# J&J Snack Foods Corp: Form 10-Q for the period ended Jun 29, 2024

- Company: [J&J Snack Foods Corp](/companies/jjsf.md) (CIK 785956)
- Form: 10-Q
- Filed: 2024-08-07
- Accepted by EDGAR: Aug 7, 2024, 20:31 ET
- Period: 2024-06-29
- Accession: 0001437749-24-025199
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/785956/000143774924025199/jjsf20240629_10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/785956/000143774924025199/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-06-29.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-03-31 to 2024-06-29 | $440.0m | us-gaap:RevenueFromContractWithCustomerIncludingAssessedTax |
| Revenue | 9 months, 2023-10-01 to 2024-06-29 | $1.15bn | us-gaap:RevenueFromContractWithCustomerIncludingAssessedTax |
| Cost of revenue | 3 months, 2024-03-31 to 2024-06-29 | $292.2m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2023-10-01 to 2024-06-29 | $797.4m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2024-03-31 to 2024-06-29 | $147.8m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2023-10-01 to 2024-06-29 | $350.6m | us-gaap:GrossProfit |
| Operating income | 3 months, 2024-03-31 to 2024-06-29 | $50.1m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-10-01 to 2024-06-29 | $77.7m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2024-03-31 to 2024-06-29 | $543.0k | us-gaap:InterestExpense |
| Interest expense | 9 months, 2023-10-01 to 2024-06-29 | $1.5m | us-gaap:InterestExpense |
| Income tax | 3 months, 2024-03-31 to 2024-06-29 | $14.1m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-10-01 to 2024-06-29 | $21.5m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-03-31 to 2024-06-29 | $36.3m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-10-01 to 2024-06-29 | $56.9m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-03-31 to 2024-06-29 | $1.87 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-10-01 to 2024-06-29 | $2.93 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-03-31 to 2024-06-29 | $1.87 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-10-01 to 2024-06-29 | $2.94 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-03-31 to 2024-06-29 | 19,456,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-10-01 to 2024-06-29 | 19,423,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-10-01 to 2024-06-29 | $126.7m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2024-03-31 to 2024-06-29 | $19.7m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Capital expenditure | 9 months, 2023-10-01 to 2024-06-29 | $56.4m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 9 months, 2023-10-01 to 2024-06-29 | $42.7m | us-gaap:PaymentsOfDividends |
| Cash and equivalents | at 2024-06-29 | $64.0m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-06-29 | $461.1m | us-gaap:AssetsCurrent |
| Total assets | at 2024-06-29 | $1.38bn | us-gaap:Assets |
| Current liabilities | at 2024-06-29 | $203.2m | us-gaap:LiabilitiesCurrent |
| Long-term debt | at 2024-06-29 | $12.0m | us-gaap:LongTermDebtNoncurrent |
| Shareholders' equity | at 2024-06-29 | $937.9m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 30,720 characters.

Statements made in this Form 10-Q that are not historical or current facts are “forward-looking statements” made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements discuss goals, intentions and expectations as to future trends, plans, events, results of operations or financial condition, or state other information relating to us, based on our current beliefs as well as assumptions made by us and information currently available to us. Forward-looking statements generally will be accompanied by words such as "anticipate," "if," "may," "believe," "plan,", "goals," "estimate," "expect," "project," "continue," "forecast," "intend," "may," "could," "should," "will," and other similar expressions. Statements addressing our future operating performance and statements addressing events and developments that we expect or anticipate will occur are also considered as forward-looking statements. This includes, without limitation, our statements and expectations regarding any current or future recovery in our industry (or the industries of our customers), the success of new product innovations, and the future impact of our investments in additional production capacity and logistics and warehousing operations. Such forward-looking statements are inherently uncertain, and readers must recognize that actual results may differ materially from the expectations of management. We intend that such forward-looking statements be subject to the safe harbor provisions of the Securities Act and the Exchange Act.

