category volumes. While overall food and beverage unit consumption declined year-over-year, the broader private brand market remained nearly flat, continuing to outperform relative to national brands. These dynamics weighed on our sales volumes similar to what you've seen across the CPG industry. If we look at our full-year performance, excluding price, we outpaced the measured retail market in four of our top five categories, and believe the investments we're making in our portfolio and capabilities, improve our competitive positioning heading into 2024. Turning to Slide 7, similar to the past few quarters, we want to emphasize that retailers increased shelf prices in the fourth quarter to reflect inflation, especially in the categories in which Treehouse operates. You'll see that in December, shelf prices reached a high for the year, which illustrates the meaningful absolute dollar savings that a basket of private brand goods delivers for consumers. Specifically, within our categories, this past quarter, a shopper would've saved approximately $18 on a basket of our goods relative to a basket of branded goods. On Slide 8, private brand unit share continues to remain at a quarterly all-time high, above 20%, and was most pronounced during the holiday seasoned. It is also worth noting that private brands have gained unit share for over 100 consecutive weeks. Again, these trends reiterate the important role private brands play for retailers and consumers. Additionally, we've heard many of our branded peers discuss their plans to make greater investments in marketing and promotion to drive volume recovery across the industry. We believe that will be beneficial in bringing the consumer back to the shelf where the private brand value proposition is most apparent. On Slide 9, we've provided a look at price gaps in our categories, which remain elevated when compared to historic levels. We believe these price gaps are a key contributor to the continued share growth of private brands. Additionally, I wanted to briefly touch upon private brand promotions, as we hear retailers continue to voice their support for private brands and a desire to return to merchandising. On the right side of Slide 9, we've included promotional data for national brands and private label in our categories. What we've found historically is that while national brands tend to get a higher level of promotion overall, private brand promotion generates a higher return on investment. We believe this performance illustrates the importance of private brands to retailers as a means to drive shopper traffic and loyalty. As it relates to the fourth quarter specifically, the promotional activity increased among national brands, but remained relatively low for private brands. Importantly, we still performed well despite this heavier level of promotion. We believe we are well positioned should increased promotional activity return to private brands. Before I turn the call over to Pat for more detail on our financial performance and our outlook, I'd like to reinforce some of our achievements for the past year. Despite the ongoing economic uncertainty, our company is in a strong financial position, with our current balance sheet and capital structure. We've also made significant investments in our categories and our supply chain to drive growth. With our strong net sales pipeline and the right team of people in place to execute on our strategy, I am energized as we begin 2024, and look forward to keeping you updated on our continued progress throughout the year. Now, I'll turn the call over to Pat.

