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Table of Contents

note

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 25, 2021

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________

Commission File Number: 001-40837

Sovos Brands, Inc.

(Exact name of registrant as specified in its charter)

Graphic

Delaware

81-5119352

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

168 Centennial Parkway, Suite 200

Louisville, CO 80027

(Address of principal executive offices) (zip code)

(720) 316-1225

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading symbol

Name of each exchange on which registered

Common Stock, $0.001 par value per share

SOVO

The Nasdaq Stock Market LLC

(Nasdaq Global Select Market)

Securities registered pursuant to section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Date File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant has filed a report on and attestation to its managements assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

Table of Contents

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

The common stock of the registrant has been traded on the Nasdaq Global Select Market under the symbol “SOVO” since September 23, 2021, which is the business day following the pricing of its initial public offering. Accordingly, there was no public market for the registrant’s common equity as of June 26, 2021, the last business day of the registrant’s most recently completed second fiscal quarter.

As of March 15, 2022, there were 100,892,547 shares of common stock, $0.001 par value per share outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Certain portions of the registrant’s definitive proxy statement, in connection with its 2022 annual meeting of stockholders, to be filed within 120 days after the end of fiscal year ended December 25, 2021, are incorporated by reference into Part III of this Annual Report on Form 10‑K.

Table of Contents

SOVOS BRANDS, INC.

FORM 10-K

FOR THE FISCAL YEAR ENDED DECEMBER 25, 2021

INDEX

Page

PART I.

Item 1.

Business

5

Item 1A.

Risk Factors

19

Item IB

Unresolved Staff Comments

46

Item 2.

Properties

46

Item 3.

Legal Proceedings

46

Item 4.

Mine Safety Disclosures

46

PART II.

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

47

Item 6.

Reserved

50

Item 7.

Managements Discussion and Analysis of Financial Condition and Results of Operations

50

Item 7A.

Quantitative and Qualitative Disclosures about Market Risk

69

Item 8.

Financial Statements and Supplementary Data

70

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

109

Item 9A.

Controls and Procedures

109

Item 9B.

Other Information

109

Item 9C.

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

109

PART III.

Item 10.

Directors, Executive Officers and Corporate Governance

110

Item 11.

Executive Compensation

110

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

110

Item 13.

Certain Relationships and Related Transactions, and Director Independence

110

Item 14.

Principal Accountant Fees and Services

110

PART IV.

Item 15.

Exhibits and Financial Statement Schedules

110

Item 16.

Form 10-K Summary

114

Signatures

115

3

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K (“Form 10-K”) contains forward-looking statements. Forward-looking statements can be identified by words, such as “anticipates,” “intends,” “plans,” “seeks,” “believes,” “estimates,” “expects” and similar references to future periods, or by the inclusion of forecasts or projections. Examples of forward-looking statements include, but are not limited to, statements we make regarding the outlook for our future business and financial performance, such as those contained in Part II. Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward-looking statements relate to the future, by their nature, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. As a result, our actual results may differ materially from those contemplated by the forward-looking statements. Important factors that could cause actual results to differ materially from those in the forward-looking statements include regional, national or global political, economic, business, competitive, market and regulatory conditions and the following:

inflation, including our vulnerability to decreases in the supply of and increases in the price of raw materials and labor, manufacturing, distribution and other costs, and our inability to offset increasing costs through cost savings initiatives or pricing;
supply disruptions;
competition in the packaged food industry and our product categories;
the COVID-19 pandemic and associated effects;
our inability to accurately forecast pricing elasticities and the resulting impact on volume growth and/or distribution gains;
our inability to maintain our workforce;
our inability to identify, consummate or integrate new acquisitions or realize the projected benefits of acquisitions;
our inability to effectively manage our growth;
our inability to successfully introduce new products or failure of recently launched products to meet expectations or remain on-shelf;
our inability to expand household penetration and successfully market our products;
erosion of the reputation of one or more of our brands;
issues with the major retailers, wholesalers, distributors and mass merchants on which we rely, including if they give higher priority to other brands or products, perform poorly or declare bankruptcy;
our vulnerability to the impact of severe weather conditions, natural disasters and other natural events on our manufacturing facilities, co-packers or raw material supplies ;
failure by us or third-party co-packers or suppliers of raw materials to comply with food safety, environmental or other laws or regulations, or new laws or regulations;
our dependence on third-party distributors and third-party co-packers, including one co-packer for the substantial majority of our Rao’s Homemade sauce products;
failure to protect, or litigation involving, our tradenames or trademarks and other rights;
our level of indebtedness under our First Lien Credit Agreement (as defined herein), which as of December 25, 2021 was $480.8 million, and our duty to comply with covenants under our First Lien Credit Agreement; and
the interests of Advent International Corporation (“Advent”) may differ from those of public stockholders.

See Part I. Item IA. “Risk Factors” for a further description of these and other factors. For the reasons described above, we caution you against relying on any forward-looking statements, which should also be read in conjunction with the other cautionary statements that are included elsewhere in this Form 10-K. Any forward-looking statement made by us in this Form 10-K speaks only as of the date on which we make it. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.

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Unless the context otherwise requires, “we,” “us,” “our,” the “Company” and “Sovos Brands” refer to Sovos Brands, Inc. and its subsidiaries. The Company’s fiscal year ends on the last Saturday in December of each year and as a result, a 53rd week is added approximately every sixth year. Our fiscal years ended December 25, 2021 (“fiscal 2021”), December 26, 2020 (“fiscal 2020”) and December 28, 2019 (“fiscal 2019”) each have 52 weeks. Our fiscal year ending December 31, 2022 (“fiscal 2022”) will have 53 weeks. Our fiscal quarters are comprised of 13 weeks each, ending on the 13th Saturday of each quarter, except for the 53-week fiscal years for which the fourth quarter will be comprised of 14 weeks, ending on the 14th Saturday of such fourth quarter.

Unless we indicate otherwise or the context otherwise requires, all references in this Form 10-K to our Rao’s brand include our Rao’s Homemade, Rao’s Homestyle and Rao’s Made for Home brands, and all references to our Rao’s products include our Rao’s Homemade pasta sauces (including tomato-based sauces, Alfredo sauces and Pesto sauces), pizza sauces and dry pastas; Rao’s Homestyle meat-based pasta sauces; and Rao’s Made for Home frozen entrées and soups.

PART I.

Item 1. Business

Overview

Sovos Brands is a consumer-packaged food company that acquires and builds disruptive growth brands that bring today’s consumers great tasting food that fits the way they live.

In 2017, our Founder, President and Chief Executive Officer, Todd R. Lachman, together with our Chairman, William R. Johnson, identified an opportunity within the broader food landscape to acquire and build a portfolio of disruptive growth brands whose high-quality products support premium positioning. With the backing of the globally established private equity firm, Advent, Sovos Brands was formed and has become a leading and differentiated premium player within the packaged food industry.

Since our inception, we have been focused on building an organization with the capabilities to acquire, integrate and grow brands as we continue to scale. Our leadership team has extensive experience managing portfolios of global brands at some of the most respected consumer packaged goods (“CPG”) companies. To unlock our full potential, we combined a distinctive mix of industry veterans, entrepreneurs and food lovers and built an inclusinve culture where everyone has a voice. We believe our highly distinctive culture has attracted leading talent from across the CPG landscape to join our team and has meaningfully contributed to our success.

In September 2021, we completed our initial public offering (the “IPO”) and became actively traded on the Nasdaq Global Select Market (“NASDAQ”) listed under the trade symbol of “SOVO.”

Our brands, Rao’s, Michael Angelo’s, noosa and Birch Benders, are built with authenticity at their core, providing consumers food experiences that are genuine, delicious and unforgettable, making each of our brands “one-of-a-kind.” Our products are premium and made with simple, high-quality ingredients.

Our business model is grounded in acquiring “one-of-a-kind” brands and leveraging a common infrastructure and shared playbook to drive growth. Our brands share multiple attributes, including: being delicious, possessing a leading consumer affinity, acting as potential category disruptors in large categories and utilizing brand strength to extend into new categories. Our brands generally over-index with young and family-oriented consumers who have higher disposable incomes. Our consumers are passionate about taste and quality and value clean ingredients according to Company-sponsored third-party studies and have higher basket sizes at retail compared to the category averages. We believe we are

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a strategic and valuable partner to retailers as our brands generally drive incremental sales in our categories according to IRI, the leading provider of industry data and consumer insights, offer better unit economics than key competitors and attract a highly coveted consumer base who are willing to spend more per trip than category averages. Our brands share a common playbook for growth, which is focused on increasing household penetration by:

1.Increasing distribution;
2.Expanding brand awareness;
3.Improving sales and marketing execution; and
4.Innovating into new categories.

Our platform was designed to provide a foundation for future growth and to capture material synergies as we scale and add new brands. Over time, we expect to continue acquiring additional “one-of-a-kind” brands that have our targeted attributes and significant growth potential, and to combine our industry expertise with fresh thinking to bring these brands into more homes.

Our portfolio is diversified across brands and categories, with exposure to all meal occasions, especially breakfast and dinner where we believe consumers have the highest propensity to purchase food for their homes.

Our principal executive offices are located at 168 Centennial Parkway, Suite 200, Louisville, Colorado, 80027. Our telephone number is (720) 316-1225. We maintain a web site at www.sovosbrands.com.

Our Brands and Products

Our portfolio currently consists of four brands: Rao’s, Michael Angelo’s, noosa and Birch Benders. Our brands offer premium, on-trend and high-quality products in a variety of product categories and appeal to consumers for consumption in a broad range of situations, including breakfast, lunch, snacks and dinner. We completed the acquisitions of Bottom Line Food Processors, Inc. d/b/a Michael Angelo’s Gourmet Foods and Rao’s Specialty Foods (“Rao’s” or “RSF”) in January 2017 and July 2017, respectively, and our single sales and supply chain organization supported the rapid functional integration of the Michael Angelo’s and Rao’s brands. We completed the acquisition of 100% of the outstanding capital stock of Noosa Holdings, Inc. (the “Noosa Acquisition”) in November 2018, and in October 2020, we completed the acquisition of the Birch Benders business (the “Birch Benders Acquisition”). Rao’s brand net sales has grown over 480% since 2017. For discussion of brand net sales see “—Non-GAAP Financial Measures” within Part II. Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” With noosa, we leveraged synergies to gain greater scale, and noosa net sales increased by 6.5% since 2020. Our robust platform is capable of purchasing and rapidly integrating brands across temperature states, providing a broad aperture to identify potential brand targets.

Rao’s

The iconic Rao’s brand was established as a consumer-packaged food brand in 1991 with a storied New York City heritage. The Rao’s brand offers a selection of Rao’s Homemade pasta sauces (including tomato-based sauces, Alfredo sauces and Pesto sauces), pizza sauces and dry pastas; Rao’s Homestyle meat-based pasta sauces; and Rao’s Made for Home frozen entrées and soups. Rao’s sauces are simmered slowly and made in small batches with only high-quality ingredients, like pure olive oil and hand-picked, naturally ripened tomatoes from southern Italy. Our sauces have no tomato blends, no paste, no water, no fillers and no added sugar. Rao’s was the fastest-growing center store brand of scale from 2018 through 2020. The household penetration of Rao’s sauce products has increased from 1.3% in the 52 weeks ended January 3, 2016 to 10.9% in the 52 weeks ended December 26, 2021, and Rao’s sauce products captured 13.2% of the pasta and pizza sauce dollar market share, making Rao’s the #3 pasta and pizza sauce brand by dollar market share in the

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52 weeks ended December 26, 2021. In the 4 weeks ended December 26, 2021, Rao’s sauce captured 15.4% of the pasta and pizza sauce brand by dollar market share, making Rao’s the #2 pasta and pizza sauce brand by dollar market share.

Michael Angelo’s

Michael Angelo’s was founded in 1983 with original Italian recipes that had been passed down for generations. Michael Angelo’s frozen products include a variety of signature dishes, such as eggplant parmesan, lasagna made with fresh Ricotta cheese, shrimp scampi and other pastas, for a homemade taste. We believe that our Michael Angelo’s brand is a leading producer of premium frozen entrées inspired by Italian traditions. The household penetration of Michael Angelo’s frozen dinners was 5.3% in the 52 weeks ended December 26, 2021, and Michael Angelo’s captured 1.6% of the frozen entrée dollar market share, making Michael Angelo’s the #14 brand by dollar market share, in the 52 weeks ended December 26, 2021.

noosa

An Australian expatriate co-founded Noosa Yoghurt in 2008 with a fourth-generation Colorado dairy farmer. In 2010, Noosa Yoghurt began selling yogurt at Colorado farmers markets and local Whole Foods stores. Our noosa brand offers a suite of delicious yogurt products, including spoonable yogurts and drinkable smoothies. noosa products are creamy and delicious and made with high-quality ingredients, such as whole milk from cows never treated with the growth hormone rBGH, real fruit and wildflower honey. noosa products are outperforming the spoonable and drinkable yogurt category in terms of dollar growth in the 52 weeks ended December 26, 2021. The household penetration of noosa yogurts was 7.9% in the 52 weeks ended December 26, 2021, and noosa captured 2.7% of the yogurt dollar market share, making noosa the #11 yogurt manufacturer by dollar market share in the 52 weeks ended December 26, 2021. In fiscal 2022, noosa launched into the ice cream category with noosa frozen yogurt gelato.

Birch Benders

Birch Benders was founded in 2011 with the idea of making pancakes that are restaurant quality and easier than from scratch. Birch Benders’ product offerings of “clean ingredient” breakfast foods and snacks includes pancake and waffle mixes, baking mixes and frosting, cups, syrups and frozen waffles that cater to a variety of lifestyles, including organic, plant-based, protein, “paleo” and “keto” diets. Birch Benders entered two new categories nationally in 2021. According to data from SPINS, Birch Benders is the largest pancake and waffle mix brand in the Natural and Specialty channel based on dollar sales in the 52 weeks ended December 26, 2021. The household penetration of Birch Benders pancake and waffle mixes and frozen waffles was 2.6% and 1.1%, respectively, in the 52 weeks ended December 26, 2021, and Birch Benders captured 4.6% of the pancake and waffle mix dollar market share, making Birch Benders the #8 pancake and waffle mix brand by dollar market share, in the 52 weeks ended December 26, 2021. The Birch Benders Acquisition was completed in October 2020.

Our Customers

We sell our products to customers primarily in the United States and principally to retail outlets and wholesale distributors, including traditional supermarkets, mass merchants, warehouse clubs, wholesalers, specialty food distributors, military commissaries and non-food outlets, such as drug store chains, dollar stores and e-commerce retailers. In fiscal 2021, approximately 1% of our gross sales were to international customers. We believe that the strength of our brands and our premium, on-trend and high-quality product portfolio make us a strategic partner for our customers and that we have opportunities for international growth. We utilize our direct sales force and brokers as well as third-party distributors, some of whom also purchase our products directly for their own accounts for resale, for the sale and distribution of our products.

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In fiscal 2021, our largest customers, Costco Wholesale Corporation (“Costco”), Walmart Inc. (“Walmart”) and United Natural Foods, Inc. (“UNFI”), accounted for approximately 18%, 13% and 11%, respectively, of our gross sales, and our top four largest customers together accounted for approximately 49% of our gross sales.

Marketing, Advertising and Consumer Research

We utilize a variety of marketing channels to drive household penetration and brand awareness through paid, earned and owned marketing channels. We focus our marketing efforts on building an authentic connection with our consumers. We primarily use digital marketing and dedicate the majority of our marketing expenditures to paid advertising on digital marketing channels through videos, e-commerce advertisements, paid search, paid social advertisements and branded content. We also engage with consumers through social media “influencers,” public relations outreach to editors, and incentives such as coupons or other advertising placed on or near our products in stores.

Digital Advertising

Our digital marketing efforts include video advertisements that play as viewers stream content like television shows on online video channels and applications, content and paid social advertisements for social media networks, paid advertisements and paid preferable placement of our products on e-commerce sites, paid advertisements for our brands and products in search results, online and mobile coupons and promotions and paid advertisements on third-party and retailer mobile sites, third-party and retailer  websites and in-store near our products or at check-outs to drive purchases of our products. In addition, we maintain an active email program, which we leverage to deliver information on new product launches and promotions for our Rao’s, noosa and Birch Benders brands, and we maintain registered domains at www.sovosbrands.com, www.raos.com, www.noosayoghurt.com, www.birchbenders.com and www.michaelangelos.com, which serve to communicate news about our brands directly to consumers who access our websites and social media sites and to address questions, comments or concerns about our products. From January 1, 2021 to December 31, 2021, the websites for our Rao’s, noosa and Birch Benders brands collectively had an average of approximately 260,000 visitors per month according to Google Analytics.

Social Media, Influencers, Earned Media and Branded Content

We have an active presence on social media platforms, including Facebook, Instagram and Twitter, to connect with our consumers for each of our brands. For example, we showcase our products and feature recipes on our brands’ Instagram accounts. We also partner with a number of social media “influencers” who generate further awareness of our brands through sponsored content, such as custom posts and “micro-sweeps” or giveaway offerings, on various social media platforms. We focus on selecting social media “influencers” who are real-life, approachable fans with whom our consumers can relate as well as chefs and experts on food or dietary lifestyles. In fiscal 2021, we estimate that our influencers and social channels delivered 11 million impressions for our brands. In addition, we utilize public relations outreach to editors and journalists, partner with companies to create branded content featuring our brand names or products and collaborate from time to time with celebrities or chefs to promote and endorse our products. Our paid marketing efforts are supplemented by earned media when editors, journalists, celebrities and consumers feature our brands and products in their articles, recipes, and posts as well as by word-of-mouth recommendations of our products. In fiscal 2021, we estimate that earned media efforts generated approximately 8 billion impressions for our brands.

Raw Materials, Ingredients and Packaging

We purchase raw materials, including agricultural products, whole milk, tomatoes, cheese, animal proteins, and other ingredients, such as fruit preparations, from growers, commodity processors, ingredient suppliers and other food companies located primarily in the United States. We also purchase packaging materials, including tubs, caps and lids, trays, labels, corrugated cardboard, cartons and other packaging, from packaging manufacturers located primarily in the United States. The principal raw materials we purchase for our products include whole milk, fruit preparations, tubs and

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lids, cheese, tomatoes, animal proteins and folding cartons. The co-packers we use for production of our Rao’s, Michael Angelo’s, noosa and the significant majority of our Birch Benders products independently schedule and purchase the raw materials, ingredients and packaging they use in manufacturing our products, although we may provide some packaging (such as labels) for our Rao’s co-packers. Under certain arrangements with co-packers for our other Birch Benders products, we purchase and supply the raw materials, ingredients and packaging to our co-packers. In the future, these Birch Benders’ co-packers may independently schedule and purchase the raw materials, ingredients and packaging that they use in manufacturing our products. We purchase the majority of our packaging materials under contracts that include escalator and de-escalator formulas for the purchase of the raw materials used in our packaging, which include resin, paperboard and aluminum.

The profitability of our business relies in substantial part on the prices we and our co-packers pay for these and other raw materials, ingredients and packaging materials, which can fluctuate due to a number of factors, including changes in weather, crop size, cattle cycles, crop disease and crop pests, commodity market fluctuations, such as those caused by supply and demand, costs of carrying stock and inventory and government subsidies, natural disasters and crude oil prices. In addition, certain materials required for the manufacture of our products, such as glass and aluminum, have been or may be impacted by tariffs. The availability and cost of certain raw materials, including resin, aluminum, glass, animal protein, agricultural products and other commodities, have been adversely impacted by the COVID-19 pandemic because of increased demand and supply constraints due to reduced production shifts and labor shortages, among other factors, and have also been adversely impacted by current global geopolitical tensions, including relating to Ukraine.

Fluctuations in commodity prices can lead to retail price volatility and intensive price competition, as well as influence consumer and trade buying patterns. We attempt to manage some of the risks of increased costs of raw materials, ingredients, packaging and other costs related to the production of our products by entering into supply contracts that offer price and supply certainty and implementing cost-saving programs.

Production and Manufacturing

Manufacturing

We operate two manufacturing facilities for our products. We produce our Rao’s Made for Home and Michael Angelo’s frozen products in Austin, Texas and we produce all noosa spoonable yogurts in Bellvue, Colorado. See Item 2. “Properties.”

Co-Packing Arrangements

In addition to our own manufacturing facilities, we source a significant portion of our products under “co-packing” arrangements, a common industry practice in which manufacturing is outsourced to other companies. Co-packing arrangements generally offer flexibility and improved speed to market by leveraging equipment and technology already in place. Our co-packer La Regina di San Marzano USA, Inc. (together with its subsidiaries and affiliates, “La Regina”) currently produces the substantial majority of our Rao’s Homemade tomato-based sauce products in Italy and is establishing a manufacturing facility in Alma, Georgia that will use imported Italian tomatoes for the production of our tomato-based sauces. We have entered into an agreement that provides La Regina the exclusive rights to be the third-party supplier of certain of our tomato-based sauce products when manufacturing begins in the United States. We have the right to purchase the La Regina U.S. facility under certain circumstances. Our U.S. agreement with La Regina has a base term ending December 31, 2031, with five-year extensions (unless three years’ notice of non-renewal is provided), and limits La Regina’s ability to produce products for other brands. Our Italy agreement with La Regina has a base term ending December 31, 2027, with a seven-year extension (unless three years’ notice of non-renewal is provided), and limits La Regina’s ability to produce products for other brands. We also use co-packers located in the United States and Italy to supplement our supply of Rao’s Homemade tomato-based sauce products and for the production of our Rao’s Homestyle tomato-based sauces with meat as well as our Rao’s Homemade Alfredo sauces and Pesto sauces. We use co-packers

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located in the United States, Italy and Canada for our Rao’s Made for Home soups. For our Rao’s Homemade dry pastas, we use a co-packer in Italy. All of our Birch Benders products are produced by co-packers located in the United States and Belgium. The remainder of our noosa products, including fruit smoothies, are each produced by a different co-packer located in the United States. We may leverage a co-packer located in the United States from time to time to supplement our in-house production of select Michael Angelo’s products.

All of the companies with which we have co-packing arrangements produce products for other companies as well as for us, except for La Regina, which produces sauce products exclusively for us and their own branded products. Most of our co-packers may periodically pass production cost adjustments as well as ingredients and packaging adjustments based on market pricing on to us. Our contract with La Regina is set as a fixed pricing model, subject to adjustment for foreign exchange fluctuations, although we may from time-to-time make adjustments in that arrangement. We believe that there are alternative sources of co-packing production available for the majority of our products, although we may experience disturbances in our operations and delays in delivery or production or higher costs if we are required to change our co-packing arrangements unexpectedly. We monitor capacity and performance of our co-packers and seek to qualify alternate suppliers as needed.

