Item 1. Financial Statements
AMPLIFY SNACK BRANDS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(unaudited, in thousands, except share data)
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April 1, 2017
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|
December 31,
2016
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|
Assets
|
|
|
|
|
Current assets:
|
|
|
|
|
Cash and cash equivalents
|
$
|
10,074
|
|
|
$
|
10,323
|
|
|
Accounts receivable, net of allowances of $11,349 and $9,261, respectively
|
44,005
|
|
|
42,852
|
|
|
Inventories
|
21,290
|
|
|
18,250
|
|
|
Other current assets
|
8,509
|
|
|
7,804
|
|
|
Total current assets
|
83,878
|
|
|
79,229
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|
|
Property and equipment, net
|
56,739
|
|
|
45,884
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|
|
Other assets:
|
|
|
|
|
Goodwill
|
146,087
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|
|
151,953
|
|
|
Intangible assets, net
|
565,990
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|
|
559,996
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|
|
Other assets
|
1,103
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|
|
1,178
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|
|
Total assets
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$
|
853,797
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|
|
$
|
838,240
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|
|
Liabilities and shareholders' equity
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|
|
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Current liabilities:
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|
|
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|
Accounts payable
|
$
|
28,510
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|
|
$
|
32,582
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Accrued liabilities
|
11,440
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|
|
12,505
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Senior term loan- current portion
|
5,938
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|
|
5,936
|
|
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Tax receivable obligation- current portion
|
7,114
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|
|
7,114
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|
|
Notes payable, net- current portion
|
998
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|
|
991
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|
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Other current liabilities
|
772
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|
|
908
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|
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Total current liabilities
|
54,772
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|
|
60,036
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Long-term liabilities:
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|
|
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Senior term loan, net
|
570,819
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|
|
571,576
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|
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Revolving credit facility, net
|
14,278
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|
|
7,210
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Notes payable, net
|
6,714
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|
|
6,678
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Net deferred tax liabilities
|
58,740
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|
|
54,890
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Tax receivable obligation
|
81,905
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|
81,905
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|
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Other liabilities
|
6,157
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|
|
4,211
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Total long-term liabilities
|
738,613
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|
726,470
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|
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Commitment and contingencies (Note 9)
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|
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Shareholders' Equity:
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Common stock, $0.0001 par value, 375,000,000 shares authorized at April 1, 2017 and December 31, 2016 and 76,770,630 and 76,786,000 shares issued and outstanding at April 1, 2017 and December 31, 2016, respectively
|
8
|
|
|
8
|
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Additional paid-in capital
|
42,796
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|
|
41,279
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|
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Common stock held in treasury, at par, 2,478,034 and 2,948,995 shares at April 1, 2017 and December 31, 2016, respectively
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—
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—
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Retained earnings
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42,444
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|
41,916
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Accumulated other comprehensive loss
|
(24,836
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)
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|
(31,469
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)
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Total shareholders' equity
|
60,412
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|
|
51,734
|
|
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Total liabilities and shareholders' equity
|
$
|
853,797
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|
|
$
|
838,240
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|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
AMPLIFY SNACK BRANDS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income
(unaudited, in thousands, except shares outstanding and per share information)
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13 Weeks Ended April 1, 2017
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|
Three Months Ended March 31, 2016
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Net sales
|
$
|
87,218
|
|
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$
|
54,345
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Cost of goods sold
|
51,908
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|
|
25,927
|
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Gross profit
|
35,310
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|
28,418
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Sales & marketing expenses
|
10,425
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|
5,679
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General & administrative expenses
|
11,357
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|
5,432
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Total operating expenses
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21,782
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|
11,111
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Operating income
|
13,528
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|
17,307
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Interest expense
|
10,973
|
|
|
3,026
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Other income, net
|
(278
|
)
|
|
—
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Income before income taxes
|
2,833
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|
|
14,281
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Income tax expense
|
2,305
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|
5,879
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Net income
|
$
|
528
|
|
|
$
|
8,402
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Other comprehensive income:
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|
|
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Foreign currency translation adjustments
|
6,633
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|
|
—
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Comprehensive income
|
$
|
7,161
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|
|
$
|
8,402
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|
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Basic and diluted earnings per share
|
$
|
0.01
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$
|
0.11
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Weighted average shares outstanding:
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|
|
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Basic
|
76,730,776
|
|
|
74,838,937
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|
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Diluted
|
76,746,296
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|
|
74,838,937
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
AMPLIFY SNACK BRANDS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(unaudited, in thousands)
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13 Weeks Ended April 1, 2017
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Three Months Ended March 31, 2016
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Operating activities:
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Net income
|
$
|
528
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|
|
$
|
8,402
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Adjustments to reconcile net income to net cash from operating activities:
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Depreciation
|
1,914
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|
107
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Amortization of intangible assets
|
1,783
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|
1,063
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Amortization of deferred financing costs and debt discounts
|
858
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217
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Deferred income taxes
|
842
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|
1,268
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Equity-based compensation expense
|
1,744
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|
1,079
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Loss on exit activity
|
190
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|
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—
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Changes in operating assets and liabilities, net of effects of acquisition:
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Accounts receivable
|
(843
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)
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|
(3,514
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)
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Inventories
|
(2,878
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)
|
|
(251
|
)
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Other assets
|
(699
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)
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|
108
|
|
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Accounts payable
|
(5,354
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)
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|
2,333
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|
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Accrued and other liabilities
|
(1,155
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)
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|
3,627
|
|
|
Payments of founder contingent compensation
|
—
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|
|
(23,000
|
)
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Net cash used in operating activities
|
(3,070
|
)
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|
(8,561
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)
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|
Investing activities:
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|
|
|
|
Acquisition of property and equipment
|
(2,526
|
)
|
|
(193
|
)
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Net cash used in investing activities
|
(2,526
|
)
|
|
(193
|
)
|
|
Financing activities:
|
|
|
|
|
Payments on term loans
|
(1,500
|
)
|
|
(2,563
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)
|
|
Draws under revolving credit facility
|
7,000
|
|
|
—
|
|
|
Repurchase of employee stock units on vesting
|
(225
|
)
|
|
—
|
|
|
Net cash provided by (used in) financing activities
|
5,275
|
|
|
(2,563
|
)
|
|
Effect of exchange rate changes on cash and cash equivalents
|
72
|
|
|
—
|
|
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Decrease in cash and cash equivalents
|
(249
|
)
|
|
(11,317
|
)
|
|
Cash and cash equivalents—Beginning of period
|
10,323
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|
|
18,751
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Cash and cash equivalents—End of period
|
$
|
10,074
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|
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$
|
7,434
|
|
|
|
|
|
|
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Supplemental disclosure of cash flow information:
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|
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Income taxes paid
|
$
|
—
|
|
|
$
|
2,787
|
|
|
Interest paid
|
$
|
9,942
|
|
|
$
|
505
|
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
AMPLIFY SNACK BRANDS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
1. BUSINESS OVERVIEW
Amplify Snack Brands, Inc., a Delaware corporation, and its subsidiaries (collectively, the "Company," and herein referred to as "we", "us", and "our") is a high growth, snack food company focused on developing and marketing products that appeal to consumers’ growing preference for better-for-you ("BFY") snacks.
Corporate Reorganization and Initial Public Offering
Prior to the consummation of our initial public offering ("IPO") on August 4, 2015, a series of related reorganization transactions (hereinafter referred to as the "Corporate Reorganization") occurred in the following sequence:
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•
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TA Topco 1, LLC ("Topco"), the former parent entity of the Company, liquidated in accordance with the terms and conditions of Topco's existing limited liability company agreement ("Topco Liquidation"). The holders of existing units in Topco received
100%
of the capital stock of the Company, which was allocated to such unit holders pursuant to the distribution provisions of the existing limited liability company agreement of Topco based upon the liquidation value of Topco. Since Topco was liquidated at the time of our IPO, the implied liquidation value of Topco was based on the IPO price of
$18.00
per share. Topco ceased to exist following the Topco Liquidation.
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•
|
The Company entered into a tax receivable agreement ("TRA") with the former holders of units in Topco pursuant to which such holders received the right to future payments from the Company. Refer to Note 2 for more details regarding the TRA.
|
Crisps Topco Limited Acquisition
On September 2, 2016, the Company completed its acquisition of Crisps Topco Limited (“Tyrrells Group”), a company incorporated under the laws of England and Wales, which owns the Tyrrells international portfolio of premium snack brands, through Thunderball Bidco Limited (the “Purchaser”), a direct, wholly-owned subsidiary of the Company. The acquisition was completed pursuant to a Share Purchase Agreement (the “Purchase Agreement”) with SkinnyPop Popcorn LLC, a direct wholly-owned subsidiary of the Company (the “Purchaser Guarantor”), Crisps Holdings Limited, a company incorporated under the laws of the Cayman Islands (the “Institutional Seller”) and individual selling equity holders (the “Management Sellers”). The Company acquired all of the outstanding equity interests of Tyrrells Group for total consideration of approximately
$416.4 million
. Refer to Note 3 for more details regarding this transaction.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Change in Fiscal Year
In December 2016, the Company's Board of Directors approved a change in the fiscal year end from a calendar year ending on December 31 to a 52- or 53-week fiscal year ending on the last Saturday in December, effective beginning with fiscal year 2017. In a 52- or 53-week fiscal year, each of the Company's fiscal quarters will consist of two four-week fiscal months followed by a five- or six-week fiscal month. The change to the Company’s fiscal year does not impact the Company’s calendar year results for the year ended December 31, 2016, and the Company does not expect the change will impact the prior year comparability of each of the fiscal quarters and annual period in 2016 in future filings.
Basis of Presentation
The accompanying interim condensed consolidated balance sheets as of
April 1, 2017
and
December 31, 2016
, the interim condensed consolidated statements of comprehensive income for the
13 weeks ended April 1, 2017
and the three months ended
March 31, 2016
and the interim condensed consolidated statements of cash flows for the
13 weeks ended April 1, 2017
and three months ended
March 31, 2016
, are unaudited.
AMPLIFY SNACK BRANDS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
Interim Financial Statements
The accompanying unaudited interim condensed consolidated financial statements of Amplify Snack Brands, Inc. (“Condensed Consolidated Financial Statements”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required for annual financial statements. The Condensed Consolidated Financial Statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated.
The Condensed Consolidated Financial Statements have been prepared on the same basis as the audited consolidated financial statements at and for the fiscal year ended December 31, 2016, and in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of the financial position as of
April 1, 2017
and results of our operations for the
13 weeks ended April 1, 2017
and the three months ended
March 31, 2016
, and cash flows for the
13 weeks ended April 1, 2017
and three months ended
March 31, 2016
.
The interim results for the
13 weeks ended April 1, 2017
are not necessarily indicative of the results that may be expected for the fiscal year ending December 30, 2017. Therefore, the Condensed Consolidated Financial Statements should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 16, 2017.
Operating results for the
13 weeks ended April 1, 2017
are not necessarily indicative of the results that may be expected for any future periods.
Use of Estimates
The unaudited interim condensed consolidated financial statements are prepared in conformity with GAAP. Management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of net sales and expenses during the reporting period. The Company routinely evaluates its estimates, including those related to accruals and allowances for customer programs and incentives, bad debts, income taxes, long-lived assets, inventories, equity-based compensation, accrued broker commissions and contingencies. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from those estimates.
Foreign Currency Transactions and Translation
Exchange adjustments resulting from foreign currency transactions are recognized as a component of other non-operating income (loss) in the accompanying condensed consolidated statements of comprehensive income. For the Company's non-U.S. dollar functional currency subsidiaries, assets and liabilities are translated into U.S. dollars by using period-end exchange rates. Income and expense items are translated at a weighted-average exchange rate prevailing during the period. Adjustments resulting from translation of financial statements are reflected as a separate component of shareholders' equity.
Segment Reporting
AMPLIFY SNACK BRANDS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
On September 2, 2016, the Company completed the acquisition of Tyrrells Group, a diversified, international company that manufactures and markets BFY snack foods. As a result of this transaction, management determined that it operates in
two
operating and reportable segments, North America and International. The North America and International segments both operate in the large and growing global snack food category and whose brands and products are offered in the natural and conventional grocery, drug, convenience, food service, club, mass merchandise and other channels. The
two
snack food segments are reported separately based on differences in manufacturing and distribution methods and economic characteristics.
Fair Value of Financial Instruments
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The accounting guidance establishes a three-tiered hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:
Level 1—Quoted prices in active markets for identical assets or liabilities.
Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
The categorization of a financial instrument within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement.
The carrying amounts of the Company’s financial instruments, including cash, accounts receivable, accounts payable and accrued liabilities, approximate fair value due to their relatively short maturities. Our term loan and revolving credit facility bear interest at a variable interest rate plus an applicable margin and, therefore, carrying amount approximates fair value. The fair value of our term loan and revolving credit facility are estimated based on Level 2 inputs, which were quoted prices for identical or similar instruments in markets that are not active.
The following table presents liabilities measured at fair value on a recurring basis (in thousands):
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April 1, 2017
|
|
December 31, 2016
|
|
Liabilities:
|
|
|
|
|
Contingent consideration
(1)
|
$
|
2,491
|
|
|
$
|
2,491
|
|
(1)
Contingent consideration is reported in Other liabilities in the accompanying Condensed Consolidated Balance Sheets.
Contingent Consideration
In connection with the acquisition of Boundless Nutrition, LLC (“Boundless Nutrition”) in April 2016, payment of a portion of the purchase price is contingent upon the achievement for the year ended December 31, 2018 ("Boundless Earn-out Period") of a defined contribution margin in excess of the sum of the original principal amount and accrued interest of the notes issued to the sellers of Boundless Nutrition (see Notes Payable discussion below for additional details). The Company is required to reassess the fair value of the contingent consideration at each reporting period.
In connection with the acquisition of Paqui, LLC (“Paqui”) in April 2015, payment of a portion of the purchase price is contingent upon the achievement for the year ended December 31, 2018 ("Paqui Earn-out Period" and with the Boundless Earn-out Period, the "Earn-out Periods") of a defined contribution margin in excess of the sum of the original principal amount and accrued interest of the notes issued to the sellers of Paqui (see Notes Payable discussion below for additional details).
The significant inputs used in the fair value estimates include numerous gross sales scenarios for the Earn-out Periods for which probabilities are assigned to each scenario to arrive at a single estimated outcome (Level 3). The estimated outcome is then discounted based on the individual risk analysis of the liability. The present value of the estimated
AMPLIFY SNACK BRANDS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
outcome is used as the underlying price and the sum of the original principal amount and accrued interest of the notes issued to the sellers of Paqui and Boundless Nutrition ("Earn-Out Threshold") is used as the exercise price in the Black-Scholes option pricing model. Although the Company believes its estimates and assumptions are reasonable, different assumptions, including those regarding the operating results of Paqui and Boundless Nutrition, or changes in the future may result in different estimated amounts.
The contingent consideration is included in Other liabilities in the accompanying condensed consolidated balance sheets. The Company will satisfy this obligation with a cash payment to the sellers of each of Paqui and Boundless Nutrition upon the achievement of the respective milestone discussed above.
The following table summarizes the Level 3 activity related to the Contingent Consideration (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended April 1, 2017
|
|
Three Months Ended March 31, 2016
|
|
Balance at beginning of the period
|
|
$
|
2,491
|
|
|
$
|
1,911
|
|
|
Change in fair value of contingent consideration
|
|
—
|
|
|
—
|
|
|
Balance at end of the period
|
|
$
|
2,491
|
|
|
$
|
1,911
|
|
Notes Payable
In April 2016, the Company issued
$4.0 million
in unsecured notes to the sellers of Boundless Nutrition in connection with its acquisition. The notes bear interest at a rate per annum of
0.67%
with principal and interest due at varying maturity dates between April 29, 2017 and December 31, 2018. The Company recorded an acquisition-date fair value discount of approximately
$0.2 million
based on market rates for debt instruments with similar terms (Level 3), which is amortized to interest expense over the term of the notes using the effective-interest method.
In April 2015, the Company issued
$3.9 million
in unsecured notes to the sellers of Paqui in connection with its acquisition. The notes bear interest at a rate per annum of
1.5%
with principal and interest due at maturity on March 31, 2018. The Company recorded an acquisition-date fair value discount of approximately
$0.2 million
based on market rates for debt instruments with similar terms (Level 3), which is amortized to interest expense over the term of the notes using the effective-interest method.
Inventories
In our North American operations, inventories are valued at the lower of cost or net realizable value using the weighted-average cost method. The Company generally procures certain raw materials inputs and packaging from suppliers and contracts with third-party firms to assemble and warehouse finished products. The third-party co-manufacturers invoice the Company monthly for labor inputs upon the production or shipment of finished product during the period.
In our international operations, inventories are valued at the lower of cost or net realizable value using the first-in, first-out method. The Company owns the manufacturing facilities used for production. The costs of finished goods inventories include raw materials, direct labor, indirect production, and overhead costs.
Write-downs are provided for finished goods expected to become non-saleable due to age and provisions are specifically made for slow moving or obsolete raw ingredients and packaging. The carrying value of our inventories is adjusted when we believe that the net realizable value is less than the carrying value. These write-downs are measured as the difference between the cost of the inventory, including estimated costs to complete and estimated selling prices. Charges related to slow moving or obsolete items are recorded as a component of cost of goods sold. Charges related to packaging redesigns are recorded as a component of selling and marketing expenses. Once inventory is written down, a new, lower-cost basis is established. These adjustments are estimates that require management judgment. Actual results could vary from our estimates and additional inventory write-downs could be required.
Recognition of Net Sales, Sales Incentives and Trade Accounts Receivable
Net sales are recognized when the earnings process is complete and the risks and rewards of ownership have transferred to the customer, which occurs upon the receipt and acceptance of product by the customer. The Company’s customers are primarily businesses that are stocking its products. The earnings process is complete once the customer
AMPLIFY SNACK BRANDS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
order has been placed and approved and the product shipped has been received by the customer or when product is picked up by the Company’s customers at the Company’s co-manufacturer. Product is sold to customers on credit terms established on a customer-by-customer basis. The credit factors used include historical performance, current economic conditions and the nature and volume of the product.
The Company offers its customers a variety of sales and incentive programs, including price discounts, coupons, slotting fees, in-store displays and trade advertising. The costs of these programs are recognized at the time the related sales are recorded and are classified as a reduction in net sales. These program costs are estimated based on a number of factors including customer participation and performance levels.
The Company extends unsecured credit to its customers in the ordinary course of business but mitigates the associated credit risk by performing credit checks and actively pursuing past due accounts. Accounts are charged to bad debt expense as they are deemed uncollectable based upon a periodic review of aging and collections.
As of
April 1, 2017
and
December 31, 2016
, the Company recorded total allowances related to sales and incentive programs against trade accounts receivable of approximately
$11.3 million
and
$9.3 million
, respectively. Recoveries of receivables previously written off are recorded when received.
Concentration Risk
Customers with 10% or more of the Company’s net sales consist of the following:
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|
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended April 1, 2017
|
|
Three Months Ended March 31,2016
|
|
Customer:
|
|
|
|
|
|
Costco
|
|
16
|
%
|
|
29
|
%
|
|
Sam's Club
|
|
9
|
%
|
|
15
|
%
|
As of
April 1, 2017
, one customer represented
14%
of the accounts receivable balance outstanding. No customers represented more than 10% of our consolidated accounts receivable balance as of
December 31, 2016
. The Company outsources a significant percentage of the manufacturing of its products to a single co-manufacturer in the United States. This co-manufacturer represented
15%
and
19%
of the accounts payable balance as of
April 1, 2017
and
December 31, 2016
, respectively.
Earnings per Share
Basic earnings per share has been computed based upon the weighted average number of common shares outstanding. The Company's unvested shares of restricted common stock contain non-forfeitable rights to dividends and are considered to be participating securities in accordance with GAAP and therefore are included in the computation of basic earnings per share under the two-class method. The two-class method is an earnings allocation formula that determines earnings per share for each class of common shares and participating securities according to dividends declared and participation rights in undistributed earnings. Diluted earnings per share has been computed based upon the weighted average number of common shares outstanding plus the effect of all potentially dilutive common stock equivalents, except when the effect would be anti-dilutive. The dilutive effect of unvested restricted stock units ("RSUs") and outstanding stock options has been accounted for using the two-class method or the treasury stock method, if more dilutive.
AMPLIFY SNACK BRANDS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended April 1, 2017
|
|
Three Months Ended March 31, 2016
|
|
(in thousands, except share and per share amounts)
|
|
|
|
|
Basic and diluted earnings per share:
|
|
|
|
|
Numerator:
|
|
|
|
|
Net income
|
$
|
528
|
|
|
$
|
8,402
|
|
|
Less: net income attributable to participating securities
|
(19
|
)
|
|
(543
|
)
|
|
Net income attributable to common shareholders
|
509
|
|
|
7,859
|
|
|
Denominator:
|
|
|
|
|
Basic:
|
|
|
|
|
Basic weighted average shares outstanding
|
76,730,776
|
|
|
74,838,937
|
|
|
Less: participating securities
|
(2,759,223
|
)
|
|
(4,833,353
|
)
|
|
Basic weighted average common shares outstanding
|
73,971,553
|
|
|
70,005,584
|
|
|
|
|
|
|
|
Basic earnings per share
|
$
|
0.01
|
|
|
$
|
0.11
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
Basic weighted average shares outstanding
|
76,730,776
|
|
|
74,838,937
|
|
|
Unvested RSUs
(1)
|
15,520
|
|
|
—
|
|
|
Outstanding stock options
(2)
|
—
|
|
|
—
|
|
|
Diluted weighted average shares outstanding
|
76,746,296
|
|
|
74,838,937
|
|
|
Less: participating securities
|
(2,759,223
|
)
|
|
(4,833,353
|
)
|
|
Diluted weighted average common shares outstanding
|
73,987,073
|
|
|
70,005,584
|
|
|
|
|
|
|
|
Diluted earnings per share
|
$
|
0.01
|
|
|
$
|
0.11
|
|
(1)
Excludes the weighted average impact of
1,358,158
and
116,068
unvested RSUs for the thirteen weeks ended
April 1, 2017 and three months ended March 31, 2016, respectively, because the effects of their inclusion would
be anti-dilutive.
(2)
Excludes the weighted average impact of
342,667
and
186,264
outstanding stock options for the thirteen weeks
ended April 1, 2017 and three months ended March 31, 2016, respectively, because the effects of their inclusion
would be anti-dilutive.
Tax Receivable Agreement ("TRA")
As discussed in Note 1, immediately prior to the consummation of the IPO in August 2015, the Company entered into a TRA with the former holders of units in Topco. In December 2015, all of the former holders of units in Topco collectively assigned their interests to a new counterparty. The Company estimated an obligation of approximately
$96.1 million
based on the full and undiscounted amount of expected future payments under the TRA in consideration of a reduction in the Company's future U.S. federal, state and local taxes resulting from the utilization of certain tax attributes. The Company accounted for the obligation under the TRA as a dividend and elected to reduce additional paid in capital. Subsequent adjustments of the TRA obligation due to certain events, such as potential changes in tax rates or insufficient taxable income, will be recognized in the consolidated statements of comprehensive income. Future cash payments under the TRA will be classified as a financing activity on the condensed consolidated statements of cash flows.
AMPLIFY SNACK BRANDS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
Recent Accounting Pronouncements
In January 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2017-04, "Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment". ASU 2017-04 simplifies the accounting for goodwill impairments by eliminating Step 2 from the goodwill impairment test. Under the previous guidance an impairment of goodwill is when the carrying amount of goodwill exceeds its implied fair value, whereas under the new guidance a goodwill impairment loss would be recognized if the carrying amount of the reporting unit exceeds its fair value, limited to the total amount of goodwill allocated to the that reporting unit. The ASU is effective for annual and any interim impairment tests for periods beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We adopted this standard in January 2017, and will apply it as necessary in our financial statements.
In August 2016, the FASB issued ASU No. 2016-15, "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments". ASU 2016-15 clarifies how certain cash receipts and cash payments are presented and classified in the statement of cash flows under Topic 230. This ASU is effective for interim and annual periods beginning after December 15, 2017. Early application is permitted. The Company is in the process of assessing the impact of the adoption of ASU 2016-15 on its financial position, results of operations, cash flows and financial statement disclosures
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments-Credit Losses” (Topic 326), which amends the guidance on the impairment of financial instruments. The standard adds an impairment model, referred to as current expected credit loss, which is based on expected losses rather than incurred losses. The standard applies to most debt instruments, trade receivables, lease receivables, reinsurance receivables, financial guarantees and loan commitments. Under the guidance, companies are required to disclose credit quality indicators disaggregated by year of origination for a five-year period. The new guidance is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2019. We do not anticipate this standard will have a material impact to our consolidated financial statements.
In March 2016, the FASB issued ASU No. 2016-08, "Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)". ASU 2016-08 clarifies the implementation guidance on principal versus agent considerations. In April 2016, the FASB issued ASU No. 2016-10, "Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing". ASU 2016-10 clarifies the implementation guidance on identifying performance obligations. In May 2016, the FASB issued ASU No. 2016-12, "Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients." ASU 2016-12 addresses narrow-scope improvements to the guidance on collectability, non-cash consideration, and completed contracts at transition. Additionally, this ASU provides a practical expedient for contract modifications at transition and an accounting policy election related to the presentation of sales taxes and other similar taxes collected from customers. These ASUs apply to all companies that enter into contracts with customers to transfer goods or services. These ASUs are effective for public entities for interim and annual reporting periods beginning after December 15, 2017. Early adoption is permitted, but not before interim and annual reporting periods beginning after December 15, 2016. Entities have the choice to apply these ASUs either retrospectively to each reporting period presented or by recognizing the cumulative effect of applying these standards at the date of initial application and not adjusting comparative information. The Company does not believe these accounting standard updates will have a material impact on our results of operations.
In March 2016, the FASB issued ASU No. 2016-09, "Compensation – Stock Compensation: Improvements to Employee Share-Based Payment Accounting", which is intended to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for interim and annual periods beginning after December 15, 2016. Early application is permitted. The Company adopted the standard on October 1, 2016 and the adoption did not have an impact on its results of operations, statements of financial position or statements of cash flows.
In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)", which requires lessees to recognize assets and liabilities related to lease arrangements longer than twelve months on the balance sheet. This standard also requires additional disclosures by lessees and contains targeted changes to accounting by lessors. The updated
AMPLIFY SNACK BRANDS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
guidance is effective for interim and annual periods beginning after December 15, 2018, and early adoption is permitted. The Company is in the process of assessing the impact of the adoption of ASU No. 2016-02 on its financial position, results of operations, cash flows and financial statement disclosures but does not believe the adoption will have a material impact. As of
April 1, 2017
, the Company has
$5.6 million
of non-cancellable lease commitments.
In September 2015, the FASB issued ASU No. 2015-16, "Simplifying the Accounting for Measurement-Period Adjustments", which simplifies the accounting for adjustments made to provisional amounts recognized in a business combination by eliminating the requirement to retrospectively account for those adjustments. This revised guidance was effective for annual reporting periods beginning after December 15, 2015, and related interim periods. The amendments in the update were applied prospectively to adjustments to provisional amounts that occurred after the effective date of the update with early application permitted for financial statements not yet issued. We have adopted this guidance and will apply it as necessary in our financial statements. Based on changes to our provisional purchase price accounting, during the 13 weeks ended April 1, 2017, we recorded approximately
$0.2 million
of additional expense.
In July 2015, the FASB issued ASU 2015-11, "Simplifying the Measurement of Inventory", which applies to inventory that is measured using first-in, first-out ("FIFO") or average cost. Under the updated guidance, an entity should measure inventory that is within scope at the lower of cost and net realizable value, which is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. This ASU is effective for annual and interim periods beginning after December 15, 2016, and should be applied prospectively. The Company adopted the standard January 1, 2017 and the adoption did not have a material impact on our condensed consolidated financial statements.
In August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements—Going Concern: Disclosures about an Entity’s Ability to Continue as a Going Concern”. The new standard requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date the financial statements are issued. An entity must provide certain disclosures if conditions or events raise substantial doubt about the entity’s ability to continue as a going concern. The Company applied the standard for the
13 weeks ended April 1, 2017
condensed consolidated financial statements and it had no impact on its disclosures.
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers”. This ASU supersedes the revenue recognition requirements in Accounting Standards Codification 605, “Revenue Recognition”, and most industry-specific guidance throughout the Codification. The standard requires entities to recognize the amount of revenue that reflects the consideration to which the company expects to be entitled in exchange for the transfer of promised goods or services to customers. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers: Deferral of the Effective Date, which deferred the effective date of ASU No. 2014- 09 by one year, to December 15, 2017 for interim and annual reporting periods beginning after that date. The FASB will permit early adoption of the standard, but not before the original effective date of December 15, 2016. The Company is in the process of assessing both the method and the impact of the adoption of ASU No. 2014-09 on its financial position, results of operations, cash flows and financial statement disclosures. The Company anticipates the primary impact of the adoption on its consolidated financial statements will be the additional disclosure requirements around revenue recognition in the notes to the consolidated financial statements. Other areas that may potentially be impacted relate to the timing of the transfer of ownership and accounting surrounding the Company's trade promotions. We anticipate our internal control systems will be impacted by the implementation of the new standard.
3. ACQUISITION
Tyrrells Group Acquisition
On September 2, 2016, the Company acquired
100%
of the voting interests of Tyrrells Group, an international manufacturer and distributor of BFY snacks, for total consideration of approximately
$416.4 million
. The Company paid approximately
$381.1 million
in cash and issued approximately
2.1 million
shares of its common stock with an acquisition date fair value of approximately
$35.3 million
. The Company financed the cash portion of the transaction with proceeds from term loans totaling
$600 million
.
This acquisition has been accounted for under the acquisition method of accounting, whereby the purchase consideration was allocated to tangible and intangible net assets acquired and liabilities assumed at their estimated
AMPLIFY SNACK BRANDS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
fair values on the date of acquisition. The excess purchase consideration over fair value of net assets acquired and liabilities assumed was recorded as goodwill and represents a value attributable to brand recognition associated with Tyrrells Group's products and position in the BFY snack category. For tax purposes the basis in assets carried over from Tyrrells Group, which resulted in deferred tax liabilities on the book and tax basis differences in identifiable intangibles.
The Company has incurred approximately
$9.4 million
of transaction related expenses in connection with the Tyrrells Group acquisition to date, which are included as part of general and administrative expense in the accompanying consolidated statements of comprehensive income. Of the
$9.4 million
,
$0.1 million
was incurred during the 13 weeks ended April 1, 2017, with the remainder having been incurred in year ended December 31, 2016. The Company did not incur any transaction related expenses in the three months ended March 31, 2016. During the 13 weeks ended April 1, 2017, Tyrrells Group contributed approximately
$27.6 million
of net sales and a net loss of approximately
$1.4 million
to the Company. As of the acquisition date, Tyrrells Group had
$28.0 million
of gross accounts receivable, of which we estimated
$6.6 million
will be uncollectable, mostly related to the costs of promotional activities being offset against trade receivable invoices by customers. In connection with the Tyrrells Group acquisition, we recognized approximately
$95.5 million
of goodwill from expected synergies due to our ability to expand our North American products overseas, added diversification of our BFY snack portfolio, as well as the manufacturing and distribution capabilities we acquired. The goodwill associated with the Tyrrells Group acquisition is not deductible for tax purposes.
The Company has
one
year from the acquisition date to finalize the valuation of the acquired assets and liabilities, including goodwill and intangible assets. Management is responsible for these internal and third-party valuations and appraisals and is continuing to review the amounts and allocations. The Company's purchase price allocation for the Tyrrells Group acquisition is preliminary and subject to revision as additional information is obtained related to the fair value of assets and liabilities associated with potential uncertain tax positions, the fair value of acquired property, plant and equipment, as well as valuations related to trade names and customer relationships. During the
13 weeks ended April 1, 2017
, the Company revised the fair value estimates associated with its acquisition accounting for Tyrrells Group acquisition consummated on September 2, 2016 that resulted in adjustments to the previously reported allocation of purchase consideration. The adjustments were a result of changes to the original fair value estimates of certain items acquired and are the result of additional information obtained since September 2, 2016, that related to facts and circumstances that existed at the acquisition date.
AMPLIFY SNACK BRANDS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
The following table summarizes the preliminary allocation of the purchase consideration for Tyrrells to the estimated fair value of assets acquired and liabilities assumed at the date of acquisition (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase consideration:
|
Provisional Valuation as of December 31, 2016
|
|
Measurement Period Adjustments
|
|
Current Valuation
|
|
Cash paid as purchase consideration
|
$
|
381,069
|
|
|
$
|
—
|
|
|
$
|
381,069
|
|
|
Fair value of equity issued to Sellers
|
35,319
|
|
|
—
|
|
|
35,319
|
|
|
Total purchase consideration
|
416,388
|
|
|
—
|
|
|
416,388
|
|
|
Less: cash and cash equivalents acquired
|
(15,451
|
)
|
|
—
|
|
|
(15,451
|
)
|
|
Total purchase price, net of cash and cash equivalents acquired
|
400,937
|
|
|
—
|
|
|
400,937
|
|
|
Fair value of net assets acquired and liabilities assumed:
|
|
|
|
|
|
|
Accounts receivable
|
21,424
|
|
|
—
|
|
|
21,424
|
|
|
Inventory
|
8,921
|
|
|
—
|
|
|
8,921
|
|
|
Property and equipment
|
42,612
|
|
|
9,005
|
|
|
51,617
|
|
|
Other assets
|
2,845
|
|
|
—
|
|
|
2,845
|
|
|
Indefinite-lived identifiable intangible asset- trade names
|
261,854
|
|
|
2,524
|
|
|
264,378
|
|
|
Definite-lived identifiable intangible assets- customer relationships (15-year useful life)
|
44,240
|
|
|
532
|
|
|
44,772
|
|
|
Accounts payable
|
(19,498
|
)
|
|
—
|
|
|
(19,498
|
)
|
|
Other liabilities
|
(13,123
|
)
|
|
(1,768
|
)
|
|
(14,891
|
)
|
|
Deferred tax liabilities
|
(51,810
|
)
|
|
(2,329
|
)
|
|
(54,139
|
)
|
|
Total fair value of net assets acquired and liabilities assumed
|
297,465
|
|
|
7,964
|
|
|
305,429
|
|
|
Excess purchase consideration over fair value of net assets acquired (goodwill)
|
$
|
103,472
|
|
|
$
|
(7,964
|
)
|
|
$
|
95,508
|
|
Goodwill is calculated as the excess of consideration paid over the net assets acquired and represents synergies, organic growth and other benefits that are expected to arise from integrating Tyrrells Group into our operations.
Pro Forma Combined Statements of Operations (Unaudited)
The following unaudited pro forma combined statements of operations presents the Company's operations as if the Tyrrells Group acquisition and related financing activities had occurred on January 1, 2016. The pro forma information includes the following adjustments (i) amortization of acquired definite-lived intangible assets; (ii) depreciation based on the fair value of acquired property and equipment; (iii) costs of goods sold based on the fair value of acquired inventory; (iv) interest expense incurred in connection with incremental term loan borrowings used to finance the acquisition of Tyrrells; and (v) inclusion of equity-based compensation expense associated with equity awards granted to certain Tyrrells' employees in connection with the acquisition. The pro forma combined statements of operations are not necessarily indicative of the results of operations as they would have been had the transaction been effected on the assumed date and are not intended to be a projection of future results (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended April 1, 2017
|
|
Three Months Ended
March 31, 2016
|
|
(Unaudited)
|
|
|
|
|
Net sales
|
$
|
87,218
|
|
|
$
|
86,945
|
|
|
Net income
|
$
|
528
|
|
|
$
|
5,920
|
|
|
Net income per share- basic
|
$
|
0.01
|
|
|
$
|
0.08
|
|
|
Net income per share- diluted
|
$
|
0.01
|
|
|
$
|
0.08
|
|
AMPLIFY SNACK BRANDS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
Boundless Nutrition Acquisition
In April 2016, the Company acquired
100%
of the voting rights of Boundless Nutrition, a manufacturer and distributor of the Oatmega protein snack bar and a line of BFY cookie products, for total consideration of approximately
$21.5 million
. This acquisition has been accounted for under the acquisition method of accounting and the excess purchase consideration over fair value of net assets acquired and liabilities assumed was recorded as goodwill and represents a value attributable to brand recognition associated with Boundless Nutrition's products and position in the BFY snack category.
For the
13 weeks ended April 1, 2017
, Oatmega products contributed net sales of approximately
$3.7 million
. The Company does not allocate overhead to the Oatmega brand and therefore has not reported net income as a result of this acquisition. In connection with the Boundless Nutrition acquisition we recognized approximately
$8.5 million
of goodwill from expected synergies due to our ability to diversify our product offerings and leverage our North American distribution channels. For tax purposes, the acquisition is treated as an acquisition of assets, therefore the Company's tax basis in assets was allocated based on their fair value. The goodwill associated with the Boundless Nutrition acquisition is deductible for tax purposes.
The Company completed its review of the purchase consideration and estimated fair value of assets acquired and liabilities assumed at the date of acquisition, with an adjustment to fair value of contingent consideration identified during the measurement period. The following table summarizes the final allocation of the purchase consideration for Boundless Nutrition to the estimated fair value of assets acquired and liabilities assumed at the date of acquisition (in thousands):
|
|
|
|
|
|
|
|
Purchase consideration:
|
|
|
Cash paid as purchase consideration
|
$
|
16,651
|
|
|
Fair value of notes payable issued to sellers as consideration
|
3,776
|
|
|
Fair value of contingent consideration
|
1,085
|
|
|
Total purchase consideration
|
21,512
|
|
|
Less: cash and cash equivalents acquired
|
(129
|
)
|
|
Total purchase price- net of cash and cash equivalents acquired
|
21,383
|
|
|
Fair value of net assets acquired and liabilities assumed:
|
|
|
Accounts receivable and inventory
|
2,046
|
|
|
Property and equipment
|
751
|
|
|
Other assets
|
178
|
|
|
Indefinite-lived identifiable intangible asset- trade name
|
9,440
|
|
|
Definite-lived identifiable intangible assets- customer relationships and trade name
|
2,160
|
|
|
Accounts payable
|
(1,111
|
)
|
|
Other liabilities
|
(532
|
)
|
|
Total fair value of net assets acquired and liabilities assumed
|
12,932
|
|
|
Excess purchase consideration over fair value of net assets acquired (goodwill)
|
$
|
8,451
|
|
Management evaluated the impact to the Company's financial statements of the Boundless Nutrition acquisition and concluded that the impact was not significant enough to require or separately warrant the inclusion of pro forma financial results inclusive of Boundless Nutrition.
4. INVENTORY
Inventories, net of reserves and provisions, consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
April 1, 2017
|
|
December 31, 2016
|
|
Raw materials and packaging
|
$
|
9,893
|
|
|
$
|
9,313
|
|
|
Work in process
|
1,403
|
|
|
760
|
|
|
Finished goods
|
9,994
|
|
|
8,177
|
|
|
Inventories, net
|
$
|
21,290
|
|
|
$
|
18,250
|
|
As of
April 1, 2017
and
December 31, 2016
, we had approximately
$0.3 million
and
$0.6 million
in reserves, respectively, for finished goods deemed unsaleable and raw materials and packaging deemed obsolete. If future demand or market conditions are less favorable than those projected by our management, additional inventory write-downs may be required.
AMPLIFY SNACK BRANDS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
5. PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Accumulated depreciation is recognized ratably over the expected useful life of the asset. Property and equipment, net consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
April 1, 2017
|
|
December 31, 2016
|
|
Machinery and equipment
|
$
|
45,436
|
|
|
$
|
35,889
|
|
|
Furniture and fixtures
|
3,901
|
|
|
3,665
|
|
|
Building
|
5,101
|
|
|
4,408
|
|
|
Land
|
1,033
|
|
|
928
|
|
|
Leasehold improvements
|
6,189
|
|
|
3,922
|
|
|
Property and equipment, gross
|
61,660
|
|
|
48,812
|
|
|
Less: accumulated depreciation
|
(4,921
|
)
|
|
(2,928
|
)
|
|
Property and equipment, net
|
$
|
56,739
|
|
|
$
|
45,884
|
|
Depreciation expense was approximately
$1.9 million
and
$0.1 million
for the
13 weeks ended April 1, 2017
and three months ended March 31, 2016, respectively. Depreciation expense is included in cost of goods sold and general and administrative expense in the accompanying condensed consolidated statements of comprehensive income.
6. GOODWILL AND INTANGIBLE ASSETS
Goodwill consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
International
|
|
Total
|
|
Balance as of December 31, 2016
|
$
|
55,872
|
|
|
$
|
96,081
|
|
|
$
|
151,953
|
|
|
Purchase price accounting adjustments
|
—
|
|
|
(7,395
|
)
|
|
(7,395
|
)
|
|
Foreign currency translation impact
|
—
|
|
|
1,529
|
|
|
1,529
|
|
|
Balance as of April 1, 2017
|
$
|
55,872
|
|
|
$
|
90,215
|
|
|
$
|
146,087
|
|
Intangible assets consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 1, 2017
|
|
December 31, 2016
|
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
|
Intangible assets with indefinite lives:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade names
|
$
|
471,078
|
|
|
$
|
—
|
|
|
$
|
471,078
|
|
|
$
|
464,488
|
|
|
$
|
—
|
|
|
$
|
464,488
|
|
|
Intangible assets with finite lives:
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
108,040
|
|
|
(13,185
|
)
|
|
94,855
|
|
|
106,830
|
|
|
(11,387
|
)
|
|
95,443
|
|
|
Non-competition agreement
|
90
|
|
|
(35
|
)
|
|
55
|
|
|
90
|
|
|
(32
|
)
|
|
58
|
|
|
Trade name
|
20
|
|
|
(18
|
)
|
|
2
|
|
|
20
|
|
|
(13
|
)
|
|
7
|
|
|
Total
|
$
|
579,228
|
|
|
$
|
(13,238
|
)
|
|
$
|
565,990
|
|
|
$
|
571,428
|
|
|
$
|
(11,432
|
)
|
|
$
|
559,996
|
|
Amortization of finite-lived intangibles was approximately
$1.8 million
and
$1.1 million
for the
13 weeks ended April 1, 2017
and three months ended
March 31, 2016
, respectively. Amortization of finite-lived intangible assets is included
AMPLIFY SNACK BRANDS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
as part of general and administrative expense in the accompanying condensed consolidated statements of comprehensive income.
ASC 350, "Intangibles- Goodwill and Other", requires companies to test goodwill and indefinite-lived intangibles for impairment annually and more frequently if indicators of impairment exist. Accordingly, the Company will perform its annual assessment of fair value as of July 1, 2017.
7. ACCRUED LIABILITIES
The following table shows the components of accrued liabilities (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
April 1, 2017
|
|
December 31, 2016
|
|
Unbilled inventory
|
$
|
2,216
|
|
|
$
|
2,409
|
|
|
Accrued commissions
|
8
|
|
|
432
|
|
|
Accrued bonuses
|
633
|
|
|
2,133
|
|
|
Accrued personnel costs
|
633
|
|
|
898
|
|
|
Accrued interest
|
3,432
|
|
|
3,297
|
|
|
Accrued marketing costs
|
1,201
|
|
|
157
|
|
|
Accrued professional fees
|
1,123
|
|
|
913
|
|
|
Accrued VAT
|
788
|
|
|
825
|
|
|
Other accrued liabilities
|
1,406
|
|
|
1,441
|
|
|
Total accrued liabilities
|
$
|
11,440
|
|
|
$
|
12,505
|
|
8. DEBT
Debt consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
April 1, 2017
|
|
December 31, 2016
|
|
Term loans, net of unamortized original issue discount of $6,124 and $6,321, respectively
|
$
|
590,876
|
|
|
$
|
592,179
|
|
|
Revolving loans
|
15,500
|
|
|
8,500
|
|
|
Notes payable, net of unamortized discount of $193 and $236, respectively
|
7,712
|
|
|
7,669
|
|
|
Deferred financing costs, net of accumulated amortization of $1,430 and $813, respectively
|
(15,341
|
)
|
|
(15,957
|
)
|
|
Total debt
|
598,747
|
|
|
592,391
|
|
|
Less: Current portion
|
(6,936
|
)
|
|
(6,927
|
)
|
|
Long-term debt
|
$
|
591,811
|
|
|
$
|
585,464
|
|
Credit Facility
In connection with the acquisition of Tyrrells Group, the Company entered into a Credit Agreement on September 2, 2016 (the "Credit Facility"), which provided for term loans in the aggregate principal amount of
$600 million
(the "Term Loans") and revolving loans in the aggregate principal amount of
$50 million
(the "Revolving Loans"), of which
20 million
is denominated in pounds sterling. The Company borrowed from the Term Loans in full to finance the acquisition of Tyrrells Group and pay down all outstanding indebtedness under the Credit Agreement entered into on July 17, 2014 (the "Prior Credit Facility"). As of April 1, 2017, the Company had
$33.4 million
of available capacity under the Revolving Loans.
In connection with the issuance of the Credit Facility, the Company incurred an original issue discount ("OID") of approximately
$6.6 million
and paid lender and legal fees of approximately
$15.4 million
, which are capitalized and presented as a direct reduction to the related debt instrument in the condensed consolidated balance sheets. These costs are recognized as additional interest expense over the term of the related debt instrument using the effective interest method.
AMPLIFY SNACK BRANDS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
The Company must repay the Term Loans in installments of
$1.5 million
per quarter due on the last day of each quarter beginning with the quarter ending December 31, 2016, with the remaining balance due at maturity in a final installment of
$559.5 million
. The Term Loans and Revolving Loans are scheduled to mature on September 2, 2023 and September 2, 2021, respectively.
In addition to the installment payments described above, the Credit Facility includes an annual mandatory prepayment of the Term Loans from
50%
of the Company's excess cash flow as measured on annual basis, with step- downs to
25%
and
0%
of the Company's excess cash flow if the Company's Total Leverage Ratio (as defined in the Credit Facility), tested as of the last day of the Company's fiscal year, is less than
4.50
to 1.00 but greater than
3.75
to 1.00, and less than or equal to
3.75
to 1.00, respectively. Excess cash flow is generally defined as the Company's Consolidated Net Income (as defined in the Credit Facility) less debt service costs, unfinanced capital expenditures, unfinanced acquisition expenditures, and certain restricted payments, as adjusted for changes in the Company's working capital and less other customary items. The excess cash flow requirement discussed above will commence with the fiscal year ending December 30, 2017.
In addition, the Credit Facility requires mandatory prepayment of the Term Loans from the net cash proceeds of (i) certain debt issuances and (ii) certain asset sales outside the ordinary course of business and from proceeds of property insurance and condemnation events, in each case of this clause (ii) subject to the Company’s right in some circumstances to reinvest such proceeds in the Company’s business. Any voluntary prepayment as part of a repricing transaction shall be accompanied by a prepayment premium equal to
1.0%
of the principal amount of such prepayment, if such prepayment is made on or prior to the date that is twelve months after September 2, 2016.
Interest
The Term Loans bear interest, at the Company's option, at either the Eurodollar rate plus a margin of
5.50%
or the prime rate plus a margin of
4.50%
, with step-downs to
5.00%
and
4.00%
, respectively, if the Company's First Lien Leverage Ratio (as defined in the Credit Facility) is less than or equal to
4.50
to 1.00. The Eurodollar rate is subject to no floor with respect to the Revolving Loans and an annual
1.00%
floor with respect to the Term Loans and the prime rate is subject to a
1.00%
floor with respect to the Revolving Loans and a
2.00%
floor with respect to the Term Loans. As of April 1, 2017, the interest rate on the outstanding Term Loans balance was
6.50%
per annum and the weighted-average interest rate on the outstanding Revolver Loans balance was
6.40%
per annum.
The Company is also required to pay a commitment fee on the unused commitments under the Revolving Loans at a rate equal to
0.50%
per annum with a step-down to
0.375%
per annum, if the Company's First Lien Leverage Ratio is less than or equal to
3.25
to 1.00.
Guarantees
The Credit Facility is secured by liens on substantially all the Company's assets, including a pledge of
100%
of the equity interests in the Company's domestic subsidiaries and a pledge of
65%
of the voting equity interests and
100%
of the non-voting equity interests in the Company's direct foreign subsidiaries. All obligations under the Credit Facility are unconditionally guaranteed by substantially all of the Company's direct and indirect domestic subsidiaries, with certain exceptions. These guarantees are secured by substantially all of the present and future property and assets of the guarantors, with certain exclusions.
Covenants
As of the last day of any fiscal quarter of the Company, the terms of the Credit Facility require the Company and its subsidiaries (on a consolidated basis and subject to certain customary exceptions) to maintain a maximum First Lien Leverage Ratio of not more than
8.50
to 1.0, initially, and decreasing to
6.25
to 1.0 over the term of the Credit Facility. As of
April 1, 2017
, the Company was in compliance with this financial covenant.
The Credit Facility contains customary affirmative covenants for transactions of this type and other affirmative covenants agreed to by the parties, including, among others, the provision of annual and quarterly financial statements and compliance certificates, maintenance of property, insurance, compliance with laws and environmental matters. The Credit Facility contains customary negative covenants, including, among others, restrictions on the incurrence of indebtedness, granting of liens, making investments and acquisitions, paying dividends, repurchases of equity interests i
AMPLIFY SNACK BRANDS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
n the Company, entering into affiliate transactions and asset sales. The Credit Facility also provides for a number of customary events of default, including, among others, payment, bankruptcy, covenant, representation and warranty, change of control and judgment defaults.
Notes Payable
In April 2016, the Company issued
$4.0 million
in unsecured notes to the sellers of Boundless Nutrition in connection with its acquisition. The notes bear interest at a rate per annum of
0.67%
with principal and interest due at varying maturity dates between April 29, 2017 and December 31, 2018. The Company recorded an acquisition-date fair value discount of approximately
$0.2 million
based on market rates for debt instruments with similar terms, which is amortized to interest expense over the term of the notes using the effective-interest method.
In April 2015, the Company issued
$3.9 million
in unsecured notes to the sellers of Paqui in connection with its acquisition. The notes bear interest at a rate per annum of
1.5%
with principal and interest due at maturity on March 31, 2018. The Company recorded an acquisition-date fair value discount of approximately
$0.2 million
based on market rates for debt instruments with similar terms, which is amortized to interest expense over the term of the notes using the effective-interest method.
9. COMMITMENTS AND CONTINGENCIES
Purchase Commitments
The Company entered into certain supply contracts for their popcorn kernels, oils, potatoes, root vegetables and natural ingredients used in Oatmega protein bars. Certain contracts also stipulate that if the Company fails to purchase the stated quantities within the time period specified, the Company has the option to purchase all remaining quantities under the contract, or the seller has the right to assess liquidated damages, including payment of the excess of the contract price over the market price for all remaining contracted quantities not purchased.
As of
April 1, 2017
, the Company's purchase commitments remaining under these contracts were as follows:
|
|
|
|
|
|
|
|
|
Ingredient Commitments
|
|
Remainder of 2017
|
$
|
21,129
|
|
|
2018
|
8,443
|
|
|
Total
|
$
|
29,572
|
|
Lease Commitments
The Company entered into an operating lease on February 26, 2015 for its corporate headquarters located in Austin, Texas.
Boundless Nutrition entered into an operating lease for an office space and manufacturing facility in November 2014, which the Company assumed as part of the acquisition.
In January 2017, the Company exited its Boundless Nutrition lease and entered into a sublease with a third party for the remainder of the lease term. In connection with the lease abandonment, the Company incurred a loss on exit activity of approximately
$0.2 million
.
Tyrrells Group has several operating leases for office space and manufacturing facilities which the Company assumed as part of the acquisition.
Rent expense from operating leases totaled approximately
$0.3 million
and
$0.1 million
for the
13 weeks ended April 1, 2017
and three months ended March 31, 2016, respectively.
AMPLIFY SNACK BRANDS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
As of
April 1, 2017
, minimum rental commitments under non-cancellable operating leases were as follows (in thousands):
|
|
|
|
|
|
|
|
Remainder of 2017
|
$
|
1,049
|
|
|
2018
|
949
|
|
|
2019
|
791
|
|
|
2020
|
729
|
|
|
2021
|
687
|
|
|
Thereafter
|
1,420
|
|
|
Total
|
$
|
5,625
|
|
Legal Matters
From time to time, the Company is subject to claims and assessments in the ordinary course of business. The Company is not currently a party to any litigation matter that, individually or in the aggregate, is expected to have a material adverse effect on the Company’s business, financial condition, results from operations or cash flow.
10. INCOME TAXES
For the
13 weeks ended April 1, 2017
and three months ended March 31, 2016, the Company recorded tax expense of
$2.3 million
on pre-tax income of
$2.8 million
and tax expense of
$5.9 million
on pre-tax income
$14.3 million
, respectively. The effective tax rate was
81.4%
and
41.2%
for the
13
weeks ended
April 1, 2017
and three months ended
March 31, 2016
, respectively. The Company's effective tax rate for the year is dependent on many factors, including the impact of enacted tax laws in jurisdictions in which the Company operates and the amount of taxable income the Company earns within those jurisdictions. The increase in the effective tax rate for the
13
weeks ended
April 1, 2017
compared to the three months ended
March 31, 2016
was primarily due to gains from foreign currency transactions which were treated as discrete items in the current quarter, along with the impact of entering foreign jurisdictions in connection with our acquisition of Tyrrells Group in September 2016.
As of
April 1, 2017
, we have established a long-term liability for an uncertain tax position in the amount of approximately
$1.1 million
related to pre-acquisition activity by Tyrrells Group. The Company's policy is to accrue interest and penalties related to uncertain tax positions as a component of income tax expense. As of
April 1, 2017
, the interest associated with the Company's position is not material.
11. EQUITY-BASED COMPENSATION
In July 2015, the Amplify Snack Brands, Inc. 2015 Stock Option and Incentive Plan (the "2015 Plan") was adopted by the Company's board of directors, approved by the Company's stockholders and became effective immediately prior to the consummation of the Company's IPO in August 2015. The 2015 Plan provides for the grant of various equity-based incentive awards to officers, employees, non-employee directors and consultants of the Company and its subsidiaries. The types of awards that may be granted under the 2015 Plan include incentive stock options, non-qualified stock options, restricted stock awards ("RSAs"), restricted stock units ("RSUs"), stock appreciation rights ("SARs") and other equity-based awards. The Company initially reserved
13,050,000
shares of common stock for issuance under the 2015 Plan, which is subject to certain adjustments for changes in the Company's capital structure, as defined in the 2015 Plan. As of
April 1, 2017
,
3,949,721
shares were available for issuance under the 2015 Plan.
For the
13 weeks ended April 1, 2017
and three months ended March 31, 2016, equity-based compensation expense was approximately
$1.7 million
and
$1.1 million
, respectively.
During the
13 weeks ended April 1, 2017
,
366,156
RSUs were granted to certain employees with a grant date fair value of approximately
$3.1 million
, which is calculated based on the closing market value of the Company's common stock on the the date of grant. The grant date fair value of the RSU awards is amortized to equity-based compensation expense on a straight-line basis over a
three
or
four
-year service period based on the terms of the award.
AMPLIFY SNACK BRANDS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
12. SEGMENT INFORMATION
On September 2, 2016, the Company completed the acquisition of Tyrrells Group, a diversified, international company that manufactures and markets BFY snack foods. As a result of this transaction, management determined that it operates in
two
operating and reportable segments, North America and International. The North America and International segments both operate in the large and growing global snack food category and whose brands and products are offered in the natural and conventional grocery, drug, convenience, food service, club, mass merchandise and other channels. The
two
snack food segments are reported separately based on differences in manufacturing and distribution methods and economic characteristics.
Management considers its chief executive officer to be the Company's chief operating decision maker ("CODM") as he regularly reviews operating results of the North America and International segments for purposes of allocating resources and evaluating financial performance. Certain expenses such as professional fees, insurance and costs related to employees who focus on both our domestic and international business have been excluded from our individual segments profitability measures, along with non-recurring transaction related expenses that are not part of revenue generating activities. For purposes of our segment results, revenue is attributed to individual geographies on the basis of the physical location of where the sales occur. Prior to the Tyrrells Group acquisition, the Company operated as one reportable segment with all of its business conducted in North America. Figures from the prior period have be restated to conform with the current period segment information presentation.
We have provided information on our net sales, depreciation, amortization, segment operating income, stock compensation, corporate overhead expenses and non-recurring transaction expenses. Additionally, we have provided information related to capital expenditures, fixed assets and total assets.
AMPLIFY SNACK BRANDS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended April 1, 2017
|
|
Three Months Ended March 31, 2016
|
|
Net sales:
|
|
|
|
|
North America
|
$
|
60,035
|
|
|
$
|
54,345
|
|
|
International
|
27,183
|
|
|
—
|
|
|
Total net sales
|
$
|
87,218
|
|
|
$
|
54,345
|
|
|
|
|
|
|
|
Depreciation expense:
|
|
|
|
|
North America
|
$
|
245
|
|
|
$
|
107
|
|
|
International
|
1,669
|
|
|
—
|
|
|
Total depreciation expense
|
$
|
1,914
|
|
|
$
|
107
|
|
|
|
|
|
|
|
Amortization of intangible assets:
|
|
|
|
|
North America
|
$
|
1,100
|
|
|
$
|
1,063
|
|
|
International
|
683
|
|
|
—
|
|
|
Total amortization expense
|
$
|
1,783
|
|
|
$
|
1,063
|
|
|
|
|
|
|
|
Segment operating income (loss):
|
|
|
|
|
North America
|
$
|
21,091
|
|
|
$
|
20,437
|
|
|
International
|
(1,170
|
)
|
|
—
|
|
|
Segment operating income
|
19,921
|
|
|
20,437
|
|
|
|
|
|
|
|
Corporate overhead
(1)
|
(3,511
|
)
|
|
(2,051
|
)
|
|
Non-recurring and unusual transactions
(2)
|
(1,138
|
)
|
|
—
|
|
|
Equity-based compensation
|
(1,744
|
)
|
|
(1,079
|
)
|
|
Operating income
|
13,528
|
|
|
17,307
|
|
|
|
|
|
|
|
Reconciliation to income before taxes:
|
|
|
|
|
Interest expense
|
10,973
|
|
|
3,026
|
|
|
Other income, net
|
(278
|
)
|
|
—
|
|
|
Income before income taxes
|
$
|
2,833
|
|
|
$
|
14,281
|
|
|
|
|
|
|
|
Net sales by brand:
|
|
|
|
|
SkinnyPop brand
|
$
|
53,531
|
|
|
$
|
53,080
|
|
|
Tyrrells brand
(3)
|
22,353
|
|
|
—
|
|
|
Oatmega brand
|
3,742
|
|
|
—
|
|
|
Paqui brand
|
2,460
|
|
|
1,265
|
|
|
Lisa's Chips brand
(4)
|
1,925
|
|
|
—
|
|
|
Thomas Chipman and the Wholesome Food Company brands
(5)
|
3,207
|
|
|
—
|
|
|
Total net sales
|
$
|
87,218
|
|
|
$
|
54,345
|
|
|
|
|
|
(1)
|
Included in corporate overhead are administrative costs required to operate effectively as a public company, recurring professional fees, corporate-related insurance costs, personnel costs of our executive team, and certain individuals within our finance and human resources departments.
|
|
|
|
|
(2)
|
Included in non-recurring and unusual transactions are expenses that impact operating income that management considers non-recurring in nature, which we add-back in determining adjusted EBITDA as presented in Item 2 of this Quarterly Report.
|
|
|
|
|
(3)
|
Tyrrells brand includes private label net sales of items that were manufactured at our facilities in the United Kingdom.
|
AMPLIFY SNACK BRANDS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
|
|
|
|
(4)
|
Lisa's Chips brand includes private label net sales of items that were manufactured at our facility in Germany.
|
|
|
|
|
(5)
|
Thomas Chipman and the Wholesome Food Company brands include private label net sales manufactured at our facility in Australia.
|
All of our outstanding debt and notes payable and associated interest expense are held by our North America segment. Interest income was immaterial to both segments.
Customer Concentrations - North America
Customers with 10% or more of our North America segment net sales consist of the following:
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended April 1, 2017
|
|
Three Months Ended March 31, 2016
|
|
Customer:
|
|
|
|
|
Costco
|
24
|
%
|
|
29
|
%
|
|
Sam's Club
|
13
|
%
|
|
15
|
%
|
Customer Concentrations - International
One customer within our International segment represented
11%
of the segment's net sales for the
13 weeks ended April 1, 2017
.
|
|
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended April 1, 2017
|
|
Three Months Ended March 31, 2016
|
|
Capital expenditures:
|
|
|
|
|
North America
|
$
|
1,212
|
|
|
$
|
193
|
|
|
International
|
1,314
|
|
|
—
|
|
|
|
$
|
2,526
|
|
|
$
|
193
|
|
|
|
|
|
|
|
Fixed assets:
|
April 1, 2017
|
|
December 31, 2016
|
|
North America
|
$
|
5,347
|
|
|
$
|
4,168
|
|
|
International
|
51,392
|
|
|
41,716
|
|
|
|
$
|
56,739
|
|
|
$
|
45,884
|
|
|
|
|
|
|
|
Total assets:
|
April 1, 2017
|
|
December 31, 2016
|
|
North America
|
$
|
385,590
|
|
|
$
|
378,658
|
|
|
International
|
468,207
|
|
|
459,582
|
|
|
|
$
|
853,797
|
|
|
$
|
838,240
|
|
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes thereto included elsewhere in this report. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in “Risk Factors” included elsewhere in this report.
Forward-looking Statements
This report contains forward-looking statements within the meaning of the federal securities laws, which statements involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain
words such as “may”, “will”, "seek", “should”, “expects”, “plans”, “anticipates”, “could”, “intends”, “target”, “projects”, “strategy", "future", “believes”, “estimates”, "goal", “potential”, "likely" or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. Forward-looking statements contained in this report include, but are not limited to, statements about:
• our future financial performance, including our net sales, cost of goods sold, gross profit or gross profit margin, operating expenses, ability to generate positive cash flow and ability to achieve and maintain profitability;
• our ability to maintain, protect and enhance our brands;
• our ability to attract and retain customers;
• the sufficiency of our cash and cash equivalents to meet our liquidity needs and service our indebtedness;
• our ability to produce sufficient quantities of our products to meet demands;
• demand fluctuations for our products;
• our ability to successfully innovate and compete in the food industry;
• changing trends, preferences and tastes in the food industry;
• our ability to successfully expand in our existing markets and into new U.S. and international markets;
• worldwide economic conditions and their impact on consumer spending;
• our expectations concerning relationships with third parties;
• our ability to effectively manage our growth and future expenses;
• future acquisitions of or investments in complementary companies or products;
• changes in regulatory requirements in our industry and our ability to comply with those requirements; and
• the attraction and retention of qualified employees and key personnel.
We caution you that the foregoing list may not contain all of the forward-looking statements made in this report.
You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this report primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described in “Risk Factors” and elsewhere in this report. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this report. We cannot assure you that the results, events and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events, or circumstances could differ materially from those described in the forward-looking statements.
The forward-looking statements made in this report relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this report to reflect events or circumstances after the date of this report or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.
Our Company and Our Business
Amplify Snack Brands, Inc., a Delaware corporation, and its wholly-owned subsidiaries (collectively, the "Company", "we", "us" and "our") is a high growth, snack food company focused on developing and marketing products that appeal to consumers’ growing preference for better-for-you ("BFY") snacks. Our anchor brand, SkinnyPop, is a highly-profitable and market-leading BFY ready-to-eat ("RTE") popcorn brand. Through its simple, major allergen-free and non-GMO
ingredients, SkinnyPop embodies our BFY mission and has amassed a loyal and growing customer base across a wide range of food distribution channels in the United States. In September 2016, we acquired Crisps Topco Limited ("Tyrrells Group") and its international portfolio of premium BFY snack brands. This acquisition allows us to broaden our international customer reach, diversify our product and brand portfolio and realize the benefits of operating scale. In April 2015, we acquired Paqui, LLC ("Paqui"), an emerging BFY tortilla chip brand and in April 2016, we acquired Boundless Nutrition, LLC ("Boundless Nutrition"), which manufactures and distributes its Oatmega protein snack bars and cookies to natural, grocery, mass and food service retail partners across the United States. These acquisitions allow us to leverage our infrastructure to help us grow into adjacent snacking sub-segments with innovative BFY brands. We believe that our focus on building a portfolio of exclusively BFY snack brands differentiates us and will allow us to leverage our platform to realize material synergies across our family of BFY brands, as well as allow our retail customers to consolidate their vendor relationships in this large and growing category.
Results of Operations
Comparison of
13 Weeks Ended April 1, 2017
and Three Months Ended March 31, 2016
The following table compares our results of operations, including as a percentage of net sales, for the
13 weeks ended April 1, 2017
and the three months ended March 31, 2016.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended April 1, 2017
|
|
% of Net Sales
|
|
Three Months Ended March 31, 2016
|
|
% of Net Sales
|
|
Net sales
|
$
|
87,218
|
|
|
100.0
|
%
|
|
$
|
54,345
|
|
|
100.0
|
%
|
|
Cost of goods sold
|
51,908
|
|
|
59.5
|
%
|
|
25,927
|
|
|
47.7
|
%
|
|
Gross profit
|
35,310
|
|
|
40.5
|
%
|
|
28,418
|
|
|
52.3
|
%
|
|
Sales & marketing expenses
|
10,425
|
|
|
12.0
|
%
|
|
5,679
|
|
|
10.4
|
%
|
|
General & administrative expenses
|
7,830
|
|
|
9.0
|
%
|
|
3,290
|
|
|
6.1
|
%
|
|
Equity-based compensation
|
1,744
|
|
|
2.0
|
%
|
|
1,079
|
|
|
2.0
|
%
|
|
Amortization of intangible assets
|
1,783
|
|
|
2.0
|
%
|
|
1,063
|
|
|
2.0
|
%
|
|
Total operating expenses
|
21,782
|
|
|
25.0
|
%
|
|
11,111
|
|
|
20.4
|
%
|
|
Operating income
|
13,528
|
|
|
15.5
|
%
|
|
17,307
|
|
|
31.8
|
%
|
|
Interest expense
|
10,973
|
|
|
12.6
|
%
|
|
3,026
|
|
|
5.6
|
%
|
|
Other income, net
|
(278
|
)
|
|
(0.3
|
)%
|
|
—
|
|
|
—
|
|
|
Income before income taxes
|
2,833
|
|
|
3.2
|
%
|
|
14,281
|
|
|
26.3
|
%
|
|
Income tax expense
|
2,305
|
|
|
2.6
|
%
|
|
5,879
|
|
|
10.8
|
%
|
|
Net income
|
$
|
528
|
|
|
0.6
|
%
|
|
$
|
8,402
|
|
|
15.5
|
%
|
Net Sales
Net sales for the 13 weeks ended April 1, 2017 was
$87.2 million
as compared to
$54.3 million
for the three months ended March 31, 2016, representing an increase of
$32.9 million
or
60.5%
. Our acquisitions of Tyrrells Group's international portfolio of brands in September 2016 and Oatmega in April of 2016, contributed incremental net sales of approximately $27.6 million and $3.7 million, respectively, during the 13 weeks ending April 1, 2017. Our organic net sales grew by approximately $1.6 million or 3%.
Within our North America segment, net sales increased from
$54.3 million
for the three months ended March 31, 2016 to
$60.0 million
for the 13 weeks ended April 1, 2017, representing an increase of
$5.7 million
or
10.5%
. Our Oatmega and Tyrrells brands, which we did not own during the three months ended March 31, 2016, contributed approximately $3.7 million and $0.3 million of net sales, respectively, for the 13 weeks ended April 1, 2017. Our SkinnyPop brand contributed net sales of approximately $53.5 million for the 13 weeks ended April 1, 2017, representing an increase of approximately $0.5 million or 1% from the prior period, primarily driven by the introduction of our popcorn cakes and microwave popcorn products, partially offset by a decline in our ready-to-eat popcorn ("RTE") offering due to a planned promotional shift from the first quarter of last year to the second quarter of this year. Our Paqui brand contributed net sales of approximately $2.5 million for the 13 weeks ended April 1, 2017, representing an increase of approximately $1.2 million or 94% from the prior period, primarily driven by increased distribution and improved velocities.
Our International segment contributed net sales of approximately $27.2 million for the 13 weeks ended April 1, 2017. Within our International segment, net sales of Tyrrells, Lisa's Chips and Thomas Chipman/Wholesome Food brands, including their respective country's manufactured private label sales, were approximately $22.1 million, $1.9 million and $3.2 million, respectively, for the 13 weeks ended April 1, 2017. In March 2017, we launched our SkinnyPop RTE product to select retailers within the U.K., which had an immaterial contribution to net sales during the 13 weeks ended April 1, 2017.
Gross Profit
Gross profit increased approximately
$6.9 million
, or
24.3%
, from
$28.4 million
for the three months ended March 31, 2016 to
$35.3 million
for the 13 weeks ended April 1, 2017. The increase in gross profit was primarily driven by the net sales contribution from the acquisitions of Tyrrells Group's brands and Oatmega. Gross profit as a percent of net sales decreased 1,181 basis points, from
52.3%
for the three months ended March 31, 2016 to
40.5%
for the 13 weeks ended April 1, 2017. Our overall gross margin percentage decrease was primarily driven by the September 2016 acquisitions of Tyrrells Group's brands and Oatmega and to a lesser extent the increased contributions of our Paqui brand and new SkinnyPop innovation, all of which have lower gross margin profiles than our SkinnyPop RTE product, our primary product during the three months ended March 31, 2016.The impact to our gross margin percentage as a result of the Tyrrells Group's brands and Oatmega was an approximately 1,340 basis points. This was partially offset by decreased trade promotional support within our North America segment primarily from the planned promotional shift for our SkinnyPop RTE product, representing a 70 basis point impact, as well as a favorable product costs within our North America segment, representing a 90 basis point impact.
Our North America segment's gross margin was 51.7% for the 13 weeks ended April 1, 2017, compared to
52.3%
for the three months ended March 31, 2016. Our International segment's gross margin was 15.7% for the 13 weeks ended April 1, 2017. Our International segment's gross margin percentage was lower than historical averages, primarily due to a higher sales mix of private label versus branded products, higher trade spending, higher production-related costs in our manufacturing facilities and a one-time depreciation catch-up amount related to purchase price accounting of approximately
$0.2 million
.
Sales and Marketing Expenses
Sales and marketing expenses increased approximately
$4.7 million
or
83.6%
, from
$5.7 million
for the three months ended March 31, 2016 to
$10.4 million
for the 13 weeks ended April 1, 2017, primarily due to sales and marketing expenses from our Tyrrells Group and Boundless Nutrition acquisitions of
$2.9 million
and
$0.7 million
, respectively, as well as incremental investments in our brands and sales and marketing personnel in the North America segment. Sales and marketing expenses as a percentage of net sales was
12.0%
and
10.4%
for the 13 weeks ended April 1, 2017 and three months ended March 31, 2016, respectively.
Sales and marketing expenses within our North America segment were approximately $7.1 million for the 13 weeks ended April 1, 2017 compared to approximately
$5.7 million
for the three months ended March 31, 2016, representing an increase of approximately $1.4 million, or 24.9%. As a percentage of segment net sales, sales and marketing expenses were 11.8% for the 13 weeks ended April 1, 2017 and 10.4% for the three months ended March 31, 2016. The increase in sales and marketing expenses was due to a $0.3 million increase in personnel costs, an increase of $0.6 million related to in-store demonstrations and to a lesser extent, increased advertising and other promotional activities and selling costs to drive brand awareness.
Our International segment accounted for approximately $3.3 million of our consolidated sales and marketing expenses for the 13 weeks ended April 1, 2017, representing 12.3% of the segment's net sales.
General and Administrative Expenses
General and administrative expenses increased from
$3.3 million
for the three months ended 2016 to
$7.8 million
for the 13 weeks ended April 1, 2017, representing an increase of
$4.5 million
, or
138%
. The increase was primarily due to our Tyrrells Group and Boundless Nutrition acquisitions, which contributed an incremental $3.2 million and $0.1 million of general and administrative expenses, respectively. In addition, we incurred approximately $0.7 million of acquisition and integration-related costs during the 13 weeks ended April 1, 2017, that we consider non-recurring in nature and have been added back to our Adjusted EBITDA presented in Item 2 of this Quarterly Report. We did not incur any acquisition or integration-related costs during the three months ended March 31, 2016.
General and administrative expenses, excluding corporate overhead and non-recurring expenses, within our North America segment were $1.7 million, or 2.9% of the segment's net sales for the 13 weeks ended April 1, 2017, as compared to $1.2 million or 2.3% of the segment's net sales for the three months ended March 31, 2016. The increase in general and administrative expenses was primarily a result of our investment in personnel to effectively scale and manage the North American operations.
General and administrative expenses, excluding corporate overhead and non-recurring expenses, within our International segment were $1.9 million or 6.9% of the segment's net sales for the 13 weeks ended April 1, 2017.
Corporate Overhead
General and administrative expenses also include corporate overhead, which is excluded from our North America and International segments' profitability measures. Corporate overhead includes administrative costs required to operate effectively as a public company, recurring professional fees, corporate-related insurance costs, personnel costs of our executive team and certain individuals within our finance and human resources departments. We experienced an increase in corporate overhead of approximately
$1.5 million
, or
71.2%
, from approximately $2.0 million for the three months ended March 31, 2016 to approximately $3.5 million for the 13 weeks ended April 1, 2017. Our acquisition of Tyrrells Group in September 2016, contributed approximately $0.5 million in corporate overhead for the 13 weeks ended April 1, 2017. The remaining increase in corporate overhead is primarily related to an increase in professional fees and personnel costs required to operate effectively as a public company.
Equity-based Compensation
Equity-based compensation increased approximately $0.6 million or
61.6%
from $1.1 million for the three months ended March 31, 2016 to $1.7 million for the 13 weeks ended April 1, 2017. The increase in equity-based compensation is primarily attributable to equity awards that were granted to certain employees of Tyrrells Group at the time of the acquisition. In March 2017, we granted certain employees equity awards with a grant date fair value of approximately $3.1 million which will be expensed ratably over the service period. As a result of these equity awards our equity based compensation will increase by approximately $0.2 million per fiscal quarter.
Amortization of Intangible Assets
Amortization of intangible assets was approximately
$1.8 million
for the 13 weeks ended April 1, 2017, compared to
$1.1 million
for the three months ended March 31, 2016, representing an increase of approximately
$0.7 million
, or
67.7%
. The increase in amortization of intangible assets is primarily attributable to our acquisition of Tyrrells Group in September 2016, which contributed approximately $0.7 million of amortization for the 13 weeks ended April 1, 2017.
Interest Expense
Interest expense increased approximately $8.0 million or
262.6%
from
$3.0 million
for the three months ended March 31, 2016 to
$11.0 million
for the 13 weeks ended April 1, 2017. The increase in interest expense was primarily attributable to additional indebtedness outstanding during the 13 weeks ended April 1, 2017 as compared to the three months ended March 31, 2016 as a result of our acquisition of Tyrrells Group. Our interest rate was also 100 basis points higher during the 13 weeks ended April 1, 2017 compared to the three months ending March 31, 2016. Refer to the Liquidity and Capital Resources section herein for additional information regarding our Credit Facility.
Other Income, Net
Other income, net for the 13 weeks ended April 1, 2017, includes approximately $0.5 million of gains from foreign currency transactions, partially offset by a loss on exit activity of approximately $0.2 million, related to our abandonment of a facility lease and entry into a sub-lease agreement in January 2017. During the three months ended March 31, 2016, we conducted all of our business in U.S. Dollar and therefore had no foreign currency transaction gains or losses.
Income Tax Expense
Income tax expense decreased approximately
$3.6 million
, or
60.8%
, from
$5.9 million
for the three months ended March 31, 2016 to
$2.3 million
for the 13 weeks ended April 1, 2017. The effective tax rate was 81.4% for the 13 weeks ended April 1, 2017 and 41.2% for the three months ended March 31, 2016. The increase in the effective tax rate was primarily due to gains from foreign currency transactions which were treated as discrete items in the current
quarter, along with the impact of entering foreign jurisdictions in connection with our acquisition of Tyrrells Group in September 2016.
Liquidity and Capital Resources
Liquidity represents our ability to generate sufficient cash from operating activities to satisfy obligations, as well as our ability to obtain appropriate financing. Therefore, liquidity cannot be considered separately from capital resources that consist primarily of current and potentially available funds for use in achieving our objectives. Currently, our liquidity needs arise mainly from working capital requirements and general corporate purposes, including capital expenditures and debt service. We believe our cash on hand and cash to be provided from our operations, in addition to borrowings available under our Revolving Loans, will be sufficient to fund our contractual commitments and repay our obligations as required and meet our operational requirements for at least the next 12 months. Under the terms of the Credit Facility, we are permitted to raise additional Revolving and Term Loans with existing and new lenders. As of April 1, 2017, we had
$33.4 million
of available capacity under our Revolving Loans.
As of
April 1, 2017
, we had
$10.1 million
of cash and cash equivalents on hand. We maintain cash and cash equivalents at various financial institutions located throughout the world. Approximately $6.1 million or 60% of these amounts were held in domestic accounts and approximately $4.0 million or 40% of these amounts were held in accounts outside of the United States with various financial institutions. It is the Company’s intention to indefinitely reinvest all foreign earnings outside the United States, therefore no provision for U.S. federal or state income taxes on those earnings has been recorded. In the event that management elects for any reason in the future to repatriate some or all of the foreign earnings that were previously deemed to be indefinitely reinvested outside of the United States, we would incur additional U.S. tax expense upon such repatriation that is not currently accrued in our consolidated financial statements.
In 2017, we estimate that we will pay approximately $7.1 million under the TRA and we expect the remaining annual payments to be significant through 2030.
Historical Cash Flow
Comparison of
13 Weeks Ended April 1, 2017
and
Three Months Ended March 31, 2016
The following table summarizes our cash flows from operating, investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended April 1, 2017
|
|
Three Months Ended March 31, 2016
|
|
Change
|
|
(In thousands)
|
|
|
|
Cash flows (used in) provided by:
|
|
|
|
|
|
|
Operating activities
|
$
|
(3,070
|
)
|
|
$
|
(8,561
|
)
|
|
$
|
5,491
|
|
|
Investing activities
|
(2,526
|
)
|
|
(193
|
)
|
|
(2,333
|
)
|
|
Financing activities
|
5,275
|
|
|
(2,563
|
)
|
|
7,838
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
72
|
|
|
—
|
|
|
72
|
|
|
Net decrease in cash
|
$
|
(249
|
)
|
|
$
|
(11,317
|
)
|
|
$
|
11,068
|
|
Operating Activities
Net cash used in operating activities was approximately
$3.1 million
and
$8.6 million
for the 13 weeks ended April 1, 2017 and three months ended March 31, 2016, respectively, representing a decrease in cash used in operating activities of approximately
$5.5 million
for the comparable periods. The largest contributor to the decrease in cash used in operating activities was due to a $23.0 million payment of founder contingent compensation during the three months ended March 31, 2016, which was offset in part by a decrease in net income of $7.9 million and changes in working capital. Non-cash reconciling items, such as depreciation, amortization of intangibles, amortization of deferred financing costs and debt discounts, deferred income taxes, equity-based compensation and a loss on exit activity totaled $7.3 million for the 13 weeks ended April 1, 2017 compared to $3.7 million for the three months ended March 31, 2016. This comparative source of cash of $3.6 million is attributable to the Tyrrells Group acquisition which resulted in incremental non-cash expenses. Changes in our operating assets and liabilities resulted in a use of cash of $10.9 million during the 13 weeks ended April 1, 2017 compared to a $2.3 million source of cash during the three months ended March 31, 2016. This fluctuation in our operating assets and liabilities is primarily a result of timing of payments and cash receipts.
Investing Activities
Net cash used in investing activities increased approximately $2.3 million, from approximately $0.2 million for the three months ended March 31, 2016 to approximately $2.5 million for the 13 weeks ended April 1, 2017. The use of cash in both comparable periods was attributable to the acquisition of property and equipment. The increase was due to capital investments to increase our manufacturing capacity both domestically and internationally.
Financing Activities
Net cash provided by financing activities was approximately $5.3 million for the 13 weeks ended April 1, 2017, compared to net cash used in financing activities of approximately $2.5 million for the three months ended March 31, 2016, representing an increase in cash provided by financing activities of approximately $7.8 million for the comparable periods. During the 13 weeks ended April 1, 2017, we borrowed $7.0 million under our revolving credit facility to help finance the purchase of property and equipment as well as our working capital needs.
Tax Receivable Agreement
Immediately prior to the consummation of the IPO in August 2015, we entered into the TRA, with the former holders of units in Topco. In December 2015, all of the former holders of units in Topco collectively assigned their interests to a new counterparty. The TRA generally provides for payment by us to the counterparty of 85% of the U.S. federal, state and local tax benefits realized by us and our subsidiaries from the utilization of certain tax attributes that were generated when SkinnyPop Popcorn LLC was acquired by investment funds affiliated with TA Associates in July 2014. We will retain approximately 15% of the U.S. federal, state and local tax benefits realized from the utilization of such tax attributes. We expect the payments we are required to make under the TRA will be substantial. Assuming no material changes in the relevant tax law and that we earn sufficient taxable income to realize all tax benefits that are subject to the TRA, we expect to be required to pay the counterparty approximately $96.1 million through 2030. We made the first annual payment of approximately $6.6 million under the TRA in October 2016. Prior to December 30, 2017, we expect to make our second annual installment which we estimate will approximate $7.1 million.
Indebtedness
Credit Facility
In connection with the acquisition of Tyrrells Group, we entered into the Credit Facility on September 2, 2016, which provided for Term Loans in the aggregate principal amount of
$600 million
and Revolving Loans in the aggregate principal amount of
$50 million
. We borrowed from the Term Loans in full to finance the acquisition of Tyrrells Group and pay down all outstanding indebtedness under the Credit Agreement entered into on July 17, 2014 (the "Prior Credit Facility"). As of April 1, 2017, we had $33.4 million of available capacity under our Revolving Loans.
We must repay the Term Loans in installments of
$1.5 million
per quarter due on the last day of each quarter beginning with the quarter ending December 31, 2016, with the remaining balance due at maturity in a final installment of
$559.5 million
. The Term Loans and Revolving Loans mature on September 2, 2023 and September 2, 2021, respectively.
In addition to the installment payments described above, the Credit Facility includes an annual mandatory prepayment of the Term Loans from
50%
of our excess cash flow as measured on annual basis, with step-downs to
25%
and
0%
of our excess cash flow if our Total Leverage Ratio (as defined in the Credit Facility), tested as of the last day of our fiscal year, is less than
4.50
to 1.00 but greater than
3.75
to 1.00, and less than or equal to
3.75
to 1.00, respectively. Excess cash flow is generally defined as our Consolidated Net Income (as defined in the Credit Facility) less debt service costs, unfinanced capital expenditures, unfinanced acquisition expenditures, and certain restricted payments, as adjusted for changes in our working capital and less other customary items.
In addition, the Credit Facility requires mandatory prepayment of the Term Loans from the net cash proceeds of (i) certain debt issuances and (ii) certain asset sales outside the ordinary course of business and from proceeds of property insurance and condemnation events, in each case of this clause (ii) subject to our right in some circumstances to reinvest such proceeds in the business. Any voluntary prepayment as part of a repricing transaction shall be accompanied by a prepayment premium equal to 1.0% of the principal amount of such prepayment, if such prepayment is made on or prior to the date that is twelve months after September 2, 2016.
Interest
The Term Loans bear interest, at our option, at either the Eurodollar rate plus a margin of
5.50%
or the prime rate plus a margin of
4.50%
, with step-downs to
5.00%
and
4.00%
, respectively, if our First Lien Leverage Ratio (as defined in the Credit Facility) is less than or equal to
4.50
to 1.00. The Eurodollar rate is subject to no floor with respect to the Revolving Loans and an annual
1.00%
floor with respect to the Term Loans and the prime rate is subject to a
1.00%
floor with respect to the Revolving Loans and a
2.00%
floor with respect to the Term Loans. As of April 1, 2017, the interest rate on the outstanding Term Loans balance was
6.50%
per annum and the weighted-average interest rate on the outstanding Revolver Loans balance was
6.40%
per annum.
We are also required to pay a commitment fee on the unused commitments under the Revolving Loans at a rate equal to
0.50%
per annum with a step-down to 0.375% per annum, if our First Lien Leverage Ratio is less than or equal to 3.25 to 1.00.
Guarantees
The Credit Facility is secured by liens on substantially all of our assets, including a pledge of
100%
of the equity interests in our domestic subsidiaries and a pledge of
65%
of the voting equity interests and
100%
of the non-voting equity interests in our direct foreign subsidiaries. All obligations under the Credit Facility are unconditionally guaranteed by substantially all of our direct and indirect domestic subsidiaries, with certain exceptions. These guarantees are secured by substantially all of the present and future property and assets of the guarantors, with certain exclusions.
Covenants
As of the last day of any fiscal quarter, the terms of the Credit Facility require us (on a consolidated basis and subject to certain customary exceptions) to maintain a maximum First Lien Leverage Ratio of not more than
8.50
to 1.0, initially, and decreasing to
6.25
to 1.0 over the term of the Credit Facility. As of
April 1, 2017
, we were in compliance with our financial covenants.
The Credit Facility contains customary affirmative covenants for transactions of this type and other affirmative covenants agreed to by the parties, including, among others, the provision of annual and quarterly financial statements and compliance certificates, maintenance of property, insurance, compliance with laws and environmental matters. The Credit Facility contains customary negative covenants, including, among others, restrictions on the incurrence of indebtedness, granting of liens, making investments and acquisitions, paying dividends, repurchases of equity interests in the Company, entering into affiliate transactions and asset sales. The Credit Facility also provides for a number of customary events of default, including, among others, payment, bankruptcy, covenant, representation and warranty, change of control and judgment defaults.
Notes Payable
In April 2016, we issued
$4.0 million
in unsecured notes to the sellers of Boundless Nutrition in connection with its acquisition. The notes bear interest at a rate per annum of
0.67%
with principal and interest due at varying maturity dates between April 29, 2017 and December 31, 2018. We recorded an acquisition-date fair value discount of approximately
$0.2 million
based on market rates for debt instruments with similar terms, which is amortized to interest expense over the term of the notes using the effective-interest method.
In April 2015, we issued
$3.9 million
in unsecured notes to the sellers of Paqui in connection with its acquisition. The notes bear interest at a rate per annum of
1.5%
with principal and interest due at maturity on March 31, 2018. We recorded an acquisition-date fair value discount of approximately
$0.2 million
based on market rates for debt instruments with similar terms, which is amortized to interest expense over the term of the notes using the effective-interest method.
Contractual Obligations and Other Commitments
Except as discussed in Notes 8 and 9 in the accompanying Notes to Condensed Consolidated Financial Statements contained in Item 1, there were no material changes in our commitments under contractual obligations, as disclosed in our audited consolidated financial statements for the year ended December 31, 2016.
Off Balance Sheet Arrangements
At
April 1, 2017
, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K.
Critical Accounting Policies and Estimates
We prepare our condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States ("GAAP"). In the preparation of these condensed consolidated financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses and related disclosures. To the extent that there are material differences between these estimates and actual results, our financial condition or results of operations would be affected. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. We refer to accounting estimates of this type as critical accounting policies and estimates. The application of each of these critical accounting policies and estimates was discussed in "Critical Accounting Policies and Estimates" included in our 2016 Annual Report on Form 10-K. There have been no material changes to our critical accounting policies and estimates from those discussed in our 2016 Annual Report on Form 10-K.
Non-GAAP Financial Measures
We include Adjusted EBITDA, which we refer to as a non-GAAP measure, in this report because it is an important measure upon which our management assesses our operating performance. We use Adjusted EBITDA as a key performance measure because we believe it facilitates operating performance comparisons from period-to-period by excluding potential differences primarily caused by variations in capital structures, tax positions, the impact of depreciation and amortization expense on our fixed assets and intangible assets and the impact of equity-based compensation expense. In addition, our Credit Agreement contains financial maintenance covenants, including a total funded debt ratio and a minimum fixed charged ratio, that use Adjusted EBITDA as one of their inputs. Because this non-GAAP measure facilitates internal comparisons of our historical operating performance on a more consistent basis, we also use it for business planning purposes, to incentivize and compensate our management personnel, and in evaluating acquisition opportunities. In addition, we believe this non-GAAP measure and similar measures are widely used by investors, securities analysts, ratings agencies and other parties in evaluating companies in our industry as a measure of financial performance and debt-service capabilities.
Our use of this non-GAAP measure has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:
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•
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Adjusted EBITDA measure does not reflect our cash expenditures for capital equipment or other contractual commitments;
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•
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Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect capital expenditure requirements for such replacements;
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•
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Adjusted EBITDA measures may not reflect changes in, or cash requirements for, our working capital needs;
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•
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Adjusted EBITDA does not reflect the interest expense or the cash requirements necessary to service interest or principal payments on our indebtedness; and
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•
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Other companies, including companies in our industry, may calculate Adjusted EBITDA differently, which reduces its usefulness as a comparative measure.
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In evaluating this non-GAAP measure, you should be aware that in the future we will incur expenses similar to the adjustments in this presentation. Our presentation of any non-GAAP measure should not be construed as an inference that our future results will be unaffected by these expenses or any other expenses, whether or not they are unusual or non-recurring items. When evaluating our performance, you should consider this non-GAAP measure alongside other financial performance measures, including our net income and other GAAP results.
Adjusted EBITDA
Adjusted EBITDA is a financial performance measure that is not calculated in accordance with GAAP. We define Adjusted EBITDA as net income adjusted to exclude, when appropriate, interest expense, income tax expense,
depreciation, amortization of intangible assets, equity-based compensation expenses and other non-operational items. Below, we have provided a reconciliation of Adjusted EBITDA to our net income, the most directly comparable financial measure calculated and presented in accordance with GAAP. Adjusted EBITDA should not be considered as an alternative to net income or any other measure of financial performance calculated and presented in accordance with GAAP. Our Adjusted EBITDA may not be comparable to similarly titled measures of other organizations because other organizations may not calculate Adjusted EBITDA in the same manner as we calculate the measure.
The following tables present a reconciliation of Adjusted EBITDA to net income, the most directly comparable GAAP measure, for each of the periods indicated (amounts in thousands):
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13 Weeks Ended April 1, 2017
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Three Months Ended March 31, 2016
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Net income
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$
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528
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$
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8,402
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Non-GAAP adjustments:
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Interest expense
|
10,973
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|
|
3,026
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Income tax expense
|
2,305
|
|
|
5,879
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Depreciation
|
1,914
|
|
|
107
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Amortization of intangible assets
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1,783
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|
1,063
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Equity-based compensation expense
|
1,744
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|
|
1,079
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Loss on exit activity
(1)
|
190
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—
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Foreign currency gains
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(468
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)
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—
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Transaction-related expenses:
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Acquisition-related expenses
(2)
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850
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—
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Executive recruitment
(3)
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288
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—
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Adjusted EBITDA
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$
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20,107
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$
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19,556
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(1)
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In connection with our acquisition of Boundless Nutrition in April 2016, we assumed a lease for a manufacturing facility located in Austin, Texas. In January 2017, we abandoned this facility and entered into a sublease with a third-party for the remainder of the lease term. As a result of this arrangement, we recorded a loss on exit activity of approximately $0.2 million for the 13 weeks ended April 1, 2017.
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(2)
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Includes legal, accounting and consulting fees along with with severance expenses and integration costs incurred in connection with corporate M&A-related activities.
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(3)
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Represents fees paid to help conduct our search for executive leadership personnel.
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