Thanks, Steve, and good morning, everyone. I'd like to start by also expressing my appreciation to the entire Treehouse team for a strong close to the year. I am proud of everything we accomplished in 2023 and remain confident in our ability to execute in 2024. I'll start with a summary of our fourth quarter results on Slide 10. Net sales of $910.8 million and adjusted EBITDA of $108.4 million, both declined versus the prior year, which was in line with our expectations. We delivered net sales at the low end of our guidance range and adjusted EBITDA at the midpoint. Adjusted gross margin performance drove improvement in adjusted EBITDA margin, which returned to almost 12%. Let me walk through this in greater detail. On Slide 11, we’ve provided a look at our year-over-year net sales drivers. Our net sales decline was primarily driven by challenges at our broth facility, as well as discrete supply chain disruptions within our pretzel and cookie business that we discussed last quarter. The remaining decline was primarily due to planned exits of lower margin business. These items were partially offset by the volume from our coffee and seasoned pretzel acquisition. Our pricing was roughly flat as we've now lapsed the pricing actions that we've taken over the last couple of years primarily to recover from inflationary pressure. Moving to Slide 12, I'll walk you through our profit drivers. Volume and mix, including absorption, was a headwind of $33 million in the quarter. PNOC, or pricing net of commodities, contributed $38 million. While we have seen some commodities move lower relative to recent all-time highs, many of our ingredient and packaging inputs still remain elevated compared to historical levels. As you would expect, our procurement and logistics teams are hard at work executing initiatives throughout our network to drive profitability improvement given the current environment. Next, supply chain and operations were a $9 million drag year-over-year, primarily due to investments in labor, mainly to attract and retain workers in our plants where we plan to drive growth in 2024. Lastly, SG&A and other, negatively impacted profit by $7 million year-over-year. This was largely a result of temporary operating expenses associated with the exit of a transition services agreement. I'm pleased with our team's work in efficiently winding down those services, which represented a significant milestone in finalizing that divestiture in our transformation. Moving on to the balance sheet on Slide 13, we continue to be in a position of strength. In the quarter, we repaid approximately $155 million of borrowings under our revolving credit facility, and received repayment of the seller note receivable. Coupled with our improved adjusted EBITDA performance, we ended the year with our leverage ratio at approximately 2x. Turning to Slide 14, to recap, in 2023, we deployed capital consistent with our three priorities. We invested in the business to strengthen our depth and capabilities and the categories where we operate, including $140 million of CapEx investment and deployed $105 million in coffee and pretzels. We improved our balance sheet, building our cash position, reducing leverage, and we returned $100 million of capital to shareholders through share repurchases. Moving into 2024, we will continue to be disciplined and execute against our capital allocation strategy. Much of our near term spend will remain focused on gaining further category leadership and depth of offerings and increasing our supply chain efficiency to fuel our growth. Now turning to our guidance and outlook for 2024. I'd like to spend a few moments framing how we are thinking about the year on Slide 15. From a macro perspective, we've seen weakness in overall food and beverage consumption volumes over the last year. Recently, while national brand volume has been down, private brands volume has been flat in our categories. We believe it is prudent to assume no significant changes to the consumption environment in the near term. Therefore, we are not assuming a return to historical consumption trends in 2024. Having said that, we see a number of opportunities to grow our topline organically, particularly in the businesses where we strengthened our capabilities last year, including coffee, pretzels, and pickles. Our enhanced depth and capabilities are quickly enabling new bid opportunities, and we continue to hear interest from retailers in partnering on innovation, including seasonal items, which is another opportunity for Treehouse to drive profitable volume growth for both our company and our retail grocery partners. In addition to these organic growth opportunities, we have the benefit of volume from our recent coffee and pretzel acquisitions during the first half of the year, as well as the annual volume from the Bick's pickle business that we acquired in January. While we continue to believe our business is well positioned to grow in line with the annual targets that we previously outlined, our ability to grow sales in 2024 will be temporarily constrained by the efforts to restart our broth facility. With this in mind, slide 16 reflects that we expect net sales in a range of $3.43 billion to $3.5 billion, which represents flat to 2% year-over-year growth. We expect the net sales impact due to our broth facility will be approximately $60 million, which partially mutes the growth contribution from the rest of the business, particularly in the first half of the year. We expect our overall volume and mix to be slightly positive for the year. From a pricing perspective, we are planning for a modest decline year-over-year. Moving to profitability, we expect adjusted EBITDA in a range of $360 million to $390 million. We are confident in the progress that we've made in implementing our supply chain savings initiatives and believe we are on track to deliver significant growth savings in 2024. However, as is the case with topline guidance, we expect the investments we have already made in our broth facility and the related volume impact to constrain our profit growth. We estimate the adjusted EBITDA impact from the restart of our broth facility will be approximately $20 million for the year. Additionally, we expect free cash flow of at least $130 million. Finally, we anticipate net interest expense of $56 million to $62 million, and capital expenditures of approximately $145 million. With regard to the first quarter, we are expecting net sales of $780 million to $810 million, which represents a year-over-year decline of approximately 7% at the midpoint. The decline will be driven primarily by the impact of the broth facility, which will also adversely impact our volume. Also, I'll remind you that we are now lapping a historically strong net sales performance in Q1 2023, which saw a significant benefit from our cumulative pricing actions to recover inflation, and the pipeline build that we discussed last year. Based on these factors, we would expect our organic sales to be down high single digits, partially offset by the low single digit contribution from the acquisition volume in coffee, pretzels, and pickles. In terms of profitability, we expect adjusted EBITDA to be in the range of $45 million to $55 million. The unfavorable volume and related absorption impact from our broth facility will be a significant driver of the Q1 year-over-year decline. Additionally, we expect higher operating expenses due to the temporary costs associated with an exited TSA agreement and selective investments we are making in labor to attract and retain talent in certain markets. I'd also like to provide some additional context on the general net sales and adjusted EBITDA cadence of our business as a result of our reshaped portfolio and what you can expect in 2024. We've included Slide 20 in the appendix, which outlines our historical cadence. As it relates to sales, we typically experience lower sales in the first half of the year, with the second quarter being our seasonally lowest quarter from a volume standpoint, and higher sales in the second half of the year, which is driven by our seasonally strongest fourth quarter period. The split is slightly more pronounced on adjusted EBITDA, driven by stronger demand and higher utilization, which is also most pronounced in the fourth quarter. Given the constraints impacting us in the first half due to our broth facility, we would expect our 2024 sales and adjusted EBITDA performance to be more second half-weighted than our historical cadence. With that, I'll turn it back over to Steve for closing remarks. Steve?

