What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-10 compared with 2022-08-11 · 207 added, 163 removed, 313 unchanged (54% 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 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.

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 and thirty-nine weeks ended October 2, 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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Our fiscal quarters are comprised of thirteen weeks each, except for fifty-three-week fiscal periods of which the fourth quarter is comprised of fourteen weeks, and end on the thirteenth Sunday of each quarter (fourteenth Sunday of the fourth quarter, when applicable).

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

We are a leading U.S.

manufacturer of branded salty 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.

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 U.S., where our products can be found in approximately 49% of U.S.

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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Based on 2021 retail sales, we are the second-largest producer of branded salty snacks in our core geographies.

We have historically expanded our geographic reach and product portfolio organically and through acquisitions.

Key Developments and Trends

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Long-Term Demographics, Consumer Trends, and Demand – We participate in the attractive and growing $34 billion U.S.

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.

salty snacks category, within the broader approximately $114 billion market for U.S.

snack foods as of October 2, 2022.

The salty snacks category has grown retail sales at an approximately 15.4% over the 52 weeks ended October 2, 2022.

A recent study by IPSOS presented in June at the IPSOS Food & beverage Summit cites that 47% of consumers say that they are snacking more now than before the novel coronavirus ("COVID-19") pandemic, with the average number of snacks per day for U.S.

consumers at 2.7.

Additionally, the salty snacks category has historically benefited from favorable competitive dynamics, including low private label penetration and category leaders competing primarily through marketing and innovation.

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More recently, the 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.

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

in March 2020.

For the thirteen weeks ended October 2, 2022, U.S.

retail sales for salty snacks based on IRI data increased by 19.4% versus the comparable prior year period.

In the same period, our retail sales increased 16.0%.

In the same period, our retail sales increased 16.9% according to IRI data.

For the fifty-two weeks ended October 2, 2022, U.S.

retail sales for salty snacks based on IRI data increased by 15.4% versus the comparable prior year period.

In the same period, our retail sales increased by 15.7% according to IRI data.

Competition – The salty snack industry is highly competitive and includes many diverse participants.

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We manage these expenses through annual cost saving and productivity initiatives, sourcing and hedging programs, pricing actions, refinancing and tax optimization.

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.

Additionally, we maintain ongoing efforts led by our project management office (“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.

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however, we believe it is unlikely to have a material effect on our consolidated financial position, results of operations, and cash flow.

On August 16, 2022, the U.S.

enacted the Inflation Reduction Act of 2022, which, among other things, implemented a 15% minimum tax on book income of certain large corporations, a 1% excise tax on net stock repurchases and several tax incentives to promote clean energy.

The Company continues to evaluate the impact of the Inflation Reduction Act;

however, we believe it is unlikely to have a material effect on our consolidated financial position, results of operations, and cash flow.

Financing Costs – We regularly evaluate our variable and fixed-rate debt.

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 twenty-six weeks ended July 3, 2022 was 4.1%, up from 3.7% during the twenty-six weeks ended July 4, 2021.

Our weighted average interest rate for the thirty-nine weeks ended October 2, 2022 was 4.3%, up from 3.5% during the thirty-nine weeks ended October 3, 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 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.

On November 30, 2020, the Board of Governors of the Federal Reserve System, the Office of the Comptroller of Currency and the Federal Deposit Insurance Corporation issued a public statement that the administrator of LIBOR announced it will consult on an extension of publication of certain U.S.

The Company has experienced the effect of increased interest rates on the portion of its debt that is not hedged and, continued rising interest rates could negatively impact our net income.

LIBOR Transition – On November 30, 2020, the Board of Governors of the Federal Reserve System, the Office of the Comptroller of Currency and the Federal Deposit Insurance Corporation issued a public statement that the administrator of the London Inter Bank Offered Rate (“LIBOR”) announced it will consult on an extension of publication of certain U.S.

Dollar LIBOR tenors until June 30, 2023, which would allow additional legacy USD LIBOR contracts to mature before the succession of LIBOR.

The Eurocurrency Rate could change benchmarks, the extent and manner of any future changes with respect to methods of calculating LIBOR or replacing LIBOR with another benchmark are unknown and impossible to predict at this time and, as such, may result in interest rates that are materially higher than current interest rates.

