The Simply Good Foods Company

Ladies and gentlemen, good morning and welcome to the Simply Good Foods Company Fiscal Fourth Quarter 2024 Conference Call. At this time, all participant lines are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star and zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mark Pogarian, Vice President of Investor Relations. Please go ahead, sir.

Thank you, operator. Good morning. I'm pleased to welcome you to the Simply Good Foods Company fourth quarter earnings call. Note that fiscal Q4 and full year amounts reflect results for the 14 and 53 weeks ended August 31, 2024. Jeff Tan, President and CEO, and Sean Mara, CFO, 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 presentation slides are available under the Investor section of the 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 as 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 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 acquisition of Owen was completed on June 13, 2024. Therefore, the company's fourth quarter and full year 2024 results include about 11 weeks of Owen performance. The reference to legacy Simply Good Foods encompasses Simply Good Foods' business excluding Owens. 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'll recap Simply Good Foods' financial results and the performance of our brands. Then Sean will discuss our financial results in more detail before we wrap it up with a discussion about fiscal 2025 outlook and your questions. We're pleased with our fiscal fourth quarter financial results with net sales increasing 17.2%. The acquisition of Owen in the 53rd week are a nine and eight percentage point contributor to growth. On a like for like basis, North America Quest net sales increased about 5% and Atkins declined about 5%. Quest performance was less than expected due to temporary chip supply constraints, and Atkins was in line with our estimate. Our gross margin improvement continued in the fourth quarter and resulted in adjusted EBITDA of $77.5 million, an increase of 15% compared to the year-ago period. Total Simply Good Foods retail takeaway, including Owen, in the combined measured and unmeasured was about 8% for both the Q4 and full fiscal year 2024 periods. Quest and Owen full-year POS was about 13% and 80%, and Atkins was off 5%. Importantly, nutritional snacking category growth remained strong, driven by volume. Key subsegments of the category, including bars, shakes, and chips, all increased in both Q4 and full year fiscal 2024. We are category advisor at most retailers and will continue to work with our customers to develop and support initiatives in the aisle to further accelerate category growth. Given the twin tailwinds of snacking and health and wellness, as well as low household penetration, the category is expected to maintain its momentum and its multi-year growth trajectory. As we look to fiscal 2025, we're excited about the prospects for our category and our business, and we believe we are well positioned to deliver on our objectives. We'll execute against our strategic initiatives, focusing on innovation, marketing, and increased physical availability that we expect will drive trial and increase household penetration. The Owen acquisition closed early in Q4 and the integration work is progressing as planned. We continue to be very pleased with this brand and believe the combination of our two businesses will create future significant shareholder value through revenue growth, margin expansion and cost synergies. Sean will provide you with the details of our fiscal 2025 outlook, but assuming a comparable full year of OIN results are included in fiscal 2024, as well as the exclusion of the 53rd week in fiscal 2024. Fiscal 2025 is expected to be in line with the company's long-term algorithm. Specifically, net sales growth in the 4% to 6% range. and adjusted EBITDA growth slightly greater than the net sales increase. 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 Q4 growth in the measured channels was 7.3%, driven primarily by volume. The category continues to be a standout performer and is increasingly a focus of our retail partners as they look for growth opportunities. Quest and Owen retail takeaway in measured channels increased about 9% and 112% and outpaced the category. Atkins performance down about 8% in measured channels, was similar to last quarter. Our e-commerce business continues to do well. As a result, retail takeaway in unmeasured channels is nearly two percentage points additive to Total Simply Good Foods measured channel POS. Let me now turn to Quest. In Q4, retail takeaway growth in measured and combined measured and unmeasured channels was 9% and 10%. Consumption slowed versus Q3, primarily due to temporary chips capacity constraints that resulted in stock outs at retailers. Additionally, we saw some increased competitive distribution and promotions in the bar category. In Q4, we estimate total unmeasured channel retail takeaway increased about 16%, driven by strong e-commerce growth of 21%, that was nearly 450 basis points greater than Q3. E-commerce strength was partially offset by softness and specialty channels. Quest snacks and bars retail takeaway in the combined measured and unmeasured channels increased about 17%, and 1% respectively. Despite the CHIP supply challenges, we continue to be pleased with our salty snacks POS growth of 34%, which is a standout in the category and represents about 25% of Quest retail sales. CHIP's retail takeaway slowed during the quarter due to temporary capacity constraints that impacted our ability to keep retail shelves fully stocked. We brought on