The Simply Good Foods Company

Greetings. Welcome to Simply Good Foods Company's fiscal second quarter 2021 conference call. At this time, all participants are in a listen-only mode. Any 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. Please note that this conference is being recorded. I'll now turn the conference over to Mark Lagrian, Vice President of Investor Relations. Mark, you may now begin.

Thank you, Operator. Good morning. I am pleased to welcome you to the Simply Good Foods Company earnings call for the second quarter ended February 27, 2021. 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 Time. A copy of the release and 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 available. During the course of today's call, management will make forward-looking statements that are subject to various risks and uncertainty 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 in 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. Due to the company's asset-light strong cash flow business model, we evaluate our performance on an adjusted basis as it relates to EBITDA and diluted EPS. We have included a detailed reconciliation from GAAP to adjusted items in today's press release. We believe these adjusted measures are a key indicator of the true underlying performance of the business. 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 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' second 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 it up to your questions. Second quarter net sales increased 1.5%. Four ongoing net sales that exclude the impact of our Simply Protein divestiture and European business exit increased 2.7%, driven by continued e-commerce growth, Quest success in new forms, and solid international performance. As expected, trade promotion expense was greater than last year, supporting higher levels of in-store merchandising and display. Additionally, as discussed last quarter, Q2 shipments slightly lagged in function as certain retailers adjusted back from a Q1 inventory build. Importantly, throughout the quarter, retailer support for the category and our brands remained strong. Adjusted EBDA for the second quarter increased to 2.2%, primarily due to strong cost controls and Quest acquisition synergies. Total Simply Good Foods second quarter retail takeaway, including unmeasured channels, increased mid-single digits with IRI measured channel growth of 1.7%. Marketplace trends were similar to last quarter. Specifically, our performance was driven by the snackier portion of our portfolio, primarily confections, chips, and cookies that are consumed mostly at home. Bars for both brands remained temporarily soft in measured channels due to fewer on-the-go usage occasions. In the second quarter, we executed well against our priorities, driving sales and earnings growth in a challenging marketplace. We are well positioned over the remainder of the year and have initiatives in place that we believe will result in solid financial results. Consistent with the first quarter, Total Simply Good Foods' second quarter retail takeaway and measured channels outpaced the category across all timeframes, driven primarily by the snackier portion of our portfolio. Importantly, The company gained market share, as did each of our brands in their respective sub-segments of weight management and active nutrition. The active nutrition segment of the category, which includes Quest, increased mid-single digits. Quest POS outperformed the active nutrition segment nearly three to one during the quarter. I would note that IRI Mueller C-Store Universe represents about 70% of Quest's total consumption. The weight management segment, which includes Atkins, remained soft in the second quarter and declined high single digits due to fewer on-the-go usage occasions. In the second quarter, Atkins continued to outpace the weight management category. While early, our marketplace trends in the third quarter are improving. Atkins' second quarter U.S. retail takeaway in measured and unmeasured channels declined low single digits. A solid e-commerce growth, about 10% of Atkins' U.S. sales, was offset by softness and traditional brick and mortar. Atkins IRI, MULO, and C-Store measured channel retail takeaway was off 5.7%, identical to the first quarter. Performance in December and January sequentially improved versus the first quarter, but February POS declined mid-single digits impacted by winter storm store closures. Importantly, retailer support in the quarter was solid, and in-store merchandising and display was greater than last year, supporting consumer seasonal participation. As expected, channel-informed trends were similar to the last few quarters. Atkins Confection's momentum continued with POS growth of 14.3%, as these products are primarily consumed at home. Bars and Shakes' performance was similar to the first quarter, impacted by fewer on-the-go use occasions. E-commerce growth continues to be a strength, with consumption up about 50% in the quarter. Bars, shakes, and confections all increased strong double digits, with shakes outperforming and representing about 50% of e-commerce sales in the quarter. We are pleased to see that buyer growth continued from the first quarter into the second, reflecting consumers' renewed interest in weight management as they begin to emerge from COVID-19 movement restrictions. We're encouraged that both growth in new buyers and loyalty among retained buyers tracks similarly to pre-COVID 19 benchmarks. Importantly, consumers are coming back to the brand and recognize the attributes and benefits of our products as a way to help them achieve their goals. Buy rate is a key metric impacting Atkins' return to pre-COVID-19 growth levels. Overall, buy rate was below prior year levels due to reduced consumption among bars and to a lesser degree, shakes. Importantly, recent research indicates a high correlation over 0.8 between return to work and Atkins Bar and Shake consumption, reinforcing our belief that improving consumer mobility will positively impact bank consumption and buy rate. As we enter the third quarter, we would point to four key factors related to the Atkins brand. First, year-ago comparisons are easier as we lap last year's significant consumption declines from the early stages of COVID-19 lockdowns. Second, We're starting to see early signs of improvement in shopper traffic in measured channels, especially in the mass class of trade. Given Zatkin's development in this channel, it should help both buyer growth and consumption. Third, effective marketing and new product innovation should enable us to continue to build on our year-to-date buyer trends. And the potential improvement in consumer mobility should help accelerate buy rate of bars and shakes. And lastly, we expect in-store merchandising and display would be greater than prior years reduced levels as retailers anticipate consumer shopping and consumption habits will improve. Now let me turn to Quest, where second quarter retail takeaway increased 16% in the measured IRI new low C-store universe. Importantly, trends improved across the major food, mass, and convenience channels. Similar to last few quarters, our performance was driven by snacks consumed at home. As we lapped a year ago launch of ready to drink shakes, this headwind has been offset by improving bar performance and the launch of the Quest peanut butter cup that's off to a good start. Quest bar performance sequentially improved and declined about 4% in the quarter versus 8% in the first quarter. This was significantly better than the bar segment that was off low double digits in the first half of the year. As I stated earlier, Quest e-commerce business continues to do well, with retailer takeaway up 60%. Our business at Amazon is strong. Chips more than doubled. Bars and cookies increased more than 50%. And confections momentum is building. In the second half of fiscal 2021, we anticipate that POS will continue to be strong and measured in e-commerce channels in the third quarter and moderate a bit in the fourth, as we lapped strong comparisons in the year-ago period. Chips and confections momentum will continue and bar performance will improve. And similar to Atkins, in-store merchandising and display has been reinstated versus the prior year pullback as retailers anticipate consumer shopping and consumption habits will begin to recover. In summary, we're pleased with our second quarter results that were largely in line with our expectations. Retail takeaway was slightly better than expected, driven by solid e-commerce growth, as well as quest performance in measured channels. The sequential improvement in nutritious snacking category trends over the last few quarters is encouraging, and the positive growth in Atkins buyers indicates weight management is becoming increasingly more relevant. Combined with easier year-ago comparisons and improving shop and traffic in measured channels, we expect solid growth in the second half of the fiscal year. Recall our analysis indicate that as consumer mobility increases, it correlates to greater levels of consumption of our brands. Our fiscal third quarter is off to a fast start, and we're executing well against our plans and initiatives that should drive sales and earnings growth over the remainder of the year. Now I'll turn the call over to Todd to provide you with some greater financial details.