If interest rates applicable to our variable interest indebtedness increase, our interest expense will also increase, which could make it difficult for us to make interest payments and fund other fixed costs and, in turn, adversely impact our cash flow available for general corporate purposes.

As of October 2, 2022, we had $857.7 million in variable rate indebtedness, up from $823.2 million at January 2, 2022.

During most of the third quarter of 2022, our variable rate indebtedness was tied to the Eurocurrency Rate which currently uses LIBOR as a benchmark for establishing applicable rates.

As part of the Company's response to reference rate reform, in September 2022 the Company amended the asset based revolving credit facility (the “ABL facility”), Term Loan B, and our interest rate swap agreement from a LIBOR benchmark to the Term SOFR Screen Rate (‘SOFR”).

As of October 2, 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.

COVID-19 – In March 2020, the World Health Organization declared that COVID-19 constituted a "Public Health Emergency of International Concern" and later characterized it as a "pandemic".

In response, we have taken necessary preventive actions and continue to implement safety measures to protect our employees who are working on and off site.

The same time period, March 2020, also marked the beginning of COVID-19’s impact on the consumption, distribution and production of our products.

March 2020 also marked the beginning of COVID-19’s impact on the consumption, distribution and production of our products.

Demand for product increased significantly for several weeks in late March and into April 2020 as customers "pantry-loaded" in response to "shelter-in-place" measures that were enacted in many markets.

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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 and second quarters 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 through the third quarter 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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to acquire certain assets of the C.J.

Vitner's business, ("Vitner's acquisition" or "acquisition of Vitner's"), a leading brand of salty snacks in the Chicago, IL area.

Vitner's business, ("Vitner's acquisition" or "acquisition of Vitner's"), a leading brand of salty snacks in the Chicago, Illinois area.

The acquisition increases our distribution in the Chicago area and Midwest Region and expands our product offering.

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Garcia Co., Inc.

("RW Garcia"), to acquire the equity of RW Garcia, an artisan maker of high-quality organic tortilla chips, crackers, and corn chips ("RW Garcia acquisition").

(together "RW Garcia"), an artisan maker of high-quality organic tortilla chips, crackers, and corn chips ("RW Garcia acquisition" or "acquisition of RW Garcia").

The Company closed on this transaction on December 6, 2021, with the purchase price of approximately $57.9 million funded in part from a draw on the Company's line of credit and cash on hand.

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We regularly monitor worldwide supply and commodity costs so we can cost-effectively secure ingredients, packaging and fuel required for production.

A number of external factors such as weather conditions, commodity market conditions, and the effects of governmental, agricultural or other programs affect the cost and availability of raw materials and agricultural materials used in our products.

A number of external factors such as weather, which may be impacted in unanticipated ways due to climate change, commodity market conditions, and the effects of governmental, agricultural or other programs affect the cost and availability of raw materials and agricultural materials used in our products.

We address commodity costs primarily through the use of buying-forward, which locks in pricing for key materials between three and 18 months in advance.

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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 through the second quarter of 2022.

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

Toward the end of fiscal year 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 third fiscal quarter of 2022.

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

Additionally, the Company has experienced rising costs related to fuel and freight rates as well as rising labor costs which have negatively impacted profitability.

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

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

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 year 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.

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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 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.

The mix between IOs and RSP was approximately 91% and 9%, respectively as of October 2, 2022 versus 85% and 15% ratio for IOs and RSPs respectively as of October 3, 2021.

We anticipate completing substantially all remaining conversions by the middle of fiscal year 2023.

The conversion process involves selling distribution rights of a defined route to an IO.

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Results of Operations

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

The following tables present selected unaudited financial data for the thirteen and thirty-nine weeks ended October 2, 2022 and October 3, 2021.

Thirteen weeks ended October 2, 2022 Thirteen weeks ended October 3, 2021 Thirty-nine weeks ended October 2, 2022 Thirty-nine weeks ended October 3, 2021

Net sales $ 362,818 $ 312,680 $ 1,053,732 $ 879,781

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Total selling, distribution, and administrative expenses 102,445 98,709 336,718 278,850

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

(Loss) gain on sale of assets, net (823) (1,043) 919 1,965

Income (loss) from operations 15,005 2,875 (2,190) 16,543

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Interest expense (11,648) (7,726) (31,478) (26,483)

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

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

Other income 205 740 80 2,216

(Loss) gain on remeasurement of warrant liability (3,672) 36,288 4,032 34,155

Other (expense) income, net (15,115) 29,302 (27,366) 9,888

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

(Loss) income before taxes (110) 32,177 (29,556) 26,431

Income tax (benefit) expense (1,595) 827 (1,688) 2,251

Net income (loss) $ 1,485 $ 31,350 $ (27,868) $ 24,180

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.

