Utz Brands, Inc. 10-Q

Item 1. FINANCIAL STATEMENTS Utz Brands, Inc. CONSOLIDATED BALANCE SHEETS June 30, 2024 and December 31, 2023 (In thousands, except share information) As of June 30, 2024 As of December 31, 2023 (Unaudited) ASSETS Current Assets Cash and cash equivalents $ 66,574 $ 52,023 Accounts receivable, less allowance of $ 3,077 and $ 2,933 , respectively 137,962 135,130 Inventories 100,710 104,666 Prepaid expenses and other assets 44,539 30,997 Current portion of notes receivable 4,581 5,237 Total current assets 354,366 328,053 Non-current Assets Assets held for sale — 7,559 Property, plant and equipment, net 300,050 318,881 Goodwill 870,695 915,295 Intangible assets, net 1,012,447 1,063,413 Non-current portion of notes receivable 9,968 12,413 Other assets 102,590 101,122 Total non-current assets 2,295,750 2,418,683 Total assets $ 2,650,116 $ 2,746,736 LIABILITIES AND EQUITY Current Liabilities Current portion of term debt $ 12,034 $ 21,086 Current portion of other notes payable 7,365 7,649 Accounts payable 121,793 124,361 Accrued expenses and other 68,263 77,590 Total current liabilities 209,455 230,686 Non-current portion of term debt and revolving credit facility 785,539 878,511 Non-current portion of other notes payable 17,291 19,174 Non-current accrued expenses and other 73,843 76,720 Non-current warrant liability 42,192 43,272 Deferred tax liability 116,068 114,690 Total non-current liabilities 1,034,933 1,132,367 Total liabilities 1,244,388 1,363,053 Commitments and Contingencies Equity Shares of Class A Common Stock, $ 0.0001 par value; 1,000,000,000 shares authorized; 81,530,122 and 81,187,977 shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively 8 8 Shares of Class V Common Stock, $ 0.0001 par value; 61,249,000 shares authorized; 59,349,000 shares issued and outstanding as of June 30, 2024 and December 31, 2023 6 6 Additional paid-in capital 955,280 944,573 Accumulated deficit ( 293,750 ) ( 298,049 ) Accumulated other comprehensive income 24,413 22,958 Total stockholders' equity 685,957 669,496 Noncontrolling interest 719,771 714,187 Total equity 1,405,728 1,383,683 Total liabilities and equity $ 2,650,116 $ 2,746,736 The accompanying notes are an integral part of these consolidated financial statements. 1 Utz Brands, Inc. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) For the thirteen and twenty-six weeks ended June 30, 2024 and July 2, 2023 (In thousands, except share information) (Unaudited) (in thousands) Thirteen weeks ended June 30, 2024 Thirteen weeks ended July 2, 2023 Twenty-six weeks ended June 30, 2024 Twenty-six weeks ended July 2, 2023 Net sales $ 356,190 $ 362,853 $ 702,713 $ 714,286 Cost of goods sold 231,436 245,460 458,386 492,397 Gross profit 124,754 117,393 244,327 221,889 Selling, distribution, and administrative expenses Selling and distribution 73,780 66,869 147,446 131,915 Administrative 30,813 47,584 66,595 88,624 Total selling, distribution, and administrative expenses 104,593 114,453 214,041 220,539 Gain (loss) on sale of assets, net 2,373 ( 279 ) 1,903 ( 787 ) Income from operations 22,534 2,661 32,189 563 Other income (expense), net Gain on sale of business — — 44,015 — Interest expense ( 10,209 ) ( 15,019 ) ( 24,040 ) ( 29,397 ) Loss on debt extinguishment ( 1,273 ) — ( 1,273 ) — Other income 198 272 1,108 1,887 Gain on remeasurement of warrant liability 12,888 2,808 1,080 576 Other income (expense), net 1,604 ( 11,939 ) 20,890 ( 26,934 ) Income (loss) before taxes 24,138 ( 9,278 ) 53,079 ( 26,371 ) Income tax (benefit) expense ( 1,309 ) ( 725 ) 25,236 ( 3,336 ) Net income (loss) 25,447 ( 8,553 ) 27,843 ( 23,035 ) Net (income) loss attributable to noncontrolling interest ( 5,599 ) 4,429 ( 11,986 ) 9,784 Net income (loss) attributable to controlling interest $ 19,848 $ ( 4,124 ) $ 15,857 $ ( 13,251 ) Income (loss) per Class A Common stock: (in dollars) Basic $ 0.24 $ ( 0.05 ) $ 0.19 $ ( 0.16 ) Diluted $ 0.23 $ ( 0.05 ) $ 0.19 $ ( 0.16 ) Weighted-average shares of Class A Common stock outstanding Basic 81,457,014 81,063,457 81,423,240 81,020,732 Diluted 84,954,412 81,063,457 84,762,662 81,020,732 Net income (loss) $ 25,447 $ ( 8,553 ) $ 27,843 $ ( 23,035 ) Other comprehensive income (loss): Change in fair value of interest rate swap ( 2,142 ) 9,572 2,517 ( 753 ) Comprehensive income (loss) 23,305 1,019 30,360 ( 23,788 ) Net comprehensive (income) loss attributable to noncontrolling interest ( 4,696 ) 383 ( 13,048 ) 10,105 Net comprehensive income (loss) attributable to controlling interest $ 18,609 $ 1,402 $ 17,312 $ ( 13,683 ) The accompanying notes are an integral part of these consolidated financial statements. 2 Utz Brands, Inc. CONSOLIDATED STATEMENTS OF EQUITY For the thirteen and twenty-six weeks ended June 30, 2024 and July 2, 2023 (In thousands, except share information) (Unaudited) Class A Common Stock Class V Common Stock Additional Paid-in Capital Accumulated (Deficit) Accumulated Other Comprehensive Income Total Stockholders' Equity Non-controlling Interest Total Equity Shares Amount Shares Amount Balance at January 1, 2023 80,882,334 $ 8 59,349,000 $ 6 $ 926,919 $ ( 254,564 ) $ 30,777 $ 703,146 $ 748,538 $ 1,451,684 Share-based compensation 130,534 — — 4,634 — — 4,634 — 4,634 Payments of tax withholding requirements for employee stock awards — — ( 589 ) — — ( 589 ) — ( 589 ) Net loss — — — ( 9,127 ) — ( 9,127 ) ( 5,355 ) ( 14,482 ) Cash dividends declared — — — ( 56 ) — ( 56 ) — ( 56 ) Other comprehensive loss — — — — ( 5,958 ) ( 5,958 ) ( 4,367 ) ( 10,325 ) Balance at April 2, 2023 81,012,868 $ 8 59,349,000 $ 6 $ 930,964 $ ( 263,747 ) $ 24,819 $ 692,050 $ 738,816 $ 1,430,866 Share-based compensation 128,549 — — 4,305 — — 4,305 — 4,305 Net loss — — — ( 4,124 ) — ( 4,124 ) ( 4,429 ) ( 8,553 ) Other comprehensive income — — — — 5,526 5,526 4,046 9,572 Cash dividends declared — — — ( 9,240 ) — ( 9,240 ) — ( 