Thanks, Pat. I'd like to reiterate that our performance this year is a testament to the dedication of our entire Treehouse team. We delivered annual net sales growth of approximately 4% and adjusted EBITDA growth of 25%. I believe this past year provides a proof point of our ability to deliver on our long-term growth algorithm growth that we outlined at our Investor Day last year. Our transformation has allowed Treehouse to become more profitable on our smaller net sales base. As you can see on Slide 16, but for the impact of our broth facility, we are on the path to $400 million in adjusted EBITDA. We have outlined what we believe is a prudent outlook. Current consumption trends remain challenged, and while private brands are outperforming, the current growth trend remains flat, impacting our ability to drive topline growth in the near term. Over the long term, we still believe our categories provide the opportunity for strong growth. Given that the second half of the year is key to delivering on our outlook, I'd like to reiterate a few factors that give me confidence in our ability to achieve our goals. First, we've won new business that starts shipping in the second half of the year. The investments that we've made to strengthen our capabilities are enabling these new business wins, particularly in categories like coffee, refrigerated dough, and pickles. Second, we have a robust sales pipeline for the business. It's the strongest the company's had since I joined in 2018, which is a testament to our commercial teams, the strength of their customer relationships, and our operations. Third, we are starting the year with more supply chain cost savings projects in place than we've ever had, and expect our continued rollout of TMOS to drive additional savings throughout 2024. And finally, keep in mind that as we move into the second half of 2024, the investments we've made in broth, pretzels, and cookies, should enable us to fully service these categories during their seasonal peak. As we look ahead, I'm confident that the transformative actions that we've taken to sharpen our portfolio focus and strengthen our capabilities, have the company well positioned to deliver the growth and profitability that we've outlined. With that, I'll turn the call over to the operator to open the line up to your questions.

[Operator Instructions]. Your first question comes from the line of Johnny Shamir from Barclays. Your line is open.

Hey, Steve, and Pat, it's Andrew Lazar. I guess, first off, if we exclude the $20 million impact in the first quarter from restarting the broth facility, EBITDA is still expected to be lower year-over-year in the first quarter in a pretty material way, and I know part of that is also the difficult year ago comp that you mentioned. I guess what's driving this and how does that play into your confidence in the EBITDA growth obviously that you see for the remainder of the year? Like, are there other things going on in the first quarter that we should be aware of?

Andrew, this is Pat. I don't think there's other things going on that you need to be aware of. I would say, we tried to make some of the comments when we talked about the historical cadence of the business, and if you went back to what we had guided in Q1, it was a 65 to 80. And so, something in that range I think is what you would think of in that normalized range from a Q1 perspective. So, we actually think that the Q1 we're describing ex the broth impact is a reasonable number for Q1. So, I think it's really just lapping some of the pricing and then some of the volume pull forward that we did in Q1 of 2023.

