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Item 2. Management’s Discussion and Analysis

2023-05-11 compared with 2022-11-10 · 144 added, 245 removed, 275 unchanged (59% 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 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.

The following management's discussion and analysis of our financial condition and results of operations ("MD&A") should be read in conjunction with our unaudited combined interim consolidated financial statements as of and for the thirteen weeks ended April 2, 2023, 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 for the year ended January 1, 2023.

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

Our actual results could differ materially from those discussed below.

Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in Item 1A "Risk Factors" of our Annual Report on Form 10-K and other filings under the Exchange Act.

Our fiscal year end is the Sunday closest to December 31.

Our fiscal year 2021 ended January 2, 2022 and was a fifty-two-week period and our fiscal year 2022 will end January 1, 2023 and is a fifty-two-week fiscal year.

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).

Our fiscal year 2022 ended January 1, 2023 and was a fifty-two-week fiscal year, our fiscal year 2023 will end on December 31, 2023 and is a fifty-two-week fiscal year.

Our fiscal quarters are comprised of thirteen weeks each, except for fifty-three-week fiscal years for 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 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.

We produce a broad offering of salty snacks, including potato chips, tortilla chips, pretzels, cheese snacks, pork skins, 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 U.S., where our products can be found in approximately 48% of U.S.

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salty snacks category, within the broader approximately $121 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.

snack foods as of April 2, 2023.

Retail sales of

the salty snacks category has grown 14.8% over the thirteen weeks ended April 2, 2023.

A recent study from Circana cites that 54% of consumers eat snacks to add excitement to their daily diet, up two points versus two years ago and that 49% of consumers snack three or more times per day, up four points versus two years ago.

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.

We expect these consumer and category trends to continue to drive strong retail sales growth for salty snacks.

As a staple food product with resilient consumer demand and a predominantly domestic supply chain, the salty snack category is well positioned to navigate periods of economic disruption or other unforeseen global events.

salty snack category has demonstrated strong performance through economic downturns historically, growing at a 4% CAGR from 2007 to 2010 during the last recession.

More recently, the 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 16.9% 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.

We expect these consumer trends to continue to drive consistent retail sales growth for salty snacks for the foreseeable future.

For the thirteen weeks ended April 2, 2023, U.S.

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

In the same period, our retail sales increased 9.4% over the thirteen weeks ended April 2, 2023.

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 (“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.

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

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

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.

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We deferred $7.8 million of payroll tax deposits per the CARES Act.

The deferred payroll taxes must be deposited in two installments, with the first installment of $3.9 million paid as of December 31, 2021, and the remaining $3.9 million due on December 31, 2022.

The deferred payroll taxes must be deposited in two installments, with the first installment of $3.9 million paid as of December 31, 2021, and the remaining $3.9 million was paid at the start of fiscal year 2023.

We continue to evaluate the impact of the CARES Act;

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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;

The Company continues to evaluate the impact of the Inflation Reduction Act of 2022;

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.

Financing Costs and Exposure to Interest Rate Changes – As of April 2, 2023, we had $884.6 million in variable rate indebtedness, up from $867.4 million at January 1, 2023.

As of April 2, 2023 our variable rate indebtedness is benchmarked to the Term SOFR Screen Rate (‘SOFR”).

As of April 2, 2023, we have entered into interest rate hedges covering $587.3 million of debt, of which, $500.0 million is covered through September 30, 2026 and a hedge that covers the outstanding principal balance of the Real Estate Term Loan through September 2032.

Our interest rate hedge strategy has limited some of our exposure to changes in interest rates.

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 thirty-nine weeks ended October 2, 2022 was 4.3%, up from 3.5% during the thirty-nine weeks ended October 3, 2021.

Our weighted average interest rate for the thirteen weeks ended April 2, 2023 was 5.6%, up from 3.9% during the thirteen weeks ended April 3, 2022.

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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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.

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.

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.

Following that initial spike, in the weeks that followed, demand for product continued to out-pace prior year rates as families have favored "at-home" dining at a greater rate than pre-pandemic levels.

We have serviced that demand by increasing production and distribution activities.

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 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.

Recent Developments and Significant Items Affecting Comparability

On February 8, 2021, the Company closed on a definitive agreement with Snak-King Corp.

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, Illinois area.

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

The Company paid the aggregate cash purchase price of approximately $25.2 million which was funded from current cash-on-hand.

On May 11, 2021, the Company announced that its subsidiary, UQF, entered into a definitive agreement with Great Lakes Festida Holdings, Inc.

to acquire all assets including real estate located in Grand Rapids, Michigan related to the operations of Festida Foods ("Festida Foods acquisition" or "acquisition of Festida Foods"), a manufacturer of tortilla chips, corn chips, and pellet snacks, and the largest manufacturer of tortilla chips for the Company's ON THE BORDER® brand.

