0001856608false00018566082022-08-032022-08-03

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

Current Report

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Date of Report (date of earliest event reported):

August 3, 2022

Sovos Brands, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware

001-40837

81-5119352

(State or other jurisdiction

of incorporation)

(Commission File Number)

(IRS 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)

Not Applicable

(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

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

SOVO

The Nasdaq Stock Market LLC

(Nasdaq Global Select Market)

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

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.  

 

Item 2.02Results of Operations and Financial Condition

On August 3, 2022, Sovos Brands, Inc. issued a press release announcing financial results for its 13 weeks and 26 weeks ended June 25, 2022. A copy of the press release is furnished as Exhibit 99.1 hereto.

The information contained in this Item 2.02 of this Current Report on Form 8-K, including Exhibit 99.1 attached hereto, is being furnished and shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, or incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

Item 9.01 Financial Statements and Exhibits

(d) Exhibits.

Exhibit No.

99.1

Press Release of Sovos Brands, Inc., dated August 3, 2022.

104

Cover Page Interactive Data File (embedded within the Inline XBRL document).

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereto duly authorized.

SOVOS BRANDS, INC.

By:

 

/s/ James Potter

Name:

 

James Potter

Title:

 

Interim General Counsel

Date: August 3, 2022

Exhibit 99.1

Graphic

Sovos Brands Reports Second Quarter 2022 Financial Results

Net Sales Increase of 22.0% Driven by Double-Digit Volume and Strong Pricing Growth

Raising Full Year Net Sales Range to $825-$835 million and Maintaining Adjusted EBITDA Range, with Guidance at the Lower End

Louisville, Colo – August 3, 2022 (GLOBE NEWSWIRE) – Sovos Brands, Inc. (“Sovos Brands” or the “Company”) (Nasdaq: SOVO), one of the fastest-growing food companies of scale in the United States, today reported financial results for its second quarter ended June 25, 2022.

Highlights:

Net sales were $197.4 million, a 22.0% increase over the prior year period behind continued strength in core categories of sauce, yogurt and frozen, and driven by strong volume and pricing growth
As we rapidly progress towards our $1 billion dollar annual sales goal, Rao’s sauce increased dollar consumption 30.3% and unit consumption 23.4%, driving dollar share up 170-basis points to 14.3%, supported by year over year household penetration gains of 210-basis points to 11.9%1
Rao’s, noosa, and Michael Angelo’s grew net sales 43.6%, 8.8%, and 6.2%, respectively
Net loss was $30.3 million or $(0.30) per diluted share, almost entirely due to a goodwill impairment related to Birch Benders; adjusted net income2 was $12.7 million or $0.13 per diluted share
Adjusted EBITDA2 was $25.7 million, a $1.6 million or 6.0% decrease over the prior year period; Adjusted EBITDA margin2 was 13.0%, a 390-basis point reduction versus the prior year period, as pricing and productivity partially offset the impact of low double-digit inflation, public company costs and investments to drive long-term growth
Raising full year 2022 net sales guidance to $825-$835 million; maintaining adjusted EBITDA range of $116-$122 million with guidance at the lower end

“I am excited to announce another quarter of double-digit, top line growth, which was driven by strong advances in both volume and pricing,” commented Todd Lachman, President and Chief Executive Officer. “Given robust first half organic growth of 16.0%, combined with confidence in our second half plans, we are raising our full year sales guidance. Growth remains our top priority, and we will support our brands with investments behind sales, marketing, innovation, supply chain and other necessary capabilities to drive future share gains for our ‘one-of-a-kind’ brands. We continue to implement pricing and productivity initiatives to counter inflationary pressures, and are confident that we can improve our margins and continue to create value over the long-term for our stakeholders.”


