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Item 7. Management’s Discussion and Analysis

2024-02-29 compared with 2023-03-02 · 168 added, 316 removed, 196 unchanged (71% of the section changed)

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

Our fiscal year 2020 ended January 3, 2021 and was a fifty-three-week fiscal year, our fiscal year 2021 ended January 2, 2022 and was a fifty-two-week fiscal year, and our fiscal year 2022 ended January 1, 2023 and was a fifty-two-week fiscal year.

Our fiscal year 2021 ended January 2, 2022 and was a fifty-two-week fiscal year, our fiscal year 2022 ended January 1, 2023 and was a fifty-two-week fiscal year, and our fiscal year 2023 ended December 31, 2023 and was a fifty-two-week fiscal year.

Our fiscal quarters are comprised of thirteen weeks each, except for fifty-three-week fiscal periods 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 United States manufacturer of branded salty snacks.

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

Our iconic portfolio of authentic, craft, and BFY brands, includes Utz®, ON THE BORDER® , Zapp’s®, Golden Flake®, Good Health®, Boulder Canyon®, Hawaiian® Brand, and TORTIYAHS!®, among others, and enjoy strong household penetration in the United States, where our products can be found in approximately 48% of U.S.

We operate 16 manufacturing facilities with a broad range of capabilities, and our products are distributed nationally to grocery, mass merchant, club, convenience, drug and other retailers through direct shipments, distributors, and approximately 2,100 direct-store-delivery (“DSD”) routes.

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

We are a leading United States manufacturer of branded salty snacks, producing a broad offering of salty snacks, including potato chips, tortilla chips, pretzels, cheese snacks, veggie snacks, pork skins, pub/party mixes, and other snacks.

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

households as of December 31, 2023.

As of December 31, 2023, we operate 14 manufacturing facilities across the United States with a broad range of capabilities.

As of December 31, 2023, our products are distributed nationally to grocery, mass merchant, club, convenience, drug and other retailers through direct shipments, distributors, and approximately 2,250 direct-store-delivery (“DSD”) routes.

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

Based on 2022 retail sales, we are the second-largest producer of branded salty snacks in Alabama, Connecticut, Delaware, Louisiana, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, Virginia, West Virginia, Washington, and Washington D.C., where we have acquired strong regional brands and distribution capabilities in recent years.

Business Combination

On August 28, 2020, CCH domesticated into a Delaware corporation and changed its name to "Utz Brands, Inc." (the “Domestication”) and consummated the acquisition of certain limited liability company units of UBH, the parent of Utz Quality Foods, LLC (“UQF”), as a result of a new issuance by UBH and purchases from UBH’s existing equity holders pursuant to a Business Combination Agreement, dated as of June 5, 2020 (the “Business Combination Agreement”) among CCH, UBH and Series U of UM Partners, LLC (“Series U”) and Series R of UM Partners, LLC (“Series R” and together with Series U, the “Continuing Members”), following the approval at the extraordinary general meeting of the shareholders of CCH held on August 27, 2020.

UBI was determined to be the accounting acquirer and UBH was determined to be the accounting acquiree, in accordance with ASC 810, as the Company is considered to be the primary beneficiary of UBH after the Business Combination.

Under the ASC 805, Business Combinations, acquisition method of accounting, purchase price allocation of assets acquired and liabilities assumed of UBH are presented based on their estimated fair values as of the closing of the Business Combination.

As a result of the Business Combination, UBI’s financial statement presentation distinguishes UBH as the “Predecessor” for periods prior to the closing of the Business Combination.

UBI, which includes consolidation of UBH subsequent to the Business Combination, is the “Successor” for periods after the closing of the Business Combination.

As a result of the application of the acquisition method of accounting in the Successor period, the financial statements for the Successor period are presented on a full step-up basis as a result of the Business Combination, and are therefore not comparable to the financial statements of the Predecessor period that are not presented on the same full step-up basis due to the Business Combination.

Based on 2023 retail sales, we are the second-largest producer of branded salty snacks in our core geographies where we have acquired strong regional brands and distribution capabilities in recent years.

Key Developments and Trends

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Long-Term Demographics, Consumer Trends, and Demand – We participate in the attractive and growing $38 billion U.S.

salty snacks category, within the broader $118 billion market for U.S.

snack foods as of January 1, 2023.

The salty snacks category has grown retail sales at an approximate 9.2% compound annual growth rate (“CAGR”) during 2019 through 2022, with a major spike in 2020 driven by consumption following the outbreak of the novel coronavirus ("COVID-19") and again in 2022 driven by inflation.

salty snacks category, within the broader approximately $129 billion market for U.S.

snack foods as of December 31, 2023.

The salty snacks category has grown retail sales at an approximate 10.1% compound annual growth rate ("CAGR") during 2019 through 2023 with a major spike in 2020 driven by consumption following the outbreak of the novel coronavirus ("COVID-19") and again from 2022 through 2023 driven by inflation.

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

According to data from the Mintel’s 2022 Snacking Motivation and Attitudes study, approximately 95% of the U.S.

population snacks daily and IRI 2022 Seesaw State of U.S.

Snacking study reports that the average American snacks 2.7 times per day.

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.

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.

For the 52 weeks ended January 1, 2023, U.S.

retail sales for salty snacks based on IRI data increased by 15.8% versus the comparable prior year period while our retail sales increased by 16.6% in the same period.

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

For the year ended December 31, 2023, U.S.

retail sales for salty snacks based on Circana data increased by 8.7% versus the comparable prior year period while our retail sales increased 6.3%.

The 2 year CAGR during 2022 and 2023 was 12.2% for U.S.

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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.

Additionally, we maintain ongoing efforts led by our transformation 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 includes various tax provisions with retroactive effect.

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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 shortly after fiscal year 2022.

We continue to evaluate the impact of the CARES Act;

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

On August 16, 2022, the U.S.