9,240 ) Distribution to noncontrolling interest — — — — — — ( 6,766 ) ( 6,766 ) Balance at July 2, 2023 81,141,417 $ 8 59,349,000 $ 6 $ 935,269 $ ( 277,111 ) $ 30,345 $ 688,517 $ 731,667 $ 1,420,184 Balance at December 31, 2023 81,187,977 $ 8 59,349,000 $ 6 $ 944,573 $ ( 298,049 ) $ 22,958 $ 669,496 $ 714,187 $ 1,383,683 Share-based compensation 218,850 — — 3,913 — — 3,913 — 3,913 Payments of tax withholding requirements for employee stock awards — — ( 1,397 ) — — ( 1,397 ) — ( 1,397 ) Deferred tax impact from divestiture — — 3,003 — — 3,003 2,135 5,138 Net (loss) income — — — ( 3,990 ) — ( 3,990 ) 6,387 2,397 Cash dividends declared — — — ( 4,803 ) — ( 4,803 ) — ( 4,803 ) Distribution to noncontrolling interest — — — — — — ( 3,502 ) ( 3,502 ) Other comprehensive income — — — — 2,694 2,694 1,965 4,659 Balance at March 31, 2024 81,406,827 $ 8 59,349,000 $ 6 $ 950,092 $ ( 306,842 ) $ 25,652 $ 668,916 $ 721,172 $ 1,390,088 Share-based compensation 123,295 — — 5,261 — — 5,261 — 5,261 Deferred tax impact from divestiture — — ( 73 ) — — ( 73 ) 1 ( 72 ) 3 Class A Common Stock Class V Common Stock Additional Paid-in Capital Accumulated (Deficit) Accumulated Other Comprehensive Income Total Stockholders' Equity Non-controlling Interest Total Equity Shares Amount Shares Amount Net income — — — 19,848 — 19,848 5,599 25,447 Cash dividends declared — — — ( 4,940 ) — ( 4,940 ) — ( 4,940 ) Special excess cash dividend — — — ( 1,816 ) — ( 1,816 ) — ( 1,816 ) Distribution to noncontrolling interest — — — — — — ( 3,502 ) ( 3,502 ) Tax distribution — — — — — — ( 2,596 ) ( 2,596 ) Other comprehensive loss — — — — ( 1,239 ) ( 1,239 ) ( 903 ) ( 2,142 ) Balance at June 30, 2024 81,530,122 $ 8 59,349,000 $ 6 $ 955,280 $ ( 293,750 ) $ 24,413 $ 685,957 $ 719,771 $ 1,405,728 The accompanying notes are an integral part of these consolidated financial statements. 4 Utz Brands, Inc. CONSOLIDATED STATEMENT OF CASH FLOWS For the twenty-six weeks ended June 30, 2024 and July 2, 2023 (In thousands) (Unaudited) Twenty-six weeks ended June 30, 2024 Twenty-six weeks ended July 2, 2023 Cash flows from operating activities Net income (loss) $ 27,843 $ ( 23,035 ) Adjustments to reconcile net income (loss) to net cash used in operating activities: Impairment and other charges — 9,548 Depreciation and amortization 35,883 40,405 Gain on sale of business ( 44,015 ) — Gain on remeasurement of warrant liability ( 1,080 ) ( 576 ) (Gain) loss on sale of assets ( 1,903 ) 787 Loss on debt extinguishment 1,273 — Share-based compensation 9,174 8,939 Deferred taxes 6,445 ( 2,003 ) Deferred financing costs 2,509 451 Changes in assets and liabilities: Accounts receivable, net ( 9,628 ) ( 3,992 ) Inventories ( 3,969 ) ( 4,379 ) Prepaid expenses and other assets ( 15,140 ) ( 11,687 ) Accounts payable and accrued expenses and other ( 7,561 ) ( 18,773 ) Net cash used in operating activities ( 169 ) ( 4,315 ) Cash flows from investing activities Purchases of property and equipment ( 37,781 ) ( 30,158 ) Purchases of intangibles ( 9,220 ) — Proceeds from sale of property and equipment 24,062 959 Proceeds from sale of business 167,500 — Proceeds from sale of routes 13,669 12,446 Proceeds from the sale of IO notes 1,544 2,161 Notes receivable ( 18,834 ) ( 16,191 ) Net cash provided by (used in) investing activities 140,940 ( 30,783 ) Cash flows from financing activities Borrowings on line of credit 92,000 61,000 Repayments on line of credit ( 47,191 ) — Borrowings on term debt and notes payable 16,618 3,246 Repayments on term debt and notes payable ( 166,608 ) ( 11,785 ) Payment of debt issuance cost ( 733 ) — Payments of tax withholding requirements for employee stock awards ( 1,397 ) ( 589 ) Dividends paid ( 9,428 ) ( 9,281 ) Distribution to noncontrolling interest ( 9,481 ) ( 6,766 ) Net cash (used in) provided by financing activities ( 126,220 ) 35,825 Net increase in cash and cash equivalents 14,551 727 Cash and cash equivalents at beginning of period 52,023 72,930 Cash and cash equivalents at end of period $ 66,574 $ 73,657 The accompanying notes are an integral part of these consolidated financial statements. 5 Utz Brands, Inc. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation – The accompanying consolidated financial statements comprise the financial statements of Utz Brands, Inc. ("UBI" or the "Company") and its wholly owned subsidiaries. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") for interim financial statements and pursuant to the accounting and disclosure rules and regulations of the U.S. Securities and Exchange Commission (the "SEC"). They do not include all information and notes required by U.S. GAAP for annual financial statements. However, except as disclosed herein, there has been no material change in the information disclosed in the Notes to Consolidated Financial Statements included in the Company’s financial statements for the year ended December 31, 2023. The balance sheet as of December 31, 2023 has been derived from the audited consolidated financial statements as of and for the year ended December 31, 2023. In the opinion of management, such financial information reflects all normal and recurring adjustments necessary for a fair presentation of the financial position and the results of operations for such interim periods in accordance with the U.S. GAAP. Operating results for the interim period are not necessarily indicative of the results that may be expected for any future period or for the full year. The consolidated interim financial statements, including our significant accounting policies, should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2023. All intercompany transactions and balances have been eliminated in consolidation. Prior Period Revision - Consolidated Statement of Cash Flows – For the twenty-six weeks ended June 30, 2024, the Company disclosed the borrowings of lines of