13 Weeks Ended

26 Weeks Ended

June 25, 2022

June 26, 2021

Change

June 25, 2022

June 26, 2021

Change

Net sales ($ millions)

$

197.4

$

161.8

22.0

%

$

407.4

$

351.2

16.0

%

Net income (loss) ($ millions)

$

(30.3)

$

(1.3)

%

$

(26.2)

$

10.4

%

Adjusted net income2

$

12.7

$

13.3

(4.7)

%

$

26.5

$

34.1

(22.4)

%

Diluted EPS

$

(0.30)

$

(0.02)

%

$

(0.26)

$

0.13

%

Adjusted diluted EPS2

$

0.13

$

0.17

(23.5)

%

$

0.26

$

0.44

(40.9)

%

Adjusted EBITDA2($ millions)

$

25.7

$

27.3

(6.0)

%

$

53.3

$

62.9

(15.2)

%

Adjusted EBITDA margin2(%)

13.0

%

16.9

%

(390)

bps

13.1

%

17.9

%

(480)

bps

Second Quarter 2022 Results

Net sales of $197.4 million represented an increase of $35.6 million, or 22.0%, compared to the prior year period. The organic increase in net sales was driven by 13.3% volume growth and 8.7% price. At the brand level, primary drivers of growth were Rao’s, noosa and Michael Angelo’s.

Gross profit of $55.0 million increased by $5.3 million or 10.7% versus the prior year period. Gross margin was 27.9% versus 30.7% for the prior year period. Adjusted gross profit2 of $55.2 million increased by $5.5 million or 11.1% versus the prior year period. Adjusted gross margin was 28.0%, reflecting a 270-basis point decline versus the prior year period and a 200-basis point improvement quarter-over-quarter. The year-over-year decline was primarily due to dairy, proteins, packaging, logistics and energy inflation. These items were partially offset by the escalating benefits of pricing and productivity.

Total operating expenses of $88.7 million increased by $45.0 million or 103.1% versus the prior year period, largely reflecting the non-cash impairment of goodwill related to the Birch Benders acquisition. Adjusted operating expenses of $32.5 million increased by $7.5 million or 30.2% versus the prior year period. This increase was primarily driven by growth-driving investments behind our brands, talent and capabilities, as well as public company costs.

Interest expense was $5.7 million compared to $6.7 million in the prior year period.

Net loss was $30.3 million, or $(0.30) per diluted share, versus a net loss of $1.3 million, or $(0.02) per diluted share in the prior year period. The increase in net loss was almost entirely due to a goodwill impairment related to Birch Benders. Excluding after-tax costs of $43.0 million for non-recurring items detailed in the Reconciliation of Non-GAAP Financial Measures below, adjusted net income2 of $12.7 million decreased by 4.7% compared to the prior year period. Adjusted diluted earnings per share2 for the quarter were $0.13 per share versus $0.17 per share in the prior year period.

Adjusted EBITDA2 of $25.7 million decreased $1.6 million or 6.0% versus the prior year period. Adjusted EBITDA margin2 was 13.0% versus 16.9% in the prior year period.

2


Balance Sheet and Cash Flow Highlights

As of June 25, 2022, the end of the second quarter, cash and cash equivalents were $72.7 million and total debt was $482.0 million, resulting in a net debt to last twelve months adjusted EBITDA ratio of 3.9x. We expect that our leverage will finish the year below 3.5x.

Cash from operating activities was $16.3 million in the 26-week period ended June 25, 2022, compared to $12.6 million in the prior year period. The increase was driven primarily by an improvement in working capital. Year-to-date capital expenditures were $9.7 million versus $2.6 million in the prior year period.

Fiscal 2022 Outlook

The Company is raising net sales guidance and maintaining its adjusted EBITDA range with guidance at the lower end, inclusive of a 53rd week, as follows:

Net sales

$825-$835 million

Adjusted EBITDA

$116-$122 million

The Company’s outlook assumes no significant disruption from the COVID-19 pandemic and that inflationary pressures will be partially absorbed by pricing actions and productivity improvements.

Sovos Brands cannot provide a reconciliation between its forecasted adjusted EBITDA and a forecasted net income without unreasonable effort due to the inherent difficulty of forecasting and providing reliable estimates for certain items. These items may reside outside the Company’s control and vary greatly between periods and could significantly impact future financial results. For more information regarding the use of non-GAAP measures, please see discussion provided under Non-GAAP Financial Information in this press release and the Company’s public filings.

Footnotes:

(1) Source: Market performance refers to dollar sales and velocity growth rates as reported by IRI MULO in the 13-week period ended June 26, 2022. Household penetration refers to data reported by IRI All Outlet for the 52-week period ended July 10, 2022 and is compared to the 52-week period ended July 11, 2021.

