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Utz Brands, Inc. (UTZ 2.51%)
Q4 2020 Earnings Call
Mar 18, 2021, 8:30 a.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Ladies and gentlemen, thank you for standing by, and welcome to the Utz Brands, Inc. fourth-quarter 2020 earnings call. [Operator instructions] Please be advised that today's conference is being recorded. [Operator instructions] I would now like to turn the call over to your speaker today, Kevin Powers, senior vice president of investor relations.

Please go ahead.

Kevin Powers -- Senior Vice President of Investor Relations

Good morning, and thank you for joining us today. On the call today are Dylan Lissette, chief executive officer; and Cary Devore, chief financial officer. During this call, management may make forward-looking statements within the meaning of the federal securities laws. These statements are based on management's current expectations and involve risks and uncertainties that could differ materially from actual events and those described in these forward-looking statements.

Please refer to the risk factors in Utz Brands most recently quarterly report filed with the SEC as well as risks highlighted in the company's press release issued this morning for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today. Please note, management's remarks today will highlight certain non-GAAP financial measures. Our earnings release also presents the comparable GAAP to the non-GAAP numbers provided and reconciliations of the non-GAAP results to the GAAP financial measures. During today's call, management will reference IRI retail sales data and a discussion of our year-over-year performance.

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Please note that all year-over-year comparisons to 2019 retail sales results assumed that the company owned H.K. Anderson and Truco Enterprises on the first day of fiscal 2019. Finally, the company has also prepared presentation slides and additional supplemental financial information, which are posted on Utz's investor relations website. You may want to refer to these slides during today's call.

This call is being webcast, and an archive of it will also be available on the website. And now I'd like to turn the call over to Dylan.

Dylan Lissette -- Chief Executive Officer

Thanks, Kevin, and good morning, everyone. 2020 was a transformational year for us. We began our new chapter as a public company through our successful business combination with Collier Creek Holdings in August. And during this transition, our business didn't skip the beat.

The strength of our brands are incredible, dedicated associates in our unique action-oriented culture enabled us to successfully navigate a challenging environment and deliver for our loyal customers and our retail customers. We kept our teams safe, gained market share and delivered on the financial commitments that we made to our shareholders when we went public. Reflecting on our performance in 2020, we stayed true to our commitment of executing against our long-term strategies that we believe will enhance shareholder value. These include: driving productivity to enhance margins, reinvesting in marketing and innovation to accelerate revenue growth and continuing to make strategic acquisitions.

I'm proud to say that we have made significant progress across all three. In 2020, including the impact of Truco, we grew retail sales 15% as a combined company to over $1.3 billion, outpacing salty snack category growth of 9%. Utz is now the No. 3 ranked brand platform in U.S.

salty snacks and one of the fastest-growing salty snack platforms of scale. Our power brands sales momentum continued with retail sales growing 17% for the year and now representing close to 90% of our sales. Our footprint continues to extend further beyond our core geographies with nearly 20% growth in the expansion in emerging regions, more than double the growth rate of the salty snacks category. And finally, we are one of the fastest-growing competitors of scale in salty snacks e-commerce with over 120% growth in retail sales year over year.

E-commerce now represents nearly 7% of our sales mix on a retail basis, and we will continue to drive meaningful growth in this important and expanding channel. Of particular importance to our long-term growth potential, during the year, we added over three million buyers, almost two times the next closest competitor. As COVID-19 changed habits and elevated at home consumption, we have executed extraordinarily well in capturing incremental demand and buyer attention. Importantly, these incremental buyers have been sticky in our repeat rate or the proportion of buyers who purchased its products two or more times in the period, grew to nearly 70% in 2020.

We continue to believe that the increase in at-home food consumption that we have seen this past year will continue into 2021 and will benefit us and our dynamic brands over the long term. To help capitalize on this retention opportunity and consistent with the strategy, we've outlined since going public, in the fourth quarter, we began to accelerate our marketing investments focused primarily on digital, social and e-commerce and targeted to drive growth and retention. We are seeing strong returns and our ability to measure the effectiveness of the spend means we believe we can adjust our strategies appropriately as we move forward. Wrapping up our 2020 highlights, we delivered positive gross margin expansion, and we continue to make meaningful progress on productivity initiatives heading into 2021.

Finally, we continue to execute on our strategy of making strategic acquisitions focused on U.S. branded snacking and delivering strong synergies and in February of this year, 2021, we closed on the acquisition of Vintners, our third acquisition since going public. Vintners is a leading regional brand of snack foods in the Chicago metropolitan geography and it provides us with a strong DSD presence with approximately 55 DSD routes. Vintners delivered approximately $25 million in net sales and $3.4 million in pro forma adjusted EBITDA in 2020, and we expect it will be accretive to earnings in 2021 and beyond.

Our acquisitions of H.K. Anderson, On The Border tortilla chips and dips, and Vintners will collectively enhance our geographic footprint, enable us to drive increased penetration of our power brands, and enhance our strength in key products of subcategories. We remain confident in our ability to execute future strategic acquisitions in 2021 and beyond that add long-term strategic value to our company and tortilla's platform. Next, I'll shift my comments to the fourth quarter of 2020.

And then I'll turn the call over to Cary, who will discuss our financial results in more detail and our outlook for 2021. Looking at the numbers in the fourth quarter. Our financial results were very strong, with net sales growing over 22% and nearly 7% on a pro forma basis, which excludes the 53rd week in Q4, and it assumes that we own the Conagra DSD snacks, Kitchen Cooked, H.K. Anderson and Truco for the entirety of Q4 of 2020 and the full year of 2019 and 2020.