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

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

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

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

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

Financing Costs and Exposure to Interest Rate Changes – As of December 31, 2023, we had $851.5 million in variable rate indebtedness, down from $867.4 million as of January 1, 2023.

As of December 31, 2023, our variable rate indebtedness was benchmarked to the Term SOFR Screen Rate (‘SOFR”).

As of December 31, 2023, we have entered into interest rate hedges covering $584.6 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 loan by City National Bank which is secured by a majority of the real estate assets of the our subsidiaries (the “Real Estate Term Loan”) (Refer to Note 8.

“Long-Term Debt.”) to our audited consolidated financial statements included under Part II, Item 8 of this Annual Report on Form 10-K (our “Audited Financial Statements”)) 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 fiscal year ended January 1, 2023 was 4.6%, up from 3.5% in fiscal year 2021.

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

Our weighted average interest rate for the fiscal year ended December 31, 2023 was 6.3%, up from 4.7% during the fiscal year ended January 1, 2023.

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.

Refer to Note 8.

"Long-Term Debt" and Note 9.

"Derivative Financial Instruments and Purchase Commitments" to our audited consolidated financial statements included under Part II, Item 8 of this Annual Report on Form 10-K (our "Audited Financial Statements") for additional information on debt, derivative and purchase commitment activity.

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 January 1, 2023, we had $867.4 million in variable rate indebtedness, up from $823.2 million at January 2, 2022.

During most 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”).

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

As of January 1, 2023 we have entered into interest rate hedges covering $588.1 million of debt, of which, $500.0 million is covered through September 30, 2026 and a hedge that covers the principle 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.

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 took necessary preventive actions and continue to implement safety measures to protect our associates who are working on and off site.

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

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.

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 fiscal year 2022.

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

"Derivative Financial Instruments and Purchase Commitments" to our Audited Financial Statements 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.

Recent Developments and Significant Items Affecting Comparability

Acquisitions and Vertical Integration

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

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

Garcia Co., Inc.

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

The Company closed on the RW Garcia acquisition 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 the RW Garcia 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.

Acquisitions and Dispositions

During fiscal year 2022, the Company focused on increasing manufacturing and streamlining distribution.

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The Company paid the full cash purchase price of $38.4 million at the closing and concurrently with the facility purchase, the Company sold 2.1 million shares of the Company’s Class A Common Stock for $28.0 million, to affiliates of Benestar in a private placement pursuant to Section 4(a)(2) of the Securities Act of 1933.

During fiscal year 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 asset purchases and resulted in expense of $23.0 million for the 52-week period ended January 1, 2023.

During fiscal year 2023 and 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 asset purchases and resulted in expense of $1.5 million and $23.0 million for the fiscal years ended December 31, 2023 and January 1, 2023, respectively.

Commodity Trends

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

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

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

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

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

Other methods include hedging, net pricing adjustments to cover longer term cost inflation, and manufacturing and overhead cost control.

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 fiscal year 2022.

Continued cost increases in commodity trends may adversely impact our net income.

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.

We experienced an increase in pricing in certain commodity trends that continued to rise throughout fiscal year 2022 and have since stabilized during fiscal year 2023.

Commodity cost increases in commodity trends 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.

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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 RSP was approximately 93% and 7%, respectively, as of January 1, 2023 versus an 88% and 12% ratio for IOs and RSPs, respectively, as of January 2, 2022.

We anticipate continuing to work to complete conversions of remaining RSPs in fiscal year 2023.

As of December 31, 2023, substantially all of our DSD routes are managed by IOs.

As of January 1, 2023, the mix between IOs and RSPs was approximately 93% and 7%, respectively.

The conversion process involves selling distribution rights to 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, distribution 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 converted a large number of routes in a year, there is a meaningful decrease in the selling, distribution 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.

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

Conversions also impact our balance sheet resulting in cash proceeds to us as a result of selling the route to an IO, or by creating notes receivable related to the sale of the routes.

Conversions also impact our consolidated balance sheet resulting in cash proceeds to us as a result of selling the route to an IO, or by creating notes receivable related to the sale of the routes.

Controls and Procedures

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Results of Operations

The following tables present selected financial data for the fiscal year ended January 1, 2023, fiscal year ended January 2, 2022.

We have prepared our discussion of the results of operations by comparing the results for the fiscal year ended January 1, 2023 to the results of operations for the fiscal year ended January 2, 2022.

Refer to Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations , in our Annual Report on Form 10-K for the fiscal year ended January 2, 2022, for discussion of the results of operations for the fiscal year ended January 2, 2022, compared to the combined successor fiscal period from August 29, 2020 through January 3, 2021 and the Predecessor period from December 30, 2019 through August 28, 2020, which is incorporated by reference herein.

For the year ended January 1, 2023 For the year ended January 2, 2022

The following tables present selected financial data for the fiscal year ended December 31, 2023 and fiscal year ended January 1, 2023.

We have prepared our discussion of the results of operations by comparing the results for the fiscal year ended December 31, 2023 to the results of operations for the fiscal year ended January 1, 2023.

Refer to Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations , in our Annual Report on Form 10-K for the fiscal year ended January 1, 2023, for discussion of the results of operations for the fiscal year ended January 1, 2023, compared to the fiscal year ended January 2, 2022, which is incorporated by reference herein.