(2) Adjusted gross profit, adjusted gross margin, adjusted operating expense, EBITDA, adjusted EBITDA, adjusted EBITDA margin, adjusted net income, and adjusted diluted EPS are non-GAAP measures. Please note that beginning with the 13 and 26-week periods ended June 25, 2022, as well as for the comparable year ago periods, we have provided adjusted gross profit and adjusted operating expenses. This new format presents the way that Sovos Brands' management views its P&L and summarizes previously provided information into a layout that better conforms with common industry practice. For additional information, including a reconciliation of adjusted results to the most directly comparable

3


measures presented in accordance with GAAP, see the Non-GAAP Financial Information and Reconciliation of Non-GAAP Financial Measures sections of this release.

Earnings Conference Call Details

The Sovos management team will host a conference call and webcast at 4:30 p.m. ET today to discuss the results. The webcast will be available on the Investor Relations section of the Company’s website at ir.sovosbrands.com. The webcast will be archived and available for replay. If you plan to ask a question during the live webcast, please join at https://register.vevent.com/register/BI0a03f627839843bcbd745c2be9703aa6.

About Sovos Brands, Inc.

Sovos Brands, Inc. is a consumer-packaged food company focused on acquiring and building disruptive growth brands that bring today’s consumers great tasting food that fits the way they live. The Company’s product offerings include a variety of pasta sauces, dry pasta, soups, frozen entrées, yogurts, pancake and waffle mixes, other baking mixes, and frozen waffles, all of which are sold in the United States under the brand names Rao’s, Michael Angelo’s, noosa, and Birch Benders. All Sovos Brands’ products are built with authenticity at their core, providing consumers with one-of-a-kind food experiences that are genuine, delicious, and unforgettable. The Company is headquartered in Louisville, Colorado. For more information on Sovos Brands and its products, please visit www.sovosbrands.com.

Contacts

Investors: 

Joshua Levine                             
IR@sovosbrands.com

Media:

Lauren Armstrong

media@sovosbrands.com

Non-GAAP Financial Information

In addition to the Company’s results which are determined in accordance with generally accepted accounting principles in the United States (“GAAP”), the Company believes the following non-GAAP measures presented in this press release and/or discussed on the related teleconference call are useful in evaluating its operating performance: EBITDA, Adjusted EBITDA, EBITDA margin, Adjusted EBITDA margin, adjusted gross profit, adjusted operating expenses, adjusted operating income, adjusted income tax expense, adjusted effective tax rate, adjusted net income, and diluted earnings per share from adjusted net income. We define EBITDA as net income (loss) before net interest expense, income tax (expense) benefit, depreciation and amortization. We define Adjusted EBITDA as EBITDA adjusted for impairment of goodwill, transaction and integration costs, IPO readiness costs, non-cash equity-based compensation, foreign currency contracts loss, 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. Adjusted gross profit, adjusted operating expenses, adjusted operating income, adjusted income tax expense, adjusted effective tax rate and adjusted net income consists of gross profit, total operating expenses, operating

4


income (loss), reported income tax (expense) benefit, reported effective tax rate and net income (loss) before impairment of goodwill, transaction and integration costs, IPO readiness costs, non-cash equity-based compensation, foreign currency contracts loss, 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 release 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 eliminate non-recurring and unusual items and non-cash expenses, which we do not consider indicative of ongoing operational performance. 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, adjusted gross profit, adjusted operating expenses, adjusted operating income, adjusted income tax expense, adjusted effective tax rate, adjusted net income and diluted earnings per share from adjusted net income are not defined under GAAP. Our use of the terms EBITDA, Adjusted EBITDA, EBITDA margin, Adjusted EBITDA margin, adjusted gross profit, adjusted operating expenses, adjusted operating income, adjusted income tax expense, adjusted effective tax rate, adjusted net income and diluted earnings per share from adjusted net income 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 is 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 (loss), net income (loss), earnings (loss) per share, net sales or any other performance measures derived in accordance with GAAP, or as measures of operating cash flows or liquidity.

