Utz Brands, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended January 1, 2023 (52 weeks), compared with the 52 weeks ended January 2, 2022. This is an annual filing; the supplied text does not provide a clear standalone fourth-quarter financial-results breakdown. Utz manufactures and distributes branded salty snacks in one reportable segment.
Financial performance
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Net sales | $1,408.4 million | $1,180.7 million | +19.3% |
| Gross profit / margin | $449.1 million / 31.9% | $383.9 million / 32.5% | Profit +17.0%; margin down 0.6 percentage points |
| Income from operations | $5.3 million | $10.6 million | Down about 49% |
| Interest expense | $44.4 million | $34.7 million | Up $9.7 million |
| Net income (loss), consolidated | $(14.0) million | $8.0 million | Turned to a loss |
| Net income (loss) attributable to controlling interest | $(0.4) million | $20.6 million | Turned to a loss |
| Adjusted EBITDA (non-GAAP) | $170.5 million; 12.1% of sales | $156.2 million; 13.2% of sales | +9.2%; margin down 1.1 percentage points |
Sales growth reflected favorable price/mix of 13.9%, organic volume growth and distribution gains, and contributions from acquisitions. Acquisitions contributed $58.4 million of sales; higher independent-operator (IO) discounts associated with route conversions reduced sales by $14.2 million. Excluding those effects, management reported organic net-sales growth of 15.5%. Power-brand sales, excluding the named acquisitions, rose approximately 21.0%; Foundation-brand sales rose approximately 4.7%.
Management attributed gross-profit growth to volume, distribution, acquisitions, productivity and pricing actions, partly offset by inflation and higher IO discounts. FY2022 gross profit included $6.0 million of business-interruption insurance proceeds recorded as a reduction of cost of goods sold. Adjusted EBITDA is a non-GAAP measure and includes specified adjustments; it increased even as its margin declined.
Cash flow, debt and liquidity
- Cash from operating activities was $48.2 million, essentially unchanged from $48.4 million. Inventory growth was a significant working-capital use; operating cash flow also included costs related to distributor buyouts and contract terminations.
- Cash used in investing was $76.1 million, versus $136.1 million, including $88.0 million of capital expenditures and $23.4 million of proceeds from route sales. The prior year included substantial acquisition spending.
- Cash from financing was $58.9 million, versus $82.8 million. Year-end cash and cash equivalents were $72.9 million, up from $41.9 million.
- Long-term debt was $911.8 million at year-end, compared with $842.0 million a year earlier; other notes payable totaled $32.9 million. The company reported $867.4 million of variable-rate borrowings and a 4.6% weighted-average interest rate for FY2022. Interest-rate hedges covered $588.1 million of debt, according to management.
- The amended ABL facility had a $175 million commitment, no borrowings outstanding at year-end, and $163.0 million available net of letters of credit. A $88.1 million real-estate term loan was added in 2022; it is secured by real estate and has a ten-year maturity.
- The company reported compliance with financial covenants at year-end. It declared $17.6 million in 2022 cash dividends; the board expected a 2023 annual dividend of at least $0.228 per Class A share, subject to its discretion and applicable restrictions.
Material changes, outlook and risks
- Management said U.S. salty-snack retail sales grew 15.8% in 2022, while Utz retail sales grew 16.6%, with growth driven in part by pricing and new distribution. The company expects input-cost inflation to continue in 2023; it is relying on pricing, purchasing and hedging, productivity and efficiency initiatives to offset costs. No formal FY2023 revenue or earnings guidance is stated in the supplied text.
- In April 2022, Utz bought a Kings Mountain, North Carolina manufacturing facility for $38.4 million and issued 2.1 million Class A shares to affiliates of the seller for $28.0 million. Distributor buyouts and contract terminations resulted in $23.0 million of expense. A natural disaster damaged a smaller facility; production was shifted to other facilities and co-manufacturers, and insurance proceeds partially offset costs and damage.
- In December 2022, Howard Friedman became CEO; Dylan Lissette transitioned to Executive Chairman, with a later move to non-executive chairman planned for Q2 2023.
- Key risks include commodity, freight and labor inflation; the possibility that price increases reduce volumes; competition and changing consumer preferences; reliance on retailers and third-party distribution networks; supply-chain and manufacturing disruption; and variable-rate debt. A 1% increase in commodity prices would, according to the filing, reduce gross profit by approximately $5.0 million; a 1% SOFR increase would add approximately $2.8 million of annual interest expense on unhedged debt.
- The company must pay eligible tax savings to certain holders under a tax receivable agreement (TRA), generally at an 85% rate. The recorded TRA liability was $25.4 million; the filing also describes $14.4 million of projected obligations not recorded because the related tax benefits were not considered more likely than not to be realized.
- Grant Thornton issued unqualified opinions on the financial statements and internal control over financial reporting; management also concluded controls were effective as of year-end. The filing notes a prior financial-statement restatement in May 2021 and a previously identified and remediated material weakness.
Investor verification points
- Reconcile reported sales growth to price/mix, underlying volume, acquired sales, SKU rationalization and IO discounts; assess whether pricing can be sustained without materially reducing demand.
- Track gross margin and Adjusted EBITDA margin, including inflation recovery, productivity benefits and the effects of distributor conversions; review the non-GAAP reconciliation.
- Review debt maturities, interest-rate exposure, hedge terms, covenant headroom and liquidity needs alongside planned capital spending and dividends.
- Assess inventory and operating-cash-flow conversion, particularly after the substantial year-over-year inventory increase.
- Monitor insurance recoveries and costs from the facility damage, distributor buyouts, and the realization and payment timing of TRA obligations.
- Check subsequent filings for 2023 guidance, dividend decisions, CEO transition developments and any changes in the inflation, supply-chain or demand outlook.