The Simply Good Foods Company

Greetings and welcome to the Simply Good Foods Company fiscal fourth quarter 2022 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 Bergarian, Vice President, Investor Relations for 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 period ended on August 27, 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. A copy of the release and the company presentation are available under the investor section of the company's website at www.assemblyofgoodfoodscompany.com. This call is being webcast and an archive of today's remarks will also be available. Turning to the disclaimer, 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 to investors. Due to the company's asset-light strong cash flow business model, we evaluated 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 the 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 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' fourth quarter and full fiscal year results and provide you with some perspective on the performance of our brands. Then Todd will discuss our financial results in a bit more detail before we wrap it up with a discussion of our outlook and take your questions. I was pleased with our full year marketplace performance and financial results. In a challenging operating environment, full-year net sales growth of 16.2% was slightly greater than our expectations, while adjusted EBITDA increased 13% and was in line with our estimates. Combined measured and unmeasured channel U.S. retail takeaway growth for the full year of 15.5% exceeded our expectations, driven by solid Quest performance across all forms and channels. Atkins' significant e-commerce growth resulted in mid-single-digit full-year retail takeaway for the brand in the combined measured and unmeasured channels. Importantly, we continue to grow share in the subsegments of active nutrition and weight management. Our supply chain team performed well during the year and overcame many challenges to ensure customer service levels approached our typical targets. I'm extremely proud of all of our employees who showed tremendous tenacity and adaptability to overcome these challenges. Due to their efforts, we were able to continue our winning ways with retail customers and consumers while growing market share. As expected, full-year fiscal 2022 supply chain cost deflation was up mid-teens, resulting in gross margin contraction of 260 basis points. Inflation was primarily related to ingredient and packaging costs. Importantly, cash flow from operations was solid and provided us with the financial flexibility to pay down debt and opportunistically buy back shares. We executed well against our priorities for the year and are well positioned to succeed in fiscal 2023. The current recessionary conditions and its impact on shopping behavior and consumer demand provide a challenging environment for our categories and brands, especially in light of our high retail prices. That said, we're cautiously optimistic of our growth prospects. In the first quarter of fiscal 2023, we're off to a good start as retail takeaway has improved, tying with post-labor-date back-to-work trends. For the six weeks ended October 8th, point of sale growth in the combined measured and unmeasured channels was up about 14%. In fiscal 2023, we expect supply chain costs to be greater than last year and anticipate cost of goods inflation of low double digits. Similar to last year, it's mostly driven by higher ingredient and packaging cost. We projected our late fourth quarter price increase last year, along with cost savings initiatives, will offset projected dollar cost inflation this year, assuming input costs stay at current levels. Therefore, in fiscal 2023, we expect adjusted EPA to increase in line with the net sales growth rate. Gross margin is expected to contract with most of the decline occurring in the first quarter. You may recall we had not yet experienced significant supply chain cost inflation in the first quarter of last year. In summary, we're confident in the strength of our business and the diversification of our portfolio across brands, products, and channels. In the current recessionary environment, our business is well positioned. Our brands over index in mid to upper income consumers, have little private label competition, and a strong presence in the mass channel that typically does well with shoppers during recessionary periods. We believe this will enable us to deliver on our sales and earnings objectives. Turning to the fourth quarter, net sales growth of 5.5% was slightly greater than our expectations due to better than anticipated retail takeaway. Q4 combined measured and unmeasured channel U.S. retail takeaway growth was about 12%, and as expected, outpaced net sales growth. The expected retail inventory drawdown during Q4 resulted in more typical retail inventory levels as we exited the fiscal year. Fourth quarter gross margin was 37.1%. The 210 basis point decline versus the year-ago period was slightly greater than forecast. Todd will have a bit more on this in a second. Importantly, during the quarter, our supply chain team continued to perform well in a challenging environment as our customer service performance approached target levels. Adjusted EBDA in the fourth quarter was about $51 million, an increase of 5.2% and in line with estimates. Sales growth and G&A cost control partially