Forward-Looking Statements

This press release and the earnings call referencing this press release contain forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, including but not limited to statements regarding Sovos Brands’ market opportunity, anticipated growth, and future financial performance, including management’s outlook for the fiscal year ending December 31, 2022 and longer-term. These forward-looking statements are based on Sovos Brands’ current assumptions, expectations and beliefs and are subject to substantial risks, uncertainties, assumptions, and changes in circumstances that may cause Sovos Brands’ actual results, performance, or achievements to differ materially from those expressed or implied in any forward-looking statement.

The risks and uncertainties referred to above 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, packaging and fuel, and labor, manufacturing, distribution and other costs, and our inability to offset increasing costs through cost savings initiatives or pricing; adverse consequences of the actions of the major retailers, wholesalers, distributors and mass merchants on which we rely, including if they give higher priority to

5


other brands or products, take steps to maintain or improve their margins by, among other things, raising the on-shelf prices of our products or imposing surcharges on us, or if they perform poorly or declare bankruptcy; supply disruptions, including increased costs and potential adverse impacts on distribution and consumption; geopolitical tensions, including relating to Ukraine; 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; competition in the packaged food industry and our product categories; our inability to accurately forecast pricing elasticities and the resulting impact on volume growth and/or distribution gains; the COVID-19 pandemic and associated effects; 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; our vulnerability to the impact of severe weather conditions, natural disasters and other natural events on our manufacturing facilities, co-packers or raw material suppliers; 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; failure to protect, or litigation involving, our tradenames or trademarks and other rights; fluctuations in currency exchange rates could adversely affect our results of operations and cash flows; our ability to effectively manage interest rate risk, including through the use of hedges and other strategies or financial products; a change in assumptions used to value our goodwill or our intangible assets, or the impairment of our goodwill or intangible assets; our level of indebtedness under our First Lien Credit Agreement, which as of June 25, 2022 was $480.8 million, and our duty to comply with covenants under our First Lien Credit Agreement; and the interests of our majority stockholder may differ from those of public stockholders.

These risks and uncertainties are more fully described in Sovos Brands’ filings with the Securities and Exchange Commission (the “SEC”), including in the section entitled “Risk Factors” in its Annual Report on Form 10-K for the fiscal year ended December 25, 2021, and other filings and reports that Sovos Brands may file from time to time with the SEC. Moreover, Sovos Brands operates in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for management to predict all risks, nor can Sovos Brands assess the impact of all factors on its business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements Sovos Brands may make. In light of these risks, uncertainties and assumptions, Sovos Brands cannot guarantee that future results, levels of activity, performance, achievements, or events and circumstances reflected in the forward-looking statements will occur. Forward-looking statements represent managements’ beliefs and assumptions only as of the date of this press release. Sovos Brands disclaims any obligation to update forward-looking statements except as required by law.

6


SOVOS BRANDS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(amounts in thousands, except for share and per share data)

(Unaudited)

13 Weeks Ended

26 Weeks Ended

    

June 25, 2022

June 26, 2021

    

June 25, 2022

June 26, 2021

Net sales

$

197,433

$

161,838

$

407,366

$

351,209

Cost of sales

 

142,410

 

112,135

 

298,435

 

239,764

Gross profit

 

55,023

 

49,703

 

108,931

 

111,445

Operating expenses:

Selling, general and administrative

 

39,449

 

26,745

 

73,364

 

60,178

Depreciation and amortization

 

7,200

 

7,205

 

14,403

 

14,395

Impairment of goodwill

42,052

42,052

Loss on extinguishment of debt

9,717

9,717

Total operating expenses

88,701

43,667

129,819

84,290

Operating income (loss)

 

(33,678)

 

6,036

 

(20,888)

 

27,155

Interest expense

 

5,713

 

6,699

 

11,735

 

12,066

Income (loss) before income taxes

 

(39,391)

 

(663)

 

(32,623)

 

15,089

Income tax (expense) benefit

 

9,106

 

(676)

 

6,395

 

(4,716)

Net income (loss)

$

(30,285)

$

(1,339)

$

(26,228)

$

10,373

Earnings (loss) per share:

 

  

 

  

 

  

 

  

Basic

$

(0.30)

$

(0.02)

$

(0.26)

$

0.14

Diluted

$

(0.30)

$

(0.02)

$

(0.26)

$

0.13

Weighted average shares outstanding:

 

 

 

 

Basic

 