credit and repayments of lines of credit as separate line items within the financing activities section of the Consolidated Statement of Cash Flows. The Company has corrected these line items for the twenty-six weeks ended July 2, 2023 for comparability purposes and deems the change to that period to be immaterial. Revenue Recognition – The Company’s revenues primarily consist of the sale of salty snack items to customers, including supermarkets, mass merchants, club stores, dollar and discount stores, convenience stores, independent grocery stores, drug stores, food service, vending, military, and other channels. The Company sells its products in most regions of the United States primarily through its direct-store delivery ("DSD") network, direct to warehouse shipments, and third-party distributors. These revenue contracts generally have a single performance obligation. Revenue, which includes shipping and handling charges billed to the customer, is reported net of variable consideration and consideration payable to customers, including applicable discounts, returns, allowances, trade promotion, consumer coupon redemption, unsaleable product, and other costs, some of which are recorded in Selling and distribution. Amounts billed and due from customers are classified as accounts receivables and require payment on a short-term basis and, therefore, the Company does not have any significant financing components. The Company recognizes revenue when (or as) performance obligations are satisfied by transferring control of the goods to customers. Control is transferred upon delivery of the goods to the customer. Shipping and/or handling costs that occur before the customer obtains control of the goods are deemed to be fulfillment activities and are accounted for as fulfillment costs. Applicable shipping and handling are included in customer billing and are recorded as revenue as the products’ control is transferred to customers. The Company assesses the goods promised in customer purchase orders and identifies a performance obligation for each promise to transfer a good that is distinct. The Company offers various forms of trade promotions and the methodologies for determining these provisions are dependent on local customer pricing and promotional practices, which range from contractually fixed percentage price reductions to provisions based on actual occurrence or performance. The Company’s promotional activities are conducted either through the retail trade or directly with consumers and include activities such as in store displays and events, feature price discounts, consumer coupons, and loyalty programs. The costs of these activities are recognized at the time the related revenue is recorded, which normally precedes the actual cash expenditure. The recognition of these costs therefore requires management judgment regarding the volume of promotional offers that will be redeemed by either the retail trade customer or consumer. These estimates are made using various techniques including historical data on performance of similar promotional programs. The Company has reserves in place of $ 18.2 million as of June 30, 2024, which include adjustments taken by customers of $ 8.9 million that are awaiting final processing and reserves of $ 17.4 million as of December 31, 2023, which include adjustments taken by customers of $ 6.2 million that are awaiting final processing. Differences between estimated expense and actual redemptions are recognized as a change in management estimate as actual redemptions are incurred. 6 Recently Issued Accounting Standards – In December 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2023-09, Income Taxes: Improvements to Income Tax Disclosures, to amend existing income tax disclosure guidance, primarily requiring more detailed disclosures for income taxes paid and the effective tax rate reconciliation. The ASU is effective for annual reporting periods beginning after December 15, 2024, with early adoption permitted and can be applied on either a prospective or retroactive basis. The Company is currently evaluating the ASU to determine its impact on the Company's income tax disclosures. In November 2023, the FASB issued ASU 2023-07, Segment Reporting: Improvements to Reportable Segment Disclosures, to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. Among other changes, the amendments will require disclosure of significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss. The amendments are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, and should be applied on a retrospective basis. Early adoption is permitted. The Company is currently evaluating the ASU to determine its impact on the Company's disclosures. 2. DIVESTITURES 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. The following table summarizes the net assets and liabilities included in the Good Health and R.W. Garcia Sale on February 5, 2024: Property, plant, and equipment, net $ 27,483 Goodwill 44,600 Intangible assets, net 44,327 Net working capital adjustments 7,075 Net assets sold $ 123,485 The Company recognized a gain on the Good Health and R.W. Garcia Sale of $ 44.0 million. The gain on the Good Health and R.W. Garcia Sale is recognized as Gain on sale of business in the Consolidated Statements of Operations and Comprehensive Income (Loss) for the twenty-six weeks ended June 30, 2024. On April 22, 2024, the Company sold to Our Home™ its Berlin, PA, and Fitchburg, MA manufacturing facilities and certain related assets (the “Manufacturing Facilities Sale”). The total consideration for the transactions is $ 18.5 million related to the facilities and certain inventory, subject to customary adjustments. The Company recognized a gain on the Manufacturing Facilities Sale of $ 4.3 million. The Company and Our Home will operate under transition services agreements which end during the first half of 2025. In addition, the parties will operate under reciprocal co-manufacturing agreements under which Our Home will co-manufacture certain of the Company's products and the Company will co-manufacture certain Good Health products. Certain Good Health products will continue to be distributed and sold on the Company's DSD network for Our Home. The Company received approximately $ 18.7 million in advance from Our Home for certain terms under these agreements for which the Company will recognize through income from operations over the term of the transition services agree ments. 