What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-11 compared with 2022-05-12 · 163 added, 105 removed, 313 unchanged (46% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited combined interim consolidated financial statements as of and for the thirteen weeks ended April 3, 2022, together with our audited combined consolidated financial statements for our most recently completed fiscal year set forth under Item 8 of our Annual Report on Form 10-K.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited combined interim consolidated financial statements as of and for the twenty-six weeks ended July 3, 2022, together with our audited combined consolidated financial statements for our most recently completed fiscal year set forth under Item 8 of our Annual Report on Form 10-K.

This discussion contains forward-looking statements that involve risks and uncertainties.

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We are a leading United States manufacturer of branded salty snacks.

We produce a broad offering of salty snacks, including potato chips, tortilla chips, pretzels, cheese snacks, veggie snacks, pork skins, veggie snacks, pub/party mixes, and other snacks.

We produce a broad offering of salty snacks, including potato chips, tortilla chips, pretzels, cheese snacks, pork skins, veggie snacks, pub/party mixes, and other snacks.

Our iconic portfolio of authentic, craft, and "better for you" brands, which includes Utz®, ON THE BORDER® , Zapp’s®, Golden Flake®, Good Health®, Boulder Canyon®, Hawaiian® Brand, and TORTIYAHS!®, among others, enjoys strong household penetration in the United States, where our products can be found in approximately 49% of U.S.

We operate 17 manufacturing facilities with a broad range of capabilities, and our products are distributed nationally to grocery, mass merchant, club, convenience, drug and other retailers through direct shipments, distributors, and approximately 2,000 direct-store-delivery ("DSD") routes.

We operate manufacturing facilities across the U.S.

with a broad range of capabilities, and our products are distributed nationally to grocery, mass merchant, club, convenience, drug and other retailers through direct shipments, distributors, and approximately 2,000 direct-store-delivery ("DSD") routes.

Our company was founded in 1921 in Hanover, Pennsylvania, and benefits from over 100 years of brand awareness and heritage in the salty snack industry.

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Long-Term Demographics, Consumer Trends, and Demand – We participate in the attractive and growing $32 billion U.S.

salty snacks category, within the broader $105 billion market for U.S.

snack foods as of January 2, 2022.

The salty snacks category has grown retail sales at an approximately 7.1% compound annual growth rate ("CAGR") from 2017 through 2021 with a major spike in 2020 driven by COVID-19 consumption.

salty snacks category, within the broader greater than $105 billion market for U.S.

snack foods as of June 22, 2022.

The salty snacks category has grown retail sales at an approximately 7.1% compound annual growth rate ("CAGR") from 2018 through 2021 with a major spike in 2020 during the novel coronavirus ("COVID-19") pandemic consumption.

In the last few years, snacking occasions have been on the rise as consumers increasingly seek out convenient, delicious snacks for both on-the-go and at-home lifestyles.

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More recently, the U.S.

salty snack category demonstrated strong performance during the novel coronavirus ("COVID-19") pandemic which began in March 2020 in the U.S.

For the thirteen weeks ended April 3, 2022, U.S.

salty snack category demonstrated strong performance during the COVID-19 pandemic which began in March 2020 in the U.S.

For the thirteen weeks ended July 3, 2022, U.S.

retail sales for salty snacks based on IRI data increased by 14.8% versus the comparable prior year period.

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Additionally, we maintain ongoing efforts led by our project management office, or PMO, to expand our profitability, including implementing significant reductions to our operating cost structure in both supply chain and overhead costs.

See Commodity Trends for more information on the current trends of our Operating Costs.

Taxes – On March 27, 2020, The Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was enacted which includes various tax provisions with retroactive effect.

The CARES Act is an approximately $2 trillion emergency economic stimulus package in response to the Coronavirus outbreak, which among other things contains numerous income tax provisions.

The CARES Act is an approximately $2 trillion emergency economic stimulus package in response to the COVID-19 outbreak, which among other things contains numerous income tax provisions.

Some of these tax provisions are effective retroactively for years ending before the date of enactment.

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We continue to use low-cost, short- and long-term debt to finance our ongoing working capital, capital expenditures and other investments and dividends.

Our weighted average interest rate for the thirteen weeks ended April 3, 2022 was 3.9%, up from 3.7% during the thirteen weeks ended April 4, 2021.

Our weighted average interest rate for the twenty-six weeks ended July 3, 2022 was 4.1%, up from 3.7% during the twenty-six weeks ended July 4, 2021.

We have used interest rate swaps to help manage some of our exposure to interest rate changes, which can drive cash flow variability related to our debt.

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"Derivative Financial Instruments and Purchase Commitments" to our unaudited condensed consolidated financial statements included under Part I, Item 1 of this filing for additional information on debt, derivative and purchase commitment activity.

LIBOR Transition – As of April 3, 2022, we had $841.2 million in variable rate indebtedness, up from $823.2 million at January 2, 2022.

As of April 3, 2022 our variable rate indebtedness is tied to the Eurocurreny Rate which currently uses the London Inter Bank Offered Rate ("LIBOR") as a benchmark for establishing applicable rates.

As of April 3, 2022, we have entered into interest rate hedges covering $500.0 million of debt through September 30, 2026, which limits some of our exposure to changes in interest rates.

LIBOR Transition – As of July 3, 2022, we had $849.1 million in variable rate indebtedness, up from $823.2 million at January 2, 2022.

As of July 3, 2022, our variable rate indebtedness is tied to the Eurocurreny Rate which currently uses the London Inter Bank Offered Rate ("LIBOR") as a benchmark for establishing applicable rates.

As of July 3, 2022, we have entered into interest rate hedges covering $500.0 million of debt through September 30, 2026, which limits some of our exposure to changes in interest rates.

"Derivatives Financial Instruments and Purchase Commitments" for additional details.

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Our strategic manufacturing capabilities and DSD distribution network have allowed us to effectively service the increased demand and be responsive to evolving market dynamics driven by changes in consumer behavior.