a second chips manufacturing line during the quarter, and it took some time to get up the learning curve. As we exit the first quarter in November, we anticipate supply will be back to normal, with now two chips production lines. This positions us well for the upcoming new year, new year season, and any new distribution wins. Bar segment competition increased driven by distribution of some new entrants into the measured channel universe. In response, we will increase promotional activity at select retailers starting in Q1 of fiscal 2025, and we have accelerated the launch of the Quest overload bar platform to February. These bars are loaded with inclusions and have a unique texture and mouthfeel that will bring variety news, and excitement to the bar segment. Therefore, in fiscal 2025, we expect that Quest will have another strong year driven by volume that should result in retail takeaway growth of 9% to 10%. As I mentioned earlier, Chip's recovery has already begun. With two production lines, we have the flexibility to meet increased demand for this fast-growing business In the fourth quarter of fiscal 2024, we partnered with a large club customer on a small regional trial of Quest chips. Due to the success, in the second half of fiscal 2025, we'll have a broader nationwide test with this retailer that could lead to an expanded presence. At the bottom of this slide, you'll note images of the key innovation items in fiscal year 2025 that I just discussed. Additionally, the rollout of the bake shop line began in late fiscal 2024. It is ongoing and while early, is progressing nicely and in line with our estimates. Importantly, Quest core products and innovation will be supported with a full year marketing campaign. Recall the successful, it's basically cheating, advertising debuted in mid-March and drove an almost immediate lift in consumption, particularly chips, as this is where a large portion of the advertising was focused. In fiscal 2025, we will have a full year benefit of the campaign at even higher media weights, which we expect will drive greater awareness and household penetration of all Quest products. Turning to Atkins. Q4 retail takeaway in measured and combined measured and unmeasured channels was off 8% and 5%. Strong e-commerce growth continued, driven by Amazon, whose POS growth was 15%. In Q4, Atkins retail dollar sales were relatively consistent. Specifically, during the last 11 weeks of Q4, average weekly dollars in measured channels was 10.6 million, and very similar on a week-to-week basis. This was partially due to RTD shakes, where retail takeaway improved and was about the same as the year-ago period in the combined measured and unmeasured channels. We continue to believe in the long-term vitality of the brand, given the renewed cultural relevance and conversation on weight, and we are confident we have the right plans in place to bring Atkins back to growth. I'm pleased with the execution of the Atkins Revitalization Plan that is progressing as scheduled. Some elements of the plan are in market now, and we expect all elements to be in the market as we exit fiscal year 2025. While early, the innovation rolling out in the marketplace in conjunction with the fall shelf resets, is tracking to our estimates. We have a full suite of innovation across forms, including the Atkins Strong ready-to-drink 30-gram protein shake, a new wafer bar, and Atkins and Dodge confectionary gummy bears and truffles. Our innovation enabled us to maintain distribution at key food and mass customers, However, we do anticipate that some items in the more space-constrained club channel could be at risk in the spring shelf reset. Product upgrades or reformulation work is progressing as well as new packaging. The Atkins Strong Shake packaging is an indication of what you'll see. Note the fresh new look including a bold A in the middle as our new, more modern logo. More to come here soon. As we exited fiscal 2024, new Atkins advertising was on air and the Atkins.com website was refreshed. If you haven't seen it, the revised advertising, one, more clearly communicates and owns the benefit of weight management, two, more strongly communicates the brand's unique macronutrient profile, focused on weight, and three, emphasizes Atkins as a sustainable and diet-free eating approach to weight wellness. We believe this messaging links better to the evolving consumer views and conversation on weight wellness. Notably, one of the spots specifically positioned Atkins as a diet-free and sustainable way for GLP-1 users or anyone who has lost weight to hold onto their gains. The refreshedatkins.com website has been contemporized and is user-friendly. As has always been the case, it is loaded with customizable tools to help consumers achieve their weight wellness goals. While we work on revitalizing the brand, we also recognize the need to ensure Atkins is a long-term, sustainable business. As such, beginning in fiscal 2025, we will work to optimize ROI and investment levels, specifically eliminating trade and marketing investments that don't meet specific ROI hurdles. This will impact fiscal 2025 sales growth, as we expect some volume declines due to the reduction in spending, as well as some distribution losses. We'll also discontinue our breakeven Canada export business. As such, we anticipate Atkins' full year fiscal 2025 retail takeaway to decline high single digits, half of which is due to the aforementioned planned lower spend. To conclude, we're making progress and positioning the brand to succeed in the future. However, as we have previously stated, it will take some time to get there.

