Utz Brands, Inc. — Q1 2023 Form 10-Q
Business context and reporting period. Utz makes and distributes branded salty snacks across the U.S. This unaudited quarter covered the 13 weeks ended April 2, 2023; the comparison period was the 13 weeks ended April 3, 2022. Results are not necessarily indicative of full-year performance.
Financial performance and liquidity
| Metric | Q1 2023 | Prior-year quarter |
|---|---|---|
| Net sales | $351.4 million | $340.8 million |
| Gross profit / margin | $104.5 million / 29.7% | $103.8 million / 30.5% |
| Operating loss | $2.1 million | $22.5 million |
| Net loss | $14.5 million | $31.9 million |
| Net loss attributable to controlling interest / diluted loss per share | $9.1 million / $0.11 | $17.6 million / $0.22 |
| Adjusted EBITDA / margin | $40.4 million / 11.5% | $36.5 million / 10.7% |
| Cash used in operating activities | $8.4 million | $36.0 million |
- Cash and liquidity: Cash was $57.9 million at April 2, down $15.0 million from year-end. Current assets were $361.2 million and current liabilities were $213.5 million. The ABL facility had $140.8 million available, net of letters of credit, with $20.0 million drawn.
- Debt and interest: The debt table reported $929.3 million of term, real estate, equipment and ABL debt, net of financing costs; other notes payable were $30.3 million. Variable-rate indebtedness was $884.6 million. Weighted-average interest rate was 5.6%, versus 3.9% a year earlier; interest expense rose to $14.4 million from $9.1 million. The company reported compliance with financial covenants.
- Investing and financing cash flow: Investing used $14.0 million, including $13.9 million of property and equipment purchases. Financing provided $7.5 million, including a $20.0 million line-of-credit draw, partly offset by debt repayments, dividends and distributions.
Material changes versus the prior period
- Sales increased 3.1%. Pricing contributed 9.7%, offset by a 5.7% volume/mix decline and a 0.9% sales decline related to independent-operator (IO) conversions. Excluding increased IO discounts tied to conversions, organic sales increased 4.0%. Power-brand sales rose approximately 8.7%, while Foundation-brand sales declined approximately 4.9%.
- Retail sales increased 9.4%, below the 14.8% growth reported for the broader salty-snacks category. Management cited price increases, lower volume, weight-outs, price-pack changes, SKU rationalization and route conversions as factors affecting results.
- Gross profit rose slightly, but margin declined 0.8 percentage points. Management attributed pressure to commodity and wage inflation, lower fixed-cost absorption and higher IO discounts, partly offset by pricing and productivity initiatives.
- Operating loss improved substantially, primarily because the prior-year quarter included $23.0 million of distributor contract-termination expense. SD&A was $106.1 million, down 16.2%; excluding specified comparison-period costs and current-period impairments, SD&A increased 3.1%.
- Operating cash use was lower than a year earlier, largely because Q1 2022 included $20.2 million of cash payments related to distributor buyouts. Q1 2023 nevertheless included inventory-related cash outflows.
Outlook, risks, contingencies and unusual items
- Outlook: The filing provides no specific full-year financial guidance. Management expects snack-category consumer trends to support demand, continues cost-saving and productivity initiatives, and planned to complete substantially all remaining RSP-to-IO route conversions during 2023. Management cautioned that pricing may lag cost inflation or affect customer sales levels.
- Manufacturing closure: After quarter-end, Utz announced it would cease manufacturing at its Birmingham, Alabama facility on or around July 3, 2023. It expected 2023 pre-tax cash charges of $3.0–$5.0 million and non-cash impairment charges of $8.5–$11.0 million; actual costs may differ. Products were expected to move to other facilities. Approximately 275 people worked at the site, with about 100 expected to remain in distribution roles in Birmingham.
- Cost and rate exposure: Continued commodity, freight, fuel and labor inflation could pressure profitability. Rising rates affect unhedged debt; $587.3 million of debt was covered by interest-rate hedges. The company reported $73.1 million of fixed-price ingredient purchase commitments and recorded $2.7 million of related losses in the quarter.
- Other items and contingencies: The quarter included $1.9 million of fixed-asset impairment related to equipment damaged in a natural disaster and a $2.2 million non-cash warrant-liability remeasurement loss. IO loan guarantees include $40.2 million of outstanding Bank of America loans and $1.1 million at Cadence Bank; the company also disclosed $3.1 million of M&T Bank guaranteed loans, recorded on balance sheet. Management did not expect pending litigation to materially affect the company. No material changes to previously disclosed risk factors were reported.
Important facts for investors to verify
- Whether pricing and productivity gains can offset input-cost inflation, volume declines and higher IO discounts.
- Debt, interest expense and available borrowing capacity as rates and working-capital needs change.
- Progress and economics of remaining route conversions, including their effects on sales, margins and cash proceeds.
- Actual costs, timing and operational effects of the Birmingham closure and production transfer.
- Cash generation, inventory levels and the reliability of management’s estimates for promotional reserves, impairment and tax assets.