We wish to caution readers not to place undue reliance on any such forward-looking statements, which speak as of the date made. Any forward-looking statements represent management’s best judgment as to what may occur in the future. However, forward-looking statements are subject to risks, uncertainties, and important factors beyond our control that could cause actual results and events to differ materially from historical results of operations and events and those presently anticipated or projected. We disclaim any obligation to revise, update, add or to otherwise correct, any forward-looking statements to reflect events or circumstances after the date of such statement or to reflect the occurrence of anticipated or unanticipated events.

### Objective

This Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to provide readers of our financial statements with a narrative form from the perspective of our management regarding our financial condition and results of operations, liquidity and certain other factors that may affect our future results. The following discussion should be read in conjunction with the consolidated financial statements and accompanying notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q and within the Company’s Annual Report on Form 10-K filed for the fiscal year ended September 30, 2023.

### Business Overview

The Company manufactures and sells snack foods and distributes frozen beverages which it markets nationally to the foodservice and retail supermarket industries. The Company’s principal snack food products are soft pretzels, frozen novelties, churros and bakery products. We believe we are the largest manufacturer of soft pretzels in the United States. Other snack food products include donuts, churros, cookies, funnel cake and handheld products. The Company’s principal frozen beverage products are the ICEE brand frozen carbonated beverage and the SLUSH PUPPIE brand frozen non-carbonated beverage. The Company’s Food Service and Frozen Beverage sales are made principally to foodservice customers including snack bar and food stand locations in leading chain, department, discount, warehouse club and convenience stores; malls and shopping centers; fast food and casual dining restaurants; stadiums and sports arenas; leisure and theme parks; movie theaters; independent retailers; and schools, colleges and other institutions. The Company’s Retail Supermarket customers are primarily supermarket chains.

#### RESULTS OF OPERATIONS – Three and nine months ended June 29, 2024

The following discussion provides a review of results for the three and nine months ended June 29, 2024 as compared with the three and nine months ended June 24, 2023.

*(in thousands)*

*(in thousands)*

| Summary of Results | Three months ended June 29, 2024 | June 24, 2023 | % Change | Nine months ended June 29, 2024 | June 24, 2023 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Net sales | $439,957 | $425,769 | 3.3% | $1,147,999 | $1,114,966 | 3.0% |
| Cost of goods sold | 292,191 | 282,887 | 3.3% | 797,405 | 790,845 | 0.8% |
| Gross profit | 147,766 | 142,882 | 3.4% | 350,594 | 324,121 | 8.2% |
| Operating expenses |  |  |  |  |  |  |
| Marketing | 32,598 | 31,308 | 4.1% | 87,720 | 79,024 | 11.0% |
| Distribution | 45,074 | 44,485 | 1.3% | 129,626 | 124,722 | 3.9% |
| Administrative | 19,880 | 18,740 | 6.1% | 56,600 | 53,050 | 6.7% |
| Other general expense (income) | 98 | 55 | 78.2% | (1,055) | (490) | 115.3% |
| Total Operating Expenses | 97,650 | 94,588 | 3.2% | 272,891 | 256,306 | 6.5% |
| Operating income | 50,116 | 48,294 | 3.8% | 77,703 | 67,815 | 14.6% |
| Other income (expense) |  |  |  |  |  |  |
| Investment income | 783 | 633 | 23.7% | 2,265 | 1,719 | 31.8% |
| Interest expense | (543) | (1,314) | (58.7)% | (1,532) | (3,697) | (58.6)% |
| Earnings before income taxes | 50,356 | 47,613 | 5.8% | 78,436 | 65,837 | 19.1% |
| Income tax expense | 14,057 | 12,632 | 11.3% | 21,526 | 17,352 | 24.1% |
| NET EARNINGS | $36,299 | $34,981 | 3.8% | $56,910 | $48,485 | 17.4% |