Got it. And then I think you mentioned, maybe it was in the press release, some potential deflationary pricing actions in certain categories. Is that primarily more in pass-through categories maybe such as like coffee, or do you see it as more widespread? And if so, is it just to sort of manage price gaps as branded players kind of ramp back up their promotional levels to maybe more normal levels? And maybe you can get into that a little bit. Thanks so much.

Yes, sure, Andrew, I'll take that. Yes, most of the pricing that we pass through are contractual price throughs on commodity, up and down. Deflation and inflation, they go through automatically. Coffee is a great example of that. It's so volatile that most of those contracts have a deflation - have an escalator and de-escalator clause in them. it's interesting when you mention promotion, in the - we all know that the fourth quarter was a much more promoted quarter for CPG, almost back to pre-pandemic levels, not quite, but you still saw private label gain share in the quarter, right? And I think we talked about, on this call, we talked about the basket being about $18, right? The peak last year was $20, right? So, even in the most promoted quarter of the year, there's still a pretty substantial gap between private label and branded. I was disappointed quite frankly, that we didn't see more private label promotion during the quarter. We had the inventory to do it. But I think quite frankly, the performance of it relative to brand, gave the retailers confidence that they could deliver their numbers without doing it. So, we actually would look forward to a little more promotion on our side.

Great. Thanks so much.

Your next question comes from a line of Matt Smith from Stifel. Your line is open.

Hi, good morning, Pat, and Steve. I wanted ask, you called out investments you've made to improve the portfolio in the broadly favorable environment for private label and Treehouse in particular, but if we look at the 2024 outlook, the underlying volumes, excluding acquisitions and the impact of the broth business, are still well below that 2 to 3% growth target. Can you talk about the factors keeping you below that outlook? You talked about the no assumption and improvement in consumption, but that should be partially offset or offset by the new business wins that you've talked about.

Sure, let's talk about that. We guided a midpoint of 1% growth for next year, or for this year, I guess it is now, for 2024. And if you think about a macro environment where units are flat and we've guided deflation, that means we've got to have a couple percent unit growth to make that happen, right? And so, we just think guiding stronger than that with the uncertain consumer environment isn’t prudent at this time, but in order to meet the guidance that we have, and we wouldn't do that if we didn't see the strength of both our underlying business and our new businesses, we think you've got to grow about 2% to make that happen.

Thank you for that, Steve. And if I could ask a follow-up question relating to the broth business, private label volumes actually returned to growth at the category level in January. Are you seeing market share gains by other private label manufacturers? And if that is the case, what are your expectations in the rebuild of the broth business? Is there a period of time where you're contending with contract losses even after the facility is back up and running?

It's interesting. Private label is a - broth. Private label is a great category for us, and we have - we've had to allocate to our customers, given that we're producing significantly less. I'd remind you that we have two broth facilities though, right? We have ramped our Richmond Hill, Ontario, plant up to its maximum capacity. So, we are losing some sales. I think the customer recognizes both the quality and the service they've had from us up and to this point. So, there'll be some customers that probably have to source broth somewhere else. But I think we've built enough reputation that we'll work our way through this, and our broth business will be significant going forward.

Thank you, Steve. I'll pass it on.

Your next question comes from the line of Jim Salera from Stephens. Your line is open.

Hi guys, thanks for taking our question. If we could drill down a little bit more on the broth piece, I know you guys have talked about it before, and obviously you have - you're underway in fixing that. Is there any risk that that situation changes as we move into 2024, or do you guys feel confident on the numbers you provided around it that you have really good visibility into that?

