The Simply Good Foods Company

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 Begarian, Vice President of Investment 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 fiscal third quarter ended May 25th, 2024. Jeff Tanner, President and CEO, and Sean Maracifo 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 into 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 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 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. Please refer to today's press release for a reconciliation of the historical non-GAAP financial measures to the most comparable measures prepared in accordance with GAAP. The company completed the acquisition of Owen in the fourth quarter of fiscal 24. Therefore, results for the 13 and 39 weeks ended May 25, 2024 exclude Owen. Additionally, the reference to legacy Simply Good Foods during today's conference call encompasses Simply Good Foods business excluding Owen. I'll now turn the call over to Jeff Tanner, President and CEO. Thank you, Mark. Good morning.

Thank you for joining us. Today, I will 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 take your questions. We're pleased with our fiscal third quarter financial results. that were slightly better than our estimates. Simply Good Foods' third quarter results were led by continued quest growth as well as strong gross margin improvement. Retail takeaway in the combined measured and unmeasured channels was about 5% and, as expected, outpaced net sales growth of 3.1%. Quest's retail takeaway was driven by strong salty snack growth and Atkins' performance sequentially improved by a month during the quarter. Additionally, e-commerce growth for both Quest and Atkins continued to be solid. More on this in a bit. Q3 gross margin was 39.9%, a 320 basis point increase versus the year-ago period, primarily due to lower ingredient and packaging costs. Higher gross profit enabled investments in growth initiatives while also resulting in an increase in Q3 adjusted EBITDA of 7.9% to 71.9 million. The Owen acquisition closed earlier this month and the business is tracking to the acquisition model and full calendar year 2024 net sales we initially outlined. I'm pleased to announce that Mark Olivieri, CEO of Owen, has joined Simply Good Foods as the SVP and GM of OWN and is a member of our executive leadership team. Mark and I are excited to work together to unlock the value of our combined business and deliver shareholder value through both revenue growth, margin expansion, and cost synergy. We're very pleased with our execution in Q3. Quest acceleration and Atkins revitalization plans are on track. and we reaffirm our full-year fiscal 2024 net sales outlook for the legacy business. Specifically, 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. The Owen acquisition closed on June 13th, and we anticipate Q4 net sales to be in the $25 million to $30 million range. Total company adjusted EBITDA growth is expected to increase about 8% compared to last year and versus our previous estimate of 6% to 8%. Sean will provide greater detail on our performance in the subsequent section. The next slide provides you with a perspective of nutritional snacking category growth as well as our retail takeaway performance within the IRI, MULO Plus C-Store universe and in the combined measured and unmeasured channels. Nutritional snacking category growth in the measured channel universe was 6.4% driven primarily by volume. This category continues to be a standout performer and is increasingly a focus of our retail partners as they look for growth opportunities. Legacy Simply Good Foods retail takeaway in measured channels increased 2.9% driven by Quest volume growth. Atkins performance improved compared to last quarter but was still off versus last year. Our e-commerce business continues to do well and resulted in legacy combined measured and unmeasured channel POS growth of 5%. Note that if we had acquired Owen at the beginning of Q3, retail takeaway in measured channels in the combined measured and unmeasured universe would have been 6.4% and 8% respectively. Let me now turn to Quest. In Q3, retail takeaway in measured channels increased 13.5% driven by volume. Growth was solid across key retail channels, driven by an increase in both household penetration and buy rate. Quest retail takeaway improved sequentially from Q2 to Q3, with a key driver being the new Quest advertising campaign that began in March. We're pleased with the advertising that we believe will continue to drive higher household penetration and overall brand growth. In Q3, we estimate total unmeasured channel retail takeaway increased about 12% as e-commerce strength was partially offset by softness and specialty channels. Quest Q3 e-commerce POS was solid and increased about 16%. For perspective, total unmeasured channels in Q3 were nearly 23% of total Quest retail sales. Quest Bar and Snacks retail takeaway in measured channels increased about 2% and 27% respectively. We're particularly pleased with our Salty Snacks POS growth of nearly 50%, which is a standout in the category and represents about 25% of Quest measured channels retail sales. The new advertising debuted with a strong emphasis on Quest chips, which is where we have seen the largest increase in household penetration. As we witness the explosive growth of chips, the size of the total addressable salty snack market suggests significant and continued upsides on this business. As a result, we are working on a multifaceted acceleration plan that includes growth levers such as flavors, pack types, and channel expansion. In Q3, bar segment growth within the nutritional snacking category slowed to about 1%. This was primarily due to better for you or bars that have significantly less protein, if any, that declined low single digits on a percentage basis versus last year. Sports performance bars, which primarily have higher levels of protein, increased mid-single digits, driven by increased distribution of some new entrants into the measured channel universe. Quest bar growth is in line with the total bar segment, but it's not what we expect from the leading protein bar brand in the market. In response, we have accelerated our bar innovation and we're very excited about these innovative products that are tracking to launch in the second half of fiscal 2025 and beyond. Over the remainder of the year, we expect low double-digit POS growth