| Comparisons as a Percentage of Net Sales | Three months ended June 29, 2024 | June 24, 2023 | Basis Pt Chg | Nine months ended June 29, 2024 | June 24, 2023 | Basis Pt Chg |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Gross profit | 33.6% | 33.6% | - | 30.5% | 29.1% | 140 |
| Marketing | 7.4% | 7.4% | - | 7.6% | 7.1% | 50 |
| Distribution | 10.2% | 10.4% | (20) | 11.3% | 11.2% | 10 |
| Administrative | 4.5% | 4.4% | 10 | 4.9% | 4.8% | 10 |
| Operating income | 11.4% | 11.3% | 10 | 6.8% | 6.1% | 70 |
| Earnings before income taxes | 11.4% | 11.2% | 20 | 6.8% | 5.9% | 90 |
| Net earnings | 8.3% | 8.2% | 10 | 5.0% | 4.3% | 70 |

#### Net Sales

Net sales increased by $14.2 million, or 3.3%, to $440.0 million for the three months ended June 29, 2024. Net sales increased by $33.0 million, or 3.0%, to $1,148.0 million for the nine months ended June 29, 2024. In the three months ended June 29, 2024, organic sales growth was primarily driven by growth in the Food Service and Retail Supermarket segments, partially offset by temporary challenges in the Frozen Beverages segment associated with our movie theater customer channel. In the nine months ended June 29, 2024, the increase in sales was driven by organic growth across all three of the Company’s business segments, led by our core products including churros, frozen novelties and frozen beverages.

#### Gross Profit

Gross Profit increased by $4.9 million, or 3.4%, to $147.8 million for the three months ended June 29, 2024. As a percentage of sales, gross profit remained flat at 33.6% for the three months ended June 29, 2024. Our continued success in improving operating efficiencies, as well as an improved product and pricing mix, contributed to the flat performance compared to prior year quarter, and primarily offset the impact of a slightly less favorable sales mix across our segments. Across our portfolio of raw materials, we saw net low-mid single-digit inflationary increases, with the net increase primarily driven by increases in the cost of cocoa/chocolate, and to a lesser extent, increases in the cost of sugar/sweeteners. Those increases were somewhat offset by deflationary trends seen in flour, cheese and dairy, mixes, and eggs. Pricing adjustments and contractual cost true-ups helped minimize the majority of the impact of the net inflationary increases in costs of raw materials on our gross margins in the quarter.

Gross Profit increased by $26.5 million, or 8.2%, to $350.6 million for the nine months ended June 29, 2024. As a percentage of sales, gross profit for the nine months ended June 29, 2024, increased from 29.1% to 30.5%. This increase, reflected the impact of improved product and pricing mix along with ongoing productivity improvements and a stabilization of inflationary pressures across the majority of our input costs.

#### Operating Expenses

Operating Expenses increased $3.1 million, or 3.2%, to $97.7 million for the three months ended June 29, 2024. As a percentage of sales, operating expenses remained flat at 22.2%. As a percentage of sales, distribution expenses for the three months ended June 29, 2024, decreased from 10.4% to 10.2%, reflecting the benefits seen from our supply chain transformation initiatives. As a percentage of sales, marketing expenses for the three months ended June 29, 2024, remained flat at 7.4%. As a percentage of sales, general and administrative expenses for the three months ended June 29, 2024, increased slightly from 4.4% to 4.5%.

Operating Expenses increased $16.6 million, or 6.5%, to $272.9 million for the nine months ended June 29, 2024. As a percentage of sales, operating expenses increased from 23.0% to 23.8%. As a percentage of sales, distribution expenses for the nine months ended June 29, 2024, increased from 11.2% to 11.3%, with the increase driven by $4.8 million of one-time transition expenses related to the opening of our regional distribution centers, offset by the benefits seen from our supply chain transformation initiatives. As a percentage of sales, marketing expenses increased from 7.1% to 7.6%, with the increase largely driven by incremental licensing fees on new churro business and additional strategic promotional and marketing spend to support our core brands and new product launches. As a percentage of sales, general and administrative expenses increased slightly from 4.8% to 4.9%.

#### Other Income and Expense

Investment income increased by $0.2 million to $0.8 million and by $0.5 million to $2.3 million for the three and nine months, ended June 29, 2024, respectively. The increases were primary due to the improving interest rate environment in fiscal 2024.