Adjusted gross profit margins increased approximately 155 basis points to 36.7% for the quarter, leading to year-over-year growth in adjusted gross profit of 27.5%. In addition, adjusted EBITDA margins increased year over year to 13.8% of sales. From a retail sales perspective, our strong momentum continued in the fourth quarter. Our retail sales increased 9.3% for the 13 weeks ending December 27 versus category growth of 7.1%.

We outperformed the category by approximately 220 basis points overall, resulting in our fourth consecutive quarter of share gains. For the year, we grew 15.1%, materially outpacing category growth of 9.1%. Turning to the growth drivers in the quarter. We grew sales in five of our six key sub -- salty subcategories, including tortilla chips, led by the On The Border brand, where sales grew over 22%, more than tripling the subcategory growth of 7%.

From a share perspective, we gained share across potato chips, tortilla chips, and Pork Rinds in the quarter, which are more than 65% of our retail sales. In potato chips, we drove double-digit growth, which was nearly double the category as we continue to increase distribution of our flagship Utz brand outside of our core regions and Zapp's remained on its double-digit growth trajectory. Tangential to the salty subcategories we also grew our Salsa and Queso subcategories by 52% and 38%, respectively, in Q4 2020, and we expect strong continued growth from these subcategories going forward. Moving to our brand portfolio groupings.

Retail sales for our power brands grew over 11% for the quarter, significantly outpacing the category at 7.1%. For the fiscal year, we grew power brands by 17%, almost twice the category's growth rate, and our Foundation Brands grew 3.2%. Foundation Brands slightly declined in the quarter as this is consistent with our strategy to continue to emphasize our power brands. To that end, in 2020, we eliminated approximately 85 Foundation SKUs totaling nearly $10 million in run rate sales.

Looking ahead to 2021 and beyond, focusing our marketing and innovation efforts around our power brands remains a critical focus for our company. In the developing Better-for-You segment of salty snacks, our Better-for-You power brands of Boulder Canyon and Good Health, grew retail sales in the natural channel over 16% in the quarter, and 21% for the year, significantly outpacing natural channel category growth of 9% and 11%, respectively. In the natural channel, our top-selling brand is Boulder Canyon, which delivered a phenomenal year growing over 40% in 2020, delivering the No. 1 selling potato chip SKU in the natural channel, which is the Boulder Canyon Avocado Oil Sea Salt.

We are leveraging Boulder's strong Better-for-You credentials and have early launches in place for innovation to include protein puffs, among others. We expect momentum to continue in 2021 as these brands continue to gain traction, and we are planning to introduce more innovation to continue to grow the base business. 2020 was a transformative year for us in many respects, but in particular, introducing our brand portfolio to new buyers. In 2020, we saw significant growth in households buying our product with higher dollars per buyer being spent and increasing rates of repurchase.

We grew buyers by more than three million for the 52 weeks ending December 27, 2020, versus the prior year, which is nearly two times more than any other salty snack competitor during this period. Moreover, our rates of repurchase increased year over year to 70%, suggesting stickiness for this increase in the number of households. We've seen the total number of buyers growing throughout 2020 and coupled with increasing repeat rates, we continue to gain confidence about what this means for the company's long-term growth prospects. Importantly, this growth in buyers was diversified across age and income demographics as well as geographies.

From a channel perspective, grocery, mass and club continued to drive our retail sales growth. In addition, consistent with our strategy of expanding and underpenetrated channels, we gained share in convenience, where we are currently underweight, notwithstanding overall COVID-related softness in this channel, as well as in our largest channel, grocery, which showed strong growth throughout COVID. We grew retail sales in the grocery channel by 14% in the quarter, and growth in mass and club was strong at approximately 8% and 12%, respectively. During this quarter, we also successfully continued our strategy of geographic expansion as we experienced strong growth in our expansion in emerging regions while also performing well in our core geographies, where our retail sales grew nearly 6%.

Expansion grew about 14% in the quarter versus category growth of 8%, and emerging grew over 14% compared to category growth of approximately 7%. For the year, we grew core, expansion and emerging 12%, 20% and 19%, respectively. We are No. 2 in our core, but we are only No.

4 and No. 5 in expansion and emerging markets, signaling continued opportunity to grow our sales. This significant growth and expansion in emerging is particularly exciting, given they now only comprise 50% of our total retail sales, and that includes the impact of the On-The-Border acquisition. We continue to benefit from the geographic expansion efforts that have been under way at us for decades.

Our acquisitions have helped fuel this expansion and our ability to leverage the footprint gained by our acquisitions to create incremental growth for our power brands has proven to be a very effective strategy. Importantly, while we have been successful in driving above category growth in both emerging and expansion regions, our sales within each represent less than 5% of the overall category sales, and this is less than the 9% in our core market. This reinforces our belief in the distribution runway we have for the future. Turning to e-commerce.

This channel continues to be an area of hyper growth for our company. We finished the year as one of the fastest-growing salty snack companies of scale in e-commerce with sales growing over 120% and nearly doubling to nearly 7% of our total retail sales. We continue to expand our assortments, and we are growing across pure-play e-commerce platforms, click and collect and traditional grocery e-commerce. Looking ahead, we have recently revamped our website and have launched our D2C platform that is intended to create a more user-friendly experience and is better optimized for mobile, all enhancing our path to purchase.

Supporting these efforts will be our marketing agency of record, the Sasha Group, who has significant experience in e-commerce and in digital and social platforms. Before I turn the call over to Cary, I just want to thank our entire team for their commitment during a challenging environment and a transformational year for us. This is a testament to the passion and the tenacity of the Utz culture and on behalf of our management team and our Board of Directors, I'd like to thank you again for your incredible efforts. Cary?