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 certain of its subsidiaries, entered into a definitive agreement to acquire R.W.

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

Garcia Co., Inc.

(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.

In addition to this acquisition on December 6, 2021, the Company closed on an acquisition of a manufacturing facility of which RW Garcia was a tenant.

The cost of the manufacturing facility was approximately $6.0 million.

Commodity Trends

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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 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.

Toward the end of fiscal year 2020, we began to experience an increase in pricing in certain commodity costs that continued to rise throughout fiscal years 2021 and 2022, and have continued to rise in the first quarter of 2023.

Continued commodity cost increases 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 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 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 mix between IOs and RSPs was approximately 96% and 4%, respectively, as of April 2, 2023 versus 89% and 11% ratio for IOs and RSPs, respectively, as of April 3, 2022.

We anticipate continuing to work to complete substantially all remaining RSPs conversions during fiscal year 2023.

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

As we convert a large number of routes in a year, there is a meaningful decrease in the selling and administrative costs that we previously incurred on RSPs and a corresponding increase in discounts paid to IOs to cover their costs to distribute our product.

As we convert a large number of routes in a year, there is a meaningful decrease in the selling, distribution administrative costs that we previously incurred on RSPs and a corresponding increase in discounts paid to IOs to cover their costs to distribute our product.

The net impact is a reduction in selling and distribution expenses and a decrease in net sales and gross profit.

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Results of Operations

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

The following tables present selected unaudited financial data for the thirteen weeks ended April 2, 2023 and April 3, 2022.

(in thousands) Thirteen weeks ended April 2, 2023 Thirteen weeks ended April 3, 2022

Net sales $ 351,433 $ 340,767

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(Loss) gain on sale of assets, net (508) 367

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

Loss from operations (2,098) (22,487)

Other (expense) income

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(Loss) gain on remeasurement of warrant liability (2,232) 1,944

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

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

Other expense, net (14,995) (6,639)

Loss before taxes (17,093) (29,126)

Income tax (benefit) expense (2,611) 2,772

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

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.

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®, 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 $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.

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 $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 $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 $(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 loss (14,482) (31,898)

Net loss attributable to noncontrolling interest 5,355 14,328

Net loss attributable to controlling interest $ (9,127) $ (17,570)

Thirteen weeks ended April 2, 2023 versus thirteen weeks ended April 3, 2022

Net sales was $351.4 million and $340.8 million for the thirteen weeks ended April 2, 2023 and April 3, 2022, respectively.

Net sales for the thirteen weeks ended April 2, 2023 increased $10.7 million or 3.1% over the comparable period in 2022.

The increase in net sales for the thirteen weeks ended April 2, 2023 was primarily related to the flow through of pricing action that were taken in 2022 in response to inflationary pressures accounted for a 9.7% increase in net sales, offset by volume/mix decline of 5.7%, as well as 0.9% decline in net sales related to continued IO conversions.

IO discounts increased to $42.2 million for the thirteen weeks ended April 2, 2023 from $34.2 million for the corresponding thirteen weeks ended April 3, 2022.

Excluding the impacts of increased IO discounts related to RSP to IO conversion, organic net sales increased 4.0% for the thirteen weeks ended April 2, 2023 versus the corresponding period in 2022.

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

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

and selected licensed brands such as TGI Fridays ®.

and select licensed brands such as TGI Fridays ®.

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.

For the thirteen weeks ended April 2, 2023 Power brand sales increased by approximately 8.7%, while Foundation brand sales decreased by approximately 4.9% from the thirteen weeks ended April 3, 2022.

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

Foundation brand sales decrease was primarily driven by volume decline and continued IO conversion, offset by certain pricing initiatives.

The Company's volume declined for the thirteen weeks ended April 2, 2023 compared to the lapping of a very strong thirteen weeks ended April 3, 2022.

In addition, volume was also impacted by weight outs and price pack architecture, as well as SKU rationalization focused on a reduction in private label and partner brand products.

Cost of goods sold and Gross profit

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.

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 $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.

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

Gross profit was $104.5 million and $103.8 million for the thirteen weeks ended April 2, 2023 and April 3, 2022, respectively.

The increase in gross profit for thirteen weeks ended April 2, 2023 was driven by pricing initiatives which were put in place to help reduce the impact of continued commodity, transportation, and wage inflation which hindered gross profit partially offset by volume decline.