Interest expense decreased by $0.8 million to $0.5 million and by $2.2 million to $1.5 million for the three months, and nine months, ended June 29, 2024, respectively, due to the decrease in the Company’s average outstanding borrowings on the Amended Credit Agreement for the three and nine-month periods ended June 29, 2024, as compared to the prior year periods.

#### Income Tax Expense

Income tax expense increased by $1.4 million, or 11.3%, to $14.1 million for the three months ended June 29, 2024. The effective tax rate was 27.9% as compared with 26.5% in the prior year period, with the slight increase largely attributable to the impact of a change in transfer pricing estimates and assumptions during the current year.

Income tax expense increased by $4.2 million, or 24.1%, to $21.5 million for the nine months ended June 29, 2024. The effective tax rate was 27.4% as compared with 26.4% in the prior year period with the slight increase largely attributable to the impact of a change in transfer pricing estimates and assumptions during the current year.

#### Net Earnings

Net earnings increased by $1.3 million, or 3.8%, for the three months ended June 29, 2024, due to the aforementioned items.

Net earnings increased by $8.4 million, or 17.4%, for the nine months ended June 29, 2024, due to the aforementioned items.

There are many factors which can impact our net earnings from year to year and in the long run, among which are the supply and cost of raw materials and labor, insurance costs, factors impacting sales as noted above, the continuing consolidation of our customers, our ability to manage our manufacturing, marketing and distribution activities, our ability to make and integrate acquisitions and changes in tax laws and interest rates.

### Business Segment Discussion

We operate in three segments: Food Service, Retail Supermarket, and Frozen Beverages. The following table is a summary of sales and operating income, which is how we measure segment profit.

*(in thousands)*

*(in thousands)*

| Segment Results Net sales | Three months ended June 29, 2024 | June 24, 2023 | % Change | Nine months ended June 29, 2024 | June 24, 2023 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Food Service | $264,446 | $254,980 | 3.7% | $723,045 | $711,558 | 1.6% |
| Retail Supermarket | 68,723 | 61,150 | 12.4% | 165,372 | 150,583 | 9.8% |
| Frozen Beverages | 106,788 | 109,639 | (2.6)% | 259,582 | 252,825 | 2.7% |
| Total sales | $439,957 | $425,769 | 3.3% | $1,147,999 | $1,114,966 | 3.0% |

*(in thousands)*

*(in thousands)*

| Operating income | Three months ended June 29, 2024 | June 24, 2023 | % Change | Nine months ended June 29, 2024 | June 24, 2023 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Food Service | $20,247 | $20,786 | (2.6)% | $34,194 | $32,306 | 5.8% |
| Retail Supermarket | 7,812 | 4,168 | 87.4% | 13,374 | 5,766 | 131.9% |
| Frozen Beverages | 22,057 | 23,340 | (5.5)% | 30,135 | 29,743 | 1.3% |
| Total operating income | $50,116 | $48,294 | 3.8% | $77,703 | $67,815 | 14.6% |

#### Food Service Segment Results

*(in thousands)*

*(in thousands)*

| Food Service sales to external customers | Three months ended June 29, 2024 | June 24, 2023 | % Change | Nine months ended June 29, 2024 | June 24, 2023 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Soft pretzels | $59,529 | $63,527 | (6.3)% | $163,985 | $171,242 | (4.2)% |
| Frozen novelties | 51,701 | 47,410 | 9.1% | 100,464 | 95,782 | 4.9% |
| Churros | 30,269 | 30,470 | (0.7)% | 89,155 | 81,147 | 9.9% |
| Handhelds | 21,300 | 17,003 | 25.3% | 62,851 | 60,884 | 3.2% |
| Bakery | 93,566 | 87,582 | 6.8% | 287,455 | 281,830 | 2.0% |
| Other | 8,081 | 8,988 | (10.1)% | 19,135 | 20,673 | (7.4)% |
| Total Food Service sales | $264,446 | $254,980 | 3.7% | $723,045 | $711,558 | 1.6% |
| Food Service operating income | $20,247 | $20,786 | (2.6)% | $34,194 | $32,306 | 5.8% |