7 3. INVENTORIES Inventories consisted of the following: (in thousands) As of June 30, 2024 As of December 31, 2023 Finished goods $ 67,707 $ 65,673 Raw materials 25,309 29,757 Maintenance parts 7,694 9,236 Total inventories $ 100,710 $ 104,666 In connection with the Good Health and R.W. Garcia Sale in February 2024 and the Manufacturing Facilities Sale in April 2024, the Company sold inventory of $ 6.3 million and $ 1.6 million, respectively. See Note 2. Divestitures . 4. PROPERTY, PLANT AND EQUIPMENT, NET Property, plant and equipment, net, consisted of the following: (in thousands) As of June 30, 2024 As of December 31, 2023 Land $ 25,861 $ 28,561 Buildings 112,506 123,603 Machinery and equipment 212,126 248,886 Land improvements 2,651 3,887 Building improvements 2,472 5,163 Construction-in-progress 57,306 35,533 412,922 445,633 Less: accumulated depreciation ( 112,872 ) ( 126,752 ) Property, plant and equipment, net $ 300,050 $ 318,881 Depreciation expense was $ 8.2 million and $ 10.6 million for the thirteen weeks ended June 30, 2024 and July 2, 2023, respectively, and $ 17.0 million and $ 20.9 million for the twenty-six weeks ended June 30, 2024 and July 2, 2023, respectively. Depreciation expense is included in cost of goods sold, selling, distribution, and administrative expenses on the Consolidated Statements of Operations and Comprehensive Income (Loss). During the thirteen weeks ended July 2, 2023, the Company permanently ceased operations at the Company’s manufacturing facility located in Birmingham, AL (the “Birmingham Facility”) effective in June 2023 (the “Manufacturing Closure”). Golden Flake® and other products that were produced at the Birmingham Facility continue to be produced at other manufacturing facilities. The Manufacturing Closure reduced the Company's workforce by approximately 130 employees and the Company maintains its distribution center in Birmingham. The Company recorded expense of $ 8.9 million in connection with the Manufacturing Closure, which includes $ 1.3 million in severance and related costs and $ 7.6 million of asset impairments related to fixed assets. The severance and related expenses were recorded in the cost of goods sold line on the Consolidated Statement of Operations and Comprehensive Income (Loss) for the thirteen weeks ended July 2, 2023. The fixed asset impairments are recorded in the administrative expenses line on the Consolidated Statement of Operations and Comprehensive Income (Loss) for the thirteen weeks ended July 2, 2023. In addition, during the twenty-six weeks ended July 2, 2023, the Company recognized expense of $ 1.9 million related to the impairment of property, plant, and equipment unrelated to the Manufacturing Closure. During the twenty-six weeks ended June 30, 2024, the Company sold the Birmingham Facility for proceeds of $ 6.0 million and its Gramercy, LA facility for $ 1.8 million. Both of these facilities were classified as Assets held for sale on the Consolidated Balance Sheet at December 31, 2023. During the twenty-six weeks ended June 30, 2024, in connection with the Good Health and R.W. Garcia Sale as described in Note 2. Divestitures, the Company sold its Lincolnton, NC, and Lititz, PA manufacturing facilities and certain related assets having a net book value of $ 27.5 million. Also, during the twenty-six weeks ended June 30, 2024 in connection with the Manufacturing Facilities Sale as described in Note 2. Divestitures , the Company sold its Berlin, PA and Fitchburg, MA 8 manufacturing facilities having a net book value of $ 12.2 million and recognized a gain on the Manufacturing Facilities Sale of $ 4.3 million. 5. GOODWILL AND INTANGIBLE ASSETS, NET A rollforward of goodwill is as follows: (in thousands) December 31, 2023 $ 915,295 Good Health and R.W. Garcia Sale, Note 2. Divestitures ( 44,600 ) Balance as of June 30, 2024 $ 870,695 Intangible assets, net, consisted of the following: (in thousands) As of June 30, 2024 As of December 31, 2023 Subject to amortization: Distributor/customer relationships $ 647,712 $ 677,930 Trademarks 59,920 63,850 Amortizable assets, gross 707,632 741,780 Accumulated amortization ( 133,842 ) ( 120,405 ) Amortizable assets, net 573,790 621,375 Not subject to amortization: Trade names 428,733 434,513 Route assets 9,924 7,525 Intangible assets, net $ 1,012,447 $ 1,063,413 During the thirteen weeks ended March 31, 2024, the Company sold customer relationships and trademarks in the amount of $ 26.0 million and $ 18.3 million, respectively, related to the Good Health and R.W. Garcia Sale. See Note 2. Divestitures for further discussion. In addition, during the thirteen weeks ended June 30, 2024, the Company paid $ 9.2 million to purchase an indefinite life intangible right for use of a third party brand name. This intangible is included in indefinite life trade names. There were no other significant changes to intangible assets during the twenty-six weeks ended June 30, 2024 and July 2, 2023 other than those which arise from the normal course of business from buying and selling of Company-owned route assets and amortization. Amortization of the distributor/customer relationships, technology, and trade names amounted to $ 9.0 million and $ 9.4 million for the thirteen weeks ended June 30, 2024 and July 2, 2023, respectively, and $ 18.3 million and $ 18.8 million for the twenty-six weeks ended June 30, 2024 and July 2, 2023, respectively. The expense related to the amortization of intangibles is included in administrative expenses on the Consolidated Statements of Operations and Comprehensive Income (Loss). 