What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-04-05 compared with 2023-01-05 · 137 added, 65 removed, 158 unchanged (56% of the section changed)

7 unchanged sentences

Such risks and uncertainties include those related to our ability to sell our products.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended August 27, 2022 (“Annual Report”) and our unaudited condensed consolidated financial statements and the related notes appearing elsewhere in this Report.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended August 27, 2022 (“Annual Report”) and our unaudited consolidated financial statements and the related notes appearing elsewhere in this Report.

In addition to historical information, the following discussion contains forward-looking statements, including, but not limited to, statements regarding the Company’s expectation for future performance, liquidity and capital resources that involve risks, uncertainties and assumptions that could cause actual results to differ materially from the Company’s expectations.

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Business Trends

We continue to actively monitor the impact of the dynamic macroeconomic inflationary environment in the United States and elsewhere, elevated levels of supply chain cost inflation, and the level of consumer mobility, which includes the rate at which consumers return to working outside the home.

We continue to actively monitor the effect of the dynamic macroeconomic inflationary environment in the United States and elsewhere, elevated levels of supply chain costs, and the level of consumer mobility, which includes the rate at which consumers return to working outside the home.

Current or future governmental policies may increase the risk of inflation and possible economic recession, which could further increase the costs of ingredients, packaging and finished goods for our business as well as negatively effect consumer behavior and demand for our products.

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Management is also monitoring for signs of any expansion of economic or supply chain disruptions or broader supply chain inflationary costs resulting either directly or indirectly from the crisis in Eastern Europe.

During the thirteen weeks ended November 26, 2022, our business performance was affected by the corresponding unfavorable effects of higher raw material costs, higher co-manufacturing costs, higher freight and logistics costs, and supply chain challenges, including supply chain disruptions resulting from labor shortages and disruptions in ingredients, and we expect these inflationary cost pressures and supply chain challenges to continue for the remainder of fiscal year 2023.

During the thirteen and twenty-six weeks ended February 25, 2023, our business performance was affected by the corresponding unfavorable effects of higher raw material costs, higher co-manufacturing costs, and supply chain challenges, including supply chain disruptions resulting from labor shortages and disruptions in ingredients, and we expect on balance that these inflationary cost pressures and supply chain challenges to continue for the remainder of fiscal year 2023.

We continue to proactively engage with our retail customers, contract manufacturers, and logistics and transportation providers, to meet demand for our products and to remain informed of any challenges within our business operations.

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Results of Operations

During the thirteen weeks ended November 26, 2022, our net sales increased $19.6 million, or 7.0%, and our gross profit decreased $5.6 million, or 4.8%, compared to the thirteen weeks ended November 27, 2021.

Net sales for the thirteen weeks ended November 26, 2022 were positively affected by the price increase effective in the fourth quarter of fiscal year 2022 and both the Atkins® and Quest® brands experienced sales growth driven by increased e-commerce sales volume.

However, unfavorable effects of higher raw material and co-manufacturing costs and supply chain challenges in the thirteen weeks ended November 26, 2022 resulted in decreased gross profit and gross profit margin as compared to the thirteen weeks ended November 27, 2021.

During the thirteen weeks ended February 25, 2023, our net sales were relatively flat at $296.6 million compared to $296.7 million for the thirteen weeks ended February 26, 2022.

The positive effects of the price increase effective in the fourth quarter of fiscal year 2022, which drove a 0.3% increase in our North America net sales, were offset by a 10.8% decline in our international net sales and a 1.3% headwind to net sales growth related to our shift from direct sales to licensing the Quest® frozen pizza business in the third quarter of fiscal year 2022.

Unfavorable effects of higher raw material, packaging, and co-manufacturing costs and supply chain challenges in the thirteen weeks ended February 25, 2023 resulted in decreased gross profit and gross profit margin as compared to the thirteen weeks ended February 26, 2022.

As previously discussed above in “Business Trends,” we expect these inflationary cost pressures and supply chain challenges to continue for the remainder of fiscal year 2023.

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See “Reconciliation of EBITDA and Adjusted EBITDA” below for a reconciliation of EBITDA and Adjusted EBITDA to net income for each applicable period.