Cary Devore -- Chief Financial Officer

Thank you, Dylan, and good morning, everyone. As Dylan mentioned earlier, in the quarter, we delivered strong top line and bottom line growth that was in line with our expectations. Net sales increased 22.1% to $246.3 million. Gross profit increased 27.4% to $90.5 million, and adjusted EBITDA more than doubled to $34 million.

As you know, calendar 2020 was a 53-week year and adjusting for the impact of the extra week and the impact of acquisitions, pro forma net sales on a comparable 13-week basis increased 6.8% in the quarter. For the full year, pro forma net sales increased 11.9%, and adjusted EBITDA grew 54.8%, with margins expanding over 260 basis points to 13.9% of sales. These results are a reflection of the team's consistency of execution as we delivered category-leading sales growth and margin expansion amid the challenges of COVID-19, going public and three strategic acquisitions. This speaks to the relentless spirit and culture of the Utz organization and our unwavering focus on delivering for our customers and our shareholders.

Moving to the details. Our net sales growth in the quarter was driven by volume of 4.1%, price/mix of 1%, the extra week of 7.9% and acquisitions of 10.6% partially offset by the impact of higher discounts to independent operators, which reduced the net sales growth rate by 1.5%. As a reminder, we are in the process of converting company-owned DSD routes to independent operator routes. And as we make these conversions, we no longer incur certain selling costs such as route commission compensation, benefits and transportation cost, but instead, we pay a sales discount to independent operators.

This has the effect of decreasing net sales and gross profit, but we believe it results in higher EBITDA and margins over the long term. Moving down the P&L. We had a very strong margin performance in the quarter. Our growth in adjusted gross profit margin of approximately 155 basis points led to an increase in our adjusted EBITDA margin of approximately 555 basis points to 13.8%.

As a reminder, prior year margins were impacted by the timing of certain selling expenses that we don't expect to recur and drove a portion of the expansion year over year. Dissecting the increase in adjusted EBITDA margin for the quarter a bit, volume contributed approximately 130 basis points of margin growth as we leveraged higher volumes in our manufacturing facilities. Price/mix contributed approximately 80 basis points of margin growth. Acquisitions contributed approximately 140 basis points of margin growth.

Cost of goods sold contributed approximately 80 basis points of growth as we experienced lower commodity costs due to strong proactive supply chain execution, which locked in favorable contracts that benefited our 2020 results. The 53rd week drove approximately 100 basis points in margin expansion. And finally, selling and admin expense was relatively margin-neutral in the quarter as we had higher incentive compensation due to strong performance and higher marketing and e-commerce spend, both offset by lower selling expenses and synergy realization. For the year, selling and admin expense was higher due to the full-year impact of higher incentive compensation and marketing and e-commerce spend.

Moving to our balance sheet and other key points. As of fiscal year end, our liquidity remains strong, and we had a cash balance of $46 million in availability on our ABL credit facility of approximately $106 million. After year end, and as we previously announced, on January 20, we completed a term loan refinancing and placed a new $720 million term loan B. This new term loan, coupled with exercising the public warrants, which brought in approximately $180 million in cash, enabled us to repay in full the $490 million bridge credit facility used to fund the acquisition of Truco Enterprises and the On The Border brand and refinance the pre-existing $410 million Term loan B due 2024.

Importantly, this refinancing lowered our expected cash interest cost by over $3 million annually, lengthened our maturity profile by over three years to 2028 and provides our business with additional financial flexibility to support our continued long-term growth. Pro forma for this financing and the Truco acquisition. Our net debt at fiscal year-end 2020 was approximately $692 million or 3.7 times, normalized further adjusted EBITDA of $186 million, which assumes Truco and H.K. Anderson were on the entire year as well as including $5 million in run rate cost synergies related to Truco.

Before I discuss our outlook for 2021, I'd like to provide an update on two strategic projects that will improve our infrastructure and help enable our platform to continue scaling: First is our ERP implementation. We have completed the phase deployment across our network, and our final modules were stood up in February of 2021. This has been a two-year process for the business, and we are excited to begin taking advantage of the incremental analytics and efficiency that a single integrated current state ERP system can deliver. We will also benefit from key employees across functional areas of the business, returning from focus on the ERP to helping drive day-to-day execution.

Second, after a brief pause last year to accommodate the COVID-19 impact and the ERP implementation, we resumed our conversion from company-owned routes to independent operators, and we expect to finish the conversion in the first half of 2022. As we've spoken to before, we believe the IO conversion strategy is incremental to long-term organic growth is accretive to EBITDA margins and cash flow and helps derisk our business overall. We look forward to completing this initiative, which has been ongoing for several years now, and we'll also continue to look for opportunities to increase our IO route count by adding new organic routes over time. Turning to guidance.

We are looking forward to another strong year for us with our momentum continuing into 2021. We expect full-year 2021 net sales to be consistent with 2020 pro forma net sales of $1.16 billion. For clarity, our 2020 pro forma net sales is on a 52-week comparison basis, assumes we owned H.K Anderson and Truco on the first day of fiscal 2020 and assumes $20 million of net sales for Vintners to align with expectations for fiscal 2021, which will have 11 months of results and be impacted by SKU rationalization activity. Importantly, we expect modest organic sales growth year over year, even as we lap fiscal '20 organic growth of over 8%.

As expected, due to the COVID-19 impact on at-home consumption in 2020, our 2021 pro forma net sales guidance is below our long-term growth algorithm. But importantly, on a two-year stack basis, this results in pro forma sales growth of about 6%, well above our long-term algorithm of 3% to 4%, which remains firmly intact. We began the year with good momentum, with strong retail sales growth through February, and we expect full-year 2021 organic growth, led by incremental distribution, innovation and price/mix, partially offset by the COVID-19-related lap and our continued DSD route conversion to independent operators. Moving to adjusted EBITDA.

