Utz Brands Reports Third Quarter 2021 Financial Results

Utz Brands, Inc. (NYSE: UTZ) (“Utz” or the “Company”), a leading U.S. manufacturer of branded salty snacks, today reported the unaudited financial results for the Company’s fiscal third quarter ended October 3, 2021.

“Consumer demand remains strong as our sales growth accelerated and we delivered two-year market share gains in the third quarter. Our top-line strategies are working as we drove faster growth on our Power Brands, expanded our presence in key salty snack sub-categories, improved our performance in our Core geographies and the Mass channel, and continued our geographic expansion,” said Dylan Lissette, Chief Executive Officer of Utz.

Mr. Lissette continued, “As we face rising inflation that is impacting earnings in the short-term, we continue to implement pricing actions that will have a carry-over benefit in 2022. And while we expect high inflation and transportation challenges to continue into 2022, we are actively deploying our value creation strategies, and we remain confident in our long-term growth outlook. I am incredibly proud of our dedicated team as we navigate through this dynamic operating environment.”

Third Quarter 2021 Financial Highlights

Third Quarter Growth Highlights

For the 13-week period ended October 3, 2021, the Company’s retail sales as measured by IRI MULO-C increased 9.5% on a two-year CAGR basis versus the Salty Snack Category growth of 8.3% for the same period. The Company’s Power Brands’ retail sales increased 11.1% on a two-year CAGR basis and increased to 87% of the Company’s retail sales. Power Brands’ sales growth during the two-year period was led by Utz®, ON THE BORDER®, Zapp’s®, TORTIYAHS!®, Golden Flake® Pork Skins, Hawaiian®, and TGI Fridays®. Consistent with the Company’s expectations, the two-year CAGR retail sales of the Company’s Foundation Brands were essentially flat reflecting the continued strategy to focus its resources on its Power Brands.

IRI Retail Sales Growth Summary⁽¹⁾

Third Quarter 2021 Financial Results

See the description of the Non-GAAP financial measures mentioned in this press release and reconciliations of the Non-GAAP adjusted measures to the GAAP measures in the tables that accompany this release. In addition, see the description of the periods representing the Predecessor and Successor periods in the Company's Form 10-Q for the fiscal quarter ended, October 3, 2021.

Net sales in the quarter increased 26.1% to $312.7 million compared to $248.0 in the third quarter of 2020. The increase in net sales was driven by acquisitions of +25.1% and Organic Net Sales growth of 1.0%. Organic Net Sales growth was driven by favorable price/mix of +4.2%, and this was partially offset by volume declines of (2.2%) and the Company’s continued shift to independent operators (“IO”) and the resulting increase in sales discounts associated with this that impacted net sales growth by (1.0%). Excluding the impact to net sales from the shift to independent operators, Organic Net Sales would have increased 2% versus last year.

Pro Forma Net Sales increased 1.4% to $312.7 million as compared to Pro Forma Net Sales of $308.3 million in the third quarter of 2020. The year-over-year Pro Forma Net Sales growth rate assumes the Company owned H.K. Anderson, Truco Enterprises, and Festida Foods on the first day of fiscal 2020, and that the Company owned Vitner’s on the first day of fiscal February 2020.

Pro Forma Net Sales increased 6.4% on a two-year CAGR basis, which is an improvement from 6.1% in the second quarter. The third quarter Pro Forma Net Sales two-year CAGR assumes the Company owned Kennedy Endeavors, Kitchen Cooked, H.K. Anderson, Truco Enterprises and Festida Foods on the first day of fiscal 2019, and that the Company owned Vitner’s on the first day of fiscal February 2019.

