Utz Brands(US:UTZ)2022-05-12 10:38Market Overview - The U.S. salty snacks category is valued at $31 billion, with a compound annual growth rate (CAGR) of approximately 7.1% from 2017 to 2021, and retail sales increased by 13.4% for the thirteen weeks ended April 3, 2022 [119][120]. - The company's retail sales grew by 18.1% during the same period, outperforming the overall market [120]. Acquisitions and Growth - The company completed several acquisitions, including the purchase of Vitner's for approximately $25.2 million, Festida Foods for about $40.3 million, and RW Garcia for approximately $57.8 million [127][128][129]. - Net sales for the thirteen weeks ended April 3, 2022, were $340.8 million, an increase of $71.6 million or 26.6% compared to $269.2 million for the same period in 2021, driven by acquisitions and a favorable price/mix of 9.4% [135]. - Organic net sales increased by 20.7% for the thirteen weeks ended April 3, 2022, excluding the impacts of acquisitions and increased IO discounts [136]. Financial Performance - Gross profit for the thirteen weeks ended April 3, 2022, was $103.8 million, up from $95.2 million in the prior year, with a gross profit margin of 30.5% compared to 35.4% in 2021 [139][140]. - Selling, distribution, and administrative expenses rose to $126.7 million, a 46.2% increase from $86.7 million in the prior year, primarily due to acquisition and integration costs [141]. - Net loss for the thirteen weeks ended April 3, 2022, was $31.9 million, compared to a net loss of $23.3 million for the same period in 2021 [147]. - Adjusted EBITDA for the thirteen weeks ended April 3, 2022, was $36.5 million, representing 10.7% of net sales, down from $37.9 million or 14.1% in the prior year [147]. Cost and Inflation - The company expects gross input cost inflation to be in the mid-teens for fiscal 2022, an increase from previous expectations of low-teens [130]. - The company has experienced rising costs related to fuel, freight rates, and labor, negatively impacting profitability [130]. Debt and Financing - The weighted average interest rate for the company’s debt was 3.9% for the thirteen weeks ended April 3, 2022, up from 3.7% in the prior year [124]. - The company had $841.2 million in variable rate indebtedness as of April 3, 2022, with interest rate hedges covering $500 million of debt [125]. - The company entered into a Bridge Credit Agreement for $490.0 million to finance the acquisition of Truco and IP Purchase, with an outstanding balance of $370.0 million as of January 3, 2021 [154]. - The company raised $720 million in Term Loan B, bearing interest at LIBOR plus 3.00%, and extended the maturity to January 20, 2028 [155]. - Total long-term debt was reported at $864.1 million as of April 3, 2022, compared to $841.9 million as of January 2, 2022 [158]. Cash Flow and Operating Activities - Net cash used in operating activities was $36.0 million for the thirteen weeks ended April 3, 2022, compared to $13.2 million in the same period in 2021, largely due to distributor buyouts [150]. - The consolidated cash balance, including cash equivalents, was $14.9 million as of April 3, 2022, a decrease of $27.0 million from January 2, 2022 [150]. Route and Distribution Management - The conversion of company-owned routes to independent operator (IO) models has resulted in a mix of approximately 89% IOs and 11% route sales professionals (RSPs) as of April 3, 2022 [132]. - The company anticipates completing the conversion of remaining routes by the end of fiscal year 2022, which will reduce selling and administrative costs [132]. - The company purchases and sells distribution routes as part of maintaining its DSD network, recording gains/losses based on the difference between sale price and asset carrying value [172]. Tax and Accounting - The company follows ASC 740 for income tax accounting, recognizing current tax liabilities and deferred tax assets based on temporary differences, with no unrecognized tax benefits reported as of April 3, 2022 [181]. - Business combinations are evaluated to determine if they should be accounted for as a business combination or asset acquisition, requiring significant judgment in the application of the screen test [182]. - The acquisition method is used for accounting acquired businesses, with assets and liabilities recorded at estimated fair values at the acquisition date, and excess purchase price recorded as goodwill [183]. Goodwill and Intangible Assets - Goodwill and indefinite-lived intangible assets are not amortized but are tested for impairment at least annually, with no significant impairment identified for the snack food operations as of April 3, 2022 [178]. - The company has early adopted Accounting Standards Update 2017-04, simplifying the test for goodwill impairment, recording impairment charges based on the excess of a reporting unit's carrying amount over fair value [176]. - Finite-lived intangible assets are amortized over their estimated useful lives and tested for impairment only when indicators are present [174].