The Simply Good Foods Company

Greetings and welcome to the Simply Good Foods Fiscal First Quarter 2023 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 the conference over to your host, Mr. Mark Bergarian, Vice President of Investor Relations for Simply Good Foods Company. Thank you. You may begin.

Thank you, Operator. Good morning. I am pleased to welcome you to the Simply Good Foods Company earnings call for the fiscal first quarter ended November 26, 2022. Joe Scalzo, President and Chief Executive Officer, and Sean Marra, 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.simplygoodfoodscompany.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 risk 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 evaluate 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 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' first quarter and provide you with some perspective on the performance of our brands. Then Sean will discuss our financial results in a bit more detail before we wrap it up with a discussion of our outlook as well as your questions. We're pleased with our first quarter financial and marketplace results in a challenging cost and operating environment. Net sales increased 7% relatively in line with estimates. In the first quarter, combined measured and unmeasured channel U.S. retail takeaway growth was about 14%, and, as expected, outpaced net sales growth. Sean will provide more details on the difference between net sales and point-of-sales growth in a bit. Our strong POS growth was driven by solid quest performance across key farms, customers, and channels. Atkins' continued e-commerce growth resulted in about 4% retail takeaway for the brand in the combined measured and unmeasured channels. First quarter gross margin was 36.9%. The 450 basis point decline versus the year-ago period was slightly greater than forecast. Ingredient and packaging inflation as well as trade investment were in line with expectations. However, logistics and contract manufacturing costs were greater than estimates. Importantly, our supply chain team performed well and customer service was near target levels. Adjusted EVDA for the first quarter was $60.8 million versus $65.6 million in the year-ago period. Sales growth, which included our July 2022 price increase and SG&A cost control, were primarily offset by supply chain inflation. As we move into the second quarter, We're focused on executing against our plans, and we are well-positioned to deliver another solid year of net sales and adjusted EBITDA growth. Simply good retail takeaway in measured channels increased 11.1%. Similar to the last few quarters, total unmeasured channel growth was additive to total company POS, resulting in combined measured and unmeasured channel growth of about 14%. In Q1, Atkins and Quest combined measured and unmeasured channel growth were about 4% and 24% respectively, with top-tier performance within the measured channel segments of weight management and active nutrition. Turning to Atkins' first quarter performance, Atkins' Q1 retail takeaway in combined measured and unmeasured channel was up about 4%. as outstanding e-commerce growth continued from the previous quarter, with the IRI MULO universe essentially unchanged from the year-ago period. Atkins Q1 point of sale at Amazon increased 75%, with solid growth across all major farms. We estimate total unmeasured channel retail takeaway increased over 40%, and is now about 13% of total Atkins retail sales. The brand continues to benefit from shopper channels shifting to e-commerce, as well as improved digital marketing initiatives. Consistent with prior quarters, Q1 brand relevance and loyalty remained strong, supported by a growing base of new and total buyers. In Q1, buy rate continued to improve from prior quarters, but was slightly down versus prior year. Within buy rate, strength in meal replacement bars and shakes likely driven by post-Labor-Day return-to-work trends, was offset by declines in snack bars and confections as we lapped strong pandemic consumption from those snacking occasions in the year-ago period. Moving on to measured channels in the IRI-MULO C-Store universe, Atkins Q1 POS was about the same as the year-ago period and, as expected, sequentially improved from Q4. Consistent with recessionary shopper channel shifting, Performance was driven by solid trends in the mass retail channel, offset by softness in the food class of trade. By form, Q1 sales retail takeaway increased 7.6%, driven by solid growth across all major channels. Total Atkins bars were off 6.9%. Meal bars, about two-thirds of the bar business, were about the same as last year, and offset by the snack bar distribution loss we discussed last quarter and price sensitivity. Elasticity on some snack bar items has been greater than our estimates in brick-and-mortar channels. And as expected, confections POS improved from Q4. In Q1, confections retail takeaway was off 5.3% as we started to lap the impact of the strong year-ago dessert bar launch. Importantly, the commitment to our brands and the nutritional snacking category by major retailers remain strong. Atkins distribution gains are tracking as expected, and strong new year, new you in-store merchandising and programming is in place. Let me now turn to Quest, Q1 retail takeaway, where combined measured and unmeasured channel growth was up 24%, and about the same as the IRI Mule Low C-Store universe. In Q1, we estimate total unmeasured channel retail takeaway increased about 20% as e-commerce strength is partially offset by softness in the specialty channel. Quest Q1 POS and Amazon increased about 36%, driven by growth across all forms. For perspective, total unmeasured channels in Q1 were about 24% of total Quest retail sales. In measured channels, Quest retail takeaway increased 25.4% in the IRI Mule OC store universe. Growth was driven by solid performance across all major forms and retail channels, as well as increases in household penetration, base velocity, distribution, and continued success of new products. In the quarter, Quest core bar business retail takeaway increased 16.8%. Growth was solid across original bars, as well as the new minis. Consumer response to the new recipe that provides a much softer original bar has been encouraging. The snackier portion of Quest products, that's cookies, confections, and salty snacks, continued to do well, with Q1 measured retail channel takeaway up 41%. Growth was strong across all forms and was driven by increasing household penetration, distribution gains, and marketing investments to drive awareness and trials. Consumer response to the price increase initiated in late in Q4 is tracking mostly as expected, although elasticity on chips so far has been greater than our estimates. The snack segment represents nearly 45% of total Quest measured channel retail sales and is already roughly equal to Quest bars in household penetration. So it's a sizable and growing segment for the brand. Further, we expect the segment to continue to contribute disproportionately to total brand growth over the next few years, driven by improvements to household penetration as well as a solid pipeline of innovation. That said, given the significant and increasing size of the segment, we expect the rate of growth over the next few quarters to moderate from its current levels. In summary, we're pleased with our start to the year and our first quarter results. Our retail takeaway was relatively in line with expectations and a very challenging cost and operating environment. Recessionary economy continues to be a concern as higher prices appear to be slowing unit demand in the category and shifting shopper traffic away from grocery to more value-oriented channels. That said, we remain cautiously optimistic about our business with strong POS momentum over the first four months of our fiscal year. We are well positioned in the mass in e-commerce retail channels that typically do well if shoppers seek out value. As I mentioned earlier, collaboration with key customers is strong and they are committed to our brands in the category. As such, in Q2, we have good breadth and depth of merchandising and programming in place for the upcoming New Year season. While Q1 gross margin was slightly lower than our forecast due to logistics and co-manufacturing costs, there is no change to our full-year physical 2023 gross margin outlook. We would note that we are seeing early signs of an improving marketplace for ingredient and packaging costs for the second half of our fiscal year. We are executing against our priorities, and we remain committed to doing the right thing over the near and long term for our brands, customers, and consumers. Now I'll turn the call over to my friend, trusted business partner, and prior CFO, Sean Marra, who will provide you with some greater financial details. John?