Utz Brands, Inc. 10-Q

Item 2. 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 interim consolidated financial statements as of and for the thirteen weeks ended March 31, 2024, together with our audited 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 December 31, 2023. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in Item 1A "Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, 2023 and other filings under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Our fiscal year end is the Sunday closest to December 31. Our fiscal year 2023 ended December 31, 2023 and was a fifty-two-week fiscal year, our fiscal year 2024 will end on December 29, 2024 and is a fifty-two-week fiscal year. Our fiscal quarters are comprised of thirteen weeks each, except for fifty-three-week fiscal years for which the fourth quarter is comprised of fourteen weeks, and ends on the thirteenth Sunday of each quarter (fourteenth Sunday of the fourth quarter, when applicable). Overview 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, 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 March 31, 2024, we operate 11 manufacturing facilities across the United States with a broad range of capabilities, and are distributed nationally to grocery, mass merchant, club, convenience, drug and other retailers through direct shipments, distributors, and approximately 2,300 direct-store delivery ("DSD") routes. We have historically expanded our geographic reach and product portfolio organically and through acquisitions. 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 Our management team monitors a number of developments and trends that could impact our revenue and profitability objectives. Long-Term Demographics, Consumer Trends, and Demand – We participate in the attractive and growing $38 billion U.S. salty snacks category, within the broader approximately $129 billion market for U.S. snack foods as of March 24, 2024. For the thirteen weeks ended March 31, 2024, U.S. retail sales for salty snacks based on Circana data increased by 1.4% versus the comparable prior year period. Our retail sales increased 4.1% over the thirteen weeks ended March 31, 2024. 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. 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 trends to continue to drive consistent retail sales growth for salty snacks for the foreseeable future. Competition – The salty snack industry is highly competitive and includes many diverse participants. Our products primarily compete with other salty snacks but also compete more broadly for certain eating occasions with other snack foods. We believe that the principal competitive factors in the salty snack industry include taste, convenience, product variety, product quality, price, nutrition, consumer brand awareness, media and promotional activities, in-store merchandising execution, customer service, cost-efficient distribution, and access to retailer shelf space. We believe we compete effectively with respect to each of these factors. Operating Costs – Our operating costs include raw materials, labor, manufacturing overhead, selling, distribution, and administrative expenses. 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 transformation office, to expand our profitability, including implementing significant reductions to our operating cost structure in both supply chain and overhead costs. 16 Financing Costs and Exposure to Interest Rate Changes – As of March 31, 2024, we had $701.2 million in variable rate indebtedness, down from $851.5 million at December 31, 2023. The decrease in variable rate debt is primarily due to a $141.0 million payment on the Term Loan B and $8.5 million payment on the loan by City National Bank which is secured by a majority of the real estate assets of our subsidiaries through September 2032 (the “Real Estate Term Loan”) made in connection with the Good Health and R.W. Garcia Sale as described in Note 2. Divestiture. As of March 31, 2024 our variable rate indebtedness is benchmarked to the Term SOFR Screen Rate (‘SOFR”). As of March 31, 2024, we entered into interest rate hedges covering $547.0 million of debt. 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 thirteen weeks ended March 31, 2024 was 6.6%, up from 5.6% during the thirteen weeks ended April 2, 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. Term Debt, Revolving Credit Facility, and Other Notes Payable and Note 9. Derivative Financial Instruments, Purchase Commitments, Warrants and Fair Value to our unaudited consolidated financial statements included under Part I, Item 1 of this filing 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 Divestiture On February 5, 2024, the Company sold certain assets and brands to affiliates of Our Home™, an operating company of Better-for-You brands (“Our Home”). Under the agreement, affiliates of Our Home purchased the Good Health and R.W. Garcia brands, the Lincolnton, NC, and Lititz, PA manufacturing facilities and certain related assets, and assumed the Company’s Las Vegas, NV facility lease and manufacturing operations (the "Good Health and R.W. Garcia Sale") for $167.5 million, subject to customary adjustments. See Note 2. Divestiture for further discussion. Commodity Trends 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. 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 and into 2024. 