During this time we picked up a significant number of new customers and have experienced a high level of repeat customers within fiscal year 2021 and the first quarter of 2022.

During this time we picked up a significant number of new customers and have experienced a high level of repeat customers within fiscal year 2021 and the first and second quarters of 2022.

We will continue to monitor customer and consumer activity and adapt our plans as necessary to best service the business.

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The Company closed this transaction on June 7, 2021 and the purchase price of approximately $40.3 million was funded in part from incremental financing on an existing term loan.

On November 2, 2021, the Company announced that its subsidiaries, entered into a definitive agreement to acquire R.W.

On November 2, 2021, the Company announced that certain of its subsidiaries, entered into a definitive agreement to acquire R.W.

Garcia Holdings, LLC and its wholly-owned subsidiary, R.W.

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Our hedging techniques, such as forward contracts, limit the impact of fluctuations in the cost of our principal raw materials; however, we may not be able to fully hedge against commodity cost changes, where there is a limited ability to hedge, and our hedging strategies may not protect us from increases in specific raw material costs.

Toward the end of 2020, we began to experience an increase in pricing in certain commodity trends that continued to rise throughout fiscal year 2021 and have continued to rise in Q1 2022.

Toward the end of 2020, we began to experience an increase in pricing in certain commodity trends that continued to rise throughout fiscal year 2021 and have continued to rise through the second quarter of 2022.

We expect this trend to continue through 2022 and this may adversely impact our net income.

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Transportation costs have been on the rise since early 2021 and may continue to rise which may also adversely impact net income.

Taken all together, the Company now expects gross input cost inflation (which includes commodities, labor, and transportation) to be in the mid-teens in fiscal 2022, which is an increase from its previous expectation of low-teens.The Company looks to offset rising costs through increasing manufacturing and distribution efficiencies as well as through price increases to our customers, although it is unclear whether historic customer sales levels will be maintained at these higher prices.

Taken all together, the Company expects gross input cost inflation (which includes commodities, labor, and transportation) to be in the mid to high-teens in fiscal 2022.

The Company looks to offset rising costs through increasing manufacturing and distribution efficiencies as well as through price increases to our customers, although it is unclear whether historic customer sales levels will be maintained at these higher prices.

Due to competitive or market conditions, planned trade or promotional incentives, or other factors, our pricing actions may also lag commodity cost changes.

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In fiscal year 2017, we embarked on a multi-year strategy to convert all Company-owned RSP routes to the IO model.

The mix between IOs and RSP was approximately 89% and 11%, respectively as of April 3, 2022 versus 81% and 19% ratio for IOs and RSPs respectively as of April 4, 2021.

The mix between IOs and RSP was approximately 91% and 9%, respectively as of July 3, 2022 versus 83% and 17% ratio for IOs and RSPs respectively as of July 4, 2021.

We anticipate completing substantially all remaining conversions by the end of fiscal year 2022.

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Results of Operations

The following tables present selected unaudited financial data for the thirteen weeks ended April 3, 2022 and April 4, 2021.

(in thousands) Thirteen weeks ended April 3, 2022 Thirteen weeks ended April 4, 2021

The following tables present selected unaudited financial data for the thirteen and twenty-six weeks ended July 3, 2022 and July 4, 2021.

Thirteen weeks ended July 3, 2022 Thirteen weeks ended July 4, 2021 Twenty-six weeks ended July 3, 2022 Twenty-six weeks ended July 4, 2021

Net sales $ 350,147 $ 297,919 $ 690,914 $ 567,101

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Total selling, distribution, and administrative expenses 107,612 93,480 234,273 180,141

Gain on sale of assets 367 719

(Loss) income from operations (22,487) 9,299

Gain on sale of assets, net 1,375 2,289 1,742 3,008

Income (loss) from operations 5,292 4,369 (17,195) 13,668

Other (expense) income

Interest expense (10,727) (7,896) (19,830) (18,757)

Other income 520 718

Other (expense) income (645) 758 (125) 1,476

Gain (loss) on remeasurement of warrant liability 5,760 19,368 7,704 (2,133)

Other (expense) income, net (5,612) 12,230 (12,251) (19,414)

Loss before taxes (29,126) (22,345)

Income (loss) before taxes (320) 16,599 (29,446) (5,746)

Income tax (benefit) expense (2,865) 420 (93) 1,424

Net loss (31,898) (23,349)

Net loss attributable to noncontrolling interest 14,328 820

Net loss attributable to controlling interest $ (17,570) $ (22,529)

Thirteen weeks ended April 3, 2022 versus thirteen weeks ended April 4, 2021

Net sales was $340.8 million and $269.2 million for the thirteen weeks ended April 3, 2022 and April 4, 2021, respectively.

Net sales for the thirteen weeks ended April 3, 2022 increased $71.6 million or 26.6% over the comparable period in 2021.

The increase in net sales for the thirteen weeks ended April 3, 2022 was primarily related to the acquisitions of Vitner's, Festida Foods, and R.W.

Garcia as well as favorable price/mix of 9.4%, which was largely driven by pricing action in the second half of 2021 and during the first quarter of 2022 as a response to inflationary pressures, as well as organic volume growth.

IO discounts increased to $34.2 million for the thirteen weeks ended April 3, 2022 from $26.5 million for the corresponding thirteen weeks ended April 4, 2021.

Excluding the impacts of acquisitions and increased IO discounts related to RSP to IO conversion, organic net sales increased 20.7% for the thirteen weeks ended April 3, 2022 versus the corresponding period in 2021.

Net income (loss) $ 2,545 $ 16,179 $ (29,353) $ (7,170)

Thirteen weeks ended July 3, 2022 versus thirteen weeks ended July 4, 2021

Net sales was $350.1 million and $297.9 million for the thirteen weeks ended July 3, 2022 and July 4, 2021, respectively.

