The Simply Good Foods Company

Greetings and welcome to the Simply Good Foods Company fiscal first quarter 2021 conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Mark Bergerian, Vice President of Investor Relations for the Simply Good Foods Company. Thank you. You may begin.

Thank you, operator. Good morning. I'm pleased to welcome you to the Simply Good Foods Company earnings call for the first quarter ended November the 28th, 2020. Joe Scalzo, President and Chief Executive Officer, and Todd Comfort, Chief Financial Officer, will provide you with an overview of results, which will then be followed by a Q&A session. The company issued its earnings release this morning at approximately 7 a.m. Eastern. A copy of the release and the accompanying presentation are available under the investor section of the company's website at www.thesimplygoodfoodscompany.com. This call is being webcast, and an archive of today's remarks will also be made available. During the course of today's call, management will make forward-looking statements that are subject to various risks and uncertainties that may cause actual results to differ materially. The company undertakes no obligation to update these statements based on subsequent events. A detailed listing of such risks and uncertainties can be found in today's press release and the company's SEC filings. Note that on today's call, we will refer to certain non-GAAP financial measures that we believe will provide useful information for investors. The presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Please refer to today's press release for a reconciliation of the non-GAAP financial measures to the most comparable measures prepared in accordance with GAAP. With that, I'll now turn the call over to Joe Scalzo, President and Chief Executive Officer.