Sales to food service customers increased $9.5 million, or 3.7%, to $264.4 million for the three months ended June 29, 2024. Soft pretzels sales to food service customers decreased 6.3% to $59.5 million, with the decrease largely due to soft consumer trends, largely within the theater channel. Frozen novelties sales increased 9.1% to $51.7 million, led by an approximate 5% increase in Dippin’ Dots sales. Churro sales decreased 0.7% to $30.3 million reflecting lower theater and club channel sales, partially offset by new business growth with a major QSR customer. Sales of bakery products increased by 6.8% to $93.6 million, with the growth largely attributable to strong unit volume growth in cookies. Sales of handhelds increased by 25.3% to $21.3 million, with the increase attributable to strong volume increases with a core customer.

Sales of new products in the first twelve months since their introduction were $4.6 million in the quarter, driven primarily by the addition of churros to the menu of a major QSR customer. Sales in the quarter benefited minimally from the impact of the prior fiscal year’s price increases, along with modest increases in volume.

Operating income in our Food Service segment decreased $0.5 million in the quarter to $20.2 million, with the decrease primarily reflecting a slight shift in product mix.

Sales to food service customers increased $11.5 million, or 1.6%, to $723.0 million for the nine months ended June 29, 2024. Soft pretzels sales to food service customers decreased 4.2% to $164.0 million, with the decrease attributable to soft consumer trends seen throughout the fiscal year. Frozen novelties sales increased 4.9% to $100.5 million, led by an approximate 4% increase in Dippin’ Dots sales. Churro sales increased 9.9% to $89.2 million, with the increase largely driven by new business growth with a major QSR customer, partially offset by the lower theater and club channel sales in the current fiscal quarter. Sales of bakery products increased by 2.0% to $287.5 million, with the growth attributable to strong unit volume growth in cookies. Sales of handhelds increased by 3.2% to $62.9 million, with the increase attributable to the strong volume increases with a core customer in the current fiscal quarter more than offsetting some pricing declines seen earlier in the fiscal year related to the contractual pricing true-up of certain raw material ingredients.

Sales of new products in the first twelve months since their introduction were approximately $20.3 million for the nine months ended June 29, 2024, driven primarily by the addition of churros to the menu of a major QSR customer. Sales in the nine-month period benefited minimally from the impact of the prior fiscal year’s price increases, along with modest increases in volume.

Operating income in our Food Service segment increased $1.9 million in the nine months ended June 29, 2024, to $34.2 million, driven by sales growth as well as improved product mix and gross margin performance.

#### Retail Supermarket Segment Results

*(in thousands)*

*(in thousands)*

| Retail Supermarket sales to external customers | Three months ended June 29, 2024 | June 24, 2023 | % Change | Nine months ended June 29, 2024 | June 24, 2023 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Soft pretzels | $11,110 | $10,269 | 8.2% | $46,010 | $40,767 | 12.9% |
| Frozen novelties | 46,210 | 41,684 | 10.9% | 82,747 | 80,423 | 2.9% |
| Biscuits | 4,839 | 5,135 | (5.8)% | 18,078 | 18,906 | (4.4)% |
| Handhelds | 7,562 | 4,452 | 69.9% | 20,266 | 11,443 | 77.1% |
| Coupon redemption | (931) | (385) | 141.8% | (2,032) | (936) | 117.1% |
| Other | (67) | (5) | 1240.0% | 303 | (20) | (1615.0)% |
| Total Retail Supermarket sales | $68,723 | $61,150 | 12.4% | $165,372 | $150,583 | 9.8% |
| Retail Supermarket operating income | $7,812 | $4,168 | 87.4% | $13,374 | $5,766 | 131.9% |

Sales of products to retail customers increased $7.6 million, or 12.4%, to $68.7 million for the three months ended June 29, 2024. Soft pretzel sales increased 8.2% to $11.1 million, with the increase largely attributable to our continued expansion of our core brands into retail. Frozen novelties sales increased 10.9% to $46.2 million, with the increase largely attributable to growth within our Dogsters and ICEE novelties. Biscuit sales decreased 5.8% to $4.8 million, and Handheld sales increased 69.9% to $7.6 million, with the increase in handheld sales largely driven by expanded placement of product with a major retailer. Sales of new products in retail supermarkets were minimal in the quarter. Sales in the quarter benefited minimally from the impact of the prior fiscal year’s price increases, along with modest increases in volume.

