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Item 2. Management’s Discussion and Analysis

2023-11-09 compared with 2023-08-10 · 151 added, 160 removed, 314 unchanged (50% of the section changed)

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

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 and twenty-six weeks ended July 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 (“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 and thirty-nine weeks ended October 1, 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 (“Annual Report on Form 10-K”).

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

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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.

households as of July 2, 2023.

households as of October 1, 2023.

We operate 14 manufacturing facilities across the U.S.

with a broad range of capabilities.

As of the end of the second fiscal quarter, our products are distributed nationally to grocery, mass merchant, club, convenience, drug and other retailers through direct shipments, distributors, and approximately 2,200 DSD routes.

As of the end of the third fiscal quarter, our products are distributed nationally to grocery, mass merchant, club, convenience, drug and other retailers through direct shipments, distributors, and approximately 2,200 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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salty snacks category, within the broader approximately $126 billion market for U.S.

snack foods as of July 2, 2023.

Retail sales of the salty snacks category has grown 11.9% over the thirteen weeks ended July 2, 2023.

snack foods as of October 1, 2023.

A 2023 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.

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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 July 2, 2023, U.S.

retail sales for salty snacks based on Circana data increased by 11.9% versus the comparable prior year period.

In the same period, our retail sales increased 8.8% over the thirteen weeks ended July 2, 2023.

For the thirteen weeks ended October 1, 2023, U.S.

retail sales for salty snacks based on Circana data increased by 5.9% versus the comparable prior year period and in the same period, our retail sales increased 3.2%.

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

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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 coronavirus (“COVID-19”) outbreak, which among other things contains numerous income tax provisions.

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

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

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 was paid at the start of fiscal year 2023.

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

We continue to evaluate the impact of the CARES Act;

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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.

Financing Costs and Exposure to Interest Rate Changes – As of July 2, 2023, we had $861.7 million in variable rate indebtedness, down from $867.4 million at January 1, 2023.

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

As of July 2, 2023, we have entered into interest rate hedges covering $586.4 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 (defined below) through September 2032.

Financing Costs and Exposure to Interest Rate Changes – As of October 1, 2023, we had $854.3 million in variable rate indebtedness, down from $867.4 million as of January 1, 2023.

As of October 1, 2023 our variable rate indebtedness was benchmarked to the Term SOFR Screen Rate (‘SOFR”).

As of October 1, 2023, we have entered into interest rate hedges covering $585.5 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 (defined below) through September 2032.

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

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

Our weighted average interest rate for the twenty-six weeks ended July 2, 2023 was 5.7%, up from 4.1% during the twenty-six weeks ended July 3, 2022.

Our weighted average interest rate for the thirty-nine weeks ended October 1, 2023 was 5.8%, up from 4.3% during the thirty-nine weeks ended October 2, 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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"Long-Term Debt" and Note 8.

"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.

"Derivative Financial Instruments and Purchase Commitments" to our unaudited condensed consolidated financial statements included under Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information on debt, derivative and purchase commitment activity.

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.

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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 costs that continued to rise throughout fiscal years 2021 and 2022, and have continued to rise through the second quarter of 2023.

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 through the third 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.

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

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

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

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

While the costs of our principal raw materials fluctuate, we believe there will continue to be an adequate supply of the raw materials we use and that they will generally remain available from numerous sources.

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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 RSPs was approximately 93% and 7%, respectively, as of July 2, 2023 versus 91% and 9% ratio for IOs and RSPs, respectively, as of July 3, 2022.

The mix between IOs and RSPs was approximately 95% and 5%, respectively, as of October 1, 2023 versus 91% and 9% ratio for IOs and RSPs, respectively, as of October 2, 2022.

We anticipate completing substantially all remaining RSPs conversions during fiscal year 2023.

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Results of Operations

The following tables present selected unaudited financial data for the thirteen and twenty-six weeks ended July 2, 2023 and July 3, 2022:

(in thousands) Thirteen weeks ended July 2, 2023 Thirteen weeks ended July 3, 2022 Twenty-six weeks ended July 2, 2023 Twenty-six weeks ended July 3, 2022

The following tables present selected unaudited financial data for the thirteen and thirty-nine weeks ended October 1, 2023 and October 2, 2022:

(in thousands) Thirteen weeks ended October 1, 2023 Thirteen weeks ended October 2, 2022 Thirty-nine weeks ended October 1, 2023 Thirty-nine weeks ended October 2, 2022

Net sales $ 371,852 $ 362,818 $ 1,086,138 $ 1,053,732

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Income (loss) from operations 5,277 15,005 5,840 (2,190)

Other (expense) income

Interest expense (15,019) (10,727) (29,397) (19,830)

Other income (expense)

Gain on remeasurement of warrant liability 2,808 5,760 576 7,704

Other (expense) income, net (11,939) (5,612) (26,934) (12,251)

Loss before taxes (9,278) (320) (26,371) (29,446)

Interest expense (15,537) (11,648) (44,934) (31,478)

Other income, net 392 205 2,279 80

Gain (loss) on remeasurement of warrant liability 15,984 (3,672) 16,560 4,032

Other income (expense), net 839 (15,115) (26,095) (27,366)

Income (loss) before taxes 6,116 (110) (20,255) (29,556)

Income tax benefit (10,099) (1,595) (13,435) (1,688)

Net (loss) income (8,553) 2,545 (23,035) (29,353)

Net loss attributable to noncontrolling interest 4,429 634 9,784 14,962

Net (loss) income attributable to controlling interest $ (4,124) $ 3,179 $ (13,251) $ (14,391)

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

Net sales was $362.9 million and $350.1 million for the thirteen weeks ended July 2, 2023 and July 3, 2022, respectively.