The net sales increase of $52.2 million or 17.5% for the thirteen weeks ended July 3, 2022, over the comparable period in 2021, was primarily related to favorable price/mix of 13.0%, which was largely driven by pricing actions in the second half of 2021 and during the first half of 2022 as a response to inflationary pressures.

In addition, the 2021 acquisitions of Festida Foods and R.W.

Garcia, as well as, organic volume growth, and distribution gains at national customers and in key geographies also contributed to the year-over-year revenue growth.

IO discounts increased to $39.3 million for the thirteen weeks ended July 3, 2022 from $30.4 million for the corresponding thirteen weeks ended July 4, 2021.

Excluding the impacts of acquisitions and increased IO discounts related to RSP to IO conversion, organic net sales increased 13.6% for the thirteen weeks ended July 3, 2022 versus the corresponding period in 2021.

Net sales are evaluated based on classification as Power and Foundation brands.

Power brands include our iconic heritage Utz brand and iconic ON THE BORDER®;

Power brands include our iconic heritage Utz brand and iconic ON THE BORDER® brand;

craft brands such as Zapp’s ®, Golden Flake ® Pork Skins, TORTIYAHS!, and Hawaiian ®;

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Garcia® and selected licensed brands such as Herdez ® as well as other partner and private label brands.

For the thirteen weeks ended April 3, 2022, excluding brands acquired through our Vitner's, Festida Foods, and R.

Garcia acquisitions, Power brand sales increased by approximately 27.7%, while Foundation brand sales increased approximately 6.8% from the thirteen weeks ended April 4, 2021.

The increase in Power brand sales is due primarily to favorable pricing action as well as the buyout and termination of the contracts of multiple distributors which resulted in higher net sales to our customers, and increased sales volume, offset by continued IO conversions.

Foundation brand sales increase was primarily driven by increased pricing offset by continued IO conversion.

For the thirteen weeks ended July 3, 2022, excluding brands acquired through our Vitner's, Festida Foods, and R.

Garcia acquisitions, Power brand sales increased by approximately 17.5%, while Foundation brand sales decreased by approximately 0.2% from the thirteen weeks ended July 4, 2021.

The increase in Power brand sales is due primarily to favorable pricing actions and increased sales volume, offset by continued IO conversions.

Foundation brand sales decrease was primarily driven IO conversions, and SKU rationalization, offset by favorable pricing actions.

Cost of goods sold and Gross profit

Gross profit was $103.8 million and $95.2 million for the thirteen weeks ended April 3, 2022 and April 4, 2021, respectively.

The increase in gross profit for thirteen weeks ended April 3, 2022 was driven by organic volume growth, the gross profit contributions related to the acquisition of Vitner's, Festida Foods, and R.W.

Gross profit was $111.5 million and $95.6 million for the thirteen weeks ended July 3, 2022 and July 4, 2021, respectively.

The increase in gross profit for thirteen weeks ended July 3, 2022 was driven by organic volume growth, the gross profit contributions related to the acquisition of Festida Foods and R.W.

Garcia, and the benefits of leveraging our existing infrastructure and available capacity while also improving efficiencies through productivity initiatives.

In addition, pricing initiatives were put in place to help reduce the impact of continued commodity, transportation, and wage inflation.

Our gross profit margin was 30.5% for the thirteen weeks ended April 3, 2022 versus 35.4% for the thirteen weeks ended April 4, 2021.

The decline in gross profit margin was primarily driven by commodity and wage inflation that outpaced pricing actions.

Additionally, IO discounts increased to $34.2 million for the thirteen weeks ended April 4, 2021 from $26.5 million for the thirteen weeks ended April 3, 2022, reducing gross profit by $7.7 million, or 2.3%.

The increase in IO discounts was driven by increased sales due to volume growth, pricing actions, and continued conversions of DSD routes from RSP to IO.

Gross profit margin was 31.9% for the thirteen weeks ended July 3, 2022 versus 32.1% for the thirteen weeks ended July 4, 2021.

The decline in gross profit margin was primarily driven by commodity and wage inflation, higher depreciation costs due to the acquired assets of Festida Foods and R.W.

Garcia businesses, offset by our pricing and productivity actions.

Additionally, IO discounts increased to $39.3 million for the thirteen weeks ended July 3, 2022 from $30.4 million for the thirteen weeks ended July 4, 2021, reducing gross profit by $8.9 million.

The increase in IO discounts was driven by increased sales due to volume growth and pricing actions, and continued conversions of DSD routes from RSP to IO.

The growth of IO discounts related to the conversion of DSD routes to IOs is offset by lower selling and distribution expense.

Selling, distribution, and administrative expense

Selling, distribution, and administrative expenses were $126.7 million and $86.7 million for the thirteen weeks ended April 3, 2022 and April 4, 2021, respectively resulting in an increase of $40.0 million or 46.2% over the corresponding period in fiscal year 2021.

The increase in expenses for the thirteen weeks ended April 3, 2022 was driven by higher Acquisition and Integration costs related to the buyout of multiple distributors, which were accounted for as contract terminations, and resulted in expense of $23.0 million.

Selling, distribution, and administrative expenses were $107.6 million and $93.5 million for the thirteen weeks ended July 3, 2022 and July 4, 2021, respectively resulting in an increase of $14.1 million or 15.1% over the corresponding period in fiscal year 2021.

The increase in expenses for the thirteen weeks ended July 3, 2022 was driven by higher delivery costs by $3.7 million and the addition of operational costs related to organic growth and the acquired operations of Festida Foods and R.W.

Garcia businesses, as well as, wage inflation.

These incremental costs were offset by the reductions of selling costs related to the continued conversion of Company-owned RSP to IO routes.

Gain (loss) on sale of assets

Gain on sale of assets was $1.4 million and $2.3 million for the thirteen weeks ended July 3, 2022 and July 4, 2021, respectivel y.

Th e Company has continued to convert Company-owned routes to IO routes during the second fiscal quarter of 2022, offsetting the sales price by the respective route intangible asset.