Comparison of Unaudited Results for the Thirteen Weeks Ended November 26, 2022 and the Thirteen Weeks Ended November 27, 2021

Comparison of Unaudited Results for the Thirteen Weeks Ended February 25, 2023 and the Thirteen Weeks Ended February 26, 2022

The following unaudited table presents, for the periods indicated, selected information from our Consolidated Statements of Operations and Comprehensive Income, including information presented as a percentage of net sales:

Thirteen Weeks Ended Thirteen Weeks Ended

(In thousands) November 26, 2022 % of Net Sales November 27, 2021 % of Net Sales

(In thousands) February 25, 2023 % of Net Sales February 26, 2022 % of Net Sales

Net sales $ 296,584 100.0 % $ 296,718 100.0 %

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Loss in fair value change of warrant liability — — % (12,745) (4.3) %

Gain (loss) on foreign currency transactions 108 — % (353) (0.1) %

Other income 6 — % 9 — %

(Loss) gain on foreign currency transactions (214) (0.1) % 780 0.3 %

Total other expense (8,465) (2.9) % (17,241) (5.8) %

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See “Reconciliation of EBITDA and Adjusted EBITDA” below for a reconciliation of net income to EBITDA and Adjusted EBITDA for each applicable period.

Net sales of $300.9 million represented an increase of $19.6 million, or 7.0%, for the thirteen weeks ended November 26, 2022 compared to the thirteen weeks ended November 27, 2021.

The increase was primarily attributable to the price increase effective in the fourth quarter of fiscal year 2022 and e-commerce sales volume growth for both the Atkins® and Quest® brands, which increased our North America net sales by 7.8% in the thirteen weeks ended November 26, 2022 compared to the thirteen weeks ended November 27, 2021.

The increase in North America net sales was partially offset by a 16.5% decline in our international business and a 1.1% headwind to net sales growth related to our shift from direct sales to licensing the Quest® frozen pizza business in the third quarter of fiscal year 2022.

Net sales were relatively flat at $296.6 million for the thirteen weeks ended February 25, 2023 compared to $296.7 million for the thirteen weeks ended February 26, 2022, representing a slight decrease of $0.1 million.

The slight decrease was primarily attributable to the 10.8% decline in our international business and the 1.3% headwind to net sales growth related to our shift from direct sales to licensing the Quest® frozen pizza business in the third quarter of fiscal year 2022.

These decreases were largely offset by the effects of the price increase effective in the fourth quarter of fiscal year 2022, which drove the 0.3% increase in our North America net sales in the thirteen weeks ended February 25, 2023 compared to the thirteen weeks ended February 26, 2022.

Cost of goods sold .

Cost of goods sold increased $25.2 million, or 15.3%, for the thirteen weeks ended November 26, 2022 compared to the thirteen weeks ended November 27, 2021.

The cost of goods sold increase was driven by higher raw material, packaging, and co-manufacturing costs and supply chain challenges for the thirteen weeks ended November 26, 2022 as well as sales volume growth for both the Atkins® and Quest® brands, as discussed above.

Cost of goods sold increased $5.7 million, or 3.0%, for the thirteen weeks ended February 25, 2023 compared to the thirteen weeks ended February 26, 2022.

The cost of goods sold increase was primarily driven by higher raw material, packaging, and co-manufacturing costs and supply chain challenges in the thirteen weeks ended February 25, 2023.

As previously discussed above in “Business Trends,” we expect these inflationary cost pressures and supply chain challenges to continue for the remainder of fiscal year 2023.

Gross profit.

Gross profit decreased $5.6 million, or 4.8%, for the thirteen weeks ended November 26, 2022 compared to the thirteen weeks ended November 27, 2021.

Additionally, gross profit of $111.0 million, or 36.9% of net sales, for the thirteen weeks ended November 26, 2022 decreased 450 basis points from 41.4% of net sales for the thirteen weeks ended November 27, 2021.

The decreases in gross profit and gross profit margin were primarily driven by the unfavorable effects of higher raw material, packaging, and co-manufacturing costs and supply chain challenges in the thirteen weeks ended November 26, 2022 as previously discussed.

Gross profit decreased $5.8 million, or 5.3%, for the thirteen weeks ended February 25, 2023 compared to the thirteen weeks ended February 26, 2022.

Additionally, gross profit of $102.7 million, or 34.6% of net sales, for the thirteen weeks ended February 25, 2023 decreased 200 basis points from 36.6% of net sales for the thirteen weeks ended February 26, 2022.

