The Simply Good Foods Company

Greetings and welcome to Simply Good Foods Company Fiscal Third 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 this conference over to your host, Mr. Mark Pogarian, Vice President of Investor Relations. Thank you, sir. You may begin.

Thank you, operator. Good morning. I am pleased to welcome you to the Simply Good Foods company earnings call for the third quarter ended May 29, 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. 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 the 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 risk 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 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. Additionally, adjusted results exclude the mark-to-market effect of the treatment of private warrants per the SEC's April 12, 2021 statement related to accounting and reporting considerations for warrants by special purpose acquisition companies. 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 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 a reconciliation of the non-GAAP financial measures to the most comparable measure prepared in accordance with GAAP. With that out of the way, I'll now turn it 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' third quarter results. and provide you with some details on the performance of our brands. Then I'll turn the call over to Todd, who will discuss financial results in a bit more detail, and we'll wrap up with a discussion of a revised outlook before opening it up to your questions. We had a strong third quarter with net sales up 32%, as consumer mobility improved faster than our expectations. In addition to mobility improvements, shopper traffic within brick and mortar retailers improved, especially in the large mass channel, an important class of trade for our business and our category. And increasing on-the-go usage occasions resulted in nutrition bar consumption greater than our estimates. Justed EBDA in the third quarter increased 55.6% due to the strong sales growth, G&A cost controls, and Quest acquisition synergies. This more than offset higher marketing investments and incentive compensations. And improving bar performance as well as favorable consumer mix and brick and mortar channel resulted in solid gross margin expansion. Total Simply Good Foods Q3 retail takeaway increased 29.1% in the U.S. measured channels of IRI, MULO, and C-Stores. And outpaced the category. Our Atkins and Quest brand performance was solid across all forms. particularly bars due to increasing consumer mobility. Throughout the pandemic and now into the recovery, we've executed well and remain committed to do the right things over the long term for our business. In June, we notified customers of a price increase effective in September as we'll begin to experience higher raw material and distribution costs in this fourth quarter. As we look to fiscal 2022, We believe pricing as well as productivity will enable us to maintain gross margins and continue to invest in initiatives to drive growth. In the first half of fiscal 2021, the nutritional snacking category declined low single digits due to COVID-19-driven movement restrictions. In the third quarter, the nutritional snacking category increased about 26% as the category lapped weaker year-ago performance. Importantly, Simply Good Foods gains market share across all time frames, as did each of our brands in their respective sub-segments of weight management and active nutrition. We were also pleased with the performance in the mass channel, which rebounded during the quarter, driven by improved shopper traffic. And e-commerce growth continues to be solid and was in line with total measured channel performance. The active nutrition segment of the category, which includes Quest, increased over 30% in the quarter. As it has done all year, Quest outperformed the segment. Note that the IRI, MULO, and C-Store universe represents about 70% of Quest's total retail sales. The weight management segment, which includes Atkins, increased low teens in the third quarter on a percentage basis versus prior year. As has been the case all year, Atkins continued to outpace the weight management segment. Atkins Q3 U.S. retail takeaway and measured channels increased 15.6%, increasing mobility, improving shopper trips, particularly in the important large mass channel, and continued buyer growth resulted in solid retail takeaway across all forms. In Q3, bars and shakes increased about 5% and 20% respectively and improved sequentially versus the first half of the year. Atkins convection momentum continued and increased about 27% in the quarter. We're pleased with the performance of the confection products as well as the innovation we've launched over the last year. Improving shopper traffic of the mass channel was strong and combined with increased levels of distribution and display resulted in Q3 POS growth of about 25% in this channel. We continue to be pleased by buyer flows on Atkins and growing consumer interest in weight management as the U.S. emerges from COVID-19 mobility restrictions. The strong growth in buyers has fueled consumption improvements for the brand during the fiscal year. Atkins buy rate remains the single biggest growth opportunity for the brand as it is currently below historic levels. You may recall Atkins bar consumption is highly correlated to return to work. Based on that, we believe as consumer mobility continues to improve, buy rate of Atkins bars will follow. We anticipate continued improvement in consumer mobility, although as we enter Q4, the POS growth rate is affected by more difficult year-ago comparisons. As such, we expect overall Q4 retail sales to be similar to Q3. We expect continued improvement in the mass channel and am pleased with the Atkins e-commerce business. although the growth rate is expected to moderate given strong year-ago comparisons. Lastly, in Q4, we have solid marketing, improved distribution, and new innovation that should enable us to continue to build on our year-to-date buyer trends. Now let me turn to Quest, where Q3 retail takeaway increased 56.2% in the measured IRI, MULA, and C-Store universe. Growth was driven by improving shopper traffic in the mass channel, An increase in consumer mobility and greater on-the-go consumption is evidenced by the strong rebound of Quest bars. Quest Q3 bars retail takeaway increased 38%, more than double the segment growth rate. Recall, Quest bars are about 60% of total Quest retail sales. The snackier portion of Quest products continue to do well and increase nearly 150% in Q3, driven by chips, and the launch of new confection items earlier in the year. In addition to increased foot traffic of the Mass Channel, we were pleased with the performance in C-Stores. Combined, the Mass and C-Store channels represent about 30% of Quest retail sales, and in Q3, growth in these two channels were over 60%. Quest e-commerce business, about 20% of total Quest US retail sales continues to do well with retail takeaway up 43%. Our business at Amazon remains robust and growth was strong against all major firms. The specialty channel, while small as a total percent of Quest sales, returned to growth in the quarter. In Q4, we anticipate trends by form will continue and will result in total Quest retail dollar sales similar to the third quarter. We expect that the demand for Quest chips and convention items will remain strong and that supply will be pressured. As such, we have taken actions to ensure there are no disruptions at retail and we'll be dialing back trade promotions and programming on these items. And we'll continue to invest in marketing and innovation that drives greater levels of consumption and new consumers to our brand. In summary, We're pleased with our third quarter results that were better than our expectations due to improving mobility and increasing shopper traffic in the mass channel. In Q4, we anticipate retail dollar sales to be similar to Q3. For all material and distribution, inflation is expected to be a headwind in Q4, offset by continued improved product and channel mix. Price increase we announced a few weeks ago, as well as productivity, should offset fiscal 2022 supply chain inflation. We believe pricing as well as productivity will enable us to maintain gross margins and continue to invest in initiatives that drive growth. We're executing well against our plan and delivering on our financial objectives with flexibility to invest in the business as a path to increasing shareholder value. Now I'll turn the call over to Todd to provide you with some greater financial details.