For the Fiscal Year Ended December 31, 2023 For the Fiscal Year Ended January 1, 2023

Net sales $ 1,438,237 $ 1,408,401

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Total selling, distribution, and administrative expenses 433,119 444,404

Gain on sale of assets, net 691 1,864

Income (loss) from operations 5,344 10,566

(Loss) gain on sale of assets, net (7,350) 691

Income from operations 16,017 5,344

Other (expense) income

Interest expense (60,590) (44,424)

Other income (expense) 400 3,551

Gain (loss) on remeasurement of warrant liability 720 36,675

Other (expense) income, net (43,304) 5,518

(Loss) income before income taxes (37,960) 16,084

Income tax (benefit) expense (23,919) 8,086

Net (loss) income (14,041) 7,998

Other income 3,066 400

Gain on remeasurement of warrant liability 2,232 720

Other expense, net

(55,292) (43,304)

Loss before income taxes

(39,275) (37,960)

Income tax expense (benefit)

(40,032) (14,041)

Net loss attributable to noncontrolling interest 15,095 13,649

Net (loss) income attributable to controlling interest $ (392) $ 20,555

52 week Year Ended January 1, 2023 versus 52 week Year Ended January 2, 2022

Net sales were $1,408.4 million for the fiscal year ended January 1, 2023 and $1,180.7 million for the fiscal year ended January 2, 2022.

Net sales for the fiscal year ended January 1, 2023 increased $227.7 million or 19.3% over the fiscal year 2021.

The increase in net sales for the 52 weeks ended January 1, 2023 was primarily related to favorable price/mix of 13.9%, 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 full year sales benefit from the acquisitions of Vitner's, Festida Foods, and R.W.

Garcia, partially offset by the Company's stock keeping units ("SKU") reduction as the Company continue to optimize product offerings.

IO discounts increased from $109.7 million for the fiscal year ended January 2, 2022 to $156.8 million for the corresponding year ended January 1, 2023.

Excluding the impacts of acquisitions, which contributed $58.4 million to net sales, and increased IO discounts related to RSP to IO conversion, which reduced net sales by $14.2 million, organic net sales increased 15.5% for the fiscal year ended January 1, 2023 versus the fiscal year ended January 2, 2022.

Net loss attributable to controlling interest

$ (24,937) $ (392)

Fiscal Year Ended December 31, 2023 versus Fiscal Year Ended January 1, 2023

Net sales were $1,438.2 million for the fiscal year ended December 31, 2023 and $1,408.4 million for the fiscal year ended January 1, 2023.

Net sales for the fiscal year ended December 31, 2023 increased $29.8 million or 2.1% over the fiscal year 2022.

The increase in net sales for the fiscal year ended December 31, 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 4.6% increase in net sales, partially offset by a volume/mix decline of 1.8% due to SKU rationalization as well as 0.7% decline in net sales related to continued IO conversions.

IO discounts increased from $156.8 million for the fiscal year ended January 1, 2023 to $179.3 million for the corresponding fiscal year ended December 31, 2023.

Excluding the impacts of increased IO discounts related to IO conversions, organic net sales increased 2.8% for the fiscal year ended December 31, 2023 versus the fiscal year ended January 1, 2023.

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;

Our Power Brands are comprised of our iconic heritage Utz brand and iconic On The Border® brand;

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

BFY brands such as Good Health ® and Boulder Canyon ®;

and select 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 fiscal year ended January 1, 2023, excluding brands acquired through our Vitner's, Festida Foods, and R.

Garcia acquisitions, Power brand sales increased by approximately 21.0%, while Foundation brand sales increased approximately 4.7% from 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, partially offset by continued IO conversion and SKU rationalization.

BFY brands such as Boulder Canyon ®;

strong regional snacking brands such as Bachman®, Tim’s Cascade® Snacks, and "Dirty" Potato Chips®;

and selected licensed brands such as TGI Fridays ®.

Our Foundation Brands include strong regional snacking brands, such as Golden Flake ® Chips and Cheese, Snyder of Berlin ®, and R.W.

and BFY brands such as Good Health®, as well as other partner and private label brands.

On February 5, 2024, the Company sold the Good Health and R.W.

Garcia brands the to affiliates of Our Home™.

For the fiscal year ended December 31, 2023, Power brand invoiced sales increased by approximately 8.6%, while Foundation brand invoiced sales decreased approximately 5.4% from fiscal year 2022.

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

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

The Company's volume for the fiscal year ended December 31, 2023 was impacted by significant SKU rationalization focused on a reduction in private label, co-manufactured and partner branded products, which fall in Foundation Brands, as well as by weight outs and changes to price pack architecture.

Cost of goods sold and Gross profit

Gross profit was $449.1 million for the fiscal year ended January 1, 2023 and $383.9 million for the fiscal year ended January 2, 2022.

Gross profit for the year ended January 1, 2023 increased $65.1 million or 17.0% over the comparable period in fiscal year 2021.

The increase in gross profit for fiscal year 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, including implementation of IBM, SKU rationalization, and full integration of our Enterprise Resource Planning ("ERP") system.

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

The fiscal year ended January 1, 2023 was benefited by $6.0 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 incremental expenses as the Company shifted production to other facilities, including co-manufacturers, due to a natural disaster that affected one of the Company's smaller manufacturing facilities.

Our gross profit margin was 31.9% for the fiscal year 2022 versus 32.5% for the combined fiscal year ended 2021.

IO discounts increased from $109.7 million in fiscal year 2021 to $156.8 million in fiscal year 2022, $14.2 million of which was the result of continued route conversions to IOs and the remaining IO discount growth driven by volume and pricing actions.

The IO conversions accounting for approximately 1.0% of the decline in gross profit margin.

Apart from the IO discount impact, in fiscal year 2022 the Company improved margins over fiscal year 2021 as the Company continued pricing actions in response to the labor, freight, and commodity inflation that the Company experienced in fiscal years 2021 and 2022.

Gross profit was $456.5 million for the fiscal year ended December 31, 2023 and $449.1 million for the fiscal year ended January 1, 2023.

Gross profit for the fiscal year ended December 31, 2023 increased $7.4 million or 1.7% over the comparable period in fiscal year 2022.

The increase in gross profit for the fiscal year ended December 31, 2023 was driven by productivity and pricing initiatives which were put in place to help reduce the impact of inflation on commodity costs, and wages which hindered gross profit, partially offset by volume decline.