offset higher supply chain costs. For the four-year fiscal 2022 Simply Good Foods retail takeaway and measured channels increased 15%, and both of our brands outperformed their respective subsegments of active nutrition and weight management. TotalQuest four-year fiscal 2022 retail takeaway and measured channels was up 32.3% and greater than active nutrition segment growth of 20.4%. In fiscal 2022, the weight management segment declined 2.4%. Atkins outperformed the segment with retail takeaway up 3.2% over the same timeframe. Importantly, Atkins' performance in unmeasured channels continues to significantly outpace measured channels. More on this in a bit. Turning to Atkins' fourth quarter performance, consistent with prior quarters, brand relevance remained strong, supported by a growing base of buyers. Total buyers increased 11% in the year, and the buy rate was consistent with previous quarters. Atkins Q4 retail takeaway in the combined measured and unmeasured channels was up slightly, as outstanding e-commerce growth continued from previous quarters and offset softness in the IRI MULO universe. Atkins Q4 POS at Amazon increased 75%, driven by solid growth across all major forums. We estimate total unmeasured channel retail takeaway increased about 40%, and is now approximately 12% of total Atkins retail sales. For perspective, you may recall that three years ago, e-commerce represented less than 5% of total Atkins sales. Core shakes and meal bars performance improved as consumers continued recent return-to-work trends. Specifically, Q4 shakes retail takeaway increased 5.5%, driven by solid growth in the food and club channels and meal bars, About two-thirds of our bar business strengthened during the quarter and were flat versus last year. Cookies and chips growth are progressing and are still in early stages of driving awareness and trial. Brand consumption and buy rate was most impacted by soft confections and snack bar performance due to distribution losses and lapping of last year's dessert bar launch. As we entered the new year, Atkins has experienced improving POS growth. For the six weeks ended October 8th, combined measured and unmeasured channel retail takeaway is up about 3.5%. Performance was driven by continued strong e-commerce growth and improving core shake and meal bars, with the latter likely tied to post-Labor Day return to work trends. Let me now turn to Crest. where Q4 retail takeaway increased 24.6% in the measured IRI MULO C-Store universe and outpaced the active nutrition segment. Growth was driven by solid performance across all major forums and retail channels, as well as increases in household penetration, strong consumption, and success in new products. Quest Q4 unmeasured channel retail takeaway was in line with measured channels as Amazon growth more than offset declines in the specialty channel. In Q4, Quest core bar retail takeaway increased 11.1% and outpaced bar category segment growth of 7.8%. The snackier portion of Quest products, that's cookies, confections, and chips, continue to do well, with Q4 measured channel retail takeaway up 51%. Both are strong across all forms and was driven by increasing household penetration, distribution gains, and marketing investments to drive trial. We have a solid pipeline of innovation expected snacks. Today, slightly greater than 40% of total retail Total Quest measured channel retail sales will continue to generate solid growth over the near and long term. In fiscal 2023, Quest innovation is solid, and we have a good balance of new products across all forms. In summary, the Simply Good Foods company competes in an attractive category with two scale lifestyle nutrition snacking brands that are well developed across multiple forms and snacking occasions. Our brands are aligned with the consumer megatrends of healthy snacking with a nutritional profile that is protein rich and low in carbs and sugar. The profile has broad appeal to consumers interested in health and wellness as a means to achieving their goals, whether they're at home, in the office, or on the go. Low category penetration and the aforementioned megatrends of wellness snacking should continue to be tailwinds and long-term growth levers. With a steady improvement in return-to-work trends, we expect improving relevance related to convenience, portability, and on-the-go meal replacement. As we look to fiscal 2023, we believe we are well positioned to build on our momentum and deliver solid net sales and earnings growth. Pricing and cost savings initiatives are in place to offset projected supply chain dollar cost inflation. Broad spot market prices of ingredient and packaging have softened versus the peak, although we have not yet seen meaningful cost declines for our key inputs. Therefore, we expect gross margins to decline, although at a lower rate than the last fiscal year. Most of the decline will occur in the first quarter, as gross margins in the year-ago period had yet to experience significant supply chain cost inflation. Our advantage business model with lean infrastructure enables strong cash flow generation and provides us with financial flexibility. We are executing against our strategies and position for long-term sustainable net sales and earnings growth that we expect will create value for our shareholders. Now I'll turn the call over to Todd who will provide you with some greater financial detail.