Utz Brands, Inc. — 2023 Form 10-K Summary
Business context and reporting period. Utz manufactures and distributes branded salty snacks in the United States, including potato chips, pretzels, tortilla chips and cheese snacks. It reports one operating segment. The fiscal year ended December 31, 2023; both 2023 and the comparative year ended January 1, 2023 comprised 52 weeks.
Key financial results
| Metric | FY2023 | FY2022 |
|---|---|---|
| Net sales | $1,438.2 million | $1,408.4 million |
| Gross profit / margin | $456.5 million / 31.7% | $449.1 million / 31.9% |
| Operating income | $16.0 million | $5.3 million |
| Net loss | $40.0 million | $14.0 million |
| Net loss attributable to controlling interest | $24.9 million | $0.4 million |
| Adjusted EBITDA and margin | $187.2 million / 13.0% | $170.5 million / 12.1% |
| Operating cash flow | $76.6 million | $48.2 million |
| Cash and cash equivalents at year-end | $52.0 million | $72.9 million |
Debt and liquidity. Reported long-term debt was $899.6 million at year-end, plus $26.8 million of other notes payable. Variable-rate indebtedness was $851.5 million, of which $584.6 million was covered by interest-rate hedges. The weighted-average interest rate for the year was 6.3%, up from 4.7%. The ABL facility had a $225 million limit, $0.4 million outstanding, and $158.4 million available net of letters of credit. The company reported compliance with financial covenants. Scheduled debt repayments include $746.2 million in 2028, primarily reflecting the Term Loan B maturity.
Investing cash outflow was $48.5 million, including $55.7 million of property and equipment purchases; financing cash outflow was $49.1 million. Cash declined by $20.9 million during the year. The company paid $18.5 million in Class A dividends and reported an annual dividend rate of $0.228 per share.
Material changes versus the prior year
- Sales increased 2.1%, principally from the flow-through of 2022 pricing actions (4.6% benefit), partly offset by a 1.8% volume/mix decline and a 0.7% sales decline associated with independent-operator (IO) conversions. Excluding increased IO discounts, organic net sales increased 2.8%.
- Power Brand invoiced sales grew approximately 8.6%; Foundation Brand invoiced sales declined approximately 5.4%. SKU rationalization, including reductions in private-label, co-manufactured and partner products, weighed on volume.
- Gross profit increased 1.7%, but gross margin fell 0.2 percentage points to 31.7%, reflecting commodity and wage inflation, higher inbound freight and IO discounts, partly offset by pricing and productivity efforts.
- Selling, distribution and administrative expense declined 2.5% to $433.1 million, helped by lower prior-year distributor buyout costs and ongoing route conversions. Current-year impairments and higher labor and stock-based compensation partly offset the reductions.
- Interest expense rose to $60.6 million from $44.4 million as higher rates affected unhedged borrowings. FY2022 also included a $23.9 million income tax benefit, largely from a valuation-allowance reduction; FY2023 recorded $0.8 million of tax expense.
- Management reported $31.0 million of business-transformation adjustments in FY2023 and $8.6 million of acquisition and integration adjustments in its Adjusted EBITDA reconciliation. These non-GAAP adjustments should be considered alongside GAAP results.
Outlook, commentary, risks and unusual items
Management’s long-term strategy emphasizes investment in marketing and innovation for Power Brands, expansion into underpenetrated geographies and channels, supply-chain flexibility and cost reduction, improved DSD execution, cash generation and lower leverage. The filing provides no quantified FY2024 financial guidance. Management said key input costs had stabilized in 2023 after earlier increases, but labor, fuel and freight costs remained pressures. Pricing and productivity may not fully offset costs or protect volume. Pricing arrangements covered an estimated 36% of budgeted FY2024 direct-material needs at year-end.
On February 5, 2024, Utz agreed to sell the Good Health and R.W. Garcia brands, two manufacturing facilities and related assets, and transfer certain Las Vegas operations to Our Home for $182.5 million, subject to customary adjustments. The companies also agreed to transition services and reciprocal co-manufacturing arrangements. Utz said it could not yet estimate the transaction’s financial-statement impact.
Other notable items include a $13.4 million loss on the sale of the Bluffton, Indiana facility, $12.6 million of impairments primarily associated with plant closures, and a $4.7 million contract-termination expense related to the Bluffton sale. The Birmingham, Alabama and Gramercy, Louisiana facilities were closed, and the Bluffton facility was sold. Goodwill and intangible assets were not impaired in the 2023 annual assessment.
Principal risks include commodity, labor and logistics costs; pricing and promotional effectiveness; competition and changing consumer preferences; reliance on major retail customers and independent distributors; potential disruption to manufacturing or distribution; variable-rate debt and refinancing needs; and debt covenants. The top 10 customers represented about 40% of invoiced sales, and one customer accounted for 13% of net sales. The Tax Receivable Agreement requires payment of 85% of specified realized tax savings; the company recorded a $24.3 million liability and disclosed $38.5 million of projected obligations, including amounts not recorded as liabilities.
The auditor issued an unqualified opinion on the financial statements and internal control over financial reporting; management and the auditor concluded controls were effective as of year-end. The auditor identified customer trade-promotion reserves associated with uncollected sales, totaling $11.2 million, as a critical audit matter because settlement amounts and timing require estimation. The filing’s cover page indicates correction of an error in previously issued financial statements; the text describes a prior-period cash-flow presentation correction as immaterial and also discusses a 2021 restatement history.
Important facts for investors to verify
- Final closing adjustments, cash proceeds and financial effects of the Our Home transaction, including any continuing costs or changes to sales and manufacturing arrangements.
- Debt repayment and refinancing plans ahead of the large 2028 maturity, interest-rate exposure after hedges, and continued covenant compliance.
- Whether pricing, productivity and marketing investments can improve margins while stabilizing or growing volume, particularly amid SKU rationalization and IO conversions.
- Cash generation, capital spending, liquidity and the sustainability of dividends, considering debt service and TRA obligations.
- The assumptions behind promotional allowances and customer reserves, and the company’s customer concentration and exposure to retail ordering changes.
- The precise nature and scope of the filing’s indicated correction of previously issued financial statements, alongside the disclosed immaterial cash-flow presentation correction and historical restatement.