100,897,815

 

74,058,447

 

100,895,181

 

74,058,447

Diluted

 

100,897,815

 

74,058,447

 

100,895,181

 

77,041,809

7


SOVOS BRANDS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(amounts in thousands, except for par value and share data)

(Unaudited)

    

June 25, 2022

    

December 25, 2021

ASSETS

 

  

 

  

CURRENT ASSETS:

 

  

 

  

Cash and cash equivalents

$

72,651

$

66,154

Accounts receivable, net

 

73,907

 

70,729

Inventories

 

76,626

 

51,615

Prepaid expenses and other current assets

 

4,221

 

6,685

Total current assets

 

227,405

 

195,183

Property and equipment, net

 

66,701

 

62,671

Operating lease right-of-use assets

14,497

15,672

Goodwill

 

395,399

 

437,451

Intangible assets, net

 

451,035

 

464,655

Other long-term assets

 

2,197

 

2,299

TOTAL ASSETS

$

1,157,234

$

1,177,931

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

  

 

  

CURRENT LIABILITIES:

 

  

 

  

Accounts payable

$

49,720

$

37,254

Accrued expenses

 

48,002

 

51,757

Current portion of long-term debt

 

90

 

98

Current portion of long-term lease liabilities

3,208

3,216

Total current liabilities

 

101,020

 

92,325

Long-term debt, net of debt issuance costs

 

481,883

 

481,420

Deferred income taxes

 

66,275

 

76,976

Long-term operating lease liabilities

15,721

17,302

Other long-term liabilities

 

442

 

421

TOTAL LIABILITIES

 

665,341

 

668,444

STOCKHOLDERS’ EQUITY:

 

  

 

  

Preferred Stock

Common Stock

 

101

 

101

Stockholder's note receivable

 

 

Additional paid-in-capital

 

567,860

 

559,226

Accumulated deficit

 

(76,068)

 

(49,840)

TOTAL STOCKHOLDERS’ EQUITY

 

491,893

 

509,487

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

$

1,157,234

$

1,177,931

8


SOVOS BRANDS, INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(amounts in thousands)

(Unaudited)

26 Weeks Ended

    

June 25, 2022

June 26, 2021

Operating activities

 

  

 

  

Net income (loss)

$

(26,228)

$

10,373

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

  

Depreciation and amortization

 

19,380

 

18,808

Equity-based compensation expense

 

8,634

 

1,105

Loss on foreign currency contracts

497

Deferred income taxes

 

(10,701)

 

4,138

Amortization of debt issuance costs

 

633

 

1,058

Non-cash operating lease expense

 

1,216

 

1,095

Provision for excess and obsolete inventory

 

224

Loss on disposal of property and equipment

 

54

Impairment of goodwill

42,052

Loss on extinguishment of debt

 

9,717

Other

 

(6)

 

60

Changes in operating assets and liabilities:

 

 

  

Accounts receivable, net

 

(3,171)

 

388

Inventories

 

(25,234)

 

(32,915)

Prepaid expenses and other current assets

 

2,077

 

(2,732)

Other long-term assets

 

(30)

 

394

Accounts payable

 

12,405

 

17,712

Accrued expenses

(3,864)

 

(15,315)

Other long-term liabilities

20

 

8

Operating lease liabilities

(1,630)

(1,343)

Net cash provided by operating activities

 

16,274

 

12,605

Investing activities

  

 

  

Purchases of property and equipment

(9,730)

 

(2,604)

Net cash used in investing activities

 

(9,730)

 

(2,604)

Financing activities

 

  

 

  

Payments of debt issuance costs

 

 

(3,008)

Proceeds from long-term debt

 

 

769,136

Repayments of long-term debt

 

 

(374,146)

Repayments of capital lease obligations

 

(47)

 

(32)

Proceeds from stockholder's note receivable

 

6,000

Contingent earn out consideration paid

 

 

(5,000)

Dividends Paid

 

(400,000)

Net cash used in financing activities

 

(47)

 

(7,050)

Net increase in cash and cash equivalents

6,497

 

2,951

Cash and cash equivalents at beginning of period

 

66,154

 

37,026

Cash and cash equivalents at end of period

$

72,651

$

39,977

9


SOVOS BRANDS, INC.