Operating income in our Retail Supermarkets segment increased $3.6 million in the quarter to $7.8 million, primarily driven by sales growth as well as improved product mix and gross margin performance.

Sales of products to retail customers increased $14.8 million, or 9.8%, to $165.4 million for the nine months ended June 29, 2024. Soft pretzel sales increased 12.9% to $46.0 million with the increase largely attributable to the incremental distribution of our core soft pretzel brands. Frozen novelties sales increased 2.9% to $82.7 million with the strong second and third fiscal quarter net sales performances more than offsetting the weaker performance seen in the first fiscal quarter. Biscuit sales decreased 4.4% to $18.1 million, and handheld sales increased 77.1% to $20.3 million with the increase in handheld sales largely driven by expanded placements of product with a major retailer. Sales of new products in retail supermarkets were minimal in the nine months ended June 29, 2024. Sales in the nine-month period benefited minimally from the impact of the prior fiscal year’s price increases, along with modest increases in volume.

Operating income in our Retail Supermarkets segment increased $7.6 million in the nine months ended June 29, 2024 to $13.4 million, primarily driven by sales growth as well as improved gross margin performance.

#### Frozen Beverages Segment Results

*(in thousands)*

*(in thousands)*

| Frozen Beverages sales to external customers | Three months ended June 29, 2024 | June 24, 2023 | % Change | Nine months ended June 29, 2024 | June 24, 2023 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Beverages | $72,092 | $72,878 | (1.1)% | $158,708 | $153,336 | 3.5% |
| Repair and maintenance service | 23,748 | 24,144 | (1.6)% | 71,538 | 70,556 | 1.4% |
| Machines revenue | 9,769 | 11,554 | (15.4)% | 26,879 | 26,817 | 0.2% |
| Other | 1,179 | 1,063 | 10.9% | 2,457 | 2,116 | 16.1% |
| Total Frozen Beverages sales | $106,788 | $109,639 | (2.6)% | $259,582 | $252,825 | 2.7% |
| Frozen Beverages operating income | $22,057 | $23,340 | (5.5)% | $30,135 | $29,743 | 1.3% |

Frozen beverage and related product sales decreased $2.9 million, or 2.6%, in the three months ended June 29, 2024. Beverage-related sales decreased 1.1% to $72.1 million, with the decrease attributable to weakness across the theater channel as the industry recovers from the impacts of the prior year’s actor strike which led to fewer strong releases and lower attendance. Gallon sales were down approximately 6% for the three months, reflecting the weaker theater performance. Service revenue decreased 1.6% to $23.7 million, and machine revenue (primarily sales of frozen beverage machines) decreased 15.4% to $9.8 million, with the decrease in machine revenue the result of the lapping of a significant QSR rollout in the prior year.

Operating income in our Frozen Beverage segment decreased $1.3 million in the quarter to $22.1 million, with the decrease primarily attributable to the impact of the weaker sales.

Frozen beverage and related product sales increased $6.8 million, or 2.7%, in the nine months ended June 29, 2024. Beverage-related sales increased 3.5% to $158.7 million. Gallon sales were down approximately 3% for the nine months ended June 29, 2024, reflecting the weaker theater performance. Service revenue increased 1.4% to $71.5 million. Machine revenue (primarily sales of frozen beverage machines) increased 0.2% to $26.9 million with the machine revenue performance in the first fiscal quarter offsetting the comparative decrease noted in the current fiscal quarter.