Other (expense) income, net

Other (expense) income, net was expense of $(5.6) million compared to income of $12.2 million for the thirteen weeks ended July 3, 2022 and July 4, 2021, respectively.

The decrease in income for the thirteen weeks ended July 3, 2022 was primarily due to a $5.8 million gain from the remeasurement of warrant liability for the thirteen weeks ended July 3, 2022 versus a gain of $19.4 million for the thirteen weeks ended July 4, 2021.

Also significant was interest expense of $10.7 million for the thirteen weeks ended July 3, 2022 compared to $7.9 million for the thirteen weeks ended July 4, 2021.

The additional increase in interest expense is primarily attributable to the additional equipment loan and ABL facility draws, as well as an uptick in interest rates, which impacted the un-hedged portion of debt.

Inco me tax (benefit)/expense was $(2.9) million and $0.4 million for the thirteen weeks ended July 3, 2022 and July 4, 2021, respectively.

Twenty-six weeks ended July 3, 2022 versus twenty-six weeks ended July 4, 2021

Net sales was $690.9 million and $567.1 million for the twenty-six weeks ended July 3, 2022 and July 4, 2021, respectively.

Net sales for the twenty-six weeks ended July 3, 2022 increased $123.8 million or 21.8% over the comparable period in 2021.

The increase in net sales for the twenty-six weeks ended July 3, 2022 was primarily related to favorable price/mix of 11.3%, which was largely driven by pricing actions in the second half of 2021 and during the first half of 2022 as a response to inflationary pressures, as well as organic volume growth, and the acquisitions of Vitner's, Festida Foods, and R.W.

IO discounts increased to $73.5 million for the twenty-six weeks ended July 3, 2022 from $56.9 million for the corresponding twenty-six weeks ended July 4, 2021.

Excluding the impacts of acquisitions and increased IO discounts related to RSP to IO conversion, organic net sales increased 16.9% for the twenty-six weeks ended July 3, 2022 versus the corresponding period in 2021.

Net sales are evaluated based on classification as Power and Foundation brands.

Power brands include our iconic heritage Utz brand and iconic ON THE BORDER® brand;

craft brands such as Zapp’s ®, Golden Flake ® Pork Skins, TORTIYAHS!, and Hawaiian ®;

"better for you" brands such as Good Health ® and Boulder Canyon ®;

and selected licensed brands such as TGI Fridays ®.

Our Foundation brands are comprised of several regional brands, including Bachman ®, Golden Flake ® Chips and Cheese, Tim’s Cascade ® Snacks , Snyder of Berlin ®, and " Dirty" Potato Chips®, R.W.

Garcia® and selected licensed brands such as Herdez ® as well as other partner and private label brands.

For the twenty-six weeks ended July 3, 2022, excluding brands acquired through our Vitner's, Festida Foods, and R.

Garcia acquisitions, Power brand sales increased by approximately 22.3%, while Foundation brand sales increased approximately 3.1% from the twenty-six weeks ended July 4, 2021.

The increase in Power brand sales is due primarily to favorable pricing actions and increased sales volume, offset by continued IO conversions.

Foundation brand sales increase was primarily driven by favorable pricing actions offset by continued IO conversion and SKU rationalization.

Cost of goods sold and Gross profit

Gross profit was $215.3 million and $190.8 million for the twenty-six weeks ended July 3, 2022 and July 4, 2021, respectively.

The increase in gross profit for twenty-six weeks ended July 3, 2022 was driven by organic volume growth, the gross profit contributions related to the acquisition of Vitner's, Festida Foods, and R.W.

Garcia, and the benefits of leveraging our existing infrastructure and available capacity while also improving efficiencies through productivity initiatives.

In addition, pricing initiatives were put in place to help reduce the impact of continued commodity, transportation, and wage inflation.

Gross profit margin was 31.2% for the twenty-six weeks ended July 3, 2022 versus 33.6% for the twenty-six weeks ended July 4, 2021.

The decline in gross profit margin was primarily driven by commodity and wage inflation, higher depreciation costs due to the acquired assets of Festida Foods and R.W.

Garcia businesses, offset by pricing and productivity actions.

Additionally, IO discounts increased to $73.5 million for the twenty-six weeks ended July 3, 2022 from $56.9 million for the twenty-six weeks ended July 4, 2021, reducing gross profit by $16.6 million.

The increase in IO discounts was driven by increased sales due to volume growth and pricing actions, and continued conversions of DSD routes from RSP to IO.

The growth of IO discounts related to the conversion of DSD routes to IOs is offset by lower selling and distribution expense.

Selling, distribution, and administrative expense

Selling, distribution, and administrative expenses were $234.3 million and $180.1 million for the twenty-six weeks ended July 3, 2022 and July 4, 2021, respectively, resulting in an increase of $54.1 million, or 30.0%, over the corresponding period in fiscal year 2021.

The increase in expenses for the twenty-six weeks ended July 3, 2022 was driven by higher Acquisition and Integration costs related to the buyout of multiple distributors, which were accounted for as contract terminations, and resulted in expense of $23.0 million.

In addition, other contract termination expense and related impairments totaled a combined $2.6 million.

Excluding these items selling, distribution, and administrative expenses increased by 16.6% for the thirteen weeks ended April 3, 2022 compared to the corresponding period in fiscal year 2021.

Excluding these items selling, distribution, and administrative expenses increased by 15.8% for the twenty-six weeks ended July 3, 2022 compared to the corresponding period in fiscal year 2021.

We believe that these actions will help drive increased future profitability and allow us to better serve our customers.

Other significant contributors to the increase in expense can be attributed to higher delivery costs by $8.6 million and the addition of operational costs related to the acquired operations Vitner's, Festida, and R.W.

Garcia businesses.

Garcia businesses, as well as, wage inflation related to selling, distribution, and administrative employees.

These incremental costs were offset by the reductions of selling costs related to the continued conversion out of Company-owned RSP to IO routes.