Net sales for the thirteen weeks ended July 2, 2023 increased $12.7 million or 3.6%, over the comparable period in 2022.

The increase in net sales for the thirteen weeks ended July 2, 2023 was primarily related to the flow through of pricing action that were taken in 2022 in response to inflationary pressures which accounted for a 6.0% increase in net sales, offset by volume/mix decline of 1.7%, which was driven by SKU rationalization that the Company estimated impacted net sales by 3.5%, as well as 0.7% decline in net sales related to continued IO conversions.

IO discounts increased to $45.8 million for the thirteen weeks ended July 2, 2023 from $39.3 million for the corresponding thirteen weeks ended July 3, 2022.

Excluding the impacts of increased IO discounts related to RSP to IO conversion, organic net sales increased 4.3% for the thirteen weeks ended July 2, 2023 versus the corresponding period in 2022.

Net income (loss) 16,215 1,485 (6,820) (27,868)

Net (income) loss attributable to noncontrolling interest (222) (2,373) 9,562 12,589

Net income (loss) attributable to controlling interest $ 15,993 $ (888) $ 2,742 $ (15,279)

Thirteen weeks ended October 1, 2023 versus thirteen weeks ended October 2, 2022

Net sales was $371.9 million and $362.8 million for the thirteen weeks ended October 1, 2023 and October 2, 2022, respectively.

Net sales for the thirteen weeks ended October 1, 2023 increased $9.0 million, or 2.5%, over the comparable period in 2022.

The increase in net sales for the thirteen weeks ended October 1, 2023 was primarily related to the flow through of pricing action that were taken in 2022 in response to inflationary pressures which accounted for a 3.7% increase in net sales, partially offset by volume/mix decline of 0.6%, which was driven by SKU rationalization that the Company estimated impacted net sales by 3.3%, as well as 0.6% decline in net sales related to continued IO conversions.

IO discounts increased to $45.4 million for the thirteen weeks ended October 1, 2023 from $41.2 million for the corresponding thirteen weeks ended October 2, 2022.

Excluding the impacts of increased IO discounts related to RSP to IO conversion, organic net sales increased 3.1% for the thirteen weeks ended October 1, 2023 versus the corresponding period in 2022.

Net sales are evaluated based on brand classification as a Power or Foundation brand.

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

For the thirteen weeks ended July 2, 2023, Power brand sales increased by approximately 11.5%, while Foundation brand sales decreased by approximately 8.9% from the thirteen weeks ended July 3, 2022.

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

For the thirteen weeks ended October 1, 2023, Power brand sales increased by approximately 9.7%, while Foundation brand sales, which includes co-manufacturing, private label and partner brands sales, decreased by approximately 16.6% from the thirteen weeks ended October 2, 2022.

The increase in Power brand sales was due primarily to favorable pricing action and increased volumes, partially offset by continued IO conversions.

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

The Company's volume decline for the thirteen weeks ended July 2, 2023 was driven by SKU rationalization focused on a reduction in private label and partner brand products as well as the lapping of very strong sales during the thirteen weeks ended July 3, 2022.

In addition, volume was also impacted by weight outs and changes to price pack architecture.

The Company's volume decline for the thirteen weeks ended October 1, 2023 was driven by SKU rationalization focused on a reduction in private label, co-manufactured and partner brand products.

Cost of goods sold and Gross profit

Gross profit was $117.4 million and $111.5 million for the thirteen weeks ended July 2, 2023 and July 3, 2022, respectively.

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

Also impacting gross profit was the decline in volume which was impacted by SKU rationalization focused on a reduction in private label and partner brand products as well as by weight outs and changes to price pack architecture.

Our gross profit margin was 32.4% for the thirteen weeks ended July 2, 2023 versus 31.9% for the thirteen weeks ended July 3, 2022.

The increase in gross profit margin was primarily driven by favorable price realization from pricing initiatives and the impact of productivity initiatives, offset primarily by higher commodity and wage inflation, and transitory higher inbound freight costs and lower fixed overhead absorption due to volume decline and network optimization.

Additionally, IO discounts increased to $45.8 million for the thirteen weeks ended July 2, 2023 from $39.3 million for the thirteen weeks ended July 3, 2022.

Gross profit was $119.3 million and $118.3 million for the thirteen weeks ended October 1, 2023 and October 2, 2022, respectively.

The increase in gross profit for thirteen weeks ended October 1, 2023 was driven by the impact of productivity and pricing initiatives which were put in place to help reduce the impact of continued commodity and wage inflation which hindered gross profit.

Also impacting gross profit was the decline in volume which was further impacted by SKU rationalization focused on a reduction in private label and partner brand products.

During the thirteen weeks ended October 2, 2022, gross profit 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 certain expenses as we shifted production to other facilities, including co-manufacturers, due to a natural disaster that affected one of our smaller manufacturing facilities.

Our gross profit margin was 32.1% for the thirteen weeks ended October 1, 2023 versus 32.6% for the thirteen weeks ended October 2, 2022.