Our gross profit margin was 29.7% for the thirteen weeks ended April 2, 2023 versus 30.5% for the thirteen weeks ended April 3, 2022.

The decline in gross profit margin was primarily driven by commodity and wage inflation and lower fixed overhead absorption, offset by the impact of productivity initiatives.

Additionally, IO discounts increased to $42.2 million for the thirteen weeks ended April 2, 2023 from $34.2 million for the thirteen weeks ended April 3, 2022.

IO conversions contributed to a gross profit decline of $3.0 million, or a gross profit margin of 0.9%, and the remaining IO discount growth was driven pricing actions.

Apart from the IO discount impact growth the Company's margins over the thirteen weeks ended April 2, 2023 was comparable to margins for the thirteen weeks ended April 3, 2022.

Selling, distribution, and administrative expense

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 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 $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.

Selling, distribution, and administrative expenses were $106.1 million and $126.7 million for the thirteen weeks ended April 2, 2023 and April 3, 2022, respectively resulting in a decrease of $(20.6) million or (16.2)% over the corresponding period in fiscal year 2022.

The decrease in expenses for the thirteen weeks ended April 2, 2023 compared to the thirteen weeks ended April 3, 2022 was primarily attributable to the comparable period having 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 during the thirteen weeks ended April 3, 2022.

The thirteen weeks ended April 2, 2023 included impairments of $1.9 million related to the impairment of fixed assets that were damaged in a natural disaster.

The thirteen weeks ended April 3, 2022 included other contract termination expense and related impairments which totaled $2.6 million.

Excluding these items selling, distribution, and administrative expenses increased by 3.1% for the thirteen weeks ended April 2, 2023 compared to the corresponding period in fiscal year 2022.

We believe that the distributor buyouts will help drive increased future profitability and allow us to better serve our customers.

Rising labor and higher stock based compensation 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) 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.

(Loss) gain on sale of assets was $(0.5) million and $0.4 million for the thirteen weeks ended April 2, 2023 and April 3, 2022, 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.

The loss during the thirteen weeks ended April 2, 2023 was primarily related to some small distributor buyouts where a buyout premium was allocated to an asset purchase and sold.

Other expense, net

Other expense, net was $15.0 million and $6.6 million for the thirteen weeks ended April 2, 2023 and April 3, 2022, respectively.

The decrease in expense for the thirteen weeks ended April 2, 2023 was primarily due to a $2.2 million loss from the remeasurement of warrant liability for the thirteen weeks ended April 2, 2023 versus a gain of $1.9 million for the thirteen weeks ended April 3, 2022.

Also significant was interest expense of $14.4 million for the thirteen weeks ended April 2, 2023 compared to $9.1 million for the thirteen weeks ended April 3, 2022.

The additional increase in interest expense is primarily attributable to the additional equipment loan and the Real Estate Loan.

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

Inco me tax (benefit) expense was $(2.6) million and $2.8 million for the thirteen weeks ended April 2, 2023 and April 3, 2022, 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 information and believe it is useful to investors as it provides additional information to facilitate comparisons of historical operating results, identifies 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.

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

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, however, we caution that other companies may use different definitions from us and such figures may not be directly comparable to our figures.

We have also historically reported an Adjusted EBITDA metric to investors and lenders 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 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

The following table provides a reconciliation from net (loss) to EBITDA and Adjusted EBITDA for the thirteen weeks ended April 2, 2023 and April 3, 2022:

(dollars in millions) Thirteen weeks ended April 2, 2023 Thirteen weeks ended April 3, 2022

Net loss $ (14.5) $ (31.9)

Plus non-GAAP adjustments:

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Interest Income (IO loans) (1)

(0.4) (0.6) (1.3) (2.0)

EBITDA 17.0 1.6

Certain Non-Cash Adjustments (2)

0.9 2.0 9.2 9.0

Acquisition and Integration (3)

4.8 11.0 40.8 19.0

Business Transformation Initiatives (4)

5.4 8.0 13.3 13.7

Financing-Related Costs (5)

— 0.1 0.2 0.7

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

3.7 (36.3) (4.0) (34.2)

Adjusted EBITDA $ 40.4 $ 36.5

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

Adjusted EBITDA as a % of Net Sales 11.5 % 10.7 %

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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 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.

Incentive programs – The Company incurred $4.6 million and $1.4 million of share-based compensation expense, that was awarded to associates and directors, and compensation expense associated with the employee stock purchase plan for the thirteen weeks ended April 2, 2023 and April 3, 2022, respectively.

Asset Impairments and Write-Offs — For the thirteen weeks ended April 2, 2023, the Company recorded an adjustment for an impairment of $1.9 million related to fixed assets.