Thirteen weeks ended October 2, 2022 versus thirteen weeks ended October 3, 2021

Net sales was $362.8 million and $312.7 million for the thirteen weeks ended October 2, 2022 and October 3, 2021, respectively.

The net sales increase of $50.1 million or 16.0%, for the thirteen weeks ended October 2, 2022, over the comparable period in 2021, and was primarily related to favorable price/mix of 14.7%, which was largely driven by pricing actions in the second half of fiscal year 2021 and throughout fiscal year 2022 as a response to inflationary pressures.

The Company experienced a 2.1% decline in volume as the Company rationalized certain SKUs, primarily in private label and certain partner brands, and lapped strong promotional features in the third fiscal quarter of 2021.

In addition, the 2021 acquisition of R.W.

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

IO discounts increased to $41.2 million for the thirteen weeks ended October 2, 2022 from $31.6 million for the corresponding thirteen weeks ended October 3, 2021.

Excluding the impacts of acquisitions and increased IO discounts related to RSP to IO conversion, organic net sales increased 12.6% for the thirteen weeks ended October 2, 2022 versus the corresponding period in 2021.

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

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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 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.

Garcia®, as well as other partner and private label brands.

For the thirteen weeks ended October 2, 2022, excluding brands acquired through our R.

Garcia acquisitions, Power brand sales increased by approximately 17.6%, while Foundation brand sales increased by approximately 5.7% from the thirteen weeks ended October 2, 2022.

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

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

Cost of goods sold and Gross profit

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.

Gross profit was $118.3 million and $102.6 million for the thirteen weeks ended October 2, 2022 and October 3, 2021, respectively.

The increase in gross profit for thirteen weeks ended October 2, 2022 was driven by organic net sales growth, distribution gains, the gross profit contributions related to the acquisition of 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 31.9% 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.

The thirteen weeks ended October 2, 2022 was benefited by $4.0 million recorded as a reduction of cost of goods sold related to proceeds received from a partial settlement of business interruption insurance, which reimbursed the Company for some expenses as the Company had to shift production to other facilities, including co-manufacturers, due to a natural disaster that affected one of the Company's smaller manufacturing facilities.

Gross profit margin was 32.6% for the thirteen weeks ended October 2, 2022 versus 32.8% for the thirteen weeks ended October 3, 2021.

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

Additionally, IO discounts increased to $41.2 million for the thirteen weeks ended October 2, 2022 from $31.6 million for the thirteen weeks ended October 3, 2021, reducing gross profit by $9.6 million.

The increase in IO discounts was driven by increased sales due primarily to 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 $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.

Selling, distribution, and administrative expenses were $102.4 million and $98.7 million for the thirteen weeks ended October 2, 2022 and October 3, 2021, respectively resulting in an increase of $3.7 million or 3.8%, over the corresponding period in fiscal year 2021.

The increase in expenses for the thirteen weeks ended October 2, 2022 was driven by distribution gains, and the acquired operations of the R.W.

Garcia businesses, as well as, higher accruals for incentive compensation resulting from improved fiscal 2022 performance as compared to fiscal 2021, and increased investments in our people, brands, selling infrastructure, and planning capabilities to support growth..

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

(Loss) gain on sale of assets

Loss on sale of assets was $0.8 million and $1.0 million for the thirteen weeks ended October 2, 2022 and October 3, 2021, respectively.

The Company has continued to convert Company-owned routes to IO routes during the third 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.

Other (expense) income, net was expense of $(15.1) million compared to income of $29.3 million for the thirteen weeks ended October 2, 2022 and October 3, 2021, respectively.

The greater expense for the thirteen weeks ended October 2, 2022 compared to the prior comparable period income was primarily due to a $3.7 million loss from the remeasurement of warrant liability for the thirteen weeks ended October 2, 2022 versus a gain of $36.3 million for the thirteen weeks ended October 3, 2021.

Also significant was interest expense of $11.6 million for the thirteen weeks ended October 2, 2022 compared to $7.7 million for the thirteen weeks ended October 3, 2021.

