Utz Brands, Inc. 10-Q

Item 1. FINANCIAL STATEMENTS Utz Brands, Inc. CONSOLIDATED BALANCE SHEETS September 29, 2024 and December 31, 2023 (In thousands, except share information) As of September 29, 2024 As of December 31, 2023 (Unaudited) ASSETS Current Assets Cash and cash equivalents $ 64,891 $ 52,023 Accounts receivable, less allowance of $ 3,140 and $ 2,933 , respectively 132,913 135,130 Inventories 101,572 104,666 Prepaid expenses and other assets 40,386 30,997 Current portion of notes receivable 4,603 5,237 Total current assets 344,365 328,053 Non-current Assets Assets held for sale — 7,559 Property, plant and equipment, net 315,535 318,881 Goodwill 870,695 915,295 Intangible assets, net 1,003,872 1,063,413 Non-current portion of notes receivable 9,912 12,413 Other assets 99,527 101,122 Total non-current assets 2,299,541 2,418,683 Total assets $ 2,643,906 $ 2,746,736 LIABILITIES AND EQUITY Current Liabilities Current portion of term debt $ 16,021 $ 21,086 Current portion of other notes payable 7,110 7,649 Accounts payable 138,772 124,361 Accrued expenses and other 74,913 77,590 Current portion of warrant liability 48,600 — Total current liabilities 285,416 230,686 Non-current portion of term debt and revolving credit facility 764,792 878,511 Non-current portion of other notes payable 16,592 19,174 Non-current accrued expenses and other 78,986 76,720 Non-current warrant liability — 43,272 Deferred tax liability 113,597 114,690 Total non-current liabilities 973,967 1,132,367 Total liabilities 1,259,383 1,363,053 Commitments and Contingencies Equity Shares of Class A Common Stock, $ 0.0001 par value; 1,000,000,000 shares authorized; 82,537,542 and 81,187,977 shares issued and outstanding as of September 29, 2024 and December 31, 2023, respectively 8 8 Shares of Class V Common Stock, $ 0.0001 par value; 61,249,000 shares authorized; 58,349,000 and 59,349,000 shares issued and outstanding as of September 29, 2024 and December 31, 2023, respectively 6 6 Additional paid-in capital 972,060 944,573 Accumulated deficit ( 301,750 ) ( 298,049 ) Accumulated other comprehensive income 15,359 22,958 Total stockholders' equity 685,683 669,496 Noncontrolling interest 698,840 714,187 Total equity 1,384,523 1,383,683 Total liabilities and equity $ 2,643,906 $ 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 thirty-nine weeks ended September 29, 2024 and October 1, 2023 (In thousands, except share information) (Unaudited) (in thousands) Thirteen weeks ended September 29, 2024 Thirteen weeks ended October 1, 2023 Thirty-nine weeks ended September 29, 2024 Thirty-nine weeks ended October 1, 2023 Net sales $ 365,523 $ 371,852 $ 1,068,236 $ 1,086,138 Cost of goods sold 234,500 252,583 692,886 744,980 Gross profit 131,023 119,269 375,350 341,158 Selling, distribution, and administrative expenses Selling and distribution 80,140 70,973 227,586 202,888 Administrative 29,901 34,531 96,496 123,155 Total selling, distribution, and administrative expenses 110,041 105,504 324,082 326,043 (Loss) gain on sale of assets, net ( 1,501 ) ( 8,488 ) 402 ( 9,275 ) Income from operations 19,481 5,277 51,670 5,840 Other (expense) income, net Gain on sale of business — — 44,015 — Interest expense ( 12,591 ) ( 15,537 ) ( 36,631 ) ( 44,934 ) Loss on debt extinguishment — — ( 1,273 ) — Other income 450 392 1,558 2,279 (Loss) gain on remeasurement of warrant liability ( 6,408 ) 15,984 ( 5,328 ) 16,560 Other (expense) income, net ( 18,549 ) 839 2,341 ( 26,095 ) Income (loss) before taxes 932 6,116 54,011 ( 20,255 ) Income tax expense (benefit) 160 ( 10,099 ) 25,395 ( 13,435 ) Net income (loss) 772 16,215 28,616 ( 6,820 ) Net (income) loss attributable to noncontrolling interest ( 2,970 ) ( 222 ) ( 14,956 ) 9,562 Net (loss) income attributable to controlling interest $ ( 2,198 ) $ 15,993 $ 13,660 $ 2,742 (Loss) income per Class A Common stock: (in dollars) Basic $ ( 0.03 ) $ 0.20 $ 0.17 $ 0.03 Diluted $ ( 0.03 ) $ 0.19 $ 0.16 $ 0.03 Weighted-average shares of Class A Common stock outstanding Basic 82,445,064 81,141,417 81,763,848 81,060,961 Diluted 82,445,064 83,444,275 84,948,754 83,567,756 Net income (loss) $ 772 $ 16,215 $ 28,616 $ ( 6,820 ) Other comprehensive (loss) income: Change in fair value of interest rate swap ( 15,471 ) 4,047 ( 12,954 ) 3,294 Comprehensive (loss) income ( 14,699 ) 20,262 15,662 ( 3,526 ) Net comprehensive loss (income) attributable to noncontrolling interest 3,447 ( 1,932 ) ( 9,601 ) 8,173 Net comprehensive (loss) income attributable to controlling interest $ ( 11,252 ) $ 18,330 $ 6,061 $ 4,647 The accompanying notes are an integral part of these consolidated financial statements. 