Turning to Owen.

This brand continues to deliver on the potential we envisioned. Retail takeaway in the measured and unmeasured channels is strong with both distribution and velocity growth. Assuming a full year of own operations, Q4 and full fiscal year 2024 net sales and retail takeaway are relatively in line with each other. And it's not one customer or channel. Owen growth has significantly accelerated across all major retail customers. In the measured channel universe, Owen is the third largest sports nutrition multi-pack brand in the U.S. and growing the fastest in dollar sales. We remain confident in our ability to effectively integrate Owen into our business and deliver on the acquisition model commitments. In 2024, Owen benefited from increased distribution into new customers. With solid ACV in fiscal 2025, we expect POS growth of 20 to 30%, driven by higher velocities and increased items or SKUs at select retailers. As such, in fiscal 2025, we expect Owen net sales to be in the 135 to 145 million range. Also, a 20% to 30% increase versus the last year. The integration work is underway and progressing as planned. As a reminder, to align with our fiscal year end 2025, we will achieve the majority of the synergies, about 80%, at the onset or first day of fiscal 2026. This should result in Owen fiscal 2026 adjusted EBITDA margin of high to mid-tenths. To summarize, Simply Good Foods is uniquely positioned as a 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 food, 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. We will continue to execute our strategic priorities that we expect will enable us to deliver on our long-term growth objectives that ultimately drive increased shareholder value. The work we're doing in fiscal 2025 positions us well for fiscal 2026, which should enable us to achieve results at the high end of our long-term algorithm. Now, I will turn the call over to Sean who will provide you with some greater financial details.