Gain (loss) on sale of assets

Gain on sale of assets was $0.4 million and $0.7 million for the thirteen weeks ended April 3, 2022 and April 4, 2021, respectivel y.

Th e Company has continued to convert company owned routes to IO routes during the first fiscal quarter of 2022, offsetting the sales price by the respective route intangible asset.

Gain on sale of assets was $1.7 million and $3.0 million for the twenty-six weeks ended July 3, 2022 and July 4, 2021, respectivel y.

Th e Company has continued to convert Company-owned routes to IO routes during the first and second fiscal quarters of 2022, offsetting the sales price by the respective route intangible asset.

Other (expense) income, net

Other expense, net was $6.6 million and $31.6 million for the thirteen weeks ended April 3, 2022 and April 4, 2021, respectively.

The decrease in expense for the thirteen weeks ended April 3, 2022 was primarily due to a $1.9 million gain from the remeasurement of warrant liability for the thirteen weeks ended April 3, 2022 versus a loss of $21.5 million for the thirteen weeks ended April 4, 2021.

Also significant was interest expense of $9.1 million for the thirteen weeks ended April 3, 2022 compared to $10.9 million for the thirteen weeks ended April 4, 2021.

Inco me tax expense was $2.8 million and $1.0 million for the thirteen weeks ended April 3, 2022 and April 4, 2021, respectively.

Other expense, net was $(12.3) million and $(19.4) million for the twenty-six weeks ended July 3, 2022 and July 4, 2021, respectively.

The decrease in expense for the twenty-six weeks ended July 3, 2022 was primarily due to a $7.7 million gain from the remeasurement of warrant liability for the twenty-six weeks ended July 3, 2022 versus a loss of $2.1 million for the twenty-six weeks ended July 4, 2021.

Also significant was interest expense of $19.8 million for the twenty-six weeks ended July 3, 2022 compared to $18.8 million for the thirteen weeks ended July 4, 2021.

The additional increase in interest expense is primarily attributable to the additional equipment loan draws as well as an uptick in interest rates, which impacted the un-hedged portion of debt.

Inco me tax (benefit) expense was $(0.1) million and $1.4 million for the twenty-six weeks ended July 3, 2022 and July 4, 2021, respectively.

EBITDA and Adjusted EBITDA

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We also report Adjusted EBITDA as a percentage of Net Sales as an additional measure for investors to evaluate our Adjusted EBITDA margins on Net Sales.

The following table provides a reconciliation from Net Loss to EBITDA and Adjusted EBITDA for the thirteen weeks ended April 3, 2022 and April 4, 2021:

(dollars in millions) Thirteen weeks ended April 3, 2022 Thirteen weeks ended April 4, 2021

Net loss $ (31.9) $ (23.3)

The following table provides a reconciliation from net income (loss) to EBITDA and Adjusted EBITDA for the thirteen and twenty-six weeks ended July 3, 2022 and July 4, 2021:

(dollars in millions) Thirteen weeks ended July 3, 2022 Thirteen weeks ended July 4, 2021 Twenty-six weeks ended July 3, 2022 Twenty-six weeks ended July 4, 2021

Net income (loss) $ 2.5 $ 16.2 $ (29.4) $ (7.2)

Plus non-GAAP adjustments:

Income Tax Expense 2.8 1.0

Income Tax (Benefit) Expense (2.9) 0.4 (0.1) 1.4

Depreciation and Amortization 22.4 19.1 44.6 38.6

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Interest Income (IO loans) (1)

(0.4) (0.4) (0.9) (1.3)

EBITDA 32.3 43.2 34.0 50.3

Certain Non-Cash Adjustments (2)

4.8 2.8 8.3 7.0

Acquisition and Integration (3)

7.2 6.1 36.0 8.0

Business Transformation Initiatives (4)

3.6 2.4 7.9 5.7

Financing-Related Costs (5)

0.1 0.6 0.2 0.6

(Gain) Loss on Remeasurement of Warrant Liability (6)

(5.8) (19.4) (7.7) 2.1

Adjusted EBITDA $ 42.2 $ 35.7 $ 78.7 $ 73.7

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(1) Interest Income from IO Loans refers to Interest Income that we earn from IO notes receivable that have resulted from our initiatives to transition from RSP distribution to IO distribution ("Business Transformation Initiatives") .

There is a Notes

Payable recorded that mirrors most of the IO notes receivable, and the interest expense associated with the Notes Payable is part of the Interest Expense, Net adjustment.

There is a notes payable recorded that mirrors most of the IO notes receivable, and the interest expense associated with the notes payable is part of the Interest Expense, Net adjustment.

(2) Certain Non-Cash Adjustments are comprised primarily of the following:

Incentive programs – For the thirteen weeks ended April 3, 2022 and April 4, 2021, the Company incurred $1.4 million and $2.9 million, respectively, of share based compensation and employee stock purchase plan.

During the thirteen weeks ended April 3, 2022, the Company recorded an impairment of $2.0 million related to the termination of distribution agreements.

Incentive programs and other non-cash adjustments – For the thirteen weeks ended July 3, 2022 and July 4, 2021, the Company incurred $3.3 million and $2.7 million, respectively, of share-based compensation and compensation expense associated with the employee stock purchase plan.

The thirteen and twenty-six weeks ended July 3, 2022 also includes $1.5 million of unrealized purchase commitment losses.

For the twenty-six weeks ended July 3, 2022 and July 4, 2021, the Company incurred $4.8 million and $5.6 million, respectively, of share-based compensation and compensation expense associated with the employee stock purchase plan.

During the twenty-six weeks ended July 3, 2022, the Company recorded an impairment of $2.0 million related to the termination of distribution agreements.

(3) Adjustment for Acquisition and Integration Costs – This is comprised of consulting, transaction services, and legal fees incurred for acquisitions and certain potential acquisitions.