The decrease in gross profit margin was primarily driven by favorable price realization from pricing initiatives and the impact of productivity initiatives, more than offset by gross input cost inflation, the impact of IO conversions business interruption insurance proceeds and supply chain investments.

IO discounts increased to $45.4 million for the thirteen weeks ended October 1, 2023 from $41.2 million for the thirteen weeks ended October 2, 2022.

IO conversions contributed to a gross profit decline of $2.3 million, or a gross profit margin of 0.6%, and the remaining IO discount growth was driven by pricing actions.

Selling, distribution, and administrative expense

Selling, distribution, and administrative expenses were $114.5 million and $107.6 million for the thirteen weeks ended July 2, 2023 and July 3, 2022, respectively, resulting in an increase of $6.8 million, or 6.4% over the corresponding period in fiscal year 2022.

The increase in expenses for the thirteen weeks ended July 2, 2023 compared to the thirteen weeks ended July 3, 2022 was primarily attributable to the $7.6 million of impairment expense and the $1.3 million of severance expense related to the closure of the manufacturing operation at the Birmingham Facility as discussed in Note 3.

"Property, Plant, and Equipment, Net." During the thirteen weeks ended July 2, 2023, the Company also recognized a liability of $4.7 million related to a contract termination with a co-manufacturer, which is recorded in the administrative line on the Consolidated Statement of Operations and Comprehensive Income (Loss).

This agreement was a continuation of the Company's response to shifting production from a manufacturing facilities that was damaged by a natural disaster in 2021.

Selling, distribution, and administrative expenses were $105.5 million and $102.4 million for the thirteen weeks ended October 1, 2023 and October 2, 2022, respectively, resulting in an increase of $3.1 million, or 3.0%, over the corresponding period in fiscal year 2022.

The increase in expenses for the thirteen weeks ended October 1, 2023 compared to the thirteen weeks ended October 2, 2022 was primarily attributable to higher expenses associated with investments in sales infrastructure and supply chain capabilities to support growth, and share-based compensation, partially offset by lower selling costs from the shift to IOs.

(Loss) gain on sale of assets

(Loss) gain on sale of assets was $(0.3) million and $1.4 million for the thirteen weeks ended July 2, 2023 and July 3, 2022, respectivel y.

Th e Company has continued to convert company-owned routes to IO routes during the thirteen weeks ended July 2, 2023, offsetting the sales price by the respective route intangible asset.

(Loss) gain on sale of assets was $(8.5) million and $0.8 million for the thirteen weeks ended October 1, 2023 and October 2, 2022, respectivel y.

During the thirteen weeks ended October 1, 2023, the sale of the Company's manufacturing plant in Bluffton, Indiana generated a loss of $13.4 million, partially offset by gain on sale of land for $4.0 million and the sale of IO routes and other fixed assets.

Other (expense) income, net

Other (expense) income, net was expense of $(11.9) million for the thirteen weeks ended July 2, 2023 compared to expense of $(5.6) million for the thirteen weeks ended July 3, 2022.

The increase in other expense for the thirteen weeks ended July 2, 2023 was primarily due to a $2.8 million gain from the remeasurement of warrant liability for the thirteen weeks ended July 2, 2023 versus a gain of $5.8 million for the thirteen weeks ended July 3, 2022.

Also significant was interest expense of $15.0 million for the thirteen weeks ended July 2, 2023 compared to $10.7 million for the thirteen weeks ended July 3, 2022.

The additional increase in interest expense is primarily attributable to the additional equipment loans and the Real Estate Loans, as well as increasing interest expense rates, which impacted the portion of debt that the Company has not hedged.

Inco me tax benefit was $0.7 million and $2.9 million for the thirteen weeks ended July 2, 2023 and July 3, 2022, respectively.

Twenty-six weeks ended July 2, 2023 versus twenty-six weeks ended July 3, 2022

Net sales was $714.3 million and $690.9 million for the twenty-six weeks ended July 2, 2023 and July 3, 2022, respectively.

Net sales for the twenty-six weeks ended July 2, 2023 increased $23.4 million or 3.4% over the comparable period in 2022.

The increase in net sales for the twenty-six weeks ended July 2, 2023 was primarily related to the flow-through of pricing actions that were taken in 2022 in response to inflationary pressures which accounted for a 7.8% increase in net sales, offset by volume/mix decline of 3.6%, as well as 0.8% decline in net sales related to continued IO conversions.

IO discounts increased to $88.0 million for the twenty-six weeks ended July 2, 2023 from $73.5 million for the corresponding twenty-six weeks ended July 3, 2022.

Excluding the impacts of increased IO discounts related to RSP to IO conversion, organic net sales increased 4.2% for the twenty-six weeks ended July 2, 2023 versus the corresponding period in 2022.

Other (expense) income, net was $0.8 million for the thirteen weeks ended October 1, 2023 compared to $(15.1) million for the thirteen weeks ended October 2, 2022.

The change in other (expense) income for the thirteen weeks ended October 1, 2023 was primarily due to a $16.0 million gain from the remeasurement of warrant liability for the thirteen weeks ended October 1, 2023 versus a loss of $3.7 million for the thirteen weeks ended October 2, 2022.

Also significant was interest expense of $15.5 million for the thirteen weeks ended October 1, 2023 compared to $11.6 million for the thirteen weeks ended October 2, 2022.