We expect a range of $180 million to $190 million versus 2020, further adjusted EBITDA of $181 million, delivering a margin of approximately 16%. Included in our 2021 assumptions is the contribution of $48 million to $52 million from our acquisitions of H.K. Anderson, Truco and Vintners; excluded from these numbers are run rate cost synergies from acquisitions of at least $5 million. We expect to accomplish the actions to pull through most of these cost synergies by the end of the second quarter of 2022, which is within the range of 12 to 18 months, we typically have experienced over our acquisition history.

Included in our EBITDA assumption is commodity inflation of about 4%, and we are focused on pricing to offset this cost pressure. Additionally, we expect to increase productivity from 1% to 2% of cost of goods sold, which helps to offset inflation and fund incremental marketing spend. Finally, and as I mentioned earlier, we are in the process of converting routes from company-owned to independent operator, and this conversion increases the rate of growth for sales discounts, which negatively impacts net sales and gross profit. For adjusted EPS, we expect a range of $0.70 to $0.75, which assumes fully diluted shares on an as converted basis of $142 million and exclude step-up depreciation and amortization and stock compensation expense.

Lastly, a few additional assumptions for consideration. First, we funded the $25 million Vintners acquisition in February 2021 with balance sheet cash. We are expecting 200 to 250 independent operator route conversions in 2021. We expect core D&A of $25 million to $27 million and step-up D&A of $57 million to $59 million, which are both comprised of approximately two-thirds cost of goods sold and one-third selling and administrative expense.

We expect capital expenditures of $30 million to $40 million as we look to invest behind our productivity program and lean into 2022 targets. We expect cash interest expense of approximately $30 million. We expect an effective cash tax rate of 23% to 25%, which is the percentage of pre-tax book income, we expect to manifest into cash tax payments. And we expect to end the year with a net leverage ratio of approximately 3.5 times.

That includes unrealized cost synergies of approximately $5 million from acquisitions. Diving into our productivity assumptions included in our outlook for 2021, incremental productivity efforts are cornerstone of driving higher margins, and we expect meaningful progress toward our 2023 goal of 3% to 4% productivity of cost of goods sold. This year, we expect to double our productivity from 1% to 2% and breaking down the savings, we expect 40% to come from manufacturing, 30% from product design, 20% from network optimization and 10% from sourcing. A dedicated team to drive this incremental productivity has been up and running for some time.

We know the projects that will drive our 2021 productivity ramp-up, and we are planning for an additional ramp-up in 2022. Also included in our 2021 outlook is an assumption for increased investments in marketing and innovation. In 2021, we expect a significantly higher mix of digital and e-commerce spending and a lower mix of sponsorship spending, and we expect to increase our working digital and e-commerce media spend by approximately 60% relative to 2020 levels and over 275% relative to 2019 levels. We will continue to allocate most working media to digital and e-commerce as these strategies allow us to remain nimble, measure the return on spending and have proven to drive buyer growth and retention.

From an innovation perspective, we have an exciting slate of new products in fiscal '21 across brands and subcategories. To touch on a few: first, we are introducing twisters flavored pretzels. This is a subcategory of U.S. salty snacks that grew approximately 30% in 2020 and represents around 35% of the total subcategory according to IRI, but is only 10% of Utz's pretzel mix.

Our rich history in the pretzel subcategory positions us well to make this a new, permanent part of our product portfolio that should drive meaningful growth. We are also introducing on-the-go products like our cheese pourables. As you know, cheese balls are a strong product for us, but today are almost entirely sold in large barrels mostly in mass and club. Pourables is a product that is more on the go and appropriate for C-store and impulse in grocery and other channels.

And lastly, we have launched peanut butter-filled pretzels under the Utz Brand. This is an extension of the capabilities we acquired with H.K. Anderson, and we have high expectations for growth and innovation across both the H.K. Anderson and Utz Brands.

Early results are strong, and we will continue to innovate around the filled pretzel platform. In addition, we have a wide range of other innovations like protein snacks, new flavors and textures and our 100-year anniversary special products. In summary, this year, we will continue to build on our strong foundation and execute against our strategic priorities that we believe will enhance shareholder value. As we move throughout 2021, we will balance actions that strengthen our fundamentals and create stronger margins long term, while driving strategies that advance our multifaceted growth opportunities.

Now I'd like to turn the call back over to Dylan for some closing remarks.

Dylan Lissette -- Chief Executive Officer

Thanks, Cary. Looking ahead to 2021, we are focused on actively deploying our long-term value creation strategies of generating productivity gains and reducing costs to enhance margins, reinvesting these gains to accelerate our revenue growth and continuing to make strategic acquisitions. Our goal remains to be the fastest growing, pure-play branded snack platform of scale in the U.S., and we believe that our long-term sales and earnings growth outlook remains firmly intact. As Cary mentioned earlier, our longer-term annual growth outlook is for 3% to 4% organic growth.

We delivered growth significantly above this in 2020 as COVID-19 changed habits and elevated at-home consumption. Through the combination of the strength of our brands, our dedicated associate base and our world-class distribution system, we capitalize on this opportunity and delivered for our customers. In 2021, we will look to maintain this momentum as we remain extremely well positioned for long-term growth, and I'll touch briefly on just a few of the key factors that support this. First, we gained a significant amount of new buyers in the salt and snack category, and our repeat rates are increasing.