During the fiscal year ended January 1, 2023, gross profit was benefited by $6.0 million recorded as a reduction of cost of goods sold related to proceeds received from a 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 31.7% for the fiscal year ended December 31, 2023 versus 31.9% for the fiscal year ended January 1, 2023.

The decline in gross profit margin was primarily driven by commodity and wage inflation, transitory higher inbound freight costs, offset by the impact of productivity initiatives.

Additionally, IO discounts increased to $179.3 million for the fiscal year ended December 31, 2023 from $156.8 million for the fiscal year ended January 1, 2023.

IO conversions contributed to a gross profit decline of $9.2 million, or a gross profit margin impact of 0.7%, and the remaining IO discount growth was driven by pricing actions.

Selling, distribution and administrative expenses

Selling, distribution and administrative expenses were $444.4 million for the fiscal year ended January 1, 2023 and $375.2 million for the fiscal year ended January 2, 2022.

Selling, distribution and administrative expenses for the fiscal year ended January 1, 2023 increased $69.2 million or 18.4% greater than the fiscal year ended January 2, 2022.

The increased expenses in fiscal year 2022 was driven by increased distribution, and the acquired operations of the R.W.

Garcia businesses, as well as, higher accruals for incentive compensation resulting from improved fiscal year 2022 performance as compared to fiscal year 2021, and increased investments in additional compensation for our associates, 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 of Company-owned DSD routes from RSP to IO.

Gain on sale of assets

Gain on sale of assets was $0.7 million for the fiscal year ended January 1, 2023 and $1.9 million for the fiscal year ended January 2, 2022.

The decrease in the gain on sale of assets of $1.2 million was primarily the result of a lower route conversions in 2022 offset by gains on disposals of equipment.

Other income (expense), net

Other income (expense), net was $(43.3) million for the fiscal year ended January 1, 2023 and $5.5 million for the fiscal year ended January 2, 2022.

The primary change was driven by the valuation of the Company's warrants.

In fiscal year 2022, the warrants resulted in a gain of $0.7 million versus a gain of $36.7 million for fiscal year 2021.

In addition, interest expense was $(44.4) million for the fiscal year ended January 1, 2023 and $(34.7) million for the fiscal year ended January 2, 2022.

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 acquisition of R.W.

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

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.

Income taxes were a benefit of $23.9 million for the fiscal year ended January 1, 2023 and an expense of $8.1 million for the fiscal year ended January 2, 2022 .

The income tax benefit recognized for the year ended January 1, 2023 is largely driven by the removal of part of a portion of a valuation allowance, which partially offsets a deferred tax asset, which resulted in a $17.2 million income tax benefit.

Selling, distribution and administrative expenses were $433.1 million for the fiscal year ended December 31, 2023 and $444.4 million for the fiscal year ended January 1, 2023, a decrease of $11.3 million or 2.5%.

The decrease was primarily attributable to lower acquisition and integration costs due to $23.0 million in the prior year period related to the buyout of multiple distributors and reductions of selling costs related to the continued conversion out of Company owned RSP to IO routes, offset by impairments of $12.6 million primarily related to the closing of the Company's manufacturing facility in Birmingham, Alabama and $4.7 million related to a contract termination with a co-manufacturer which both occurred in the current year period, and rising labor and higher stock-based compensation costs.

(Loss) Gain on sale of assets

(Loss) gain on sale of assets was $(7.4) million for the fiscal year ended December 31, 2023 and $0.7 million for the fiscal year ended January 1, 2023.

The Company has continued to convert company-owned routes to IO routes during the fiscal year ended December 31, 2023, which was substantially complete as of December 31, 2023, offsetting the sales price by the respective route intangible asset.

The loss during the fiscal year ended December 31, 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, net

Other expense, net was $55.3 million for the fiscal year ended December 31, 2023 and $43.3 million for the fiscal year ended January 1, 2023.

The increase in expense was driven by interest expense of $60.6 million for the fiscal year ended December 31, 2023 compared to $44.4 million for the fiscal year ended January 1, 2023.

The increase in interest expense is primarily attributable to higher interest rates, which impacted the portion of debt that the Company has not hedged.

Income taxes were an expense of $0.8 million for the fiscal year ended December 31, 2023 and a benefit of $23.9 million for the fiscal year ended January 1, 2023.

The income tax benefit recognized for the fiscal year ended January 1, 2023 is largely driven by the removal of a portion of a valuation allowance, which partially offsets a deferred tax asset, which resulted in a $17.2 million income tax benefit.

Please see Note 15.

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We define EBITDA as Net Income before Interest, Income Taxes, and Depreciation and Amortization.

We define Adjusted EBITDA as EBITDA further adjusted to exclude certain non-cash items, such as accruals for long-term incentive programs, hedging and purchase commitments adjustments, and asset impairments;

We define Adjusted EBITDA as EBITDA further adjusted to exclude certain non-cash items, such as accruals for long-term incentive programs;

hedging and purchase commitments adjustments;

remeasurement of warrant liabilities and asset impairments;

acquisition and integration costs;

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

We believe EBITDA and Adjusted EBITDA are useful to investors in the evaluation of Utz’s operating performance compared to other companies in the salty snack industry, as similar measures are commonly used by companies in this industry, however we caution that other companies may use different definitions from us and such figures may not be directly comparable to our figures.