The additional increase in interest expense is primarily attributable to the additional equipment loan and ABL facility draws, which were used in connection with the acquistion of R.W.

Garcia, the buyout of multiple distributors, which were accounted for as contract terminations, and financing related to the Kings Mountian, North Carolina facility purchase.

Another significant driver increasing interest expense relates to an uptick in interest rates, which impacted the portion of debt that the Company has not hedged.

Income tax (benefit)/expense was $(1.6) million and $0.8 million for the thirteen weeks ended October 2, 2022 and October 3, 2021, respectively.

Thirty-nine weeks ended October 2, 2022 versus thirty-nine weeks ended October 3, 2021

Net sales was $1.054 billion and $879.8 million for the thirty-nine weeks ended October 2, 2022 and October 3, 2021, respectively.

Net sales for the thirty-nine weeks ended October 2, 2022 increased $174.0 million or 19.8% over the comparable period in fiscal year 2021.

The increase in net sales for the thirty-nine weeks ended October 2, 2022 was primarily related to favorable price/mix of 12.5%, which was largely driven by pricing actions in the second half of fiscal year 2021 and throughout fiscal year 2022 as a response to inflationary pressures, as well as organic volume growth, distribution gains, and the acquisitions of Vitner's, Festida Foods, and R.W.

IO discounts increased to $114.6 million for the thirty-nine weeks ended October 2, 2022 from $88.6 million for the corresponding thirty-nine weeks ended October 3, 2021.

Excluding the impacts of acquisitions and increased IO discounts related to RSP to IO conversion, organic net sales increased 15.4% for the thirty-nine weeks ended October 2, 2022 versus the corresponding period in 2021.

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

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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.

Garcia®, as well as other partner and private label brands.

For the thirty-nine weeks ended October 2, 2022, excluding brands acquired through our Vitner's, Festida Foods, and R.

Garcia acquisitions, Power brand sales increased by approximately 20.4%, while Foundation brand sales increased approximately 3.6% from the thirty-nine weeks ended October 3, 2021.

The increase in Power brand sales is due primarily to favorable pricing actions, organic volume growth, and distribution gains, 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.

Gross profit was $333.6 million and $293.4 million for the thirty-nine weeks ended October 2, 2022 and October 3, 2021, respectively.

The increase in gross profit for thirty-nine weeks ended October 2, 2022 was driven by organic volume growth, distribution gains, the gross profit contributions related to the acquisitions 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.

The thirty-nine weeks ended October 2, 2022 was benefited by $4.0 million recorded as a reduction of cost of goods sold related to proceeds received from a partial settlement of business interruption insurance, which reimbursed the Company for some expenses as the Company had to shift production to other facilities, including co-manufacturers, due to a natural disaster that affected one of the Company's smaller manufacturing facilities.

Gross profit margin was 31.7% for the thirty-nine weeks ended October 2, 2022 versus 33.4% for the thirty-nine weeks ended October 3, 2021.

The decline in gross profit margin was primarily driven by commodity and wage inflation, and 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.

Additionally, IO discounts increased to $114.6 million for the thirty-nine weeks ended October 2, 2022 from $88.6 million for the thirty-nine weeks ended October 3, 2021, reducing gross profit by $26.0 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.

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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.

Selling, distribution, and administrative expenses were $336.7 million and $278.9 million for the thirty-nine weeks ended October 2, 2022 and October 3, 2021, respectively, resulting in an increase of $57.9 million, or 20.8%, over the corresponding period in fiscal year 2021.

The increase in expenses for the thirty-nine weeks ended October 2, 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 15.8% for the twenty-six weeks ended July 3, 2022 compared to the corresponding period in fiscal year 2021.

Excluding these items selling, distribution, and administrative expenses increased by 11.6% for the thirty-nine weeks ended October 2, 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, 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 $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 significant contributors to the increase in expense can be attributed to higher delivery costs by $9.8 million and the addition of operational costs related to the acquired operations of Vitner's, Festida, and R.W.

Garcia businesses, distribution gains, and organic volume growth, as well as, higher accruals for incentive compensation resulting from improved fiscal 2022 performance as compared to fiscal 2021, and increased investments in our people, brands, selling infrastructure, and planning capabilities to support growth.

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

(Loss) gain on sale of assets

Gain on sale of assets was $0.9 million and $2.0 million for the thirty-nine weeks ended October 2, 2022 and October 3, 2021, respectivel y.