This year, we are focused on retaining and recruiting these new buyers and will elevate our digital and social-oriented marketing spend to continue to raise customer awareness of our power brands to leverage these new customer relationships. Of note, On The Border was the No. 1 tortilla chip brand in terms of buyer retention in 2020, and we expect these buyers to remain loyal customers in 2021 and beyond; second, we have significant opportunity in terms of geographic white space and underpenetrated channels. As I noted earlier, our share in emerging and expansion geographies is below 5%, which is significantly below our share in core geographies of nearly 9%.

We have a tried and true strategy of building strong relations and relationships with national retailers that have both regional influence and relevance, and we will leverage these relationships with our higher brand marketing support. Mass and C-store channels remain large opportunities for us, and the acquisition of the On The Border brand, for example, will help further Utz's growth in these key channels. Third, our productivity efforts via a virtuous cycle of value creation will help to fuel incremental marketing and innovation to accelerate revenue growth. We plan to invest more in our brands in a more targeted way, and these higher marketing dollars will support geographic expansion and brand building tactics; fourth, our infrastructure improvements will enable the Utz platform to continue to scale to greater heights.

As Cary mentioned earlier, we are implementing a new ERP system, and we continue to convert to our DSD routes to independent operators. And additionally, our new low-cost debt structure will provide increased financial flexibility; lastly, we will continue to make strategic acquisitions that deliver strong synergies and that enhance our competitive positioning. Our strategy remains consistent as we are focused on branded snacking in the U.S. at attractive valuations that are accretive.

On that note, our pipeline remains very active. And important to note, we are very excited to recognize the fact that Utz is officially 100 years old as a company this fall. Almost a century ago, in November of 1921, Bill and Salie Utz started making and selling potato chips in Hanover, Pennsylvania. I'm extremely proud of the generations of families, and Utz associates who have put decades of effort into making Utz a successful, thriving company with a strong roadmap for future growth.

I see no limit to our future success, and I thank our associates, our customers and our consumers for your continued support of Utz in our entire brand portfolio. Again, thank you very much for joining us today. We are excited about everyone who has become a shareholder of Utz and we look forward to continuing to create value for all of our stakeholders. I'd now like to ask the operator to open the call for questions.

Questions & Answers:


Thank you. [Operator instructions] Your first question comes from the line of Andrew Lazar with Barclays. Your line is open.

Andrew Lazar -- Barclays -- Analyst

Hi. Good morning, everybody.

Dylan Lissette -- Chief Executive Officer


Andrew Lazar -- Barclays -- Analyst

Dylan, you talked about how in Utz's core markets, the company gained share for the full year. It looked like in 4Q, specifically, though, in those core markets, share took a bit of a -- it looks like you lost a little bit of share in 4Q. So a little bit of an inflection. Trying to get a sense of what drove that shift? And maybe more importantly, how you see core market share sort of moving forward?

Dylan Lissette -- Chief Executive Officer

Yes. Hey, Andrew. Thanks very much. And you're right, on a full-year basis, the core did extremely well, right? The Utz Brands platform did about 12% against a market of approximately 9%, but as to your point, for sure, in Q4, we had a little bit of a slowdown there relative to the market.

We came in about 5.7% compared to 6.7%. So in our core markets, if you look at the PowerPoint presentation we have online, sort of jumps around from the PAC Northwest to New Orleans to the mid-Atlantic to New England. So it's a vary geography, and you can really dial into specific geographies and see where, on a year-over-year basis, we have opportunity for improvement. It's a big part of our focus.

We're laser-focused on it. We know that the core is as important as any of the growth that we have in emerging and expansion markets. There's a little bit of noise in the Q4 just from some holiday overlaps, some channel exposure, heavier exposure to C-store, underpenetration in mass in some of those core markets, so it's a hotchpotch of different reasons, but it still grew almost 6%. So we're excited about 2021.

I think as we're looking forward into the future, 2021 is just an area for us to get laser-focused on what markets, what accounts within those markets, what channels, what accounts within those channels that we need to focus on. And so we're putting a laser focus on that. And just, very importantly, our overarching objectives are that we want to gain share in our core. So if share is going to go up 2% or 3% or sales is going to go 2% or 3%, we need to beat that in our course.

So that's where we're laser-focused going into 2021.

Andrew Lazar -- Barclays -- Analyst

OK. Thank you for that. And then I guess, lastly, I know the company has previously spoken of a mid-teen EBITDA margin target for, I think it was discussed as sort of the medium term. And with now looking like Utz will hit this target in '21 due partly to the acquisition of the higher-margin Truco business.

I guess, does the company have an updated view on its medium-term margin potential? Thank you.

Cary Devore -- Chief Financial Officer

Hey, Andrew. This is Cary. Great question. We're not updating the target per se.

I mean I think it's safe to say that 16% EBITDA margin is the new baseline from which to grow from, I think, with our price pack initiatives, with our productivity, with our IO conversions coming to a completion here in the next 18 months plus with long-term profitable, branded volume growth. All that is margin-accretive, and then you layer in synergies we pull through in acquisitions. That is a lot of ammunition to kind of march it forward from a baseline of 16%.

Andrew Lazar -- Barclays -- Analyst

Thank you.


Thank you. Your next question comes from the line of Rupesh Parikh with Oppenheimer. Your line is open.

Rupesh Parikh -- Oppenheimer & Co. Inc. -- Analyst

Good morning. Thanks for taking my question. So Dylan, I wanted to go to your slide just showing the subcategory sales growth rate in the tortilla chips category, you guys significantly outgrew the category. I was curious in terms of what the drivers there were in terms of the outperformance and then do you expect this outperformance to continue into 2021?

Dylan Lissette -- Chief Executive Officer

Yes. Thanks. Thanks for the question. That's the slide on the presentation, 6, yes, tortilla chips did fantastic, as you can tell.