and continued household penetration and buy rate grains driven by innovation, distribution, and the new marketing campaign. Quest has been one of the most innovative brands in the category, supported by a world-class R&D team. The multi-year pipeline is strong, and we expect innovation to be a lever of growth for a long time. March new product launches such as strawberry-frosted cookies and iced coffee are progressing nicely and are in line with our estimates. As we mentioned last quarter, I'm very excited for the upcoming Bakeshop platform, starting with high-protein muffins and brownies that launch in fall 2024. Based on conversations with retail customers, we expect very strong support for the Bakeshop launch that will also be underpinned by a comprehensive marketing plan as part of the It's Basically Cheating advertising campaign. Turning to Atkins, Q3 retail takeaway in the IRI, MULO, plus C-Store universe in the combined measured and unmeasured channels were off 9% and 5% respectively. Strong e-commerce growth continued, driven by Amazon, whose POS growth was 16%. In Q3, the competitive in-store merchandising and programming comp was more normalized versus Q2. And as you'll note in the chart on the slide, Atkins POS trends sequentially improved during the quarter. The Atkins revitalization plan is progressing as scheduled. Some elements of the plan are in the market now, and we expect all elements to be in the market in the second half of fiscal year 2025. While early, the innovation we accelerated to market is performing well, and is in line with our estimates. We're also pleased with the amount and quality of innovation we're bringing to market in the coming months, some of which you'll see in the middle of the slide. While fall shelf-set discussions continue, our fiscal 2025 innovation pipeline has helped us greatly during our discussions with retailers. Most retailers will be replacing non-performing items with these new products. As a result, we believe will maintain distribution at most brick and mortar retailers, with the exception of the club channel. Now, it's not uncommon for club customers to wait and decide on innovation after they analyze performance in other retail channels. The second major revitalization pillar is new advertising. Over the past year, the relevance and cultural conversation around weight has changed and significantly increased in volume, much of it driven by the new weight loss drugs. In response to this shift, earlier this month, we shot new advertising that will be on air in late summer. The revised advertising refocuses on weight management, more strongly communicates the benefit of the brand's unique macronutrient profile, and emphasizes Atkins as a sustainable and diet-free way to weight management. We believe this messaging links better to the evolving consumer views and conversation on weight wellness. While still early, overall we feel like we're tracking towards stabilizing the business and we're somewhat encouraged by the consumption trends that have slightly improved each month this past quarter. Given the strong execution of the revitalization plan and as we look to fiscal 2025, we're now in a position to move to the next phase of the Atkins journey. Specifically, we'll focus on Atkins ROI and optimizing our investment levels on the brand as part of ensuring Atkins is a long-term sustainable and profitable business. Historically, we've always done this evaluation. However, the COVID slowdown and the innovation outage that followed resulted in some low ROI investments to support short-term performance and preserve shelf space. As we look to fiscal 2025 and beyond, we'll work to eliminate trade and marketing investments that don't meet specific ROI hurdles. This will have a short-term impact on sales growth but it's necessary to build Atkins back to a sustainable brand for the long term. To conclude, I'm very pleased with how the team is executing. We're confident we have the right plans in place to bring Atkins back to growth. However, as we have previously stated, it will take some time to get there. Turning to Owen, the acquisition closed on June 13th. This is a strategically and financially compelling acquisition of a fast-growing on-trend protein shake in our aisle. Owen increases our exposure in the shake segment by about 400 basis points to 23% of our total sales. Importantly, Owen's growth is outpacing the category, and we expect the brand to benefit from continued distribution and velocity gains given our go-to-market scale, capabilities, and category advisor relationships with almost all top retailers. Owen reaches a new consumer segment for Simply Good. namely consumers thinking plant-based, allergy-free, simple ingredient options. However, as we have discussed, what's equally exciting is that Owen is increasingly crossing over to appeal to mainstream consumers. In this sense, Owen further strengthens our leadership position with retailers as we jointly work with them to accelerate category growth. We remain confident in our ability to effectively integrate Owen into our business and deliver on the acquisition model commitments. To align with our fiscal year end 2025, we will achieve the majority of the synergies on the onset or first day of fiscal 2026. To summarize, Simply Good Foods is uniquely positioned as the 1.4 billion net sales leader in the nutritional snacking category. with a diversified portfolio across brands and product forms. The relevance of the category and demand for our products only continues to increase as more and more consumers turn away from high-carb, high-sugar foods seeking high-protein, low-sugar, low-carb options. We believe our category and our brands represent the future of food and beverage, and we have three uniquely positioned brands that are aligned around these consumer megatrends. Consumers trust our brands to help them achieve their wellness goals. As such, we're focused on our innovation and marketing plans to provide consumers with products to help them in their journey. I'm thankful every day for our talented employees. Our team is excited and passionate about our brands and helping consumers achieve their goals. We will continue to execute our strategic priorities that should enable us to deliver on our long-term growth objectives that ultimately drive increased shareholder value. Now I'll turn the call over to Sean, who'll provide you with some greater financial details.