Gross profit was $102.6 million, or 32.8% as a percentage of net sales. Adjusted Gross Profit increased 12.7% to $111.8 million, or 35.8% as a percentage of net sales, compared to Adjusted Gross Profit of $99.2 million, or 40.0% as a percentage of net sales, in the prior-year period. The decrease in Adjusted Gross Profit as a percentage of net sales was primarily driven by higher commodity, transportation, and labor inflation, which are collectively the result of industry-wide supply chain challenges. Additionally, the Company estimates that the continued shift to independent operators impacted Adjusted Gross Margins by approximately 100 basis points, but with offsetting benefits in Selling, General, and Administrative (“SG&A”) expense. These headwinds were partially offset by higher net price realization, improved mix, and ongoing benefits from the Company’s productivity programs.

Net income of $31.4 million increased compared to a net loss of $(25.3) million in the prior-year period. Adjusted Net Income in the third quarter of 2021 increased 40.7% to $25.6 million compared to Adjusted Net Income of $18.2 million in the prior-year period.

Adjusted EBITDA increased 17.3% to $44.8 million, or 14.3% as a percentage of net sales, compared to Adjusted EBITDA of $38.2 million, or 15.4% as a percentage of net sales, in the prior-year period. The decrease in Adjusted EBITDA margin was driven by the Adjusted Gross Profit as a percentage of sales performance as described above, partially offset by lower SG&A expenses as a percentage of sales versus the prior-year period.

Third Quarter 2021 Balance Sheet and Cash Flow Highlights

• As of October 3, 2021, the Company had $26.0 million of cash on hand and $133.0 million available under its revolving credit facility, providing liquidity in excess of $159.0 million.
  • Expect to use balance sheet cash and revolving credit facility to fund the $56 million cash purchase price for the previously announced acquisition of R.W. Garcia, LLC and related entities.
• Net debt of $796.4 million as of October 3, 2021, resulting in a Pro Forma Net Leverage ratio of 4.7x based on trailing twelve months Normalized Further Adjusted EBITDA of $170.2 million.
• Capital expenditures of $17.8 million for the 39-week period ended October 3, 2021; capital expenditures are expected to accelerate in the fourth quarter to support the Company’s productivity initiatives.

Fiscal Year 2021 Outlook

For the 52-week fiscal year ending January 2, 2022, the Company continues to expect fiscal 2021 net sales to be consistent with fiscal 2020 Pro Forma Net Sales⁽¹⁾ with modest organic sales growth year over year. The Company’s projected pro forma two-year CAGR for fiscal 2021 of approximately 6% is above the Company’s long-term organic growth outlook of 3 – 4%.

In addition, the Company’s fiscal 2021 earnings outlook reflects rising supply chain cost inflation, a more favorable tax rate, and lower interest expense, than previously expected. The Company now expects to towards the low-end of its previous Adjusted EBITDA expectations and is reaffirming its Adjusted Earnings Per Share expectations. The Company’s previous earnings outlook ranges are presented below:

• Adjusted EBITDA of $160 – $170 million⁽²⁾
• Adjusted Earnings Per Share of $0.55 – $0.60⁽³⁾

In addition to the risks and uncertainties identified under “Forward-Looking Statements,” the Company’s 2021 guidance is estimated based on the following assumptions, and all changes versus the Company’s previous assumptions as of August 12, 2021, are noted below:

• Unchanged Assumptions
  • Funded $25 million Vitner's acquisition in February 2021 with cash on hand
  • Funded $41 million Festida Foods acquisition in June 2021 with revolving credit facility
  • Incremental term loan of $75 million to pay down revolver and put cash on the balance sheet
  • Productivity of approximately 2% of cost of goods sold
  • Net leverage ratio of approximately 4.5x by end of fiscal 2021⁽⁴⁾
  • Capital expenditures of approximately $40 million to drive productivity efforts
  • Fully diluted shares on an as-converted basis of approximately 142 million
  • ~200 Independent Route (“IO”) conversions