Distribution and Logistics

We distribute our products to our customers’ distribution centers directly from our production facilities, our co-packers’ production facilities or from warehouses operated by third-party logistics (“3PL”) providers. Certain of our customers are also distributors. With respect to the noosa spoonable yogurts that we produce at our Bellvue, Colorado production facility, we distributed 64% by weight directly to our customers in fiscal 2021. With respect to the Rao’s Made for Home and Michael Angelo’s frozen products that we produce at our Austin, Texas production facility, we distributed 21% by weight directly to our customers in fiscal 2021. In fiscal 2019, we increased our frozen warehousing capacity at our Austin, Texas facility to reduce our reliance on third-party warehouses as part of a productivity savings initiative. The remainder of the products we produce in Bellvue, Colorado and Austin, Texas, as well as our noosa drinkable smoothies, certain Rao’s and Michael Angelo’s products and our Birch Benders products, are distributed through 3PL warehouses. In addition, some of our customers, including some that are distributors, pick up certain of our products from our 3PL providers’ warehouses or from our co-packers’ production facilities. Customers, including those that are distributors, picked up approximately 96% of our Rao’s shelf-stable products in fiscal 2021. To the extent we do not deliver products directly to customers or customers do not pick up our products, our products are delivered from 3PL warehouses to our customers via common carrier.

Due in part to the different demands of distribution for frozen, refrigerated and shelf-stable products, each of our brands currently utilizes a different 3PL network. As part of our ongoing integration of the Birch Benders business, we plan to utilize existing 3PL relationships for distribution of shelf-stable Birch Benders products in the future. We partner with two 3PL providers with locations in Fontana, California and Edison, New Jersey for distribution of our Rao’s products, one 3PL provider located in Fort Morgan, Colorado for distribution of our noosa products, three 3PL providers with locations in Romeoville, Illinois, Woodridge, Illinois and Hobart, Indiana for distribution of our Birch Benders products and one 3PL provider located in Dallas, Texas for distribution of our Rao’s Made for Home and Michael Angelo’s products. We have warehouse agreements with our 3PL providers that we believe provide us with adequate flexibility and capacity to accommodate incremental product volume.

We also sell and distribute shelf-stable Rao’s and Birch Benders products directly to consumers through our websites and Amazon.

Research and Development

Innovation, including new product development, is a key component of our growth strategy. We have a demonstrated track record of extending our product offerings into other categories. A team of food and culinary scientists, food engineers

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and microbiologists work to develop products to meet identified opportunities. In addition to developing new products, our research and development team regularly reformulates existing products based on advances in ingredients, equipment, materials and technology as well as to facilitate cost reduction initiatives, improve our products and support ownership of recipes. In addition to our Company-sponsored research and development activities, in order to quickly and economically introduce our new products to market or supplement our internal expertise, we may partner with contract manufacturers that make our products according to our formulas or other specifications. We also supplement our internal expertise from time to time with innovation consultants and our ingredient and material suppliers. Our research and development team also provides technical services, providing input on production line design, initial production runs on new equipment and start-up runs for new products at our facilities and some of our co-packers. We plan to complete the improvements to our research and development facility in Austin, Texas in the second quarter of 2022, investing a total of approximately $1.1 million of capital, and we expect that we will continue to build our research and development capabilities in order to support our current brands, any future acquired brands and entrance into new categories.

Intellectual Property

We believe that brand awareness is a significant component in a consumer’s decision to purchase one product over another in the highly competitive consumer products industry. We believe the protection and enforcement of our trademarks, copyrights, domain names, trade dress, unpatented proprietary expertise, recipes and formulations and other proprietary rights are important to our success. To establish and protect our proprietary rights, we rely on a combination of trademark law, copyright law, trade dress, domain names, confidentiality procedures, employee disclosure and invention assignment agreements and other intellectual property laws and contractual rights.

We own or have the rights to use a number of trademarks, brand names and other proprietary rights that are important to our business and consumer awareness of our brands. We own registered trademarks for our principal product brand names in the United States, including “Rao’s,” “Rao’s Homemade,” “Rao’s Homemade Since 1896,” “noosa,” “noosa finest yoghurt,” “Birch Benders,” “Micro-Pancakery” and “Michael Angelo’s,” and various logos used in association with these terms. We have also applied for or obtained trademark registrations for many of our principal product brand names internationally, including in Canada, the European Union, the United Kingdom and select countries in Asia. We own domain names which correspond to our primary brand names, including www.raos.com, www.noosayoghurt.com, www.birchbenders.com and www.michaelangelos.com. In addition, we rely on copyrights and proprietary expertise, recipes and formulations, as well as continuing innovation, to develop and maintain our competitive position.

Our subsidiary, RSF, is party to a worldwide co-existence agreement (the “Co-Existence Agreement”) with an unaffiliated third party, Rao’s Bar & Grill, Inc. (“RBG”), that governs each party’s rights to use and register trademarks consisting of or compromising Rao’s and associated logos (collectively, the “Rao’s Marks”). Pursuant to the Co-Existence Agreement, RSF owns the right to use and register the Rao’s Marks in connection with foods, food products, beverages, sauces and related goods and services (including, without limitation, cookbooks and online and retail store services), while RBG owns the right to use and register the Rao’s Marks in connection with restaurant and bar services, including the Rao’s restaurant in New York City which is not affiliated with us. RSF and RBG have agreed to reimburse one another for reasonable cooperation and assistance in connection with actions relating to any unauthorized or improper use of a Rao’s Mark. Further, each of RSF and RBG’s obligations under the Co-Existence Agreement last until the other party abandons all rights in each of its Rao’s Marks, and the Co-Existence Agreement may not otherwise be terminated by RSF or RBG.

In March 2018, Noosa Yoghurt acquired from Queensland Yoghurt International Pty Ltd. (“Queensland”) the intellectual property rights for the “Added Fat Vat Set” yoghurt formula and process, together with all improvements (the “IP”), which Queensland had previously licensed to Noosa Yoghurt on an exclusive basis in the United States, Mexico, Canada and the Caribbean Islands. As a result of this purchase, Noosa Yoghurt has worldwide ownership of the IP for “Added Fat Vat Set” yoghurt (i.e., yoghurt product that has a milk fat content of 4.5% or more manufactured using a vat set fermentation process), subject to (i) certain pre-existing rights with respect to such IP granted to (a) a Queensland affiliate for exclusive use in Australia and (b) Hauraki Dairy Limited for exclusive use in Japan, New Zealand, Singapore

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and certain Pacific Islands and (ii) a nonexclusive, worldwide, perpetual, irrevocable and fully-paid license to Queensland to use the IP to manufacture and sell products other than “Added Fat Vat Set” yoghurt (e.g., frozen yoghurt, low-fat yoghurt or other dairy products).

Food Safety and Quality Assurance

Food safety and product quality are essential to the successful distribution of our products. Food   safety and product quality begin in the design phase of new products and continue as we establish the supply chain and commercialization of the products. We employ FDA Compliant Food Safety Plans or USDA Compliant Hazard Analysis and Critical Control Points (“HACCP”) for our products at each of our manufacturing facilities. To monitor product quality at our facilities, we maintain quality control programs to test products during various processing stages. We use quality control laboratories in both of our manufacturing facilities to test certain raw ingredients for qualities, such as the presence of antibiotics in milk, and test finished products for microbiological, nutrient and analytical composition, such as pH value and viscosity. We also conduct on-site assessments of our co-packers to address topics, such as food safety plans, allergen control, ingredients, packaging and product specifications and sanitation.

In addition, both of our facilities have achieved a Safe Quality Food, or SQF, certification under the Global Food Safety Initiative (“GFSI”). GFSI standards are integrated food safety and quality management protocols designed specifically for the food sector and offer a comprehensive methodology to manage food safety and quality. Certification provides an independent and external validation that a product, process or service complies with applicable regulations and standards. Although inspection delays associated with the COVID-19 pandemic may impact our, and our co-packers’ GFSI certifications, we believe that we, and all of our co-packers, remain in compliance with GFSI requirements.

Competition

The packaged food industry is highly competitive. We compete with large multi-brand consumer packaged food companies, smaller product-focused companies, emerging companies and dairy products- and dairy alternative-focused companies. Numerous brands and products, including private label products and insurgent brands, compete for shelf space and sales, with competition based primarily on product quality and taste, convenience, price, trade promotion, brand recognition and loyalty, customer service, effective consumer advertising and promotional activities and the ability to identify and satisfy emerging consumer preferences.

Competing large, multi-brand consumer packaged food companies include B&G Foods, Inc., Barilla Holding S.p.A., Campbell Soup Company, Conagra Brands, Inc., Continental Mills, Inc., General Mills, Inc., The Hain Celestial Group, Inc., the J.M. Smucker Company, the Kellogg Company, The Kraft Heinz Company, Mizkan Holdings, Nestle S.A. and PepsiCo, Inc. These competitors are large, multinational corporations with substantial financial, marketing, research and development and other resources. Smaller product-focused companies that we compete with include Amy’s Kitchen, Bob’s Red Mill Natural Foods, Inc., G.L. Mezzetta, Inc., Kodiak Cakes, LLC, Newman’s Own, Inc. and Van’s International Foods. Smaller and more product-focused competitors may be more innovative and able to bring new products to market faster and more quickly exploit and serve niche markets or new or burgeoning consumer preferences, and smaller insurgent brands may develop a customer base and consumer loyalty quickly. In addition, we compete against companies focused on dairy and dairy-alternative products, such as Chobani, LLC, Danone S.A., Fage International S.A. and The Lactalis Group.

Given limited retailer shelf space, competitors actively support their respective brands with marketing, advertising and promotional spending. In addition, most retailers offer private label products that also compete for retail shelf space and consumer purchases. We believe that consumers are increasingly willing to pay a premium for quality, great-tasting products and that we are well-positioned to compete with a wide range of packaged food brands and other companies.

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Seasonality

We have experienced, and expect to continue to experience, fluctuations in our quarterly results of operations due to the seasonal nature of our business. Consumer purchasing patterns are impacted by seasonal factors, including weather and holidays. Seasonality could cause our results of operations for an interim financial period to fluctuate and not be indicative of our full year results. Seasonality also impacts relative net sales and profitability of each quarter of the year, both on a quarter-to-quarter and year-over-year basis.

Environmental, Social and Governance

We are focused on growing our business sustainably by delivering long-term value for our customers, suppliers, stockholders, employees and the communities where we live and work. We are committed to incorporating environmental, social and related governance (“ESG”) principles into our business strategies and organizational culture. As a newly public company, we are in the process of building our ESG framework.

Human Capital, Employees and Labor Relations

As of December 25, 2021, we had 608 full-time employees, with 211 salaried employees and 397 hourly employees. None of our employees are represented by a labor union or covered under a collective bargaining agreement, and we have never experienced a labor-related work stoppage.

Our Culture, Vision, Mission and Values

At Sovos we are dedicated to bringing today’s consumers simple, great-tasting food that fits the way they live.

We have established six guiding principles to be the pillars at the core of how we work, including Lead with Courage and Tenacity, Focus on Quality, Obsess with the Front Line, Communicate with Candor and Respect, Be Nimble, and Enjoy the Ride.

These guiding principles were identified specifically to separate us from the pack, inspire excellence and remind us to have some fun along the way. We value our employees and believe that employee loyalty and engagement are key elements of our operating performance.

We monitor our progress toward achieving our human capital resources objectives by regularly measuring human capital metrics, such as turn-over and retention of our employees.

Training and Development

We are focused on building a training and development program that will enable employees to further develop their success and careers at Sovos.

Commitment to Diversity, Equity and Inclusion

As of December 25, 2021, approximately 42% of our employees were women and approximately 50% of our employees were racially diverse.

Further, as of December 25, 2021, approximately 37% of the members of our board of directors (the “Board”) were women, and approximately 25% were racially diverse.

To improve diversity, equity and inclusion, we are committed to interviewing diverse candidates for open corporate leadership positions and require every employee to attend training on preventing discrimination and harassment.

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Total Rewards

Our human capital resources objectives include identifying, recruiting, retaining, incentivizing and integrating our existing and new employees. The principal purpose of our cash incentive plan is to attract, retain and reward personnel across our company through the granting of cash-based compensation awards, which are intended to increase stockholder value and the success of our company by motivating such individuals to perform to the best of their abilities and achieve our objectives. Our equity-based incentive plan has a similar purpose, and equity awards have historically been given to executives, senior management and directors.

Benefits

Our employee benefits vary by region and generally include:

medical, dental and vision benefits;
401(k) with Company match;
commuter benefits;
wellness initiatives;
paid time off;
tuition reimbursement; and
paid parental leave, including for births, adoptions or placements of foster children.

Employee Safety and Wellbeing

Employee safety at our two manufacturing facilities is a top priority. We develop and administer policies designed to ensure the safety of our manufacturing personnel and compliance with Occupational Safety and Health Administration (“OSHA”) standards. This includes regular safety training and assessments, annual safety audits and regularly informing our executives and Board of OSHA-reportable incidents.

Employee safety has been a priority throughout the COVID-19 pandemic. We have strict protocols in place designed to minimize risk to all employees. Our actions are intended to be consistent with the latest information from the Centers for Disease Control and Prevention (“CDC”), OSHA, United States Department of Agriculture (“USDA”), the Food and Drug Administration (“FDA”) and local health departments. COVID-19 safety measures at our manufacturing facilities have included fever-scans; requiring all employees to wear masks; training employees on good hygiene practices designed to minimize infection and/or spread of virus; implementing social distancing strategies; barriers to further separate employees from one another; deep cleaning and disinfection; requiring all sick employees to stay home from work; some on-site COVID-19 testing and COVID-19 educational programs.

In general, employees who are non-essential to our manufacturing operations have been working from home during the COVID-19 pandemic.

Segments

Our operations are organized into two operating segments, (1) Dinner and Sauces and (2) Breakfast and Snacks. Our Dinner and Sauces operating segment includes Rao’s and Michael Angelo’s and our Breakfast and Snacks operating segment includes noosa and Birch Benders. Due to similar economic characteristics between the two operating segments, Dinner and Sauces and Breakfast and Snacks are aggregated into one single reporting segment. The operating segments are also similar in the following areas: (a) the nature of the products, (b) the nature of the production processes, (c) the methods used to distribute products to customers, (d) the type of customer for the products and (e) the nature of the regulatory environment.

Regulation and Compliance

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The manufacture and sale of consumer food products is highly regulated. Our operations are subject to extensive regulation by the FDA, the USDA, the United States Environmental Protection Agency and various other federal, state, local and foreign authorities where our products are sold. We are also subject to laws regulating labor and employment; advertising and privacy; health and safety regulations; and laws affecting operations outside of the United States, including anti-bribery laws, such as the FCPA.

Food-Related Regulations

As a manufacturer and distributor of food products, we are subject to a number of food-related regulations, including the Federal Food, Drug and Cosmetic Act and regulations promulgated thereunder by the FDA, as well as the Federal Meat Inspection Act, Poultry Products Inspection Act and regulations promulgated thereunder by the USDA for meat and poultry products. This comprehensive regulatory framework governs the manufacture (including composition and ingredients), labeling, packaging and safety of food in the United States. Both the FDA and the USDA regulate manufacturing practices for foods through food safety regulations, specify the standards of identity for certain foods, including many of the products we sell, and prescribe the format and content of certain information required to appear on food product labels. Our manufacturing facility in Austin, Texas is subject to regular inspection by the USDA, and our products containing meat and poultry are subject to USDA regulation. The USDA has jurisdiction over our Rao’s Homemade, Rao’s Made for Home, Rao’s Homestyle and Michael Angelo’s sauces, soups and frozen entrées containing at least 3% raw or 2% cooked meat or poultry, and our and our U.S. co-packers’ facilities producing these products are subject to inspection by the USDA, with an inspector regularly present in our establishment when it is producing meat or poultry products. The FDA has jurisdiction over all of our other products with less than 3% raw or 2% cooked meat or poultry content and conducts inspections on a more intermittent basis.

We are also subject to the FDA Food Safety Modernization Act, which, among other things, amended the Federal Food, Drug, and Cosmetic Act to require FDA-regulated food facilities to develop and implement a written food safety plan including a hazard analysis and preventive controls program to minimize or prevent food safety hazards. The FDA also enforces the Public Health Service Act and regulations issued thereunder, which authorizes regulatory activity necessary to prevent the introduction, transmission or spread of communicable diseases. In addition, the USDA requires that establishments under its jurisdiction develop and implement HACCP plans, which require establishments to conduct a hazard analysis and implement critical control points to reduce or eliminate reasonably foreseeable food safety hazards, and Sanitation Standard Operating Procedures, which detail procedures to ensure sanitary conditions in the establishment. We are subject to numerous other federal, state and local regulations involving such matters as the licensing and registration of our manufacturing facilities, enforcement by government health agencies of standards for our products, inspection of our facilities and regulation of our trade practices in connection with the sale of food products.

We believe our facilities and manufacturing practices are in material compliance with all material government regulations applicable to our business.

Labeling Regulations

We are subject to various labeling requirements with respect to our products at the federal, state and local levels. At the federal level, the FDA has authority to review product labels, labeling and, increasingly, website and social media content, the FTC has the primary authority to regulate advertising materials, including online and television advertisements, to determine if advertising materials are misleading, while the USDA requires producers of USDA-regulated products to obtain premarket approval of labels. In addition, we are subject to various state and local consumer protection laws, including laws that allow for private class action litigation challenges to the labeling, marketing and advertising of foods. Labeling for our products must also comply with the Bioengineered Food Disclosure Standard. We are also subject to the disclosure requirements of California’s Proposition 65, which requires businesses to provide warnings prior to any exposures to a chemical listed by California as a carcinogen or as having reproductive or developmental effects, including food products.

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We believe we are in material compliance with all material labeling laws and regulations applicable to our business.

Milk Regulations

The FDA publishes the Grade A Pasteurized Milk Ordinance (the “PMO”), which includes administrative and technical requirements for production, transportation, processing, handling, sampling, examination, labeling and sale of all Grade “A” milk. Some of our products containing milk, including our yogurt products, are subject to compliance with the PMO, in addition to the above-described general regulatory requirements for manufacturing foods. Our products are also subject to manufacturing and labeling requirements for dairy products under state laws, including California state law, which do not always mirror federal requirements.

In addition, the federal government establishes minimum prices that we must pay to producers in federally regulated areas for raw milk. Raw milk delivered to our facilities is tested to determine the percentage of butterfat and other milk components, and we pay our suppliers for the raw milk based on the results of these tests. The federal government’s minimum prices for Class II milk vary depending on the processor’s geographic location or sales area and the type of product manufactured. Federal minimum prices change monthly. Class II raw skim milk prices (which are the minimum prices we are required to pay for raw milk that is processed into Class II products, such as yogurt) for each month are announced by the federal government during the immediately preceding month. Some states have established their own rules for determining minimum prices for raw milk. In addition to the federal or state minimum prices, we also may pay producer premiums, procurement costs and other related charges that vary by location and supplier.

We believe that we are in material compliance with all material milk regulations applicable to our business.

Employee Safety Regulations

We are subject to certain occupational health and safety laws, regulations and directives, including regulations issued pursuant to the U.S. Occupational Safety and Health Act, which require us to comply with certain manufacturing safety standards to protect our employees from accidents and injuries. Our operations are subject to various federal, state and local standards and requirements with respect to the COVID-19 pandemic, which may change rapidly and with little notice.  

We believe that we are in material compliance with all material employee safety regulations applicable to our business.

Environmental Regulations

We are subject to various local, state and federal environmental laws, regulations and directives that regulate, among other things, environmental protection and the use, generation, storage, handling, release and disposal of hazardous substances, including the Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery Act, the Federal Insecticide, Fungicide and Rodenticide Act and the Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended, and analogous state laws. As a food manufacturer, our primary environmental compliance obligations relate to wastewater and solid waste generated by our manufacturing operations and ammonia and Freon used in our refrigerant systems, all of which are subject to special handling requirements. If we fail to comply with such laws, regulations and directives or fail to obtain and comply with any requisite permits, we could face substantial fines and penalties, possible revocation of our permits or the imposition of limitations or prohibitions on our operations.

We believe that we are in material compliance with the material environmental laws, regulations and directives applicable to our business; however, there can be no assurance that we are in full compliance with all environmental laws, regulations and directives or that we will be able to comply with any future requirements or changes in such laws, regulations and directives without significant costs. We do not expect the cost of our continued compliance to have a material impact on our capital expenditures, earnings, cash flows or competitive position in the foreseeable future;

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however, new environmental laws or regulations may be enacted or environmental laws may change or become more stringent over time. If that happens, we do not know whether such changes would require us to make significant, but currently unexpected expenditures.

Company Website and Available Information

Our primary corporate website can be found at www.sovosbrands.com. We make available free of charge at the Investors portion of this website (under the "Investors—SEC Filings" caption) all of our reports (including amendments) filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including our annual report on Form 10-K, our quarterly reports on Form 10-Q and our current reports on Form 8-K. These reports are made available on the website as soon as reasonably practicable after their filing with, or furnishing to, the Securities and Exchange Commission (the “SEC”).

All websites appearing in this Annual Report on Form 10-K are inactive textual references only, and the information in, or accessible through, such websites is not incorporated into this Annual Report on Form 10-K, or into any of our other filings with the SEC.

Information about Our Executive Officers.

The names, ages (as of March 15, 2022), current positions and background information of our executive officers are included below.

Name

Age

Position

Todd R. Lachman

58

Founder, President and Chief Executive Officer; Director

Christopher W. Hall

61

Chief Financial Officer

Kirk A. Jensen

47

Chief Operating Officer

Wendy K. Behr

53

Chief Research and Development Officer

Risa Cretella

42

Executive Vice President and Group General Manager

Katie J. Gvazdinskas

43

Chief Human Resources Officer

Isobel A. Jones

54

Chief Legal Officer and General Counsel; Secretary

Lisa Y. O'Driscoll

48

Chief Administrative Officer

Priscilla Tuan

50

Chief Marketing Officer

Todd R. Lachman has served as our President and Chief Executive Officer since January 2017 and has served as a director since January 2017. Prior to joining Sovos, Mr. Lachman served as operating partner of Altamont Capital Partners, a private equity firm, from May 2015 to March 2016 and a senior advisor to Advent from March 2016 to January 2017. For over 30 years, Mr. Lachman has delivered growth and value creation for some of the largest CPG companies in the United States. Prior to May 2015, Mr. Lachman served as global president of Mars Petcare, served as president of Mars Chocolate North America and Latin America and held various positions at Del Monte Foods Company, the H.J. Heinz Company and The Procter & Gamble Company. Mr. Lachman currently serves on the board of a private company. He earned his B.A. in economics and art history from Colby College and his M.B.A. from the Northwestern University Kellogg School of Management.