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

(dollar amounts in thousands)

(Unaudited)

13 Weeks Ended

26 Weeks Ended

 

(In thousands)

    

June 25, 2022

June 26, 2021

June 25, 2022

June 26, 2021

 

Net income (loss)

$

(30,285)

$

(1,339)

$

(26,228)

$

10,373

Interest

5,713

6,699

 

11,735

 

12,066

Income tax (expense) benefit

9,106

(676)

 

6,395

 

(4,716)

Depreciation and amortization

9,825

9,429

 

19,380

 

18,808

EBITDA

(23,853)

15,465

 

(1,508)

 

45,963

Impairment of goodwill(1)

42,052

 

42,052

 

Transaction and integration costs(2)

59

340

 

59

 

3,510

Initial public offering readiness(3)

164

914

 

384

 

2,059

Non-cash equity-based compensation(4)

4,547

544

 

8,634

 

1,105

Loss on foreign currency contracts(5)

497

497

Supply chain optimization(6)

202

 

794

 

Non-recurring costs(7)

2,023

10,057

 

2,400

 

10,242

Adjusted EBITDA

$

25,691

$

27,320

$

53,312

$

62,879

EBITDA margin

(12.1)

%  

9.6

%  

(0.4)

%  

13.1

%  

Adjusted EBITDA margin

13.0

%  

16.9

%  

13.1

%  

17.9

%  


(1)
Consists of expenses from impairment of goodwill.
(2)
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.
(3)
Consists of costs associated with preparing for an IPO and other professional fees associated with building the organizational infrastructure to support a public company environment.
(4)
Consists of non-cash equity-based compensation expense associated with the grant of equity-based compensation provided to officers, directors and employees.
(5)
Consists of unrealized loss on foreign currency contracts.
(6)
Consists of write-downs associated with packaging optimization and a strategic initiative to move co-packaging production from an international supplier to a domestic supplier.
(7)
Consists of costs related to loss on extinguishment of debt, professional fees related to organizational optimization, costs for capital markets activities typical of a newly public company and ERP conversion costs related to integrating acquisitions.

10


SOVOS BRANDS, INC.

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

(amounts in thousands)

(Unaudited)

13 Weeks Ended

(In thousands, except share and per share data)

June 25, 2022

  

Gross profit

  

Operating expenses

  

Operating income (loss)

  

Interest expense

  

Income tax (expense) benefit

  

Net income (loss)

  

As reported (GAAP)

$

55,023

$

88,701

$

(33,678)

$

5,713

$

9,106

$

(30,285)

Adjustments:

Impairment of goodwill(1)

(42,052)

42,052

42,052

Transaction and integration costs(2)

 

 

(59)

59

 

 

59

Initial public offering readiness(3)

 

 

(164)

164

 

 

164

Non-cash equity-based compensation(4)

 

 

(4,547)

4,547

 

 

4,547

Loss on foreign currency contracts(5)

(497)

497

497

Supply chain optimization(6)

 

202

 

202

 

 

202

Non-recurring costs(7)

 

 

(2,023)

2,023

 

 

2,023

Acquisition amortization(8)

(6,810)

6,810

6,810

Tax effect of adjustments(9)

 

 

 

(3,091)

 

(3,091)

One-time tax (expense) benefit items(10)

(10,276)

(10,276)

As adjusted

$

55,225

$

32,549

$

22,676

$

5,713

$

(4,261)

$

12,702

As adjusted (% of net sales)

28.0

%  

16.5

%  

11.5

%  

 

2.9

%  

(2.2)

%  

 

6.4

%  

Earnings (loss) per share:

Diluted

 

(0.30)

Adjusted Diluted

 

0.13

Weighted average shares outstanding:

Diluted for net loss

100,897,815

Diluted for adjusted net income

101,321,056

11


SOVOS BRANDS, INC.