These decreases were partially offset by the favorable effects of the price increase which became effective in the fourth quarter of fiscal year 2022.

Operating expenses .

Operating expenses remained approximately flat at $58.5 million for the thirteen weeks ended November 26, 2022 and November 27, 2021 due to the following:

Operating expenses decreased $2.3 million, or 3.7%, for the thirteen weeks ended February 25, 2023 and February 26, 2022 due to the following:

• Selling and marketing.

Selling and marketing expenses decreased $2.0 million, or 6.5%, for the thirteen weeks ended November 26, 2022 compared to the thirteen weeks ended November 27, 2021, primarily related to the timing of marketing spend, which was partially offset by increased production costs related to television commercials.

Selling and marketing expenses decreased $2.0 million, or 6.3%, for the thirteen weeks ended February 25, 2023 compared to the thirteen weeks ended February 26, 2022, primarily related to the timing of marketing spend.

• General and administrative.

General and administrative expenses increased $1.9 million, or 8.2%, for the thirteen weeks ended November 26, 2022 compared to the thirteen weeks ended November 27, 2021.

The increase in general and administrative expenses was primarily attributable to a $0.7 million increase in stock-based compensation and increased corporate and employee related expenses.

These increases were partially offset by the discontinuation of costs related to business integration activities and restructuring charges in the thirteen weeks ended November 26, 2022 compared to costs totaling $0.1 million in the thirteen weeks ended November 27, 2021.

General and administrative expenses decreased $0.4 million, or 1.3%, for the thirteen weeks ended February 25, 2023 compared to the thirteen weeks ended February 26, 2022.

The decrease in general and administrative expenses was primarily attributable to a reduction in employee-related expenses and the discontinuation of costs related to business integration activities and restructuring charges in the thirteen weeks ended February 25, 2023 compared to costs totaling $0.3 million in the thirteen weeks ended February 26, 2022.

These decreases were partially offset by the $0.4 million of executive officer transition costs incurred in the thirteen weeks ended February 25, 2023.

• Depreciation and amortization.

Depreciation and amortization expenses were $4.3 million for the thirteen weeks ended November 26, 2022 and November 27, 2021.

Depreciation and amortization expenses were $4.3 million for the thirteen weeks ended February 25, 2023 and February 26, 2022.

Interest expense .

Interest expense increased $0.7 million for the thirteen weeks ended November 26, 2022 compared to the thirteen weeks ended November 27, 2021, primarily due to the increase in interest rates on our Term Facility (as defined below) to 7.7% as of November 26, 2022 from 4.8% as of November 27, 2021.

The increase was partially offset by the effect of principal payments reducing the outstanding balance of the Term Facility to $400.0 million as of November 26, 2022 from $431.5 million as of November 27, 2021.

Additionally, interest expense related to the amortization of deferred financing costs and debt discount decreased $0.3 million for the thirteen weeks ended November 26, 2022 compared to the thirteen weeks ended November 27, 2021.

Interest expense increased $3.2 million for the thirteen weeks ended February 25, 2023 compared to the thirteen weeks ended February 26, 2022, primarily due to the increase in interest rates on our Term Facility (as defined below) to 8.0% as of February 25, 2023 from 3.8% as of February 26, 2022.

The increase was partially offset by the effect of principal payments reducing the outstanding balance of the Term Facility to $365.0 million as of February 25, 2023 from $431.5 million as of February 26, 2022.

Additionally, interest expense related to the amortization of deferred financing costs and debt discount increased $0.2 million for the thirteen weeks ended February 25, 2023 compared to the thirteen weeks ended February 26, 2022.

Loss in fair value change of warrant liability.

During thirteen weeks ended November 27, 2021, we recorded a non-cash loss of $17.3 million related to changes in valuation of our liability-classified warrants issued through a private placement (“Private Warrants”), which was primarily driven by movements in our stock price.

There were no outstanding liability-classified Private Warrants during the thirteen weeks ended February 25, 2023.

During thirteen weeks ended February 26, 2022, we recorded a non-cash loss of $12.7 million related to changes in valuation of our liability-classified warrants issued through a private placement (“Private Warrants”), which was primarily driven by movements in our stock price.

On January 7, 2022, the Private Warrants were exercised on a cashless basis, resulting in a net issuance of 4,830,761 shares of common stock.

As a result, there were no outstanding liability-classified Private Warrants during the thirteen weeks ended November 26, 2022.