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. Transportation costs have been on the rise since early in 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 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. Market factors including supply and demand may result in higher costs of sourcing those materials. 17 Independent Operator Conversions Our DSD distribution is executed via Company-owned routes operated by route sales professionals ("RSP" or "RSPs"), and third-party routes managed by independent operators ("IOs"). We have used the IO and RSP models for more than a decade. In fiscal year 2017, we embarked on a multi-year strategy to convert all company-owned RSP routes to the IO model. As of March 31, 2024, substantially all of our DSD routes are managed by IOs. The conversion process involves selling distribution rights of a defined route to an IO. As we convert a large number of routes in a year, there is a meaningful decrease in the selling, distribution administrative costs that we previously incurred on RSPs and a corresponding increase in discounts paid to IOs to cover their costs to distribute our product. The net impact is a reduction in selling and distribution expenses and a decrease in net sales and gross profit. Conversions also impact our balance sheet resulting in an increase 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. Results of Operations Overview The following tables present selected unaudited financial data for the thirteen weeks ended March 31, 2024 and April 2, 2023. (in thousands) Thirteen weeks ended March 31, 2024 Thirteen weeks ended April 2, 2023 Net sales $ 346,523 $ 351,433 Cost of goods sold 226,950 246,937 Gross profit 119,573 104,496 Selling, distribution, and administrative expenses Selling and distribution 73,666 65,046 Administrative 35,782 41,040 Total selling, distribution, and administrative expenses 109,448 106,086 Loss on sale of assets, net (470) (508) Income (loss) from operations 9,655 (2,098) Other (expense) income Gain on sale of business 44,015 — Interest expense (13,831) (14,378) Other income 910 1,615 Loss on remeasurement of warrant liability (11,808) (2,232) Other income (expense), net 19,286 (14,995) Income (loss) before taxes 28,941 (17,093) Income tax expense (benefit) 26,544 (2,611) Net income (loss) 2,397 (14,482) Net (income) loss attributable to noncontrolling interest (6,387) 5,355 Net loss attributable to controlling interest $ (3,990) $ (9,127) 18 Thirteen weeks ended March 31, 2024 versus thirteen weeks ended April 2, 2023 Net sales Net sales was $346.5 million and $351.4 million for the thirteen weeks ended March 31, 2024 and April 2, 2023, respectively. Net sales for the thirteen weeks ended March 31, 2024 decreased $4.9 million or 1.4% over the comparable period in 2023. The Good Health and R.W. Garcia Sale contributed 2.5% to the year-over-year decrease in net sales for thirteen weeks ended March 31, 2024 and an additional 0.4% of the decrease was related to continued IO conversions. The decrease in net sales was partially offset by favorable volume/mix of 1.1% and pricing of 0.4%. IO discounts increased to $44.4 million for the thirteen weeks ended March 31, 2024 from $42.2 million for the corresponding thirteen weeks ended April 2, 2023. Net sales are evaluated based on classification as Power and Foundation brands. Our Power Brands, which comprise 83% of our net sales for the thirteen weeks ended March 31, 2024, 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 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, which comprise 17% of our net sales for the thirteen weeks ended March 31, 2024, include strong regional snacking brands, such as Golden Flake® Chips and Cheese, and Snyder of Berlin®, as well as other partner and private label brands. For the thirteen weeks ended March 31, 2024, Power brand sales increased by approximately 3.9%, while Foundation brand sales decreased by approximately 8.4% from corresponding sales for the thirteen weeks ended April 2, 2023. Excluding the impacts of increased IO discounts related to IO conversions and the Good Health and R.W. Garcia Sale, net sales increased 1.5% for the thirteen weeks ended March 31, 2024 versus the corresponding period in fiscal year 2023 driven by the favorable volume/mix and pricing discussed above driven by the Company's Power Brands. Cost of goods sold and Gross profit Gross profit was $119.6 million and $104.5 million for the thirteen weeks ended March 31, 2024 and April 2, 2023, respectively. Our gross profit margin was 34.5% for the thirteen weeks ended March 31, 2024 versus 29.7% for the thirteen weeks ended April 2, 2023. The increase in gross profit and gross profit margin was primarily driven by productivity, favorable sales mix and pricing, partially offset by cost inflation and supply chain investments. Additionally, IO discounts increased to $44.4 million for the thirteen weeks ended March 31, 2024 from $42.2 million for the thirteen weeks ended April 2, 2023. IO conversions contributed to a gross profit decline of $1.5 million, or a gross profit margin of 0.4%. Selling, distribution, and administrative expense Selling, distribution, and administrative expenses were $109.4 million and $106.1 million for the thirteen weeks ended March 31, 2024 and April 2, 2023, respectively, resulting in an increase of $3.4 million or 3.2% for the thirteen weeks ended March 31, 2024 over the corresponding period in fiscal year 2023. The increase in expenses for the thirteen weeks ended March 31, 2024 compared to the thirteen weeks ended April 2, 2023 was primarily due to