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

Other (expense) income, net

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.

Other (expense) income, net was $(27.4) million and $9.9 million for the thirty-nine weeks ended October 2, 2022 and October 3, 2021, respectively.

The greater expense for the thirty-nine weeks ended October 2, 2022 compared to the income in the prior comparable period was primarily due to a $4.0 million gain from the remeasurement of warrant liability for the thirty-nine weeks ended October 2, 2022 versus a gain of $34.2 million for the thirty-nine weeks ended October 3, 2021.

Also significant was interest expense of $31.5 million for the thirty-nine weeks ended October 2, 2022 compared to $26.5 million for the thirty-nine weeks ended October 3, 2021.

The additional increase in interest expense is primarily attributable to the additional equipment loans and ABL facility draws, which were used in connection with the acquisition of Festida Foods, the acquisition of R.W.

Garcia, the buyout of multiple distributors, which were accounted for as contract terminations, and financing related to the Kings Mountian, North Carolina facility purchase.

Another significant driver increasing interest expense relates to an uptick in interest rates, which impacted the portion of debt that the Company has not hedged.

Inco me tax (benefit) expense was $(1.7) million and $2.3 million for the thirty-nine weeks ended October 2, 2022 and October 3, 2021, respectively.

Non-GAAP Financial Measures

We use non-GAAP financial information and believe it is useful to investors as it provides additional information to facilitate comparisons of historical operating results, identify trends in our underlying operating results and provides additional insight and transparency on how we evaluate the business.

We use non-GAAP financial measures to budget, make operating and strategic decisions, and evaluate our performance.

We have detailed the non-GAAP adjustments that we make in our non-GAAP definitions below.

The adjustments generally fall within the categories of non-cash items, acquisition and integration costs, business transformation initiatives, and financing-related costs.

We believe the non-GAAP measures should always be considered along with the related U.S.

GAAP financial measures.

We have provided the reconciliations between the U.S.

GAAP and non-GAAP financial measures below, and we also discuss our underlying U.S.

GAAP results throughout this MD&A section.

Our primary non-GAAP financial measures are listed below and reflect how we evaluate our current and prior-year operating results.

As new events or circumstances arise, these definitions could change.

When the definitions change, we will provide the updated definitions and present the related non-GAAP historical results on a comparable basis.

EBITDA and Adjusted EBITDA

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Adjusted EBITDA is one of the key performance indicators we use in evaluating our operating performance and in making financial, operating, and planning decisions.

We believe EBITDA and Adjusted EBITDA are useful to investors in the evaluation of Utz’s operating performance compared to other companies in the salty snack industry, as similar measures are commonly used by companies in this industry.

We believe EBITDA and Adjusted EBITDA are useful to investors in the evaluation of our operating performance compared to other companies in the salty snack industry, as similar measures are commonly used by companies in this industry.

We have also historically reported an Adjusted EBITDA metric to investors and banks for covenant compliance.

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 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

The following table provides a reconciliation from net income (loss) to EBITDA and Adjusted EBITDA for the thirteen and thirty-nine weeks ended October 2, 2022 and October 3, 2021:

(dollars in millions) Thirteen weeks ended October 2, 2022 Thirteen weeks ended October 3, 2021 Thirty-nine weeks ended October 2, 2022 Thirty-nine weeks ended October 3, 2021

Net income (loss) $ 1.5 $ 31.4 $ (27.9) $ 24.2

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— 0.1 0.2 0.7

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

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

3.7 (36.3) (4.0) (34.2)

Adjusted EBITDA $ 47.7 $ 44.8 $ 126.4 $ 118.5

Net income (loss) as a % of Net Sales 0.4 % 10.0 % (2.6) % 2.8 %

Adjusted EBITDA as a % of Net Sales 13.1 % 14.3 % 12.0 % 13.5 %

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

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 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.

Incentive programs and other non-cash adjustments – For the thirteen weeks ended October 2, 2022 and October 3, 2021, the Company incurred $1.9 million and $2.1 million, respectively, of share-based compensation and compensation expense associated with the employee stock purchase plan.

The share-based compensation and compensation expense associated with the employee stock purchase plan for the thirty-nine weeks ended October 2, 2022 and October 3, 2021 was $6.7 million and $7.8 million, respectively.