I think just because of the risk, we have been cautious in what we've guided here, right? I think we've guided very cautiously here. We do run a world-class broth facility, so we know where this one was and where it needs to be, and I think we have the right resources. We've not spared a penny to make that happen, right? We bought this business 10 years ago, right? Treehouse bought it 10 years ago. It has been a drag on the results since then. I think we recognized in the third quarter when we faced, look, we should really recall some of this product. We stepped in and did a full recall, or I mean a full rebuild of this business, and it's capital, it's people, it's process. So, it will be a world-class - it'll be a driver for Treehouse when we're done with this. It has historically been a drag. We addressed three of our worst facilities in 2023, right? We started with the cookies. We talked to you about that early in the year. We addressed some legacy capital needs in our dough business, and cookies and dough were drivers in last year, and unfortunately you didn't see that because of this broth piece. But I think we will have the three riskiest parts of our business addressed when we finish this. And we think our ongoing maintenance programs will be sufficient to make us a much more reliable and consistent vendor going forward.

Great. And then I think, I can't remember if this is in the prepared remarks during the press release, but you guys talked a little bit about labor inflation, and that's actually something that we've seen come up with a couple of other companies that have reported. And I guess, given during COVID, obviously there was a lot of competition around like warehouse labor and that same labor pool, but I would think that some of that has rolled back. And so, I guess I'm surprised that there's still the same level of labor inflation. If you could just give any color around that and some of the challenges you're seeing there.

Yes, I don't know if it's the same level of labor inflation, but we still see labor being relatively elevated and the availability of the workforce on the market. And so, we'll be competitive market-wise. I don't think - it's not the major driver that we worry about, but it is something that we're focused on to ensure we're being an employer of choice in the markets in which we operate. And some geographies are more challenging than others.

Yes. And I would also say, there's probably a few facilities that are unionized. And those tend - the labor impact of those tends to happen when new contracts are renewed, right? So, that has a little bit of a lag in the expense until the contracts are renewed. And I would expect those contracts to be renewed at more favorable labor rates for them. So, I think we'll have a little bit of labor inflation going forward, but as Pat said, it's not what we think of when we think of the risks in our business.

Got it. That's helpful. Thanks, guys. I'll hop back in the queue.

Your next question comes from a line of Rob Moskow from TD Cowen. Your line is open.

Hi. I had a couple questions, Steve. The first was, I just want to understand the prepared remarks about branded activity that you've seen from branded players. I think you said that you've taken a look at those plans and you're encouraged that it will help category growth. But when I look at those plans, it does look like they intend to be more promotional. And I think that this slide that you showed on Slide 9 showing that the price gap's getting more and more narrow, it would seem to mean that they will continue to get more narrow. So, did I understand your comments correctly that this is more of a positive than a negative? And what does it mean for price gaps?

Sure. So, remember, price gaps are now returning to historic levels where private label grew, okay? And those are percentage price gaps, not penny price gaps. So, 20% of a product that now costs $4 that used to cost $3, right? So, the moment of truth, I think the old AG laughy comment about the moment of truth right in front of the shelf is when the consumer walks up to the shelf and looks at both private label and branded. So, we think even in the promotional environment that the absolute penny gap is so significant, along with the better quality assortment that our retailers have in front of the consumer right now, we need eyes in front of the shelf, right? Private label price decisions are made at the shelf. So, if you drive traffic to the shelf, we hope categories grow, and we're confident that private label will get a share of that category growth given the absolute penny gaps that are in front of us now.

Okay. And then my follow up, I think you said that OEE improved five points from a year ago. How does that take into account the broth issues? And then I think you had some issues in pretzels and cookies in third quarter as well. To what extent did those issues hurt those numbers, if at all?

Yes, I think we've got investment in TMOS across our whole network. so, we have multiple plants. and so, obviously we’re talking about one plant and the impact there. And we've invested in other plants. We talked a bit about dough. That was a plant where - a network where we didn't operate as effectively and we put some maintenance in, in the middle of the year, and then that allowed us to service the seasoned. So, I think you're seeing where we've made the investments earlier on, that's starting to pay off with those efficiencies. And we really look at our broth facility as the last one where we can go drive further improvement from a service standpoint. We think in most other places we're there. And there continues to be opportunity in 2024. We think we can continue to be more efficient and eliminate waste throughout our network. And we've got a lot of cost savings plans in place, things that we planned for in 2023 that'll be executed or are being executed in 2024, that gives us confidence around how we think about margin next year.