• Updated Assumptions
  • Commodity inflation of approximately 7%
  • Higher transportation costs than previously expected in 2Q’21
  • Core D&A of $25 – $27 million and step-up D&A of $50 – $53 million (comprised of approximately 40% cost of goods sold and 60% SG&A expense)
  • Fund approximately $15 million toward acquiring and vertically integrating multiple third-party distribution rights
  • Cash interest expense of approximately $30 million⁽⁵⁾
  • Effective cash tax rate of 15.0% - 17.0% (% of pre-tax book income)⁽⁶⁾

With respect to projected fiscal year 2021 Adjusted EBITDA and Adjusted Earnings Per Share, a quantitative reconciliation is not available without unreasonable efforts due to the high variability, complexity, and low visibility with respect to certain items, which are excluded from Adjusted EBITDA, and which are excluded from Adjusted Earnings per Share. We expect the variability of these items to have a potentially unpredictable, and potentially significant, impact on our future financial results.

Conference Call and Webcast Presentation

The Company is issuing its third quarter results today in light of the SEC closure tomorrow in observance of the Veteran’s Day holiday. The Company will continue as planned to host its conference call to discuss these results tomorrow, Thursday, November 11, at 8:30 a.m. Eastern Time. Please visit the “Events & Presentations” section of Utz’s Investor Relations website at https://investors.utzsnacks.com to access the live listen-only webcast and presentation.

Participants can also dial in over the phone by calling 1 (888) 510-2008 from North America and 1 (646) 960-0306 internationally. The Event Plus passcode is 1774171. The Company has also posted presentation slides and additional supplemental financial information, which are available now on Utz’s Investor Relations website.

A replay will be archived online and is also available telephonically approximately two hours after the call concludes through Thursday, November 18th, 2021, by dialing 1 (800) 770-2030 from North America, or 1 (647) 362-9199 from international locations, and entering confirmation code 1774171.

About Utz Brands, Inc.

Utz Brands, Inc. (NYSE: UTZ) manufactures a diverse portfolio of savory snacks through popular brands including Utz®, ON THE BORDER® Chips & Dips, Golden Flake®, Zapp’s®, Good Health®, Boulder Canyon®, Hawaiian® Brand, and TORTIYAHS!®, among others.

After a century with a strong family heritage, Utz continues to have a passion for exciting and delighting consumers with delicious snack foods made from top-quality ingredients. Utz’s products are distributed nationally through grocery, mass merchandisers, club, convenience, drug and other channels. Based in Hanover, Pennsylvania, Utz operates fifteen facilities located in Pennsylvania, Alabama, Arizona, Illinois, Indiana, Louisiana, Massachusetts, Michigan and Washington. For more information, please visit www.utzsnacks.com or call 1-800-FOR-SNAX.

Investors and others should note that Utz announces material financial information to its investors using its investor relations website (investors.utzsnacks.com), SEC filings, press releases, public conference calls and webcasts. Utz uses these channels, as well as social media, to communicate with our stockholders and the public about the Company, the Company’s products and other issues. It is possible that the information that Utz posts on social media could be deemed to be material. Therefore, Utz encourages investors, the media, and others interested in the Company to review the information posted on the social media channels listed on Utz’s investor relations website.