The thirteen weeks ended October 2, 2022 also included a $1.0 million gain related to unrealized purchase commitment adjustments and thirty-nine weeks ended October 2, 2022 includes a $0.5 million of unrealized purchase commitment losses.

During the thirty-nine weeks ended October 2, 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, in addition to expenses associated with integrating recent

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 thirty-nine weeks ended October 2, 2022 as well as other integration costs.

During the thirteen and thirty-nine weeks ended October 2, 2022, we incurred incremental costs of $4.8 million and $16.4 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 included in the thirty-nine weeks ended October 2, 2022.

Acquisition and Integration costs incurred primarily for the Vitner's acquisition, the Truco acquisition, and related integration expenditures were $5.6 million and $9.6 million for the thirteen and thirty-nine weeks ended October 3, 2021, respectively, as well as $4.1 million and $9.4 million related to distributor buyouts which was accounted for as contract terminations for the thirteen and thirty-nine weeks ended October 3, 2021, respectively.

(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 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.

The Company incurred such costs of $5.4 million and $8.0 million for the thirteen weeks ended October 2, 2022 and October 3, 2021, respectively, and $13.3 million and $13.7 million for the thirty-nine weeks ended October 2, 2022 and October 3, 2021, respectively.

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

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Liquidity and Capital Resources

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)

The following table presents net cash provided by operating activities, investing activities and financing activities for the thirty-nine weeks ended October 2, 2022 and October 3, 2021.

(in thousands) Thirty-nine weeks ended October 2, 2022 Thirty-nine weeks ended October 3, 2021

Net cash provided by operating activities $ 8,071 $ 4,282

Net cash used in investing activities $ (52,940) $ (78,081)

Net cash provided by financing activities $ 54,776 $ 52,929

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.

For the thirty-nine weeks ended October 2, 2022, our consolidated cash balance, including cash equivalents, was $51.8 million or $9.9 million higher than at January 2, 2022.

Net cash used in operating activities for the thirty-nine weeks ended October 2, 2022 was $8.1 million compared to $4.3 million for the thirty-nine weeks ended October 3, 2021, with the difference largely driven by improved net working capital management of vendor payments offset by the payment of $22.9 million related to the buyout of multiple distributors, which were accounted for as contract terminations.

The thirty-nine weeks ended October 2, 2022 also included a larger cash outflow related to the building of inventory compared to the prior year comparable period.

This inventory build was the result of increased volume, which was driven by organic sales growth as well as growth related to acquisitions.

Other factors that contributed to the inventory growth were higher commodity and overhead costs, as well as production and logistics shifts in the business.

Working capital also benefited by faster collections of accounts receivable as we work with customers and implement programs to speed up cash collections.

Cash used in investing activities for the thirty-nine weeks ended October 2, 2022 was $52.9 million driven by purchases of property and equipment, which includes $38.4 million to the purchase of a brand new, recently completed snack food manufacturing facility in Kings Mountain, North Carolina from Evans Food Group Ltd.

d/b/a Benestar Brands and related affiliates, offset by proceeds from the sale of assets and receipt of an insurance claim, versus cash used in investing activity of $78.1 million for the thirty-nine weeks ended October 3, 2021, which was primarily driven by the acquisitions of Vitner's and Festida Foods.

Net cash provided by financing activities was $54.8 million for the thirty-nine weeks ended October 2, 2022, driven by an increase in the line of credit of $40.4 million, borrowings on the equipment term loans and other notes payable of $34.0 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 $52.9 million for the thirty-nine weeks ended October 3, 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 exercise of warrants.

Financing Arrangements

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

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

On September 22, 2022, the ABL facility was amended to further increase the credit limit up to $175.0 million and replaced the interest rate benchmark from LIBOR to the Term SOFR Screen Rate ("SOFR").

As of October 2, 2022 and January 2, 2022, $76.4 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 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.

As of October 2, 2022 and January 2, 2022, $86.1 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 October 2, 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 October 2, 2022 and January 2, 2022, respectively.

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

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(the "Bridge Credit Agreement").

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 proceeds of the Bridge Credit Agreement were used to fund the Company’s acquisition of Truco and the IP Purchase (as defined below) from OTB Acquisition, LLC, in which the Company withdrew $490.0 million to finance the acquisition of Truco Holdco Inc.

