The Simply Good Foods Company

Greetings and welcome to the Simply Good Foods Company fiscal second quarter 2022 conference call. At this time, all participants have been placed 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 Pagarian, Vice President of Investor Relations for Simply Good Foods Company. Thank you, sir. You may begin.

Thank you, operator. Good morning. I'm pleased to welcome you to the Simply Good Foods Company earnings call for the second quarter ended February 26, 2022. 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 as a subject of 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 to investors. Due to the company's asset-like 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 underlying performance of a business. The presentation of this information is not intended to be considered in isolation or the 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 Food's second quarter results, and I'll provide you some perspective on the performance of our brand. Then Todd will discuss our financial results in a bit more detail before we wrap it up with a discussion of our outlook and your questions. In the second quarter, we delivered strong net sales and earnings growth that exceeded our expectations. and position us well to deliver on our full-year objectives. U.S. retail takeaway in the quarter was in line with our expectations and similar to Q1, despite the surge in COVID cases from the Omicron variant. Price increase instituted in our fiscal first quarter of this year is tracking in line with our expectations and with a high single-digit percentage point contribution to our sales growth. Net sales increased 28.7% driven by retail takeaway and the timing of shipments. Specifically, Q2 POS increased 19.6% in the U.S. measured channels of IRI, MULO, and convenience stores. As is typically the case this time of year, trade inventories grew during the quarter in support of seasonal in-store merchandising. Q2 sales growth also benefited from the timing of shipments to support earlier-than-expected Q3 customer programs. We also estimate that the storms that negatively impacted sales in the year-ago period was about a two percentage point benefit this quarter. Adjusted EBDA in the second quarter increased 27.1% to $54.2 million primarily due to the sales growth and G&A leverage. As expected, gross margin declined 250 basis points versus the year-ago period. Higher supply chain costs were partially offset by the price increase and favorable mix. And while still a challenging supply chain operating environment, customer service performance improved during the quarter. While we are not at target service levels, our performance has improved during the first half of the year. We are pleased with our progress in a continuing difficult environment. We executed well against our priorities in the second quarter to ensure we deliver on our short and long-term objectives. We are focusing on driving sales and earnings growth and competing effectively while navigating a challenging supply chain environment. As such, due to lingering supply chain cost inflation, which we expect to continue into fiscal 2023, earlier this week we notified customers of a price increase effective in our fiscal fourth quarter. Additionally, in March, we entered into an agreement to license the Quest frozen pizza business to Belisio Foods, which has held the license for Atkins frozen meals for several years. Simply Good retail takeaway and measure channels increased 19.6%, despite the significant surge in cases from the Omicron variant that was dominant during the quarter. And as has been the case throughout the pandemic, Both our brands have outperformed their respective subsegments of weight management and active nutrition. In Q2, the weight management segment was up 0.4%. Atkins outperformed the segment with retail takeaway up 6.4% over the same timeframe. TotalQuest retail takeaway and measured channels in Q2 was up 40.1% and outpaced the active nutrition segment growth of 20.5%. We estimate that U.S. retail takeaway and unmeasured channels, primarily e-commerce and specialty, increased low double digits on a percentage basis versus last year. As expected due to strong performance in the year-ago period, the growth rate in unmeasured channels moderated. Atkins Q2 U.S. retail takeaway and measured channel increased 6.4%. The year-over-year increase benefited from improvements in the mass and club channels as well as continued total buyer growth. Atkins growth in total buyers in the quarter remains strong, up double digits on a percentage basis versus the year-ago period. However, the buy rate remains mid-single digits below historic levels due to fewer snacking occasions from the high correlation between consumption of Atkin bars and the workplace. Therefore, the return to pre-pandemic routines continues to be a big opportunity for the Atkins Shake's Q2 retail takeaway was up 11.7% with growth solid across all major retail channels. In Q2, bar consumption was up modestly versus prior year. Growth slowed a bit from the previous six months. We suspect due to the impact of the Omicron variant that the CDC reported infected over 20 million adults in January alone. Atkins' all other product forms continued to show strong growth. These include confections, cookies, and chips. In Q2, Atkins' all other retail takeaway increased 9.8%, driven by cookies, and contributed about 2.6 percentage points to Atkins' total brand retail takeaway growth. Confection's POS was slightly lower as we lapped last year's successful dessert bar launch. Performance at key customers was solid, with Atkins' retail takeaway up across all channels. We are particularly pleased with Q2 mass channel retail takeaway of bars and shakes, which increased 7% and 10% respectively. And our Atkins e-commerce business is also doing well. Amazon Atkins' second largest customer, Q2 retail takeaway, increased about 20% on a percentage basis versus the year-ago period. Let me now turn to Quest, where Q2 retail takeaway increased 40.1% in the measured IRI and ULO C-Store universe and outpaced the active nutrition segment. Growth versus the year-ago period was driven by an increase in household penetration, a rebound in bars, and success in new product forms. Plus, BARS Q2 retail takeaway increased 22% driven by higher shopper trips versus the year-ago period in C-Stores and MassChannel. Recall, Quest bars are about 55% of total Quest measured channel retail sales. The snackier portion of Quest products, about 40% of total Quest US retail sales, continued to do well and increased 88% in Q2, driven by continued strong growth of chips, cookies, as well as confections. We continue to see robust growth across all these forms. We had another good quarter of growth across all key retail channels. Increased foot traffic in the mass channel and convenience stores were solid, driving combined Q2 POS growth in these channels of nearly 45%. Quest e-commerce takeaway increased about 14% versus last year. As expected, due to strong performance in the year-ago period, the growth rate moderated from previous quarters. In summary, we're pleased with our second quarter results that were better than we expected. Over the remainder of the year, we anticipate that retail takeaway will continue to be solid, although as we mentioned previously, the growth rate in the second half of the year is more challenging due to more difficult year-over-year comparisons. We have a good balance of innovation as well as in-store merchandising and programming that we believe will enable us to deliver on our retail takeaway targets. Due to the timing of Q2 shipments discussed earlier, we expect NIC sales growth in the second half of the year to be less than the retail takeaway increase. Additionally, given the unknown timing of when employees will return to the office and the unpredictable nature of COVID-19 over the remainder of the fiscal year, we don't anticipate any meaningful improvements in workplace mobility. While customer service levels are improving, we anticipate that the supply chain operating environment will remain challenging. We have good visibility into our cost structure for the balance of the fiscal year and our input costs are largely covered. Therefore, there is no meaningful change to our fiscal 2022 supply chain cost inflation or gross margin outlook. The price increase announced earlier this month is primarily a benefit in the fiscal 2023. We're executing well against our plans, and we believe we're in a position to deliver another year of solid net sales and adjusted EBITDA growth as a path to increasing shareholder value. Now I'll turn the call over to Todd to provide you some greater details in our financial results.