Forward-Looking Statements

This press release includes certain statements that are not historical facts but are “forward-looking statements” within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, as amended. The forward-looking statements generally are accompanied by or include, without limitation, statements such as “will”, “expect”, “intends”, “goal” or other similar words, phrases or expressions. These forward-looking statements include the expected effects from the COVID-19 pandemic, future plans for Utz Brands, Inc. and its direct and indirect subsidiaries (“UBI”), the estimated or anticipated future results and benefits of the Company’s future plans and operations, future capital structure, future opportunities for UBI, including the planned acquisition of R.W. Garcia, and other statements that are not historical facts. These statements are based on the current expectations of the Company’s management and are not predictions of actual performance. These statements are subject to a number of risks and uncertainties and UBI’s business and actual results may differ materially. Factors that may cause such differences include, but are not limited to: the risk that the recently completed business combinations and acquisitions recently completed by the Company (collectively, the “Business Combinations”) disrupt plans and operations; the ability to recognize the anticipated benefits of such Business Combinations, which may be affected by, among other things, competition and the ability of the Company to grow and manage growth profitably and retain its key employees; the outcome of any legal proceedings that may be instituted against UBI following the consummation of such Business Combinations; the ability of UBI to close planned acquisitions; changes in applicable law or regulations; costs related to the Business Combinations and other planned acquisitions; the inability of the Company to maintain the listing of the Company’s Class A Common Stock on the New York Stock Exchange; the inability of the Company to develop and maintain effective internal controls; the risk that the Company’s gross profit margins may be adversely impacted by a variety of factors, including variations in raw materials pricing, retail customer requirements and mix, sales velocities and required promotional support; changes in consumers’ loyalty to the Company’s brands due to factors beyond the Company’s control; changes in demand for the Company’s products affected by changes in consumer preferences and tastes or if the Company is unable to innovate or market its products effectively; costs associated with building brand loyalty and interest in the Company’s products, which may be affected by the Company’s competitors’ actions that result in the Company’s products not suitably differentiated from the products of competitors; fluctuations in results of operations of the Company from quarter to quarter because of changes in promotional activities; the possibility that the Company may be adversely affected by other economic, business or competitive factors; and other risks and uncertainties set forth in the section entitled “Risk Factors” and “Forward-Looking Statements” in the Company’s Annual Report on Form 10-K/A filed with SEC for the fiscal year ended January 3, 2021 and other reports filed by the Company with the Commission. In addition, forward-looking statements provide the Company’s expectations, plans or forecasts of future events and views as of the date of this communication. Except as required by law, the Company undertakes no obligation to update such statements to reflect events or circumstances arising after such date, and cautions investors not to place undue reliance on any such forward-looking statements. These forward-looking statements should not be relied upon as representing the Company’s assessments as of any date subsequent to the date of this communication. The Company cautions investors not to place undue reliance upon any forward-looking statements, which speak only as of the date made. The Company does not undertake or accept any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements to reflect any change in its expectations or any change in events, conditions or circumstances on which any such statement is based, except as otherwise required by law.

Non-GAAP Financial Measures and Other Key Measures:

Utz uses non-GAAP financial information and believes it is useful to investors as it provides additional information to facilitate comparisons of historical operating results, identify trends in our underlying operating results and provides additional insight and transparency on how we evaluate the business. We use non-GAAP financial measures to budget, make operating and strategic decisions, and evaluate our performance. These non-GAAP financial measures do not represent financial performance in accordance with GAAP and may exclude items that are significant in understanding and assessing financial results. Therefore, these measures should not be considered in isolation or as an alternative to net income, cash flows from operations or other measures of profitability, liquidity or performance under GAAP. You should be aware that the presentation of these measures may not be comparable to similarly-titled measures used by other companies.

Management believes that non-GAAP financial measures should be considered as supplements to the GAAP reported measures, should not be considered replacements for, or superior to, the GAAP measures and may not be comparable to similarly named measures used by other companies. We believe that these non-GAAP measures of financial results provide useful information to investors regarding certain financial and business trends relating to the financial condition and results of operations of the Company to date and that the presentation of non-GAAP financial measures is useful to investors in the evaluation of our operating performance compared to other companies in the salty snack industry, as similar measures are commonly used by the companies in this industry. These non-GAAP financial measures are subject to inherent limitations as they reflect the exercise of judgments by management about which expense and income are excluded or included in determining these non-GAAP financial measures. The non-GAAP financial measures are not recognized in accordance with GAAP and should not be viewed as an alternative to GAAP measures of performance.