The increase in interest expense is primarily attributable to the additional equipment loans, Real Estate Term Loan, and higher interest rates, which impacted the portion of debt that the Company has not hedged.

Income tax (benefit) was $(10.1) million and $(1.6) million for the thirteen weeks ended October 1, 2023 and October 2, 2022, respectively.

Thirty-nine weeks ended October 1, 2023 versus thirty-nine weeks ended October 2, 2022

Net sales was $1.086 billion and $1.054 billion for the thirty-nine weeks ended October 1, 2023 and October 2, 2022, respectively.

Net sales for the thirty-nine weeks ended October 1, 2023 increased $32.4 million or 3.1% over the comparable period in 2022.

The increase in net sales for the thirty-nine weeks ended October 1, 2023 was primarily related to the flow-through of pricing actions that were taken in 2022 in response to inflationary pressures which accounted for a 6.4% increase in net sales, partially offset by volume/mix decline of 2.6% due to SKU rationalization, as well as 0.7% decline in net sales related to continued IO conversions.

IO discounts increased to $133.5 million for the thirty-nine weeks ended October 1, 2023 from $114.6 million for the corresponding thirty-nine weeks ended October 2, 2022.

Excluding the impacts of increased IO discounts related to IO conversions, organic net sales increased 3.8% for the thirty-nine weeks ended October 1, 2023 versus the corresponding period in 2022.

Net sales are evaluated based on brand classification as a Power or Foundation brand.

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

For the twenty-six weeks ended July 2, 2023, Power brand sales increased by approximately 9.8%, while Foundation brand sales decreased by approximately 7.6% from the twenty-six weeks ended July 3, 2022.

The increase in Power brand sales is due primarily to favorable pricing actions, offset by 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 twenty-six weeks ended July 2, 2023 compared to the lapping of a very strong twenty-six weeks ended July 3, 2022, and was impacted by significant SKU rationalization focused on a reduction in private label and partner branded products as well as by weight outs and changes to price pack architecture.

For the thirty-nine weeks ended October 1, 2023, Power brand sales increased by approximately 10.1%, while Foundation brand sales, which includes co-manufacturing, private label and partner brands sales, decreased by approximately 10.4% from the thirty-nine weeks ended October 2, 2022.

The increase in Power brand sales was due primarily to favorable pricing actions and increased volumes, partially offset by the impact of continued IO conversions.

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

The Company's volume declined for the thirty-nine weeks ended October 1, 2023 compared to thirty-nine weeks ended October 2, 2022, and was impacted by significant SKU rationalization focused on a reduction in private label, co-manufactured and partner branded products, as well as by weight outs and changes to price pack architecture.

Cost of goods sold and Gross profit

Gross profit was $221.9 million and $215.3 million for the twenty-six weeks ended July 2, 2023 and July 3, 2022, respectively.

The increase in gross profit for the twenty-six weeks ended July 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 31.1% for the twenty-six weeks ended July 2, 2023 versus 31.2% for the twenty-six weeks ended July 3, 2022.

Gross profit was $341.2 million and $333.6 million for the thirty-nine weeks ended October 1, 2023 and October 2, 2022, respectively.

The increase in gross profit for the thirty-nine weeks ended October 1, 2023 was driven by pricing initiatives which were put in place to help reduce the impact of continued commodity costs, transportation, and wage inflation which hindered gross profit, partially offset by volume decline.

Our gross profit margin was 31.4% for the thirty-nine weeks ended October 1, 2023 versus 31.7% for the thirty-nine weeks ended October 2, 2022.

The decline in gross profit margin was primarily driven by commodity and wage inflation, transitory higher inbound freight costs and lower fixed overhead absorption due in part to our network optimization, offset by the impact of productivity initiatives.

Additionally, IO discounts increased to $88.0 million for the twenty-six weeks ended July 2, 2023 from $73.5 million for the twenty-six weeks ended July 3, 2022.

Additionally, IO discounts increased to $133.5 million for the thirty-nine weeks ended October 1, 2023 from $114.6 million for the thirty-nine weeks ended October 2, 2022.

IO conversions contributed to a gross profit decline of $7.6 million, or a gross profit margin of 0.7%, and the remaining IO discount growth was driven by pricing actions.

Apart from the IO discount impact, growth of the Company's margins over the twenty-six weeks ended July 2, 2023 was comparable to margins for the twenty-six weeks ended July 3, 2022.

During the thirty-nine weeks ended October 2, 2022, gross profit 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 certain expenses as we shifted production to other facilities, including co-manufacturers, due to a natural disaster that affected one of our smaller manufacturing facilities.

Selling, distribution, and administrative expense

Selling, distribution, and administrative expenses were $220.5 million and $234.3 million for the twenty-six weeks ended July 2, 2023 and July 3, 2022, respectively, resulting in a decrease of $(13.7) million or (5.9)%, over the corresponding period in fiscal year 2022.

The decrease in expenses for the twenty-six weeks ended July 2, 2023 compared to the twenty-six weeks ended July 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 twenty-six weeks ended July 3, 2022.

The selling, distribution and administrative expense for the twenty-six weeks ended July 3, 2022 included other contract termination expense and related impairments which totaled $2.6 million.

The selling, distribution and administrative expense for the twenty-six weeks ended July 2, 2023 included impairments of $9.5 million related to the impairment of fixed assets, primarily related to the closing of the Manufacturing Facility.