Operating income in our Frozen Beverage segment increased $0.4 million in the nine months ended June 29, 2024 to $30.1 million.

### Liquidity and Capital Resources

Although there are many factors that could impact our operating cash flow, most notably net earnings, we believe that our future operating cash flow, along with our borrowing capacity and our current cash and cash equivalent balances is sufficient to satisfy our cash requirements over the next twelve months and beyond, as well as to fund future growth and expansion.

*(in thousands)*

| Cash flows from operating activities | Nine months ended June 29, 2024 | June 24, 2023 |
| --- | ---: | ---: |
| Net earnings | $56,910 | $48,485 |
| Non-cash items in net income: |  |  |
| Depreciation of fixed assets | 47,141 | 41,319 |
| Amortization of intangibles and deferred costs | 5,244 | 5,065 |
| (Gain) from disposals of property & equipment | (23) | (255) |
| Share-based compensation | 4,841 | 3,935 |
| Deferred income taxes | 310 | (937) |
| (Gain) on marketable securities | - | (105) |
| Other | 268 | (237) |
| Changes in assets and liabilities, net of effects from purchase of companies | 12,055 | 8,674 |
| Net cash provided by operating activities | $126,746 | $105,944 |

- The increase in depreciation of fixed assets was largely due to prior year purchases of property plant and equipment.
- The net cash inflow of $12.1 million associated with changes in assets and liabilities, net of effects from purchase of companies, in the nine months ended June 29, 2024, was primarily driven by an increase in accounts payables and accrued liabilities of $28.5 million related to the seasonality of our business, the timing of income tax payments, and our strategic focus on optimizing vendor terms, and a decrease in prepaid expenses of $2.2 million, somewhat offset by an increase in accounts receivable of $10.9 million, and an increase in inventories of $7.3 million, both of which increases were related to the seasonality of our business. The net cash inflow of $8.7 million in the prior year was primarily driven by the decrease in prepaids of $8.5 million, mostly related to the timing of income tax payments. Additional fluctuations, including a $7.7 million increase in accounts receivable, a $4.9 million decrease in inventories, and a $3.0 million increase in accounts payable and accrued liabilities, were largely offsetting, and primarily related to the seasonality of our business.

*(in thousands)*

| Cash flows from investing activities | Nine months ended June 29, 2024 | June 24, 2023 |
| --- | ---: | ---: |
| Payments for acquisitions | $(7,014) | $- |
| Purchases of property, plant and equipment | (56,371) | (76,472) |
| Proceeds from redemption and sales of marketable securities | - | 5,300 |
| Proceeds from disposal of property and equipment | 484 | 774 |
| Net cash used in investing activities | $(62,901) | $(70,398) |

- In fiscal 2024, payments for acquisitions, related to the Thinsters acquisition.
- Purchases of property, plant and equipment include spending for production growth, in addition to acquiring new equipment, infrastructure replacements, and upgrades to maintain competitive standing and position us for future opportunities. The decrease over prior year period was primarily due to the higher rate of strategic spending in the prior year for new lines at various plants aimed at increasing capacity.
- The decrease in proceeds from redemption and sales of marketable securities was due to a strategic decision to no longer re-invest redeemed proceeds into marketable securities given the low interest rate environment.

*(in thousands)*

| Cash flows from financing activities | Nine months ended June 29, 2024 | June 24, 2023 |
| --- | ---: | ---: |
| Proceeds from issuance of stock | $9,657 | $6,289 |
| Borrowings under credit facility | 57,000 | 102,000 |
| Repayment of borrowings under credit facility | (72,000) | (74,000) |
| Payments on finance lease obligations | (120) | (150) |
| Payment of cash dividends | (42,693) | (40,389) |
| Net cash (used in) financing activities | $(48,156) | $(6,250) |

- The increase in proceeds from issuance of stock was primarily due to a higher rate of option exercises in the nine months ended June 29, 2024 compared with the nine months ended June 24, 2023.
- Borrowings under credit facility and repayment of borrowings under credit facility relate to the Company’s cash draws and repayments made in the nine months ended June 29, 2024 to primarily fund working capital needs. The decrease in borrowings from prior year was due to the Company’s increase in cash provided by operations, which lowered its borrowing needs in the nine months ended June 29, 2024.
- Dividends paid increased as our quarterly dividend was raised during fiscal 2023.