6. NOTES RECEIVABLE Contracts are executed between the Company and independent operators (“IOs”) for the sale of the product distribution routes, including a note in favor of the Company, in certain cases. The notes bear interest at rates ranging from 4.50 % to 10.55 % with terms ranging generally from two to ten years . The notes receivable balances due from IOs at June 30, 2024 and December 31, 2023 totaled $ 14.5 million and $ 17.6 million, respectively, and are collateralized by the routes for which the loans are made. The Company also sold certain notes to Bank of America and one other bank. The Company has a corresponding notes payable, related to the sale of IOs notes receivables. See Note 10. Contingencies. 9 7. ACCRUED EXPENSES AND OTHER Current accrued expenses and other consisted of the following: (in thousands) As of June 30, 2024 As of December 31, 2023 Accrued compensation and benefits $ 14,294 $ 21,466 Operating right of use liability 15,770 14,992 Insurance liabilities 6,111 6,811 Accrued freight and manufacturing related costs 2,758 4,424 Accrued dividends and distributions 10,020 7,972 Accrued interest 1,031 13,280 Deferred transition services and other fees (a) 11,364 — Other accrued expenses 6,915 8,645 Total accrued expenses and other $ 68,263 $ 77,590 (a) See Note 2. Divestitures , for further discussion. Non-current accrued expenses and other consisted of the following: (in thousands) As of June 30, 2024 As of December 31, 2023 Operating right of use liability $ 42,715 $ 43,928 Tax Receivable Agreement liability 24,264 24,297 Supplemental retirement and salary continuation plans 6,864 6,559 Long-term portion of an interest rate hedge liability — 1,936 Total accrued expenses and other $ 73,843 $ 76,720 8. TERM DEBT, REVOLVING CREDIT FACILITY AND OTHER NOTES PAYABLE Term Debt and Revolving Credit Facility On April 17, 2024, the Company amended its Term Loan B to refinance in full all of the $ 630.0 million outstanding term loan and reduce the interest rate from the Secured Overnight Financing Rate ("SOFR") plus the applicable rate of 3.00 % plus a credit spread adjustment to SOFR plus the applicable rate of 2.75 %, as well as certain other changes. Other material terms of the Term Loan B, including the January 2028 maturity date, remain unchanged. The Company recorded a loss on debt extinguishment of $ 1.3 million related to the refinancing of its Term Loan B in its Consolidated Statement of Operations and Comprehensive Income (Loss) for the thirteen weeks ended June 30, 2024 and twenty-six weeks ended June 30, 2024. On April 17, 2024, the Company amended its ABL facility to reduce the rate from SOFR plus the applicable rate ranging from 1.50 %- 2.00 % plus a credit spread adjustment to SOFR plus the applicable rate ranging from 1.50 %- 2.00 %, as well as certain other changes. Other material terms of the ABL, including maturity date, remain unchanged. Term debt and revolving credit facilities consisted of the following: Debt (in thousands) Original Principal Balance Maturity Date As of June 30, 2024 As of December 31, 2023 Term Loan B $ 795,000 January-28 $ 630,335 $ 771,335 Real Estate Term Loan (1) $ 88,140 October-32 60,923 80,184 Equipment loans (2) $ 79,814 66,861 56,482 ABL facility (3) October-27 45,177 368 Net impact of debt issuance costs and original issue discounts ( 5,723 ) ( 8,772 ) Total long-term debt 797,573 899,597 Less: current portion ( 12,034 ) ( 21,086 ) Long term portion of term debt and financing obligations $ 785,539 $ 878,511 10 (1) Loan by City National Bank which is secured by a majority of the real estate assets of the Company ("Real Estate Term Loan"). (2) Equipment loans have varying maturities from November 2024 to September 2028. (3) Asset-based revolving credit facility ("ABL facility"). In connection with the Good Health and R.W. Garcia Sale as described in Note 2. Divestitures and Note 4. Property, Plant and Equipment, Net , the Company made a $ 141.0 million accelerated payment on its Term Loan B and $ 8.5 million payment on its Real Estate Term Loan during twenty-six weeks ended June 30, 2024. In addition, in connection with the Manufacturing Facilities Sale as described in Note 2. Divestitures and Note 4. Property, Plant and Equipment, Net , the Company made an additional payment of $ 9.2 million on its Real Estate Term Loan during the thirteen weeks ended June 30, 2024. Other Notes Payable and Capital Leases Amounts outstanding under notes payable and capital leases consisted of the following: (in thousands) As of June 30, 2024 As of December 31, 2023 Note payable – IO notes $ 13,768 $ 16,478 Finance lease obligations 10,788 10,145 Other 100 200 Total notes payable 24,656 26,823 Less: current portion ( 7,365 ) ( 7,649 ) Long term portion of notes payable $ 17,291 $ 19,174 Interest Expense Interest expense consisted of the following: (in thousands) Thirteen weeks ended June 30, 2024 Thirteen weeks ended July 2, 2023 Twenty-six weeks ended June 30, 2024 Twenty-six weeks ended July 2, 2023 Company’s long-term debt $ 9,191 $ 14,247 $ 20,973 $ 28,389 Amortization of deferred financing fees 749 446 2,509 451 IO loans 269 326 558 557 Total interest $ 10,209 $ 15,019 $ 24,040 $ 29,397 9. DERIVATIVE FINANCIAL INSTRUMENTS, PURCHASE COMMITMENTS, WARRANTS AND FAIR VALUE Derivative Financial Instruments The Company uses interest rate swaps to manage its interest rate exposure on its Term Loan B and its Real Estate Term Loan. The interest rate swaps are recorded on the Company’s Consolidated Balance Sheets at