Utz Brands, Inc. — Q1 2022 Form 10-Q
Reporting period: Thirteen weeks ended April 3, 2022; comparisons are with the thirteen weeks ended April 4, 2021. Utz manufactures and distributes branded salty snacks across U.S. retail and other channels.
Financial performance
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Net sales | $340.8 million | $269.2 million | Up 26.6% |
| Gross profit / margin | $103.8 million / 30.5% | $95.2 million / 35.4% | Margin down 4.9 percentage points |
| Operating income (loss) | $(22.5) million | $9.3 million | Declined $31.8 million |
| Net loss | $(31.9) million | $(23.3) million | Loss widened $8.5 million |
| Net loss attributable to Utz Brands, Inc. | $(17.6) million | $(22.5) million | Loss narrowed |
| Adjusted EBITDA | $36.5 million; 10.7% of sales | $37.9 million; 14.1% of sales | Down $1.4 million |
| Operating cash flow | $(36.0) million | $(13.2) million | Cash use increased |
Sales growth reflected the Vitner’s, Festida Foods and R.W. Garcia acquisitions, favorable price/mix of 9.4%, and organic volume growth. Excluding acquisitions and increased discounts associated with route conversions, management reported organic sales growth of 20.7%.
Gross profit increased in dollars, but inflation in commodities, wages and transportation outpaced pricing actions. Increased independent-operator (IO) discounts also weighed on gross margin. Selling, distribution and administrative expenses rose 46.2% to $126.7 million, including $23.0 million of distributor contract-termination costs and $2.6 million of other contract termination expense and related impairments.
Cash, debt and liquidity
- Cash and cash equivalents were $14.9 million at April 3, 2022, down from $41.9 million at January 2, 2022. Operating cash use included distributor buyout payments and inventory investment.
- Net cash used in investing activities was $0.2 million, versus $25.3 million in the prior-year quarter, which included the Vitner’s acquisition. Financing activities provided $9.3 million, including $20.0 million of net revolver borrowings.
- Reported long-term debt was $864.1 million, including $56.0 million outstanding under the revolving credit facility; other notes payable totaled $36.2 million. Revolver availability, net of letters of credit, was $80.8 million. The company reported compliance with its financial covenant.
- Variable-rate indebtedness was reported at $841.2 million. Interest-rate hedges covered $500.0 million through September 30, 2026. Weighted-average interest rate was 3.9%, compared with 3.7% a year earlier.
Outlook, risks and notable items
- Management expected fiscal 2022 gross input-cost inflation, including commodities, labor and transportation, to be in the mid-teens, raised from its prior low-teens expectation. Pricing actions, productivity and distribution efficiencies were intended to offset cost pressure; management cautioned that pricing may lag inflation and customer sales at higher prices were uncertain.
- Management described continued strong category demand: U.S. salty-snack retail sales increased 13.4% and Utz retail sales increased 18.1% year over year for the quarter, based on IRI data. The filing provides no specific full-year financial guidance in the supplied text.
- Other risks include competition, supply-chain and commodity-cost volatility, higher freight and labor costs, and potentially higher borrowing costs as benchmark rates change. The company stated that risk factors had not materially changed since its 2021 Form 10-K.
- After quarter-end, the company declared a $0.054-per-share dividend, paid April 28, 2022. It also acquired a snack-food manufacturing facility in Kings Mountain, North Carolina for approximately $38.4 million plus $1.3 million of assumed liabilities; funding included $28.0 million from issuing 2.1 million Class A shares and approximately $10.4 million in cash.
- Management said pending litigation was not expected to have a material adverse effect. The company recorded a $2.0 million impairment related to distribution rights and paid $0.9 million in January 2022 to settle a Pennsylvania sales-tax audit.
Most important facts for investors to verify
- Whether pricing and operational efficiencies can offset the forecast mid-teens input-cost inflation without materially weakening volume or margins.
- How recurring profitability trends compare with Adjusted EBITDA, given the quarter’s substantial distributor buyout and other adjustments.
- Working-capital and cash-generation trends, including inventory levels and the impact of route conversions and distributor buyouts.
- Debt, revolver availability, variable-rate exposure and hedge coverage as interest rates and benchmark rates change.
- The financial and dilution effects of the post-quarter facility acquisition and 2.1 million-share private placement.