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

(amounts in thousands)

(Unaudited)

13 Weeks Ended

(In thousands, except share and per share data)

June 26, 2021

  

Gross profit

  

Operating expenses

  

Operating income

  

Interest expense

  

Income tax (expense)

  

Net income (loss)

  

As reported (GAAP)

$

49,703

$

43,667

$

6,036

$

6,699

$

(676)

$

(1,339)

Adjustments:

Transaction and integration costs(2)

 

 

(340)

340

 

 

340

Initial public offering readiness(3)

 

 

(914)

914

 

 

914

Non-cash equity-based compensation(4)

 

 

(544)

544

 

 

544

Supply chain optimization(6)

 

 

 

 

Non-recurring costs(7)

 

 

(10,057)

10,057

 

 

10,057

Acquisition amortization(8)

(6,809)

6,809

6,809

Tax effect of adjustments(9)

 

 

 

(4,313)

 

(4,313)

One-time tax (expense) benefit items(10)

320

320

As adjusted

$

49,703

$

25,003

$

24,700

$

6,699

$

(4,669)

$

13,332

As adjusted (% of net sales)

30.7

%  

15.4

%  

15.3

%  

 

4.1

%  

(2.9)

%  

 

8.2

%  

Earnings (loss) per share:

Diluted

 

(0.02)

Adjusted Diluted

 

0.17

Weighted average shares outstanding:

Diluted for net loss

74,058,447

Diluted for adjusted net income

77,100,624

12


SOVOS BRANDS, INC.

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

(amounts in thousands)

(Unaudited)

26 Weeks Ended

(In thousands, except share and per share data)

June 25, 2022

  

Gross profit

  

Operating expenses

  

Operating income (loss)

  

Interest expense

  

Income tax (expense) benefit

  

Net income (loss)

  

As reported (GAAP)

$

108,931

$

129,819

$

(20,888)

$

11,735

$

6,395

$

(26,228)

Adjustments:

Impairment of goodwill(1)

(42,052)

42,052

42,052

Transaction and integration costs(2)

 

 

(59)

59

 

 

59

Initial public offering readiness(3)

 

 

(384)

384

 

 

384

Non-cash equity-based compensation(4)

 

 

(8,634)

8,634

 

 

8,634

Loss on foreign currency contracts(5)

(497)

497

497

Supply chain optimization(6)

 

794

 

794

 

 

794

Non-recurring costs(7)

 

 

(2,400)

2,400

 

 

2,400

Acquisition amortization(8)

(13,619)

13,619

13,619

Tax effect of adjustments(9)

 

 

 

(5,451)

 

(5,451)

One-time tax (expense) benefit items(10)

(10,276)

(10,276)

As adjusted

$

109,725

$

62,174

$

47,551

$

11,735

$

(9,332)

$

26,484

As adjusted (% of net sales)

26.9

%  

15.3

%  

11.7

%  

 

2.9

%  

(2.3)

%  

 

6.5

%  

Earnings (loss) per share:

Diluted

 

(0.26)

Adjusted Diluted

 

0.26

Weighted average shares outstanding:

Diluted for net loss

100,895,181

Diluted for adjusted net income

101,053,289

13


SOVOS BRANDS, INC.

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

(amounts in thousands)

(Unaudited)

26 Weeks Ended

(In thousands, except share and per share data)

June 26, 2021

  

Gross profit

  

Operating expenses

  

Operating income

  

Interest expense

  

Income tax (expense)

  

Net income

  

As reported (GAAP)

$

111,445

$

84,290

$

27,155

$

12,066

$

(4,716)

$

10,373

Adjustments:

Transaction and integration costs(2)

 

 

(3,510)

3,510

 

 

3,510

Initial public offering readiness(3)

 

 

(2,059)

2,059

 

 

2,059

Non-cash equity-based compensation(4)

 

 

(1,105)

1,105

 

 

1,105

Supply chain optimization(6)

 

 

 

 

-

Non-recurring costs(7)

 

 

(10,242)

10,242

 

 

10,242

Acquisition amortization(8)

(13,619)

13,619

13,619

Tax effect of adjustments(9)

 

 

 

(7,103)

 

(7,103)

One-time tax (expense) benefit items(10)

320

320

As adjusted

$

111,445

$

53,755

$

57,690

$

12,066

$

(11,499)

$

34,125

As adjusted (% of net sales)

31.7

%  

15.3

%  

16.4

%  

 

3.4

%  

(3.3)

%  

 

9.7

%  

Earnings per share:

Diluted

 

0.13

Adjusted Diluted

 

0.44

Weighted average shares outstanding:

Diluted for net income