Christopher W. Hall has served as our Chief Financial Officer since November 2019. Prior to joining Sovos, Mr. Hall served as chief financial officer of Woodbolt Distribution LLC (Nutrabolt), a nutritional life science company, from March 2017 to November 2019 and chief financial officer of Sabra Dipping Company, LLC, a producer of refrigerated dips and spreads, from April 2015 to March 2017. Prior to April 2015, Mr. Hall held various positions for PepsiCo, Inc. and its operating divisions and subsidiaries, including Quaker Foods North America, Frito-Lay Canada and Frito-Lay, Inc. He earned his B.A. in marketing from Indiana University and his M.B.A. from the University of Texas.

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Kirk A. Jensen has served as our Chief Operating Officer since January 2022. Mr. Jensen also served as our Chief Supply Chain Officer from May 2019 to January 2022. Prior to joining Sovos, Mr. Jensen served as chief supply chain officer and vice president of manufacturing of Snyder’s-Lance, Inc. from April 2017 to April 2018 and from March 2016 to April 2017, respectively. Mr. Jensen also held various management positions for Diamond Foods, Inc., a snack food and culinary nut company, from December 2010 to March 2016. Prior to December 2010, Mr. Jensen held various positions for Darigold, Inc. and Frito-Lay, Inc. He earned his B.S. in electrical engineering from Oregon State University.

Wendy K. Behr has served as our Chief R&D Officer since October 2020. Prior to joining Sovos, from September 2019 to October 2020, Ms. Behr served as product and supply innovation consultant of Concept to Commercialization Integrated Solutions, a growth and innovation business consultancy. Ms. Behr served as vice president, coffee R&D and packaging innovation of Keurig Dr. Pepper Inc., a beverage company, from February 2018 to October 2019 and senior vice president, R&D and corporate sustainability of WhiteWave Foods Company, a consumer packaged food and beverage company, from January 2013 to December 2017. Prior to January 2013, Ms. Behr held various positions for Diageo plc, Kraft Foods, Inc. and Givaudan Roure. She earned her B.S.in chemical engineering from the University of Illinois and her master of nutrition science of policy and certificate in graduate studies in sustainable agriculture and food systems from Tufts University.

Risa Cretella manages our Dinners and Sauces operating segment and has served as our Executive Vice President and Group General Manager since April 2020. From September 2018 until March 2020, Ms. Cretella served as our Senior Vice President, Group Manager. Ms. Cretella joined us as General Manager, Rao’s Homemade in April 2018. Prior to joining Sovos, Ms. Cretella served as senior vice president of marketing and frozen leadership brands and held various other management positions for Pinnacle Foods, Inc., a manufacturer, marketer and distributor of high-quality branded food products, from January 2013 to March 2018. Prior to January 2013, Ms. Cretella held various positions for the J.M. Smucker Company. She earned her B.A. in marketing from the University of Notre Dame and her M.B.A. from Kent State University.

Katie J. Gvazdinskas has served as our Chief Human Resources Officer since July 2021. Ms. Gvazdinskas also served as our Vice President, People and Organization from February 2019 to July 2021. Prior to joining Sovos, Ms. Gvazdinskas served as vice president of global talent management and total rewards for Crocs, Inc., a casual footwear retailer, from July 2014 to June 2017. Prior to July 2014, Ms. Gvazdinskas held various management positions for Crocs, Inc. She earned her B.A. in liberal arts and sciences at Northern Arizona University.

Isobel A. Jones has served as our Chief Legal Officer and General Counsel since February 2020 and has served as our Secretary since June 2020. Prior to joining Sovos, Ms. Jones served as general counsel of Sun Basket, Inc., an e-commerce food company, from June 2017 to July 2019. Ms. Jones was a contract attorney for the law firm of  BraunHagey  & Borden LLP from September 2016 to June 2017. She served as executive vice president and general counsel for Diamond Foods, Inc. from October 2014 to February 2016. Prior to October 2014, Ms. Jones served as general counsel and secretary of Annie’s, Inc. and vice president, general counsel and secretary of Peet’s Coffee and Tea, Inc. She earned her A.B. in East Asian studies and economics from Harvard University and her J.D. from Harvard Law School.

Lisa Y. O’Driscoll has served as our Chief Administrative Officer since July 2021. Ms. O’Driscoll also served as our Chief People Officer from May 2019 to July 2021 and our Senior Vice President, People, Organization and Business Integration from February 2017 to May 2019. Prior to joining Sovos, Ms. O’Driscoll served as principal, M&A/human capital of Ernst & Young, a network of firms that provide assurance, tax, transaction and advisory services, from May 2016 to January 2017 and a director of Willis Tower Watson PLC, a global advisory, broking and solutions company, from May 2012 to May 2016. Prior to May 2012, Ms. O’Driscoll held various management positions for Diamond Foods, Inc. and Willis Tower Watson PLC. She earned her B.S.W. from Campbell University.

Priscilla Tuan has served as our Chief Marketing Officer since January 2022. Ms. Tuan also served as our Senior Vice President Marketing from April 2017 to December 2021 and General Manager from December 2017 to September

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2018. Prior to joining Sovos, Ms. Tuan served as a senior director at The Clorox Company from December 2014 to March 2017 and held various other leadership positions at The Clorox Company across commercial, marketing, innovation and sales since June 2007. Ms. Tuan also served as the Executive Sponsor for the Clorox Asian American Employee Resource Group and as a trustee of The Clorox Foundation from March 2015 to March 2017. Ms. Tuan earned her B.A. in English & American literature and political science from Brown University and an M.B.A. from Stanford University Graduate School of Business.

Item 1A. Risk Factors

An investment in our common stock involves a high degree of risk. Before investing in our common stock, you should carefully consider each of the following risk factors, as well as all other information contained in this Form 10-K, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The occurrence of any of the following risks could materially and adversely affect our business, financial condition, results of operations, in which case the trading price of our common stock could decline and you could lose all or part of your investment.

Summary of Risk Factors

Our business is subject to a number of risks and uncertainties including those described at length below. These risks include, among others, the following which we consider to be our most material risks:

Inflation, including our vulnerability to decreases in the supply of and increases in the price of raw materials and labor, manufacturing, distribution and other costs, and our inability to offset increasing costs through cost savings initiatives or pricing;
supply disruptions;
competition in the packaged food industry and our product categories;
the COVID-19 pandemic and associated effects;
our inability to accurately forecast pricing elasticities and the resulting impact on volume growth and/or distribution gains;
our inability to maintain our workforce;
our inability to identify, consummate or integrate new acquisitions or realize the projected benefits of acquisitions;
our inability to effectively manage our growth;
our inability to successfully introduce new products or failure of recently launched products to meet expectations or remain on-shelf;
our inability to expand household penetration and successfully market our products;
erosion of the reputation of one or more of our brands;
issues with the major retailers, wholesalers, distributors and mass merchants on which we rely, including if they give higher priority to other brands or products, perform poorly or declare bankruptcy;
our vulnerability to the impact of severe weather conditions, natural disasters and other natural events on our manufacturing facilities, co-packers or raw material supplies;
failure by us or third-party co-packers or suppliers of raw materials to comply with food safety, environmental or other laws or regulations, or new laws or regulations;
our dependence on third-party distributors and third-party co-packers, including one co-packer for the substantial majority of our Rao’s Homemade sauce products;
failure to protect, or litigation involving, our tradenames or trademarks and other rights;
our level of indebtedness under our First Lien Credit Agreement, which as of December 25, 2021 was $480.8 million, and our duty to comply with covenants under our First Lien Credit Agreement (as defined herein); and
the interests of Advent may differ from those of public stockholders.

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Risks Related to Our Business and Our Industry

We are vulnerable to decreases in the supply of and increases in the price of ingredients and other materials and labor, manufacturing, distribution and other costs, and we may not be able to offset increasing costs through cost savings initiatives or pricing.

We purchase raw materials, including agricultural products, whole milk, almond and other flours, tomatoes, cheese, chicken and meat, and other ingredients, such as fruit preparations, from growers, commodity processors, ingredient suppliers and other food companies located primarily in the United States. We also purchase packaging materials, including tubs, caps and lids, trays, labels, corrugated cardboard, cartons and other packaging, from packaging manufacturers located primarily in the United States. Our co-manufacturers also purchase ingredients and packaging materials and can pass along cost increases to us subject, in some instances, to certain contractual limitations. Ingredients and packaging materials are subject to increases in price attributable to a number of factors, including disruptions in supply, global geopolitical tensions, other political unrest, tariffs, sanctions, trade disputes, drought and excessive rain, fire, temperature extremes and other adverse weather events, water scarcity, scarcity of suitable agricultural land, crop size, cattle cycles, herd and flock disease, crop disease and crop pests. Certain ingredients used in some of our products are organic or non-GMO, and organic and non-GMO raw materials may be subject to additional pressures from increased demand or greater supply vulnerability. We are particularly vulnerable to agricultural disasters or pestilence resulting in price increases associated with the tomato crops in Italy and the United States, the eggplant crop in the United States and Mexico, the production of milk in the United States, honey production in the United States and Canada and fruit crop supply because of our and our co-packers’ large purchases of these materials. Crop disease or other crop failures and crop pests, such as insects, plant diseases and fungi, as well as herd and flock diseases, such as mad cow disease, swine influenza and avian influenza, and issues impacting pollinators and bee colonies, could impact the cost and availability of the agricultural products, animal proteins and eggs used in our products. Factors associated with the COVID-19 pandemic have resulted in increased demand for and disrupted supply of some ingredients and packaging materials. Factors associated with global geopolitical tensions, including relating to Ukraine, have also disrupted supplies and increased costs. We expect factors associated with COVID-19 and global geopolitical tensions to continue to impact our business and may become more acute, particularly with respect to oil and its related impact on transportation and logistics costs as well as resin costs. Fluctuations in commodity prices can lead to retail price volatility and increased price competition and can influence consumer and trade buying patterns.

In addition, the costs of labor, logistics, manufacturing, energy, fuel and packaging materials and other costs related to the production and distribution of our products can from time to time increase significantly and unexpectedly. We attempt to manage some of these risks by entering into supply contracts and advance commodities purchase agreements from time to time and implementing cost saving measures. Our suppliers may also close (whether permanently or temporarily), causing us to seek suitable suppliers elsewhere. Factors associated with the COVID-19 pandemic have resulted in increased demand for transportation and the availability and cost of transportation for our products have been and could continue to be impacted. Moreover, we are exposed to higher costs in certain areas, such as front-line employee compensation as well as incremental costs associated with newly added health screenings, temperature checks and enhanced cleaning and sanitation protocols to protect our employees, due to the COVID-19 pandemic. Third parties, such as co-packers, suppliers, distributors, retailers and transportation companies, are subject to similar cost pressures and may seek to pass these increased costs on to us. Competition for co-packers, including increased demand for co-packed products, could also increase the costs of manufacturing and packing our products.

Further, if we increase prices to offset higher costs, we could experience lower demand for our products and sales volumes. We recently increased prices for Rao’s sauces and recently announced that we will increase prices for other products in our portfolio, which could adversely impact demand and sales. We may implement additional price increases in the future. To the extent we are unable to offset present and future cost increases related to the production and

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distribution of our products, it could have a material adverse effect on our business, financial condition and results of operations.

The packaged food industry is highly competitive. Our product categories face a high level of competition, which could have a material adverse effect on our business, financial condition and results of operations.

The packaged food industry is highly competitive. Numerous brands and products, including private label products and insurgent brands, compete for shelf space and sales, with competition based primarily on product quality and taste, convenience, price, trade promotion, brand recognition and loyalty, customer service, effective consumer advertising and promotional activities and the ability to identify and satisfy emerging consumer preferences.

We compete with a significant number of companies of varying sizes, including large multi-brand consumer packaged food companies, smaller product-focused companies, emerging companies and dairy products- and dairy alternative-focused companies. Some of our markets are dominated by multinational corporations with greater resources and more substantial operations than us. Many of these large multi-brand competitors have substantial financial, marketing, research and development and other resources and we may not be able to successfully compete for sales to distributors or retailers that purchase from larger competitors. Competing large multi-brand consumer packaged food companies, including B&G Foods, Inc., Barilla Holding S.p.A., Campbell Soup Company, Conagra Brands, Inc., Continental Mills, Inc., General Mills, Inc., The Hain Celestial Group, Inc., the J.M. Smucker Company, the Kellogg Company, The Kraft Heinz Company, Mizkan Holdings, Nestle S.A. and PepsiCo, Inc. may be able to use their resources and scale to respond to competitive pressures and changes in consumer preferences by introducing new products or reformulating their existing products, reducing prices or increasing promotional activities. We also compete with smaller and more product-focused companies, including Amy’s Kitchen, Bob’s Red Mill Natural Foods, Inc., G.L. Mezzetta, Inc., Kodiak Cakes, LLC, Newman’s Own, Inc. and Van’s International Foods, which may be more innovative and able to bring new products to market faster and more quickly exploit and serve niche markets or new or burgeoning consumer preferences. Smaller insurgent brands we compete with may develop a customer base and consumer loyalty quickly. In addition, we compete against companies focused on dairy and dairy-alternative products, such as Chobani, LLC, Danone S.A., Fage International S.A. and The Lactalis Group.

Competitive pressures may restrict our ability to increase prices and maintain such price increases in response to commodity and other cost increases and inflation. Failure to effectively assess, timely change and properly set pricing, promotions or incentives may negatively impact our ability to achieve the objectives of such price increases.

In addition, reduced barriers to entry, easier access to funding and factors associated with the COVID-19 pandemic, such as increased cash flows caused by spikes in consumer demand and efforts by retailers to reduce the numbers of stock-keeping units (“SKUs”) on their shelves, could cause competition to intensify. Our Rao’s Made for Home and Michael Angelo’s frozen products may compete with each other, and most retailers also offer private label products that also compete for retail shelf space and consumer purchases. As a result of competition, retailers may take actions that negatively affect us. Consequently, we may need to increase our marketing, advertising and promotional spending to protect our existing market share. The inability to increase our market share, the loss of market share to our competitors and increased costs associated with increasing our market share or protecting our existing market share could have a material adverse effect on our business, financial condition and results of operations.

The COVID-19 pandemic and associated responses could have a material adverse effect on our business, financial condition and results of operations.

The COVID-19 pandemic has significantly impacted economic activity and markets throughout the world. In response, governmental authorities have implemented numerous measures in an attempt to contain the virus, such as travel bans and restrictions, quarantines, shelter-in-place orders and business shutdowns. Additionally, protests against such measures have disrupted supply chains. Although our business has benefitted from some of these governmental measures,

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the impact and associated responses of the COVID-19 pandemic could have a material adverse effect on our business, financial condition and results of operations in a number of ways, including but not limited to:

shutdown of one or more of our manufacturing, warehousing or distribution facilities, or disruption in our supply chain, including but not limited to as a result of illness, government restrictions or other workforce or supply disruptions;
the failure of third parties on which we rely, including but not limited to third parties that supply our co-packed products, raw materials, packaging materials and other necessary operating materials, to meet their obligations to us, or significant disruptions in their ability to do so;
increased costs and limited supply as well as a strain on our supply chain, which could result from continued increased customer and consumer demand for our products;
labor shortages and increased turnover rates among our employees and third parties on which we rely;
a disruption to the production of our products in Italy and delays in shipment of our products from Italy, including those caused by reduced shipping container availability or congestion at the ports where we or our co-packer do business;
a disruption to our distribution capabilities or to our distribution channels or increased transportation and distribution costs, including those of our suppliers, co-packers, logistics service providers or third-party distributors;
reductions in the availability of one or more of our products as we prioritize the production of other products due to increased demand;
a disruption to the operability or availability of our equipment, including equipment necessary to expand our or our co-packers’ and suppliers’ production capacity or implement cost-savings initiatives;
changes to and delays in our product innovation efforts;
new or escalated government or regulatory responses in markets where we manufacture, sell or distribute our products, or in the markets of third parties on which we rely, which could prevent or disrupt our business operations;
a significant portion of our workforce, including our management team, could become unable to work as a result of illness, or the attention of our management team could be diverted if key employees become ill from COVID-19 and unable to work;
higher costs in certain areas, such as front-line employee compensation, as well as incremental costs associated with newly added health screenings, temperature checks and enhanced cleaning and sanitation protocols to protect our employees, which could continue or could increase in these or other areas;
the temporary inability of consumers to purchase our products due to illness, quarantine or other travel restrictions or financial hardship, decrease in demand due to the easing of governmental authority restrictions and business closings or decrease in pantry-loading activity;
a change in demand for or availability of our products as a result of retailers, distributors or carriers modifying their inventory, fulfillment or shipping practices;
an inability to effectively modify our trade promotion and advertising activities to reflect changing consumer shopping habits due to, among other things, reduced in-store visits and travel restrictions;
a shift in consumer spending as a result of an economic downturn could result in consumers purchasing more generic, private label or lower-price products or foregoing certain purchases altogether;
an increased reliance on our information technology systems due to many employees working remotely, which could cause us to be increasingly susceptible to cyberattacks and other cyber incidents; and
continued business disruptions and uncertainties related to the COVID-19 pandemic for a sustained period of time, which could result in additional delays or modifications to our strategic plans and other initiatives and hinder our ability to achieve anticipated cost savings and efficiency initiatives on the original timelines.

These and other impacts of the COVID-19 pandemic could also have the effect of heightening many of the other risk factors included in this section. The ultimate impact of the COVID-19 pandemic depends on the severity and duration of the pandemic and actions taken by governmental authorities and other third parties in response, each of which is uncertain, rapidly changing and difficult to predict. Any of these disruptions could have a material adverse effect on our business, financial condition and results of operations. Additionally, a decrease in at-home eating after the COVID-19 pandemic or

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reduction of related restrictions could negatively impact the categories in which we compete and demand for our products, which could have a material adverse effect on our business, financial condition and results of operations.

We may have difficulties identifying, consummating or integrating new acquisitions or realizing the projected benefits of acquisitions.

A core part of our strategy is to grow through acquisitions. We successfully completed the Birch Benders Acquisition and the Noosa Acquisition in October 2020 and November 2018, respectively, and we expect to pursue additional acquisitions. However, we may be unable to identify and consummate additional acquisitions, and we may incur significant transaction costs for acquisitions that we do not complete. Brands are often sold through an auction process, and although we may invest significant resources and devote considerable amounts of time to the auction process, we may not be the winning bidder.

In addition, we may not successfully integrate and manage brands that we acquire or achieve anticipated cost savings and targeted synergies from acquisitions in the timeframe we anticipate or at all. Acquisitions involve numerous risks, including difficulties in assimilating and realizing targeted synergies in the sales, distribution, purchasing, manufacturing and warehousing capabilities of the acquired companies, personnel turnover and the diversion of management’s attention from other business concerns. We may not realize the expected benefits from the Birch Benders Acquisition which will depend, in part, on our ability to attain the projected growth opportunities and cost synergies as a result of the acquisition. Our projections for the Birch Benders Acquisition were based on assumptions which may not be reliable or accurate and may be impacted by uncertainties, including those related to the COVID-19 pandemic. Projected growth opportunities could require a greater-than-anticipated amount of trade and promotional spending. There can be no assurance that we will successfully or efficiently integrate any brands that we may acquire in the future, and the failure to do so could have a material adverse effect on our business, financial condition and results of operations. Future acquisitions by us could also result in our issuing additional equity securities, which could be dilutive to our then existing stockholders, as well as incurring substantial additional indebtedness, exposure to contingent liabilities or incurring the impairment of goodwill and other intangible assets, all of which could have a material adverse effect on our business, financial condition and results of operations.

Financial market conditions may impede our access to, or increase the cost of, financing for acquisitions.

The COVID-19 pandemic and global geopolitical tensions, including relating to Ukraine, have increased volatility and pricing in the capital markets, and any future financial market disruptions or tightening of the credit markets or interest rate increases may make it more difficult for us to obtain financing on terms we find acceptable for acquisitions or other purposes or increase the cost of obtaining financing. Interest rates are highly sensitive to many factors, including governmental monetary policies, economic and political conditions and other factors beyond our control. For example, the Federal Reserve has indicated that it intends to increase interest rates. In addition, our future borrowing costs may be affected by short- and long-term debt ratings assigned by independent rating agencies that are based, in significant part, on our performance as measured by credit metrics, such as interest coverage and leverage ratios. A decrease in these ratings could increase our cost of borrowing or make it more difficult for us to obtain financing when needed or on terms we find acceptable. Limited access to or increased cost associated with financing acquisitions may limit our ability to acquire additional brands, which could have a material adverse effect on our business, financial condition and results of operations.

We may not be able to effectively manage our growth, which could have a material adverse effect on our business, financial condition and results of operations.

We have a limited operating history as a combined company due to our recent completions of the Birch Benders Acquisition and the Noosa Acquisition in October 2020 and November 2018, respectively. Our rapid growth has placed, and may continue to place, significant demands on our organizational, administrative and operational infrastructure, including manufacturing operations, supply chain, quality control, regulatory support, customer service, sales force management and general and financial administration. As we continue to grow and acquire brands, we will need to continue

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building our operational, financial and management controls as well as our reporting systems and procedures. Managing our planned growth effectively may require us to:

enhance our facilities and purchase additional equipment at our facilities;
upgrade or enhance our information technology systems; and
successfully hire, train and motivate additional employees.

If we are unable to manage our growth effectively, we may be unable to execute our business plan, which could have a material adverse effect on our business, financial condition and results of operations.

Our future growth and continued success depend upon consumer preferences for our products, which could change. If we fail to anticipate and respond to changes in consumer preferences, demand for our products could decline.