Gain (loss) on foreign currency transactions.

Foreign currency transactions resulted in a gain of $0.1 million and a loss of $0.4 million for the thirteen weeks ended November 26, 2022 and November 27, 2021, respectively.

The variance is attributable to changes in foreign currency rates related to our international operations.

(Loss) gain on foreign currency transactions.

Foreign currency transactions resulted in a loss of $0.2 million and a gain of $0.8 million for the thirteen weeks ended February 25, 2023 and February 26, 2022, respectively.

During the thirteen weeks ended February 26, 2022, we recognized a foreign currency translation gain of $1.1 million related to the liquidation of a foreign subsidiary.

The remaining variance is attributable to changes in foreign currency rates related to our international operations.

Income tax expense.

Income tax expense decreased $3.1 million for the thirteen weeks ended November 26, 2022 compared to the thirteen weeks ended November 27, 2021.

Income tax expense decreased $1.9 million for the thirteen weeks ended February 25, 2023 compared to the thirteen weeks ended February 26, 2022.

The decrease in our income tax expense was primarily driven by lower income from operations and changes in permanent differences.

Net income was $35.9 million for the thirteen weeks ended November 26, 2022, an increase of $14.7 million compared to net income of $21.2 million for the thirteen weeks ended November 27, 2021.

The increase was primarily driven by the $17.3 million non-cash fair value loss incurred in the thirteen weeks ended November 27, 2021 related to the measurement of our liability-classified Private Warrants.

The increase in net income was partially offset by the decreased income from operations driven by the unfavorable effects of higher raw material and co-manufacturing costs and supply chain challenges in the thirteen weeks ended November 26, 2022.

Net income was $25.6 million for the thirteen weeks ended February 25, 2023, an increase of $7.2 million compared to net income of $18.5 million for the thirteen weeks ended February 26, 2022.

The increase was primarily driven by the $12.7 million non-cash fair value loss incurred in the thirteen weeks ended February 26, 2022 related to the measurement of our liability-classified Private Warrants.

The increase in net income was partially offset by a $3.4 million decrease in income from operations, driven by the unfavorable effects of higher raw material and co-manufacturing costs and supply chain challenges, and the $3.2 million increase in interest expense in the thirteen weeks ended February 25, 2023 as discussed above.

Adjusted EBITDA.

Adjusted EBITDA decreased $4.8 million, or 7.4% for the thirteen weeks ended November 26, 2022 compared to the thirteen weeks ended November 27, 2021, driven primarily by the decrease in income from operations as a result of the unfavorable effects of higher raw material and co-manufacturing costs and supply chain challenges in the thirteen weeks ended November 26, 2022 as discussed above.

Adjusted EBITDA decreased $3.3 million, or 6.1% for the thirteen weeks ended February 25, 2023 compared to the thirteen weeks ended February 26, 2022, driven primarily by the $3.4 million decrease in income from operations as a result of the unfavorable effects of higher raw material and co-manufacturing costs and supply chain challenges in the thirteen weeks ended February 25, 2023 as discussed above.

For a reconciliation of Adjusted EBITDA to its most directly comparable GAAP measure, see “Reconciliation of EBITDA and Adjusted EBITDA” below.

Comparison of Unaudited Results for the Twenty-Six Weeks Ended February 25, 2023 and the Twenty-Six Weeks Ended February 26, 2022

Twenty-Six Weeks Ended Twenty-Six Weeks Ended

(In thousands) February 25, 2023 % of Net Sales February 26, 2022 % of Net Sales

Net sales $ 597,462 100.0 % $ 577,983 100.0 %

Cost of goods sold 383,738 64.2 % 352,905 61.1 %

Gross profit 213,724 35.8 % 225,078 38.9 %

Operating expenses:

Selling and marketing 58,482 9.8 % 62,482 10.8 %

General and administrative 51,575 8.6 % 49,990 8.6 %

Depreciation and amortization 8,672 1.5 % 8,649 1.5 %

Total operating expenses 118,729 19.9 % 121,121 21.0 %

Income from operations 94,995 15.9 % 103,957 18.0 %

Other income (expense):

Interest income 253 — % 1 — %

Interest expense (15,552) (2.6) % (11,647) (2.0) %

Loss in fair value change of warrant liability — — % (30,062) (5.2) %

(Loss) gain on foreign currency transactions (106) — % 427 0.1 %

Other income 6 — % 9 — %

Total other expense (15,399) (2.6) % (41,272) (7.1) %

Income before income taxes 79,596 13.3 % 62,685 10.8 %

Income tax expense 18,094 3.0 % 23,072 4.0 %

Net income $ 61,502 10.3 % $ 39,613 6.9 %

Other financial data:

Adjusted EBITDA (1)

$ 111,666 18.7 % $ 119,795 20.7 %

(1) Adjusted EBITDA is a non-GAAP financial metric.