Utz uses the following non-GAAP financial measures in its financial communications, and in the future could use others:

• Pro Forma Net Sales
• Organic Net Sales
• Adjusted Gross Profit
• Adjusted Gross Profit as % of Net Sales (Adjusted Gross Profit Margin)
• Pro Forma Gross Profit
• Pro Forma Adjusted Gross Profit
• Adjusted Selling, General, and Administrative Expense
• Adjusted Selling, General and Administrative Expense as % of Net Sales
• Adjusted Net Income
• Adjusted Earnings Per Share
• EBITDA
• Adjusted EBITDA
• Adjusted EBITDA as % of Net Sales (Adjusted EBITDA Margin)
• Further Adjusted EBITDA
• Further Adjusted EBITDA as % of Pro Forma Net Sales (Further Adjusted EBITDA Margin)
• Normalized Further Adjusted EBITDA

Pro Forma Net Sales is defined as net sales including the historical net sales relating to the pre-acquisition periods of H.K. Anderson, Truco Enterprises, Vitner’s, and Festida Foods acquisitions, assuming that the Company acquired H.K. Anderson, Truco Enterprises, and Festida Foods on the first day of the applicable fiscal year, and that the Company owned Vitner’s on the first day of fiscal February of the applicable fiscal year.

Organic Net Sales is defined as net sales excluding the impact of acquisitions.

Adjusted Gross Profit represents Gross Profit excluding Depreciation and Amortization expense, a non-cash item. In addition, Adjusted Gross Profit excludes the impact of costs that fall within the categories of non-cash adjustments and non-recurring items such as those related to stock-based compensation, hedging and purchase commitments adjustments, asset impairments, acquisition, and integration costs, business transformation initiatives, and financing-related costs. Adjusted Gross Profit is one of the key performance indicators that our management uses to evaluate operating performance. We also report Adjusted Gross Profit as a percentage of Net Sales as an additional measure for investors to evaluate our Adjusted Gross Profit margins on Net Sales.

Pro Forma Gross Profit is defined as Gross Profit including the historical Gross Profit relating to the pre-acquisition periods of H.K. Anderson, Truco Enterprises, Vitner’s, and Festida Foods acquisitions, assuming that the Company acquired H.K. Anderson, Truco Enterprises, and Festida Foods on the first day of the applicable fiscal year, and that the Company owned Vitner’s on the first day of fiscal February of the applicable fiscal year.

Pro Forma Adjusted Gross Profit is defined as Adjusted Gross Profit including the historical Adjusted Gross Profit relating to the pre-acquisition periods of H.K. Anderson, Truco Enterprises, Vitner’s, and Festida Foods acquisitions, assuming that the Company acquired H.K. Anderson, Truco Enterprises, and Festida Foods on the first day of the applicable fiscal year, and that the Company owned Vitner’s on the first day of fiscal February of the applicable fiscal year.

Adjusted Selling, General, and Administrative Expense is defined as all Selling, General, and Administrative expense excluding Depreciation and Amortization expense, a non- cash item. In addition, Adjusted Selling, General and Administrative Expenses exclude the impact of costs that fall within the categories of non-cash adjustments and non-recurring items such as those related to stock-based compensation, hedging and purchase commitments adjustments, asset impairments, acquisition and integration costs, business transformation initiatives, and financing-related costs. We also report Adjusted Selling, General and Administrative Expense as a percentage of Net Sales as an additional measure for investors to evaluate our Adjusted Selling, General, and Administrative margin on Net Sales.

Adjusted Net Income is defined as Net Income excluding the additional Depreciation and Amortization expense, a non-cash item, related to the Business Combination with Collier Creek Holdings and the acquisitions of Kennedy Endeavors, Kitchen Cooked, Inventure, Golden Flake, and Truco Enterprises. In addition, Adjusted Net Income is also adjusted to exclude deferred financing fees, interest income, and expense relating to IO loans and certain non-cash items, such as those related to stock-based compensation, hedging, and purchase commitments adjustments, asset impairments, acquisition and integration costs, business transformation initiatives, remeasurement of warrant liabilities and financing-related costs. Lastly, Adjusted Net Income normalizes the income tax provision to account for the above-mentioned adjustments.