Our business is primarily focused on sales of premium, on-trend and high-quality products, and a future decrease in consumer demand for such products could have a material adverse effect on our business, financial condition and results of operations. Consumer demand could change based on a number of possible factors, including dietary and nutritional values, such as the popularity of “keto” and “paleo” diets, and lifestyle habits, such as a potential shift away from eating at home; concerns regarding the health effects of ingredients; product packaging preferences; and factors associated with an economic downturn or the COVID-19 pandemic, such as increased unemployment, decreases in disposable income and declines in consumer confidence. While we continue to diversify our product offerings, developing new products entails risks. A failure to offer products that consumers want to buy, accurately predict which shifts in consumer preferences will be long-lasting or introduce new and improved products to satisfy those preferences could have a material adverse effect on our business, financial condition and results of operations. In addition, given the variety of backgrounds and identities of consumers in our consumer base, we must offer a sufficient array of products to satisfy the broad spectrum of consumer preferences. As such, we must be successful in developing innovative products across a multitude of product categories. A failure to anticipate and respond to changes in consumer preferences or a significant shift in consumer demand away from our products could reduce the sales of our brands or our market share, any of which could have a material adverse effect on our business, financial condition and results of operations.

If we are unable to successfully introduce new products or if recently launched products do not meet expectations or are de-listed or discontinued, it could have a material adverse effect on our business, financial condition and results of operations.

Our success is dependent on anticipating changes in consumer preferences and successful new product development and product launches in both our existing and adjacent market categories in response to such changes. Trends within the packaged food industry change often, and failure to identify and react to changes in these trends, could lead to, among other things, reduced loyalty, reduced demand and price reductions for our brands and products. In addition, our misperception of the acceptance of our brands, or brands that we may acquire in the future, could limit our ability to innovate in adjacent market categories. While we devote significant efforts to the development of new products and to the research, development and technology process functions of our business, we may underestimate the costs of new products or we may not be successful in developing new products cost-effectively or at all. We could incur significant costs, including for slotting, for products that are commercially successful as well as for products that may initially gain customer or consumer acceptance but are ultimately unsuccessful. The success of our innovation and product improvement efforts is affected by our ability to anticipate changes in consumers’ preferences; the level of funding that can be made available; the technical capability of our research and development staff in developing, formulating and testing product prototypes; our compliance with governmental regulations; and the success of our management in introducing the resulting new products or improvements in a timely manner.

Even if we are successful in introducing new or recently launched products, sales generated by new products could cause a decline in sales of our existing products, or new products could have lower margins than our existing products. Our future results and our ability to maintain or improve our competitive position will depend on our capacity to gauge the direction of our key markets and our ability to successfully identify, develop, manufacture, market and sell new or

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improved products in these changing markets, and a failure to do so effectively could have a material adverse effect on our business, financial condition and results of operations.

Our sales and profit growth are dependent on our ability to expand existing market penetration and enter into new markets. If we are unable to increase distribution of our products, it could adversely affect our ability to grow our business.

Successful growth depends on our ability to secure increased distribution of our products by adding new customers, increasing the number of stores that sell our products, increasing the number of our products our customers offer for sale and enhancing our product portfolio with innovative and profitable products. This growth would also include expanding our retail shelf placement and priority as well as increasing access to alternative retail channels, such as e-commerce retailers, to sell our products. If our customers reduce the frequency of their shelf resets, whether as a result of increased labor costs, labor shortages or other factors, or decrease the shelf space devoted to the categories in which we compete, our ability to expand distribution of our products could be adversely impacted. The COVID-19 pandemic impacted our product innovation and growth efforts in fiscal 2020 and fiscal 2021 as a result of our customers modifying their shelf reset timings, reducing in store-displays and promotional activities and shifting their ordering patterns. Additionally, the COVID-19 pandemic caused our customers to focus on ensuring that key products remain in stock. To the extent customers continue to focus on ensuring shelf space for key products, future shelf-space opportunities for new products may be impacted. Supply disruptions may also impact our ability to expand our distribution. Our inability to successfully increase distribution of our products could have a material adverse effect on our business, financial condition and results of operations.

Our sales and profit growth are dependent on our ability to expand household penetration and the success of our marketing programs. If we are unable to increase household penetration of our products, it could adversely affect our ability to grow our business.

Successful growth depends on our ability to increase our household penetration by reaching new consumers and on our ability to increase purchases by existing consumers of our products, and we seek to maintain and improve our brand image through marketing investments, including advertising and consumer promotions. However, retailers and our competitors may continue to aggressively market their branded and private label products, which could reduce demand for our products. To compete effectively, increase our household penetration, increase purchases by our existing consumers and maintain and improve our brand image, we may need to increase or reallocate spending on marketing and promotional activities, such as rebates, temporary price reductions, off-invoice discounts, retailer advertisements, product coupons and other trade activities. These expenditures are subject to risks, including risks related to consumer acceptance of our efforts, the rapidly changing media environment, costs of advertising through social and digital media outlets and consumers’ use of the social and digital media outlets where we market our brands. We rely primarily on social media and online dissemination of our advertising campaigns, and the success of our brands, and our growth, may suffer if our marketing plans or product initiatives do not have the desired impact on a brand’s image or its ability to attract consumers or drive frequency of purchase. Our inability to successfully increase household penetration of our products or increase purchases by our existing consumers could have a material adverse effect on our business, financial condition and results of operations.

Economic downturns could limit consumer and customer demand for our products.

The willingness of consumers to purchase our products depends in part on changes in local, national and global economic conditions. Deteriorating economic and political conditions in our major markets, such as increased unemployment, decreases in disposable income, declines in consumer confidence and inflationary pressures, whether as a result of the COVID-19 pandemic, geopolitical tensions or other factors, could cause a decrease in demand for our overall product set, particularly higher priced products.

In an economic downturn, consumers may purchase more generic, private label and other products that are lower in price than our products and may forego certain purchases altogether. Consumers may reduce the number of premium

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products that they purchase where there are mid-tier alternatives, given that premium products generally have higher retail prices than their mid-tier counterparts. Due to changes in consumer demand, we could experience a reduction in sales, a reduction in sales of higher margin products or a shift in our product mix to lower margin offerings. Our customers may also become more conservative in response to these conditions and seek to reduce their inventories or change their shelf sets to prioritize lower-price products. In addition, as a result of economic conditions or competition, we may be unable to raise our prices sufficiently to protect margins. The impacts of an economic downturn and the COVID-19 pandemic may be greater than we expect, and demand for our products may not meet our expectations in the future following the end of an economic downturn or the COVID-19 pandemic. Current global geopolitical tensions, including related to Ukraine, may exacerbate any economic downturn. Prolonged unfavorable economic conditions may have an adverse effect on any of these factors and could have a material adverse effect on our business, financial condition and results of operations.

Our business is highly concentrated in the United States, with little global diversification.

Our operations and our customers are mainly in the United States and, therefore, we are particularly susceptible to consumer trends, market fluctuations, including commodity price fluctuations, inflation or supply shortages of key raw materials, adverse regulations, the economic climate and other adverse events in the United States. The concentration of our businesses in the United States could present challenges and increases the likelihood that an adverse event in the United States would have a material adverse effect on our business, financial condition and results of operations.

Erosion of the reputation of one or more of our brands could have a material adverse effect on our business, financial condition and results of operations.

Maintaining and continually enhancing the value of our brands is critical to the success of our business, and consumer perceptions have a significant impact on the value of our brands. Our reputation could be adversely impacted by any of the following, or by negative publicity (whether or not valid) relating thereto: the failure to maintain high standards for the quality of our products; concerns about food safety, product recalls or other issues, such as product contamination, mislabeling or tampering; the failure to meet ethical, social and environmental expectations or standards for all of our operations, activities, employees or co-packers; the failure to achieve any stated goals with respect to the nutritional or ingredient profile of our products; the loss of third-party certifications for certain of our products as, for example, “gluten-free,” “non-GMO” or “organic;” our research and development efforts; or our environmental impact, including use of agricultural materials, packaging, energy use and waste management. A failure to comply with laws and regulations, maintain an effective system of internal controls or provide accurate and timely financial information could also hurt our reputation.

In particular, a significant product recall or any assertion that our products caused injury, illness or death could result in negative publicity, damage to our reputation with existing and potential customers or our brand image and loss of consumer confidence in the safety and/or quality of our products, ingredients or packaging. In addition, if another company recalls or experiences negative publicity related to a product in a category in which we compete, consumers might reduce their overall consumption of products in that category or customers may cancel orders for such products as a result of such events. A widespread product recall could result in significant losses due to the costs of a recall, the destruction of product inventory and lost sales due to the unavailability of product for a period of time, and we could suffer losses from a significant adverse product liability judgment.

Further, the widespread use of social and digital media by consumers has increased the speed and extent that information or misinformation and opinions can be shared, and negative posts or comments about us or our brands, employees, co-packers, products or packaging on social or digital media could seriously damage the value of our brands. Consumers have been increasingly focused on food safety and health and wellness with respect to the food products they buy. If we fail to adequately respond to any consumer concerns, we could suffer lost sales and damage our brand image or our reputation. Publicity concerning the health implications of food products generally, or changes in public perception of certain ingredients, packaging or food products, such as “keto” products, could negatively influence consumer perception and acceptance of our products and marketing programs. Damage to our reputation or loss of consumer confidence in the safety or quality our products for any of these or other reasons could result in decreased demand for our products, harm

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our ability to maintain premium pricing over private label products and have a material adverse effect on our business, financial condition and results of operations, as well as require additional resources to rebuild our reputation.

A substantial amount of our net sales and EBITDA comes from our Dinners and Sauces operating segment, and a slow-down or decrease in sales of Rao’s sauce products could have a material adverse effect on our business, financial condition and results of operations.

A substantial amount of our net sales is derived from our Dinners and Sauces operating segment. Sales of products in our Dinners and Sauces operating segment, which includes our Rao’s sauce products, represented approximately 69% of our net sales in fiscal 2021. We believe that sales of products in our Dinners and Sauces operating segment will continue to constitute a substantial amount of our net sales for the foreseeable future. If we gain or maintain our market share in the market for products in our Dinners and Sauces operating segment, such as our Rao’s sauce products, competitors, including companies with greater resources and more substantial operations than us, could respond by increasing competition in this market. Our business, financial condition and results of operations would be harmed by a decline in the market for products in our Dinners and Sauces operating segment, increased competition in the market for those products, disruptions in our ability to procure those products (whether due to manufacturer inability, supply chain failures or otherwise) or our failure or inability to provide sufficient investment to support and market, promote and display those products as needed to maintain or grow their competitive position or to achieve more widespread market acceptance.

Due to seasonality or changes in our promotional activities, our revenue and operating results may vary from quarter to quarter.

We have experienced, and expect to continue to experience, fluctuations in our quarterly results of operations due to the seasonal nature of our business. Consumer purchasing patterns are impacted by seasonal factors, including weather and holidays. Seasonality could cause our results of operations for an interim financial period to fluctuate and not be indicative of our full year results. Seasonality also impacts relative net sales and profitability of each quarter of the year, both on a quarter-to-quarter and year-over-year basis. If we fail to effectively manage our inventories or fluctuations in business as a result of promotional activities or other factors, seasonality could have a material adverse effect on our business, financial condition and results of operations.

We rely on the performance of major retailers, wholesalers, distributors and mass merchants for the success of our business, and if they give higher priority to other brands or products, perform poorly or declare bankruptcy, it could have a material adverse effect on our business, financial condition and results of operations.

We sell our products principally to retail outlets and wholesale distributors, including traditional supermarkets, mass merchants, warehouse clubs, wholesalers, specialty food distributors, military commissaries and non-food outlets, such as drug store chains, dollar stores and e-commerce retailers. The poor performance of our major wholesalers, retailers or chains or our inability to collect accounts receivable from our customers could have a material adverse effect on our business, financial condition and results of operations.

In addition, our customers offer branded and private label products that compete directly with our products for retail shelf space and consumer purchases. Accordingly, there is a risk that our customers may give higher priority to their own products or to the products of our competitors. In the future, our customers may not continue to purchase our products or provide our products with adequate levels of promotional support or shelf space or may replace our branded products with private label products. For example, in 2020, one club retailer chose to discontinue carrying our Michael Angelo’s lasagna, electing to only carry the leading national brand and its private label brand. Such risks may be particularly acute in historically declining market categories, such as yogurt. Emerging alternative retail channels, such as online-only grocery delivery services, also continue to evolve and impact the packaged food industry. The performance of major retailers,

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wholesalers, specialty distributors and mass merchants and their prioritization of our brands could have a material adverse effect on our business, financial condition and results of operations.

We may be unable to grow or maintain our profitability in the face of a consolidating retail environment, and the loss of any of our largest customers could have a material adverse effect on our business, financial condition and results of operations.

In fiscal 2021, our largest customers, Costco, Walmart and UNFI, accounted for approximately 18%, 13% and 11%, respectively, of our gross sales, and our top four largest customers together accounted for approximately 49% of our gross sales. We expect that a significant portion of our revenues will continue to be derived from a limited number of customers. Our customers are generally not contractually obligated to purchase from us and make purchase decisions based on a combination of price, promotional support, product quality, consumer demand, customer service performance, their desired inventory levels and other factors. As the retail grocery trade continues to consolidate and our customers grow larger and become more sophisticated, our customers may demand lower pricing, increased promotional programs, increased deductions and allowances and consistent terms or a single ordering system. There can be no assurance that our largest customers will continue to purchase our products in the same mix or quantities, or on the same terms, as in the past. Disruption of sales to any of these customers, or to any of our other large customers, for an extended period of time could have a material adverse effect on our business, financial condition and results of operations.

Further, our customers are seeking to improve their profitability through improving efficiency, reducing their inventories, changing their shelf sets, reducing the number of brands they carry and increasing their emphasis on products that hold either the number one or number two market position and increasing their reliance on private label products, their own brand name products and generic and other economy brands. A focus by our customers on ensuring shelf space for the most popular products to avoid out-of-stocks accelerated due to the COVID-19 pandemic and may continue to accelerate. If we fail to use our sales and marketing expertise to maintain and grow retail shelf space or priority for our products, or if we lower our prices or increase promotional support of our products and are unable to increase the volume of our products sold, it could have a material adverse effect on our business, financial condition and results of operations.

In addition, alternative retail channels, such as e-commerce retailers (including key retailers with integrated traditional and digital operations and online-only grocery delivery services), subscription services, discount and dollar stores, direct-to-consumer brands, limited assortment specialty retailers, drug stores and club stores, have become more prevalent. Substantial growth in e-commerce has encouraged the entry of new competitors and business models, intensifying competition by simplifying distribution and lowering barriers to entry. This trend away from traditional retail grocery, and towards such channels, is expected to continue. We have seen a shift in consumption towards the e-commerce channel during the COVID-19 pandemic and may see a more substantial shift in the future. Typically, products we sell via the e-commerce channel present unique challenges in order fulfillment. Securing trial of our products by new consumers may be challenging in e-commerce settings if consumers focus on re-ordering products that they customarily consume. The expanding presence of e-commerce retailers has impacted, and may continue to impact, consumer preferences and market dynamics, which in turn may negatively affect our sales or profits. In addition, these alternative retail channels may create consumer price deflation, affecting our customer relationships and presenting additional challenges to increasing prices in response to commodity or other cost increases or inflation. Also, if these alternative retail channels, such as e-commerce retailers, take significant share away from traditional retailers, this could have a material adverse effect on our business, financial condition and results of operations. If we are not successful in expanding sales in alternative retail channels, it could have a material adverse effect on our business, financial condition and results of operations.

Any future financial market disruptions or tightening of the credit markets could expose us to additional credit risks from customers and supply risks from suppliers and co-packers.

Any future financial market disruptions or tightening of the credit markets could result in some of our customers experiencing a significant decline in profits and/or reduced liquidity, and a significant adverse change in the financial and/or credit position of a customer could require us to assume greater credit risk relating to that customer and limit our

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ability to collect receivables. Such disruptions could require us to take measures to conserve cash until the markets stabilize or until alternative credit arrangements or other funding for our business needs can be arranged.

Current global geopolitical tensions, including related to Ukraine, may increase exchange rate volatility. A significant adverse change in the financial and/or credit position of one of our suppliers or co-packers or a significant change in the Euro to U.S. dollar exchange rate could result in an interruption to the supply of our products and increased costs. This could have a material adverse effect on our business, financial condition and results of operations.

Severe weather conditions, natural disasters and other natural events can affect our manufacturing facilities, co-packers, raw material supplies or logistics and could have a material adverse effect on our business, financial condition and results of operations.

Severe weather conditions, natural disasters and other natural events, such as floods, droughts, fires, hurricanes, earthquakes, extreme temperature events, volcanic eruptions, pestilence or health pandemics, such as the COVID-19 pandemic, may affect the supply of the raw materials that we (or our co-packers) use for our products, our manufacturing facilities, our operations or the operations of third-party co-packers, transportation companies or retailers or access to ports used to import our products. For example, our yogurt plant in Colorado, which is the sole manufacturing location of our noosa spoonable yogurts, is located in a region which is affected by fires, and production at our Texas facility was temporarily interrupted in February 2021 due to severe weather conditions. La Regina, the third-party co-packer that produces the substantial majority of our Rao’s Homemade sauce products, is located near Mount Vesuvius, an active volcano. Additionally, earthquakes in California, where many of our key personnel reside, could result in office closures or impact the communications infrastructure, impacting the ability of key personnel to operate our business. Competing manufacturers and co-packers may be affected differently by weather conditions, natural disasters or other natural events, depending on the location of their supplies and facilities. If our supplies of ingredients, packaging materials or finished goods are delayed or reduced, or if our or our co-packers’ manufacturing capabilities are disrupted, we may not be able to find adequate supplemental supply sources or alternative manufacturers on favorable terms or at all, which could have a material adverse effect on our business, financial condition and results of operations.

Climate change, water scarcity or legal, regulatory or market measures to address climate change or water scarcity could have a material adverse effect on our business, financial condition and results of operations.

There is growing concern that carbon dioxide and other greenhouse gases in the atmosphere may have an adverse impact on global temperatures, weather patterns and the frequency and severity of extreme weather and natural disasters. In the event that such climate change has a negative effect on agricultural productivity, we may be subject to decreased availability or less favorable pricing for certain commodities that are necessary for our products, such as dairy products, animal proteins, tomatoes, fruit, honey and eggplant. For example, we rely on the successful harvest of tomatoes in both the United States and Italy and purchase large quantities of eggplant, and tomato or eggplant crop sizes and quality could be adversely impacted by climate change, which in turn could harm our supply of raw materials, increase our cost of transporting and storing raw materials or disrupt the production of our products. In addition, our operations and the operations of our co-packers are dependent on the availability of water. As a result of climate change, we or our co-packers may be subject to decreased availability or less favorable pricing for water, which could impact our or their manufacturing or other operations.

The increasing concern over climate change also may result in more regional, federal, foreign and/or global legal and regulatory requirements to reduce or mitigate the effects of greenhouse gases. In the event that such regulations are enacted and are more aggressive than the sustainability measures that we or our co-packers are already pursuing, we or our co-packers may experience significant increases in our manufacturing and distribution costs. In particular, increasing regulation of fuel emissions could substantially increase the supply chain and distribution costs associated with our

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products. As a result, climate change or increased concern over climate change could have a material adverse effect on our business, financial condition and results of operations.

Failure by us or third-party co-packers or suppliers of raw materials to comply with food safety, environmental or other laws or regulations, or new laws or regulations, could have a material adverse effect on our business, financial condition and results of operations.

Our operations, and the operations of certain of our co-packers and other supplies, are subject to extensive regulation by the FDA, the USDA, the Federal Trade Commission (“FTC”) and various other federal, state, local and foreign authorities where our products are produced or sold. We and our co-packers are also subject to U.S. laws affecting operations outside of the United States, including anti-bribery laws, such as the Foreign Corrupt Practices Act (“FCPA”), and state laws, such as the California Safe Drinking Water and Toxic Enforcement Act of 1986 (better known as “Proposition 65”). Failure by us or any of our co-packers or other suppliers to comply with applicable laws and regulations, or allegations of compliance failure, may disrupt operations, expose us to potential fines and cause us to incur costs to ensure compliance.

Any changes in the laws and regulations to which we or our co-packers and other suppliers are subject, or any changes in how existing or future laws or regulations will be enforced, administered or interpreted, could increase the cost of developing, manufacturing and distributing our products or otherwise increase the cost of conducting our business, adversely impact how we are able to market our products, require us to change or reformulate products or expose us to additional risk of liabilities and claims. For example, if FDA or other regulations restrict us from labeling and marketing certain product attributes, such as “net carb” count or “keto,” we may be unable to effectively reach our target consumer for certain of our Birch Benders products or promote what we believe to be the key differentiating attributes for those products. Failure by us or our co-packers and other suppliers to comply with applicable laws and regulations, including future laws and regulations, could subject us to lawsuits, administrative penalties and civil remedies, including fines, injunctions, recalls or seizures, as well as potential criminal sanctions, any of which have a material adverse effect on our business, financial condition and results of operations.

Governmental and administrative bodies within the United States are considering a variety of tax, trade and other regulatory reforms, including tariffs on certain materials used in the manufacture of our products and tariffs on certain finished products. We regularly move data across state borders to conduct our operations and, consequently, are subject to a variety of laws and regulations in the United States regarding privacy, data protection and data security, including those related to the collection, storage, handling, use, disclosure, transfer and security of personal data. There is significant uncertainty with respect to compliance with such privacy and data protection laws and regulations because they are continuously evolving and developing and may be interpreted and applied differently from state to state and may create inconsistent or conflicting requirements.

We and our co-packers and other suppliers are subject to various federal, state, local and foreign environmental laws and regulations. Our primary environmental compliance obligations relate to wastewater and solid waste generated by our manufacturing operations and ammonia and Freon used in our refrigerant systems, all of which are subject to special handling requirements. In addition, as a current or former operator of real property, we may be liable for the cost to remove or remediate contamination resulting from the presence or release of hazardous substances from or on such property, whether or not we knew of or caused such contamination, and such liability may be joint and several. We also may be liable for costs of remediating contamination at off-site disposal or treatment facilities to which we arranged for the disposal or treatment of hazardous substances, without regard to whether we complied with applicable laws in doing so. Our failure to comply with environmental laws and regulations could subject us to lawsuits, administrative penalties and civil remedies. Due to regulatory complexities, uncertainties inherent in litigation and the risk of unidentified contaminants on our or any of our co-packers’ or other suppliers’ current and former properties, the potential exists for remediation, liability, indemnification and compliance costs to differ from our estimates. We cannot guarantee that our costs in relation

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to these matters, or compliance with environmental laws in general, will not exceed our established liabilities or otherwise have a material adverse effect on our business, financial condition and results of operations.

Future litigation may lead us to incur significant costs or harm our or our brands’ reputations.