The Company also recognized a liability of $4.7 million related to a contract termination with a co-manufacturer, which is recorded in the administrative line on the Consolidated Statement of Operations and Comprehensive Income (Loss) during the twenty-six weeks ended July 2, 2023.

This agreement was a continuation of the Company's response to shifting production from a manufacturing facilities that was damaged by a natural disaster in 2021.

Excluding these items selling, distribution, and administrative expenses decreased by 1.12% for the twenty-six weeks ended July 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.

Selling, distribution, and administrative expenses were $326.0 million and $336.7 million for the thirty-nine weeks ended October 1, 2023 and October 2, 2022, respectively, resulting in a decrease of $(10.7) million, or (3.2)%, over the corresponding period in fiscal year 2022.

The decrease in expenses for the thirty-nine weeks ended October 1, 2023 compared to the thirty-nine weeks ended October 2, 2022 was primarily attributable to 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 thirty-nine weeks ended October 2, 2022.

The selling, distribution and administrative expense for the thirty-nine weeks ended October 2, 2022 included other contract termination expense and related impairments which totaled $2.6 million.

The selling, distribution and administrative expense for the thirty-nine weeks ended October 1, 2023 included impairments of $9.5 million related to the impairment of fixed assets, primarily related to the closing of the Company's manufacturing facility in Birmingham, Alabama.

During the thirty-nine weeks ended October 1, 2023, the Company also recognized an expense of $4.7 million related to a contract termination with a co-manufacturer.

The termination of this agreement was a continuation of the Company's response to shifting production from a manufacturing facility that was damaged by a natural disaster in 2021.

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

(Loss) gain on sale of assets was $(0.8) million and $1.7 million for the twenty-six weeks ended July 2, 2023 and July 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 twenty-six weeks ended July 2, 2023 was primarily related to some small distributor buyouts where a buyout premium was allocated to an asset purchase and sold.

(Loss) gain on sale of assets was $(9.3) million and $0.9 million for the thirty-nine weeks ended October 1, 2023 and October 2, 2022, respectively.

The Company has continued to convert company-owned routes to IO routes during the third fiscal quarter of 2023, offsetting the sales price by the respective route intangible asset.

The loss during the thirty-nine weeks ended October 1, 2023 was primarily related to the sale of the Company's manufacturing facility in Bluffton, Indiana which generated a loss of $13.4 million, partially offset by gain on sale of land for $4.0 million and the sale of IO routes and other fixed assets.

Other (expense) income, net

Other expense, net was $(26.9) million and $(12.3) million for the twenty-six weeks ended July 2, 2023 and July 3, 2022, respectively.

The increase in expense was driven by interest expense of $29.4 million for the twenty-six weeks ended July 2, 2023 compared to $19.8 million for the twenty-six weeks ended July 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.

Also significant was a $0.6 million gain from the remeasurement of warrant liability for the twenty-six weeks ended July 2, 2023 compared to a gain of $7.7 million for the twenty-six weeks ended July 3, 2022.

Inco me tax benefit was $(3.3) million and $(0.1) million for the twenty-six weeks ended July 2, 2023 and July 3, 2022, respectively.

Other expense, net was $(26.1) million and $(27.4) million for the thirty-nine weeks ended October 1, 2023 and October 2, 2022, respectively.

The increase in expense was driven by interest expense of $44.9 million for the thirty-nine weeks ended October 1, 2023 compared to $31.5 million for the thirty-nine weeks ended October 2, 2022.

Also significant was a $16.6 million gain from the remeasurement of warrant liability for the thirty-nine weeks ended October 1, 2023 compared to a gain of $4.0 million for the thirty-nine weeks ended October 2, 2022.

Inco me tax benefit was $(13.4) million and $(1.7) million for the thirty-nine weeks ended October 1, 2023 and October 2, 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, identifies trends in our underlying operating results and provides additional insight and transparency on how we evaluate the business.

We use certain financial information that is not prepared in accordance with accounting principles generally accepted in the United States (“non-GAAP”) because we 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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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 financial measures prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.

We have provided the reconciliations between the U.S.

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

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

(dollars in millions) Thirteen weeks ended July 2, 2023 Thirteen weeks ended July 3, 2022 Twenty-six weeks ended July 2, 2023 Twenty-six weeks ended July 3, 2022

The following table provides a reconciliation from net income (loss) to EBITDA and Adjusted EBITDA for the thirteen and thirty-nine weeks ended October 1, 2023 and October 2, 2022:

(dollars in millions) Thirteen weeks ended October 1, 2023 Thirteen weeks ended October 2, 2022 Thirty-nine weeks ended October 1, 2023 Thirty-nine weeks ended October 2, 2022

Net income (loss) $ 16.2 $ 1.5 $ (6.8) $ (27.9)

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

Incentive programs – The Company incurred $3.4 million and $3.3 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 July 2, 2023 and July 3, 2022, respectively.

The Company incurred $8.1 million and $4.8 million of share-based compensation, that was awarded to associates and directors, and compensation expense associated with the employee stock purchase plan for the twenty-six weeks ended July 2, 2023 and July 3, 2022, respectively.

Asset Impairm ents and Write-Offs — For the thirteen weeks ended July 2, 2023, the Company recorded an adjustment for an impairment of $7.6 million r elated to fixed assets.