Thank you, Mark. Good morning, and thank you for joining us. Today, I'll recap Simply Good Foods' first quarter results and provide you with some details on the performance of our brands. Then Todd will discuss our financial results in a bit more detail, and we'll wrap it up with a discussion of our outlook before opening the call to your questions. Before I discuss the first quarter results, let me briefly remind you of the unique advantages of our business and why we're confident that we're well-positioned to drive long-term sustainable growth. Simply Good Foods is a U.S. leader in the attractive nutritional snacking category. And while the category has significantly grown household penetration over the last five-plus years, it is still well under-penetrated compared to most food categories at about 50% of U.S. households. We have two large-scale brands in Atkins and Quest with meaningful consumer benefits and broad appeal among two different consumer targets. Furthermore, we have demonstrated the marketing capabilities to grow new loyal consumers over time. We benefit from long-term compelling consumer megatrends of snacking, health and wellness, convenience, and on-the-go nutrition. We have a diversified business across retail channels, customers, and products, which provides us multiple pathways to win in the marketplace. We operate an asset-light business model that has proven resilient and flexible in a volatile demand marketplace and generate strong free cash flow to fund organic growth while also enabling us to participate in M&A. And despite temporarily reduced consumption during the pandemic due to fewer on-the-go consumption occasions, our businesses quickly resumed growth even though consumer mobility is still well below pre-pandemic levels. For these reasons, we're confident that as consumer mobility improves, The growth rate of our brands will also improve, driven by the underlying benefits of the consumer megatrends I mentioned earlier and our ability to attract new consumers to our brands. We remain committed to operating our business for the long term and do the right thing for our brands, our employees, our customers, and our consumers during these challenging times. Lastly, I'm encouraged by the start to the year as first quarter sales and earnings growth, as well as retail takeaway, all exceeded our estimates. Moving to slide five, the first quarter net sales exceeded our expectations, driven primarily by strong e-commerce growth, retail takeaway that exceeded our expectations, and the timing of shipments related to the seasonal inventory build by certain retailers. Adjusted EBITDA for the first quarter increased 53.2%, primarily due to a full quarter of Quest the greater than anticipated increase in sales versus our plan and strong cost controls. Total Simply Good Foods Q1 retail takeaway in measured and unmeasured channels increased mid-single digits and steadily improved as we moved through the quarter. Our performance was driven by the snackier portion of our portfolio, primarily confections, chips, and cookies that are consumed mostly at home, while bars for both brands remain pressured in measured channels due to fewer on-the-go occasions. Importantly, we gained overall market share versus the category, which declined low single digits. Our performance in the mass channel improved a bit versus last quarter, but is still lower than the year-ago period due to reduced shopper trips since the start of the pandemic. The commitment to the nutritional snacking category by major retailers remained strong, and our distribution gains on new products was in line with our estimates. Early consumer offtake of these new items is encouraging. As we discussed last quarter, measured channel retail takeaway plateaued in mid to late July after sequentially improving versus the April trough as consumer mobility improvements stalled. In September, the first month of our fiscal first quarter, our retail takeaway growth was flattish due to a weaker back to school season. However, in October and November, our marketplace trends steadily improved. Total Simply Good Foods nutritional snacking category retail takeaway in Q1 outpaced the category across all timeframes, driven primarily by the more at-home, snackier portion of our portfolio, as well as improving active shake trends and the last year's launch of Quest Shakes. In December, the first month of our fiscal second quarter, our performance continued to sequentially improve. Turning to the first quarter, net sales increased 51.9%, driven by the Quest acquisition. Specifically, Quest net sales increased $78.7 million to $95.8 million. Atkins net sales increased 2.2%, and was a 1.9 contribution to total company growth. The divestiture of Simply Protein Business was a 1.7% headwind. The increase in adjusted EBDA is a direct result of higher gross profit driven by the inclusion of Quest, Legacy Atkins Cost Control, and Quest Acquisition Synergies. Tom will provide greater details on these metrics in just a bit. Atkins Q1 IRI MULO plus C-Store measure channel retail takeaway was off 5.7%, but outpaced the weight management category. Similar to last quarter, Atkins bars were pressured due to lower on-the-go usage occasions for this forum across the category. Atkins shakes sequentially improved throughout the quarter, and in November, our shakes retail takeaway was about flat versus the year-ago period. Atkins' confections momentum continued, with retail takeaway up 13.2%, as these products are primarily consumed at home. We were encouraged by our improving marketplace trends during the quarter, especially given the soft start in September, partially due to the weaker-than-expected back-to-school season. While so early, we're pleased with the distribution gains and consumption performance while our recently launched new products, particularly our iced coffee protein shakes and indulged dessert bars. E-commerce growth continues to be a strength, with consumption up 45% in Q1, with new-to-e-commerce consumers representing one-third of sales. And shakes continue to perform well in this channel, up double digits. E-commerce is now about 10% of Atkins sales, up from 4% just two years ago, and should continue to be a driver of growth. Our brands are responsive to marketing initiatives and we're pleased that new buyer growth resumed in the quarter. It was encouraging to see this positive trend as it was the first quarter of positive growth since the pandemic began. As expected, overall buy rate was down versus last year, reflecting lower on-the-go usage occasions. As we move into Q2, we expect continued strong e-commerce growth, improving consumption from new product distribution gains, and New Year's seasonal merchandising that is least equal to a year ago, although we remain cautious about consumer seasonal participation given the recent surge in COVID-19 cases throughout the U.S. Let me now turn to Quest. Will Q1 retail takeaway increase 15.2% in the measured IRI MULO plus C-Store universe driven by improving trends across major food mass and club channels? Similar to last quarter, our performance was driven by cookies, chips, and confections, and the year-ago launch of shakes, as well as distribution gains on new products. Quest snacks, chips, cookies, and confections performed extremely well with retail takeaway in Q1 up 76%. Retailer and consumer demand for these products remained strong and represents about 26% and growing of the Quest business in Q1. The majority of the Quest shake distribution gains occurred in calendar 2020 and is a slight headwind as we make our way through the remainder of the year. Quest bars declined 8% in Q1, better than the bar segment, which was off low double digits. As mentioned previously, bars have been impacted by lower on-the-go consumption occasions. As I stated earlier, Quest e-commerce business continues to do well with retail takeaway up 60%. Our business at Amazon continues to excel with similar growth rates for bars, chips, and cookies. As we move into Q2, we anticipate that retail takeaway will continue to be solid, and it will outpace the category. E-commerce will remain strong. Chips, cookies, and confection distribution gains will be a benefit, and New Year's seasonal merchandise will be greater than last year. However, similar to Atkins, we remain cautious about consumer seasonal participation, given the recent surge in COVID-19 cases. Additionally, Quest retail takeaway comparisons in the year-ago period, up 26.8%, are strong partially due to last year's shake launch. In summary, we're pleased with a better-than-expected start to fiscal 2021, despite the ongoing challenges of operating in the COVID-19 environment. We exceeded our estimates, driven primarily by strong e-commerce growth, retail takeaway that was better than our expectations, and the timing of shipments related to the seasonal inventory bill by certain retailers. We're encouraged by our improving marketplace trends and confident we'll outpace the category, although in the near term it could be challenging given the increase in COVID-19 cases across the U.S. We'll continue to engage with consumers and be flexible in our approach to brand investment to drive growth as we execute against our strategies to drive sales and earnings during the fiscal year. Now I'll turn the call over to Todd to provide you some greater financial details.