primarily due to to increased marketing spend, higher distribution costs, and investments in capabilities. These expenses were partially offset by a reduction in selling costs from the shift to IO’s and productivity benefits. Loss on sale of assets Loss on sale of assets was $0.5 million for each of the thirteen weeks ended March 31, 2024 and April 2, 2023 . Other income (expense), net Other income (expense), net was $19.3 million and $(15.0) million for the thirteen weeks ended March 31, 2024 and April 2, 2023, respectively. The increase in other income for the thirteen weeks ended March 31, 2024 compared to the thirteen weeks ended April 2, 2023 was primarily due to the gain on sale of business of $44.0 million relating to the Good Health and R.W. Garcia Sale which occurred on February 5, 2024. See Note 2. Divestiture for further discussion. This gain was partially offset by an increase in the loss on the remeasurement of warrant liability of $9.6 million for the thirteen weeks ended March 31, 2024 versus the corresponding period in fiscal year 2023. 19 Income taxes Income tax expense (benefit) was $26.5 million and $(2.6) million for the thirteen weeks ended March 31, 2024 and April 2, 2023, respectively. The increase in income tax expense for the thirteen weeks ended March 31, 2024 versus the corresponding period in fiscal year 2023 is primarily attributable to the Good Health and R.W. Garcia Sale which occurred on February 5, 2024. See Note 2. Divestiture for further discussion. 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 non-GAAP financial measures to budget, make operating and strategic decisions, and evaluate our performance. We have detailed the non-GAAP adjustments that we make in our non-GAAP definitions below. The adjustments generally fall within the categories of non-cash items, acquisition, divestiture and integration costs and gains, business transformation initiatives, and financing-related costs. We believe the non-GAAP measures should always be considered along with the related U.S. GAAP financial measures. We have provided the reconciliations between the U.S. GAAP and non-GAAP financial measures below, and we also discuss our underlying U.S. GAAP results throughout this MD&A section. Our primary non-GAAP financial measures are listed below and reflect how we evaluate our current and prior-year operating results. As new events or circumstances arise, these definitions could change. When the definitions change, we will provide the updated definitions and present the related non-GAAP historical results on a comparable basis. EBITDA and Adjusted EBITDA 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, remeasurement of warrant liabilities, asset impairments, acquisition, divestiture and integration costs and gains, business transformation initiatives, and financing-related costs. 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 our operating performance compared to other companies in the salty snack industry, as similar measures are commonly used by companies in this industry, however, we caution that other companies may use different definitions from us and such figures may not be directly comparable to our figures. We 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. 20 The following table provides a reconciliation from net income (loss) to EBITDA and Adjusted EBITDA for the thirteen weeks ended March 31, 2024 and April 2, 2023: (dollars in millions) Thirteen weeks ended March 31, 2024 Thirteen weeks ended April 2, 2023 Net loss $ 2.4 $ (14.5) Plus non-GAAP adjustments: Income Tax (Benefit) Expense 26.5 (2.6) Depreciation and Amortization 18.3 20.1 Interest Expense, Net 13.8 14.4 Interest Income (IO loans) (1) (0.8) (0.4) EBITDA 60.2 17.0 Certain Non-Cash Adjustments (2) 4.0 9.2 Acquisition, Divestiture and Integration (3) (38.4) 3.7 Business Transformation Initiatives (4) 5.8 8.2 Financing-Related Costs (5) — 0.1 Loss on Remeasurement of Warrant Liability (6) 11.8 2.2 Adjusted EBITDA $ 43.4 $ 40.4 Adjusted EBITDA as a % of Net Sales 12.5 % 11.5 % (1) Interest Income from IO loans refers to Interest Income that we earn from IO notes receivable that have resulted from our initiatives to transition from RSP distribution to IO distribution ("Business Transformation Initiatives"). There is a notes payable recorded that mirrors most of the IO notes receivable, and the interest expense associated with the notes payable is part of the Interest Expense, Net adjustment. (2) Certain Non-Cash Adjustments are comprised primarily of the following: Incentive programs – The Company incurred $3.9 million and $4.6 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 March 31, 2024 and April 2, 2023, respectively. Asset Impairments and Write-Offs — For the thirteen weeks ended April 2, 2023, the Company recorded an adjustment for an impairment of $1.9 million related to fixed assets. 