See “Reconciliation of EBITDA and Adjusted EBITDA” below for a reconciliation of net income to EBITDA and Adjusted EBITDA for each applicable period.

Net sales of $597.5 million represented an increase of $19.5 million, or 3.4%, for the twenty-six weeks ended February 25, 2023 compared to the twenty-six weeks ended February 26, 2022.

The increase was primarily attributable to the price increase effective in the fourth quarter of fiscal year 2022, which drove the 3.9% increase in our North America net sales in the twenty-six weeks ended February 25, 2023 compared to the twenty-six weeks ended February 26, 2022.

The increase in North America net sales was partially offset by a 13.8% decline in our international business and a 1.2% headwind to net sales growth related to our shift from direct sales to licensing the Quest® frozen pizza business in the third quarter of fiscal year 2022.

Cost of goods sold .

Cost of goods sold increased $30.8 million, or 8.7%, for the twenty-six weeks ended February 25, 2023 compared to the twenty-six weeks ended February 26, 2022.

The cost of goods sold increase was primarily driven by higher raw material, packaging, and co-manufacturing costs and supply chain challenges in the twenty-six weeks ended February 25, 2023.

As previously discussed above in “Business Trends,” we continue to expect these inflationary cost pressures and supply chain challenges to continue for the remainder of fiscal year 2023.

Gross profit.

Gross profit decreased $11.4 million, or 5.0%, for the twenty-six weeks ended February 25, 2023 compared to the twenty-six weeks ended February 26, 2022.

Additionally, gross profit of $213.7 million, or 35.8% of net sales, for the twenty-six weeks ended February 25, 2023 decreased 310 basis points from 38.9% of net sales for the twenty-six weeks ended February 26, 2022.

The decreases in gross profit and gross profit margin were primarily driven by the unfavorable effects of higher raw material, packaging, and co-manufacturing costs and supply chain challenges in the twenty-six weeks ended February 25, 2023 as previously discussed.

These decreases were partially offset by the favorable effects of the price increase which became effective in the fourth quarter of fiscal year 2022.

Operating expenses .

Operating expenses decreased $2.4 million, or 2.0%, for the twenty-six weeks ended February 25, 2023 compared to the twenty-six weeks ended February 26, 2022 due to the following:

• Selling and marketing.

Selling and marketing expenses decreased $4.0 million, or 6.4%, for the twenty-six weeks ended February 25, 2023 compared to the twenty-six weeks ended February 26, 2022, primarily related to the timing of marketing spend.

• General and administrative.

General and administrative expenses increased $1.6 million, or 3.2%, for the twenty-six weeks ended February 25, 2023 compared to the twenty-six weeks ended February 26, 2022.

The increase in general and administrative expense was primarily attributable to a $0.6 million increase in stock-based compensation, increased corporate expenses, and $0.4 million of executive officer transition costs incurred in the twenty-six weeks ended February 25, 2023.

These increases were partially offset by a reduction in employee-related expenses and the discontinuation of costs related to business integration activities and restructuring charges in the twenty-six weeks ended February 25, 2023 compared to costs totaling $0.4 million in the twenty-six weeks ended February 26, 2022.

• Depreciation and amortization.

Depreciation and amortization expenses were $8.7 million and $8.6 million for the twenty-six weeks ended February 25, 2023 compared to the twenty-six weeks ended February 26, 2022, respectively.

Interest expense .

Interest expense increased $3.9 million for the twenty-six weeks ended February 25, 2023 compared to the twenty-six weeks ended February 26, 2022, primarily due to the increase in interest rates on our Term Facility (as defined below) to 8.0% as of February 25, 2023 from 3.8% as of February 26, 2022.

Interest expense related to the amortization of deferred financing costs and debt discount decreased $0.1 million for the twenty-six weeks ended February 25, 2023 compared to the twenty-six weeks ended February 26, 2022.

