The Simply Good Foods Company

Greetings, and welcome to the Simply Good Foods Company Fiscal Third Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Mark Bulgarian, Vice President, Investor Relations. Mark, please go ahead.

Thank you, operator. Good morning. I am pleased to welcome you to Simply Good Foods Company earnings call for the third quarter ended May 28, 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 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 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. Additionally, year-to-date fiscal 2022 adjusted results exclude the mark-to-market effect of the treatment of the company's private warrants prior to those warrants being fully exercised in January 2022. We have included a detailed reconciliation from GAAP to adjusted item 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 measures prepared in accordance with GAAP. With that, I'll now turn the call over to Joe Scazzo, President and Chief Executive Officer.

Thank you, Mark. Good morning, and thank you for joining us. Today I'll recap our third quarter results and provide you with some perspective on the performance of our brands. Then I'll turn the call over to Todd who will discuss our financial results in a bit more detail before we wrap it up with a discussion of our outlook and answer your questions. In the third quarter, we delivered solid net sales and earnings that were slightly greater than our expectations due to better than anticipated retail takeaway, and higher customer inventory that was not drawn down as expected during the quarter. Net sales increased 11.5%, including the previously discussed effects of the European exit and Quest frozen pizza licensing agreement. As expected, net price realization was a high single-digit percentage point contribution to net sales growth. Due to the price increase we implemented in the first quarter, of fiscal 2022 and elasticity was relatively in line with our estimates. The recorder net sales growth in North America, excluding the impact of the frozen pizza licensing transaction, was about 15% in line with combined measured and unmeasured channel retail takeaway. As expected, gross margin of 37.5% was in line with estimates and sequentially improved versus Q2 gross margin of 36.6%. The 510 basis point decline versus year-ago period was due to higher supply chain costs, partially offset by pricing. Of note, in the year-ago period, gross margin of 42.6% was the highest since we acquired Quest. We have good visibility into our cost structure for the remainder of fiscal 2022, and there is no change to our gross margin outlook. We expect fiscal year 2022 gross margins declined about 250 basis points versus the previous fiscal year. Customer service was solid during the quarter as our supply chain team performed well in a very challenging environment. As expected, adjusted EBDA in the third quarter was 63.3 million versus the year-ago period of 67.5 million due to the aforementioned gross margin decline. We executed well against our priorities in the quarter and remain committed to do the right things for our brands, customers, and consumers. We're confident in the strength of our business and the diversification of our portfolio across forums, customers, and retail channels that provide us with multiple ways to win in the marketplace and deliver shareholder value. Simply Good Foods retail takeaway and measure channels increased 14.4%. And as has been the case throughout the pandemic, both our brands have outperformed their respective subsegments of weight management and active nutrition. In Q3, the weight management segment declined 4.7%. Atkins outperformed the segment with retail takeaway up 3.4% over the same timeframe. Importantly, Atkins' performance in unmeasured channels is outpacing measured. More on this in a bit. Total class retail takeaway and measured channels in Q3 increased 30.6% and outpaced the active nutrition segment growth of 18.9%. We estimate U.S. retail takeaway and unmeasured channels, primarily the e-commerce and specialty channels, increased about 15% versus last year. As expected, e-commerce growth was more than offset by declines in the specialty channels. Atkins Q3 U.S. retail takeaway in the IRI, MULO, and C-Store universe increased 3.4%. Chopper trips tended lower in the quarter and was most likely a headwind to overall brand growth in measured channels. Atkins Q3 retail takeaway in Amazon increased 39%, driven by strong growth in shakes. We estimate total unmeasured channel retail takeaway increased about 22%, and is approximately 12% of total Atkins retail sales. Given the strong growth at Amazon, Atkins Q3 retail takeaway in the combined measured and unmeasured channel was up about 6% versus prior year, as fewer shopper trips in brick and mortar were offset by strong e-commerce growth. Atkins growth in total buyers in the quarter remained strong, up double digits on a percentage basis versus the year-ago period. However, buy rate remains mid-single digits below historic levels, and going forward remains an opportunity for the brand. Atkins' third quarter measured channel retail takeaway for our core bar and shake business increased 3.5%, driven by solid shakes growth of 14.1%, partially offset by a decline in bars of 4.2%. Of note, bar consumption has been impacted by fewer at-work consumption occasions, as well as high substitution with Atkins shakes. Atkins Q3 measured channel retail takeaway of other forms, this includes confections, cookies, and chips, increased 3.2%. Growth was driven by cookies that continued to do well and contributed about 2.7 points to total Atkins brand measured channel retail takeaway growth. We're excited by the potential of our recently launched protein chips. However, performance is too early to read with distribution in early stages of building. Confections POS was off 8.1% in the quarter as we lapped last year's strong performance related to our dessert bars launch and lower consumer interest in keto confections. Back into all other snacks, confections, cookies, and chips, or about 30% of total Atkins measured channel retail sales. We have a solid pipeline of innovation for the brand that we believe will enable us to provide consumers with new products, variety, and news to drive growth. Let me now turn to Quest, where third quarter retail takeaway increased 30.6% in the measured IRI, MULO, and C-Store universe and outpaced the active nutrition segment. Growth versus the year-ago period was driven by increases in household penetration, strong consumption across all major forms, and success in new products. Quest's core bar business in the quarter, Measure Channel Retail Takeaway, increased 14.1% with solid growth across all major channels. The snackier portion of Quest products, that's cookies, confections, and chips, continue to do well, with third quarter measured channel retail takeaway up 65%. Growth was strong across all farms and was driven by increasing household penetration of these farms, distribution gains, and marketing investments to drive growth. We have a solid pipeline of innovation and expect that snacks, slightly greater than 40% of the total Quest measured channel retail sales, will continue to generate solid growth over the next year and long term. We add another solid quarter of performance across all key retail channels with growth that's similar across all major classes of trade. West third quarter retail takeaway at Amazon increased 23%. As expected, e-commerce growth more than offset declines in the specialty channel, resulting in total third quarter unmeasured retail takeaway of about 12%. We estimate unmeasured channels are about 25% of total Quest retail sales. In summary, we're pleased with our third quarter results that were better than we expected. Consistent with our previous estimate, we anticipate low double-digit retail takeaway in the second half of the year with fourth quarter retail takeaway estimated in the high single digits on a percentage basis versus last year. We entered the fourth quarter with slightly higher customer inventory levels as we shift ahead of consumption for the fiscal year-to-date period. Therefore, in the fourth quarter, we expect retail takeaway growth to be better than net sales performance as customers adjust inventory to more normal fiscal year-end levels. We have good visibility into our cost structure, and our costs are largely covered for the balance of the year. Therefore, there is no change to our fiscal 2022 supply chain cost inflation and gross margin outlook. Implementation of the price increase announced this April is primarily a benefit in fiscal 2023 and is progressing as planned. We're executing against our plans and we believe we're in a position to deliver another year of solid net sales and adjusted EBDA growth as a path to increasing shareholder value. With that, I'll now turn the call over to Todd to provide you with some greater financial details.