2 Utz Brands, Inc. CONSOLIDATED STATEMENTS OF EQUITY For the thirteen and thirty-nine weeks ended September 29, 2024 and October 1, 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 259,083 — — 8,939 — — 8,939 — 8,939 Payments of tax withholding requirements for employee stock awards — — ( 589 ) — — ( 589 ) — ( 589 ) Net loss — — — ( 13,251 ) — ( 13,251 ) ( 9,784 ) ( 23,035 ) Cash dividends declared — — — ( 9,296 ) — ( 9,296 ) — ( 9,296 ) Distribution to noncontrolling interest — — — — — — ( 6,766 ) ( 6,766 ) Other comprehensive loss — — — — ( 432 ) ( 432 ) ( 321 ) ( 753 ) 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 Share-based compensation — — 3,629 — — 3,629 — 3,629 Net income — — — 15,993 — 15,993 222 16,215 Other comprehensive income — — — — 2,337 2,337 1,710 4,047 Cash dividends declared — — — ( 4,625 ) — ( 4,625 ) — ( 4,625 ) Distribution to noncontrolling interest — — — — — — ( 3,383 ) ( 3,383 ) Balance at October 1, 2023 81,141,417 $ 8 59,349,000 $ 6 $ 938,898 $ ( 265,743 ) $ 32,682 $ 705,851 $ 730,216 $ 1,436,067 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 342,145 — — 9,174 — — 9,174 — 9,174 Payments of tax withholding requirements for employee stock awards — — ( 1,397 ) — — ( 1,397 ) — ( 1,397 ) Deferred tax impact from divestiture — — 2,930 — — 2,930 2,136 5,066 Net income — — — 15,858 — 15,858 11,986 27,844 Cash dividends declared — — — ( 9,743 ) — ( 9,743 ) — ( 9,743 ) Special excess cash dividend — — — ( 1,816 ) — ( 1,816 ) — ( 1,816 ) Distribution to noncontrolling interest — — — — — — ( 7,004 ) ( 7,004 ) Tax distribution — — — — — — ( 2,596 ) ( 2,596 ) Other comprehensive income — — — — 1,455 1,455 1,062 2,517 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 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 Share-based compensation 7,420 — — 4,602 — — 4,602 — 4,602 Class V to Class A Exchange 1,000,000 — ( 1,000,000 ) — 12,128 — — 12,128 ( 12,128 ) — Deferred tax impact from divestiture — — 50 — — 50 36 86 Net (loss) income — — — ( 2,198 ) — ( 2,198 ) 2,970 772 Cash dividends declared — — — ( 4,869 ) — ( 4,869 ) — ( 4,869 ) Special excess cash dividend — — — ( 933 ) — ( 933 ) — ( 933 ) Distribution to noncontrolling interest — — — — — — ( 3,442 ) ( 3,442 ) Tax distribution — — — — — — ( 1,950 ) ( 1,950 ) Other comprehensive loss — — — — ( 9,054 ) ( 9,054 ) ( 6,417 ) ( 15,471 ) Balance at September 29, 2024 82,537,542 $ 8 58,349,000 $ 6 $ 972,060 $ ( 301,750 ) $ 15,359 $ 685,683 $ 698,840 $ 1,384,523 The accompanying notes are an integral part of these consolidated financial statements. 4 Utz Brands, Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS For the thirty-nine weeks ended September 29, 2024 and October 1, 2023 (In thousands) (Unaudited) Thirty-nine weeks ended September 29, 2024 Thirty-nine weeks ended October 1, 2023 Cash flows from operating activities Net income (loss) $ 28,616 $ ( 6,820 ) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Impairment and other charges — 9,548 Depreciation and amortization 53,390 60,114 Gain on sale of business ( 44,015 ) — Loss (gain) on remeasurement of warrant liability 5,328 ( 16,560 ) (Gain) loss on sale of assets ( 402 ) 9,275 Loss on debt extinguishment 1,273 — Share-based compensation 13,776 11,808 Deferred taxes 4,061 ( 10,743 ) Deferred financing costs 2,803 1,084 Changes in assets and liabilities: Accounts receivable, net ( 6,264 ) 4,947 Inventories ( 4,838 ) 644 Prepaid expenses and other assets ( 23,714 ) ( 20,183 ) Accounts payable and accrued expenses and other 21,939 6,016 Net cash provided by operating activities 51,953 49,130 Cash flows from investing activities Purchases of property and equipment ( 60,872 ) ( 45,707 ) Purchases of intangibles ( 9,220 ) — Proceeds from sale of property and equipment 26,140 8,794 Proceeds from sale of business 167,500 — Proceeds from sale of routes 19,552 21,683 Proceeds from the sale of IO notes 3,553 4,094 Notes receivable ( 30,568 ) ( 26,369 ) Net cash provided by (used in) investing activities 116,085 ( 37,505 ) Cash flows from financing activities Borrowings on line of credit 92,000 61,000 Repayments on line of credit ( 69,630 ) ( 40,676 ) Borrowings on term debt and notes payable 25,262 4,273 Repayments on term debt and notes payable ( 169,864 ) ( 23,744 ) Payment of debt issuance cost ( 733 ) ( 655 ) Payments of tax withholding requirements for employee stock awards ( 1,397 ) ( 589 ) Dividends paid ( 15,946 ) ( 13,921 ) Distribution to noncontrolling interest ( 14,862 ) ( 10,149 ) Net cash used in financing activities ( 155,170 ) ( 24,461 ) Net increase (decrease) in cash and cash equivalents 12,868 ( 12,836 ) Cash and cash equivalents at beginning of period 52,023 72,930 Cash and cash equivalents at end of period $ 64,891 $ 60,094 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") and its wholly owned subsidiaries (collectively, the “Company”). 