Well, and Rob, just so you know, we do aggregate all of our 26 facilities. So, the broth plan is one of them. And so, it did probably tamp that number down just a bit, right? And it will tamp it down in the first two quarters. But that gives you a sense, even with that, last year we grew 5% in OEE right? Now, to be fair, Treehouse was not at the top of the OEE hill, right? We have some room to grow, and we have - that's why there's the kind of cost savings in our network that there is, right? There is substantial opportunity in our network, and the good news is, we're making progress at attacking it.

Great. Thank you.

Your next question comes from a line of Rob Dickerson from Jefferies. Your line is open.

Great. Thanks so much. Good morning. I just want to ask a little bit more about, I guess the pricing cadence of the year, right? I mean, it seems like kind of given the guidance for Q1, with vol mix down some, let's say mid-single digits, just to kind of right-size it back to net, I mean, it sounds like pricing might be down, I don’t know, like four. Maybe it's three to four, but then the comment for the year is down modestly. And just to kind get to the full-year year-over-year guide, it would seem like maybe there's a little bit more price investment in Q1. But then at the same time, back to Andrew's question on the pass-through dynamic, it would seem like given it's contractual, that there's not like a tremendous amount of flex. So, just say any color you can kind of give as to kind of how you see that year-over-year pricing dynamic playing out as we move through the year. Thanks a lot.

Yes, maybe I'll start with the full year, and what we're really anticipating is sort of low single-digit impact of pricing. And that's the pass-through that Steve described, where we have lower cost in some of our commodities and those types of things, or true pass-through. So, we think from a profit, that'll be consistent through the year. So, I don't think we're seeing much difference in Q1 in terms of that low single-digit. I think you'll have the broth impact, and then I think you'll have some of the same consumption trends that we saw in Q4 carry into Q1, and that's really how we've thought about Q1.

Okay. Got it. And then I guess just in terms of the innovation pipeline, we were able fortunate enough to see some of it back at your Investor Day. Clearly, it seems like retailers are very proactive in trying to re-merchandise private label. Have you had certain conversations with retailers that just give you the conviction that clearly that innovation can get on a shelf and drive velocities?

Yes, Rob, I mean, the reason we're so confident to guide what we've done is there is new business in pretzels, coffee, pickles. We actually have visibility in the contracts that'll start January of 2025, right? We've got some awards that that go that - that's how far out some of this stuff works. So, when we saw you at the Investor Day, we were presenting those things. They are now in the pipeline and we'll see those on the shelf over the course of this year and into next year. So, yes, we have great visibility into that right now. Now, sometimes the date pushes a month or two. We've been conservative so that we won't be impacted if that happens, right, but they're - the visibility is pretty good on that right now.

All right, super. And then just to sneak a quick one in. D&A guide for the year, I don't think you provide it. Sometimes you do. I don't know if you have that, and that's it. Thanks.

Yes, we can give you that offline, but we don't expect significant changes.

All right, cool. Thank you.

Your next question comes from a line of William Browder from Bank of America. Your line is open.

Hi, good morning. I have two. The first is, in your non pass-through categories, what's your outlook for input costs for the year?

Yes, I think we continue to see relatively elevated commodity overall. And so, we're not seeing significant deflation, perhaps some modest disinflation in a couple of key commodities. But overall, we're seeing things that still remain relatively elevated to history. And so, really kind of relatively smaller to similar to last year.

Okay. And then last year you completed a couple of acquisitions. They were - some were modest in size and some were a little bigger. What's your outlook for M&A in 2024 and beyond? Your leverage is clearly low after you received the proceeds from the meal prep divestiture, I guess, interest in increasing that leverage to try and expand into new categories or build out existing ones further.