Adjusted Earnings Per Share is defined as Adjusted Net Income (as defined, herein) divided by the weighted average shares outstanding for each period on a fully diluted basis, assuming the Private Placement Warrants are net settled and the Shares of Class V Common Stock held by Continuing Members is converted to Class A Common Stock.

EBITDA is defined as Net Income before Interest, Income Taxes, and Depreciation and Amortization.

Adjusted EBITDA is defined as EBITDA further adjusted to exclude certain non-cash items, such as stock-based compensation, hedging and purchase commitments adjustments, and asset impairments; acquisition and integration costs; business transformation initiatives; and financing-related costs. Adjusted EBITDA is one of the key performance indicators we use in evaluating our operating performance and in making financial, operating, and planning decisions. We believe Adjusted EBITDA is useful to the users of this release and financial information contained in the release in the evaluation of Utz’s operating performance compared to other companies in the salty snack industry, as similar measures are commonly used by companies in this industry. We have historically reported an Adjusted EBITDA metric to investors and banks for covenant compliance. We also provide in this release, Adjusted EBITDA as a percentage of Net Sales, as an additional measure for readers to evaluate our Adjusted EBITDA margins on Net Sales.

Further Adjusted EBITDA is defined as Adjusted EBITDA after giving effect to pre-acquisition Adjusted EBITDA of H.K. Anderson, Truco Enterprises, Vitner’s, and Festida Foods acquisitions. We also report Further Adjusted EBITDA as a percentage of Pro Forma Net Sales as an additional measure to evaluate our Further Adjusted EBITDA margins on Pro Forma Net Sales. This definition does not include adjustments for estimated unrealized cost synergies, estimated unrealized public company costs or trade spend normalization, as reflected in Normalized Further Adjusted EBITDA.

Normalized Further Adjusted EBITDA is defined as Further Adjusted EBITDA including adjustments for estimated unrealized cost synergies related to the acquisition of H.K. Anderson, Truco Enterprises, Vitner’s, and Festida Foods acquisitions. In addition, Normalized Further Adjusted EBITDA also adjusts for estimated unrealized public company costs, and a one-time trade spend normalization adjustment at the end of 2019.

Management believes that the non-GAAP financial measures are meaningful to investors because they increase transparency and assists investors to understand and analyze our ongoing operational performance. The financial measures are shown as supplemental disclosures in this release because they are widely used by the investment community for analysis and comparative evaluation. They also provide additional metrics to evaluate the Company’s operations and, when considered with both the GAAP results and the reconciliation to the most comparable GAAP measures, provide a more complete understanding of the Company’s business than could be obtained absent this disclosure. The non-GAAP measures are not and should not be considered an alternative to the most comparable GAAP measures or any other figure calculated in accordance with GAAP, or as an indicator of operating performance. The Company’s calculation of the non-GAAP financial measures may differ from methods used by other companies. Management believes that the non-GAAP measures are important to have an understanding of the Company’s overall operating results in the periods presented. The non-GAAP financial measures are not recognized in accordance with GAAP and should not be viewed as an alternative to GAAP measures of performance. As new events or circumstances arise, these definitions could change. When the definitions change, we will provide the updated definitions and present the related non-GAAP historical results on a comparable basis.

(Tables to Follow)

Reconciliation of Non-GAAP Financial Measures to Reported Financial Measures

Net Sales and Pro Forma Net Sales

Gross Profit, Adjusted Gross Profit, Pro Forma Gross Profit and Pro Forma Adjusted Gross Profit

Adjusted Selling, General and Administrative Expense

Adjusted Net Income

Depreciation & Amortization

EBITDA, Adjusted EBITDA, and Further Adjusted EBITDA

Normalized / Further Adjusted EBITDA

Net Debt and Leverage Ratio

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