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

Purchase Commitments and Other Adjustments – We have purchase commitments for specific quantities at fixed prices for certain of our products’ key ingredients.

To facilitate comparisons of our underlying operating results, this adjustment was made to remove the volatility of purchase commitment related unrealized gains and losses.

The adjustment related to Purchase Commitment and Other non-cash adjustments were $2.7 million and $0.1 million for the thirteen weeks ended April 2, 2023 and April 3, 2022, respectively.

Such expenses were $4.9 million for the thirteen weeks ended April 2, 2023, as well as $1.2 million of income for the reduction of the Tax Receivable Agreement Liability associated with the Business Combination.

Charges 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, along with other acquisitions an integration cost of $5.8 million.

(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 $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.

The Company incurred such costs of $8.2 million and $4.4 million for the thirteen weeks ended April 2, 2023 and April 3, 2022, 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 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

The following table presents net cash provided by operating activities, investing activities and financing activities for the thirteen weeks ended April 2, 2023 and April 3, 2022.

(in thousands) Thirteen weeks ended April 2, 2023 Thirteen weeks ended April 3, 2022

Net cash used in operating activities $ (8,443) $ (36,004)

Net cash used in investing activities $ (14,018) $ (5,103)

Net cash provided by financing activities $ 7,452 $ 14,108

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.

For the thirteen weeks ended April 2, 2023, our consolidated cash balance, including cash equivalents, was $57.9 million or $15.0 million lower than at January 1, 2023.

Net cash used in operating activities for the thirteen weeks ended April 2, 2023 was $8.4 million compared to $36.0 million thirteen weeks ended April 3, 2022, 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 2, 2023 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 2, 2023 was $14.0 million driven by purchases of property and equipment, versus cash used in investing activity of $5.1 million for the thirteen weeks ended April 3, 2022.

Net cash provided by financing activities was $7.5 million for the thirteen weeks ended April 2, 2023, driven by a draw on the line of credit of $20.0 million, offset by the payment of dividends and distribution, and repayments on term debt and notes payable, versus net cash used in financing activities of $14.1 million for the thirteen weeks ended April 3, 2022, which was primarily a result of a draw on the line of credit of $20.0 million and other borrowings offset by payments of dividends and distributions.

Financing Arrangements

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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 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.

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 SOFR.

As of April 2, 2023 and January 1, 2023, $20.0 million and $0.0 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 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.

As of April 2, 2023 and January 1, 2023, $140.8 million and $163.0 million, respectively, was available for borrowing, net of letters of credit.

The ABL facility is also subject to unused line fees (0.5% at April 2, 2023) and other fees and expenses.

Standby letters of credit in the amount of $12.0 million have been issued as of April 2, 2023 and January 1, 2023.

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 (as defined below) from OTB Acquisition, LLC, in which the Company withdrew $490.0 million to finance the acquisition of Truco Holdco Inc.

The proceeds of the Bridge Credit Agreement were used to fund the Company’s acquisition of Truco and the IP Purchase (each 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 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 (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.

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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.

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

The refinancing was accounted for as an extinguishment.

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The Company incurred additional debt issuance costs and original issuance discounts of $0.7 million related to the incremental funding.

The First Lien Term Loan, the Secured First Lien Note, Term Loan B, and the ABL facility are collateralized by substantially all of the assets and liabilities of the Company.

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 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.

On October 12, 2022, the Company, through its subsidiaries UQF, Kennedy and Condor Snack Foods, LLC (together with UQF and Kennedy, the “Real Estate Financing Borrowers”), entered into a loan agreement (the “Real Estate Term Loan”) with City National Bank which was secured by a majority of the Real Estate Financing Borrowers’ real estate assets.

The Real Estate Term Loan holds a principal balance of $88.1 million, with net proceeds of approximately $85.0 million after transaction fees and expenses.

The Real Estate Term Loan has a ten-year maturity and amortizes approximately $3.5 million in principal annually, with a balloon payment due at maturity.

The Company used a portion of the proceeds from the Real Estate Term Loan to pay off the ABL facility.

The Real Estate Term Loan contains a single financial maintenance covenant consisting of a fixed charge coverage ratio that is tested quarterly only during a covenant trigger period consistent with the existing ABL facility.

Concurrent with the closing of the Real Estate Term Loan, UQF entered into an interest rate swap transaction to fix the effective interest rate at approximately 5.93%, as discussed in further detail within "Note 8.

Derivative Financial Instruments and Purchase Commitments”.

The Term Loan B and the ABL facility are collateralized by substantially all of the assets and liabilities of UBH and its subsidiaries excluding the real estate assets secured by the Real Estate Term Loan, including equity interests in certain of UBH’s subsidiaries.