("Truco" and such acquisition, the "Truco Acquisition") and certain intellectual property from OTB Acquisition, LLC (the "IP Purchase").

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.

As of January 3, 2021, the outstanding balance of the Bridge Credit Agreement was $370.0 million, with $120.0 million being repaid from the redemption of the Company's warrants.

As of January 3, 2021, the outstanding balance of the Bridge Credit Agreement was $370.0 million, with $120.0 million being repaid from the exercise of the Company's warrants.

Commitment fees and deferred financing costs on the Bridge Credit Agreement totaled $7.2 million, of which $2.6 million was expended in the thirteen weeks ended April 4, 2021.

In connection with Amendment No.

2 to the Credit Agreement, and a $12.0 million repayment in the first quarter of 2021, the outstanding balance of $370.0 million was repaid in full.

2 (as defined below), and a $12.0 million repayment in the first quarter of 2021, the outstanding balance of $370.0 million was repaid in full.

On January 20, 2021, the Company entered into Amendment No.

2 to the Credit Agreement ("Amendment No.

2 to the Bridge Credit Agreement ("Amendment No.

2") which provided additional operating flexibility and revisions to certain restrictive covenants.

Pursuant to the terms of Amendment No.

2, the Company raised $720 million in aggregate principal of Term Loan B ("Term Loan B") which bears interest at LIBOR plus 3.00%, and extended the maturity of the Credit Agreement to January 20, 2028.

2, the Company raised $720 million in aggregate principal of Term Loan B ("Term Loan B") which bore interest at LIBOR plus 3.00% and extended the maturity of the Bridge Credit Agreement to January 20, 2028.

The proceeds were used, together with cash on hand and proceeds from our exercised warrants, to redeem the outstanding principal amount of existing Term Loan B and Bridge Credit Agreement of $410 million and $358 million, respectively.

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On June 22, 2021, the Company entered into Amendment No.

3 to the Credit Agreement ("Amendment No.

3 to the Bridge Credit Agreement ("Amendment No.

Pursuant to the terms of Amendment No.

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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 July 3, 2022.

The Company was in compliance with its financial covenant as of October 2, 2022.

Subsequent to the end of the third fiscal quarter of 2022, as further discussed in Note 18.

"Subsequent events" the Company entered into a loan agreement in the amount of $88.1 million, which was secured by the majority of the Company's real estate assets.

The company used part of these proceeds to pay off the ABL facility.

Debt (in thousands)

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

Issue Date Principal Balance Maturity Date October 2, 2022 January 2, 2022

Term Loan B (1)

June-21 $ 795,000 January-28 $ 781,273 $ 787,236

Equipment loans (2)

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Long term portion of term debt and financing obligations $ 887,270 $ 830,548

(1) On September 22, 2022, the Company entered into Amendment No.

4 to the Bridge Credit Agreement ("Amendment No.

4"), which replaced the interest rate benchmark from LIBOR to SOFR.

The weighted averaged interest rate on the Term Loan B debt for the thirteen weeks ended October 2, 2022 was 5.26%.

(2) 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%.

The Company has made a series of draws upon these agreements throughout fiscal year 2021 and has drawn a total of $29.9 million in fiscal year 2022.

These draws bear interest ranging from 3.26% through 5.77% and have varying maturities up through 2028.

(3) The facility bore 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 October 2, 2022 and October 3, 2021, was 7.00% and 4.00%, respectively under the prime rate.

The Company elects to use the LIBOR, prior to the amendment on September 22, 2022 which changed the reference rate to SOFR as described above, for balances that are expected to be carried longer than 30 days, the interest rate on the ABL facility as of October 2, 2022 was 4.82%.

Other Notes Payable and Capital Leases

During the first fiscal quarter of 2022, we bought out and terminated the contracts of multiple distributors who had previously been providing services to the Company.

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 $3.1 million was outstanding as of July 3, 2022.

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 July 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 July 3, 2022 and January 2, 2022, respectively.

During the first fiscal quarter of 2022, the Company bought out and terminated the contracts of multiple distributors who had previously been providing services to the Company.

These transactions were accounted for as contract terminations and resulted in expense of $23.0 million for the thirty-nine weeks ended October 2, 2022.

The outstanding balance of these transactions was $0.5 million as of October 2, 2022.

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 and $0.4 million was outstanding as of October 2, 2022 and January 2, 2022, respectively.