Well, I think you just articulated it right. We don't see the need, given the cash flow we'll have this year, to increase our leverage significantly. We think we can execute our capital allocation strategy. It'll be invest in businesses to drive depth in the categories, right? Make us more attractive and better operators. It'll be invest in our plants so that we don't have events like what we had in the third quarter, right? It's to fortify that supply chain through CapEx and maintenance. There'll be some automation expense, right? There'll be some investments to make us more efficient and let us apply labor at those places that are high value. And then it'll be maintaining that balance sheet and returning capital to shareholders, right? So, we really feel like the transaction and now the paydown of the note allow us to do all three of those things.

Perfect. All right. That's all for me. Thank you.

[Operator instructions] Your next question comes from the of Carla Casella from J.P. Morgan. Your line is open.

Hi, somewhat following on Bill's question, you're sitting on a large cash balance now after recouping that accrued. And I'm just wondering, you're netting that out to get to your 2.1x leverage, but do you anticipate using any more of your excess cash to pay down debt?

I think we laid out our priorities. We want to maintain the solid balance sheet. The goal is not to go return to the historical levels of leverage that we've had in Treehouse. And so, I think our first priority is to go invest back in the business. And so, that's clearly where we see the greatest opportunity for Treehouse, and we'll continue to do it in a very disciplined way like you saw us do last year. And so, if we need to stay at relatively lower levels of leverage, we'll do that. We're not in a hurry to go spend the cash in one way or the other. And I think we'll maintain a very balanced approach across all of those.

Carla, the other thing I would say is, we’re really proud of our current debt structure, right? Our 4% bonds and with the swaps, the rest of our debt is incredibly priced to the market today. And so, we think that investing some of those funds in our business and returning to shareholders, makes a lot of sense right now. So, I think should that change, we'll look at it differently. But given the fact that overnight deposits I think pay equal or more than what our debt structure is, there's no real reason for us to pay a lot of it down in a hurry.

That makes complete sense. And you're still targeting your comfortable level with leverage 3 to 3.5x?

That's right.

That's correct. Yep.

Okay. And then just one follow-up question on the cost. Can you give us a little bit more color in terms of how much of the freight, the lower freight impacted benefit of the quarter? And then, what are the biggest drivers within freight? Is it gas, labor, other?

Yes, I think we've seen freight markets somewhat stabilize. I think that's happened over the last couple of quarters. I don't know that it's - a lot of that is on the kind of distribution expense within our P&L. I don't know that it's the largest driver. I think our outlook is that that'll continue to be consistent in terms of how we think about that. And a lot of it is shipment to our distribution centers or to our customers, so think about that in terms of …

Yes, and freight availability, I mean, the key is, as the economy slowed down a bit, freight is much more available. And so, it'll be interesting over time if that capacity drives carrier rates down, right? I think we've seen a little bit of that. The spot rate has come down, but we'll see what happens as we go forward. The best thing is we've got great availability. We're able to be on time in full because the carrier shows up on time. So, that was not the case as you know a year or so ago, but it is the case today.

Okay, that's great. And just one clarification. On your EBITDA adjustment for your guidance for 2024, you show with and without the $20 million impact from the broth facility disruption. Will that be - are those $20 million of onetime items that you'll call out in EBITDA? Or is that $20 million on top of other onetime items that might be adjusted in your EBITDA?

No, I would look at that slightly different. I think that the $20 million is really lost tails and profits of what we can't deliver while we do the ramp up. And so, we've done the majority of the investment that we need to do in the fourth quarter, and now we're on a very disciplined sort of ramp up of that facility and getting all of our lines up and running. And so, that's really the guidance that - I wouldn't say that those are adjustments. We're just trying to show what the impact of that is and then what is the rest of the business doing.

Okay. Great. That's helpful. Thank you. That's all I had.

Your next question comes from a line of Jon Anderson from William Blair. Your line is open.