Thank you, Jeff, and good morning, everyone. I will begin with an overview of our net sales. Total Simply Good Foods fourth quarter net sales of $375.7 million increased 17.2% versus the year-ago period. The primary drivers of growth were the Owen acquisition and the 53rd week that were about a $9.5 and 8 percentage point benefit, respectively, to net sales growth. Legacy net sales growth, excluding the extra week, increased about 1%. Full-year net sales of $1.33 billion increased 7.1% versus the year-ago period. Owen was a 2.4 percentage point contribution to net sales growth. Legacy net sales increased 4.8%, including the benefit of the 53rd week that was slightly less than a 2 percentage point benefit. As we exited fiscal 2024, retail inventory returned to normal levels, but slightly below the fiscal 2023. The reduction in retail inventory levels combined with additional incremental trade investments resulted in full-year legacy retail takeaway slightly greater than net sales. Moving on to other P&L items for the quarter, gross profit was $146 million, an increase of $25.5 million from the year-ago period, driven by lower legacy business ingredient and packaging costs, partially offset by a non-cash $3.2 million inventory purchase accounting step-up adjustment related to the Owen acquisition. As a result, gross margin was 38.8%, 120 basis point increase versus last year. The non-cash inventory purchase accounting step-up adversely affected gross margin by 90 basis points. Adjusted EBITDA was $77.5 million, an increase of $10.2 million from the year-ago period. Selling and marketing expenses increased $10 million to $40.8 million, primarily due to increased investments in marketing growth initiatives and the inclusion of OIN. GAAP G&A expenses were $41.3 million, an increase of $11.8 million versus last year. The increase was primarily due to higher employee-related costs, the inclusion of OWIN, stock-based compensation, as well as executive transition and integration costs. Excluding stock-based compensation, as well as executive transition and integration costs, Q4 G&A increased $8.7 million to $32.1 million. Additionally, in the fourth quarter of fiscal 2024, the company incurred costs related to the OIN acquisition of $11.8 million. Finally, net interest income and interest expense was $8 million, an increase of $1.6 million versus the fourth quarter of fiscal 2023. The increase versus the year-ago period is primarily driven by a higher debt balance due to the OIN acquisition. and our Q4 effective tax rate was about 28.3%, slightly higher than a year ago period due to the Owen acquisition. As a result, net income was $29.3 million versus $36.6 million last year. Moving on to full year results, gross profit was $511.6 million, an increase of $58.1 million compared to the year ago period. The increase was driven by the legacy business, due to lower ingredient and packaging costs, partially offset by a non-cash $3.2 million inventory purchase accounting step-up adjustment related to the O and acquisition. As a result, gross margin was 38.4%, a 190 basis point increase versus last year. The non-cash inventory purchase accounting step-up adversely affected gross margin by 20 basis points. We're pleased with our gross margin progress in fiscal 2024. However, in fiscal 2025, we anticipate that input cost inflation will be a headwind and result in gross margin contraction of about 200 basis points. Note, this includes Owen as about a 50 basis point headwind to total company gross margin. Adjusted EBITDA was $269.1 million, an increase of 9.6% versus last year. In addition, for the full fiscal year of 2024, the company incurred costs related to the O1 acquisition of $14.5 million. Net interest income and interest expense was $21.7 million, a decline of $7.2 million versus last year. The interest expense component decline was due to a lower term loan debt balance prior to the O1 acquisition versus the year-ago period. Our fiscal 2024 tax rate was about 25% and we anticipate fiscal 2025 to be similar. As a result, net income was $139.3 million versus $133.6 million last year. The next slide provides you with a reconciliation of reported and adjusted diluted EPS. Fourth quarter reported EPS was 29 cents per share diluted compared to 36 cents per share diluted in 2023. Adjusted diluted EPS was 50 cents per share compared to 45 cents in a year ago period. Note that we calculated adjusted diluted EPS as adjusted EBITDA, less interest income, interest expense, and income taxes. Please refer to today's press release for an explanation and reconciliation of non-GAAP financial measures. Moving to the balance sheet and cash flow. Fourth quarter and full year cash provided by Operant Activities was about $49 million and $216 million. Strong cash generation is a hallmark of the company. As a result, at August 31st, 2024, the company had cash of $132.5 million. In fiscal 2024, the company repaid $135 million of its term loan, and at the end of the year, the outstanding principal balance was $400 million, resulting in a trailing 12-month net debt to adjusted EBITDA ratio of one times. Capital expenditures in 2024 were $5.7 million. In fiscal 2025, CapEx is expected to be in the $10 to $15 million range. In fiscal 2025, we anticipate net interest expense to be around $25 to $27 million, including non-cash amortization expense related to the deferred financing fees. We currently anticipate our net debt to adjusted EBITDA ratio to be about half a term or better by year-end fiscal 2025. Now to wrap up, while early, retail takeaway is off to a good start and we believe we're on track to deliver our fiscal year 2025 plans. We continue to execute against our strategic initiatives and are making investments in the business that we expect will strengthen our brands in the marketplace. OWN integration work is well underway and progressing as planned. We expect strong Quest and OWN net sales and retail takeaway growth in fiscal 2025, driven by greater velocity, increased distribution, innovation, and marketing investments. As Jeff discussed earlier, in fiscal 2025, we're focusing on optimizing Atkins ROIs related to brand investments. This will affect Atkins' net sales and retail takeaway in fiscal 2025, but we believe this is necessary to ensure Atkins remains a sustainable and profitable business over the long term. In fiscal 2025, the company continues to expect input cost inflation. Solid productivity and cost savings initiatives are in place that partially offset these higher costs. However, Given the unprecedented increase in the cost of select inputs, we anticipate gross margin compression in fiscal 2025. Therefore, in fiscal 2025, total company reported net sales are expected to increase 8.5% to 10.5%. Embedded in that, we anticipate all in full fiscal year 2025 net sales to be in the $135 to $145 million range. Total company reported adjusted EBITDA is expected to increase 4% to 6%. Note that the 53rd week in fiscal 2024 comparison year is about a two percentage point headwind to both net sales and adjusted EBITDA growth in full year fiscal 2025. Lastly, Assuming a comparable full year of own results are included in fiscal 2024, as well as the exclusion of the 53rd week in fiscal 2024, fiscal 2025 is expected to be in line with the company's long-term algorithm. Specifically, net sales growth in the 4% to 6% range and adjusted EBITDA growth slightly greater than the net sales increase. Just as importantly, we believe the work we're doing in fiscal 2025 positions us very well for fiscal 2026, which should enable us to achieve top and bottom line results at the high end of our long-term algorithm. We appreciate everybody's interest in our company, and we're now available to take your questions.

Thank you. Ladies and gentlemen, we will now be conducting our question and answer session. If you would like to ask a question, please press star and one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Ladies and gentlemen, we will wait for a moment while we poll for questions. Our first question comes from the line of Brian Holland with DA Davidson. Please go ahead.