The sale of food products for human consumption involves the risk of injury to consumers. Such injuries may result from mislabeling, tampering or product contamination or spoilage, including the presence of foreign objects, undeclared allergens, substances, chemicals, other agents or residues introduced during the growing, processing, manufacturing, storage, handling or transportation phases of production. We may become party to various lawsuits and claims arising in the normal course of business, which may include lawsuits or claims relating to product labeling, product recalls and product liability as well as the marketing of our products, intellectual property, contracts, employment matters, environmental matters or other aspects of our business. For example, we have received demand letters related to product labeling and Proposition 65. Even when not merited, the defense of these lawsuits may divert our management’s attention, and we may incur significant expenses in defending these lawsuits. In addition, we may be required to pay damage awards or settlements or become subject to injunctions or other equitable remedies, and such claims or liabilities may not be covered by our insurance or by any rights of indemnity or contribution that we have against others. Although we maintain insurance, including product liability insurance and product contamination insurance, in amounts we believe to be adequate, we cannot assure you that we will not incur claims or liabilities for which we are not insured or that exceed the amount of our insurance coverage. The outcome of litigation is often difficult to predict, and the outcome of future litigation could have a material adverse effect on our business, financial condition and results of operations.

Our cost savings and efficiency initiatives may not be successful, which could have a material adverse effect on our business, financial condition and results of operations.

We are pursuing several cost-saving and efficiency initiatives, such as a trade efficiency project, category bids, supplier and co-packer negotiations, product reformulations, SKU rationalizations, increased automation and other efforts to simplify production and reduce costs. We are also working to leverage our scale as we grow our business, with products in three temperature states at retailers (refrigerated, frozen and shelf-stable), and continue to reduce the amount of products that are sold to customers through distributors and increase our direct engagement with customers through our “go-direct” initiative.

However, certain of our initiatives may lead to increased costs in other aspects of our business, such as increased research and development, conversion, outsourcing or distribution costs, or cause other disruptions to our business. We must accurately predict costs, be efficient in executing any plans to achieve cost savings and operate efficiently in the highly-competitive packaged food industry. To capitalize on our efforts, we must carefully evaluate investments in our business and execute in those areas with the most potential return on investment. If we are unable to realize the anticipated benefits from any cost-saving or efficiency initiatives or if such initiatives disrupt our business, it could have a material adverse effect on our business, financial condition and results of operations.

If we are unable to retain our key management personnel, it could have a material adverse effect on our business, financial condition and results of operations.

Our success depends to a significant degree upon the continued contributions of senior management, certain of whom would be difficult to replace. In particular, our Founder, President and Chief Executive Officer, Todd R. Lachman, is critical to our vision, strategic direction, culture, products and growth. We do not maintain key-man insurance for Mr. Lachman or any other member of our senior management team. We compete with other companies both within and outside of our industry for talented personnel, and we may lose key personnel or fail to attract, train and retain other talented personnel. Any such loss or failure could adversely affect our product sales, financial condition and operating results. The

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departure of members of our key employees or senior management could have a material adverse effect on our business, financial condition and results of operations.

Fluctuations in our tax obligations and effective tax rate and realization of our deferred tax assets may result in volatility of our results of operations.

We are subject to income taxes in various U.S. jurisdictions. We record tax expense based on our estimates of future payments, which may in the future include reserves for uncertain tax positions in multiple tax jurisdictions, and valuation allowances related to certain net deferred tax assets. At any one time, many tax years may be subject to audit by various taxing jurisdictions. The results of these audits and negotiations with taxing authorities may affect the ultimate settlement of these issues. We expect that throughout the year there could be ongoing variability in our quarterly tax rates as events occur and exposures are evaluated.

In addition, our effective tax rate in a given financial reporting period may be materially impacted by a variety of factors including, but not limited to, changes in the mix and level of earnings, varying tax rates in the different jurisdictions in which we operate, fluctuations in nondeductible items or by changes to existing accounting rules or regulations. Further, tax legislation may be enacted in the future, including current proposals in Congress to increase corporate taxes. New or revised tax legislation could negatively impact our current or future tax structure and effective tax rates.

A change in the assumptions used to value our goodwill or our intangible assets, or the impairment of our goodwill or our intangible assets, could have a material adverse effect on our business, financial condition and results of operations.

Our total assets include substantial goodwill and intangible assets, such as tradenames and trademarks. Goodwill and indefinite-lived intangible assets are tested for impairment annually and when indicators of impairment exist. The annual goodwill and indefinite-lived intangible impairment test involves a qualitative evaluation and a quantitative test. The qualitative assessment evaluates factors including macro-economic conditions, industry- and company-specific factors and historical company performance in assessing fair value. If it is determined that it is more likely than not that the fair value of the reporting unit or indefinite-lived asset is less than the carrying value, a quantitative test is then performed. Otherwise, no further testing is required. When using a quantitative approach to assess goodwill for impairment, we compare the fair value of the reporting unit to the carrying amount, including goodwill. For indefinite-lived intangible assets, impairment is assessed by comparing the fair value of the asset with its carrying value. In addition, we evaluate definite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. If the estimated fair value of the reporting unit or indefinite-lived asset is less than its carrying amount, impairment is indicated, requiring recognition of an impairment charge for the differential. Determining the fair value of a reporting unit or indefinite-lived asset is judgmental in nature and involves the use of significant estimates and assumptions. Factors, such as future adverse changes in market conditions or poor operating results of these underlying assets, could result in losses or an inability to recover the carrying value of the asset that may not be reflected in the asset’s current carrying value, thereby requiring impairment charges in the future. We completed our annual impairment test for fiscal 2021 and 2020 with no adjustments to the carrying values of goodwill and intangible assets. However, we recorded an impairment loss to Michael Angelo’s goodwill of approximately $14.4 million and an impairment loss to the Michael Angelo’s trade name, a definite-lived intangible asset, of approximately $2.8 million for our fiscal year ended December 28, 2019. If operating results for any of our other brands, including brands that we have recently acquired or may acquire in the future, deteriorate or fail to meet our projections or expectations, we may be required to record additional non-cash impairment charges to certain intangible assets. In addition, any significant decline in our market capitalization, even if due to macroeconomic factors that could be affected by the COVID-19 pandemic or otherwise, could put pressure on the carrying value of our goodwill. A determination that all or a portion of our goodwill or intangible assets are impaired, although such determination would result in a non-cash charge to operations, could have a material adverse effect on our business, financial condition and results of operations.

If we do not maintain effective internal controls over financial reporting, we may not be able to accurately and timely report our financial results, which could have a material adverse effect on our business, financial condition and results

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of operations, and investors may lose confidence in the accuracy and completeness of our financial reports and the price of our common stock may decline.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting and for evaluating and reporting on the effectiveness of our system of internal control. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with generally accepted accounting principles (“GAAP”). As a public company, we are required to comply with the Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes-Oxley Act”) and other rules that govern public companies. In particular, we are required to certify our compliance with Sections 302, 404 and 906 of the Sarbanes-Oxley Act, which requires us to furnish annually a report by management on the effectiveness of our internal control over financial reporting. In addition, our independent registered public accounting firm is required to report on the effectiveness of our internal control over financial reporting in the future to the extent that we are no longer an emerging growth company.

If we are unable to successfully remediate any future material weaknesses or other deficiencies in our internal control over financial reporting, the accuracy and timing of our financial reporting may be adversely affected; our liquidity, our access to capital markets, the perceptions of our creditworthiness and our ability to complete acquisitions may be adversely affected; we may be unable to maintain compliance with applicable securities laws, the NASDAQ listing requirements and the covenants under our debt agreement regarding the timely filing of periodic reports; we may be subject to regulatory investigations and penalties; investors may lose confidence in our financial reporting; we may suffer defaults, accelerations or cross-accelerations under our debt agreement to the extent we are unable to obtain waivers from the required creditors or counterparties or are unable to cure any breaches; and our stock price may decline.

We have related party transactions which present possible conflicts of interest.

We have engaged in related party transactions with our directors or related entities. For example, the Bellvue, Colorado facility where we manufacture all of our noosa spoonable yogurts is owned indirectly by Robert L. Graves, our Vice President, Strategic Initiatives and a member of our Board, and leased pursuant to a facilities lease agreement and a ground lease agreement that each expire on December 31, 2027 and contain options for extension for a total of 15 additional two-year extensions. In addition, the close proximity of our employees to the employees of Mr. Graves’ manufacturing facility and the interrelatedness of our operations with the operations of Mr. Graves’ manufacturing facility could expose us to risks or influence our business decisions. In all related party transactions, there is a risk that a related party’s influence may be such that the transaction terms could be viewed as favorable to that related party, even if we strive to ensure that the terms of the transaction are arms-length. The appearance of conflicts of interest created by related party transactions could impair the confidence of our investors.

Failure by us, or the third-party partners on which we rely, to maintain good employee relations could have a material adverse effect on our business, financial condition and results of operations.

We have approximately 608 employees. Although none of our employees are currently covered under collective bargaining agreements, our employees may elect to be represented by labor unions in the future. If a significant number of our employees were to become unionized and collective bargaining agreement terms were significantly different from our current compensation arrangements, it could have a material adverse effect on our business, financial condition and results of operations. In addition, a labor dispute involving some or all our employees could harm our reputation, disrupt our operations and reduce our revenues, and resolution of disputes could increase our costs. Further, we rely on third parties whose employees may be, or may elect to be, represented by labor unions, and such disruptions in their operations could in turn have a material adverse effect on our business, financial condition and results of operations. Although we have not experienced any material labor shortage to date, we have recently observed an overall tightening and increasingly competitive labor market. A sustained labor shortage or increased turnover rates among our employee base or the employee base of the third parties on which we rely, caused by COVID-19 or as a result of general macroeconomic factors, could lead to increased costs, such as increased overtime to meet demand and increased wage rates to attract and retain employees, and could negatively affect our business, financial condition and results of operations. Failure to maintain good

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relations with our employees, or the failure of third parties on which we rely to maintain good relations with their employees, could have a material adverse effect on our business, financial condition and results of operations.

Risks Related to Distribution and Manufacturing

We are dependent on third-party distributors.

Third-party distributors purchase our products directly for their own account for resale, and we rely on sales made by or through these third-party distributors to customers. For instance, one of our largest customers, UNFI is also a distributor of our products. The loss of, or business disruption at, one or more of these distributors could have a material adverse effect on our business, financial condition and results of operations. Although we are striving to decrease our reliance on distributors for sales to certain customers as part of our “go-direct” cost-savings initiative, we may not be successful in this initiative, and this initiative may disrupt our relationships with our distributors who we rely on for the portion of our business that is conducted through distributors. If we are required to obtain additional or alternative distribution agreements or arrangements in the future, we cannot be certain that we will be able to do so on satisfactory terms or in a timely manner. Our inability to enter into satisfactory distribution agreements could inhibit our ability to implement our business plan or impact our ability to maintain or successfully expand the distribution of our products, which could have a material adverse effect on our business, financial condition and results of operations.

We rely on third-party co-packers for a significant portion of our manufacturing needs, including one co-packer for the substantial majority of our Rao’s Homemade sauce products. If our co-packers do not accept or fulfill purchase orders from us or we are unable to enter into additional or future co-packing agreements, it could have a material adverse effect on our business, financial condition and results of operations.

We rely upon co-packers for a significant portion of our manufacturing needs. Our success depends, in part, on maintaining a strong sourcing and manufacturing platform. We believe that there are a limited number of high-quality, fiscally stable co-packers in the industry with the equipment and operational capabilities required to make our products, and many of our co-packing agreements do not include purchase or supply minimums. If we were required to obtain additional or alternative co-packing agreements or arrangements in the future, or if co-packers experience capacity issues or disruptions (whether as a result of the COVID-19 pandemic or otherwise), production of our products may be delayed or postponed and/or the availability of some of our products may be reduced or delayed. To meet certain service level minimums for our customers and avoid financial penalties that could result from a failure to meet such minimums under our agreements with customers, we may incur additional expenses, including paying a premium for faster, more expensive transportation methods or agreeing to production premiums with our co-packers.

In addition, we rely on La Regina, a third-party co-packer, for the substantial majority of our Rao’s Homemade sauce products. La Regina currently produces our Rao’s Homemade sauce products in Italy. Any disruption to La Regina’s production or delivery of our Rao’s Homemade sauce products, whether due to the political environment in Italy, global geopolitical tensions (including related to Ukraine), COVID-19 pandemic related government restrictions, agricultural disasters or pestilence in Italy, issues with production, events affecting ports in Italy or the United States or otherwise, could have a material adverse effect on our business, financial condition and results of operations. To facilitate La Regina’s establishment of a U.S. production location in Alma, Georgia, we have agreed to provide La Regina with exclusivity for the third-party production of certain of our products once this facility is qualified to begin production. However, because the Alma, Georgia production location will use tomatoes from Italy for the production of our Rao’s Homemade and Rao’s Homestyle sauce products, production in Georgia may still be impacted by events affecting La Regina in Italy. We have, from time to time, paid La Regina for our products more quickly than required under our contract and we may make similar or other concessions in the future. La Regina is also our landlord for a distribution center that we plan to open in Alma, Georgia. La Regina does not currently have manufacturing operations in the United States and may encounter unexpected challenges in opening and operating a production location in Alma, Georgia. Business disruptions related to the COVID-19 pandemic, such as availability of necessary equipment, travel restrictions or employee recruiting challenges, could impact the commencement of manufacturing in Alma, Georgia and the opening of our planned distribution center. Some of these business disruptions have already impacted the expected commencement of manufacturing in Alma, Georgia. In

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the event of a breach by La Regina, we have a right to purchase the facility in Alma, Georgia at cost, including the underlying real property, fixtures and equipment; however, we may encounter difficulties or delays with the exercise of the right to purchase or with assuming the operations at the Alma, Georgia facility. If our relationship with La Regina deteriorates, or if La Regina experiences financial, operational or other issues, we would be required to make alternative arrangements to produce Rao’s Homemade sauce products, such as assuming manufacturing operations on our own, developing our own internal manufacturing capabilities or finding one or more alternative co-packing arrangements, which may be costly or time-consuming to complete. If such an event were to occur, and we were unable to find alternative arrangements in a timely manner or on satisfactory terms, it could have a material adverse effect on our business, financial condition and results of operations.

A significant portion of our products are sourced from a single manufacturing site, which means disruption in, or capacity constraints affecting, our or our co-packers’ operations for any number of reasons could have a material adverse effect on our business, financial condition and results of operations.

Our products are manufactured at several different manufacturing facilities, including our two manufacturing facilities and manufacturing facilities operated by our co-packers, but in most cases, individual products are produced only at a single location. We produce all noosa spoonable yogurts at our Bellvue, Colorado manufacturing facility and all Rao’s Made for Home and Michael Angelo’s frozen products at our Austin, Texas manufacturing facility. We may leverage a co-packer from time to time to supplement our in-house production of select Michael Angelo’s products. The substantial majority of our Rao’s Homemade sauce products are produced at a single La Regina facility in Italy, the majority of our Rao’s Made for Home soup products are produced at a single location in Canada, the majority of our Birch Benders frozen waffles are produced at a single location in Belgium and our noosa smoothies are co-packed at a single facility in Flemington, New Jersey. If any of these manufacturing locations experiences a disruption for any reason, including but not limited to work stoppages, governmental actions, disease outbreaks or pandemics, acts of war, terrorism, power failure or weather-related condition or natural disaster, including fire, earthquake, extreme temperatures, volcanic eruption or flooding, or issues associated with efforts to increase manufacturing capacity or improve manufacturing efficiency, this could result in a significant reduction or elimination of the availability of some of our products. If we were not able to obtain alternate production capability in a timely manner or on satisfactory terms, this disruption could have a material adverse effect on our business, financial condition and results of operations.

We rely on third-party warehouse and transportation providers in the distribution of our products.

Our success depends, in part, on dependable and cost-effective storage and transportation systems and a strong distribution network. We utilize third-party warehouse and transportation providers for these services, and the costs of these services could increase due to factors outside of our control. For example, factors associated with the COVID-19 pandemic and other factors have resulted in increased demand for transportation and increased transportation costs. Further, during fiscal 2021, international shipping to the United States was disrupted and delayed due to congestion in international ports. Third-party warehouse and transportation providers are also subject to numerous cost pressures, including costs associated with fuel, labor and inflation, and may seek to pass these increased costs on to us. Global geopolitical tensions, including relating to Ukraine, have impacted oil prices and consequently our and our third-party providers’ transportation and logistics costs.  We expect these cost increases, which may become more acute, to continue to impact our business.

In addition, a disruption in storage or transportation services could be caused by a number of factors, including labor issues; port and shipping capacity; failure to meet customer standards; acts of war; terrorism; fire, earthquakes, extreme temperatures, volcanic eruption, flooding or other natural disasters; or bankruptcy or other financial issues affecting the third-party providers of such services, and could result in an inability to supply materials to our or our co-packers’ facilities or finished products to our distribution centers or customers. Alternatives may not be available on short notice or could

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result in higher transportation costs. Any disruption in the distribution chain of our products or an increase in the cost of these services could have a material adverse effect on our business, financial condition and results of operations.

Risks Related to Information Technology and Intellectual Property

We are increasingly dependent on information technology; disruptions, failures or security breaches of our information technology infrastructure or failure to comply with privacy laws could have a material adverse effect on our business, financial condition and results of operations.

Information technology is critically important to our business operations. We rely on information technology networks and systems, including the internet, to process, transmit and store electronic and financial information, manage a variety of business processes and activities (including our manufacturing, financial, logistics, sales, marketing and administrative functions), communicate internally and externally with customers, suppliers, carriers and others and comply with regulatory, legal and tax requirements. We also use mobile devices, social networking and other online activities to connect with our employees, suppliers, customers and consumers, and we have become more reliant on mobile devices, remote communication and other technologies during the COVID-19 pandemic. These information technology systems, many of which are managed by third parties or used in connection with shared service centers, may be susceptible to damage, disruptions or shutdowns due to factors outside of our control, including failures during the process of upgrading or replacing software, databases or components thereof, maintenance or security issues or errors, issues with migration of applications to the “cloud,” power outages, hardware or software failures, cyberattacks and other cyber incidents, telecommunication failures, denial of service, user errors, natural disasters, terrorist attacks or other catastrophic events.

Cyberattacks and other cyber incidents are occurring more frequently in the United States, constantly evolving in nature, becoming more sophisticated and being made by various groups and individuals with a wide range of expertise and motives. Cyberattacks may increase as a result of Russian tensions with the West. The decentralized nature of our operations and our increased reliance on our information technology systems due to many employees working remotely during, and potentially following, the COVID-19 pandemic could increase our vulnerability to cyberattacks and other cyber incidents. We may incur significant costs in protecting against or remediating cyberattacks or other cyber incidents.

In addition, if our suppliers or customers experience a breach or system failure, their businesses could be disrupted or otherwise negatively affected, which could in turn result in a disruption in our supply chain or reduced customer orders. If our information technology networks and systems suffer severe damage, disruption or shutdown, and our disaster recovery and business continuity plans, or those of our third-party providers, suppliers or customers, do not effectively respond to or resolve the issues in a timely manner, it could have a material adverse effect on our business, financial condition and results of operations.

Further, if we are unable to prevent physical and electronic break-ins, cyberattacks and other information security breaches, we may suffer financial and reputational damage, be subject to litigation or incur remediation costs or penalties as a result of unauthorized disclosure of confidential information belonging to us or to our partners, customers, suppliers, employees or consumers. The mishandling or inappropriate disclosure of non-public sensitive or protected information could lead to the loss of intellectual property, negatively impact planned corporate transactions or damage our reputation and brand image. Misuse, leakage or falsification of legally protected information could also result in a violation of data privacy laws and regulations and have a material adverse effect on our business, financial condition and results of operations.

Our intellectual property rights are valuable. Failure to protect, or litigation involving, our tradenames or trademarks and other rights could have a material adverse effect on our business, financial condition and results of operations.

Our intellectual property rights, including our trademarks, are a significant and valuable aspect of our business. We attempt to protect our intellectual property rights by pursuing remedies available to us under intellectual property laws, entering into third-party nondisclosure and assignment agreements and policing third-party misuses of our intellectual property. If we fail to adequately protect the intellectual property rights that we have now or may acquire in the future, or

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if there is any change in law or otherwise that serves to reduce or remove the current legal protections of our intellectual property rights, it could have a material adverse effect on our business, financial condition and results of operations. Further, although we own rights to “Rao’s” trademarks for our packaged food products, a third party owns rights to “Rao’s” trademarks for restaurant services and bar services. We have a co-existence agreement with this third party.

There is also a risk that other parties may have or claim to have intellectual property rights covering some of our brands, products or technology. If any third parties bring a claim of intellectual property infringement against us, we may be subject to costly and time-consuming litigation which could divert the attention of management and our employees. If we are unsuccessful in defending against such claims, we may be subject to, among other things, significant damages and injunctions against development and sale of certain products, we may be unable to utilize certain of our brand or product names or we may be required to enter into costly licensing agreements, any of which could have a material adverse effect on our business, financial condition and results of operations.

A third party owns the “Rao’s” trademarks for use in connection with restaurant and bar services. Disputes regarding our co-existence agreement with this third party or negative publicity relating to the Rao’s restaurants could have a material adverse effect on our business, financial condition and results of operations.

We are party to a worldwide co-existence agreement relating to our and an unrelated third-party’s respective rights to use and register trademarks containing the term “Rao’s.” As between the parties, we own the right to use and register “Rao’s” trademarks for packaged food products, while the third party owns the right to use and register “Rao’s” trademarks for restaurant services and bar services. We believe that the “Rao’s” trademarks have significant value and are instrumental in our ability to market and sustain demand for our Rao’s product offerings. Any disputes concerning this co-existence agreement may cause us to incur significant litigation costs. In addition, any negative publicity, social media or other information relating to the restaurants bearing the “Rao’s” trademark, or their owners or employees, could harm consumer perceptions of our Rao’s sauces and other products. Any such disputes or negative information could have a material adverse effect on our business, financial condition and results of operations.

Risks Related to Our Indebtedness

Any default under our debt agreement could have significant consequences.