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 fiscal year ended January 1, 2023 and the fiscal year ended January 2, 2022:

(dollars in millions) For the year ended January 1, 2023 For the year ended January 2, 2022

Net (loss) income $ (14.0) $ 8.0

The following table provides a reconciliation from Net Income (Loss) to EBITDA and Adjusted EBITDA for the fiscal year ended December 31, 2023 and the fiscal year ended January 1, 2023:

(dollars in millions) For the Fiscal Year Ended December 31, 2023 For the Fiscal Year Ended January 1, 2023

$ (40.0) $ (14.0)

Plus non-GAAP adjustments:

Income Tax (Benefit) Expense (23.9) 8.1

Income Tax Expense (Benefit)

Depreciation and Amortization 79.5 86.8

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Financing-Related Costs (5)

(Gain) loss on remeasurement of warrant liability (6)

Gain on remeasurement of warrant liability (6)

Adjusted EBITDA 187.2 170.5

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

Incentive programs – The Company incurred $8.8 million and $10.6 million of share-based compensation that was awarded to associates and directors for the fiscal year ended January 1, 2023 and the fiscal year ended January 2, 2022, respectively.

Asset Impairments and Write-Offs — For the fiscal year ended January 1, 2023, the Company recorded an adjustment for an impairment of $2.0 million related to the termination of distribution agreements.

There were no adjustments for impairments recorded in fiscal year 2021.

Incentive programs – The Company incurred $15.5 million and $8.8 million of share-based compensation that was awarded to associates and directors for the fiscal year ended December 31, 2023 and the fiscal year ended January 1, 2023, respectively.

Asset Impairments and Write-Offs — For the fiscal year ended December 31, 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 $4.7 million related to the termination of the contract that was settled with the sale, and impairments of $12.6 million related to the closure of the Company's manufacturing facility in Birmingham, Alabama and Gramercy, Louisiana.

For the fiscal year ended January 1, 2023, the Company recorded an adjustment for 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 $0.5 million and $1.0 million for the fiscal year ended January 1, 2023 and the fiscal year ended January 2, 2022, respectively.

The adjustment related to Purchase Commitment and Other non-cash adjustments were $3.0 million and $0.5 million for the fiscal year ended December 31, 2023 and the fiscal year ended January 1, 2023, respectively.

In addition, for the fiscal year ended December 31, 2023, we recorded $1.2 million for the amortization of cloud based computing assets.

(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 were accounted for as contract terminations resulting in expense of $23.0 million for the fiscal year ended January 1, 2023 as well as other integration costs.

During the fiscal year ended January 1, 2023, we incurred incremental costs of $21.8 million, for the integration of Truco Holdco Inc.

(“Truco”), R.W.

Garcia, Kings Mountain, distributor buyouts, 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 fiscal year ended January 1, 2023.

In fiscal year 2021, acquisition related costs included $9.5 million of expense related to reclaiming distribution rights through purchases and terminations, in addition to $7.1 million of expense for the three acquired entities and the evaluation of other potential acquisition targets.

Additionally in 2021, we incurred $10.4 million of expenses related to restructuring and integration costs related to recent acquisitions.

Such expenses were $9.7 million for the fiscal year ended December 31, 2023, as well as $1.1 million of income for the change of liability associated with the Tax Receivable Agreement for the fiscal year ended December 31, 2023.

In fiscal year 2022, the majority of charges are related to the buyout of multiple distributors, which were accounted for as contract terminations resulting in expense of $23.0 million as well as other integration costs.

During the fiscal year ended January 1, 2023, we incurred incremental costs of $21.8 million, for the integration of Truco Holdco Inc., R.W.

Garcia Co., Inc., Kings Mountain, distributor buyouts, and costs to evaluate other potential acquisitions, as well as $1.0 million for the incremental liability associated with the Tax Receivable Agreement included in the fiscal year ended January 1, 2023.

(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 $22.1 million for the fiscal year ended January 1, 2023 and $19.3 million for fiscal year 2021.

Additionally, in fiscal year 2021, we incurred certain one-time costs of $3.3 million associated with the damage of a manufacturing facility, net of expected proceeds from insurance policies, and one-time expenses as a result of COVID-19 of $1.9 million.

The Company incurred such costs of $31.0 million for the fiscal year ended December 31, 2023 and $22.1 million for the fiscal year ended January 1, 2023, which included the closure of our Gramercy, Louisiana and Birmingham, Alabama plants along with various other supply chain, commercial and administrative initiatives.

During fiscal year 2023, we completed the closure of our Gramercy, Louisiana and Birmingham, Alabama manufacturing plants along with the sale of our Bluffton, Indiana 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

Sources and Uses of Cash

We believe that the cash provided by operating activities, our revolving credit facility, our term loans, and derivative financial instruments will continue to provide sufficient liquidity for our working capital needs, planned capital expenditures and future payments of our contractual, and tax obligations.

We continually evaluate our financing strategy to meet our short- and longer-term capital needs.

From time-to-time, we may dispose of assets or enter into other cash generating transactions, such as through a sale-leaseback, when we deem beneficial.

To date, we have been successful in generating cash and raising financing as needed.

However, if a serious economic or credit market crisis ensues or other adverse developments arise, it could have a material adverse effect on our liquidity, results of operations and financial condition.

Our most significant ongoing short-term cash requirements relate primarily to funding operations (including expenditures for raw materials, labor, manufacturing and distribution, trade and promotions, advertising and marketing, benefit plan obligations and lease expenses) as well as periodic expenditures for acquisitions, shareholder returns (such as dividend payments), property, plant and equipment and any significant one-time non-operating items.

Long-term cash requirements primarily relate to funding long-term debt repayments, refer to Note 8.

"Long-Term Debt" and our deferred taxes (refer to Note 15.

"Income Taxes").

The following table presents net cash provided by operating activities, investing activities, and financing activities for the fiscal year ended January 1, 2023, and fiscal year ended January 2, 2022:

(in thousands) For the fiscal year ended January 1, 2023 For the fiscal year ended January 2, 2022

Net cash provided by operating activities $ 48,193 $ 48,387

Net cash used in investing activities (76,067) (136,098)

Net cash provided by financing activities 58,906 82,778

For the period ended January 1, 2023, our consolidated cash balance, including cash equivalents, was $72.9 million or $31.0 million lower than at January 2, 2022.