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 commitments related to unrealized gains and losses. The adjustment related to Purchase Commitments and Other Adjustments was $0.1 million and $2.7 million for the thirteen weeks ended March 31, 2024 and April 2, 2023, respectively. (3) Adjustment for Acquisition, Divestiture and Integration Costs and (Gains) – This is comprised of consulting, transaction services, and legal fees incurred for acquisitions and divestitures and certain potential acquisitions and divestitures, in addition to expenses associated with integrating recent acquisitions. Such expenses were $5.6 million for the thirteen weeks ended March 31, 2024. Also included for the thirteen weeks ended March 31, 2024 was a gain of $44.0 million related to the Good Health and R.W. Garcia Sale. These expenses were $4.9 million for the thirteen weeks ended April 2, 2023, offset by $1.2 million of income for the reduction of the Tax Receivable Agreement Liability associated with the Business Combination. (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 enterprise resource planning system transition costs, fall into this category. The Company incurred such costs of $5.8 million and $8.2 million for the thirteen weeks ended March 31, 2024 and April 2, 2023, respectively. 21 (5) Financing-Related Costs – These costs include adjustments for various items related to raising debt and equity capital or debt extinguishment costs. (6) Gains and losses related to the changes in the remeasurement of warrant liabilities are not expected to be settled in cash, and when exercised would result in a cash inflow to the Company with the Warrants converting to Class A Common Stock with the liability being extinguished and the fair value of the Warrants at the time of exercise being recorded as an increase to equity. Liquidity and Capital Resources 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. 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. ABL Facility As of March 31, 2024 and December 31, 2023, $0.2 million and $0.4 million, respectively, was outstanding under the Company's asset-based revolving credit facility ("ABL 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 March 31, 2024 and December 31, 2023, $151.9 million and $158.4 million, respectively, was available for borrowing, net of letters of credit. Standby letters of credit in the amount of $16.3 million and $12.2 million have been issued as of March 31, 2024 and December 31, 2023, respectively. The standby letters of credit are primarily issued for insurance purposes. Refer to Note 8. Term Debt, Revolving Credit Facility, and Other Notes Payable for more information. Cash Requirements Our expected future payments at March 31, 2024 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, stockholder 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. Term Debt, Revolving Credit Facility, and Other Notes Payable ); • Long-term cash requirements primarily relate to funding long-term debt repayments and related interest payment on long-term debt (Refer to Note 8. Term Debt, Revolving Credit Facility, and Other Notes Payable ); • Long-term cash requirements related to our deferred taxes; and • Operating lease liabilities. 22 Off-Balance Sheet Arrangements Purchase Commitments The Company has outstanding purchase commitments for specific quantities at fixed prices for certain key ingredients to economically hedge commodity input prices. Refer to Note 9. Derivative Financial Instruments, Purchase Commitments, Warrants and Fair Value. IO Guarantees Off Balance Sheet The Company partially guarantees loans made to IOs by Bank of America and two other banks for the purchase of routes, some of which was recorded on the Company's Consolidated Balance Sheet and some of which were 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 10. Contingencies . Cash Flow The following table presents net cash provided by operating activities, investing activities and financing activities for the thirteen weeks ended March 31, 2024 and April 2, 2023. (in thousands) Thirteen weeks ended March 31, 2024 Thirteen weeks ended April 2, 2023 Net cash used in operating activities $ (9,065) $ (8,443) Net cash provided by (used in) investing activities $ 158,011 $ (14,018) Net cash (used in) provided by financing activities $ (153,965) $ 7,452 Net cash used in operating activities for the thirteen weeks ended March 31, 2024 was $9.1 million compared to $8.4 million thirteen weeks ended April 2, 2023, with the difference largely driven by increases in accounts payable and accrued expense and other, partially offset by a decrease in cash net income and the timing of accounts receivable, net. Cash provided by investing activities for the thirteen weeks ended March 31, 2024 was $158.0 million primarily driven by proceeds from sale of business of $167.5 million partially offset by purchases of property and equipment, versus cash used in investing activity of $14.0 million for the thirteen weeks ended April 2, 2023 primarily driven by purchases of property and equipment. Net cash used in financing activities was $154.0 million for the thirteen weeks ended March 31, 2024, primarily driven by the pay down of debt utilizing the proceeds from the Good Health and R.W. Garcia Sale versus net cash provided by financing activities of $7.5 million for the thirteen weeks ended April 2, 2023, which was primarily a result of a draw on the line of credit of $20.0 million and other borrowings offset by payments of dividends and distributions. 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 March 31, 2024. New Accounting Pronouncements See Note 1. Operations and Summary of Significant Accounting Policies to the unaudited consolidated financial statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q. Application of Critical Accounting Policies and Estimates There were no changes to critical accounting policies and estimates from those disclosed in Critical Accounting Policies and Estimates under Part II. Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2023 filed on February 29, 2024. 23