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 have been no material changes 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 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 the Company's 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 thirty-nine weeks ended September 29, 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 thirty-nine weeks ended October 1, 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 and drug stores, and 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 in the Consolidated Statements of Operations and Comprehensive Income (Loss). 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 costs 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 promotions 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 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 $ 18.4 million as of September 29, 2024, which included adjustments taken by customers of $ 6.8 million that were awaiting final processing as of such date, and had reserves of $ 17.4 million as of December 31, 2023, which include adjustments taken by customers of $ 6.2 million that were awaiting final processing as of such date. 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. ASU 2023-09 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 this 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, ASU 2023-07 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. ASU 2023-07 is 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 this 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 thirty-nine weeks ended September 29, 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 are operating under transition services agreements which are scheduled to expire during the first half of 2025. In addition, the parties will operate under reciprocal co-manufacturing agreements pursuant to 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 pursuant to a distribution agreement. The Company received approximately $ 18.7 million in advance from Our Home for certain terms under these agreements, which the Company will recognize through income from operations over the terms of the transition services and co-manufacturing agreements. 7 3. INVENTORIES Inventories consisted of the following: (in thousands) As of September 29, 2024 As of December 31, 2023 Finished goods $ 67,879 $ 65,673 Raw materials 26,083 29,757 Maintenance parts 7,610 9,236 Total inventories $ 101,572 $ 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 September 29, 2024 As of December 31, 2023 Land $ 25,861 $ 28,561 Buildings 112,550 123,603 Machinery and equipment 214,611 248,886 Land improvements 2,651 3,887 Building improvements 2,620 5,163 Construction-in-progress 77,629 35,533 435,922 445,633 Less: accumulated depreciation ( 120,387 ) ( 126,752 ) Property, plant and equipment, net $ 315,535 $ 318,881 Depreciation expense was $ 8.2 million and $ 10.0 million for the thirteen weeks ended September 29, 2024 and October 1, 2023, respectively, and $ 25.2 million and $ 30.9 million for the thirty-nine weeks ended September 29, 2024 and October 1, 2023, respectively. Depreciation expense is included in Cost of goods sold and Selling, distribution, and administrative expenses in the Consolidated Statements of Operations and Comprehensive Income (Loss). During the thirteen weeks ended October 1, 2023, the Company completed the sale of the Company's manufacturing facility in Bluffton, Indiana, which resulted in a loss on sale of the assets of $ 13.4 million. Additionally, the Company entered into a supply agreement with the buyer pursuant to which the buyer is obligated to co-manufacture certain products at below market rates for up to one year . The Company recorded a tolling asset of $ 0.6 million for the difference between the rate charged and the market rate for these services. If the buyer were to default on its obligations to co-manufacture any of the committed products, a financial penalty would be assessed based on the contractual terms required in the supply agreement. No such defaults occurred during the term of the supply agreement. The Company and the buyer intend to have a continuing co-manufacturing relationship under a new agreement. In a separate transaction, the Company completed the sale of land in Hanover, Pennsylvania to a separate third-party for a gain of $ 4.0 million. 