During the twenty-six weeks ended July 2, 2023, the Company recorded impairments totaling $9.6 million.

During the twenty-six weeks ended July 3, 2022, the Company recorded an impairment of $2.0 million related to the termination of a 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 adjustment (gains) losses were $(2.5) million and $1.5 million for the thirteen weeks ended July 2, 2023 and July 3, 2022, respectively.

The twenty-six weeks ended July 2, 2023 and July 3, 2022 also included $0.0 million and $1.5 million of unrealized purchase commitment gains, respectively.

Incentive programs – The Company incurred $3.7 million and $1.9 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 October 1, 2023 and October 2, 2022, respectively.

The Company incurred $11.8 million and $6.7 million of share-based compensation, that was awarded to associates and directors, and compensation expense associated with the employee stock purchase plan for the thirty-nine weeks ended October 1, 2023 and October 2, 2022, respectively.

Asset Impairments and Write-Offs — For the thirteen weeks ended October 1, 2023, the Company recorded an adjustment for a non-cash loss on sale of $13.7 million related to fixed assets for the sale of the Bluffton, Indiana plant along with the transfer of $4.7 million from Business Transformation Initiatives in note (4) below related to the termination of a contract that was settled with the sale.

During the thirteen and thirty-nine weeks ended October 1, 2023, the Company recorded impairments and non-cash loss on sale totaling $0.1 million and $23.3 million, respectively.

During the thirty-nine weeks ended October 2, 2022, the Company recorded an impairment of $2.0 million related to the termination of a distribution agreements.

Purchase Commitments and Other Adjustments – We have purchase commitments and options 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 commitments and options related unrealized gains and losses.

The adjustment related to Purchase Commitment and Other non-cash adjustment (gains) losses were $1.4 million and $(1.0) million for the thirteen weeks ended October 1, 2023 and October 2, 2022, respectively.

The thirty-nine weeks ended October 1, 2023 and October 2, 2022 also included $1.4 million and $0.5 million of unrealized purchase commitment losses, respectively.

Additionally, we recorded $0.9 million for the amortization of cloud-based computing assets for the thirteen and thirty-nine weeks ended, October 1, 2023.

(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.

Such expenses were $3.4 million and $8.3 million for the thirteen and twenty-six weeks ended July 2, 2023, respectively, as well as $0.3 million of expense and $0.9 million of income for the change of the Tax Receivable Agreement Liability associated with the Business Combination for the thirteen and twenty-six weeks ended July 2, 2023, respectively.

Charges related to the buyout of multiple distributors, which was accounted for as a contract termination resulted in expense of $23.0 million for the twenty-six week period ended July 3, 2022.

Additionally, other acquisitions and integration cost of $6.2 million and $12.0 million were recorded for the thirteen and twenty-six weeks ended July 3, 2022, respectively, also included are adjustment of $1.0 million and $1.0 million of expense for the increase of the Tax Receivable Agreement Liability associated with the Business Combination for the thirteen and twenty-six week period ended July 3, 2022, 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.

Such expenses were $1.2 million and $9.5 million for the thirteen and thirty-nine weeks ended October 1, 2023, respectively, as well as $0.1 million of expense and $0.8 million of income for the change of the Tax Receivable Agreement Liability associated with the Business Combination for the thirteen and thirty-nine weeks ended October 1, 2023, respectively.

Charges related to the buyout of multiple distributors, which was accounted for as a contract termination resulted in expense of $23.0 million for the thirty-nine week period ended October 2, 2022.

Additionally, other acquisitions and integration cost of $4.8 million and $16.8 million were recorded for the thirteen and thirty-nine weeks ended October 2, 2022, respectively, also included are adjustment of $1.0 million of expense for the increase of the Tax Receivable Agreement Liability associated with the Business Combination for the thirty-nine week period ended October 2, 2022.

(4) Business Transformation Initiatives Adjustment – This adjustment is related to consultancy, professional, legal, closure and other expenses 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 Enterprise Resource Planning transition costs, fall into this category.

The Company incurred such costs of $5.6 million and $3.6 million for the thirteen weeks ended July 2, 2023 and July 3, 2022, respectively, and $13.8 million and $7.9 million for the twenty-six weeks ended July 2, 2023 and July 3, 2022, respectively.

Additionally, the thirteen and twenty-six weeks ended July 2, 2023 also includes expense of $4.7 million related to a contract termination.

This agreement was a continuation of the Company's response to shifting production from a manufacturing facilities that was damaged by a natural disaster in 2021.

The Company incurred such costs of $6.1 million and $5.4 million for the thirteen weeks ended October 1, 2023 and October 2, 2022, respectively, and $24.6 million and $13.3 million for the thirty-nine weeks ended October 1, 2023 and October 2, 2022, respectively, which included the closure of our Gramercy, Louisiana and Birmingham, Alabama plants along with various other supply chain, commercial and administrative initiatives.

Additionally, as noted above, the costs for the thirteen and thirty-nine weeks ended October 1, 2023 also includes a transfer of expense of $(4.7) million related to a contract termination that was not settled in cash.

During 2023, we completed the closure of our Gramercy, Louisiana and Birmingham, Alabama manufacturing plants along with the sale of our Bluffton, IN manufacturing plant.