Yeah, thanks. Good morning. Maybe just starting with some of the recent innovation, you know, specifically looking at Bake Shop and some of the coffee drinks, we seem to be performing quite well. You've talked before about some of the struggles from an innovation standpoint and then, you know, having gone quiet for a little while. Any perspective that you can provide about the incrementality of these launches, what you're seeing so far vis-a-vis previous innovation cycles at the company?

Yeah, good morning. Let me start with innovation on Quest and specifically Bakeshop. It's a big platform launch for us. We're encouraged by the early read. If you recall, this was a muffin and a brownie. 10 grams of protein, less than one gram of sugar. Where it's in distribution, performance is on par or even better than some of our best-performing innovation. Certainly feedback from retailers is very encouraging. That platform, it hits on flavor, taste, checks all the boxes of protein, low-carb, low-sugar. It's also targeting a sizable, addressable market, which is sweet baked goods. So in the early innings, still building distribution, but very encouraging. Chips, which I'm sure we'll probably talk about on the call, as we recover supply, we continue to drive that. We've got new flavors coming out. It's about a $300 million business today, directly growing at 25% to 30%. Again, and it's a massive addressable market. where we see the largest source of volume from mainstream salty snacks. So at a high level, very encouraged by what we're seeing on Quest innovation. What Quest does is it flips the macros on large addressable snacks. And inroads we've made into salty snacks. Now with Faith, you can believe we're looking around the store, identifying other spaces where we can disrupt. And then just to close it out on Quest, We have accelerated the launch of the overload bar, which is chocked full of inclusions. It's delicious. And so we're also innovating on our core. On Atkins, innovation is a key driver of this business performance. And as I've stated on previous calls, when I joined the organization, the state of the pipeline on Atkins was not where it needed to be. It had contributed to the slowdown we've seen in the business. Credit to the team. We did jumpstart efforts there. The recent slate of innovation in the marketplace is performing well. In the case of Atkins, what we're doing is replacing underperforming SKUs, say, at Walmart or a large customer, one, one and a half units per week, and replacing it with items, these new innovation items that are doing two to two and a half. whether that be the Atkins Strong, the gummies, the truffles. Their rule of thumb doubled the velocity performance of the items that they're replacing and it just underscores how critical innovation is on Atkins. And so we have made sure that we're filling that pipeline so we can continue to bring items To market on Atkins, we're largely looking to replace underperforming items with better items, but it is now a key focus for the business.

Just kind of maybe dimension-wise a little bit, just on the Atkins piece, I'd say just an example. If you look at Walmart, I think they took out 17 SKUs for the fall reset period. They replaced them with about 18 or 19 SKUs of innovation. That innovation to dimensionalize what Jeff was saying is turning about two times a week as opposed to one time a week for the stuff they replaced. So it's been a good early, early read on innovation for Atkins.

No, great color. Appreciate that. And then just looking into new year, new you, and maybe this falls onto the innovation point. I know historically that period can be volatile in both directions. You called out earlier the 24 resolution season impacted by, you know, another category participant and, you know, who didn't have adequate supply in 23, had adequate supply in 24. As you look at the setup into 2025, any sense whether we're kind of in a more stable backdrop or if there are any heightened competitive issues or somebody out of stock, in stock, whatever. I know some of that we may not know until early 25. But as we look at fall shelf sets, do we feel like we're in a more stable place than we have been the past couple of years?

As I look at the fall shelf sets, I'm very pleased with how we performed on both businesses and Owen as well. To your point, last year, it was somewhat of an anomaly. because we were laughing, and you made this point, we were laughing a period where we had received outside support due to a large competitor being out of stock. So that was a difficult lap for us. Looking forward to this upcoming new year, I'm encouraged by the plans we have in place. We have strong merchandising plans at every customer. You know, to your point, it's a competitive category. We don't know, you know, what the competition is going to do at this point. But I'm very pleased with how our teams built the plans customer by customer, which should put us in a strong position. But again, you know, you said it. We'll know much more, you know, very much.

I'll leave it there. Thanks. Thank you.

The next question is from the line of Matt Smith with Stiefel. Please go ahead.

Hi, good morning. I wanted to dig in a little bit around the underlying growth outlook for the legacy business in fiscal 25. I think guidance implies like 3% underlying growth on a like-for-like basis. But there's a few moving parts here, including the Quest capacity improving in the first quarter. You get some new distribution in the second half of the year. And on Atkins, you have lower or you're optimizing ROI or optimizing trade spend there. So can you help with the phasing of growth for each one of those brands due to the year, given the moving parts here?

Phasing in terms of quarterly growth?