fair value. See Note 8. Term Debt, Revolving Credit Facility, and Other Notes Payable . In conjunction with Real Estate Term Loan pay downs during the twenty-six weeks ended June 30, 2024 discussed within Note 8. Term Debt, Revolving Credit Facility, and Other Notes Payable and estimated future pay downs, the Company determined that $ 36.7 million of hedged forecasted transactions were not probable of occurring. As such, effective February 1, 2024, the Company de-designated its interest rate hedge accounting on its Real Estate Term Loan and re-designated a new interest hedging relationship totaling $ 47.0 million. As a result, the Company immediately reclassified $ 0.3 million of accumulated other comprehensive income to earnings which is reflected as a decrease to interest expense within the Consolidated Statements of Operations and Comprehensive Income (Loss). As of June 30, 2024, $ 46.5 million and $ 36.3 million of the notional of the Company's interest rate swap is designated under interest rate hedge accounting and at fair value with mark-to-market adjustments recorded immediately in earnings, respectively. For the thirteen weeks ended and twenty-six weeks ended June 30, 2024, the Company recognized $ 0.3 million and $ 0.7 million, respectively, as a decrease to interest expense within the Consolidated Statements of Operations and Comprehensive Income (Loss). As of and for the twenty-six weeks ended June 30, 2024, there were no changes to the hedge accounting related to Term Loan B. 11 Warrant Liabilities As of each of June 30, 2024 and December 31, 2023, there were 7,200,000 private placement warrants outstanding which are accounted for as derivative liabilities pursuant to ASC 815-40. A reconciliation of the changes in the warrant liability during the twenty-six weeks ended June 30, 2024 is as follows: (in thousands) Fair value of warrant liabilities as of December 31, 2023 $ 43,272 Loss on remeasurement of warrant liability 11,808 Fair value of warrant liabilities as of March 31, 2024 $ 55,080 Gain on remeasurement of warrant liability ( 12,888 ) Fair value of warrant liabilities as of June 30, 2024 $ 42,192 Purchase Commitments The Company has outstanding purchase commitments for specific quantities at fixed prices for certain key ingredients to economically hedge commodity input prices. These purchase commitments totaled $ 93.7 million as of June 30, 2024 and $ 66.7 million as of December 31, 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 $ 0.1 million and $ 2.4 million for the thirteen weeks ended June 30, 2024 and July 2, 2023, respectively, and $ 0.9 million and $( 0.3 ) million for the twenty-six weeks ended June 30, 2024 and July 2, 2023, respectively. Fair Value The following table presents the Company’s financial assets and liabilities measured at fair value on a recurring basis based upon the level within the fair value hierarchy in which the fair value measurements fall, as of June 30, 2024: (in thousands) Level 1 Level 2 Level 3 Total Assets: Cash and cash equivalents $ 66,574 $ — $ — $ 66,574 Commodity contracts — 122 — 122 Interest rate swaps — 34,655 — 34,655 Total assets $ 66,574 $ 34,777 $ — $ 101,351 Liabilities: Commodity contracts $ — $ 961 $ — $ 961 Private placement warrants — 42,192 — 42,192 Debt — 797,573 — 797,573 Total liabilities $ — $ 840,726 $ — $ 840,726 12 The following table presents the Company’s financial assets and liabilities measured at fair value on a recurring basis based upon the level within the fair value hierarchy in which the fair value measurements fall, as of December 31, 2023: (in thousands) Level 1 Level 2 Level 3 Total Assets: Cash and cash equivalents $ 52,023 $ — $ — $ 52,023 Commodity contracts — 211 — 211 Interest rate swaps — 33,332 — 33,332 Total assets $ 52,023 $ 33,543 $ — $ 85,566 Liabilities: Commodity contracts $ — $ 2,094 $ — $ 2,094 Interest rate swaps — 1,936 — 1,936 Private placement warrants — 43,272 — 43,272 Debt — 899,597 — 899,597 Total liabilities $ — $ 946,899 $ — $ 946,899 10. CONTINGENCIES Litigation Matters The Company is involved in litigation and other matters incidental to the conduct of its business, the results of which, in the opinion of management, are not likely to be material to the Company’s financial condition, results of operations or cash flows. Guarantees 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 $ 59.1 million and $ 52.8 million at June 30, 2024 and December 31, 2023, respectively, which are accounted for as an off balance sheet arrangement. As discussed in Note 6. Notes Receivable , the Company also sold notes receivable on its books to Bank of America during fiscal years 2023, and 2024, which the Company partially guarantees. The outstanding balance of notes purchased by Bank of America at June 30, 2024 and December 31, 2023 was $ 12.3 million and $ 14.8 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 notes 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. Additionally, the Company guarantees loans for the purchase of routes made by two other banks. The outstanding balances of these loans were $ 2.2 million and $ 2.9 million at June 30, 2024 and December 31, 2023, respectively, of which $ 1.8 million and $ 2.2 million was included in the Company's Consolidated Balance Sheets at June 30, 2024 and December 31, 2023, respectively. The maximum amount of future payments the Company could be required to make under the guarantees equates to 25 % of the outstanding loan balance. All of the above IO 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. 13 11. SUPPLEMENTARY CASH FLOW INFORMATION (in thousands) Twenty-six weeks ended June 30, 2024 Twenty-six weeks ended July 2, 2023 Cash paid for interest $ 34,523 $ 28,613 Refunds related to income taxes $ 154 $ 387 Payments for income taxes $ 25,645 $ 2,564 Finance lease additions $ 2,307 $ 1,194 The Company presents the gain on the sale of disposals of property and equipment, and the gain on the sale of routes within gain on sale of assets within the Consolidated Statement of Operations and Consolidated Statement of Cash Flows. 