Amounts outstanding under notes payable consisted of the following:

(in thousands) As of

October 2, 2022

As of January 2, 2022

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Long term portion of notes payable $ 19,643 $ 24,709

During fiscal 2019, the Company sold $33.2 million of notes receivable from IOs on its books for $34.1 million in a series of transactions to a financial institution.

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.

During fiscal year 2019, the Company sold $33.2 million of notes receivable from IOs on its books for $34.1 million in a series of transactions to a financial institution.

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

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

"Contingencies".

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

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

Accordingly, the Company has the ability to recover substantially all of the outstanding loan value upon default.

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Interest expense consisted of the following:

(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

(in thousands) Thirteen weeks ended October 2, 2022 Thirteen weeks ended October 3, 2021 Thirty-nine weeks ended October 2, 2022 Thirty-nine weeks ended October 3, 2021

Company’s ABL facility and other long-term debt $ 10,916 $ 6,995 $ 29,320 $ 21,823

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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 $93.2 million as of July 3, 2022.

These purchase commitments totaled $65.7 million as of October 2, 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 $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.

The Company has recorded purchase commitment gains (losses) totaling $1.0 million and $0.1 million for the thirteen weeks ended October 2, 2022 and October 3, 2021, respectively, and $0.0 million and $(0.1) million for the thirty-nine weeks ended October 2, 2022 and October 3, 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 $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 outstanding balance of loans guaranteed was $1.6 million and $2.2 million at October 2, 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.

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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 $28.6 million and $18.6 million at July 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 $31.4 million and $18.6 million at October 2, 2022 and January 2, 2022, respectively, which are off balance sheet arrangements.

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 July 3, 2022 and January 2, 2022 was $21.1 million and $19.7 million, respectively.

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

The outstanding balance of notes purchased by Bank of America at October 2, 2022 and January 2, 2022 was $18.4 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;

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

The outstanding balance of loans guaranteed was $3.8 million and $4.9 million at October 2, 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.

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Application of Critical Accounting Policies and Estimates

Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States.

Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S.

While the majority of our revenue, expenses, assets and liabilities are not based on estimates, there are certain accounting principles that require management to make estimates regarding matters that are uncertain and susceptible to change.

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Gain/loss from the sale of a distribution route is recorded upon the completion of the sale transaction and signing of the relevant documents and is calculated based on the difference between the sale price of the distribution route and the asset carrying value of the distribution route as of the date of sale.

We record intangible assets for distribution routes that we purchase based on the payment that we make to acquire the route and record the purchased distribution routes as indefinite-lived intangible assets under Financial Accounting Standards Board Accounting Standards Codification ("ASC") 350, Intangibles – Goodwill and Other.

The indefinite lived intangible assets are subject to annual impairment testing.

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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 July 3, 2022 .

We have determined that there was no significant impact that affected the fair value of the reporting unit through October 2, 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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The benefit of tax positions taken or expected to be taken in our income tax returns is recognized in the financial statements if such positions are more likely than not of being sustained upon examination by taxing authorities.

Differences between tax positions taken or expected to be taken in a tax return and the benefit recognized and measured pursuant to the interpretation are referred to as "unrecognized benefits".

A liability is recognized (or amount of net operating loss carryover or amount of tax refundable is reduced) for an unrecognized tax benefit because it represents an enterprise’s potential future obligation to the taxing authority for a tax position that was not recognized as a result of applying the provisions of ASC 740-10.

Differences between tax positions taken or expected to be taken in a tax return and the benefit recognized and measured pursuant to the interpretation are referred to as "unrecognized benefits." A liability is recognized (or amount of net operating loss carryover or amount of tax refundable is reduced) for an unrecognized tax benefit because it represents an enterprise’s potential future obligation to the taxing authority for a tax position that was not recognized as a result of applying the provisions of ASC 740-10.

Interest costs and related penalties related to unrecognized tax benefits are required to be calculated, if applicable.

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

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

As of October 2, 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.

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If the screen is not met, further determination is required as to whether or not we have acquired inputs and processes that have the ability to create outputs which would meet the definition of a business.

Significant judgment is required in the application of the screen test to determine whether an acquisition is a business combination or an acquisition of assets.

Significant judgment is required in the application of the screen test to determine whether an acquisition is accounted for as a business combination or an acquisition of assets.

We use the acquisition method in accounting for acquired businesses.

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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