In June 2021, Sovos Brands Intermediate Inc., a wholly-owned subsidiary of the Company (the “Borrower”), entered into a first lien credit agreement (as amended, the “First Lien Credit Agreement”) among the Borrower, Sovos Brands Holdings, Inc., a wholly-owned subsidiary of the Company, Credit Suisse, as administrative agent and collateral agent (the “Administrative Agent”), and the lenders and issuing banks from time to time party thereto (the “First Lien Lenders”). The First Lien Credit Agreement contains covenants imposing certain restrictions on our business. These restrictions may affect our ability to operate our business and may limit our ability to take advantage of potential business opportunities as they arise. Our First Lien Credit Agreement contains restrictive covenants including, with specified exceptions, limitations on our ability to incur debt and liens; make certain investments, acquisitions and loans; pay dividends or make other distributions; make payments on subordinated debt; enter into burdensome agreements or affiliate transactions; consolidate, merge or dissolve; acquire or dispose of assets not in the ordinary course; materially alter our business; and modify our fiscal year-end. The First Lien Credit Agreement also contains a springing financial covenant that, if outstanding revolving loans (excluding any undrawn letters of credit) minus unrestricted cash exceed 35% of the aggregate revolving credit commitments, requires us to maintain, on a consolidated basis, a maximum ratio of consolidated first lien net debt to consolidated EBITDA (with certain adjustments as set forth in the First Lien Credit Agreement) of 6.95:1.00, tested as of the last day of any fiscal quarter on which such 35% threshold is exceeded. Events beyond our control, including changes in general economic and business conditions, may affect our ability to satisfy the financial covenant. We cannot assure you that we will satisfy the financial covenant in the future, or that our lenders will waive any failure to satisfy the financial covenant.

Our ability to comply with these covenants under the First Lien Credit Agreement may be affected by events beyond our control, including prevailing economic, financial and industry conditions. The breach of any of these covenants could

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result in an event of default, which would permit the administrative agent or the specified threshold of lenders under the facility to declare all outstanding debt to be due and payable, together with accrued and unpaid interest. Further, the First Lien Credit Agreement contains cross-default provisions with respect to indebtedness in excess of a specified threshold amount, which may result in an event of default or acceleration of borrowings under the First Lien Credit Agreement if such provisions are triggered. Our obligations under the First Lien Credit Agreement are secured by a first priority lien on substantially all of our assets, subject to agreed upon exceptions. Any default by us under the First Lien Credit Agreement could have a material adverse effect on our business, financial condition and results of operations.

We may be adversely impacted by the discontinuation of the London Interbank Offered Rate (“LIBOR”).

Our First Lien Credit Agreement uses LIBOR as a reference rate. The financial authority that regulates LIBOR has announced that it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2023. The U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions, has identified the Secured Overnight Financing Rate (“SOFR”) as its preferred alternative rate. SOFR is calculated by short-term repurchase agreements, backed by Treasury securities. The transition from LIBOR may cause us to incur increased costs and additional risk. In connection with the LIBOR discontinuation, some or all of the loans under our First Lien Credit Agreement may use alternate base rate as a reference rate. When LIBOR is discontinued, interest rates will generally be based on an alternative variable rate as determined between the Administrative Agent (as defined herein) and the Borrower (as defined herein). The alternative variable rate could be higher and more volatile than LIBOR prior to its discontinuance. At this time, it is impossible to predict the effect of any such alternatives on our liquidity, our interest expense or the value of the loans under our First Lien Credit Agreement.

Our level of indebtedness could have a material adverse effect on our business, financial condition and results of operations.

The total principal amount of debt outstanding under our First Lien Credit Agreement, excluding unamortized debt issuance costs, as of December 25, 2021 was $480.8 million. Our indebtedness could have significant effects on our business, such as:

limiting our ability to borrow additional amounts to fund acquisitions, debt service requirements, execution of our growth strategy, capital expenditures and other purposes;
limiting our ability to make investments, including acquisitions, loans and advances, and to sell, transfer or otherwise dispose of assets;
requiring us to dedicate a substantial portion of our cash flow from operations to pay principal and interest on our borrowings, which would reduce availability of our cash flow to fund working capital, acquisitions, execution of our growth strategy, capital expenditures and other general corporate purposes;
making us more vulnerable to adverse changes in general economic, industry and competitive conditions, in government regulation and in our business by limiting our ability to plan for and react to changing conditions;
placing us at a competitive disadvantage compared with our competitors that have less debt; and
exposing us to risks inherent in interest rate fluctuations because our borrowings are at variable rates of interest, which could result in higher interest expense in the event of increases in interest rates.

In addition, we may not be able to generate sufficient cash flow from our operations to repay our indebtedness when it becomes due and to meet our other cash needs. If we are not able to pay our borrowings as they become due, we will be required to pursue one or more alternative strategies, such as selling assets, refinancing or restructuring our indebtedness or selling additional debt or equity securities. We may not be able to refinance our debt or sell additional debt or equity securities or our assets on favorable terms, if at all, and if we must sell our assets, it could have a material adverse effect on our business, financial condition and results of operation.

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The failure to comply with the covenants under our First Lien Credit Agreement or volatility in the credit and capital markets could have a material adverse effect on our business, financial condition and results of operation.

Our ability to manage our debt is dependent on our level of positive cash flow from the sale of our products. An economic downturn may negatively impact our cash flows. Credit and capital markets can be volatile, which could make it more difficult for us to refinance our existing debt or to obtain additional debt or equity financings in the future. Such constraints could increase our costs of borrowing and could restrict our access to other potential sources of future liquidity. Future volatility or disruption in the credit and capital markets could require us to take measures to conserve cash until the markets stabilize or until alternative credit arrangements or other funding for our business needs can be arranged. Our failure to comply with the covenants under our First Lien Credit Agreement or to have sufficient liquidity to make interest and other payments required by our debt could result in a default of such debt and acceleration of our borrowings, which could have a material adverse effect on our business, financial condition and results of operations.

Other Risks Related to Ownership of Our Common Stock

Future offerings of debt or equity securities by us may have a material adverse effect on the market price of our common stock.

In the future, we may attempt to obtain financing or to further increase our capital resources by issuing additional shares of our common stock or by offering debt or other equity securities, including senior or subordinated notes, debt securities convertible into equity or shares of preferred stock.

Any future debt financing could involve restrictive covenants relating to our capital-raising activities and other financial and operational matters, which might make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. Moreover, if we issue debt securities, the debt holders would have rights to make claims on our assets senior to the rights of our holders of our common stock. The issuance of additional shares of our common stock or other equity securities or securities convertible into equity may dilute the economic and voting rights of our existing stockholders or reduce the market price of our common stock or both. Debt securities convertible into equity could be subject to adjustments in the conversion ratio pursuant to which certain events may increase the number of equity securities issuable upon conversion. Preferred shares, if issued, could have a preference with respect to liquidating distributions or a preference with respect to dividend payments that could limit our ability to pay dividends to the holders of our common stock. Our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, which may have a material adverse effect on the amount, timing, or nature of our future offerings. Thus, holders of our common stock bear the risk that our future offerings may reduce the market price of our common stock and dilute their stockholdings in us.

If the ownership of our common stock continues to be highly concentrated, it may prevent you and other minority stockholders from influencing significant corporate decisions and may result in conflicts of interest.

As of December 25, 2021, Advent indirectly beneficially owns approximately 63% of our outstanding common stock. As a result, Advent indirectly beneficially owns shares sufficient for majority votes over all matters requiring stockholder votes, including the election of directors; mergers, consolidations and acquisitions; the sale of all or substantially all of our assets and other decisions affecting our capital structure; amendments to our certificate of incorporation or our bylaws; and our winding up and dissolution.

This concentration of ownership may delay, deter or prevent acts that would be favored by our other stockholders. The interests of Advent may not always coincide with our interests or the interests of our other stockholders. This concentration of ownership may also have the effect of delaying, preventing or deterring a change in control of us. Also, Advent may seek to cause us to take courses of action that, in its judgment, could enhance its investment in us, but which might involve risks to our other stockholders or adversely affect us or our other stockholders. As a result, the market price of our common stock could decline or stockholders might not receive a premium over the then-current market price of our common stock upon a change in control. In addition, this concentration of share ownership may adversely affect the trading

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price of our common stock because investors may perceive disadvantages in owning shares in a company with significant stockholders.

As a controlled company, we are not subject to all of the corporate governance rules of NASDAQ.

We are currently considered a “controlled company” under the rules of NASDAQ. Controlled companies are exempt from the NASDAQ corporate governance rules requiring that listed companies have (i) a majority of their board of directors consist of “independent” directors under the listing standards of NASDAQ, (ii) a nominating/ corporate governance committee composed entirely of independent directors and a written nominating/ corporate governance committee charter meeting the NASDAQ requirements and (iii) a compensation committee composed entirely of independent directors and a written compensation committee charter meeting the requirements of NASDAQ. Although we are eligible to use some or all these exemptions, our Board is comprised of a majority of independent directors, our nominating and corporate governance committee and compensation committee consist entirely of independent directors and such committees will conduct annual performance evaluations. However, if we are to use some or all of these exemptions in the future, you may not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of NASDAQ.

We do not anticipate paying any dividends on our common stock in the foreseeable future.

We do not have an established dividend policy, and we currently do not intend to pay any dividends on our common stock, and our First Lien Credit Agreement limits our ability to pay dividends on our common stock. We may also enter into other credit agreements or other borrowing arrangements in the future that restrict or limit our ability to pay dividends on our common stock. As a result, you may not receive any return on an investment in our common stock unless you sell our common stock for a price greater than that which you paid for it.

Our quarterly results of operations may fluctuate significantly and could fall below the expectations of securities analysts and investors due to seasonality and other factors, some of which are beyond our control, resulting in a decline in our stock price.

Our quarterly results of operations may fluctuate due to seasonal or other factors, including the timing of pricing actions, cost savings initiatives and inflation. Accordingly, results for any one quarter are not necessarily indicative of results to be expected for any other quarter or for any year. In addition, if we increase our marketing or promotional activity in certain periods, the seasonality of our business may be amplified. In the future, results of operations may fall below the expectations of securities analysts and investors. In that event, the price of our common stock could be adversely impacted.

If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.

The trading market for our common stock will be influenced by the research and reports that industry or securities analysts publish about us or our business. If one or more of these analysts ceases coverage of our company or fails to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline. Moreover, if our results of operations do not meet the expectations of the investor community, or one or more of the analysts who cover our company downgrade our stock, our stock price could decline.

The market price and trading volume of our common stock may be volatile, which could result in rapid and substantial losses for our stockholders, and you may lose all or part of your investment.

Shares of our common stock have experienced and may continue to experience significant volatility on NASDAQ. An active, liquid and orderly market for our common stock may not be sustained, which could depress the trading price of our common stock or cause it to be highly volatile or subject to wide fluctuations. The market price of our common stock may fluctuate or may decline significantly in the future and you could lose all or part of your investment. Some of the

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factors that could negatively affect our share price or result in fluctuations in the price or trading volume of our common stock include:

variations in our quarterly or annual results of operations;
changes in our earnings estimates (if provided) or differences between our actual results of operations and those expected by investors and analysts;
the contents of published research reports about us or our industry or the failure of securities analysts to cover our common stock;
additions or departures of key management personnel;
any increased indebtedness we may incur in the future;
announcements by us or others and developments affecting us;
actions by institutional stockholders;
litigation and governmental investigations;
legislative or regulatory changes;
judicial pronouncements interpreting laws and regulations;
changes in government programs;
changes in market valuations of similar companies;
speculation or reports by the press or investment community with respect to us or our industry in general;
announcements by us or our competitors of significant contracts, acquisitions, dispositions, strategic relationships, joint ventures or capital commitments; and
general market, political and economic conditions, including local conditions in the markets in which we operate, as well as global geopolitical tensions.

These broad market and industry factors may decrease the market price of our common stock, regardless of our actual financial performance. The stock market in general has from time to time experienced extreme price and volume fluctuations, including recently. In addition, in the past, following periods of volatility in the overall market and decreases in the market price of a company’s securities, securities class action litigation has often been instituted against these companies. This litigation, if instituted against us, could result in substantial costs and a diversion of our management’s attention and resources, which could have a material adverse effect on our business, financial condition and results of operations.

The market price of our common stock could be negatively affected by sales of substantial amounts of our common stock in the public markets.

As of December 25, 2021, we have 100,892,547 shares of common stock outstanding. Of our issued and outstanding shares, all 26,834,100 shares of common stock sold in our initial public offering are freely transferable, except for any shares purchased by our “affiliates,” as that term is defined in Rule 144 under the Securities Act of 1933, as amended (the “Securities Act”), and any shares purchased by our directors, officers or vice presidents in our reserved share program in connection with our IPO. As of December 25, 2021, approximately 63% of our outstanding common stock is indirectly beneficially owned by Advent, and can be resold into the public markets in the future in accordance with the requirements of the Securities Act.

We and our officers, directors and holders of substantially all of our outstanding capital stock and other securities have agreed, subject to specified exceptions, not to directly or indirectly:

offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of any shares of our common stock or any securities convertible into or exercisable or exchangeable for any shares of our common stock;
enter into any swap or other agreement or transaction that transfers, in whole or in part, any of the economic consequences of ownership of any shares of common stock or any such other securities; or
publicly disclose an intention to do any of the foregoing

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for a period of 180 days after September 22, 2021 without the prior written consent of the representatives of the underwriters in our IPO.

This restriction terminates after the close of trading of the common stock on and including the 180th day after September 22, 2021, which is March 21, 2022. The representatives of the underwriters may, in their sole discretion and at any time or from time to time before the termination of the 180-day period, release all or any portion of the securities subject to lock-up agreements.

The market price of our common stock may decline significantly when the restrictions on resale by our existing stockholders lapse. Sales of substantial amounts of our common stock in the public, or the possibility that such sales may occur, may cause the market price of our common stock to decrease. A decline in the price of our common stock might impede our ability to raise capital through the issuance of additional common stock or other equity securities.

The future issuance of additional common stock in connection with any equity plans, acquisitions or otherwise will dilute all other stockholdings.

As of December 25, 2021, we have an aggregate of 389,359,876 shares of common stock authorized but unissued and not reserved for issuance under our equity incentive plan. We may issue all these shares of common stock without any action or approval by our stockholders, subject to certain exceptions. The issuance of any common stock in connection with any equity incentive plan or otherwise would dilute the percentage ownership held by current investors.

Risks Related to Our Company and Organizational Structure

The interests of Advent may conflict with our interests or the interests of the holders of our common stock in the future.

Advent engages in a range of investing activities, including investments in consumer products companies and other consumer-related companies in particular. In the ordinary course of its business activities, Advent may engage in activities where its interests conflict with our interests or those of our stockholders. Our amended and restated certificate of incorporation contains provisions renouncing any interest or expectancy held by our directors affiliated with Advent in certain corporate opportunities. Accordingly, the interests of Advent may supersede ours, causing them or their affiliates to compete against us or to pursue opportunities instead of us, for which we have no recourse. Such actions on the part of Advent and inaction on our part could have a material adverse effect on our business, financial condition and results of operations. In addition, Advent may have an interest in pursuing acquisitions, divestitures and other transactions that, in its judgment, could enhance its investment in us, even though such transactions might involve risks to you, such as debt-financed acquisitions.

With certain exceptions, Advent and its affiliates, including certain of our directors who are affiliated with Advent, will not have any obligation to present business opportunities to us and may compete with us.

Our amended and restated certificate of incorporation provides that Advent and its affiliates, including certain of our directors who are affiliated with Advent, do not have any obligation to offer us an opportunity to participate in business opportunities presented to them even if the opportunity is one that we might reasonably have pursued (and therefore may be free to compete with us in the same business or similar businesses) and that, to the extent permitted by law, such directors, Advent and its affiliates, will not be liable to us or our stockholders for breach of any duty by reason of any such activities.

As a result, Advent and its affiliates, including certain of our directors who are affiliated with Advent, will not be prohibited from investing in competing businesses or doing business with our customers. Therefore, we may be in competition with Advent or certain of our directors or their respective affiliates, and we may not have knowledge of, or be able to pursue, transactions that could potentially be beneficial to us. Accordingly, we may lose certain corporate opportunities or suffer competitive harm, which could have a material adverse effect on our business, financial condition and results of operations.

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We are a holding company with no operations and rely on our operating subsidiaries to provide us with funds necessary to meet our financial obligations and to pay dividends, if any.

We are a holding company with no material direct operations. Our principal assets are the equity interests we hold in our operating subsidiaries which own our operating assets. As a result, we are dependent on loans, dividends and other payments from our operating subsidiaries to generate the funds necessary to meet our financial obligations and to pay dividends, if any, on our common stock. Our subsidiaries are legally distinct from us and may be prohibited or restricted from paying dividends, including by the restrictions contained in our First Lien Credit Agreement, or otherwise making funds available to us under certain conditions. Although we do not expect to pay dividends on our common stock for the foreseeable future, if we are unable to obtain funds from our subsidiaries, we may be unable to pay dividends.

As a public company, we have incurred and will continue to incur significant costs to comply with the laws and regulations affecting public companies, which could harm our business and results of operations.

As a public company, we are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, and the listing requirements of NASDAQ, and other applicable securities rules and regulations. These rules and regulations have increased and will continue to increase our legal, accounting and financial compliance costs and have made and will continue to make some activities more time-consuming and costly, particularly after we cease to be an emerging growth company as defined in Section 2(a) of the Securities Act, as modified by the JOBS Act (as defined herein). For example, these rules and regulations could make it more difficult and more costly for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or to incur substantial costs to maintain the same or similar coverage. These rules and regulations could also make it more difficult for us to attract and retain qualified persons to serve on our Board or our board committees or as executive officers. Our management and other personnel will devote a substantial amount of time to these compliance initiatives. As a result, management’s attention may be diverted from other business concerns, which could harm our business, financial condition and results of operations. We have hired for our current status and may incur additional costs in the future to comply with these requirements, which will increase our costs and expenses.

Our management team and other personnel devote a substantial amount of time to new compliance initiatives, and we may not successfully or efficiently manage our efforts to comply with the requirements of being a public company. To comply with the requirements of being a public company, including the Sarbanes-Oxley Act, we have undertaken and will continue to undertake various actions, such as implementing new internal controls and procedures and hiring accounting or internal audit staff or outsourcing certain functions to third parties, which could have a material adverse effect on our business, financial condition and results of operations.

Our current resources may not be sufficient to fulfill our public company obligations.

We are subject to various regulatory requirements, including those of the SEC and NASDAQ. These requirements include record keeping, financial reporting and corporate governance rules and regulations. Historically, our management team has not had the resources typically found in a public company. Our internal infrastructure may not be adequate to support our increased reporting obligations and we may be unable to hire, train or retain necessary staff and may be reliant on engaging outside consultants or professionals to overcome our lack of experience or employees. If our internal infrastructure is inadequate, we are unable to engage outside consultants at a reasonable rate or attract talented employees to perform these functions or are otherwise unable to fulfill our public company obligations, it could have a material adverse effect on our business, financial condition and results of operations.

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For as long as we are an emerging growth company, we are not required to comply with certain reporting requirements, including those relating to accounting standards and disclosure about our executive compensation, that apply to other public companies.

We are an emerging growth company, as defined in Section 2(a) of the Securities Act, as modified by the JOBS Act. As such, we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and of stockholder approval of any golden parachute payments not previously approved. We may take advantage of some of these exemptions. If we do, we do not know if some investors will find our common stock less attractive as a result. The result may be a less-active trading market for our common stock and our stock price may be more volatile.

In addition, Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.

We could remain an emerging growth company for up to five years or until the earliest of (a) the last day of the first fiscal year in which our annual gross revenues exceed $1.07 billion, (b) the date that we become a large accelerated filer as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, or (c) the date on which we have issued more than $1 billion in non-convertible debt securities in the preceding three-year period.

Delaware law and our organizational documents, as well as our existing and future debt agreements, may impede or discourage a takeover, which could deprive our investors of the opportunity to receive a premium for their shares.

We are a Delaware corporation, and the anti-takeover provisions of Delaware law impose various impediments to the ability of a third party to acquire control of us, even if a change of control would be beneficial to our existing stockholders. In addition, provisions of our amended and restated certificate of incorporation and amended and restated bylaws may make it more difficult for, or prevent a third party from, acquiring control of us without the approval of our Board. Among other things, these provisions:

provide for a classified Board with staggered three-year terms until the first annual meeting of stockholders following the earlier of (i) the fifth anniversary of our IPO and (ii) a fiscal year end at which Advent and its affiliates hold less than 50% of the voting power of our common stock necessary to elect our directors (the “Sunset”) (with the directors whose terms expire at such annual meeting and any subsequent annual meeting being elected to hold office for a one-year term expiring at the next annual meeting of stockholders and until such director’s successor shall have been elected and qualified), which classified Board will prevent a third party who acquires control of a majority of our outstanding voting stock from obtaining control of our Board until the second annual stockholders meeting following the date the acquiror obtains the controlling interest;
do not permit cumulative voting in the election of directors, which would otherwise allow less than a majority of stockholders to elect director candidates;
delegate the sole power of a majority of the Board to fix the number of directors;
provide the power of our Board to fill any vacancy on our Board, whether such vacancy occurs as a result of an increase in the number of directors or otherwise;
authorize the issuance of preferred stock without any need for action by stockholders;
do not permit stockholders to call special meetings of stockholders; and
establish advance notice requirements for nominations for election to our Board or for proposing matters that can be acted on by stockholders at stockholder meetings.

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In addition, our First Lien Credit Agreement imposes, and we anticipate that documents governing our future indebtedness may impose, limitations on our ability to enter into change of control transactions. The occurrence of a change of control transaction could constitute an event of default thereunder permitting acceleration of the indebtedness, thereby impeding our ability to enter into certain transactions.

The foregoing factors, as well as the significant common stock ownership by Advent, could impede a merger, takeover or other business combination, or discourage a potential investor from making a tender offer for our common stock, which, under certain circumstances, could reduce the market value of our common stock.

Claims for indemnification by our directors and officers may reduce our available funds to satisfy successful third-party claims against us and may reduce the amount of money available to us.

Our amended and restated certificate of incorporation and bylaws provide that we will indemnify our directors and officers, in each case, to the fullest extent permitted by Delaware law. Pursuant to our amended and restated certificate of incorporation, our directors will not be liable to us or any stockholders for monetary damages for any breach of fiduciary duty, except (i) for acts that breach his or her duty of loyalty to us or our stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of the law, (iii) pursuant to Section 174 of the Delaware General Corporate Law (the “DGCL”), which provides for liability of directors for unlawful payments of dividends of unlawful stock purchase or redemptions, or (iv) for any transaction from which the director derived an improper personal benefit. The bylaws also require us, if so requested, to advance expenses that such director or officer incurred in defending or investigating a threatened or pending action, suit or proceeding, provided that such person will return any such advance if it is ultimately determined that such person is not entitled to indemnification by us. Any claims for indemnification by our directors and officers may reduce our available funds to satisfy successful third-party claims against us and may reduce the amount of money available to us.