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 included $ 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 in the Consolidated Statement of Operations and Comprehensive Income (Loss) for the thirty-nine weeks ended October 1, 2023. The fixed asset impairments are recorded in the administrative expenses line in the Consolidated Statement of Operations and Comprehensive Income (Loss) for the thirty-nine weeks ended October 1, 2023. In addition, during the thirty-nine weeks ended October 1, 8 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 thirty-nine weeks ended September 29, 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 in the Consolidated Balance Sheet at December 31, 2023. During the thirty-nine weeks ended September 29, 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 thirty-nine weeks ended September 29, 2024, in connection with the Manufacturing Facilities Sale as described in Note 2. Divestitures , the Company sold its Berlin, PA and Fitchburg, MA 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 September 29, 2024 $ 870,695 Intangible assets, net, consisted of the following: (in thousands) As of September 29, 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 ( 142,860 ) ( 120,405 ) Amortizable assets, net 564,772 621,375 Not subject to amortization: Trade names 428,733 434,513 Route assets 10,367 7,525 Intangible assets, net $ 1,003,872 $ 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 classified as an indefinite life trade name. There were no other significant changes to intangible assets during the thirty-nine weeks ended September 29, 2024 and October 1, 2023 other than those which arise from the normal course of business from the buying and selling of Company-owned route assets and amortization. Amortization of distributor/customer relationships, technology and trade names amounted to $ 9.0 million and $ 9.4 million for the thirteen weeks ended September 29, 2024 and October 1, 2023, respectively, and $ 27.3 million and $ 28.3 million for the thirty-nine weeks ended September 29, 2024 and October 1, 2023, respectively. The expense related to the amortization of intangibles is included in administrative expenses in Selling, general and administrative expenses in the Consolidated Statements of Operations and Comprehensive Income (Loss). 9 6. NOTES RECEIVABLE Contracts are executed between the Company and its IOs for the sale of product distribution routes, including a note in favor of the Company, in certain cases. The notes bear interest at rates ranging from 5.00 % to 10.55 % with terms ranging generally from one to ten years . The notes receivable balances due from IOs at September 29, 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. 7. ACCRUED EXPENSES AND OTHER Current accrued expenses and other consisted of the following: (in thousands) As of September 29, 2024 As of December 31, 2023 Accrued compensation and benefits $ 20,291 $ 21,466 Operating right of use liability 16,661 14,992 Insurance liabilities 6,818 6,811 Accrued freight and manufacturing related costs 2,418 4,424 Accrued dividends and distributions 9,220 7,972 Accrued interest 3,321 13,280 Deferred transition services and other fees (a) 6,673 — Other accrued expenses 9,511 8,645 Total accrued expenses and other $ 74,913 $ 77,590 (a) See Note 2. Divestitures , for further discussion. Non-current accrued expenses and other consisted of the following: (in thousands) As of September 29, 2024 As of December 31, 2023 Operating right of use liability $ 44,928 $ 43,928 Tax Receivable Agreement liability 24,496 24,297 Supplemental retirement and salary continuation plans 7,133 6,559 Long-term portion of an interest rate hedge liability 2,429 1,936 Total accrued expenses and other $ 78,986 $ 76,720 10 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 $ 630.3 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 thirty-nine weeks ended September 29, 2024. On April 17, 2024, the Company amended its asset-based revolving credit facility (“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 facility, 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 September 29, 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 60,274 80,184 Equipment loans (2) $ 78,743 72,896 56,482 ABL facility October-27 22,737 368 Net impact of debt issuance costs and original issue discount ( 5,429 ) ( 8,772 ) Total long-term debt 780,813 899,597 Less: current portion ( 16,021 ) ( 21,086 ) Long term portion of term debt and financing obligations $ 764,792 $ 878,511 (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 June 2029. 