Net cash provided by operating activities for the fiscal year ended January 1, 2023 was $48.2 million compared to $48.4 million for the combined fiscal year ended January 2, 2022.

The fiscal year ended January 1, 2023 include cash outflows related to operating activities related to the buyout, and contract termination, of multiple distributors resulting in expense and an operating outflow of $23.0 million.

Fiscal year 2022 also included a larger cash outflow related to the building of inventory compared to fiscal year 2021.

This inventory build-up was the result of increased production at Company owned facilities related largely to our OTB-branded snacks, as well as expanded production capacity with our Kings Mountain facilities purchase, and our shift in running regions which were previously serviced by distributors, as well as higher inventory to service sales volume growth.

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 fiscal year ended January 1, 2023 was $76.1 million compared to $136.1 million for the fiscal year ended January 2, 2022.

Fiscal year 2022 was mostly driven by capital expenditures of $88.0 million, including $38.4 million related to a facilities purchase described further in Note 4.

and Equipment", offset by proceeds from the sale of routes of $23.4 million.

Fiscal year 2021 was mostly driven by the acquisitions of Vitner's, Festida, and R.W.

Garcia and capital expenditures of $31.7 million.

Net cash provided by financing activities was $58.9 million for the fiscal year ended January 1, 2023, which was primarily attributable to the Real Estate Term loan and equipment loan funding as well as, the proceeds of $28.0 million from the private placement, offset by the distributions and payments on the ABL facility and other term loans and notes payable.

Compared to net cash provided by financing activities of $82.8 million for the fiscal year ended January 2, 2022, which was primarily a result of an increase in term and equipment loans and exercise of warrants.

Financing Arrangements

The primary objective of our financing strategy is to maintain a prudent capital structure that provides us flexibility to pursue our growth objectives.

We use short-term debt as management determines is reasonable, principally to finance ongoing operations, including our seasonal requirements for working capital (generally accounts receivable, inventory, and prepaid expenses and other current assets, less accounts payable, accrued payroll, and other accrued liabilities), and a combination of equity and long-term debt to finance both our base working capital needs and our non-current assets.

Revolving Credit Facility

On November 21, 2017, UBH entered into an asset based revolving credit facility (as amended, the "ABL facility") in an initial aggregate principal amount of $100.0 million.

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

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 SOFR.

As of January 1, 2023 and January 2, 2022, $0.0 million and $36.0 million, respectively, were outstanding under this facility.

On July 20, 2023, the asset based revolving credit facility (as amended, the "ABL facility") with an initial aggregate principal amount of $100.0 million was 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 $795.0 million in aggregate principal of Term Loan B (as amended, "Term Loan B").

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

As of December 31, 2023 and January 1, 2023, $0.4 million and $0.0 million, respectively, was 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 and amounts borrowed.

As of January 1, 2023 and January 2, 2022, $163.0 million and $96.9 million, respectively, was available for borrowing, net of letters of credit.

Standby letters of credit in the amount of $12.0 million and $10.3 million have been issued as of January 1, 2023 and January 2, 2022, respectively.

As of December 31, 2023 and January 1, 2023, $158.4 million and $163.0 million, respectively, was available for borrowing, net of letters of credit.

Standby letters of credit in the amount of $12.2 million and $12.0 million have been issued as of December 31, 2023 and January 1, 2023, respectively.

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

Term debt and financing obligations

On November 21, 2017, the Company entered into a First Lien Term Loan Credit Agreement (the "First Lien Term Loan”) in a principal amount of $535.0 million and a Second Lien Term Loan Credit Agreement (the “Second Lien Term Loan”, and collectively with the First Lien Term Loan, the "Term Loans”) in a principal amount of $125.0 million.

The proceeds of the Term Loans were used to refinance the Company’s January 2017 credit facility and fund the acquisition of Inventure Foods, Inc.

and the repurchase of the predecessor membership units held by a minority investor.

The First Lien Term Loan requires quarterly principal payments of $1.3 million beginning March 2018, with a balloon payment due for any remaining balance on the seventh anniversary of closing, or November 21, 2024.

On August 28, 2020, as part of the Business Combination (as described in Note 1.

" Operations and Summary of Significant Accounting Policies" and Note 2.

"Acquisitions") an advance payment of principal was made on the First Lien Term Loan of $111.6 million.

The Company incurred closing and other costs associated with the Term Loans, which were allocated to each loan on a specific identification basis based on original principal amounts.

Finance fees allocated to the First Lien Term Loan and the Second Lien Term Loan were $10.7 million and $4.1 million, respectively, which were presented net within "non-current portion of debt” on the consolidated balance sheets for the Predecessor periods.

Deferred fees are amortized ratably over the respective lives of each term loan.

Deferred fees associated with the term loans under the January 2017 credit agreement were fully expensed during 2017 and other deferred financing fees were derecognized as a result of the Business Combination as described in Note 1 " Operations and Summary of Significant Accounting Policies" and Note 2.

"Acquisitions".

On October 1, 2019, the Company repaid the Second Lien Term Loan with the proceeds of the sale of preferred and common units by Series U, Series R, and SRS Leasing LLC, which together with its subsidiaries, were companies formed to acquire, hold and lease real estate to UQF prior to its merger into UQF on December 30, 2019.

The Company accounted for the repayment of the Second Lien Term Loan as a debt extinguishment as the investors who purchased the preferred units and common units were not parties to the Second Lien Term Loan.

The total repayment was $126.3 million, and resulted in a loss on early extinguishment of approximately $4.3 million.

Separately, on October 21, 2019, the Company entered into a Senior Secured First Lien Floating Rate Note (the "Secured First Lien Note”) in a principal amount of $125.0 million.