Our amended and restated certificate of incorporation designates the Court of Chancery of the State of Delaware and the federal district courts of the United States of America as the sole and exclusive forums for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or other employees.

Our amended and restated certificate of incorporation provides that, subject to certain exceptions, unless we consent in writing in advance to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for any (i) derivative action or proceeding brought on our behalf, (ii) action asserting a claim of breach of a fiduciary duty or other wrongdoing by any current or former director, officer, employee, agent or stockholder to us or our stockholders, (iii) action asserting a claim arising pursuant to any provision of the DGCL, our amended and restated certificate of incorporation or our amended and restated bylaws or as to which the DGCL confers jurisdiction on the Court of Chancery of the State of Delaware or (iv) action asserting a claim governed by the internal affairs doctrine of the law of the State of Delaware. For the avoidance of doubt, our amended and restated certificate of incorporation also provides that the foregoing exclusive forum provision will not apply to actions brought to enforce any liability or duty created by the Securities Act or the Exchange Act, or any other claim or cause of action for which the federal courts have exclusive jurisdiction.

Our amended and restated certificate of incorporation also provides that, unless we consent in writing to an alternative forum, the federal district courts of the United States of America shall be the sole and exclusive forum for the resolution of any action asserting a claim arising under the Securities Act or the rules and regulations promulgated thereunder. Pursuant to the Exchange Act, claims arising thereunder must be brought in federal district courts of the United States of America.

This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and other employees. While the Delaware courts have determined that such choice of forum

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provisions are facially valid, a stockholder may nevertheless seek to bring an action in a venue other than those designated in the exclusive forum provisions. In such instance, we would expect to assert the validity and enforceability of our exclusive forum provisions, which may require significant additional costs associated with resolving such action in other jurisdictions, and there can be no assurance that the provisions will be enforced by a court in those other jurisdictions. If a court were to find either exclusive forum provision in amended and restated bylaws to be inapplicable or unenforceable in an action, we may incur further significant additional costs associated with resolving the dispute in other jurisdictions, all of which could seriously harm our business.

Our ability to issue preferred stock may deter takeover attempts.

Our Board is empowered to issue, without stockholder approval, preferred stock with dividends, liquidation, conversion, voting or other rights, which could decrease the amount of earnings and assets available for distribution to holders of our common stock and adversely affect the relative voting power or other rights of the holders of our common stock. In the event of issuance, the preferred stock could be used as a method of discouraging, delaying or preventing a change in control. Our amended and restated certificate of incorporation authorizes the issuance of up to 10,000,000 shares of “blank check” preferred stock with such designations, rights and preferences as may be determined from time to time by our Board. Although we have no present intention to issue any shares of our preferred stock, we may do so in the future under appropriate circumstances.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

Our corporate headquarters are located in Louisville, Colorado. In addition, we have office locations in Berkeley, California, Montclair, New Jersey and Denver, Colorado. Our manufacturing locations are in Austin, Texas and Bellvue, Colorado. We believe that our manufacturing facilities have sufficient capacity to accommodate our planned growth. All of our offices and facilities are leased.

Item 3. Legal Proceedings

From time to time, we may become involved in actions, claims, suits and other legal proceedings arising in the ordinary course of our business, including lawsuits or claims relating to product labelling, product recalls and product liability as well as the marketing of our products, intellectual property, contracts, employment matters, environmental matters or other aspects of our business. We are not currently a party to any actions the outcome of which would, individually or in the aggregate, have a material adverse effect on our business, financial condition and results of operations if determined adversely to us.

Item 4. Mine Safety Disclosures

Not Applicable.

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PART II.

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information and Holders

On September 23, 2021, our common stock began trading on the Nasdaq Global Select Market under the symbol of “SOVO.”

There were approximately 63 stockholders of record of our common stock as of March 7, 2022.

Dividends

We do not have an established dividend policy, and we currently do not intend to pay dividends on our common stock in the foreseeable future. However, in the future, subject to the factors described below and our future liquidity and capitalization, we may change this policy and choose to pay dividends. In June 2021, we used the proceeds of the Initial First Lien Term Loans and the Initial Second Lien Loans (as defined herein) to repay the full amounts outstanding under our Senior Credit Facilities (as defined herein) and finance a dividend of $400.0 million to the sole stockholder of Sovos Brands Intermediate, Inc. (“Sovos Intermediate”), which was ultimately distributed to the limited partners of Sovos Brands Limited Partnership (the “Limited Partnership”).

Our ability to pay dividends is currently restricted by the terms of our First Lien Credit Agreement (as defined herein) and may be further restricted by any future indebtedness we incur.

We are a holding company that does not conduct any business operations of our own. As a result, our ability to pay dividends on our common stock is dependent upon cash dividends and distributions and other transfers from our subsidiaries.

In addition, under Delaware law, our Board may declare dividends only to the extent of our surplus (which is defined as total assets at fair market value minus total liabilities, minus statutory capital) or, if there is no surplus, out of our net profits for the then current and/or immediately preceding fiscal year.

Any future determination to pay dividends will be at the discretion of our Board and will take into account:

restrictions in our debt instruments, including our First Lien Credit Agreement;
general economic business conditions;
our earnings, financial condition, and results of operations;
our capital requirements;
our prospects;
legal restrictions; and
such other factors as our Board may deem relevant.

Use of Proceeds

On September 27, 2021, we closed our IPO of our common stock in which we sold 23,334,000 shares of common stock, $0.001 par value per share. Subsequent to the IPO, the underwriters exercised their option to purchase an additional 3,500,100 shares of common stock, and our sale of such additional shares closed on October 5, 2021. The shares sold in

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the IPO and shares issued pursuant to the underwriters’ option to purchase additional shares were registered under the Securities Act pursuant to our Registration Statement on Form S-1 (File No. 333-259110) which was declared effective by the SEC on September 22, 2021. Our shares of common stock were sold at an offering price to the public of $12.00 per share, and we received net proceeds from the IPO of approximately $263.2 million, net of $16.8 million in underwriting discounts and commissions. The sale of additional shares to the underwriters pursuant to the underwriters’ option to purchase additional shares resulted in net proceeds of approximately $39.5 million, net of $2.5 million in underwriting discounts and commissions. We estimate that we incurred offering expenses of approximately $8.0 million. We used the net proceeds of the IPO and the sale of additional shares to the underwriters (net of underwriting discounts and commissions and offering expenses) to pay the full outstanding principal balance on the Initial Second Lien Loans of $200.0 million plus accrued interest of approximately $2.9 million, and to prepay $99.2 million of the outstanding principal balance under the Initial First Lien Term Loans, plus total accrued interest of approximately $0.9 million.

J.P. Morgan Securities LLC and Goldman Sachs & Co. LLC acted as joint lead book-running managers for the offering and as representatives of the underwriters. BofA Securities, Inc., Credit Suisse Securities (USA) LLC, Barclays Capital Inc., UBS Securities LLC, Cowen and Company, LLC, Piper Sandler & Co., Stifel, Nicolaus & Company, Incorporated and William Blair, L.L.C. also acted as book-running managers and Telsey Advisory Group LLC, Drexel Hamilton, LLC and Loop Capital Markets LLC acted as co-managers for the offering. No payments were made by us to directors, officers, or persons owning 10% or more of our common stock or to their associates, or to our affiliates, other than payments in the ordinary course of business to officers for salaries and to certain of our directors and the chairs of our committees for their service on our Board and committees of the Board.

Recent Sales of Unregistered Securities

None.

Issuer Purchases of Equity Securities

Not Applicable.

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Performance Graph

The following stock performance graph compares the outstanding stock from issuance of SOVO, September 22, 2021, through December 25, 2021 (the last day of our fiscal year), in the cumulative total value of $100 hypothetically invested in each of (i) Sovos Brands, Inc. common stock; (ii) the Russell 2000 Index; and (iii) the S&P Composite 1500 Packaged Foods & Meats Index.

The stock price performance below is not necessarily indicative of future stock price performance.

Chart, line chart

Description automatically generated

Performance Graph Data

September 22, 2021

December 25, 2021

Sovos Brands, Inc.

$

100.00

$

115.92

Russell 2000

100.00

99.13

S&P Composite 1500 Packaged Foods & Meats

100.00

108.08

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Item 6. Reserved

Not applicable.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Consolidated Financial Statements and related notes included in Item 8 of this Form 10-K. In addition to historical information, the following discussion contains forward-looking statements, including, but not limited to, statements we make regarding the outlook for our future business and financial performance

Because forward-looking statements relate to the future, by their nature, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. As a result, our actual results may differ materially from those contemplated by the forward-looking statements. Factors that could cause such differences include those identified below and those described in “Cautionary Note Regarding Forward-Looking Statements” and in Item 1A, “Risk Factors” of this Form 10-K. The Company assumes no obligation to update any of these forward-looking statements.

Overview

We are the fastest growing food company of scale in the United States over the past two years, focused on acquiring and building disruptive growth brands that bring today’s consumers great tasting food that fits the way they live. Our brands, Rao’s, Michael Angelo’s, noosa and Birch Benders are built with authenticity at their core, providing consumers food experiences that are genuine, delicious and unforgettable, making each of our brands “one-of-a-kind.” Our products are premium and made with simple, high-quality ingredients. Our people are at the center of all that we do. We strive to empower our teams to lead with courage and tenacity, with the goal of providing them with the confidence and agility to connect with our consumers and retail partners to drive unparalleled growth. We believe our focus on “one-of-a-kind” brands, products that people love, and passion for our people makes Sovos Brands a “one-of-a-kind” company and enables us to deliver on our objective of creating a growing and sustainable food enterprise yielding financial growth ahead of industry peers.

Since our inception, we have been focused on building an organization with the capabilities to acquire, integrate, and grow brands as we continue to scale. Our business model is grounded in acquiring “one-of-a-kind” brands, and leveraging a common infrastructure and shared playbook to drive growth. We have a track record of successful deals and have completed the following four acquisitions:

in January 2017, we completed the acquisition of Bottom Line Food Processors, Inc. d/b/a Michael Angelos Gourmet Foods;
in July 2017, we completed the acquisition of Raos Specialty Foods, Inc.;
in November 2018, we completed the Noosa Acquisition; and
in October 2020, we completed the Birch Benders Acquisition.

On September 22, 2021, we completed the IPO of 23,334,000 shares of our common stock, $0.001 par value per share, which excluded the underwriters option to purchase an additional 3,500,100 shares of common stock, at an offering price to the public of $12.00 per share. The IPO closed on September 27, 2021 and resulted in net proceeds of approximately $263.2 million, after deducting underwriting discounts and commissions. Subsequent to the IPO, the underwriters exercised their options to purchase an additional 3,500,100 shares of common stock. We closed the sale of such additional

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shares on October 5, 2021, resulting in net proceeds of approximately $39.5 million, after deducting underwriting discounts and commissions.

Emerging Growth Status

As a company with less than $1.07 billion in gross revenue during our last fiscal year, we qualify as an emerging growth company as defined in the Jumpstart Our Business Startups Act of 2012 (the JOBS Act). An emerging growth company may take advantage of specified reduced reporting and other regulatory requirements for up to five years that are otherwise applicable generally to public companies. These provisions include, among other matters:

exemption from the auditor attestation requirement on the effectiveness of our system of internal control over financial reporting pursuant to the Sarbanes-Oxley Act;
exemption from the adoption of new or revised financial accounting standards until they would apply to private companies;
exemption from compliance with any new requirements adopted by the Public Company Accounting Oversight Board requiring mandatory audit firm rotation or a supplement to the auditor’s report in which the auditor would be required to provide additional information about the audit and the financial statements of the issuer;
an exemption from the requirement to seek non-binding advisory votes on executive compensation and golden parachute arrangements; and
reduced disclosure about executive compensation arrangements.

We will remain an emerging growth company until the last day of the fiscal year following the fifth anniversary of the date of the first sale of our common stock pursuant to an effective registration statement, which was September 22, 2021, unless, prior to that time, we have more than $1.07 billion in annual gross revenue, have a market value for our common stock held by non-affiliates of more than $700 million as of the last day of our second fiscal quarter of the fiscal year and a determination is made that we are deemed to be a “large accelerated filer,” as defined in Rule 12b-2 promulgated under the Exchange Act, or issue more than $1.0 billion of non-convertible debt securities over a three-year period, whether or not issued in a registered offering.

In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. An emerging growth company can, therefore, delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.

Impact of COVID-19; Inflationary Environment

We continue to actively monitor the impact of COVID-19 on all aspects of our business. We have closely monitored and implemented the emerging shifts in government and health agency protocols and safety guidelines related to the COVID-19 pandemic throughout the past two years. We have experienced incremental operating costs at our manufacturing and warehouse facilities to promote safe operations and maintain our ability to supply our products, including frontline worker pay, employee protective equipment and higher utilization of temporary labor. As a result of non-essential travel restrictions during the pandemic, we have experienced reduced employee travel and meeting costs, which partially mitigated our higher operating costs.  

We cannot predict the degree to, or the period over, which we will be affected by the COVID-19 pandemic and resulting governmental and other measures or changes thereto, including easing of restrictions. The global impact of the COVID-19 pandemic continues to evolve, and we continue to closely monitor the impact of the COVID-19 pandemic on our

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business and remain focused on prioritizing the health of our employees while seeking to maintain the continuity of our product supply throughout the supply chain. We have benefited from changes in consumer shopping and consumption patterns during the COVID-19 pandemic, including dramatic increases of in-home consumption and trial of our products, resulting in increased household penetration of our brands in fiscal 2020. As a result of the strong demand for our products as well as supply chain disruptions, we are currently facing challenges to meet our expected service levels in fiscal 2022.

In fiscal 2021, we experienced increased cost of sales, as a percentage of net sales, contributed by higher costs for logistics, materials, labor and energy. We anticipated continued inflationary pressure and accordingly, we announced price increases with the goal of offsetting increased cost of sales. Since the price increase announcements made in late fiscal 2021, we have experienced increased inflationary pressure and volatility, and accordingly recently announced additional price increases.  In addition, to assist in partially mitigating inflation, we are targeting reduced trade spending, seeking to remove our least efficient promotions and drive net price increases. We expect the year-over-year inflation impact to be higher in the first half of fiscal 2022.

Going forward, we expect higher inflation costs to persist as a headwind in the near term given the tight global supply chain. As a result, we will closely monitor our pricing and may announce additional price increases in fiscal 2022. Consistent with the consumer-packaged food industry, we are seeing cost increases in several raw materials including, but not limited to, milk, animal proteins, fruit, resin, and cardboard. Transportation challenges continue to be acute, particularly due to logistical issues at major ports, intermodal and trucking delays and capacity constraints for ocean freight cargo. These challenges have resulted in long lead times and higher logistics costs. Labor-related disruptions, including labor shortages and absenteeism, have been challenges within our operations and among our 3PL providers and other business partners.

We expect to develop additional initiatives to partially mitigate inflationary pressure on top of the various productivity initiatives already in progress. Some of our ongoing supply chain initiatives today include: the further automation of our own production facilities, optimization of our co-manufacturing network, packaging value engineering, and competitive procurement actions. Collectively, we expect the increases in costs to be partially mitigated in fiscal 2022 by the pricing actions, as well as productivity initiatives.

Key Performance Indicators

We regularly review a number of metrics to evaluate our business, measure our progress and make strategic decisions. EBITDA, Adjusted EBITDA, EBITDA margin, Adjusted EBITDA margin, brand net sales, adjusted net income, diluted earnings per share from adjusted net income, adjusted operating expenses, adjusted income tax (expense) benefit and adjusted effective tax rate (the “non-GAAP financial measures”), which are non-GAAP financial measures, are currently utilized by management and may be used by our competitors to assess performance. We believe these measures assist our investors in gaining a meaningful understanding of our performance. Because not all companies use identical calculations, our presentation of these measures may not be comparable to other similarly titled measures of other companies. See “Non-GAAP Financial Measures” for definitions and a reconciliation of net income to EBITDA and Adjusted EBITDA, net sales to brand net sales, net income to adjusted net income and diluted earnings per share from adjusted net income.

Results of Operations

The discussion that follows includes a comparison of our results of operations and liquidity and capital resources for fiscal years 2021 and 2020. For a comparison of our results of operations and financial condition for fiscal years 2020 and 2019, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Prospectus filed with the SEC on September 24, 2021 (the “Prospectus”). We have also included certain non-GAAP financial measures for fiscal 2019 that were not included in our Prospectus.

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Comparison of Results for the Fiscal Years Ended December 25, 2021 and December 26, 2020

The following table presents, for the periods indicated, selected information from our Consolidated Statements of Operations, including information presented as a percentage of net sales:

Fiscal Year Ended

Fiscal Year Ended

Increase / (Decrease)

 

%

 

(In thousands)

December 25, 2021

% of Sales

December 26, 2020

% of Sales

$ Change

Change

 

 

Net sales

    

$

719,186

    

100.0

%  

$

560,067

    

100.0

%  

$

159,119

    

28.4

%  

Cost of sales

 

498,394

 

69.3

%  

 

373,314

 

66.7

%  

 

125,080

 

33.5

%  

Gross profit

 

220,792

 

30.7

%  

 

186,753

 

33.3

%  

 

34,039

 

18.2

%  

Operating expenses:

 

 

 

 

 

  

 

  

Selling, general and administrative

 

135,060

 

18.8

%  

 

124,612

 

22.2

%  

 

10,448

 

8.4

%  

Depreciation and amortization

 

28,871

 

4.0

%  

 

24,744

 

4.4

%  

 

4,127

 

16.7

%  

Loss on extinguishment of debt

 

15,382

 

2.1

%  

 

 

%  

 

15,382

 

NM

%  

Forgiveness of capital advance

5,000

0.7

%  

%  

5,000

NM

%  

Total operating expenses

 

184,313

 

25.6

%  

 

149,356

 

26.7

%  

 

34,957

 

23.4

%  

Operating income

 

36,479

 

5.1

%  

 

37,397

 

6.7

%  

 

(918)

 

(2.5)

%  

Interest expense

 

30,885

 

4.3

%  

 

19,895

 

3.6

%  

 

10,990

 

55.2

%  

Income before income taxes

 

5,594

 

0.8

%  

 

17,502

 

3.1

%  

 

(11,908)

 

(68.0)

%  

Income tax expense

 

(3,675)

 

(0.5)

%  

 

(6,677)

 

(1.2)

%  

 

3,002

 

(45.0)

%  

Net income

$

1,919

 

0.3

%  

$

10,825

 

1.9

%  

$

(8,906)

 

(82.3)

%  

Other financial data: (1)

 

 

 

 

 

  

 

  

EBITDA

$

74,291

 

10.3

%  

$

71,194

 

12.7

%  

$

3,097

 

4.4

%  

Adjusted EBITDA

$

115,145

 

16.0

%  

$

91,132

 

16.3

%  

$

24,013

 

26.3

%  

EBITDA margin

10.3

%  

 

12.7

%  

 

 

(18.7)

%  

Adjusted EBITDA margin

16.0

%  

 

16.3

%  

 

 

(1.8)

%  

Brand net sales

$

719,186

 

$

608,754

 

$

110,432

 

18.1

%  

Adjusted net income

$

54,277

 

$

44,105

 

$

10,172

 

23.1

%  

Adjusted operating expenses

$

143,757

$

130,341

$

13,416

10.3

%  

Adjusted income tax (expense) benefit

$

(19,411)

$

(16,563)

$

(2,848)

17.2

%  

Adjusted effective tax rate

26.3

%  

27.3

%  

(3.7)

%  

(1)Other financial data includes non-GAAP financial metrics. See “Non-GAAP Financial Measures” for definitions and a reconciliation of our net income to EBITDA and Adjusted EBITDA, net sales to brand net sales, net income to adjusted net income, total operating expenses to adjusted operating expenses, reported income tax (expense) benefit to adjusted income tax (expense) benefit and reported effective tax rate to adjusted effective tax rate.

Net Sales

Net sales consist primarily of product sales to our customers less cost of trade promotions such as consumer incentives, coupon redemptions, other marketing activities and allowances for unsalable product.

Net sales of $719.2 million represented an increase of $159.1 million, or 28.4%, for fiscal 2021 compared to fiscal 2020. The increase in net sales was primarily due to a $106.3 million, or 34%, increase in Rao’s net sales, the majority of which was driven by higher sauce and frozen shipments to key customers. Household penetration of our sauce business grew to 10.9% in fiscal 2021, up over 260 basis points compared to fiscal 2020. As we exited the fourth quarter of 2021, Rao’s became the #2 pasta & pizza sauce brand in dollar consumption. Higher shipments for noosa, namely in spoonable

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yogurt, drove an incremental $10.0 million of net sales.  The Birch Benders brand, which was acquired in October 2020 and was therefore not included for a full year in the results for fiscal 2020, accounted for $47.3 million of the increase.  

Cost of Sales

Cost of sales represents costs directly related to the manufacturing and distribution of products. Such costs include raw materials, labor and overhead required to produce the products, co-manufacturing, packaging, warehousing, shipping and handling, third-party distribution, and depreciation of equipment and leasehold improvements. We manufacture our products in our Austin, Texas and Bellvue, Colorado manufacturing locations. We also use third-party contract manufacturers in the United States, Canada and the European Union. We procure selected elements of raw materials and packaging and receive finished goods. We incur tolling charges related to our contract manufacturing arrangements.

Cost of sales of $498.4 million represented an increase of $125.1 million, or 33.5%, for fiscal 2021 compared to fiscal 2020. The increase was primarily attributable to higher net sales discussed above. In addition, incremental costs from inflationary pressures and global logistical constraints contributed to higher cost of sales. Consistent with others in our industry, we have faced challenges with supply chain and inflationary headwinds, several of which have intensified in recent months. With Omicron having brought on the latest wave of supply chain disruption, near-term cost and operating pressures related to raw materials, particularly dairy and animal proteins, logistics and labor have intensified. As a result, we have experienced higher ocean freight and port-related costs as well as higher input and materials costs. The Birch Benders brand, which was acquired in October 2020, and was therefore not included for a full year in the results for fiscal 2020, also contributed $35.9 million to the increase.

Cost of sales as a percentage of net sales increased from 66.7% for the fiscal year ended December 26, 2020 to 69.3% for the fiscal year ended December 25, 2021. The increase in cost of sales as a percentage of net sales was due to cost pressures from incremental costs to meet customer service levels and related inflation as described above, as well as higher promotional spending.