The majority of charges are related to the buyout of multiple distributors, which was accounted for as a contract termination resulting in expense of $23.0 million for the thirteen weeks ended April 3, 2022, versus the costs incurred for the Vitner's acquisition, the Truco acquisition, and related integration expenditures where we incurred costs of $1.9 million for the thirteen weeks ended April 4, 2021.

The majority of charges are related to the buyout of multiple distributors, which was accounted for as a contract termination resulting in expense of $23.0 million for the twenty-six weeks ended July 3, 2022 as well as other integration costs.

During the thirteen and twenty-six weeks ended July 3, 2022, we incurred incremental costs of $6.2 million and $12.0 million, respectively, for the integration of Truco, R.W.

Garcia, Kings Mountain, and costs to evaluate other potential acquisitions, as well as, $1.0 million for the incremental Tax Receivable Agreement Liability associated with the Business Combination.

Acquisition and Integration costs incurred primarily for the Vitner's acquisition, the Truco acquisition, and related integration expenditures were $1.9 million and $3.9 million for the thirteen and twenty-six weeks ended July 4, 2021, respectively, as well as $4.1 million related to distributor buyouts which was accounted for as contract terminations for the thirteen and twenty-six weeks ended July 4, 2021.

(4) Business Transformation Initiatives Adjustment – This adjustment is related to consultancy, professional, and legal fees incurred for specific initiatives and structural changes to the business that do not reflect the cost of normal business operations.

In addition, gains realized from the sale of distribution rights to IOs and the subsequent disposal of trucks, and ERP transition costs, offset by severance costs associated with the elimination of RSP positions, fall into this category.

The Company incurred such costs of $4.4 million and $3.3 million for the thirteen weeks ended April 3, 2022 and April 4, 2021, respectively.

(5) Financing-Related Costs – These costs include adjustments for various items related to raising debt and preferred equity capital or debt extinguishment costs.

The Company incurred expenses of $0.3 million for the thirteen weeks ended April 3, 2022.

In addition, gains and losses realized from the sale of distribution rights to IOs and the subsequent disposal of trucks, severance costs associated with the elimination of RSP positions, and ERP transition costs, fall into this category.

The Company incurred such costs of $3.6 million and $2.4 million for the thirteen weeks ended July 3, 2022 and July 4, 2021, respectively, and $6.3 million and $5.7 million for the twenty-six weeks ended July 3, 2022 and July 4, 2021, respectively.

(5) Financing-Related Costs – These costs include adjustments for various items related to raising debt and equity capital or debt extinguishment costs.

(6) Gains and losses related to the changes in the remeasurement of warrant liabilities are not expected to be settled in cash, and when exercised would result in a cash inflow to the Company with the Warrants converting to Class A Common Stock with the liability being extinguished and the fair value of the Warrants at the time of exercise being recorded as an increase to equity.

Liquidity and Capital Resources

The following table presents net cash provided by operating activities, investing activities and financing activities for the thirteen weeks ended April 3, 2022 and April 4, 2021.

(in thousands) Thirteen weeks ended April 3, 2022 Thirteen weeks ended April 4, 2021

The following table presents net cash provided by operating activities, investing activities and financing activities for the twenty-six weeks ended July 3, 2022 and July 4, 2021.

(in thousands) Twenty-six weeks ended July 3, 2022 Twenty-six weeks ended July 4, 2021

Net cash used in operating activities $ (26,268) $ (44)

Net cash used in investing activities $ (47,251) $ (70,543)

Net cash provided by (used in) financing activities $ 9,254 $ (4,317)

For the thirteen weeks ended April 3, 2022, our consolidated cash balance, including cash equivalents, was $14.9 million or $27.0 million lower than at January 2, 2022.

Net cash used in operating activities for the thirteen weeks ended April 3, 2022 was $36.0 million compared to $13.2 million thirteen weeks ended April 4, 2021, with the difference largely driven by the payment of $20.2 million in the first quarter of 2022 related to the buyout of multiple distributors, which were accounted for as contract terminations.

The thirteen weeks ended April 3, 2022 also included a larger cash outflow related to the building of inventory compared to the prior year comparable period.

Cash used in investing activities for the thirteen weeks ended April 3, 2022 was $0.2 million driven by purchases of property and equipment offset by proceeds from the sale of assets and receipt of an insurance claim, versus cash used in investing activity of $25.3 million for the thirteen weeks ended April 4, 2021, which was primarily driven by the acquisition of Vitner's.

Net cash provided by financing activities was $9.3 million for the thirteen weeks ended April 3, 2022, driven by an increase in the line of credit of $20.0 million offset by cash payments on net settled stock based compensation and the payment of dividends, versus net cash used in financing activities of $4.3 million for the thirteen weeks ended April 4, 2021, which was primarily a result of the payoffs of the First Term Loan and the Bridge Credit Agreement, offset by the borrowings under Term Loan B, proceeds from the redemption of warrants, and net borrowings on the ABL.

Net cash provided by financing activities $ 51,754 $ 50,501

For the twenty-six weeks ended July 3, 2022, our consolidated cash balance, including cash equivalents, was $20.1 million or $21.8 million lower than at January 2, 2022.

Net cash used in operating activities for the twenty-six weeks ended July 3, 2022 was $26.3 million compared to $0.0 million for the twenty-six weeks ended July 4, 2021, with the difference largely driven by the payment of $20.2 million in the first quarter of 2022 related to the buyout of multiple distributors, which were accounted for as contract terminations.

The twenty-six weeks ended July 3, 2022 also included a larger cash outflow related to the building of inventory compared to the prior year comparable period.

Cash used in investing activities for the twenty-six weeks ended July 3, 2022 was $47.3 million driven by purchases of property and equipment offset by proceeds from the sale of assets and receipt of an insurance claim, versus cash used in investing activity of $70.5 million for the twenty-six weeks ended July 4, 2021, which was primarily driven by the acquisition of Vitner's and Festida Foods.

