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Utz CEO: On the Border tortilla chips acquisition 'is just the beginning'

Yahoo Finance’s Brian Sozzi, Myles Udland, and Julie Hyman speak with Utz CEO Dylan Lissette about the company’s acquisition of On the Border Tortilla Chips, its most recent quarter, and much more.

Video Transcript

JULIE HYMAN: Utz Brands made an acquisition this morning, buying the parent company of On the Border Tortilla Chips, that deal for just under $500 million. And I want to bring in the CEO of Utz right now, that is Dylan Lissette, to talk about that deal and how the business is doing. Dylan, it's great to see you, so uniting tortilla chips with some of your core products, the Utz pretzels and chips. What's the plan here in terms of what you want to create at Utz? Is the plan to continue to roll up smaller brands and really become this umbrella, and where does it end? What size is the right size for that kind of a plan?

DYLAN LISSETTE: Yeah, great question. Thanks for having me. Where does it end? I think it's just beginning. We laid out, when we were doing our SPAC combination materials, a plan really to become the fastest growing pure play branded salty snack platform in the US. We were number four at that time. This deal makes us number three.

We also highlighted that we had some holes in our subcategory portfolio, specifically in tortillas, and this deal puts us right into the fray of being a top three brand of tortillas in the United States. So it's really rounding out the portfolio, making the company more productive. It's increasing our margins. It's expanding our geographic reach into a lot of the US in which we were under penetrated in. Interestingly to note, only 14% of On the Border sales actually occur in our core markets, and so we look at it for 86% of those sales, therefore, are in areas which are expanding or emerging markets for us, so it's really complementary to the overall story of Utz.

BRIAN SOZZI: Dylan, if I have my numbers right, including this acquisition today, you have now made 12 acquisitions from 2011 to this present day. It's pretty impressive. And you just closed on one recently. HK Anderson, which you got out of Conagra brands, really, I think under the radar. What are you going to do in the filled pretzel category? When should we see products coming from you in that category, and how big is that business?

DYLAN LISSETTE: Yeah, so filled category pretzel category is about a $100 million category. HK had about nine or 10 million of that subcategory, so it had about a 10% share. We really like that we can take that to probably 20, 25% of the share, and we can do it in a couple of different ways. One, we can take the brand, which exists today. We closed on it November 2, so I guess that's earlier last week. We closed on it, and we can expand it, because it has a very small customer base today, even though the brand has been around for decades.

So we look to expand the number of customers that it has, expand its geographic presence, go into channels that it hadn't been sold in before. But then really, importantly, as we've talked about again in our sort of investor presentations is how we can innovate around that, right? What other types of items and creations can we make through filling it with different products, chocolate and robbing it, you know, a lot of different opportunities to expand on that. And that's just an interesting part of the pretzel subcategory that really flavoring pretzels is on fire today, and we look to just be able to expand that dramatically on a, as you say, a very under the radar acquisition that we did last week.

MYLES UDLAND: You know, Dylan, you've mentioned it twice now, so I'm curious about the geographic footprint of the brands you have as it stands today. And I guess, you know, maybe for folks who don't follow the food, I don't know what we're going to call them, grocery aisle items as closely as certainly as you do, what that kind of looks like for a brand like yours as you look to expand into other regions where you're strongest and how you kind of chart that path, I guess, through the country.

DYLAN LISSETTE: Yeah, well, you know, we break it out on our investor materials. If you went to our website and you'll be able to see that we have emerging, expansion and core. And so our core are areas that we already today sort of have a very nice ACV or market share. When we look at expansion, we look at emerging, we're thinking about areas like the Southeast into Florida and Georgia and Alabama, Mississippi. We're thinking about areas like out west in California and Arizona and places that we don't have as much share today, and we're thinking about the Midwest, specifically Chicago, Indiana, Wisconsin.

All of those areas, those are all areas where we're not as strong today, but we have a lot of upside, a lot of growth opportunity. And I think if you looked at our recent IRI, you'd really realized that, you know, where if the market was up 8% and, you know, we're up 16, and many of those emerging in expansion markets. So I think we have a lot of upside and opportunity to continue to grow our, especially our power brands, which are really the ones that we're thinking about on a more national basis.

BRIAN SOZZI: Dylan, in the 30 seconds we have left, are you seeing consumer stock back up as infections pick back up across the country?

DYLAN LISSETTE: Yeah, I mean, we're seeing a little bit of that. It's not as dramatic as it was back in March and April, but we're starting to see a little bit of that. I think customers at the end of the day, consumers are realizing that, you know, the grocery stores, the food supply will be intact. I think there's a calmness to it, but I think there's a little bit of that sort of, you know, starting to tick back up, but nowhere near as much as it was back in March and April. I think people had a lot more concern about the infrastructure of the supply.

JULIE HYMAN: Dylan Lissette, the CEO of Utz, thank you so much. Appreciate it. I got to go find some crab flavored Utz chips, being a Marylander, that's always a classic. Appreciate it, Dylan.

DYLAN LISSETTE: Thank you, Julie. Thank you, team.