Gross Profit

Gross profit of $220.8 million represented an increase of $34.0 million, or 18.2%, for the fiscal year ended December 25, 2021, compared to the fiscal year ended December 26, 2020. Gross profit as a percentage of net sales, or gross margin, decreased from 33.3% for fiscal 2020 to 30.7% for fiscal 2021, and was a result of the items discussed above.

Operating Expenses

Operating expenses of $184.3 million represented an increase of $35.0 million, or 23.4%, for the fiscal year ended December 25, 2021 compared to the fiscal year ended December 26, 2020 due to the following:

Selling, General and Administrative expenses: Selling, general and administrative expenses include sales and marketing costs and general and administrative expenses. Selling and marketing costs primarily include consumer facing marketing costs and customer and consumer facing selling expenses, principally comprised of advertising and marketing costs and broker commissions, as well as research and development expenses. General and administrative expenses are comprised of expenses associated with our corporate and administrative functions that support our business, including expenses for employee salaries and benefits, travel and entertainment, professional services, insurance and other corporate expenses, including auditor and tax fees, third-party consultancy fees, office leases and equity-based compensation expense.

Selling, general and administrative expenses of $135.1 million represented an increase of $10.4 million, or 8.4%, for the fiscal year ended December 25, 2021 compared to the fiscal year ended December 26, 2020. The increase was primarily driven by the inclusion of Birch Benders in results for the full fiscal year ended December 25, 2021, after it was acquired in October of 2020, accounting for $6.7 million of the increase.

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The remainder of the increase was driven by higher volume-related selling expenses and higher general and administrative expenses related to being a public company.

Depreciation and Amortization expenses: Depreciation and amortization expense consists of the depreciation of non-production property and equipment, including leasehold improvements, equipment, capitalized leases and the amortization of customer relationships and finite-lived trademarks.

Depreciation and amortization expenses of $28.9 million represented an increase of $4.1 million, or 16.7%, for the fiscal year ended December 25, 2021, compared to the fiscal year ended December 26, 2020. The increase was primarily due to amortization of the intangible assets recognized as part of the Birch Benders Acquisition.

Loss on Extinguishment of Debt: Loss on extinguishment of debt of $15.4 million for the fiscal year ended December 25, 2021 resulted from the extinguishment of the loans associated with our Senior Credit Facilities in June 2021 as well as the payoff of the Initial Second Lien Facility (as defined herein) and partial prepayments of the Initial First Lien Term Loan Facility (as defined herein) with proceeds from the IPO and the underwriters’ exercise of their option to purchase additional shares. There was no loss on extinguishment of debt for the fiscal year ended December 26, 2020.

Loss on extinguishment of debt of $15.4 million includes $9.4 million of recorded losses in connection with the repayment of the full amounts outstanding under our Senior Credit Facilities in June 2021. Upon the full prepayment of the Initial Second Lien Facility on September 27, 2021, we recognized a loss on the loan extinguishment resulting in a write-off of $4.3 million of the related unamortized issuance costs and discounts. In connection with the partial prepayments of the Initial First Lien Term Loan Facility on September 29, 2021 and October 8, 2021, we recognized a proportional loss of $1.4 million on the partial extinguishment of the related unamortized issuance costs and discounts.

Forgiveness of capital advance: Forgiveness of capital advance of $5.0 million for the fiscal year ended December 25, 2021, resulted from the forgiveness of the remaining $5.0 million balance of the original 2016 capital advance of $10.0 million with one of our suppliers, scheduled to be repaid by December 31, 2023, and is now considered forgiven and repaid in full. There was no forgiveness of capital advance for the fiscal year ended December 26, 2020.

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Equity-Based Compensation Expense

We grant equity-based compensation awards to certain employees, officers and non-employee directors as long-term incentive compensation. We recognize the related expense for these awards ratably over the applicable vesting period. Such expense is recognized as a selling, general and administrative expense. In connection with the IPO, we modified our existing equity-based compensation awards which resulted in a non-cash expense of approximately $0.7 million in our 2021 third quarter, resulted in a non-cash expense of $5.4 million in our 2021 fourth quarter and will result in a non-cash expense of $6.9 million through the first quarter of 2024. In November 2021, we further modified a portion of our existing equity-based compensation awards which resulted in a non-cash expense of approximately $0.6 million in our 2021 fourth quarter.  We expect that this modification will result in an incremental non-cash expense of approximately $4.3 million in fiscal 2022 and approximately $1.1 million in the fiscal year ending December 30, 2023. In addition, we expect to record equity-based compensation expense of approximately $14.8 million through our 2024 third quarter resulting from the issuance of grants under the 2021 Plan (as defined herein) in connection with the IPO. In January 2022, we granted annual equity-based compensation awards to certain employees and officers and expect to recognize approximately $7.9 million through the fiscal year ending December 28, 2024 for the service-vesting awards and approximately $6.0 million through the fiscal year ending December 27, 2025 for the performance-vesting awards. We will also incur equity-based compensation expense in the future related to additional equity grants.

Interest Expense

Interest expense primarily consists of interest and fees on our Credit Facilities, our Senior Credit Facilities, and amortization of deferred financing costs. We have incurred, and may incur additional, indebtedness to fund acquisitions, and we may choose to prepay on our First Lien Credit Agreement to reduce indebtedness.

In fiscal 2020, we incurred additional indebtedness to fund the Birch Benders Acquisition, and in fiscal 2021, we refinanced our debt and incurred additional indebtedness to repay the outstanding 2018 Term Loan and Incremental Term Loan of $373.2 million and finance a $400.0 million shareholder dividend in June 2021.  

On September 27, 2021, using the net proceeds of the IPO we paid the full outstanding principal balance on the Initial Second Lien Facility of $200.0 million plus accrued interest of approximately $2.9 million. Additionally, on September 29, 2021, and October 8, 2021, we prepaid $59.7 million and $39.5 million, respectively, of the outstanding principal balance under the Initial First Lien Term Loan Facility, plus total accrued interest of approximately $0.9 million. These repayments will result in a decrease in future annual interest expense.

Interest expense of $30.9 million represented an increase of $11.0 million, or 55.2%, for the fiscal year ended December 25, 2021, compared to the fiscal year ended December 26, 2020. The increase in interest expense resulted primarily from a higher balance of borrowings during fiscal 2021 compared to fiscal 2020. The higher balance of borrowings outstanding was primarily driven by the borrowings related to the October 2020 Birch Benders Acquisition and our June 2021 shareholder dividend, partially offset by the payoff of the Initial Second Lien Facility in September 2021 and the partial prepayments of the Initial First Lien Term Loan Facility in September and October 2021.

Income Tax Expense

Income tax expense consists of federal and various state taxes. Income tax expense of $3.7 million for the fiscal year ended December 25, 2021, represented a decrease of $3.0 million compared to income tax expense of $6.7 million for the fiscal year ended December 26, 2020. The decrease in our income tax expense for the fiscal year ended December 25, 2021 is primarily attributable to the decrease in earnings before income taxes, the tax deductible costs associated with the IPO that did not require capitalization for federal income tax purposes, the annual remeasurement of the deferred tax balances as a result of the change in the state tax rates, partially offset by an increase in non-deductible expenses for tax purposes related to stock compensation expense driven by the modification of performance equity awards, and a limitation on the deductibility of executive compensation related to becoming a public company. These components resulted in a

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decrease to income tax expense for the fiscal year ended December 25,2021 compared to the fiscal year ended December 26, 2020.

Net Income

Net income for the fiscal year ended December 25, 2021 was $1.9 million compared to net income of $10.8 million for the fiscal year ended December 26, 2020. The decrease in net income was attributable to the items described above.

EBITDA

EBITDA of $74.3 million for the fiscal year ended December 25, 2021 represented an increase of $3.1 million compared to the fiscal year ended December 26, 2020. The increase was driven by improvement in gross profit, excluding depreciation, due to increases in both volume-related and acquisition-related net sales as discussed in the “—Net Sales,” “—Gross Profit,” and “—Operating Expenses” sections above. See “—Non-GAAP Financial Measures” for a discussion of EBITDA and a reconciliation of our net income to EBITDA.

Adjusted EBITDA

Adjusted EBITDA of $115.1 million for the fiscal year ended December 25, 2021 represented an increase of $24.0 million compared to the fiscal year ended December 26, 2020, as discussed in the “—Net Sales,” “—Gross Profit,” and “—Operating Expenses” sections above. See “—Non-GAAP Financial Measures” for a discussion of Adjusted EBITDA and a reconciliation of our net income to Adjusted EBITDA.

Adjusted Net Income

Adjusted net income for the fiscal year ended December 25, 2021 was $54.3 million compared to $44.1 million for the fiscal year ended December 26, 2020. The increase of $10.2 million was attributable to the items described above. See “—Non-GAAP Financial Measures” for a discussion of adjusted net income and a reconciliation of our net income to adjusted net income.

Adjusted Operating Expenses

Adjusted operating expenses for the fiscal year ended December 25, 2021 was $143.8 million compared to $130.3 million for the fiscal year ended December 26, 2020. See “—Non-GAAP Financial Measures” for a discussion of adjusted operating expenses and a reconciliation of our total operating expenses to adjusted operating expenses.

Adjusted Income Tax (Expense) Benefit

Adjusted income tax (expense) benefit for the fiscal year ended December 25, 2021 was $19.4 million compared to $16.6 million for the fiscal year ended December 26, 2020, See “—Non-GAAP Financial Measures” for a discussion of adjusted income tax (expense) benefit and a reconciliation of our reported income tax (expense) benefit to adjusted income tax (expense) benefit.

Adjusted Effective Tax Rate

The adjusted effective tax rate for the fiscal year ended December 25, 2021 was 26.3% compared to 27.3% for the fiscal year ended December 26, 2020. See “—Non-GAAP Financial Measures” for a discussion of adjusted effective tax rate and a reconciliation of reported effective tax rates to adjusted effective tax rate.

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Non-GAAP Financial Measures

We report our financial results in accordance with GAAP. To supplement this information, we also use EBITDA, Adjusted EBITDA, EBITDA margin, Adjusted EBITDA margin, brand net sales, adjusted net income, diluted earnings per share from adjusted net income, adjusted operating expenses, adjusted income tax (expense) benefit and adjusted effective tax rate, non-GAAP financial measures, in this Form 10-K. We define EBITDA as net income before net interest expense, income tax expense, depreciation and amortization. We define Adjusted EBITDA as EBITDA adjusted for impairment of goodwill and intangible assets, transaction and integration costs, IPO readiness costs, non-cash equity-based compensation, supply chain optimization and non-recurring costs. EBITDA margin is determined by calculating the percentage EBITDA is of net sales. Adjusted EBITDA margin is determined by calculating the percentage Adjusted EBITDA is of net sales. Brand net sales consists of net sales from the Rao’s, Michael Angelo’s, noosa and Birch Benders brands for the identified period regardless of our ownership of the brand at that time. Adjusted net income, adjusted operating expenses, adjusted income tax (expense) benefit and adjusted effective tax rate consists of net income, total operating expenses, reported income tax (expense) benefit and reported effective tax rate before impairment of goodwill and intangible assets, transaction and integration costs, IPO readiness, non-cash equity-based compensation, supply chain optimization, non-recurring costs, acquisition amortization and tax-related adjustments that we do not consider in our evaluation of our ongoing operating performance from period to period as discussed further below. Diluted earnings per share from adjusted net income is determined by dividing adjusted net income by the weighted average diluted shares outstanding. Non-GAAP financial measures are included in this Form 10-K because they are key metrics used by management to assess our operating performance. Management believes that non-GAAP financial measures are helpful in highlighting performance trends because non-GAAP financial measures exclude the results of decisions that are outside the control of operating management. Our presentation of non-GAAP financial measures should not be construed to imply that our future results will be unaffected by these items. By providing these non-GAAP financial measures, management believes we are enhancing investors’ understanding of our business and our results of operations, as well as assisting investors in evaluating how well we are executing our strategic initiatives.

EBITDA, Adjusted EBITDA, EBITDA margin, Adjusted EBITDA margin, brand net sales, adjusted net income, diluted earnings per share from adjusted net income, adjusted operating expenses, adjusted income tax (expense) benefit and adjusted effective tax rate are not defined under GAAP. Our use of the terms EBITDA, Adjusted EBITDA, EBITDA margin, Adjusted EBITDA margin, brand net sales, adjusted net income and diluted earnings per share from adjusted net income, adjusted operating expenses, adjusted income tax (expense) benefit and adjusted effective tax rate may not be comparable to similarly titled measures of other companies in our industry and are not measures of performance calculated in accordance with GAAP. Our presentation of non-GAAP financial measures are intended as supplemental measures of our performance that are not required by, or presented in accordance with, GAAP. Non-GAAP financial measures should not be considered as alternatives to operating income, net income, earnings per share, net sales or any other performance measures derived in accordance with GAAP, or as measures of operating cash flows or liquidity.

Non-GAAP financial measures have important limitations as analytical tools, and you should not consider them in isolation or as substitutes for analysis of our results as reported under GAAP. Some of these limitations are:

EBITDA, Adjusted EBITDA, EBITDA margin and Adjusted EBITDA margin do not reflect any charges for the assets being depreciated and amortized that may need to be replaced in the future;
EBITDA, Adjusted EBITDA, EBITDA margin and Adjusted EBITDA margin do not reflect the significant interest expense or the cash requirements necessary to service interest or, if any, principal payments on our debt;
EBITDA, Adjusted EBITDA, EBITDA margin and Adjusted EBITDA margin do not reflect our income tax expense or the cash requirements to pay our income taxes;

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Adjusted EBITDA, Adjusted EBITDA margin, adjusted net income, diluted earnings per share from adjusted net income, adjusted operating expenses, adjusted income tax (expense) benefit and adjusted effective tax rate do not reflect the impact of impairments of goodwill or intangible assets;
Adjusted EBITDA, Adjusted EBITDA margin, adjusted net income, diluted earnings per share from adjusted net income, adjusted operating expenses, adjusted income tax (expense) benefit and adjusted effective tax rate do not reflect the impact of transaction costs and certain integration costs associated with the Birch Benders Acquisition and the Noosa Acquisition as well as costs associated with incomplete potential acquisitions and substantial one-time costs in fiscal 2020 and fiscal 2021 related to a large, uncompleted transaction;
Adjusted EBITDA, Adjusted EBITDA margin, adjusted net income, diluted earnings per share from adjusted net income, adjusted operating expenses, adjusted income tax (expense) benefit and adjusted effective tax rate do not reflect costs associated with preparing for our IPO, including public company readiness;
Adjusted EBITDA, Adjusted EBITDA margin, adjusted net income, diluted earnings per share from adjusted net income, adjusted operating expenses, adjusted income tax (expense) benefit and adjusted effective tax rate do not reflect the impact of write-downs of fixed assets, product write-offs related to manufacturing optimization, certain operation rationalization initiatives and strategic initiatives;
Adjusted EBITDA, Adjusted EBITDA margin, adjusted net income, diluted earnings per share from adjusted net income, adjusted operating expenses, adjusted income tax (expense) benefit and adjusted effective tax rate do not reflect the impact of share-based compensation upon our results of operations; and
Adjusted EBITDA, Adjusted EBITDA margin, adjusted net income, diluted earnings per share from adjusted net income, adjusted operating expenses, adjusted income tax (expense) benefit and adjusted effective tax rate do not include certain expenses that are non-recurring, infrequent and unusual in nature, including extinguishment of debt, forgiveness of capital advance, costs associated with the dividend, enterprise resource planning (ERP) implementation costs related to integrating acquisitions, severance costs and certain legal settlements related to the exit of facilities.

In the future we may incur expenses similar to those eliminated in this presentation of non-GAAP financial measures.

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The following table provides a reconciliation of EBITDA and Adjusted EBITDA to net income, their most directly comparable GAAP measure, for each of the periods presented:

Fiscal Year Ended

(In thousands)

    

December 25, 2021

    

December 26, 2020

 

Net income

$

1,919

$

10,825

Interest

 

30,885

 

19,895

Income tax expense

 

(3,675)

 

(6,677)

Depreciation and amortization

 

37,812

 

33,797

EBITDA

 

74,291

 

71,194

Transaction and integration costs(1)

 

4,227

 

12,396

Initial public offering readiness(2)

 

5,559

 

2,701

Non-cash equity-based compensation(3)

 

9,823

 

1,915

Supply chain optimization(4)

 

 

1,914

Non-recurring costs(5)

 

21,245

 

1,012

Adjusted EBITDA

$

115,145

$

91,132

EBITDA margin

10.3

%  

12.7

%  

Adjusted EBITDA margin

16.0

%  

16.3

%  

(1)Consists of transaction costs and certain integration costs associated with the Birch Benders Acquisition and the Noosa Acquisition as well as costs associated with incomplete potential acquisitions and substantial one-time costs related to a large, uncompleted transaction. For the fiscal years ended December 25, 2021 and December 26, 2020, $298 and $337, respectively, are included in cost of sales and $3,929 and $12,059, respectively, are included in total operating expenses.
(2)Consists of costs associated with preparing for an IPO, including public company readiness, primarily comprised of professional fees. For all periods presented, these costs are included in total operating expenses.
(3)Consists of non-cash equity-based compensation expense associated with the grant of equity-based compensation provided to officers, directors and employees. For all periods presented, these costs are included in total operating expenses.
(4)Consists of expenses for professional fees related to supply-chain manufacturing optimization and costs associated with SKU rationalization and certain other strategic initiatives. For the fiscal year ended December 25, 2021, there were no costs. For the fiscal year ended December 26, 2020, $586 is included in cost of sales and $1,328 is included in total operating expenses.
(5)Consists of costs related to loss on extinguishment of debt, forgiveness of capital advance, legal and consulting costs associated with the dividend, ERP conversion costs related to integrating acquisitions and employee separation costs. For all periods presented, these costs are included in total operating expenses.

EBITDA margin and Adjusted EBITDA margin are calculated by dividing EBITDA and Adjusted EBITDA, respectively, by net sales for the applicable period.

Brand net sales includes actual or estimated net sales for all of our brands for the periods presented regardless of our ownership during such period. The relative performance of Birch Benders prior to our acquisition may not be indicative of the results for Birch Benders in any future periods. Brand net sales includes net sales of the Birch Benders brand prior to the Birch Benders Acquisition and were derived from estimates prepared by, and are the responsibility of, management. Neither our independent auditors, nor any other independent accountants, have audited, compiled, examined or performed any procedures with respect to such information, nor have they expressed any opinion or any other form of assurance on

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such information or its achievability, and assume no responsibility for, and disclaim any association with, the such information. We are providing this information to provide investors with information regarding the relative net sales growth of all of our brands during the periods presented.

The following table provides a reconciliation of brand net sales to net sales, its most directly comparable GAAP measure, for each of the periods presented:

Fiscal Year Ended

(In thousands)

    

    

December 25, 2021

    

December 26, 2020

Net sales

$

719,186

$

560,067

Birch Benders net sales prior to acquisition

 

 

48,687

Brand net sales

$

719,186

$

608,754

The following table provides a reconciliation of adjusted net income to net income, its most directly comparable GAAP measure, and the resulting adjusted diluted earnings per share calculated from adjusted net income, for each of the periods presented:

Fiscal Year Ended

(In thousands)

December 25, 2021

    

December 26, 2020

Net income

    

$

1,919

    

$

10,825

Transaction and integration costs(1)

4,227

12,396

Initial public offering readiness(2)

5,559

2,701

Non-cash equity-based compensation(3)

9,823

1,915

Supply chain optimization(4)

1,914

Non-recurring costs(5)

21,245

1,012

Acquisition amortization(6)

27,240

23,228

Tax effect of adjustments(7)

(14,858)

(10,391)

One-time tax expense items(8)

(878)

505

Adjusted net income

$

54,277

$

44,105

Earnings per share:

Diluted

$

0.02

$

0.14

Adjusted diluted

$

0.67

$

0.58

Weighted average shares outstanding:

Diluted

80,616,326

75,921,065

Adjusted diluted

80,616,326

75,921,065

(1)Consists of transaction costs and certain integration costs associated with the Birch Benders Acquisition as well as costs associated with incomplete potential acquisitions and substantial one-time costs related to a large, uncompleted transaction. For the fiscal years ended December 25, 2021 and December 26, 2020, $298 and $337, respectively, are included in cost of sales and $3,929 and $12,059, respectively, are included in total operating expenses.
(2)Consists of costs associated with preparing for an IPO, including public company readiness, primarily comprised of professional fees. For all periods presented, these costs are included in total operating expenses.
(3)Consists of non-cash equity-based compensation expense associated with the grant of equity-based compensation provided to officers, directors and employees. For all periods presented, these costs are included in total operating expenses.

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(4)Consists of expenses for professional fees related to supply-chain manufacturing optimization and costs associated with SKU rationalization and certain other strategic initiatives. For the fiscal year ended December 25, 2021, there are no costs. For the fiscal year ended December 26, 2020, $586 is included in cost of sales and $1,328 is included in total operating expenses.
(5)Consists of costs related to loss on extinguishment of debt, forgiveness of capital advance, legal and consulting costs associated with the dividend, ERP conversion costs related to integrating acquisitions and employee separation costs. For all periods presented, these costs are included in total operating expenses.
(6)Amortization costs associated with acquired trade names and customer lists.
(7)Tax effect was calculated using the Company's adjusted annual effective tax rate.
(8)Represents the removal for remeasurement of deferred taxes related to intangibles for changes in deferred rate, the removal of the tax effect of non-deductible transaction costs and prior year adjustments of non-deductible items.

The following table provides a reconciliation of adjusted operating expenses to total operating expenses, its most directly comparable GAAP measure, for each of the periods presented:

Fiscal Year Ended

(In thousands)

December 25, 2021

December 26, 2020

December 28, 2019

Selling, general and administrative

$

$ 135,060

$

124,612

$

94,480

Depreciation and amortization

28,871

24,744

23,771

Impairment of goodwill and intangible assets

17,163

Loss on extinguishment of debt

15,382

Forgiveness of capital advance

5,000

Total operating expenses

184,313

149,356

135,414

Impairment of goodwill and intangible assets(1)

(17,163)

Transaction and integration costs(2)

(3,929)

(12,059)

(5,425)

Initial public offering readiness(3)

(5,559)

(2,701)

(280)

Non-cash equity-based compensation(4)

(9,823)

(1,915)

(2,134)

Supply chain optimization(5)

(1,328)

Non-recurring costs(6)

(21,245)

(1,012)

(4,626)

Total adjusted operating expenses

$

143,757

$

130,341

$

105,786

(1)Consists of expenses for impairment of goodwill and intangible assets.
(2)Consists of transaction costs and certain