If there's any unique consideration we should take into account, you know, when we think about Atkins pulling back on trade and merchandising support, is that – changing the shape of the decline through the year that we should be considering.

Yeah, I mean, I think if you take a step back and look at the kind of quarters, just in general, I'll just kind of, you know, depending on where your guidance range is, net sales on a reported basis, reported, should be somewhat similar in Q1 to Q3, up low double digits to maybe low mid-teens. Q4 will be flattish because the year-ago period included the 53rd week and 11 weeks of Owen. And then EBITDA, depending on where you're on guidance, should be up mid to high single digits on a reported basis the first three quarters and then down slightly in Q4. From a gross margin standpoint, we're going to benefit from lower input costs earlier in the year, so close to flat in the first quarter and then down about two and a quarter basis points the rest of the way. That excludes the impact of the one-time step-up that we talked about on the call. So I don't know if that's what you're looking for, Matt.

No, that's great. I appreciate that.

The added color I would just give you is on Quest chips, which we talked about in the scripted remarks. We had been trending. I'll just give you an idea of how this should flow. We've been trending in the 4.75 to 5 million per week range in measured channels because of the dockout we ended up closer to four. And we expect to get that business back in the $5 million per week range starting the end of October. We've got a great command partner. We've got two sites operational. We've got a test with a large club customer coming up. So if you look at the consumption trends and you think how's that going to flow into the new year, you should probably look at that as adding to perhaps three points to Quest Grouts versus what you're seeing right now.

The other thing, Matt, I'll say is related to Atkins POS, I think you were kind of poking around there. I think you're going to see that a little softer in January through August where it's trending for the first six weeks of the fiscal year. We have not seen the cuts in the – underlying investments really that starts in kind of October-ish and then it kind of continues through fiscal year. So you'll see software as we go through the year versus where it is today.

Great. Thank you for all the detail. I'll pass it on.

Thanks, Matt.

Thank you. The next question is from John Anderson from William Blair. Please go ahead.

Hey, good morning, everybody. Thanks for the questions. I wanted to ask... Good morning. Good morning. I wanted to ask about the point of sale assumptions for fiscal 25 by brand. It looks like the assumptions that you communicated for both Quest and Atkins are kind of in line with recent scans, but quite a bit lower for Owen. It looks to us like Owen's been running up, you know, closer to triple digits. And I know you've kind of communicated 20 to 30%. Can you just talk a little bit about the dynamic there? for Owen in 2025? Is it more challenging comparisons or is there a certain element of conservatism baked in as it's a new brand, you know, for your business? Thanks.

Yeah, and I appreciate the question. You know, we continue to be excited about this acquisition. Expands our presence in the fast-growing shake category, fastest-growing multi-pack, protein shake and measured channels, the last 13 and 26. We purchased this business because it reaches a new consumer, those looking for plant and clean label, and clear and obvious cost synergies. To your point, if you look at current performance, it's exceptionally strong. It's up around 80% all outlets. BAMS Club is a big driver. You're seeing significant growth in every customer, so it's not just one customer. Our focus right now on this business is driving the core. So expanding the number of doors, perhaps adding a larger pack, and then integrating the business delivering on the synergies, which will hit in 26. In terms of why we have a lower growth number, in our fiscal 24, we saw significant growth in distribution as they got into new stores and channels. In fiscal 25 there's still distribution opportunities but as I said it's more around filling voids, pack sizes and we're lapping some pipes. So the recent growth is very much driven by a significant distribution push. We'll continue to look to fill voids, look to drive increased pack sizes, but it won't be at the same level that we have currently seen the benefit of.

And I think in the first half of the year, you're going to see Owen consumption trends higher than they are for the full year. We really lapped that stuff in the second half of the year.

Thanks. That's helpful. Thanks for that. Just to follow up on marketing, I know you've tweaked I think the messaging around some of the marketing campaigns for Atkins, and then you have some, I guess, in-market data on Quest, and it's basically cheating messaging. Can you talk about kind of the state of the marketing programs today and your sense of the ROI you're getting there? And then your overall level of marketing spending, are you at the right level now by brand? Thanks.