(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 2, 2023 and July 3, 2022:

(in thousands) Twenty-six weeks ended July 2, 2023 Twenty-six weeks ended July 3, 2022

Net cash used in operating activities $ (4,315) $ (26,268)

The following table presents net cash provided by operating activities, investing activities and financing activities for the thirty-nine weeks ended October 1, 2023 and October 2, 2022:

(in thousands) Thirty-nine weeks ended October 1, 2023 Thirty-nine weeks ended October 2, 2022

Net cash provided by operating activities $ 49,130 $ 8,071

Net cash used in investing activities $ (37,505) $ (52,940)

Net cash provided by financing activities $ 35,825 $ 51,754

For the twenty-six weeks ended July 2, 2023, our consolidated cash balance, including cash equivalents, was $73.7 million or $0.7 million higher than at January 1, 2023.

Net cash used in operating activities for the twenty-six weeks ended July 2, 2023 was $4.3 million compared to $26.3 million for the twenty-six weeks ended July 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.

During the twenty-six weeks ended July 2, 2023 the accounts receivable growth and inventory build up was lower than the build up that took place during the twenty-six weeks ended July 3, 2022, but was largely offset by a decrease of accounts payable and accrued expenses and other as well as a build up of prepaid expenses and other assets.

Cash used in investing activities for the twenty-six weeks ended July 2, 2023 was $30.8 million, driven by purchases of property and equipment, versus cash used in investing activity of $47.3 million for the twenty-six weeks ended July 3, 2022.

Net cash provided by financing activities was $35.8 million for the twenty-six weeks ended July 2, 2023, driven by a draw on the line of credit of $61.0 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 $51.8 million for the twenty-six weeks ended July 3, 2022, which was primarily a result of a draw on the line of credit of $29.8 million, proceeds from the issuance of shares of $28.0 million, and other borrowings on term debt and notes payable of $28.9 million, offset by payments on term debt and notes as well as dividends and distributions.

Net cash (used in) provided by financing activities $ (24,461) $ 54,776

For the thirty-nine weeks ended October 1, 2023, our consolidated cash balance, including cash equivalents, was $60.1 million, or $12.8 million higher than the consolidated cash balance as of January 1, 2023.

Net cash used in operating activities for the thirty-nine weeks ended October 1, 2023 was $49.1 million compared to $8.1 million for the thirty-nine weeks ended October 2, 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.

During the thirty-nine weeks ended October 1, 2023, the accounts receivable growth and inventory buildup was lower than the buildup that took place during the thirty-nine weeks ended October 2, 2022, but was largely offset by a decrease of accounts payable and accrued expenses and other related expenses as well as a buildup of prepaid expenses and other assets.

Cash used in investing activities for the thirty-nine weeks ended October 1, 2023 was $37.5 million, driven by purchases of property and equipment, versus cash used in investing activity of $52.9 million for the thirty-nine weeks ended October 2, 2022.

Net cash provided by financing activities was $24.5 million for the thirty-nine weeks ended October 1, 2023, driven by a draw on the line of credit of $20.3 million, offset by the payment of dividends and distribution, and repayments on term debt and notes payable.

Comparably, net cash used in financing activities was $54.8 million for the thirty-nine weeks ended October 2, 2022, which was primarily a result of a draw on the line of credit of $40.4 million, proceeds from the issuance of shares of $28.0 million, and other borrowings on term debt and notes payable of $34.0 million, offset by payments on term debt and notes as well as 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 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.

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

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 2, 2023 and January 1, 2023, $96.6 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 July 2, 2023) and other fees and expenses and was set to mature on August 22, 2024 as of July 2, 2023.

On July 20, 2023 the ABL facility was further amended to increase the credit limit to $225.0 million and extend the maturity through the earlier of July 20, 2028, or 90 days prior to the maturity of the Term Loan B, as described further with Note 7.

"Long-Term" Debt, which would be October 22, 2027.

See Note 17." Subsequent Events" for additional details regarding this amendment.

Standby letters of credit in the amount of $14.3 million and $12.0 million have been issued as of July 2, 2023 and January 1, 2023, respectively.

As of October 1, 2023 and January 1, 2023, $149.3 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 October 1, 2023) and other fees and expenses.

On July 20, 2023, the ABL facility was further amended to increase the credit limit to $225.0 million and extend the maturity through the earlier of July 20, 2028, or 91 days prior to the maturity of the Term Loan B (as defined below).

The Company incurred fees of $0.7 million in connection with the amendment to the ABL facility.

Standby letters of credit in the amount of $12.2 million and $12.0 million have been issued as of October 1, 2023 and January 1, 2023, 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 (each as defined below) from OTB Acquisition, LLC, in which the Company withdrew $490.0 million to finance the acquisition of Truco Holdco Inc.

The Company used $490.0 million from the proceeds of the Bridge Credit Agreement 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").

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Pursuant to the terms of Amendment No.

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.

2, the Company raised $720 million in aggregate principal of Term Loan B ("Term Loan B") which then 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 the Company's exercised warrants, to redeem the outstanding principal amount of Term Loan B and Bridge Credit Agreement of $410 million and $358 million, respectively.

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

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.

On October 12, 2022, the Company, through its subsidiaries UQF, Kennedy Endeavors, LLC (“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 initially held a principal balance of $88.1 million, with net proceeds of approximately $85.0 million after transaction fees and expenses.

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

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“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 and including equity interests in certain of UBH’s subsidiaries.