Proceeds from the Secured First Lien Note were used primarily to finance the Kennedy Acquisition.

The Secured First Lien Note requires quarterly interest payments, with a repayment of principal on the maturity date of November 21, 2024.

On December 14, 2020, the Company entered into a Bridge Credit Agreement with a syndicate of banks, led by Bank of America, N.A.

(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 (“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 remained on the books as of January 3, 2021.

On January 20, 2021, the Bridge Credit Agreement was repaid in full by the refinancing of term debt.

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 and the Bridge Credit Agreement was terminated.

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

2 to the Bridge Credit Agreement ("Amendment No.

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

Pursuant to the terms of Amendment No.

2, the Company raised $720 million in aggregate principal of Term Loan B ("Term Loan B") which 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 refinancing was accounted for as an extinguishment.

The Company incurred debt issuance costs and original issuance discounts of $8.4 million.

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

3 to the Bridge Credit Agreement ("Amendment No.

Pursuant to the terms of Amendment No.

3, the Company increased the principal balance of Term Loan B by $75.0 million to bring the aggregated balance of Term Loan B proceeds to $795.0 million.

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 principle 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 6%, as discussed in further detail within "Note 9.

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 covenant as of January 1, 2023.

Derivative Financial Instruments

To reduce the effect of interest rate fluctuations, the Company entered into a three year interest rate swap contract on September 6, 2019, with an effective date of September 30, 2019, with a counter-party to make a series of payments based on a fixed interest rate of 1.339% and receive a series of payments based on the greater of LIBOR or 0.00%.

Both the fixed and floating payment streams were based on a notional amount of $250 million.

On December 21, 2021, with an effective date of December 31, 2021, the Company entered into an accreting interest rate swap contract with a counter-party to make a series of payments based on a fixed interest rate of 1.3885% and receive a series of payments based on the greater of LIBOR or 0.00%.

Both the fixed and floating payment streams were based on a notional amount of $250 million and have accreted to $500 million and maturing on September 30, 2026.

Effective on September 30, 2022 the Company amended the swap contract to reference the 1 month SOFR plus a credit spread adjustment of 11.448 basis points, as well as setting the new fixed rate to 1.408%;

under this amended swap agreement the Company will receive a series of payments based on the greater of SOFR plus CSA or 0.00%.

On October 12, 2022 and effective on November 1, 2022, the Company entered into a 10-year swap contract, with an effective date of November 1, 2022, with a counter-party to make a series of payments based on a fixed interest rate of 3.829% and receive a series of payments based on the greater of the 1-month.

SOFR or 0.00%.

The agreement covers $88.1 million as of January 1, 2023.

This swap effectively fixes the rate of the Real Estate Term Loan to 5.929%.

The balance that the hedge covers is designed to abate as principle payments on the Real Estate Term Loan are made.

The Company entered into these transactions to reduce its exposure to changes in cash flows associated with the Real Estate Term Loan and has designated this derivative as a cash flow hedge.

At January 1, 2023, the effective fixed interest rate on the long-term debt hedged by these contracts was 5.5%.

For further treatment of the Company’s interest rate swap, refer to "Note 10.

Fair Value Measurements” and "Note 13.

Accumulated Other Comprehensive (Loss) Income.”

IO Loan Commitments

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 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.

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 2032.

The Company partially guarantees the outstanding loans, as discussed in further detail within "Note 12.

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.

The Company guarantees loans made to IOs by M&T Bank for the purchase of routes.

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

The outstanding balance of loans guaranteed was $3.4 million and $4.9 million at January 1, 2023 and January 2, 2022, 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.

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

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 asset purchases and resulted in an expense of $23.0 million for the 52 weeks ended January 1, 2023.

The outstanding balance of these transactions was $0.5 million as of January 1, 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 $0.3 million and $0.4 million was outstanding as of January 1, 2023 and January 2, 2022, respectively.

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 January 2, 2022.

There was no balance outstanding as of January 1, 2023.

Amounts outstanding under notes payable consisted of the following:

(in thousands) As of

January 1, 2023

As of January 2, 2022

Note payable – IO notes $ 21,098 $ 24,822

Finance lease obligations 10,995 8,166

Other 835 1,678

Total notes payable 32,928 34,666

current portion (12,589) (9,957)

Long term portion of notes payable $ 20,339 $ 24,709

Interest expense consisted of the following:

(in thousands) For the Fiscal Year Ended January 1, 2023 For the Fiscal Year Ended January 2, 2022

Company’s ABL facility and other long-term debt $ 41,231 $ 29,270

Amortization of deferred financing fees 1,933 3,847

IO loans 1,260 1,591

Total interest $ 44,424 $ 34,708

Refer to Note 8.

“Long-Term Debt” to our Audited Financial Statements for more information.

Cash Requirements

Our expected future payments at December 31, 2023 primarily consist of:

• Short-term cash requirements related primarily to funding operations (including expenditures for raw materials, labor, manufacturing and distribution, trade and promotions, advertising and marketing, benefit plan obligations and lease expenses) as well as periodic expenditures for acquisitions, shareholder returns (such as dividend payments), property, plant and equipment and any significant one-time non-operating items.

• Cash requirements related to Other Notes Payable and Capital Leases (Refer to Note 8.

“Long-Term Debt to our Audited Financial Statements).

• Long-term cash requirements primarily relate to funding long-term debt repayments and related interest payment on long-term debt (Refer to Note 8.

"Long-Term Debt" to our Audited Financial Statements):

• Long-term cash requirements related to our deferred taxes (Refer to Note 15.

“Income Taxes” to our Audited Financial Statements).

• Operating lease liabilities (Refer to Note 16.

“Leases” to our Audited Financial Statements).

Off-Balance Sheet Arrangements

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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 $54.0 million as of January 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 $0.0 million for the year ended January 1, 2023 and $1.0 million for the year ended January 2, 2022.