Most of that, Rupesh, is driven by the On The Border brand, but also importantly is our TORTIYAHS! brand, which is a legacy brand that is up well over 100% as well. So Truco, On The Border, which we acquired back in December of 2020, had phenomenal growth in 2020. It's continued its growth trends in '21. It's coming off a phenomenal year.

TORTIYAHS! continues to grow and continues to gain expansion. So I think when I look at that subcategory of tortillas, going into the future into 2021, I think it's going to be where it used to be a big weakness. If you remember, back in June of 2020, we talked about how we were underpenetrated in the tortilla subcategory. Now I think that's a future and continued strength of Utz's because we've really grown to like the third largest position in tortillas as a subcategory.

Rupesh Parikh -- Oppenheimer & Co. Inc. -- Analyst

OK. Great. And then maybe just one follow-up question for Cary. So in regards to your adjusted EBITDA margin guidance, is there any granularity you can give us in terms of both gross margins and SG&A, how to think about it year over year?

Cary Devore -- Chief Financial Officer

Yes. I think gross margins, I think, will be consistent with kind of the pro forma gross margin from 2020. So call it, 38% area, and that applies kind of an adjusted SG&A margin of about 22%.

Rupesh Parikh -- Oppenheimer & Co. Inc. -- Analyst

OK. Great. Thank you. I'll pass along.


Your next question comes from the line of Brian Holland with D.A. Davidson.

Brian Holland -- D.A. Davidson -- Analyst

Yeah. Thanks. Good morning. So I wanted to just maybe piggyback on Andrew's question about the core market performance.

Have we seen any change in promotional cadence or intensity in the competitive landscape? I'm just curious whether that had any impact on what you're seeing?

Dylan Lissette -- Chief Executive Officer

I think we've seen a little bit of that, Brian. Obviously, we did really well throughout 2020 as a brand. It doesn't matter if you're looking at it in any particular geography between core, emerging or expansion, we did really well. We did really well in almost all of the channels that we operated in 2020.

And I think from a competitive standpoint, obviously, we also went public and we also got on a larger scale and perhaps picked up some more notice from competition. I think in general terms, I've been at this for 25 years. And I wouldn't say that there's any major shift in promotional strategies across the salted snack category. I think people are looking where they stand in the stack of their share in particular subcategories.

If they're underweight in a certain subcategory, if they're underweight in certain shares, looking at ways to perhaps drive share gains, but I haven't seen any dramatic shifts in pricing relative to that. And as we look forward into 2021, I think there's opportunity for everyone in the industry to continue to look at price pack architecture and ways to promote and sell, and it all comes down to depth and frequency and a multitude of ways to affect ultimate price points.

Brian Holland -- D.A. Davidson -- Analyst

I appreciate the color, Dylan. And then just moving this forward to 2021, the revenue guide, a fairly precise number in what's going to be a very volatile year, one would think just compares, etc., and then you obviously have a lot of internal initiatives. So maybe a little more color on how we arrive, where we did. And so maybe just to help guide that question along.

Can Truco, for instance, or On The Border, specifically grow in 2021? And are we thinking about those core markets just being pressured by the COVID comp and that's just fully offset by expansion in emerging market share? Because it seems like there's a lot of white space that you'll be attacking over the next 12 months?

Cary Devore -- Chief Financial Officer

Yes. Great question, Brian. This is Cary. Yes, I would say just a little more color on the revenue guidance.

I think we expect modest organic growth, and that effectively means Utz. We expect distribution gains, which are meaningful as we've been building over time and going to your point about emerging and expansion, that will continue to grow and outpace the category, and we expect the core to do well as well. But I think distribution, by and large, will drive modest organic growth for us. And Truco has a great playbook going forward.

They've got a lot of new distribution in the food and grocery channel. So there's a lot of runway there, but they have a more meaningful COVID lap than Utz does in terms of percentage of total business. So I think the expectation, it lets Utz to grow modestly, and we're seeing consistent growth for the year, Truco might be flat to down a little bit, but that's still very acceptable. It's a great business.

There's a lot of long-term growth ahead of it. We bought it for a really good price. So we're very happy with it.

Brian Holland -- D.A. Davidson -- Analyst

Got it. Thanks. Congrats on a great year, gentlemen.


Your next question comes from the line of Michael Lavery with Piper Sandler. Your line is open.

Michael Lavery -- Piper Sandler -- Analyst

Good morning. Thank you. You mentioned the favorable contracts you had in 2020. There were a benefit, and now, of course, are part of your comp.

You're guiding the 4% inflation that obviously, I'm assuming would capture all of that, but can you just give a sense of where you sit now in terms of how much is hedged or locked in or kind of what sort of volatility there could be potentially to that 4%?

Dylan Lissette -- Chief Executive Officer

Yes. Great question, Michael. We're about 80% covered for 2021. If you asked me before the Texas freeze, what inflation would be for the year, we would have probably said less than 4%, but that definitely had an impact on the markets and resin prices, and that's kind of flowing through to packaging.

And so I think we think we got a really good supply chain team on purchasing. They bought oils really well, and we're still seeing the benefit of that in 2021. So as you think about inflation this year, it's primarily in packaging. I'd say about half of that's in packaging, about 40% is in the cooking oil area because spot prices of cooking oil have gone up, but we are largely covered for the year and then 10% in other categories.

Michael Lavery -- Piper Sandler -- Analyst

OK. Great. That's really helpful. And then just a quick follow-up on productivity.

You've talked about the momentum there and how that should progress, can you just give a little more sense of how much might be reinvested or versus dropping to the bottom line, and how you think about taking those benefits?

Dylan Lissette -- Chief Executive Officer

Yes. So a meaningful increase this year. We're effectively doubling the percentage of COGS from 1% to 2%, and that's on the U.S. base, by the way.