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 an $ 8.5 million payment on its Real Estate Term Loan; and 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 thirty-nine weeks ended September 29, 2024. 11 Other Notes Payable and Capital Leases Amounts outstanding under notes payable and capital leases consisted of the following: (in thousands) As of September 29, 2024 As of December 31, 2023 Note payable – IO notes $ 13,503 $ 16,478 Finance lease obligations 10,099 10,145 Other 100 200 Total notes payable 23,702 26,823 Less: current portion ( 7,110 ) ( 7,649 ) Long term portion of notes payable $ 16,592 $ 19,174 Interest Expense Interest expense consisted of the following: (in thousands) Thirteen weeks ended September 29, 2024 Thirteen weeks ended October 1, 2023 Thirty-nine weeks ended September 29, 2024 Thirty-nine weeks ended October 1, 2023 Company’s long-term debt $ 12,049 $ 14,582 $ 33,022 $ 42,971 Amortization of deferred financing fees 294 633 2,803 1,084 IO loans 248 322 806 879 Total interest $ 12,591 $ 15,537 $ 36,631 $ 44,934 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 in the Company’s Consolidated Balance Sheets at fair value. See Note 8. Term Debt, Revolving Credit Facility, and Other Notes Payable . In conjunction with accelerated payments on the Real Estate Term Loan during the thirty-nine weeks ended September 29, 2024 discussed within Note 8. Term Debt, Revolving Credit Facility, and Other Notes Payable, and estimated future prepayments, 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 September 29, 2024, $ 46.0 million and $ 35.9 million of the notional of the Company's interest rate swap was designated under interest rate hedge accounting and at fair value with mark-to-market adjustments recorded immediately in earnings, respectively. For the thirteen and thirty-nine weeks ended September 29, 2024, the Company recognized $ 1.7 million and $ 1.0 million, respectively, as an increase to interest expense within the Consolidated Statements of Operations and Comprehensive Income (Loss). As of and for the thirty-nine weeks ended September 29, 2024, there were no changes to the hedge accounting related to Term Loan B. Warrant Liabilities As of each of September 29, 2024 and December 31, 2023, there were 7,200,000 private placement warrants (“Warrants”) outstanding, which are accounted for as derivative liabilities pursuant to ASC 815-40. The Warrants have a term of five years and expire in August 2025. A reconciliation of the changes in the warrant liability during the thirty-nine weeks ended September 29, 2024 is as follows: 12 (in thousands) Fair value of warrant liabilities as of December 31, 2023 $ 43,272 Gain on remeasurement of warrant liability ( 1,080 ) Fair value of warrant liabilities as of June 30, 2024 $ 42,192 Loss on remeasurement of warrant liability 6,408 Fair value of warrant liabilities as of September 29, 2024 $ 48,600 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 $ 83.7 million as of September 29, 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 (losses) gains totaling $( 0.8 ) million and $( 1.7 ) million for the thirteen weeks ended September 29, 2024 and October 1, 2023, respectively, and $ 0.1 million and $( 1.9 ) million for the thirty-nine weeks ended September 29, 2024 and October 1, 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 September 29, 2024: (in thousands) Level 1 Level 2 Level 3 Total Assets: Cash and cash equivalents $ 64,891 $ — $ — $ 64,891 Commodity contracts — 335 — 335 Interest rate swaps — 19,904 — 19,904 Total assets $ 64,891 $ 20,239 $ — $ 85,130 Liabilities: Commodity contracts $ — $ 961 $ — $ 961 Interest rate swaps — 2,467 — 2,467 Warrants — 48,600 — 48,600 Debt — 780,813 — 780,813 Total liabilities $ — $ 832,841 $ — $ 832,841 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 Warrants — 43,272 — 43,272 Debt — 899,597 — 899,597 Total liabilities $ — $ 946,899 $ — $ 946,899 13 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 $ 61.2 million and $ 52.8 million at September 29, 2024 and December 31, 2023, respectively, which loans are accounted for as off balance sheet arrangements. 