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

UBH and its subsidiaries were in compliance with its financial covenants as of April 2, 2023.

Debt (in thousands)

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

Issue Date Principal Balance Maturity Date April 2, 2023 January 1, 2023

Term loan B (1)

June-21 $ 795,000 January-28 $ 777,298 $ 779,286

Real Estate Loan October-22 $ 88,140 October-32 87,259 88,140

Equipment loans (2)

Various 53,068 26,655

ABL facility (3)

54,400 54,053

ABL facility (3)

Net impact of debt issuance costs and original issue discounts (9,667) (9,672)

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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%.

The weighted average interest rate on the Term Loan B debt for the thirteen weeks ended April 2, 2023 was 7.61%.

(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 throughout fiscal year 2021 and has drawn a total of $29.9 million in fiscal year 2022.

The Company made a series of draws upon these agreements throughout fiscal year 2021 totaling $26.5 million and has drawn a total of $32.4 million in fiscal year 2022 and $2.3 million in fiscal year 2023.

These draws bear interest ranging from 3.26% through 6.73% 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%.

(3) The facility bore interest at an annual rate based on LIBOR, or SOFR plus a 0.10% credit spread adjustment after the amendment on September 22, 2022, 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%).

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 April 2, 2023 was 8.50%, under the prime rate.

The interest rate on the ABL facility as of April 2, 2023 was 6.26%.

Other Notes Payable and Capital Leases

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

These transactions were accounted for as contract terminations and resulted in expense of $23.0 million for the thirteen weeks ended April 3, 2022.

The outstanding balance of these transactions was $0.5 million as of January 1, 2023, and was paid off during the thirteen weeks ended April 2, 2023.

During the first fiscal quarter of 2020, the Company purchased intellectual property that include a deferred purchase price of $0.5 million, of which $0.2 million and $0.3 million was outstanding as of April 2, 2023 and January 1, 2023, respectively.

Amounts outstanding under notes payable consisted of the following:

(in thousands) As of

October 2, 2022

April 2, 2023

As of January 1, 2023

Note payable – IO notes $ 19,508 $ 21,098

Capital lease 9,203 8,166

Finance lease obligations 10,547 10,995

Other 200 835

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Long term portion of notes payable $ 18,362 $ 20,339

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;

From time to time, the Company sells notes receivable from IOs to a financial institution.

During the thirteen weeks ended April 2, 2023, the Company sold an additional $1.0 million of notes receivable from IOs on its books for $0.9 million to a financial institution.

Due to the structure of these 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;

the corresponding notes receivable also remained on the Company’s books.

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"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.

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

Interest Expense

Interest expense consisted of the following:

(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

(in thousands) Thirteen weeks ended April 2, 2023 Thirteen weeks ended April 3, 2022

Company’s term loans, ABL facility, and other long-term debt $ 14,142 $ 8,331

Amortization of deferred financing fees 5 341

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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 $65.7 million as of October 2, 2022.

These purchase commitments totaled $73.1 million as of April 2, 2023.

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 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.

The Company has recorded purchase commitment (losses) gains totaling $(2.7) million for the thirteen weeks ended April 2, 2023 and $0.0 million for the thirteen weeks ended April 3, 2022, 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 $1.6 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 outstanding balance of loans guaranteed was $1.1 million and $1.5 million at April 2, 2023 and January 1, 2023, respectively, all of which was recorded by the Company as off balance sheet arrangements.

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

The outstanding balance of loans guaranteed that were issued by Bank of America was $40.2 million and $36.0 million at April 2, 2023 and January 1, 2023, respectively, which are off balance sheet arrangements.

As discussed in Note 7.

"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.

"Long-Term Debt", the Company also sold notes receivable on its books to Bank of America during fiscal years 2019, 2021, and 2022, which the Company partially guarantees.

The outstanding balance of notes purchased by Bank of America at April 2, 2023 and January 1, 2023 was $16.8 million and $17.9 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 1 st of the subject year.

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.

The outstanding balance of loans guaranteed was $3.1 million and $3.4 million at April 2, 2023 and January 1, 2023, respectively, all of which were included in 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 (“U.S.

Our consolidated financial statements have been prepared in accordance with 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.

44 unchanged sentences

For the qualitative analysis performed, which took place on the first day of the fourth quarter of 2022, 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 October 2, 2022 .

We have determined that there was no significant impact that affected the fair value of the reporting unit through April 2, 2023 .

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

10 unchanged sentences

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

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

As of April 2, 2023 and January 1, 2023, 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