Utz Brands, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended January 3, 2021 (53 weeks). The business combination with Collier Creek closed August 28, 2020. Accordingly, results are split between predecessor and successor periods and use different accounting bases; the company’s combined full-year comparison is non-GAAP and not directly comparable to audited GAAP periods.
Business context and operating performance
Utz manufactures and distributes branded salty snacks through 14 facilities and a nationwide mix of direct-store delivery, warehouse shipments and distributors. In 2020, COVID-19 increased at-home demand; the company reported retail sales growth above category growth. Acquisitions expanded its brands, products and geographic reach.
| Metric | FY2020 combined result | Comparison / context |
|---|---|---|
| Net sales | $964.3 million | Up 25.5% from $768.2 million in FY2019; growth excluding acquisitions and changes in independent-operator discounts was 16.7%. |
| Gross profit / margin | $332.7 million / 34.5% | Gross profit up 31.1%; margin was 33.0% in FY2019. Volume leverage and productivity savings contributed; acquired-inventory amortization partly offset improvement. |
| Operating income | $31.8 million | Combined, non-GAAP presentation; selling and administrative costs rose 33% to $303.1 million. |
| Net income (loss) | $(12.6) million | Combined GAAP net loss; net loss attributable to controlling interest was $4.7 million. The post-combination successor period alone reported a $16.1 million net loss. |
| Adjusted EBITDA | $133.9 million | Non-GAAP measure, versus $86.5 million in FY2019; FY2020 figure includes substantial acquisition, integration and transformation adjustments. |
| Cash from operations | $29.7 million | Versus $28.0 million in FY2019; successor-period operating cash flow was negative, partly reflecting working-capital movements and transaction costs. |
| Cash and debt | Cash $46.8 million; term debt $778.5 million | At January 3, 2021; additional other notes payable were $33.6 million. ABL had no borrowings and $106.4 million of availability. |
Quarterly context: The reported 14-week fourth quarter (September 28, 2020–January 3, 2021) had revenue of $246.3 million, operating income of $0.2 million and net loss of $13.6 million. The comparable 13-week 2019 quarter had revenue of $201.8 million, operating loss of $13.8 million and net loss of $24.0 million. Period length and acquisition-accounting changes limit comparability.
Full-year sales growth reflected acquisitions, increased demand during the pandemic and an extra fiscal week (estimated contribution: $15.9 million). The company reported Power Brand growth of approximately 14% excluding acquisitions and higher independent-operator discounts, while Foundation Brand sales declined approximately 1% on the same basis.
Material changes, capital and liquidity
- Acquisitions: Acquired H.K. Anderson assets for approximately $8 million and Truco for approximately $404 million in late 2020; separately purchased ON THE BORDER intellectual property for $79 million. Acquired Truco contributed $9.7 million of revenue after closing. The Vitner’s acquisition for approximately $25 million closed in February 2021.
- Cash deployment and financing: Combined investing cash use was $703.4 million, principally for acquisitions and the business combination; financing provided $231.5 million. The company ended the year with $46.8 million cash. Truco was initially financed with a bridge facility; $370 million remained outstanding at year-end.
- Subsequent refinancing: On January 20, 2021, the company refinanced its term debt with $410 million of new term loans and borrowed an additional $310 million, using proceeds to repay existing term loans and part of the bridge facility. The filing says the bridge loan was repaid in full through this refinancing and the new loans mature January 20, 2028.
- Dividend: The board stated an expectation of at least $0.20 per Class A share annually for the four fiscal quarters following the business combination, subject to board discretion, available funds, debt restrictions and TRA obligations. Two $0.05-per-share dividends were declared in 2020; an additional aggregate dividend of approximately $0.8 million was declared in December.
- Tax receivable agreement: Utz generally must pay Continuing Members 85% of specified tax savings. The year-end recorded TRA liability was $28.7 million; management disclosed projected obligations totaling $37.6 million, including an unrecorded $8.9 million contingent on realization of related tax benefits.
Outlook, risks and unusual items
No quantified forward-year revenue, earnings or cash-flow guidance is provided. Management’s strategy is to grow Power Brands and distribution, invest in marketing and innovation, improve margins through productivity and mix, make selective acquisitions, reduce debt and support dividends. It expected to complete most remaining conversions of company-operated routes to independent operators by Q2 FY2022 and had pricing arrangements covering over 75% of budgeted FY2021 raw-material needs as of March 2, 2021.
- COVID-19 supported elevated demand in 2020, but its continuing effects on consumer behavior, supply chains, production and channels were uncertain. Food-service and some convenience-related sales remained pressured.
- Commodity, packaging, labor, energy and freight costs could rise; price increases or promotions may affect volume and margins. The company reported increases in certain commodity prices late in 2020.
- Variable-rate debt exposes the company to interest-rate and LIBOR transition risk. It estimated a 1% LIBOR increase would add $5.7 million of FY2020 interest expense.
- Growth depends on integrating acquisitions, maintaining retail shelf space and executing through independent operators, distributors and other third parties. Customer concentration, product safety, regulation, competition and possible disruption to manufacturing or distribution are also risks.
- The company planned a multi-year ERP transition, targeted for completion during 2021. Management could not assess internal control over financial reporting as of year-end without unreasonable effort or expense; the auditor did not attest to those controls. Management concluded disclosure controls were effective.
- Unusual FY2020 items included $40.0 million of acquisition and integration adjustments in Adjusted EBITDA, $5.8 million of acquired-inventory step-up amortization, and $2.5 million of debt prepayment expense. Adjusted EBITDA is non-GAAP and should be considered alongside GAAP results.
Investor facts to verify
- Reconcile audited successor and predecessor statements with management’s combined, non-GAAP full-year comparisons, including the effect of the 53rd week and acquisition dates.
- Review the January 2021 refinancing terms, debt balances, interest-rate exposure, covenant headroom and subsequent debt repayment disclosures.
- Assess whether acquired businesses, particularly Truco/ON THE BORDER and Vitner’s, deliver expected growth, synergies and cash returns relative to purchase costs and added debt.
- Track operating cash generation, working capital, capital spending and the capacity to fund dividends alongside debt reduction and TRA payments.
- Evaluate the timing and realization of tax benefits underlying the TRA liability, and the potential impact of valuation allowances and future tax-basis exchanges.
- Monitor ERP implementation and the development of public-company financial reporting controls; the filing provides no management assessment or auditor opinion on internal control effectiveness for FY2020.