Let me start with Quest. In fiscal 2025, we will have a full year of this basically cheating campaign. I've been doing marketing for over 20 years, and it's very rare to see a campaign drive a significant short and long-term increase in sales. That's exactly what happened with the Quest campaign. where we really saw that was on chips an almost instant significant lift in consumption candidly that's what caused us to have to revisit the second site on chips and so we're excited to see a full year benefit of that and in fiscal 2025 you'll see it over an increase in 20% increase in advertising on quest and getting the quest advertising levels up you know to that eight-ish percent range, which is probably a good zip code. On Atkins, we've recently dropped new advertising into the market. It's still early, but advertising didn't really start until September. The advertising more squarely positions Atkins as a weight brand. and emphasizes our unique macro nutrient profile to support that. What I will say is in our testing, neuro testing, it was one of the top boring ads that Nielsen has seen, and particularly the spot that referenced the new weight loss drugs. So I'm encouraged and optimistic. It's a little early to tell, but I think what we're learning from this advertising is going back to the core promise of the brand, which is weight wellness, putting it in a culturally relevant context, for example, these new weight loss drugs, and being very clear that we are the solution to consumers, the 60% of consumers who want to lose weight. So now I'll close by saying one of the areas that we are throttling back on Atkins is the level of marketing, which had gotten ahead of where we wanted it to be. Most of those cuts have come in non-working, but there will be some impact, probably mid-single-digit impact to the actual media impacts.

Yeah, and just in terms of level of spend, I think if you look at 24 results, we're probably low nines as a percentage of sales. We'll probably be mid to low eights overall as a company. But as Jeff said, a big chunk of that is actually non-working media or marketing that we cut back. So I think the level of spend we think is right for the business as of right now. We'll continue to evaluate that, and we'll probably look at that further as we get into 26. I just want to go back on the Owen thing in terms of where we are for next year for growth rates. It's a 20% to 30% growth rate. Just to dimensionalize it a little bit, if we grow 20% to 30% over the next three years, we kind of double the business. So it's not like it's an insignificant growth on the overall business.

Absolutely. Thanks so much.

Thanks, Jim.

Thank you. The next question is from Alexia Howard from Bernstein. Please go ahead.

Good morning, everyone. Good morning, Alexia. So just sticking with Atkins, it sounds to me as though given the top-line headwinds that you've mentioned, the pullback in promotion, a bit of a pullback in marketing, the possibility of distribution losses, are we basically saying at this point that we shouldn't expect an inflection and back to positive sales growth organically until fiscal 26?

I think that's fair. We've made these difficult but they're the right decisions to right-size investment. The focus has been on very low ROI spend. On marketing, the predominance of the cuts have come in non-working, but there will be a small impact to media. And in more space-constrained channel like club, we certainly expect to lose a slot or two, that will have a volume impact in fiscal 2026. And that is despite the positive signals we're seeing from the revitalization plans, whether it be the new innovation that is performing well New advertising, it's early, but I'm encouraged. We've got new packaging coming. But the net effect of that, Alexia, is that we should expect, we are expecting a negative accelerated decline on Atkins. But you have to remember that most of that are choices we've made, including getting out of our breakeven Canada business. Looking forward, our thinking is just a continuous, we like to see sequential improvement, but we have to address these issues, and we've decided to do it now.

Yeah, let me just mention a little bit. I think if you look at the guidance we gave on consumption, kind of high single-digit decline on Atkins, basically we break it down. We think base velocity declines are going to improve versus Q4. Effectively, innovation is going to offset distribution losses effectively in the club channel. We're at the next phase where we assess the investment levels. We're eliminating, as Jeff said, unprofitable investments, discontinuing our breakeven business in Canada, and half of the expected decline is basically going to be decisions we make overall. I also point out that all elements of the plan are not in the market until the end of fiscal 25. So as we continue to get more innovation, like we said for Walmart as an example for this fall, we're going to replace lower-performing SKUs, which should help the business overall. So I think it sets itself up nicely for 26. But there will be some impact in 2025.

It's simple. The goal on Atkins is a relevant, modern, contemporary brand that is sustainable and profitable and one that we can bet on for the long term.

Perfect. And then as a follow-up, on Quest, are you able to quantify the potential benefits from the club customer rollout. I think you said that was probably in the second half of the fiscal year. Any views as to how much distribution you'll gain as a percentage or how many percentage points on sales that might give you on the Quest brand? Thank you, and I'll pass it on.

Yeah, it's a little reluctant to share specific gross numbers or dollar numbers by customer. You know, we've had a small... a very regional test with this customer, mostly on the West Coast, and we're very pleased with the performance. Based on that performance, we have now a nationwide test. Now, it's a significant customer, so it's not an insignificant amount, but I still view it as a test, and we still have to prove it out. But I'm sure you can appreciate if we perform in this test the upside potential to our business. starting with chips, is significant.