12. INCOME TAXES The Company is subject to federal and state income taxes with respect to our allocable share of any taxable income or loss of UBH, as well as any standalone income or loss the Company generates. UBH is treated as a partnership for federal income tax purposes, and for most applicable state and local income tax purposes, and generally does not pay income taxes in most jurisdictions. Instead, UBH taxable income or loss is passed through to its members, including the Company. Despite its partnership treatment, UBH is liable for income taxes in those states not recognizing its pass-through status and for certain of its subsidiaries not taxed as pass-through entities. The Company has acquired various domestic entities taxed as corporations, which are now wholly owned by us or our subsidiaries. Where required or allowed, these subsidiaries also file and pay tax as a consolidated group for federal and state income tax purposes. The Company anticipates this structure to remain in existence for the foreseeable future. The Company recorded income tax benefit of $ 1.3 million and expense of $ 25.2 million for the thirteen and twenty-six weeks ended June 30, 2024, respectively. Comparably, the Company recorded income tax benefit for the thirteen and twenty-six weeks ended July 2, 2023 of $ 0.7 million and $ 3.3 million, respectively. The effective tax rates for the thirteen and twenty-six weeks ended June 30, 2024 were ( 5.4 )% and 47.5 %, respectively. Comparably, the effective tax rates for the thirteen and twenty-six weeks ended July 2, 2023 were 7.8 % and 12.7 %, respectively. The Company’s effective tax rates differ from the federal statutory rate of 21% primarily due to the impact of UBH, which is a partnership, is not taxed at the Company level, and is required to allocate some of its taxable results to the Continuing Members, as well as state taxes and the fair value impact of warrant liabilities. The Company’s effective tax rate for the thirteen and twenty-six weeks ended June 30, 2024 are 1.8 % and 1.9 %, respectively before consideration of any discrete items. During the thirteen and twenty-six weeks ended June 30, 2024, the effective tax rate was impacted by the sale of certain assets and brands to affiliates of Our Home™ and statutory state tax rate changes which resulted in a discrete tax (benefit) and expense of $( 1.5 ) million and $ 25.1 million, respectively. The Company regularly evaluates valuation allowances established for deferred tax assets (“DTA's”) for which future realization is uncertain. The Company assessed the available positive and negative evidence to estimate whether future taxable income would be generated to permit use of the existing DTA's. As of June 30, 2024, a significant piece of objective negative evidence evaluated was the twelve-quarter cumulative loss before taxes. Such objective evidence limits the ability to consider other subjective evidence, such as projections for future growth. The Company determined that there is uncertainty regarding the utilization of certain DTA's such as the investment in UBH, federal operating losses subject to annual limitations due to “change in ownership” provisions, and state net operating losses where the Company does not expect to continue to have nexus. Therefore, a valuation allowance has been recorded against the DTA's for which it is more likely than not they will not be realized. The Company has DTA’s related to its investment in the partnership that are expected to be realized in the ordinary course of operations or generate future net operating losses for which a portion will have an indefinite carryforward period. Additionally, the Company has deferred tax liabilities (“DTL’s”) related to its investment in the partnership that will not reverse in the ordinary course of business and will only reverse when the partnership is sold or liquidated. The Company has no intention of disposing of or liquidating the partnership and therefore has not considered the indefinite lived DTL as a source of income to offset other DTA’s. In weighing positive and negative evidence, both objective and subjective, including its twelve-quarter cumulative loss, the Company has recorded a valuation allowance against its DTA’s related to net operating losses and deductible book/tax differences and recorded a DTL primarily related to the book over tax basis in the investment in the partnership that will not reverse in the ordinary course of business. The Company considered that an indefinite lived DTL may be considered as a source of taxable income for an indefinite lived DTA; however, given our indefinite lived DTL will only reverse upon sale or liquidation, the Company determined that it was more appropriate to record a valuation allowance against a portion of its DTA’s. The amount of DTA considered realizable, however, could be adjusted if estimates of future taxable 14 income during the carryforward period are reduced or increased or if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence such as projections for growth. As of June 30, 2024, tax years 2020 through 2024 remain open and subject to examination by the Internal Revenue Service and the majority of the states where the Company has nexus, and tax years 2019 through 2024 remain open and subject to examination in selected states that have a four-year statute of limitations. Upon audit, tax authorities may challenge all or part of a tax position. A tax position successfully challenged by a taxing authority could result in an adjustment to our provision for income taxes in the period in which a final determination is made. The Company did