Loss in fair value change of warrant liability .

There were no outstanding liability-classified Private Warrants during the twenty-six weeks ended February 25, 2023.

During the twenty-six weeks ended February 26, 2022, we recorded a non-cash loss of $30.1 million related to changes in valuation of our Private Warrants, which was primarily driven by movements in our stock price.

On January 7, 2022, the Private Warrants were exercised on a cashless basis, resulting in a net issuance of 4,830,761 shares of common stock.

(Loss) gain on foreign currency transactions.

Foreign currency transactions resulted in a loss of $0.1 million and a gain of $0.4 million for the twenty-six weeks ended February 25, 2023 and February 26, 2022, respectively.

During the twenty-six weeks ended February 26, 2022, we recognized a foreign currency translation gain of $1.1 million related to the liquidation of a foreign subsidiary.

The remaining variance is attributable to changes in foreign currency rates related to our international operations.

Income tax expense.

Income tax expense decreased $5.0 million for the twenty-six weeks ended February 25, 2023 compared to the twenty-six weeks ended February 26, 2022.

The decrease in our income tax expense is primarily driven by lower income from operations and changes in permanent differences.

Net income was $61.5 million for the twenty-six weeks ended February 25, 2023, an increase of $21.9 million compared to net income of $39.6 million for the twenty-six weeks ended February 26, 2022.

The increase was primarily driven by the $30.1 million non-cash fair value loss incurred in the twenty-six weeks ended February 26, 2022 related to the measurement of our liability-classified Private Warrants.

The increase in net income was partially offset by a $9.0 million decrease in income from operations, driven by the unfavorable effects of higher raw material and co-manufacturing costs and supply chain challenges in the twenty-six weeks ended February 25, 2023 as discussed above.

Adjusted EBITDA.

Adjusted EBITDA decreased $8.1 million, or 6.8% for the twenty-six weeks ended February 25, 2023 compared to the twenty-six weeks ended February 26, 2022, driven primarily by the $9.0 million decrease in income from operations as a result of the unfavorable effects of higher raw material and co-manufacturing costs and supply chain challenges in the twenty-six weeks ended February 25, 2023 as discussed above.

For a reconciliation of Adjusted EBITDA to its most directly comparable GAAP measure, see “Reconciliation of EBITDA and Adjusted EBITDA” below.

Reconciliation of EBITDA and Adjusted EBITDA

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The Company defines EBITDA as net income or loss before interest income, interest expense, income tax expense, depreciation and amortization, and Adjusted EBITDA as further adjusted to exclude the following items:

stock-based compensation expense, integration costs, restructuring costs, gain or loss in fair value change of warrant liability, and other non-core expenses.

stock-based compensation expense, executive transition costs, integration costs, restructuring costs, loss in fair value change of warrant liability, and other non-core expenses.

The Company believes that EBITDA and Adjusted EBITDA, when used in conjunction with net income, are useful to provide additional information to investors.

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EBITDA and Adjusted EBITDA may not be comparable to other similarly titled captions of other companies due to differences in the non-GAAP calculation.

The following unaudited table provides a reconciliation of EBITDA and Adjusted EBITDA to its most directly comparable GAAP measure, which is net income, for the thirteen weeks ended November 26, 2022 and November 27, 2021:

(In thousands) Thirteen Weeks Ended

November 26, 2022 November 27, 2021

The following unaudited table provides a reconciliation of EBITDA and Adjusted EBITDA to its most directly comparable GAAP measure, which is net income, for the thirteen and twenty-six weeks ended February 25, 2023 and February 26, 2022:

(In thousands) Thirteen Weeks Ended Twenty-Six Weeks Ended

February 25, 2023 February 26, 2022 February 25, 2023 February 26, 2022

Net income $ 25,642 $ 18,461 $ 61,502 $ 39,613

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Stock-based compensation expense 3,019 3,092 6,332 5,697

Executive transition costs 421 — 421 —

Integration of Quest — 238 — 293

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Loss in fair value change of warrant liability — 12,745 — 30,062

217 (768) 114 (258)

Adjusted EBITDA $ 50,900 $ 54,180 $ 111,666 $ 119,795

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Our principal uses of cash have been working capital, debt service, repurchases of our common stock, and acquisition opportunities.

We had $54.1 million in cash as of November 26, 2022.