Hi, good morning, everybody. On Slide 5 in the presentation, there are three categories I think that you kind of call out as categories where you see the (indiscernible) or better competitive positioning in in-store bakery, liquid beverages, and tea. Just wondering if you can talk about those a little bit where you sit vis-à-vis competition, what the opportunity is and what the action plan is to improve that. Thanks.

Sure. And if you would've gone back a year, you'd have seen coffee there, right? And so, I think what we're doing is we're showing you the categories that we feel are good consumer categories, but we need to make some investments to give us the kind of depth and capability to make us that preferred vendor with a customer. So, the Northlake Coffee - we call it our coffee center of excellence, but the Northlake Coffee acquisition has had an enormous impact very, very quickly on the coffee business. We would like to do that in the tea business. Our septic business, we think we're doing the right thing, right? And we think we were there. We will be back there. And then if you think about things like liquid beverages, that's a very small business for us. That's our ready to drink mostly coffee beverages, and we just think we're subscale there, right? We do a lot of niche producing there, but it's subscale and small. So, it's those kinds of things. And in-store bakery, which we think is a great category, we're a cookie provider, right? So, we participate - we're the largest scale provider, but in only one category on that table, when you walk in a grocery store and you see that big in-store bakery table. So, is there an opportunity for us to maybe use that connection with a customer and that infrastructure to have more placements on that table, right? It's that simple, right? We simply make the best frosted sugar cookies on the table, but we really don't participate in the rest of it. And so, we would look at capabilities, and maybe that's a foreshadow of places where we do at least hunt for capabilities, whether they be build or buy.

Okay, that's helpful. Thanks. You mentioned the three facilities that you've invested in, cookies, dough, and broth, which is I guess in process. Are there any other, I don't know if I should call them problem plants like this, that you need to do remediation work in, or is it more kind of routine investments beyond this point? And then just second part, on the $250 million in gross cost savings through 2027, can you just update us on the cadence of those savings, if it's changed at all from what you presented at Investor Day middle of last year? Thanks.

Sure. I'll take the first one, and Pat, maybe you take the second one. I think, look, we had thought that our cookie plants and our dough plants were under-invested in for a number of years. They were run incredibly hard during the COVID period when you couldn't do that kind of maintenance. And so, we knew those were areas we needed to invest. We caught those last year. We had funds planned in 2024, quite frankly, for broth, and the broth plant just needed pull forward. But I feel like the autonomous maintenance work we're doing, we have invested in our engineering organization and our maintenance teams. I think our ongoing efforts will keep us from having the same kind of problems in the future. So, I think we're addressing maybe the last real risk that was in our system, and quite frankly, drag on our financials, right? Broth should be a driver. This Cambridge facility should be a driver, and that's what our goal is. It has for 10 years been a drag.

And then regarding cost savings, so if I take TMOS first, that has the most maturity in terms of launch. And so, we will enter this year with a number of projects in place. And so, think of TMOS as relatively ratable over that three-year period. From a procurement, we're really pleased with the reaction and the response we're getting across our base. But that work is happening here in the first part of the year where we're renegotiating contracts. And so, I would think of that as starting to ramp up into the back half of this year. There's a few low hanging few things that will pay off a little bit earlier, but think of the bulk of the savings as happening in the second half of this year and into 2025. And then similar for logistics, we reached a major milestone in the fourth quarter where we separated our logistics network from the business that we sold, the meal prep business. And so, we're going about the work now to go optimize our network. And so, think of that as ramping up over the course of this year and really starting to pay off into late 2024 and into 2025.

I did guide, though, that given the maturity, especially of TMOS and the progress on the procurement exercise, we have more projects in place and more run model savings in this plan. And so, I think it sort of de-risks the plan so far this year.

Okay. Thanks very much.

This concludes our question-and-answer session. I would like to turn the conference back over to Steve Oakland for closing remarks.

Yes. I'd just like to thank you all for being with us today, and we look forward to sharing our progress as we go on this year. So, have a great day, and we'll talk to you all soon.