Net cash provided by financing activities was $51.8 million for the twenty-six weeks ended July 3, 2022, driven by an increase in the line of credit of $29.8 million, borrowings on the equipment term loans and other notes payable of $28.9 million, and proceeds from the issuance of shares of $28.0 million, offset by cash payments on net settled stock based compensation, the payment of dividends and distribution, and repayments on term debt and notes payable, versus net cash used in financing activities of $50.5 million for the twenty-six weeks ended July 4, 2021, which was primarily a result of the payoffs of the First Term Loan and the Bridge Credit Agreement, payments of dividends and distributions, offset by the borrowings under Term Loan B and proceeds from the redemption of warrants.

Financing Arrangements

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Revolving Credit Facility

On November 21, 2017, UBH entered into an asset based revolving credit facility (as amended, the "ABL facility").

The ABL facility was set to expire on the fifth anniversary of closing, or November 21, 2022.

On November 21, 2017, UBH entered into an asset based revolving credit facility (as amended, the "ABL facility"), pursuant to the terms of that certain First Lien Term Loan Credit Agreement, dated November 21, 2017 (the "Credit Agreement").

On April 1, 2020, the ABL facility was amended to increase the credit limit up to $116.0 million and to extend the maturity through August 22, 2024.

On December 18, 2020, the ABL facility was amended to increase the credit limit up to $161.0 million.

As of April 3, 2022 and January 2, 2022, $56.0 million and $36.0 million, respectively, were outstanding under this facility.

As of July 3, 2022 and January 2, 2022, $65.8 million and $36.0 million, respectively, were outstanding under this facility.

Availability under the ABL facility is based on a monthly accounts receivable and inventory borrowing base certification, which is net of outstanding letters of credit.

As of April 3, 2022 and January 2, 2022, $80.8 million and $96.9 million, respectively, was available for borrowing, net of letters of credit.

The facility bears interest at an annual rate based on LIBOR plus an applicable margin of 1.50% (ranging from 1.50% to 2.00% based on availability) or the prime rate plus an applicable margin of 0.50% (ranging from 0.50% to 1.00%).

Had the Company elected to use the Prime rate, the interest rate on the facility as of April 3, 2022 and April 4, 2021, would have been 3.75%.

The Company elected to use the LIBOR rate, the interest rate on the ABL facility as of April 3, 2022 was 1.95%.

The Company elected to use the LIBOR rate as of April 4, 2021 and the interest rate was 1.61%.

The ABL facility is also subject to unused line fees (0.5% at April 3, 2022) and other fees and expenses.

Standby letters of credit in the amount of $10.3 million have been issued as of April 3, 2022 and January 2, 2022.

As of July 3, 2022 and January 2, 2022, $82.8 million and $96.9 million, respectively, was available for borrowing, net of letters of credit.

The ABL facility is also subject to unused line fees (0.5% at July 3, 2022) and other fees and expenses.

Standby letters of credit in the amount of $12.0 million and $10.3 million have been issued as of July 3, 2022 and January 2, 2022, respectively.

The standby letters of credit are primarily issued for insurance purposes.

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The proceeds of the Bridge Credit Agreement were used to fund the Company’s acquisition of Truco and the IP Purchase from OTB Acquisition, LLC, in which the Company withdrew $490.0 million to finance the Truco Acquisition and IP Purchase.

The Bridge Credit Agreement bears interest at an annual rate based on 4.25% Base plus 1 month LIBOR with scheduled incremental increases to the base rate, as defined in the Bridge Credit Agreement.

The Bridge Credit Agreement bears interest at an annual rate based on 4.25% plus 1 month LIBOR with scheduled incremental increases to the base rate, as defined in the Bridge Credit Agreement.

The loan converts into an Extended Term Loan if the Loan remains open 365 days after the closing date.

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The credit agreements contain certain affirmative and negative covenants as to operations and the financial condition of the Company.

The Company was in compliance with its financial covenant as of April 3, 2022.

The Company was in compliance with its financial covenant as of July 3, 2022.

Debt (in thousands)

Issue Date Principal Balance Interest Rate Maturity Date April 3, 2022 January 2, 2022

Issue Date Principal Balance Interest Rate Maturity Date July 3, 2022 January 2, 2022

Term loan B June-21 $ 795,000 4.06 % January-28 $ 783,261 $ 787,236

Equipment loans (1)

Revolving credit facility 56,000 36,000

3.26%-5.77% Various 49,747 26,655

ABL facility (2)

65,824 36,000

Net impact of debt issuance costs and original issue discounts (7,511) (7,929)

2 unchanged sentences

Long term portion of term debt and financing obligations $ 877,066 $ 830,548

(1) In July 2021, the Company entered into two separate finance lease obligations with Banc of America Leasing & Capital, LLC, which have been treated as secured borrowing.

The Company has made a series of draws upon these agreements totaling $25.6 million in fiscal 2022, with varying maturities up through 2028.

(2) The facility bears interest at an annual rate based on LIBOR plus an applicable margin of 1.75% (ranging from 1.50% to 2.00% based on availability) or the prime rate plus an applicable margin of 0.75% (ranging from 0.50% to 1.00%).

The Company generally utilizes the Prime rate for amounts that the Company expects to pay down within 30 days, the interest rate on the facility as of July 3, 2022 and July 4, 2021, which was 5.50% and 3.75%, respectively under the Prime rate.

The Company elects to use the LIBOR for balances that are expected to be carried longer than 30 days, the interest rate on the ABL facility as of July 3, 2022 was 3.35%.

Had there been an outstanding balance and the Company elected to use the LIBOR rate as of July 4, 2021, the interest rate would have been 1.60%.

Other Notes Payable and Capital Leases

1 unchanged sentence

These transaction were accounted for primarily as contract terminations and resulted in expense of $23.0 million.

As a condition of our buyout of distributors an additional $4.1 million is expected to be paid out and is included in other in the table below.

During the third quarter of 2021, the Company recorded liabilities related primarily to reclaiming distribution rights from distributors, of which $1.3 million was outstanding as of April 3, 2022 and January 2, 2022, respectively.