And we'll be run rating higher than 2% as we exit the year, but we're going to take some of that savings and certainly, reinvest in marketing. We're going to spend more this year. We're leaning into digital and social. And the digital and e-com piece of marketing should grow close to 60% this year.

So we will take some of that and reinvest in marketing like we said we would, but some of it's also going to help offset some of the inflationary pressures we're seeing this year.

Michael Lavery -- Piper Sandler -- Analyst

OK. Great. Thanks so much.


Your next question comes from the line of Tim Perz with Stephens Inc. Your line is open.

Tim Perz -- Stephens Inc. -- Analyst

Thanks for the question, guys. So I just want to start with a bigger-picture question. I think the key opportunity for us longer-term is growing your No. 4 and No.

5 share positions and the expansion in emerging categories. Do you think you have the brands in place today to do that and is the answer really just adding distribution assets in those regions or can you just walk me through how you're thinking about growing your business outside of your core markets?

Dylan Lissette -- Chief Executive Officer

Yes, sure. Great question. So I mean, if you think about it, we've been growing continuously and contiguously across the United States for 100 years, more so in the last 10 years where we have been utilizing the M&A strategy to grow geographically, in many cases, right, Golden Flake in 2016, the Tim's Cascade assets that we acquired in late 2019 in the PAC Northwest, great example with Kitchen Cooked in Illinois and Vintners in Illinois. And as we take over and acquire these companies and expand our geographic base, we have the opportunity to really push our branding into our power brands, which is really where we want to focus, right? We know that we're going to have some negative drag from Foundation Brands because it's not where we're putting our focus, right? In the last year or so, we've eliminated two or three of those Foundation Brands and they become a negative drag on your retail sales in some cases, but you're converting that space into your power brands so that when we focus on marketing behind those power brands, we get the benefit from that.

So as we expand into the southeast, as we expand into Florida, as we expand into Texas, as we're currently expanding into Arizona, as we're increasing our sales and our share in the PAC Northwest, as we're going into the Midwest, the Midwest is a huge opportunity for us and showing great results, especially with the just consummated acquisition of Vintners that we closed on February 8 of 2021, we are already putting Utz branded products onto that network and pushing those into the Chicago market. So it's really a combination of just using sort of organic sort of zip code-by-zip code continuous growth across the U.S., but also some of that leapfrogging that we're able to do when we do some of our acquisition strategies to deliver an opportunity. And again, I think to Andrew's first question, without ignoring the fact that we want our core to also gain share over time, not just rely, of course, on emerging or expansion markets.

Tim Perz -- Stephens Inc. -- Analyst

And I just wanted to pivot over to marketing. So you started your relationship with the Sasha Group in October, how is that relationship progressing, and what have your early learnings been from your recent marketing investment spend?

Dylan Lissette -- Chief Executive Officer

Yes. I mean it's going very well. I mean what a great dynamic group. And if you remember back to past calls and past conversations, what we're really trying to do is, a, spend more money on marketing, right, than we had historically spent.

And when I say spend more money on marketing, I mean, spend more on traditional, digital, social type of marketing, pulling away from what we have been spending some money on the past, which is sponsorships and putting more spend into traditional, social, digital type of media. Sasha, which is a VaynerX company, the Sasha Group is just fantastic at that. And so we have our team that does digital, social is fantastic. And I think it sort of shows in some of the e-commerce stuff that we put into our presentation where we've really grown our e-commerce business which is comprised of sort of this is IRI retail e-commerce as it's defined by IRI, which includes some of this click-and-collect and some of the other methods of getting product to people through e-commerce, has really grown over 120-plus percent, and we expect to continue into 2021 and beyond.

So we're really focusing to make sure that we're dynamic, spending more money, significantly more money on social, on digital, on our brands, focusing in on power brands, making that 360 loop into e-commerce and really driving awareness. And I think through our new households that we picked up and our repeat rates and the things that we've detailed in that presentation as well. I think you could say that we're happy so far, I always say never happy, but pleased but not satisfied. We're very pleased, but we always think that we can improve, and so we'll spend 2021 trying to improve that even more, which is the beauty of the marketing that we're doing is that we can literally change day-to-day on a dime if we have to, to spend that money effectively.

Tim Perz -- Stephens Inc. -- Analyst

Thanks, guys.


Your next question comes from the line of Robert Moskow with Credit Suisse. Your line is open.

Robert Moskow -- Credit Suisse -- Analyst

Hi. Thanks. A couple of follow-ups. Could you give us a couple more specifics on how you're going to implement pricing this year.

You mentioned price pack architecture and also depth and frequency of promo, to what extent will list prices -- list price increases also be in that formula? And secondly, I wanted a little more depth on On The Border. And it seems like there's significant revenue synergy opportunities with your Utz distribution platform. Are your salespeople marketing that brand to their customers currently and has that yielded more distribution or is On The Borders stand-alone business -- is it still kind of operating stand-alone and has its own distribution plan? Thanks.

Dylan Lissette -- Chief Executive Officer

Yeah. Hey, Robert. I'm going to tackle both of those. This is Dylan.

I could probably give you 30 minutes on either one of those topics, but I'll try to do it in succinct way. In terms of pricing, in the snacking industry, it's a little bit different. It's not just your sort of typical list pricing initiatives. However, we have a very robust price pack architecture team that constantly analyzes the opportunities, like I mentioned earlier about frequency, about depth.

We did just do some pricing on March 8 which kicked in. Of course, it takes a little while for some of that to flow through the system with contracts and all the specifics of the thousands of accounts that we basically deal with on a daily basis. So we do have some list, and then we also have some weighed-out opportunities that we're enacting and some different things around that to really try to tackle offsetting some of the inflation concerns. So on that, we have a lot of different levers.