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 September 29, 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 remain in 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 balance of these loans was $ 1.9 million and $ 2.9 million at September 29, 2024 and December 31, 2023, respectively, of which $ 1.6 million and $ 2.2 million was included in the Company's Consolidated Balance Sheets at September 29, 2024 and December 31, 2023, respectively. The maximum amount of future payments the Company could be required to make under these guarantees equates to 25 % of the outstanding loan balance. 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. 11. SUPPLEMENTARY CASH FLOW INFORMATION (in thousands) Thirty-nine weeks ended September 29, 2024 Thirty-nine weeks ended October 1, 2023 Cash paid for interest $ 42,782 $ 44,310 Refunds related to income taxes $ 154 $ 387 Payments for income taxes $ 28,557 $ 5,022 Finance lease additions $ 3,066 $ 1,298 The Company presents the gain on the sale of disposals of property and equipment, and the gain on the sale of routes within (Loss) gain on sale of assets within the Consolidated Statements of Operations and Comprehensive Income (Loss) 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 that UBI 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 UBI. Despite its partnership treatment, UBH is liable for income taxes in those states that do not recognize its pass-through status and for certain of its subsidiaries that are 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 taxes 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 expense of $ 0.2 million and $ 25.4 million for the thirteen and thirty-nine weeks ended September 29, 2024, respectively. Comparably, the Company recorded income tax benefit for the thirteen and thirty-nine weeks 14 ended October 1, 2023 of $ 10.1 million and $ 13.4 million, respectively. The effective tax rates for the thirteen and thirty-nine weeks ended September 29, 2024 were 17.2 % and 47.0 %, respectively. Comparably, the effective tax rates for the thirteen and thirty-nine weeks ended October 1, 2023 were ( 165.1 )% and 66.3 %, respectively. The Company’s effective tax rates differ from the federal statutory rate of 21% primarily because 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 rates for the thirteen and thirty-nine weeks ended September 29, 2024 were 11.9 % and 6.3 %, respectively, before consideration of any discrete items. During the thirteen and thirty-nine weeks ended September 29, 2024, the effective tax rate was impacted by the return to provision items, 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 $ 0.7 million and $ 24.3 million, respectively. The Company regularly evaluates valuation allowances established for deferred tax assets (“DTAs”) 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 the use of existing DTAs. As of September 29, 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 DTAs 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 DTAs for which it is more likely than not they will not be realized. The Company has DTAs related to its investment in UBH 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 (“DTLs”) related to its investment in UBH that will not reverse in the ordinary course of business and will only reverse when UBH is sold or liquidated. The Company has no intention of disposing of or liquidating UBH and therefore has not considered the indefinite lived DTL as a source of income to offset other DTAs. 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 DTAs 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 UBH 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 DTAs. The amount of DTAs considered realizable, however, could be adjusted if estimates of future taxable 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 September 29, 2024, tax years 2021 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 September 29, 2024 or December 31, 2023. See Note 13. Equity for a discussion on distribution requirements to UBH members regarding income taxes on their flow-through income. 