#### Liquidity

As of June 29, 2024, we had $64.0 million of Cash and Cash Equivalents.

In December 2021, the Company entered into an amended and restated loan agreement (the “Credit Agreement”) with our existing banks which provided for up to a $50 million revolving credit facility repayable in December 2026.

On June 21, 2022, the Company entered into an amendment to the Credit Agreement, the “Amended Credit Agreement” which provided for an incremental increase of $175 million in available borrowings. The Amended Credit Agreement also includes an option to increase the size of the revolving credit facility by up to an amount not to exceed in the aggregate the greater of $225 million or $50 million, plus the Consolidated EBITDA of the Borrowers, subject to the satisfaction of certain terms and conditions.

Interest accrues, at the Company’s election at (i) the BSBY Rate (as defined in the Credit Agreement), plus an applicable margin, based upon the Consolidated Net Leverage Ratio, as defined in the Credit Agreement, or (ii) the Alternate Base Rate (a rate based on the higher of (a) the prime rate announced from time-to-time by the Administrative Agent, (b) the Federal Reserve System’s federal funds rate, plus 0.50% or (c) the Daily BSBY Rate, plus an applicable margin). The Alternate Base Rate is defined in the Credit Agreement.

The Credit Agreement requires the Company to comply with various affirmative and negative covenants, including without limitation (i) covenants to maintain a minimum specified interest coverage ratio and maximum specified net leverage ratio, and (ii) subject to certain exceptions, covenants that prevent or restrict the Company’s ability to pay dividends, engage in certain mergers or acquisitions, make certain investments or loans, incur future indebtedness, alter its capital structure or line of business, prepay subordinated indebtedness, engage in certain transactions with affiliates, or amend its organizational documents. As of June 29, 2024, the Company is in compliance with all financial covenant terms of the Credit Agreement.

As of June 29, 2024, $12.0 million was outstanding under the Amended Credit Agreement with a weighted average interest rate of 6.34%. As of June 29, 2024, the amount available under the Amended Credit Agreement was $203.2 million, after giving effect to the outstanding letters of credit.

### Recently Issued and Adopted Accounting Pronouncements

See Note 7 to the condensed consolidated financial statements included in this Form 10-Q for a discussion of recently adopted accounting guidance and other new accounting guidance.

### Critical Accounting Policies, Judgments and Estimates

There have been no material changes to our critical accounting policies, judgments and estimates from the information provided in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies, Judgments and Estimates, in our Annual Report on Form 10-K for the year ended September 30, 2023, as filed with the SEC on November 28, 2023.

## Market risk

As filed, 320 characters.

There has been no material change in the Company’s assessment of its sensitivity to market risk since its presentation set forth, in item 7a. “Quantitative and Qualitative Disclosures About Market Risk,” in our Annual Report on Form 10-K for the year ended September 30, 2023, as filed with the SEC on November 28, 2023.

## Controls and procedures

As filed, 1,135 characters.

The Chief Executive Officer and the Chief Financial Officer of the Company (its principal executive officer and principal financial officer, respectively) have concluded, based on their evaluation as of June 29, 2024, that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports filed or submitted by it under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and include controls and procedures designed to ensure that information required to be disclosed by the Company in such reports is accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

There has been no change in the Company’s internal control over financial reporting during the quarter ended June 29, 2024, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 233 characters.

For information on risk factors, please refer to “Risk Factors” in Part I, Item 1A of the Company’s Form 10-K for the fiscal year ended September 30, 2023. The risks identified in that report have not changed in any material respect.

Filed Aug 7, 2024.
Source: SEC EDGAR, the filing index for accession 0001437749-24-025199. Last ingested by Listed: Oct 24, 2026, 14:56 ET. No prices; not investment advice.