not maintain any unrecognized tax benefits as of June 30, 2024 and December 31, 2023. Tax receivable agreement liability Pursuant to an election under section 754 of the Internal Revenue Code, the Company obtained an increase in its share of the tax basis in the net assets of UBH when it was deemed to purchase UBH units from a third party then holding common and preferred interest of the Continuing Members and purchased UBH units from the Continuing Members per the Business Combination Agreement. The Continuing Members have the option to exchange UBH units along with the forfeiture of a corresponding number of Class V Common Stock of the Company for UBI common stock post-Business Combination. The Company intends to treat any such exchanges as direct purchases for U.S. federal income tax purposes, which is expected to further increase its share of the tax basis in the net assets of UBH. The increases in tax basis may reduce the amounts the Company would otherwise pay in the future to various tax authorities. They may also decrease gains (or increase losses) on future dispositions of certain capital assets to the extent tax basis is allocated to those capital assets. Pursuant to the Business Combination Agreement, the Company entered into the Tax Receivable Agreement in connection with the Business Combination (the “Tax Receivable Agreement” or "TRA") , which provides for the payment by the Company of 85% of the amount of any tax benefits realized as a result of (i) increases in the share of the tax basis in the net assets of UBH resulting from the Business Combination and any future exchanges by the Continuing Members of UBH units for UBI common stock; (ii) tax basis increases attributable to payments made under the TRA; and (iii) tax amortization deductions attributable to the acquisition of Kennedy and the election to treat the transaction as an asset deal for tax purposes (the "TRA Payments"). The rights of each party under the TRA other than the Company are assignable, subject to certain restrictions. The timing and amount of aggregate payments due under the TRA may vary based on a number of factors, including the timing and amount of taxable income generated by the Company each year, as well as the tax rate then applicable, among other factors. As of June 30, 2024 and December 31, 2023, the Company had a liability of $ 24.3 million and $ 24.3 million, respectively, related to its projected obligations under the TRA, which is reflected as current and non-current accrued expenses in the Consolidated Balance Sheets. 15 13. INCOME (LOSS) PER SHARE Basic income (loss) per share is based on the weighted average number of shares of Class A Common Stock issued and outstanding during the periods. Diluted income (loss) per share is based on the weighted average number of shares of Class A Common Stock issued and outstanding and the effect of all dilutive common stock equivalents and potentially dilutive share-based awards outstanding during the periods. The following table reconciles the numerators and denominators used in the computations of both basic and diluted income (loss) per share: (in thousands, except share data) Thirteen weeks ended June 30, 2024 Thirteen weeks ended July 2, 2023 Twenty-six weeks ended June 30, 2024 Twenty-six weeks ended July 2, 2023 Numerator: Net income (loss) attributable to common stockholders $ 19,848 $ ( 4,124 ) $ 15,857 $ ( 13,251 ) Denominator: Weighted average Class A Common Stock shares, basic 81,457,014 81,063,457 81,423,240 81,020,732 Dilutive securities included in diluted earnings per share calculation: Warrants 2,600,077 — 2,574,638 — RSUs 539,622 — 436,799 — PSUs 305,818 — 285,102 — Stock options 51,881 — 42,883 — Total dilutive weighted average shares 84,954,412 81,063,457 84,762,662 81,020,732 Basic income (loss) per share $ 0.24 $ ( 0.05 ) $ 0.19 $ ( 0.16 ) Diluted income (loss) per share $ 0.23 $ ( 0.05 ) $ 0.19 $ ( 0.16 ) Class V Common Stock not subject to (income) loss per share calculation 59,349,000 59,349,000 59,349,000 59,349,000 Net income (loss) attributable to noncontrolling interest $ 5,599 $ ( 4,429 ) $ 11,986 $ ( 9,784 ) The diluted income (loss) per share computation excludes the effect of certain warrants, restricted stock units ("RSUs"), performance stock units ("PSUs"), and stock options granted to directors and management which convert to Class A Common Stock upon vesting or being exercised, as their inclusion would have been anti-dilutive. Anti-dilutive securities excluded from diluted income per share calculation are as follows: Thirteen weeks ended June 30, 2024 Thirteen weeks ended July 2, 2023 Twenty-six weeks ended June 30, 2024 Twenty-six weeks ended July 2, 2023 Warrants — 2,376,961 — 2,288,240 RSUs — 268,153 — 195,431 PSUs — 125,634 — 114,863 Stock options — 7,009 — 4,233 Shares of the Company’s Class V Common Stock do not participate in income or losses of the Company and, therefore, are not participating securities. The PSUs and RSUs, were not considered participating securities despite the holders of these stock-based compensation awards being entitled to participate in dividends declared on Class A Common Stock, if and when declared, on a one -to-one per-share basis, because the dividends are only payable upon full vesting of the awards, and as such, the dividend is forfeitable. As of each of June 30, 2024 and December 31, 2023, the Continuing Members held all 59,349,000 shares of Class V Common Stock issued and outstanding and also held an equal number of common limited liability company units of UBH, which comprise the noncontrolling interest. 14. SUBSEQUENT EVENTS The Company performed a review of events subsequent to the balance sheet date through the date the financial statements were issued and determined that there were no such events requiring recognition or disclosure in the financial statements. 16