The Simply Good Foods Company

Greetings. Welcome to the Simply Good Foods Company Fiscal Second Quarter 2024 Conference Call. At this time, all participants are in a listen-only mode. The 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. Please note this conference is being recorded. I will now turn the conference over to Mark Pergarian, Vice President of Investor Relations. 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 fiscal second quarter ended February 24, 2024. Jeff Tanner, President and CEO, and Sean Marra, CFO, will provide you with an overview of results, which will then be followed by a Q&A session. The company issued an earnings release this morning at approximately 7 a.m. Eastern Time. A copy of the release and accompanying presentation are available into the investor section on 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 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 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 dilutive 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. And I'll turn the call over to Jeff Tanner, President and CEO. Thank you, Mark.

Good morning. Thank you for joining us. Today, I'll recap Simply Good Foods' financial results and the performance of our brand. Then, Sean will discuss our financial results in more detail before we wrap it up with a discussion of our fiscal 2024 outlook and your questions. Simply Good Foods' second quarter results were led by continued quest growth, as well as strong gross margin improvement. Net sales increased 5.3%, driven by volume, and due to the timing of shipments last quarter, outpaced retail takeaway of about 3%. Retail takeaway in measured channels was less than our expectations. E-commerce POS growth for both Quest and Atkins continued to be solid. Quest retail takeaway was on track with our plans, driven by strong salty snacks growth, while Atkins' performance was off versus our estimates. Atkins had solid plans in place, but was ultimately disadvantaged on two fronts during the quarter. First, it lacked a one-time merchandising and promotional benefit that it had in the 2023 New Year, New You season due to the out-of-stock challenges of a category participant. And second, in the 2024 New Year, New You season, This category participant had adequate supply to service its base business. It then layered in extensive merchandising programs and promotions during the season, which greatly reduced the overall in-store share of voice for the Atkins brand and others. In March, as we exited the New Year season and moved past the difficult lap, Atkins' trends improved. More on that in a bit. We were very pleased with the Q2 gross margin of 37.4%. The 280 basis point increase versus the Euro go period was primarily due to lower ingredient and packaging costs. Higher gross profit enabled investments in our business and an increase in Q2 adjusted EBITDA of 13.6% to 57.8 million. However, due to the softer than anticipated Q2 Atkins consumptions trend, we have updated our full year fiscal 2024 outlook. We expect net sales to increase around the midpoint of the company's long-term algorithm of 4% to 6%, including the benefit of a 53rd week. We previously expected net sales to increase at the high end of the long-term algorithm. We continue to expect solid gross margin expansion, and adjusted EBITDA is now anticipated to increase 6% to 8% driven by solid gross margin expansion. Let me now turn to Quest. In Q2, retail takeaway measured channels increased 13.1%. Growth was solid across the key product forms and retail channels, driven by an increase in both household penetration and buy rate. In Q2, we estimate total unmeasured channel retail takeaway increased about 10% as e-commerce strength was partially offset by softness and specialty channels. Quest Q2 e-commerce POS remained solid and increased about 14%. For perspective, total unmeasured channels in Q2 were nearly 24% of total Quest retail sales. Quest Bar and Snacks retail takeaway and measured channels increased 6% and 21%, respectively. We're particularly pleased with our Salty Snacks POS growth of about 40%, which is a standout in the category and now represents about 25% of Quest retail sales. Additionally, we continue to see new Quest consumers coming into the brand via chips and then trying our other products such as bars, cookies, or confections. The success of Quest chips continues to be a proof point of the brand's ability to extend beyond its core and disrupt other large snacking categories. where we can offer high protein, low sugar, and great tasting options for consumers. Over the remainder of the year, we continue to expect low double-digit POS growth and continued household penetration and buy rate gain, driven by innovation, distribution, and a new marketing campaign. In March, we announced the launch of a new advertising campaign entitled, It's Basically Cheating. The campaign features Academy Award and Emmy nominated writer, actor, and comedian Kamal Nanjiani, who playfully and satirically delivers a core campaign idea that Quest products are so good tasting and better for you that it basically feels like cheating. Quest has been one of the most innovative brands in the category and is supported by a best-in-class R&D team. The multi-year pipeline