We had $63.2 million in cash as of February 25, 2023.

We believe our sources of liquidity and capital will be sufficient to finance our continued operations, growth strategy and additional expenses we expect to incur for at least the next twelve months.

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Debt and Credit Facilities

On July 7, 2017, we entered into a credit agreement with Barclays Bank PLC and other parties (as amended to date, the “Credit Agreement”).

On July 7, 2017, we (through certain of our subsidiaries) entered into a credit agreement with Barclays Bank PLC and other parties (as amended to date, the “Credit Agreement”).

The Credit Agreement at that time provided for (i) a term facility of $200.0 million (“Term Facility”) with a seven-year maturity and (ii) a revolving credit facility of up to $75.0 million (the “Revolving Credit Facility”) with a five-year maturity.

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Any failure to comply with the restrictions of the credit facilities may result in an event of default.

We were in compliance with all financial covenants as of November 26, 2022 and August 27, 2022, respectively.

At November 26, 2022, the outstanding balance of the Term Facility was $400.0 million.

We are not required to make principal payments on the Term Facility over the twelve months following the period ended November 26, 2022.

We were in compliance with all covenants as of February 25, 2023 and August 27, 2022, respectively.

At February 25, 2023, the outstanding balance of the Term Facility was $365.0 million.

We are not required to make principal payments on the Term Facility over the twelve months following the period ended February 25, 2023.

The outstanding balance of the Term Facility is due upon its maturity in July 2024.

As of November 26, 2022, there were no amounts drawn against the Revolving Credit Facility.

As of February 25, 2023, there were no amounts drawn against the Revolving Credit Facility.

Stock Repurchase Program

On October 21, 2022, we announced that our Board of Directors had approved the addition of $50.0 million to our stock repurchase program, resulting in authorized stock repurchases of up to an aggregate of $150.0 million.

During the thirteen weeks ended November 26, 2022, we repurchased 546,346 shares of common stock for $16.4 million, averaging a purchase price per share of $30.11.

We did not repurchase any shares of common stock during the thirteen weeks ended November 27, 2021.

As of November 26, 2022, approximately $71.5 million remained available for repurchases under our $150.0 million stock repurchase program.

During the twenty-six weeks ended February 25, 2023, we repurchased 546,346 shares of common stock for $16.4 million, averaging a purchase price per share of $30.11.

We did not repurchase any shares of common stock during the thirteen weeks ended February 25, 2023.

During the thirteen and twenty-six weeks ended February 26, 2022, we repurchased 571,271 shares of common stock for $20.4 million, averaging a purchase price per share of $35.68.

As of February 25, 2023, approximately $71.5 million remained available for repurchases under our $150.0 million stock repurchase program.

Refer to Note 10, Stockholders’ Equity, of the Notes to Unaudited Consolidated Financial Statements in this Report for additional information related to our stock repurchase program.

The following table sets forth the major sources and uses of cash for each of the periods set forth below (in thousands):

Thirteen Weeks Ended

November 26, 2022 November 27, 2021

Net cash provided by (used in) operating activities

Twenty-Six Weeks Ended

February 25, 2023 February 26, 2022

Net cash provided by operating activities

$ 53,346 $ 30,323

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Operating activities.

Our net cash provided by operating activities increased $16.0 million to $8.7 million for the thirteen weeks ended November 26, 2022 compared to cash used in operating activities of $7.3 million for the thirteen weeks ended November 27, 2021.

The increase in cash provided by operating activities was primarily attributable to changes in working capital, comprised of changes in accounts receivable, net, inventories, prepaid expenses, accounts payable, and accrued expenses and other current liabilities, which are driven by the timing of payments and receipts and seasonal building of inventory.

Changes in working capital consumed cash of $47.6 million in the thirteen weeks ended November 26, 2022 compared to $61.4 million of cash consumed in the thirteen weeks ended November 27, 2021.

Additionally, cash paid for taxes decreased $8.8 million to an immaterial amount for the thirteen weeks ended November 26, 2022 as compared to the thirteen weeks ended November 27, 2021.

These increases in cash provided by operating activities were partially offset by the $5.5 million decrease in income from operations to $52.5 million for the thirteen weeks ended November 26, 2022 as compared to $58.0 million for the thirteen weeks ended November 27, 2021, primarily attributable to the higher raw material and co-manufacturing costs and supply chain challenges as discussed in “Results of Operations” above.