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 common limited liability company units from a third party then holding common and preferred interests of the Continuing Members and its purchase of UBH units from the Continuing Members per the Business Combination Agreement. Following the Business Combination, the Continuing Members have the option to exchange UBH units, together with an equal number of shares of Class V Common Stock of UBI for a corresponding number of shares of Class A Common Stock of UBI. The Company intends to treat any such exchanges as direct purchases for U.S. federal income tax purposes, which is expected to further increase UBI's 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. 15 Pursuant to the Business Combination Agreement, the Company entered into a Tax Receivable Agreement (the "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 and shares of Class V Common Stock of UBI for shares of Class A Common Stock of UBI; (ii) tax basis increases attributable to payments made under the TRA; and (iii) tax amortization deductions attributable to the acquisition of Kennedy Endeavors, Inc. and the election to treat the transaction as an asset deal for tax purposes. 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 September 29, 2024 and December 31, 2023, the Company had a liability of $ 24.5 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. 13. EQUITY On July 9, 2024, the Continuing Members exchanged 1,000,000 UBH units together with the surrender and cancellation of the same number of shares of Class V Common Stock of UBI for an equal number of shares of Class A Common Stock of UBI. The Company did not receive any proceeds as a result of this exchange. The Business Combination Agreement requires UBH, which is treated as a partnership for federal income tax purposes, to make quarterly distributions to its members so they receive sufficient cash to settle their income tax on their share of flow-through income from UBH (“Tax Distributions”). The Tax Distributions are made on a prorata basis to all of the UBH members, which include UBI and the Continuing Members, such that the member with the highest liability receives sufficient cash to cover their income tax on their flow-through income from UBH. Since UBI’s income tax rate is lower than the Continuing Members and UBI obtained additional tax basis in the net assets of UBH (as described in Note 12. Income Taxes ), the prorata Tax Distributions have been providing UBI with cash that exceeds its income tax liability. The excess is used for the TRA liability that is payable to the Continuing Members and special dividends to holders of Class A Common Stock of UBI. The Tax Distributions and special dividends on Class A Common Stock are recorded to the equity section of the Consolidated Balance Sheets. 16 14. INCOME (LOSS) PER SHARE Basic (loss) income per share is based on the weighted average number of shares of Class A Common Stock issued and outstanding during the periods. Diluted (loss) income 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 (loss) income per share: (in thousands, except share data) Thirteen weeks ended September 29, 2024 Thirteen weeks ended October 1, 2023 Thirty-nine weeks ended September 29, 2024 Thirty-nine weeks ended October 1, 2023 Numerator: Net (loss) income attributable to common stockholders $ ( 2,198 ) $ 15,993 $ 13,660 $ 2,742 Denominator: Weighted average Class A Common Stock shares, basic 82,445,064 81,141,417 81,763,848 81,060,961 Dilutive securities included in diluted earnings per share calculation: Warrants — 1,828,748 2,210,365 2,142,492 RSUs — 338,373 619,363 242,903 PSUs — 135,737 341,686 121,083 Stock options — — 13,492 317 Total dilutive weighted average shares 82,445,064 83,444,275 84,948,754 83,567,756 Basic (loss) income per share $ ( 0.03 ) $ 0.20 $ 0.17 $ 0.03 Diluted (loss) income per share $ ( 0.03 ) $ 0.19 $ 0.16 $ 0.03 Class V Common Stock not subject to loss (income) per share calculation 58,436,912 59,349,000 59,044,971 59,349,000 Net income attributable to noncontrolling interest $ 2,970 $ 222 $ 14,956 $ ( 9,562 ) 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 that 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 September 29, 2024 Thirteen weeks ended October 1, 2023 Thirty-nine weeks ended September 29, 2024 Thirty-nine weeks ended October 1, 2023 Warrants 2,210,365 — — — RSUs 619,363 — — — PSUs 341,686 — — — Stock options 13,492 — — — 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 September 29, 2024 and December 31, 2023, the Continuing Members held all 58,349,000 and 59,349,000 shares of Class V Common Stock issued and outstanding, respectively, and also held an equal number of units of UBH, which comprise the noncontrolling interest. 15. 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. 17