During the first fiscal quarter of 2020, the Company purchased intellectual property that include a deferred purchase price of $0.5 million, of which $0.3 million is outstanding as of April 3, 2022 and January 2, 2022, respectively.

As a condition of our buyout of distributors an additional $3.1 million was outstanding as of July 3, 2022.

Amounts outstanding under notes payable consisted of the following:

(in thousands) As of

April 3, 2022

As of January 2, 2022

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During fiscal 2021, the Company sold an additional $11.8 million of notes receivable from IOs on its books for $12.5 million in a series of transactions to a financial institution.

During fiscal 2022, the Company sold an additional $5.0 million of notes receivable from IOs on its books for $5.0 million.

Due to the structure of the transactions, they did not qualify for sale accounting treatment and the Company has recorded the notes payable obligation owed by the IOs to the financial institution on its books;

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The Company services the loans for the financial institution by collecting principal and interest from the IOs and passing it through to the institution.

The underlying notes have various maturity dates through April 2030.

The underlying notes have various maturity dates through June 2032.

The Company partially guarantees the outstanding loans, as discussed in further detail within Note 11.

4 unchanged sentences

Interest expense consisted of the following:

(in thousands) Thirteen weeks ended April 3, 2022 Thirteen weeks ended April 4, 2021

(in thousands) Thirteen weeks ended July 3, 2022 Thirteen weeks ended July 4, 2021 Twenty-six weeks ended July 3, 2022 Twenty-six weeks ended July 4, 2021

Company’s ABL facility and other long-term debt $ 10,073 $ 7,254 $ 18,404 $ 14,828

5 unchanged sentences

The Company has outstanding purchase commitments for specific quantities at fixed prices for certain key ingredients to economically hedge commodity input prices.

These purchase commitments totaled $46.3 million as of April 3, 2022.

These purchase commitments totaled $93.2 million as of July 3, 2022.

The Company accrues for losses on firm purchase commitments in a loss position at the end of each reporting period to the extent that there is an active observable market.

The Company has recorded purchase commitment losses totaling $0.0 million for the thirteen weeks ended April 3, 2022 and April 4, 2021.

The Company has recorded purchase commitment losses totaling $1.1 million and $0.0 million for the thirteen weeks ended July 3, 2022 and July 4, 2021, respectively, and $1.0 million and $0.0 million for the twenty-six weeks ended July 3, 2022 and July 4, 2021, respectively.

IO Guarantees-Off-Balance Sheet

The Company partially guarantees loans made to IOs by Cadence Bank for the purchase of routes.

The outstanding balance of loans guaranteed was $2.0 million and $2.2 million at April 3, 2022 and January 2, 2022, respectively, all of which was recorded by the Company as an off balance sheet arrangement.

The outstanding balance of loans guaranteed was $1.8 million and $2.2 million at July 3, 2022 and January 2, 2022, respectively, all of which was recorded by the Company as an off balance sheet arrangement.

The maximum amount of future payments the Company could be required to make under the guarantees equates to 25% of the outstanding loan balance up to $2.0 million.

2 unchanged sentences

The Company partially guarantees loans made to IOs by Bank of America for the purchase of routes.

The outstanding balance of loans guaranteed that were issued by Bank of America was $22.2 million and $18.6 million at April 3, 2022 and January 2, 2022, respectively, which are off balance sheet.

The outstanding balance of loans guaranteed that were issued by Bank of America was $28.6 million and $18.6 million at July 3, 2022 and January 2, 2022, respectively, which are off balance sheet.

As discussed in Note 8.

"Long-Term Debt", the Company also sold notes receivable on its books to Bank of America during fiscal 2019 and fiscal 2021, which the Company partially guarantees.

The outstanding balance of notes purchased by Bank of America at April 3, 2022 and January 2, 2022 was $18.5 million and $19.7 million, respectively.

Due to the structure of the transactions, the sale did not qualify for sale accounting treatment, as such the Company records the notes payable obligation owed by the IOs to the financial institution on its Consolidated Balance Sheets;

The outstanding balance of notes purchased by Bank of America at July 3, 2022 and January 2, 2022 was $21.1 million and $19.7 million, respectively.

Due to the structure of the transactions, the sale did not qualify for sale accounting treatment, and as such the Company records the notes payable obligation owed by the IOs to the financial institution on its Consolidated Balance Sheets;

the corresponding note receivable also remained on the Company’s Consolidated Balance Sheets.

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The agreement with M&T Bank was amended in January 2020 so that the Company guaranteed up to 25% of the greater of the aggregate principal amount of loans outstanding on the payment date or January 1st of the subject year.

The outstanding balance of loans guaranteed was $4.4 million and $4.9 million at April 3, 2022 and January 2, 2022, respectively, all of which was the Company's consolidated balance sheets.

The outstanding balance of loans guaranteed was $4.1 million and $4.9 million at July 3, 2022 and January 2, 2022, respectively, all of which was the Company's consolidated balance sheets.

These loans are collateralized by the routes for which the loans are made.

50 unchanged sentences

For the qualitative analysis performed, which took place on the first day of the fourth quarter of 2021, we have taken into consideration all the events and circumstances listed in FASB ASC 350, Intangibles—Goodwill and Other, in addition to other entity-specific factors that have taken place.

We have determined that there was no significant impact that affected the fair value of the reporting unit through April 3, 2022 .

We have determined that there was no significant impact that affected the fair value of the reporting unit through July 3, 2022 .

T herefore, we have determined that it was not necessary to perform a quantitative goodwill impairment test for the reporting unit.

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Our policy is to classify assessments, if any, for tax related interest as interest expense and penalties as selling and administrative expenses.

As of April 3, 2022 and January 2, 2022, no liability for unrecognized tax benefits was required to be reported.

As of July 3, 2022 and January 2, 2022, no liability for unrecognized tax benefits was required to be reported.

We do not expect any significant changes in our unrecognized tax benefits in the next year.

13 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis