http://fasb.org/us-gaap/2022#ProductMemberhttp://fasb.org/us-gaap/2022#ProductMemberhttp://fasb.org/us-gaap/2022#ProductMemberhttp://fasb.org/us-gaap/2022#ProductMemberhttp://fasb.org/us-gaap/2022#ProductMemberhttp://fasb.org/us-gaap/2022#ProductMember0001856608--12-312022Q3false00000000000000000http://fasb.org/us-gaap/2022#InterestIncomeExpenseNethttp://fasb.org/us-gaap/2022#InterestIncomeExpenseNethttp://fasb.org/us-gaap/2022#InterestIncomeExpenseNet100892547100961986http://fasb.org/us-gaap/2022#ProductMemberhttp://fasb.org/us-gaap/2022#ProductMemberhttp://fasb.org/us-gaap/2022#PropertyPlantAndEquipmentNethttp://fasb.org/us-gaap/2022#LongTermDebtAndCapitalLeaseObligationsCurrenthttp://fasb.org/us-gaap/2022#LongTermDebtAndCapitalLeaseObligations0http://fasb.org/us-gaap/2022#AccruedLiabilitiesCurrenthttp://fasb.org/us-gaap/2022#InterestIncomeExpenseNet0740584472224P30M2P2Y0001856608sovos:TwoThousandEighteenTermLoanAndIncrementalTermLoanMember2021-06-012021-06-300001856608us-gaap:CommonStockMember2022-06-262022-09-240001856608us-gaap:CommonStockMember2021-12-262022-09-240001856608us-gaap:OverAllotmentOptionMember2022-08-222022-08-220001856608us-gaap:OverAllotmentOptionMember2022-08-102022-08-100001856608us-gaap:OverAllotmentOptionMember2021-09-272021-09-270001856608us-gaap:OverAllotmentOptionMember2021-09-222021-09-220001856608us-gaap:IPOMember2021-09-222021-09-2200018566082021-09-082021-09-080001856608us-gaap:RetainedEarningsMember2022-09-240001856608us-gaap:AdditionalPaidInCapitalMember2022-09-240001856608us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-09-240001856608us-gaap:RetainedEarningsMember2022-06-250001856608us-gaap:AdditionalPaidInCapitalMember2022-06-2500018566082022-06-250001856608us-gaap:RetainedEarningsMember2021-12-250001856608us-gaap:AdditionalPaidInCapitalMember2021-12-250001856608us-gaap:RetainedEarningsMember2021-09-250001856608us-gaap:AdditionalPaidInCapitalMember2021-09-250001856608us-gaap:RetainedEarningsMember2021-06-260001856608us-gaap:AdditionalPaidInCapitalMember2021-06-2600018566082021-06-260001856608us-gaap:RetainedEarningsMember2020-12-260001856608us-gaap:ReceivablesFromStockholderMember2020-12-260001856608us-gaap:AdditionalPaidInCapitalMember2020-12-260001856608us-gaap:CommonStockMember2022-09-240001856608us-gaap:CommonStockMember2022-06-250001856608us-gaap:CommonStockMember2021-12-250001856608us-gaap:CommonStockMember2021-09-250001856608us-gaap:CommonStockMember2021-06-260001856608us-gaap:CommonStockMember2020-12-260001856608us-gaap:OverAllotmentOptionMember2022-08-100001856608sovos:ServiceBasedRestrictedCommonStockMemberus-gaap:ShareBasedCompensationAwardTrancheTwoMember2021-12-262022-09-240001856608sovos:ServiceBasedRestrictedCommonStockMemberus-gaap:ShareBasedCompensationAwardTrancheOneMember2021-12-262022-09-240001856608sovos:PerformanceBasedRestrictedCommonStockMember2021-11-032021-11-030001856608us-gaap:RestrictedStockUnitsRSUMembersovos:EmployeesAndIndependentDirectorsMembersovos:ShareBasedCompensationAwardVestingInFirstAnniversaryMember2021-12-262022-09-240001856608us-gaap:RestrictedStockUnitsRSUMembersovos:ShareBasedCompensationAwardVestingInTwoInstallmentsMember2021-12-262022-09-240001856608us-gaap:RestrictedStockUnitsRSUMembersovos:ShareBasedCompensationAwardVestingInThreeInstallmentsMember2021-12-262022-09-240001856608us-gaap:RestrictedStockUnitsRSUMembersovos:EmployeesAndIndependentDirectorsMember2021-12-262022-09-240001856608us-gaap:RestrictedStockUnitsRSUMembersrt:DirectorMembersovos:TwoThousandTwentyOneEquityIncentiveMemberus-gaap:ShareBasedCompensationAwardTrancheThreeMember2021-09-212021-09-210001856608us-gaap:RestrictedStockUnitsRSUMembersovos:EmployeesAndIndependentDirectorsMembersovos:TwoThousandTwentyOneEquityIncentiveMemberus-gaap:ShareBasedCompensationAwardTrancheTwoMember2021-09-212021-09-210001856608sovos:TimeBasedRestrictedCommonStockMemberus-gaap:ShareBasedPaymentArrangementEmployeeMembersovos:TwoThousandTwentyOneEquityIncentiveMember2021-09-212021-09-210001856608sovos:PerformanceBasedRestrictedStockUnitsMemberus-gaap:ShareBasedPaymentArrangementEmployeeMembersovos:TwoThousandTwentyOneEquityIncentiveMember2021-09-212021-09-210001856608srt:MinimumMembersovos:PerformanceBasedRestrictedStockUnitsMember2021-12-262022-09-240001856608srt:MaximumMembersovos:PerformanceBasedRestrictedStockUnitsMember2021-12-262022-09-240001856608us-gaap:RestrictedStockUnitsRSUMemberus-gaap:ShareBasedPaymentArrangementEmployeeMembersovos:TwoThousandTwentyOneEquityIncentiveMemberus-gaap:ShareBasedCompensationAwardTrancheOneMember2021-09-212021-09-210001856608sovos:RaosBrandMember2022-06-262022-09-240001856608sovos:NoosaBrandMember2022-06-262022-09-240001856608sovos:MichaelAngelosBrandMember2022-06-262022-09-240001856608sovos:BirchBendersBrandMember2022-06-262022-09-240001856608sovos:RaosBrandMember2021-12-262022-09-240001856608sovos:NoosaBrandMember2021-12-262022-09-240001856608sovos:MichaelAngelosBrandMember2021-12-262022-09-240001856608sovos:BirchBendersBrandMember2021-12-262022-09-240001856608sovos:RaosBrandMember2021-06-272021-09-250001856608sovos:NoosaBrandMember2021-06-272021-09-250001856608sovos:MichaelAngelosBrandMember2021-06-272021-09-250001856608sovos:BirchBendersBrandMember2021-06-272021-09-250001856608sovos:RaosBrandMember2020-12-272021-09-250001856608sovos:NoosaBrandMember2020-12-272021-09-250001856608sovos:MichaelAngelosBrandMember2020-12-272021-09-250001856608sovos:BirchBendersBrandMember2020-12-272021-09-250001856608sovos:TwoThousandEighteenTermLoanAndIncrementalTermLoanMembersovos:CreditSuisseCitizensBankN.aMember2021-06-012021-06-300001856608sovos:TwoThousandSeventeenTermLoanMember2018-11-012018-11-300001856608us-gaap:RevolvingCreditFacilityMembersovos:DeutscheBankAndAresbankS.aMember2018-11-012018-11-300001856608sovos:InitialSecondLienFacilityMember2021-06-012021-06-300001856608sovos:InitialFirstLienTermLoanFacilityMember2021-06-012021-06-300001856608us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-06-262022-09-240001856608us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-12-262022-09-240001856608us-gaap:InterestRateCapMemberus-gaap:CashFlowHedgingMemberus-gaap:DesignatedAsHedgingInstrumentMember2022-06-262022-09-240001856608us-gaap:InterestRateCapMemberus-gaap:CashFlowHedgingMemberus-gaap:DesignatedAsHedgingInstrumentMember2021-12-262022-09-240001856608us-gaap:RetainedEarningsMember2022-06-262022-09-240001856608us-gaap:RetainedEarningsMember2021-12-262022-09-240001856608us-gaap:RetainedEarningsMember2021-06-272021-09-250001856608us-gaap:RetainedEarningsMember2020-12-272021-09-250001856608sovos:SovosBrandsLimitedPartnershipMembersovos:SovosBrandsIncMember2022-09-240001856608sovos:SovosBrandsHoldingsIncMembersovos:SovosBrandsIntermediateInc.Member2022-09-240001856608sovos:SovosBrandsHoldingsIncMember2022-09-240001856608us-gaap:RevolvingCreditFacilityMember2021-12-250001856608us-gaap:RevolvingCreditFacilityMembersovos:FirstLienCreditAgreementMember2021-06-300001856608us-gaap:LetterOfCreditMembersovos:FirstLienCreditAgreementMember2021-06-300001856608sovos:InitialFirstLienTermLoanFacilityMember2021-12-250001856608us-gaap:RevolvingCreditFacilityMember2022-09-240001856608sovos:FirstLienRevolvingLineOfCreditMember2022-09-240001856608sovos:FirstLienRevolvingLineOfCreditMember2021-12-250001856608sovos:ManufacturingFacilitiesAndOfficeSpaceMember2021-12-262022-09-240001856608srt:MinimumMembersovos:RealEstateLeasesMember2022-09-240001856608srt:MinimumMembersovos:ManufacturingFacilitiesAndOfficeSpaceMember2022-09-240001856608srt:MaximumMembersovos:RealEstateLeasesMember2022-09-240001856608srt:MaximumMembersovos:ManufacturingFacilitiesAndOfficeSpaceMember2022-09-240001856608us-gaap:EquipmentMember2022-09-240001856608sovos:StockholderMembersovos:ClassUnitsMember2019-01-310001856608sovos:InitialSecondLienFacilityMember2021-09-300001856608sovos:InitialFirstLienTermLoanFacilityMember2021-09-300001856608us-gaap:TradeNamesMember2022-09-240001856608us-gaap:TradeNamesMember2021-12-2500018566082022-03-272022-06-250001856608us-gaap:TradeNamesMember2022-09-240001856608us-gaap:CustomerRelationshipsMember2022-09-240001856608us-gaap:TradeNamesMember2021-12-250001856608us-gaap:CustomerRelationshipsMember2021-12-2500018566082020-12-272021-12-250001856608sovos:TimeBasedRestrictedCommonStockMember2022-06-262022-09-240001856608sovos:PerformanceBasedRestrictedStockUnitsMember2022-06-262022-09-240001856608sovos:TimeBasedRestrictedCommonStockMember2021-12-262022-09-240001856608sovos:PerformanceBasedRestrictedStockUnitsMember2021-12-262022-09-240001856608sovos:TimeBasedRestrictedCommonStockMember2021-06-272021-09-250001856608sovos:PerformanceBasedRestrictedStockUnitsMember2021-06-272021-09-250001856608sovos:TimeBasedRestrictedCommonStockMember2020-12-272021-09-250001856608sovos:PerformanceBasedRestrictedStockUnitsMember2020-12-272021-09-250001856608sovos:PerformanceBasedIncentiveUnitsMember2020-12-272021-09-230001856608sovos:InitialFirstLienTermLoanFacilityMember2021-10-012021-10-310001856608sovos:InitialSecondLienFacilityMember2021-09-012021-09-300001856608sovos:InitialFirstLienTermLoanFacilityMember2021-09-012021-09-300001856608sovos:SovosBrandsLimitedPartnershipMember2022-09-240001856608sovos:SovosBrandsLimitedPartnershipMember2021-12-2500018566082021-06-082021-06-080001856608us-gaap:CashFlowHedgingMemberus-gaap:DesignatedAsHedgingInstrumentMember2022-09-240001856608us-gaap:ForeignExchangeContractMemberus-gaap:NondesignatedMember2021-12-250001856608us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:NondesignatedMember2022-09-240001856608us-gaap:FairValueMeasurementsRecurringMemberus-gaap:NondesignatedMember2022-09-240001856608us-gaap:NondesignatedMember2022-09-240001856608us-gaap:ForeignExchangeContractMemberus-gaap:NondesignatedMember2022-06-262022-09-240001856608us-gaap:CashFlowHedgingMemberus-gaap:DesignatedAsHedgingInstrumentMember2022-06-262022-09-240001856608us-gaap:NondesignatedMember2022-06-262022-09-240001856608us-gaap:ForeignExchangeContractMemberus-gaap:NondesignatedMember2021-12-262022-09-240001856608us-gaap:CashFlowHedgingMemberus-gaap:DesignatedAsHedgingInstrumentMember2021-12-262022-09-240001856608us-gaap:NondesignatedMember2021-12-262022-09-240001856608us-gaap:CashFlowHedgingMemberus-gaap:DesignatedAsHedgingInstrumentMember2021-06-272021-09-250001856608us-gaap:NondesignatedMember2021-06-272021-09-250001856608us-gaap:CashFlowHedgingMemberus-gaap:DesignatedAsHedgingInstrumentMember2020-12-272021-09-250001856608us-gaap:NondesignatedMember2020-12-272021-09-250001856608us-gaap:CashFlowHedgingMemberus-gaap:DesignatedAsHedgingInstrumentMemberus-gaap:LondonInterbankOfferedRateLIBORMember2022-09-240001856608us-gaap:ForeignExchangeContractMemberus-gaap:NondesignatedMember2022-09-240001856608us-gaap:CashFlowHedgingMemberus-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:DesignatedAsHedgingInstrumentMember2022-09-240001856608us-gaap:PrepaidExpensesAndOtherCurrentAssetsMemberus-gaap:InterestRateCapMemberus-gaap:DesignatedAsHedgingInstrumentMember2022-09-240001856608us-gaap:OtherNoncurrentAssetsMemberus-gaap:InterestRateCapMemberus-gaap:DesignatedAsHedgingInstrumentMember2022-09-240001856608us-gaap:CashFlowHedgingMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:DesignatedAsHedgingInstrumentMember2022-09-240001856608us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2022-09-240001856608us-gaap:FairValueMeasurementsRecurringMember2022-09-240001856608us-gaap:DesignatedAsHedgingInstrumentMember2022-09-240001856608sovos:ForeignCurrencyContractDerivativesSubjectToMasterNettingMember2022-09-240001856608sovos:DerivativesNotSubjectToMasterNettingMember2022-09-240001856608sovos:InitialSecondLienFacilityMember2021-06-300001856608sovos:InitialFirstLienTermLoanFacilityMember2021-06-300001856608sovos:InitialSecondLienFacilityMembersovos:SecondLienCreditAgreementMember2021-06-300001856608sovos:InitialFirstLienTermLoanFacilityMembersovos:FirstLienCreditAgreementMember2021-06-300001856608sovos:IncrementalTermLoanMember2020-10-310001856608us-gaap:RevolvingCreditFacilityMembersovos:DeutscheBankAndAresbankS.aMember2018-11-300001856608sovos:TwoThousandEighteenTermLoanMembersovos:CreditSuisseCitizensBankN.aMember2018-11-300001856608sovos:InitialFirstLienTermLoanFacilityMember2022-09-240001856608sovos:InitialFirstLienTermLoanFacilityMember2022-09-240001856608sovos:InitialFirstLienTermLoanFacilityMember2021-12-250001856608sovos:InitialSecondLienFacilityMemberus-gaap:LondonInterbankOfferedRateLIBORMember2021-12-262022-09-240001856608srt:MinimumMembersovos:InitialFirstLienTermLoanFacilityAndRevolvingFacilityMemberus-gaap:LondonInterbankOfferedRateLIBORMember2021-06-012021-06-300001856608srt:MaximumMembersovos:InitialFirstLienTermLoanFacilityAndRevolvingFacilityMemberus-gaap:LondonInterbankOfferedRateLIBORMember2021-06-012021-06-300001856608us-gaap:OverAllotmentOptionMember2022-05-040001856608us-gaap:IPOMember2021-09-270001856608us-gaap:IPOMember2021-09-2200018566082021-09-070001856608sovos:TwoThousandTwentyOneEquityIncentiveMember2022-09-240001856608sovos:TwoThousandTwentyOneEquityIncentiveMember2021-09-2100018566082021-09-2500018566082020-12-260001856608us-gaap:RestrictedStockUnitsRSUMember2021-12-262022-09-240001856608us-gaap:PerformanceSharesMember2021-12-262022-09-240001856608us-gaap:RestrictedStockUnitsRSUMember2021-06-272021-09-250001856608us-gaap:RevolvingCreditFacilityMember2021-06-012021-06-300001856608us-gaap:InterestExpenseMember2022-06-262022-09-240001856608us-gaap:InterestExpenseMember2021-12-262022-09-240001856608us-gaap:InterestExpenseMember2021-06-272021-09-250001856608us-gaap:InterestExpenseMember2020-12-272021-09-250001856608sovos:TwoThousandTwentyOneEquityIncentiveMember2022-06-262022-09-240001856608sovos:TwoThousandTwentyOneEquityIncentiveMember2021-12-262022-09-240001856608sovos:TwoThousandTwentyOneEquityIncentiveMember2021-06-272021-09-250001856608sovos:TwoThousandTwentyOneEquityIncentiveMember2020-12-272021-09-250001856608us-gaap:AdditionalPaidInCapitalMember2022-06-262022-09-240001856608us-gaap:AdditionalPaidInCapitalMember2021-12-262022-09-240001856608us-gaap:AdditionalPaidInCapitalMember2021-06-272021-09-250001856608us-gaap:AdditionalPaidInCapitalMember2020-12-272021-09-250001856608sovos:MorningFreshDairyMember2022-09-240001856608sovos:MorningFreshDairyMember2021-12-250001856608us-gaap:OverAllotmentOptionMember2021-10-052021-10-050001856608us-gaap:IPOMember2021-09-272021-09-270001856608sovos:StockholderMembersovos:ClassUnitsMember2019-01-012019-01-310001856608us-gaap:ReceivablesFromStockholderMember2020-12-272021-09-2500018566082021-09-080001856608sovos:PerformanceBasedRestrictedCommonStockMember2021-11-042021-11-040001856608sovos:InitialSecondLienFacilityMember2021-12-262022-09-240001856608sovos:InitialFirstLienTermLoanFacilityMember2021-09-272021-09-270001856608sovos:InitialFirstLienTermLoanFacilityAndRevolvingFacilityMember2021-06-012021-06-300001856608sovos:StockholderMembersovos:ClassUnitsMember2021-02-262021-02-260001856608sovos:PerformanceBasedRestrictedCommonStockMember2021-09-222021-09-220001856608sovos:CostOfSalesAndSellingGeneralAndAdministrativeMember2022-06-262022-09-240001856608sovos:CostOfSalesAndSellingGeneralAndAdministrativeMember2021-12-262022-09-240001856608sovos:CostOfSalesAndSellingGeneralAndAdministrativeMember2021-06-272021-09-250001856608sovos:CostOfSalesAndSellingGeneralAndAdministrativeMember2020-12-272021-09-250001856608sovos:SovosBrandsIntermediateInc.Member2022-09-240001856608sovos:IncentiveUnitsMember2022-09-240001856608us-gaap:OverAllotmentOptionMember2022-05-042022-05-040001856608sovos:PerformanceBasedRestrictedStockUnitsMember2021-11-040001856608sovos:PerformanceBasedRestrictedCommonStockMember2021-11-040001856608sovos:PerformanceBasedRestrictedCommonStockMember2021-11-030001856608sovos:PerformanceBasedRestrictedCommonStockMember2021-09-220001856608sovos:IncentiveUnitsMember2021-12-262022-09-240001856608sovos:MorningFreshDairyMember2022-06-262022-09-240001856608sovos:MorningFreshDairyMember2021-12-262022-09-240001856608sovos:MorningFreshDairyMember2021-06-272021-09-250001856608sovos:MorningFreshDairyMember2020-12-272021-09-2500018566082022-06-262022-09-2400018566082021-06-272021-09-2500018566082020-12-272021-09-250001856608sovos:MilkSupplyAgreementMembersovos:MorningFreshDairyMember2021-12-262022-09-240001856608us-gaap:RestrictedStockUnitsRSUMembersovos:ShareBasedCompensationAwardVestingInTwoInstallmentsMember2022-09-240001856608us-gaap:RestrictedStockUnitsRSUMembersovos:ShareBasedCompensationAwardVestingInThreeInstallmentsMember2022-09-240001856608us-gaap:RestrictedStockUnitsRSUMembersovos:EmployeesAndIndependentDirectorsMembersovos:TwoThousandTwentyOneEquityIncentiveMemberus-gaap:ShareBasedCompensationAwardTrancheTwoMember2021-09-210001856608srt:MaximumMembersovos:MilkSupplyAgreementMembersovos:MorningFreshDairyMember2022-09-240001856608sovos:InitialSecondLienFacilityMemberus-gaap:LondonInterbankOfferedRateLIBORMember2022-09-240001856608sovos:InitialFirstLienTermLoanFacilityMember2021-06-300001856608sovos:FirstLienRevolvingLineOfCreditMember2021-06-300001856608sovos:FirstLienCreditAgreementMember2021-12-262022-09-2400018566082021-09-230001856608sovos:MilkSupplyAgreementMembersovos:MorningFreshDairyMember2022-09-2400018566082022-09-2400018566082021-12-2500018566082022-10-2800018566082021-12-262022-09-24xbrli:sharesiso4217:USDxbrli:puresovos:installmentsovos:itemsovos:tranchesovos:subsidiaryiso4217:USDxbrli:shares

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 24, 2022

OR

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

For the transition period from ________ to ________

Commission File Number: 001-40837

Sovos Brands, Inc.

(Exact name of registrant as specified in its charter)

Graphic

Delaware

81-5119352

(State or other jurisdiction of incorporation or organization)

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

168 Centennial Parkway, Suite 200

Louisville, CO 80027

(Address of principal executive offices) (zip code)

(720) 316-1225

(Registrant’s telephone number, including area code)

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

Title of each class

Trading symbol

Name of each exchange on which registered

Common Stock, $0.001 par value per share

SOVO

The Nasdaq Stock Market LLC

(Nasdaq Global Select Market)

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

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

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

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

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

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

As of October 28, 2022, there were 100,961,986 shares of common stock, $0.001 par value per share outstanding.

Table of Contents

SOVOS BRANDS, INC.

FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 24, 2022

INDEX

Page

PART I. Financial Information

Item 1.

Financial Statements (Unaudited):

3

Condensed Consolidated Balance Sheets

3

Condensed Consolidated Statements of Operations

4

Condensed Consolidated Statements of Comprehensive Income

5

Condensed Consolidated Statements of Changes in Stockholders Equity

6

Condensed Consolidated Statements of Cash Flows

7

Notes to Unaudited Condensed Consolidated Financial Statements

9

Item 2.

Managements Discussion and Analysis of Financial Condition and Results of Operations

32

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

54

Item 4.

Controls and Procedures

54

PART II. Other Information

Item 1.

Legal Proceedings

55

Item 1A.

Risk Factors

55

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

59

Item 3.

Defaults Upon Senior Securities

59

Item 4.

Mine Safety Disclosures

59

Item 5.

Other Information

59

Item 6

Exhibits

60

Signatures

64

2

Table of Contents

PART I. Financial Information

Item 1. Financial Statements (Unaudited)

Sovos Brands, Inc.

Condensed Consolidated Balance Sheets

(Unaudited, dollars in thousands, except par value and share data)

    

September 24, 2022

    

December 25, 2021

ASSETS

 

  

 

  

CURRENT ASSETS:

 

  

 

  

Cash and cash equivalents

$

81,926

$

66,154

Accounts receivable, net

 

83,964

 

70,729

Inventories

 

84,086

 

51,615

Prepaid expenses and other current assets

 

5,865

 

6,685

Total current assets

 

255,841

 

195,183

Property and equipment, net

 

65,132

 

62,671

Operating lease right-of-use assets

13,932

15,672

Goodwill

 

395,399

 

437,451

Intangible assets, net

 

444,225

 

464,655

Other long-term assets

 

3,978

 

2,299

TOTAL ASSETS

$

1,178,507

$

1,177,931

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

  

 

  

CURRENT LIABILITIES:

 

  

 

  

Accounts payable

$

52,203

$

37,254

Accrued expenses

 

60,373

 

51,757

Current portion of long-term debt

 

98

 

98

Current portion of long-term lease liabilities

3,298

3,216

Total current liabilities

 

115,972

 

92,325

Long-term debt, net of debt issuance costs

 

482,114

 

481,420

Deferred income taxes

 

65,736

 

76,976

Long-term operating lease liabilities

14,912

17,302

Other long-term liabilities

 

459

 

421

TOTAL LIABILITIES

 

679,193

 

668,444

COMMITMENTS AND CONTINGENCIES (Note 10)

 

  

 

  

STOCKHOLDERS’ EQUITY:

 

  

 

  

Preferred stock, $0.001 par value per share, 10,000,000 shares authorized, no shares issued and outstanding

Common stock, $0.001 par value per share, 500,000,000 shares authorized, 100,961,986 and 100,892,547 shares issued and outstanding as of September 24, 2022 and December 25, 2021, respectively

 

101

 

101

Additional paid-in-capital

 

572,466

 

559,226

Accumulated deficit

 

(74,604)

 

(49,840)

Accumulated other comprehensive income

1,351

TOTAL STOCKHOLDERS’ EQUITY

 

499,314

 

509,487

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

$

1,178,507

$

1,177,931

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

3

Table of Contents

Sovos Brands, Inc.

Condensed Consolidated Statements of Operations

(Unaudited, dollars in thousands, except share and per share data)

13 Weeks Ended

39 Weeks Ended

    

September 24, 2022

    

September 25, 2021

    

September 24, 2022

September 25, 2021

Net sales

$

208,907

$

178,733

$

616,273

$

529,942

Cost of sales

 

147,090

 

128,878

445,525

368,642

Gross profit

 

61,817

 

49,855

170,748

161,300

Operating expenses:

Selling, general and administrative

 

43,965

 

31,189

117,329

91,367

Depreciation and amortization

 

7,209

 

7,236

21,612

21,631

Impairment of goodwill

42,052

Loss on extinguishment of debt

 

 

9,717

Total operating expenses

51,174

38,425

180,993

122,715

Operating income (loss)

 

10,643

 

11,430

(10,245)

38,585

Interest expense, net

 

6,679

 

12,547

18,414

24,613

Income (loss) before income taxes

 

3,964

 

(1,117)

(28,659)

13,972

Income tax (expense) benefit

 

(2,500)

 

(3,497)

3,895

(8,213)

Net income (loss)

$

1,464

$

(4,614)

$

(24,764)

$

5,759

Earnings (loss) per share:

 

  

 

  

Basic

$

0.01

$

(0.06)

$

(0.25)

$

0.08

Diluted

$

0.01

$

(0.06)

$

(0.25)

$

0.08

Weighted average shares outstanding:

 

 

Basic

 

100,913,121

 

74,058,447

100,901,161

74,058,447

Diluted

 

101,613,928

 

74,058,447

100,901,161

74,058,453

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

4

Table of Contents

Sovos Brands, Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(Unaudited, dollars in thousands)

13 Weeks Ended

39 Weeks Ended

    

September 24, 2022

    

September 25, 2021

    

September 24, 2022

September 25, 2021

Net income (loss)

$

1,464

$

(4,614)

$

(24,764)

$

5,759

Other comprehensive income:

Change in net unrealized gain on derivative instruments

1,785

1,785

Income tax effect

(434)

(434)

Unrealized gain on derivative instruments, net of tax

1,351

1,351

Total comprehensive income (loss)

$

2,815

$

(4,614)

$

(23,413)

$

5,759

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

5

Table of Contents

Sovos Brands, Inc.

Condensed Consolidated Statements of Changes in Stockholders’ Equity

(Unaudited, dollars in thousands, except share data)

    

    

    

Stockholder's

    

Additional

    

Retained Earnings

    

Accumulated Other

    

Total

Common Stock

Note

Paid-in

(Accumulated

Comprehensive

    

Stockholders’

Shares

Amount

Receivable

Capital

Deficit)

Income

Equity

Balance at June 25, 2022

 

100,912,023

$

101

$

$

567,860

$

(76,068)

$

$

491,893

Equity-based compensation expense

4,606

4,606

Shares issued upon vesting of restricted stock units

49,963

Other comprehensive income

1,351

1,351

Net income

 

 

 

 

 

1,464

 

1,464

Balance at September 24, 2022

 

100,961,986

$

101

$

$

572,466

$

(74,604)

$

1,351

$

499,314

    

    

    

Stockholder's

    

Additional

    

Retained Earnings

    

Accumulated Other

    

Total

Common Stock

Note

Paid-in

(Accumulated

Comprehensive

Stockholders’

Shares

Amount

Receivable

Capital

Deficit)

Income

Equity

Balance at December 25, 2021

 

100,892,547

$

101

$

$

559,226

$

(49,840)

$

$

509,487

Equity-based compensation expense

 

 

 

 

13,240

 

 

13,240

Shares issued upon vesting of restricted stock units

69,439

Other comprehensive income

1,351

1,351

Net loss

(24,764)

(24,764)

Balance at September 24, 2022

 

100,961,986

$

101

$

$

572,466

$

(74,604)

$

1,351

$

499,314

    

    

    

Stockholder's

    

Additional

    

Retained Earnings

    

Accumulated Other

    

Total

Common Stock

Note

Paid-in

(Accumulated

Comprehensive

Stockholders’

Shares

Amount

Receivable

Capital

Deficit)

Income

Equity

Balance at June 26, 2021

 

74,058,447

$

74

$

$

255,491

$

(41,386)

$

$

214,179

Equity-based compensation expense

 

 

 

 

979

 

 

979

Dividend distribution ($5.40 per share)

Net loss

 

 

 

 

 

(4,614)

 

(4,614)

Balance at September 25, 2021

 

74,058,447

$

74

$

$

256,470

$

(46,000)

$

$

210,544

    

    

    

Stockholder's

    

Additional

    

Retained Earnings

    

Accumulated Other

    

Total

Common Stock

Note

Paid-in

(Accumulated

Comprehensive

Stockholders’

Shares

Amount

Receivable

Capital

Deficit)

Income

Equity

Balance at December 26, 2020

 

74,058,447

$

74

$

(6,000)

$

654,386

$

(51,759)

$

$

596,701

Proceeds from stockholder's note receivable

 

 

 

6,000

 

 

 

6,000

Equity-based compensation expense

 

 

 

 

2,084

 

 

2,084

Dividend distribution ($5.40 per share)

(400,000)

(400,000)

Net income

 

 

 

 

 

5,759

 

5,759

Balance at September 25, 2021

 

74,058,447

$

74

$

$

256,470

$

(46,000)

$

$

210,544

See accompanying notes to the unaudited condensed consolidated financial statements.

6

Table of Contents

Sovos Brands, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited, dollars in thousands)

39 Weeks Ended

    

September 24, 2022

    

September 25, 2021

Operating activities

 

  

 

  

Net income (loss)

$

(24,764)

$

5,759

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

 

 

  

Depreciation and amortization

 

29,184

 

28,302

Equity-based compensation expense

 

13,240

 

2,084

Loss on foreign currency contracts

3,255

Deferred income taxes

 

(11,674)

 

6,516

Amortization of debt issuance costs

 

949

 

1,566

Non-cash operating lease expense

 

1,818

 

1,683

Provision for excess and obsolete inventory

2,350

Loss on disposal of property and equipment

 

 

54

Impairment of goodwill

42,052

Loss on extinguishment of debt

9,717

Other

 

 

229

Changes in operating assets and liabilities:

 

 

  

Accounts receivable, net

 

(13,234)

 

(18,931)

Inventories

 

(34,823)

 

(13,642)

Prepaid expenses and other current assets

 

215

 

(6,588)

Other long-term assets

 

372

 

396

Accounts payable

 

14,674

 

2,582

Accrued expenses

 

5,504

 

649

Other long-term liabilities

 

38

 

12

Operating lease liabilities

(2,386)

(2,083)

Net cash provided by operating activities

 

26,770

 

18,305

Investing activities

 

  

 

  

Purchases of property and equipment

 

(10,939)

 

(5,111)

Net cash used in investing activities

 

(10,939)

 

(5,111)

Financing activities

 

  

 

  

Payments of debt issuance costs

 

 

(3,046)

Proceeds from long-term debt

 

 

769,136

Repayments of long-term debt

 

 

(374,146)

Repayments of capital lease obligations

 

(59)

 

(49)

Proceeds from stockholder's note receivable

 

 

6,000

Contingent earn out consideration paid

(5,000)

Dividends paid

(400,000)

Net cash used in financing activities

 

(59)

 

(7,105)

Cash and cash equivalents

Net increase in cash and cash equivalents

 

15,772

 

6,089

Cash and cash equivalents at beginning of period

 

66,154

 

37,026

Cash and cash equivalents at end of period

$

81,926

$

43,115

 

(Continued)

7

Table of Contents

39 Weeks Ended

September 24, 2022

September 25, 2021

Supplemental disclosures of cash flow information

    

  

    

  

Cash paid for interest

$

19,309

 

$

18,603

Cash paid for taxes

 

3,670

 

2,236

Proceeds from income tax refunds

 

(11)

 

(44)

Non-cash investing and financing transactions

 

 

  

Lease liabilities arising from operating lease right-of-use assets recognized at ASU No. 2016-02 transition

$

$

21,711

Lease liabilities arising from operating lease right-of-use assets recognized after ASU No. 2016-02 transition

78

1,638

Acquisition of property and equipment not yet paid

 

314

 

43

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

8

Table of Contents

Notes to Unaudited Condensed Consolidated Financial Statements

1. Company Overview

Sovos Brands, Inc. and its subsidiaries (the “Company,” “we,” “our”) is a consumer-packaged food company that creates value for its stockholders through acquisition and executive management of brands in the food industry. On September 22, 2021, Sovos Brands, Inc. priced its initial public offering (the “IPO”) of 23,334,000 shares of its common stock, $0.001 par value per share, which excluded the underwriters’ option to purchase up to an additional 3,500,100 shares of common stock, at an offering price of $12.00 per share. In conjunction with the IPO, the Company became actively traded on the Nasdaq Global Select Market (“NASDAQ”) listed under the trade symbol of “SOVO.” Upon the closing of the IPO on September 27, 2021, the Company issued 23,334,000 shares of its common stock and received approximately $263.2 million, net of underwriting discounts and commissions. Subsequent to the IPO, the underwriters exercised their options to purchase an additional 3,500,100 shares of common stock. The Company closed its sale of such additional shares on October 5, 2021, resulting in net proceeds of approximately $39.5 million, net of underwriting discounts and commissions. See Note 13. Stockholders’ Equity for additional information.

On August 10, 2022, the Company completed a secondary offering, in which certain of its stockholders (the “Selling Stockholders”) sold 8,500,000 shares of common stock in an underwritten public offering at an offering price of $14.00 per share, with all proceeds going to the Selling Stockholders. Subsequent to the secondary offering, the underwriters exercised their option to purchase an additional 1,275,000 shares of common stock, and the sale of such additional shares closed on August 22, 2022, with all proceeds going to the Selling Stockholders.

Prior to the IPO, Sovos Brands Limited Partnership (the “Ultimate Parent” or the “Limited Partnership”) owned 100% of Sovos Brands, Inc., which owns 100% of Sovos Brands Holdings, Inc., which owns 100% of Sovos Brands Intermediate, Inc. (“Sovos Intermediate”). Sovos Intermediate has four wholly-owned operating subsidiaries: Rao’s Specialty Foods, Inc. (“Rao’s”); Bottom Line Food Processors, Inc. doing business as Michael Angelo’s Gourmet Foods, Inc. (“Michael Angelo’s”); Noosa Yoghurt, LLC (“Noosa”); and Birch Benders, LLC (“Birch Benders”). Through its wholly-owned operating subsidiaries, the Company produces and distributes food products in various locations throughout the United States. The Company was founded on January 17, 2017 and has its executive headquarters in Louisville, Colorado.

The unaudited condensed consolidated financial statements include the accounts of Sovos Brands, Inc. and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated. Unless the context otherwise requires, “we,” “us,” “our,” “Sovos Brands” and the “Company” refer to Sovos Brands, Inc. and its subsidiaries.

The Company maintains its accounting records on a 52/53-week fiscal year, ending on the last Saturday in December of each year. Our fiscal year ending December 31, 2022 (“fiscal 2022”) will have 53 weeks.

Description of Business

Sovos Brands, Inc. is a consumer-packaged food company that is focused on acquiring and building disruptive growth brands that bring today’s consumers great tasting food that fits the way they live. The Company’s principal products include a variety of pasta sauces, dry pasta, soups, frozen entrees, yogurts, gelato, pancake and waffle mixes, other baking mixes and frozen waffles, which are primarily sold in the United States. The Company sells products marketed under the brand names Rao’s, Michael Angelo’s, noosa and Birch Benders which are built with authenticity at their core, providing consumers food experiences that are genuine, delicious, and unforgettable. Our premium products are made with simple, high-quality ingredients. We are focused on continuing to build an organization with the capabilities to acquire, integrate and grow brands. We strive to empower our teams to lead with courage and tenacity, with the goal of providing them with the confidence and agility to connect with our consumers and retail partners to drive unparalleled growth. We believe our focus on “one-of-a-kind” brands and products that people love and our passion for our people make Sovos Brands a “one-of-a-kind” company and enables us to deliver on our objective of creating a growing and sustainable food enterprise yielding financial growth ahead of industry peers.

9

Table of Contents

Unaudited Interim Condensed Consolidated Financial Statements

The interim condensed consolidated financial statements and related notes of the Company and its subsidiaries are unaudited. The unaudited interim condensed consolidated financial statements have been prepared in accordance with United States Generally Accepted Accounting Principles (“GAAP”) and the rules and regulations of the Securities and Exchange Commission (the “SEC”). The unaudited interim condensed consolidated financial statements reflect all adjustments and disclosures which are, in our opinion, necessary for a fair presentation of the results of operations, financial position and cash flows for the indicated periods. All such adjustments were of a normal and recurring nature. The year-end balance sheet data was derived from the audited financial statements and, in accordance with the instructions to Form 10-Q, certain information and footnote disclosures required by GAAP have been condensed or omitted. The results reported in these unaudited interim condensed consolidated financial statements are not necessarily indicative of the results that may be reported for the entire fiscal year and should be read in conjunction with our consolidated financial statements for the fiscal year ended December 25, 2021, included in our Annual Report on Form 10-K, as amended, filed with the SEC on March 15, 2022 (“2021 Form 10-K”).

2. Summary of Significant Accounting Policies

There have been no material changes in the Company’s significant accounting policies as compared to the significant accounting policies described in Note 2. Summary of Significant Accounting Policies, to the consolidated financial statements included in the Company’s 2021 Form 10-K, other than what is described below.

Hedging and Derivative Financial Instruments

We are exposed to certain risks relating to our ongoing business operations. From time to time, we use derivative financial instruments, principally option contracts, collars and interest rate caps, to reduce our exposure to foreign currency risk and interest rate risk. We do not hold or issue derivatives for speculative purposes.

The Financial Accounting Standards Board (the “FASB”) issued ASC 815, Derivatives and Hedging (“ASC 815”), which provides the disclosure requirements for derivatives and hedging activities with the intent to provide users of financial statements with an enhanced understanding of: (a) how and why an entity uses derivative instruments, (b) how the entity accounts for derivative instruments and related hedged items, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. Further, qualitative disclosures are required that explain the Company’s objectives and strategies for using derivatives, as well as quantitative disclosures about the fair value of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative instruments.

Derivative instruments are recorded at fair value in the Condensed Consolidated Balance Sheets and are classified based on the contractual maturity of the instrument or the timing of the underlying cash flows. The fair value of derivative instruments is reflected in prepaid expenses and other current assets, other long-term assets or accrued expenses. On the Condensed Consolidated Statements of Cash Flows, cash flows associated with derivative instruments are classified according to the nature of the underlying hedged item.

The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship, whether the Company has elected to apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge that are exposed to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the earnings effect of the hedged forecasted transactions in a cash flow hedge. Changes in fair value of the cash flow hedges are recognized in the Condensed Consolidated Statements of Comprehensive Income in other comprehensive income (“OCI”). The Company may enter into derivative contracts that are intended to economically hedge certain of its risks, even though hedge accounting does not apply or the Company elects not to apply hedge accounting. Derivative instruments that have not been designated in an effective hedging relationship are considered economic hedges, and their change in fair value is recognized in the Condensed Consolidated Statements of Operations in selling, general and administrative.

10

Table of Contents

In accordance with the FASB’s fair value measurement guidance, the Company made an accounting policy election to measure the credit risk of its derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio.

See Note 12. Hedging and Derivative Financial Instruments for additional information.

New Accounting Pronouncements and Policies

Recently Issued Accounting Pronouncements Not Yet Adopted

In March 2020, the FASB issued Accounting Standards Update (“ASU”) No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments of ASU No. 2020-04 apply only to contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform and provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. During Q3 2022 the Company elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. The Company will continue to monitor the effects of rate reform, if any, on its contracts and the effects of adoption of these ASUs through December 31, 2022. The Company does not anticipate the amendments of this ASU to have a material impact to its consolidated financial statements upon adoption.

In March 2022, the FASB issued ASU No. 2022-02, Financial Instruments-Credit Losses (Topic 326) Troubled Debt Restructurings and Vintage Disclosures. The Company previously adopted ASU 2016-13, Financial Instruments-Credit Losses (Topic 326) – Measurement of Credit Losses on Financial Instruments effective December 27, 2020, and therefore this amendment is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The amendments of ASU 2022-02 require that an entity disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases. The Company expects the impact of this amendment to be administrative and does not anticipate any material impact to the consolidated financial statements.

3. Revenue Recognition

Revenue disaggregated by brand is as follows:

13 Weeks Ended

39 Weeks Ended

(In thousands)

    

September 24, 2022

    

September 25, 2021

    

September 24, 2022

    

September 25, 2021

Rao’s

$

135,189

$

101,118

$

392,399

$

299,632

Noosa

 

42,703

 

41,712

 

132,102

 

124,298

Michael Angelo’s

 

21,269

 

22,090

 

61,251

 

59,687

Birch Benders

 

9,746

 

13,813

 

30,521

 

46,325

Total net sales

$

208,907

$

178,733

$

616,273

$

529,942

11

Table of Contents

4. Inventories

Inventories consisted of the following:

(In thousands)

    

September 24, 2022

    

December 25, 2021

Finished goods

$

71,386

$

38,715

Raw materials and packaging supplies

 

12,700

 

12,900

Total inventories

$

84,086

$

51,615

5. Goodwill

Changes in the carrying value of Goodwill during the 39 weeks ended September 24, 2022 were as follows:

(In thousands)

Goodwill

Balance as of December 25, 2021

$

437,451

Impairment

 

(42,052)

Balance as of September 24, 2022

$

395,399

In the second quarter of 2022, the Company identified the underperformance of the Birch Benders reporting unit as an indicator that required a quantitative assessment to be performed. The Company compared the estimated fair value of the Birch Benders reporting unit to the carrying value of its assets and liabilities, including goodwill. The fair value was established using generally accepted valuation methodologies, including discounted cash flow analysis and comparable public company analysis, both methods weighted equally. It was determined that the carrying value of the goodwill exceeded the Company’s estimate of the implied fair value of goodwill. As a result, the Company recorded an impairment charge for the full amount of goodwill, $42.1 million, for the 13 weeks ended June 25, 2022.

There were no impairment charges related to goodwill during the 13 weeks ended September 24, 2022 or during the 13 weeks or 39 weeks ended September 25, 2021.

6. Intangible Assets, Net

Intangible asset, net, consisted of the following:

September 24, 2022

Gross carrying

Accumulated

Net carrying

(In thousands)

amount

amortization

amount

Intangible assets - definite lives

  

    

  

    

  

Customer relationships

$

213,000

$

84,732

$

128,268

Tradename

 

192,347

 

29,390

 

162,957

405,347

114,122

291,225

Intangible assets - indefinite lives

 

 

  

 

  

Tradename

153,000

153,000

Total intangible assets

$

558,347

$

114,122

$

444,225

12

Table of Contents

December 25, 2021

Gross carrying

Accumulated

Net carrying

(In thousands)

    

amount

    

amortization

    

amount

Intangible assets - definite lives

  

  

  

Customer relationships

$

213,000

$

71,330

$

141,670

Tradename

 

192,347

 

22,362

 

169,985

405,347

93,692

311,655

Intangible assets - indefinite lives

Tradename

 

153,000

153,000

Total intangible assets

$

558,347

$

93,692

$

464,655

Amortization expense related to intangible assets during the 13 weeks ended September 24, 2022 and September 25, 2021 was $6.8 million and $6.8 million, respectively. Amortization expense related to intangible assets during the 39 weeks ended September 24, 2022 and September 25, 2021 was $20.4 million and $20.4 million, respectively.

Intangible assets with definite useful lives are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. In the second quarter of 2022, the Company identified underperformance of the Birch Benders reporting unit and accordingly, performed a recoverability test to determine if the carrying amounts of the Birch Benders Customer relationships and Tradename intangible assets with definite useful lives are recoverable and whether the carrying amount exceeds its fair value. The results of the recoverability test using an undiscounted cash flow model indicated that the fair value exceeded the carrying value, and therefore no impairment was recorded.

There were no impairment charges related to intangible assets during the 13 weeks or 39 weeks ended September 24, 2022 and September 25, 2021.

Estimated total intangible amortization expense during the next five fiscal years and thereafter is as follows:

(In thousands)

    

Amortization  

Remainder of 2022

$

6,810

2023

 

27,240

2024

 

27,240

2025

 

27,240

2026

 

27,240

2027 and thereafter

 

175,455

Total

$

291,225

7. Accrued Expenses

Accrued expenses consisted of the following:

(In thousands)

    

September 24, 2022

    

December 25, 2021

Accrued trade

$

26,793

$

23,122

Accrued general expense

 

18,952

 

15,327

Accrued compensation and benefits

 

12,527

 

10,478

Accrued marketing

 

2,101

 

2,830

Total accrued expenses

$

60,373

$

51,757

13

Table of Contents

8. Long-Term Debt

Long-term debt consisted of the following:

September 24, 2022

Unamortized

debt issuance

(In thousands)

Principal

costs

Total debt, net

Initial First Lien Term Loan Facility

    

$

480,800

    

$

(5,624)

    

$

475,176

Finance lease liabilities

7,036

 

7,036

Total debt

$

487,836

$

(5,624)

482,212

Less: current portion of finance lease liabilities

 

98

Total long-term debt

 

  

$

482,114

December 25, 2021

Unamortized

debt issuance

(In thousands)

Principal

costs

Total debt, net

Initial First Lien Term Loan Facility

    

$

480,800

    

$

(6,377)

    

$

474,423

Finance lease liabilities

 

7,095

 

 

7,095

Total debt

$

487,895

$

(6,377)

 

481,518

Less: current portion of finance lease liabilities

 

 

  

 

98

Total long-term debt

 

  

$

481,420

Senior Debt

In November 2018, in conjunction with the acquisition of Noosa, Sovos Intermediate (“Borrower”) entered into a Credit Facility Agreement with Credit Suisse, Citizens Bank N.A. (“Citizens”), Deutsche Bank and Aresbank, S.A. (“Credit Agreement”) with a term loan of $280 million (“2018 Term Loan”) and a revolving line of credit of $45 million (“Revolving Line of Credit”). In accordance with the Credit Agreement, the Company repaid the outstanding 2017 term loan of $158.4 million with Citizens as well as the amount outstanding under the revolving line of credit of $7.0 million.

In October 2020, the Company entered into an amendment to its Credit Agreement (“Amended Credit Agreement”). The Amended Credit Agreement provided, among other things, for an additional $100.0 million term loan (the “Incremental Term Loan”) which was part of the same class and had the same terms as the 2018 Term Loan. The Company analyzed the amendment and determined the Incremental Term Loan was not considered a debt modification because the existing 2018 Term Loan was not paid off. The Company paid debt issuance costs related to the Incremental Term Loan of $3.2 million, which were all capitalized.

In June 2021, Sovos Intermediate entered into a First Lien Credit Agreement (“First Lien Credit Agreement”) among Sovos Intermediate, Sovos Brands Holdings, Inc., Credit Suisse AG, Cayman Islands Branch (“Credit Suisse”), as administrative agent and collateral agent, and the lenders and issuing banks from time to time party thereto (“First Lien Lenders”), consisting of an initial term loan facility of $580.0 million (“Initial First Lien Term Loan Facility”), and a revolving credit facility of $125.0 million (“Revolving Facility”), including a letter of credit facility with a $45.0 million sublimit. Also in June 2021, Sovos Intermediate entered into a Second Lien Credit Agreement (“Second Lien Credit Agreement”) among Sovos Intermediate, Sovos Brands Holdings, Inc., Owl Rock Capital Corporation, as administrative agent and collateral agent, and the lenders from time to time party thereto (“Second Lien Lenders”), consisting of an initial term loan facility of $200.0 million (“Initial Second Lien Facility”). In accordance with the First Lien Credit Agreement and Second Lien Credit Agreement, the Company repaid the outstanding 2018 Term Loan and Incremental Term Loan of $373.2 million to Credit Suisse and made a restricted payment for the purpose of paying a dividend in the amount of

14

Table of Contents

$400.0 million to the direct or indirect equity holders of the Ultimate Parent. See Note 13. Stockholders’ Equity for further information on the dividend payment.

As the June 2021 debt transaction on the Initial First Lien Term Loan Facility and Initial Second Lien Facility was accounted for as an extinguishment of the old debt, the Company wrote off $9.4 million of the existing 2018 Term Loan and Incremental Term Loan debt issuance costs to expense. The Initial First Lien Term Loan Facility and Initial Second Lien Facility were issued with discounts of $1.5 million and $4.0 million respectively, and the Company paid debt issuance costs of $6.8 million and $0.5 million respectively. The discounts and debt issuance costs paid on the Initial First Lien Term Loan Facility and Initial Second Lien Facility were capitalized. The debt transaction on the Revolving Facility was accounted for as a debt modification. The Company continued to amortize $0.2 million of the existing Revolving Line of Credit debt issuance costs over the new life of the debt, wrote off $0.3 million of the existing Revolving Line of Credit debt issuance costs to expense, and paid $1.1 million in debt issuance costs for the new Revolving Facility, which was capitalized.

In September 2021, using net proceeds of the IPO, the Company paid the full outstanding principal balance on the Initial Second Lien Facility of $200.0 million plus accrued interest of approximately $2.9 million. Upon the full prepayment of the Initial Second Lien Facility, the Company recognized a loss on the loan extinguishment resulting in a write-off of $4.3 million of the related unamortized issuance costs and discounts. Additionally, in September 2021 and October 2021, the Company prepaid $59.7 million and $39.5 million, respectively, of the outstanding principal balance under the Initial First Lien Term Loan Facility, plus total accrued interest of approximately $0.9 million. Upon the partial prepayment of the Initial First Lien Term Loan Facility, the Company recognized a $1.4 million proportional loss on the partial extinguishment of the related unamortized issuance costs and discounts.

The remaining principal balance on the Initial First Lien Term Loan Facility, after the $59.7 million and $39.5 million prepayments, is $480.8 million. The Company has directed Credit Suisse to apply the prepayments against future scheduled principal installments, which eliminates all future principal payments for the remaining term of the loan.

The amortization of debt issuance costs and discount of $0.3 million and $0.5 million for the 13 weeks ended September 24, 2022 and September 25, 2021, respectively, and $0.9 million and $1.6 million for the 39 weeks ended September 24, 2022 and September 25, 2021, respectively, is included within interest expense, net in the Condensed Consolidated Statements of Operations.

The interest rate for the Initial First Lien Term Loan Facility and Revolving Facility is London Inter-Bank Offered Rate (“LIBO Rate”) plus an applicable rate contingent on the Company’s calculated first lien leverage ratio, ranging from 400 to 425 basis points, and is subject to a 50 basis points reduction, at each level, after the consummation of an initial public offering (as used in this paragraph, an "IPO"). In no event shall the LIBO Rate be less than 0.75% per annum for the Initial First Lien Term Loan Facility or less than 0.00% per annum for the Revolving Line of Credit. The Initial First Lien Term Loan Facility matures on June 8, 2028 and the Revolving Facility matures on June 8, 2026. The Initial First Lien Term Loan Facility is collateralized by substantially all of the assets of the Company.

The interest rate for the Initial Second Lien Facility was LIBO Rate plus 8.00% per annum and was subject to a 25 basis points reduction after the consummation of an IPO. In no event could the LIBO Rate be less than 0.75% per annum. The Initial Second Lien Facility was originally scheduled to mature on June 8, 2029 and was collateralized by substantially all of the assets of the Company. As described above, in September 2021, the Initial Second Lien Facility was paid in full.

As of September 27, 2021, the closing date of the IPO, the interest rate on the Initial First Lien Term Loan Facility and Revolving Facility decreased 50 basis points. As of September 24, 2022 and December 25, 2021, the effective interest rate for the Initial First Lien Term Loan Facility and Revolving Facility was 6.02% and 4.50%, respectively.

In July 2022, the Company entered into an interest rate hedge. See Note 12. Hedging and Derivative Financial Instruments for additional information.

15

Table of Contents

As of September 24, 2022 and December 25, 2021, the Company had available credit of $125 million under the Revolving Facility. There was zero outstanding on the Revolving Facility as of September 24, 2022 and December 25, 2021.

Loan Covenants

In connection with the First Lien Credit Agreement, the Company has various financial, affirmative and negative covenants that it must adhere to as specified within the loan agreements. The First Lien Credit Agreement contains a springing financial covenant, which requires the Borrower to maintain a first lien net leverage ratio of consolidated first lien net debt to consolidated EBITDA (with certain adjustments as set forth in the First Lien Credit Agreement) no greater than 6.95:1.00. Such financial covenant is tested only if outstanding revolving loans (excluding any undrawn letters of credit) minus unrestricted cash exceed 35% of the aggregate revolving credit commitments. The financial covenant is subject to customary “equity cure” rights. In addition, under the First Lien Credit Agreement, an annual excess cashflow calculation is required, to determine if any excess is required to be paid on the Initial First Lien Term Loan Facility. As of September 24, 2022, the Company had no outstanding revolving loans, so did not meet the requirement to test the financial covenant under the First Lien Credit Agreement.

See Note 9. Leases and Note 16. Related Party Transactions for additional discussion of the finance lease liabilities.

9. Leases

The Company leases real estate in the form of distribution centers, manufacturing facilities, equipment and office space. Generally, the term for real estate leases ranges from 2 to 10 years at inception of the contract. Generally, the term for equipment leases is 5 years at inception of the contract. Most manufacturing facilities and office space leases include one or more options to renew, with renewal terms that generally can extend the lease term from