We're pulling all the levers, and we're going to continue to lean into those levers on pricing. Flipping to your commentary about On The Border and the integration of sales and how that works. As we said at the very beginning, we did not look at On The Border as a cost synergy play from an M&A perspective. We looked at it as a revenue synergy play from an M&A perspective.

So that team continues to sell day in and day out to their major customers on a DTW, direct-to-warehouse basis. That's impact that's going very well, they have great leadership, they have a great team. If you think about it, we're months into it right now. We're coalescing very well on all fronts.

Our sales folks, it's a little bit -- you have to unwind, in some cases, existing distribution, and there's some complications there that you just have to sort of unwind with any integration of M&A. But for example, in Chicago, like within weeks of the acquisition being consummated, we were taking it through our route system, through our third-party distributor route system in Chicago into Juul. For example, in Central Pennsylvania, we've already turned over OTB distribution to the Utz DSD sales system. In Connecticut, we've already turned it over to the Utz DSD sales system.

And so as we look forward, those opportunities are going to, I think, be very positive and very accretive to us because the brand sells, and it's doing really well in the places that we've been able to convert it. And when it is distributed, when it is sold. If you think about the sales team at OTB, I would garner to say there's roughly eight people in sales. When you think about the sales team at Utz, I would garner to say if you disregard the DSD sales force, we still have over 200-plus people that sell.

So all of them are looking at OTB. And it's not just tortillas. It's sauces, it's dips, it's cases. It's all of the product lineup that they have that we can integrate into our almost 1,700 DSD routes over time, right? And I always think of things in a very long-term perspective that over time, we're going to get those wins, and it's a great brand and selling well.

Robert Moskow -- Credit Suisse -- Analyst

Great. Thanks.


Your final question comes from the line of Jason English with Goldman Sachs. Your line is open.

Jason English -- Goldman Sachs -- Analyst

Hey. Good morning, folks. Let's see. A couple of quick housekeeping questions.

First, you mentioned contracts and the step-up to 4% inflation from modestly deflationary. Is that going to be a gradual ease in sort of giving you time to adjust if the productivity ramping or are your roll over a cliff, it had a little bit of friction on margins as we enter the year?

Dylan Lissette -- Chief Executive Officer

I think it will be more second half-weighted, but I think we will see some pressure in the first half of the year, but we have the pricing starting to take effect, and productivity will layer in as well to help offset that, and that will be more back half-weighted as well.

Jason English -- Goldman Sachs -- Analyst

Yes. That's helpful. Thank you. And coming back to the marketing question.

Dylan, in your prepared remarks, my interpretation, what you were saying was you have a pretty big heavy-up of retail media on e-com platforms coming next year. Question one is, is that right? And second, assuming that's the case, which I think it is, how much of that, if any, can be funded from trade budgets or is all that investment could be incremental?

Dylan Lissette -- Chief Executive Officer

Yes. So in the digital and social area, we are spending approximately 60% more in 2021 than 2020. Part of that is incremental dollars for sure, part of that is also pulling out of sponsorship and moving the mix into more digital and social. So it's a significant increase that we are going to layer into that digital, social in pure dollars.

Jason English -- Goldman Sachs -- Analyst

I'm really just trying to isolate for the retail media component and not the social component. Is there any color you can give? Like it seems like your investments against right now or Walmart Connect or Amazon media services, which to my ear, it sounds like that's where allowance is going to support e-com?

Dylan Lissette -- Chief Executive Officer

Yes. Well, I mean, yes and no. It is digital and social. I'll honestly say, Jason, that I think all of that is interconnected.

E-commerce is not just Amazon. E-commerce is the click-and-collect at Walmart. It's the -- pulling up to a Kroger and ordering online and how do you make your products appear, by the time you type the words, P-R-E looking for a pretzel, how do you make your products appear on the top of that shoppers' list and create that stickiness. So it is all interconnected.

I think it's a great question. It's something we could probably follow up on more definitively, but the way that I look at it is it's not traditional -- we're not talking about television advertising, and we're not talking about a lot of radio advertising. We're talking about a lot of digital and social-oriented advertising and spending and marketing to promote the brands.

Jason English -- Goldman Sachs -- Analyst

No, I hear you. Obviously, paid placement, paid search, those are quite different in social. So that's just why I'm trying to wrap my head around it, and sounds like a good opportunity to follow up offline.

Dylan Lissette -- Chief Executive Officer

Sure, sure thing. Of course.


This concludes our question-and-answer session. I will now turn the call back over to Dylan Lissette for closing remarks.

Dylan Lissette -- Chief Executive Officer

Thank you very much all for joining us today on this year end and Q4 2020 call. We are very excited about the future. We're very excited about everyone who has become a shareholder of Utz. We look forward to continue to create tremendous value for all of our stakeholders.

We're very excited about our 100-year anniversary and all of the things that we'll have going on around that. It's a testament to the company and into our folks and to our people, our customers and our consumers and thank you very much.


[Operator signoff]

Duration: 62 minutes

Call participants:

Kevin Powers -- Senior Vice President of Investor Relations

Dylan Lissette -- Chief Executive Officer

Cary Devore -- Chief Financial Officer

Andrew Lazar -- Barclays -- Analyst

Rupesh Parikh -- Oppenheimer & Co. Inc. -- Analyst

Brian Holland -- D.A. Davidson -- Analyst

Michael Lavery -- Piper Sandler -- Analyst

Tim Perz -- Stephens Inc. -- Analyst

Robert Moskow -- Credit Suisse -- Analyst

Jason English -- Goldman Sachs -- Analyst

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