Refer to Note 9.

“Derivative Financial Instruments and Purchase Commitments” to our Audited Financial Statements.

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 $1.5 million and $2.2 million at January 1, 2023 and January 2, 2022, 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.

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.

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 $36.0 million and $18.6 million at January 1, 2023 and January 2, 2022, respectively, which are accounted for as an off balance sheet arrangement.

As discussed in "Note 8.

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

The outstanding balance of notes purchased by Bank of America at January 1, 2023 and January 2, 2022 was $17.9 million and $19.7 million, respectively.

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

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

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.

The Company partially guarantees loans made to IOs by Cadence Bank, Bank of America and M&T Bank for the purchase of routes, all of which was recorded by the Company as off-balance sheet arrangements.

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.

Refer to Note 12.

“Contingencies” to our Audited Financial Statements.

The following table presents net cash provided by operating activities, investing activities, and financing activities for the fiscal year ended December 31, 2023, and fiscal year ended January 1, 2023:

(in thousands) For the Fiscal Year Ended December 31, 2023 For the Fiscal Year Ended January 1, 2023

Net cash provided by operating activities $ 76,640 $ 48,193

Net cash used in investing activities (48,492) (76,067)

Net cash (used in) provided by financing activities

(49,055) 58,906

At December 31, 2023, our consolidated cash balance, including cash equivalents, was $52.0 million or $20.9 million lower than at January 1, 2023.

Net cash provided by operating activities for the fiscal year ended December 31, 2023 was $76.6 million an increase of $28.4 million from the fiscal year ended January 1, 2023.

The increase is largely driven by a decrease in inventory levels, an increase in cash net income, and faster cash collections on accounts receivable, partially offset by a decreases in accounts payable and accrued expenses related to more favorable supplier terms as well as timing.

Cash used in investing activities for the fiscal year ended December 31, 2023 was $48.5 million a decrease of $27.6 million from the fiscal year ended January 1, 2023.

The decrease is largely driven by the decrease in purchases of property and equipment of $32.2 million.

Fiscal year 2022 capital expenditures included $38.4 million related to a facilities purchase described further in Note 4.

and Equipment" to our Audited Financial Statements.

Net cash used in financing activities was $49.1 million for the fiscal year ended December 31, 2023 an increase of $108.0 million from the fiscal year ended January 1, 2023.

The decrease was primarily attributable to lower net cash borrowings of $83.3 million.

Debt Covenants

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 December 31, 2023.

Refer to Note 8.

“Long-Term Debt” to our Audited Financial Statements for more information.

New Accounting Pronouncements

"Operations and Summary of Significant Accounting Policies," to the audited condensed consolidated financial statements contained in Part II, Item 8 of this Annual Report on Form 10-K.

"Operations and Summary of Significant Accounting Policies" to our Audited Financial Statements.

Application of Critical Accounting Policies and Estimates

4 unchanged sentences

Our significant accounting policies are discussed in Note 1.

"Operations and Summary of Significant Accounting Policies", of the Audited Consolidated Financial Statements contained in Part II, Item 8 of this Annual Report on Form 10-K; however, the following discussion pertains to accounting policies we believe are most critical to the portrayal of our financial condition and results of operations and that require significant, difficult, subjective or complex judgments.

"Operations and Summary of Significant Accounting Policies", of our Audited Financial Statements; however, the following discussion pertains to accounting policies we believe are most critical to the portrayal of our financial condition and results of operations and that require significant, difficult, subjective or complex judgments.

Other companies in similar businesses may use different estimation policies and methodologies, which may affect the comparability of our financial condition, results of operations and cash flows to those of other companies.

20 unchanged sentences

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

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

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

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

5 unchanged sentences

Further, changes in business strategy and/or market conditions may significantly impact these judgments and thereby impact the fair value of these assets, which could result in an impairment of the goodwill or intangible assets.

Finite-lived intangible assets consist of distribution/customer relationships, technology, trademarks and non-compete agreements.

Finite-lived intangible assets consist of distribution/customer relationships, technology, trademarks, trade names and non-compete agreements.

These assets are being amortized over their estimated useful lives.

5 unchanged sentences

If an entity believes, as a result of each qualitative assessment, it is more likely than not that goodwill or an indefinite-lived intangible asset is not impaired, a quantitative impairment test is not required.

For the qualitative analysis performed, which took place on the first day of the fourth quarter, we have taken into consideration all the events and circumstances listed in Financial Accounting Standards Board (“FASB”) ASC 350, Intangibles—Goodwill and Other, in addition to other entity-specific factors that have taken place from the period of the Business Combination, which assessed goodwill, on August 28, 2020.

Our fiscal year 2022 qualitative analysis concluded that Goodwill and all but one of our intangible assets is not more likely than not to be impaired.

We performed a quantitative impairment test on that intangible asset during which we compared the fair value of the intangible, using a relief from royalty method, to the carrying value of the asset and determined that the intangible asset was not impaired.

For the qualitative impairment analysis performed, which took place on the first day of the fourth quarter, 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 from the period of the Business Combination, which assessed goodwill, on August 28, 2020.

Our fiscal year 2023 qualitative analysis concluded that Goodwill and our intangible assets were not impaired.

We account for income taxes pursuant to the asset and liability method of ASC 740, Income Taxes, which require us to recognize current tax liabilities or receivables for the amount of taxes we estimate are payable or refundable for the current year, and deferred tax assets and liabilities for the expected future tax consequences attributable to temporary differences between the financial statement carrying amounts and their respective tax bases of assets and liabilities and the expected benefits of net operating loss and credit carryforwards.

13 unchanged sentences

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

As of January 1, 2023, and January 2, 2022, no liability for unrecognized tax benefits was required to be reported.

As of each of December 31, 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.

9 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-K

Item 7. Management’s Discussion and Analysis