is strong, and we expect innovation to be a lever of growth for a long time. In March, we launched strawberry-frosted cookies and one of my favorites, iced coffee. This 10-gram protein-packed, 10-ounce drink has minimal sugar, only 90 calories, and 200 milligrams of caffeine. Today, I'm also excited to announce a new bake shop platform for the fall of 2024. As we've seen with chips, this is an opportunity to disrupt a large snacking category, sweet baked goods, with high protein, low sugar, and great tasting muffins and a brownie. Like Quest Chips, we believe this new platform will bring new consumers to the active nutrition category and expand buy rate through another usage occasion. Based on conversations with key retail customers, we expect very strong support for the launch that will also be underpinned by a comprehensive marketing plan as part of the It's Basically Cheating campaign. Turning to Atkins, Q2 retail takeaway in the IRI, MULA, plus C-Store universe and the combined measured and unmeasured channels was off 11% and 8% respectively. Strong e-commerce growth continued, driven by Amazon, whose POS growth was 13%. In Q1, e-commerce was nearly 17% of total Atkins retail sales, up from 11% only three years ago. E-commerce retail sales are over $2 million per week, driven by a mix of new consumers and some heavy users that are migrating to this channel from brick and mortar. Atkins' performance in brick and mortar channels was softer than expected. This was primarily due to greater than anticipated in-store competitive merchandising and programming that also impacted several other brands. As I noted earlier, last year Atkins received incremental one-time merchandising and promotional support due to the supply challenges of a category participant, which is why the 2024 New Year New You was a challenging headwind. However, as you'll note in the chart in the middle of the slide, as we exited the new year, new year season, retail takeaway trends have improved. Over the remainder of the year, we expect more normalized level of competitive in-store merchandising and programming. We also have a strong advertising plan in place and are excited about the quality of the new products we will soon bring to market. Therefore, we anticipate full year fiscal year 2024 combined measured and unmeasured channel POS to be off around 7% versus our previous estimate of 3% to 4%. We continue to have tremendous faith in the long-term potential of the brand, especially given the increased cultural relevance and conversation about weight wellness. We continue to make progress against the five-point revitalization plan we've talked about on previous calls. However, as you may recall, it's going to take time before all the elements of the plan are collectively in the marketplace. I'm particularly pleased with the progress we're making in accelerating innovation, which is a critical driver of business performance. As previously stated, our lack of quality innovation has been a headwind to Atkins' performance, so getting this back on track has been a focus area for us. The significant improvements we've made should enable us to have 15 new product launches in calendar year 2024 across all product forms. At the bottom of the slide, I'd like to point out Atkins Strong, a high protein shake developed specifically for consumers on a weight loss drug or for shoppers just seeking higher levels of protein. For consumers experiencing rapid weight loss, either through medication, surgery or dieting, High protein levels are important to help maintain muscle mass. Akron Strong protein shakes deliver 30 grams of protein with 1 gram of sugar and have also been formulated with 7 grams of prebiotic fiber to support gut health. This beneficial level of fiber is lacking in many RTD shakes in the market today and is a highly relevant nutrient for many folks on the new medications. Research continues to suggest that the Atkins approach can be an effective off-ramp for those who choose to transition off the medication, and we're working to optimize our communications to ensure the brand is seen as a way to maintain weight loss benefits after taking the drugs. To summarize, Simply Good Foods is uniquely positioned as a US leader in nutritional snacking. the nutritional snacking category is more relevant today than at any other time as the conversation of health and wellness continues to increase. Furthermore, our category continues to be a standout versus many other center of store categories. As such, we're leveraging our role as category advisor at most retailers and continue to work with our customers to develop and support initiatives in the aisle to further accelerate category growth with a particular focus on gaining more space. Consumers trust our brands to help them achieve their wellness goals, and we are accelerating our innovation and marketing plans to provide consumers with products to help them in their wellness journey. We will continue to execute our strategic priorities, focusing on doing the right thing for our customers and consumers that will enable us to deliver on our long-term growth objectives that ultimately drive increased shareholder value. Now, I will turn the call over to Sean, who will provide you with some greater financial details.