Additionally, cash paid for interest was $6.4 million in the thirteen weeks ended November 26, 2022, which was an increase of $0.7 million as compared to the $5.7 million paid for interest in the thirteen weeks ended November 27, 2021.

Our net cash provided by operating activities increased $23.0 million to $53.3 million for the twenty-six weeks ended February 25, 2023 compared to $30.3 million for the twenty-six weeks ended February 26, 2022.

The increase in cash provided by operating activities was primarily attributable to the $17.4 million decrease in cash paid for taxes and changes in working capital for the twenty-six weeks ended February 25, 2023 as compared to the twenty-six weeks ended February 26, 2022.

Changes in working capital, comprised of changes in accounts receivable, net, inventories, prepaid expenses, accounts payable, and accrued expenses and other current liabilities, which are driven by the timing of payments and receipts and seasonal building of inventory, consumed cash of $28.9 million in the twenty-six weeks ended February 25, 2023 compared to $38.8 million of cash consumed in the twenty-six weeks ended February 26, 2022.

These increases in cash provided by operating activities were partially offset by the $9.0 million decrease in income from operations to $95.0 million for the twenty-six weeks ended February 25, 2023 as compared to $104.0 million for the twenty-six weeks ended February 26, 2022, primarily driven by the unfavorable effects of higher raw material and co-manufacturing costs and supply chain challenges as discussed in “Results of Operations” above.

Additionally, cash paid for interest was $14.3 million in the twenty-six weeks ended February 25, 2023, which was an increase of $4.1 million as compared to the $10.2 million paid for interest in the twenty-six weeks ended February 26, 2022.

Investing activities .

Our net cash used in investing activities was $1.2 million for the thirteen weeks ended November 26, 2022 compared to $4.4 million for the thirteen weeks ended November 27, 2021.

Our net cash used in investing activities for the thirteen weeks ended November 26, 2022 primarily comprised $1.2 million of purchases of property and equipment.

The $4.4 million of net cash used in investing activities for the thirteen weeks ended November 27, 2021 primarily comprised $2.7 million of purchases of property and equipment and the issuance of a $1.5 million note receivable.

Our net cash used in investing activities was $1.9 million for the twenty-six weeks ended February 25, 2023 compared to $6.0 million for the twenty-six weeks ended February 26, 2022.

Our net cash used in investing activities for the twenty-six weeks ended February 25, 2023 primarily comprised $1.7 million of purchases of property and equipment.

The $6.0 million of net cash used in investing activities for the twenty-six weeks ended February 26, 2022 primarily comprised $4.3 million of purchases of property and equipment and the issuance of a $1.5 million note receivable.

Financing activities .

Our net cash used in financing activities was $20.8 million for the thirteen weeks ended November 26, 2022 compared to $28.0 million for the thirteen weeks ended November 27, 2021.

Net cash used in financing activities for the thirteen weeks ended November 26, 2022 primarily consisted of $16.4 million in repurchases in common stock, $6.5 million in principal payments on the Term Facility, and $2.3 million in tax payments related to issuance of restricted stock units and performance stock units, partially offset by $4.6 million of cash proceeds received from option exercises.

Net cash used in financing activities for the thirteen weeks ended November 27, 2021 primarily consisted of $25.0 million in principal payments on the Term Facility and $3.2 million in tax payments related to issuance of restricted stock units and performance stock units.

Our net cash used in financing activities was $55.7 million for the twenty-six weeks ended February 25, 2023 compared to $47.9 million for the twenty-six weeks ended February 26, 2022.

Net cash used in financing activities for the twenty-six weeks ended February 25, 2023 primarily consisted of $16.4 million of repurchases in common stock, $41.5 million in principal payments on the Term Facility, and $2.4 million in tax payments related to issuance of restricted stock units and performance stock units, partially offset by $4.8 million of cash proceeds received from option exercises.

Net cash used in financing activities for the twenty-six weeks ended February 26, 2022 primarily consisted of $20.4 million in repurchases of common stock, $25.0 million in principal payments on the Term Facility, and $3.3 million in tax payments related to issuance of restricted stock units and performance stock units, partially offset by $1.5 million of cash proceeds received from option exercises.

New Accounting Pronouncements

2 unchanged sentences

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What changed 10-Q

Item 2. Management’s Discussion and Analysis