In September 2023, the Company made an additional $4.4 million paydown of the Real Estate Term Loan using net proceeds from the sale of land to a third-party, as discussed within Note 3.

“Property, Plant, and Equipment, Net”, as well as cash on hand.

Following such paydown, the loan will amortize approximately $3.3 million in principal annually through maturity, subject to any additional advanced paydowns.

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, which secure the Real Estate Term Loan and 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 July 2, 2023.

UBH and its subsidiaries were in compliance with its financial covenants as of October 1, 2023.

Debt (in thousands)

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

Issue Date Principal Balance Maturity Date October 1, 2023 January 1, 2023

Term loan B (1)

June-21 $ 795,000 January-28 $ 773,323 $ 779,286

Real Estate Loan October-22 88,140 October-32 86,377 88,140

Real Estate Term Loan October-22 88,140 October-32 81,019 88,140

Equipment loans (2)

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

The weighted average interest rate on the Term Loan B debt, without consideration of the hedge, was 8.10% for the thirteen weeks ended July 2, 2023.

(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 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 $3.2 million in fiscal year 2023.

The weighted average interest rate on the Term Loan B debt, without consideration of the hedge, was 8.36% for the thirteen weeks ended October 1, 2023.

(2) The Company has finance lease obligations with Banc of America Leasing & Capital, LLC, which are treated as secured borrowing.

The Company made a series of draws upon these agreements totaling $4.3 million in fiscal year 2023.

These draws bear interest ranging from 3.26% through 7.25% and have varying maturities up through 2028.

(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 1.75% (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 2, 2023 would have been 8.75%, 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 July 2, 2023 was 6.75%.

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 1, 2023 would have been 9.25%, under the prime rate.

The Company elected 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 were expected to be carried longer than 30 days.

The interest rate on the ABL facility as of October 1, 2023 was 7.17%.

Other Notes Payable and Finance 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 twenty-six weeks ended July 3, 2022.

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

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

Amounts outstanding under notes payable consisted of the following:

(in thousands) As of

October 1, 2023

As of January 1, 2023

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

During the twenty-six weeks ended July 2, 2023, the Company sold an additional $2.2 million of notes receivable from IOs on its books for $2.2 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.

During the thirty-nine weeks ended October 1, 2023, the Company sold $4.1 million of notes receivable from IOs to a financial institution.

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

The underlying notes have various maturity dates through June 2033.

The Company partially guarantees the outstanding loans, as discussed in further detail within Note 10.

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Interest expense consisted of the following:

(in thousands) Thirteen weeks ended July 2, 2023 Thirteen weeks ended July 3, 2022 Twenty-six weeks ended July 2, 2023 Twenty-six weeks ended July 3, 2022

(in thousands) Thirteen weeks ended October 1, 2023 Thirteen weeks ended October 2, 2022 Thirty-nine weeks ended October 1, 2023 Thirty-nine weeks ended October 2, 2022

Company’s term loans, ABL facility, and other long-term debt $ 14,582 $ 10,916 $ 42,971 $ 29,320

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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 $110.4 million as of July 2, 2023.

These purchase commitments totaled $84.4 million as of October 1, 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 $2.4 million and $1.1 million for the thirteen weeks ended July 2, 2023 and July 3, 2022, respectively, and $(0.3) million and $1.0 million for the twenty-six weeks ended July 2, 2023 and July 3, 2022, respectively.

The Company has recorded purchase commitment gains (losses) totaling $(1.7) million and $1.0 million for the thirteen weeks ended October 1, 2023 and October 2, 2022, respectively, and $(1.9) million and $0.0 million for the thirty-nine weeks ended October 1, 2023 and October 2, 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 $0.9 million and $1.5 million at July 2, 2023 and January 1, 2023, respectively, all of which was recorded by the Company as off balance sheet arrangements.

The outstanding balance of loans guaranteed was $0.8 million and $1.5 million as of October 1, 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 $42.9 million and $36.0 million at July 2, 2023 and January 1, 2023, respectively, which are off balance sheet arrangements.

The outstanding balance of loans guaranteed that were issued by Bank of America was $49.6 million and $36.0 million as of October 1, 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 years 2019, 2021, and 2022, which the Company partially guarantees.

The outstanding balance of notes purchased by Bank of America at July 2, 2023 and January 1, 2023 was $16.6 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;

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

The outstanding balance of notes purchased by Bank of America as of October 1, 2023 and January 1, 2023 was $15.3 million and $17.9 million, respectively.

The maximum amount of future payments the Company could be required to make under these guarantees equates to 25% of the outstanding loan balance on the first day of each calendar year plus 25% of the amount of any new loans issued during such calendar year.

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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 $2.7 million and $3.4 million at July 2, 2023 and January 1, 2023, respectively, all of which were included in the Company's Consolidated Balance Sheets.

The outstanding balance of loans guaranteed was $2.5 million and $3.4 million as of October 1, 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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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, 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 2, 2023 .

We have determined that there was no significant impact that affected the fair value of the reporting unit through October 1, 2023 .

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

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

As of July 2, 2023 and January 1, 2023, no liability for unrecognized tax benefits was required to be reported.

As of October 1, 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.

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"Quantitative and Qualitative Disclosures About Market Risk" of our Annual Report on Form 10-K.

Our exposures to market risk have not changed materially since January 1, 2023.

Our exposures to market risk have not changed materially since the filing of our Annual Report on Form 10-K.

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