Great. I'll pass it on. Thank you.

Thank you, Watson.

Thank you. The next question is from the line of John Baumgartner with Missouri Securities. Please go ahead.

Hi. This is Isabella on for John. Thank you for taking our question. So in terms of the Quest Bars business, looks like the brand has recently faced some elevated competition from increased distribution and discounting from some smaller brands in the category. So from this competition, what have you learned about Quest Bars? Has it given you any reason to think maybe differently about the relative demand drivers for the brand? And what are your expectations for Quest Bars revenue in fiscal year 25? For example, is it reasonable to think like mixed single digit growth for the full year is achievable? Thank you.

As we look at Quest bars, obviously it's a significant part of the business. It is a more mature business versus, say, chips or baked goods. But if you take a step back and look at the overall protein bar category, that category has increased around 4% to 5% in Q4. Quest bars were up, not quite at that level. And recall that when we think about the bar category, we focus on protein bars, not the better-for-you bars, but high-protein bars. So the overall bar category is pretty healthy, up 4% or 5%. We're not quite keeping pace with that. As the leader in the category, that is unacceptable to me. It's unacceptable to Team Quest. In response... We have, firstly, we are accelerating the launch of the overload platforms I mentioned earlier, pulling that forward to February. This is a category that responds to new news, and this is an incredibly delicious platform, chock full of inclusions, and we'll strongly support it with its basically cheating marketing campaign. We are, and we acknowledge that we have seen competition in this space that's not new in the context of the liberal bar category, but we have seen some competitors come in, and we are going to also respond to that, as you would expect as the leader, by sharpening some price points and key channels. And I would contest also that we expect and probably are seeing some cannibalization, small amount of cannibalization as we launch bars, as we launch chips. Highly, highly incremental to the business, but likely not 100% incremental. But rest assured, bars are a big part of the Quest business. We're the market leader, and we're going to act that way. We are going to defend our house, and we're going to do what Quest does best, which is bring world-class innovation and just step up our game there.

Yeah, I think just as you think about the year, I think 25, the plan for bars right now is sort of low single digits to flattish overall for requests as we kind of get into the year. I would say this, the headwind we're going to have in the first quarter would be the spend we're having on these sharpening the price points. However, when I look at consumption quarter to date, the first six weeks of the quarter, including all out, we're up 3% in bars today. overall requests. So we're making some progress there. As Jeff said, not exactly where we want to be yet, but I feel like we're kind of bouncing back from where we were in Q4.

Great. Thank you for the color. And then for the Owen business, what are you learning about the business? Is it taking an appreciable amount of cells from the few other plant-based shakes in the category, or is it sourcing more volume from dairy protein? And how do you think about Owen's ability to bring incremental consumers to the category once you bring to market? Is there anything you can take away from the experience of other plant-based shakes brands that have already begun to scale ahead of Owen? Thank you.

Yeah, so as I said earlier, we continue to be really excited about this acquisition. It's delivering on everything we saw in the business. As we said when we announced the acquisition, Obviously, this gets us into the plant's clean label segment, which is growing about double the rate of the total shakes category, which is a very healthy category. What really excited us about this acquisition, though, was Owen is increasingly pulling in consumption from more mainstream consumers. And when we dug underneath that, we did our own research that showed that just on pure a taste study, and we did a comprehensive taste study, that Owen has separated from plant-based shakes and has gotten much closer to dairy-based shakes. And this explains why they're pulling in consumption from consumers who want to add a clean or plant-based option into the rotation. That total addressable market obviously is significant. and that we see as upside. So become the clear leader in plants and increasingly grow through attracting consumption from more mainstream consumers. So that's what we saw in our research, and we continue to see it in the results. That's why they're up 80%. What I will say is, you know, you should expect us to, right now we're focused on driving the core, but you should assume that We're going to look at the Quest playbook on this business and how can we extend Owen outside of shakes. We've started work on that. Combining our R&D organizations creates a very powerful and very, very talented team. And so you should assume that we want to continue to grow this brand beyond just core shakes. More to come. But that's our thesis, and I'd look to the Quest playbook and say, yeah, there's some high derivative on how we're going to run on.

Great. Thank you so much.

Thank you. Ladies and gentlemen, we take the last question from the line of Jim Solaria from Stephen Sink. Please go ahead.

Hey, guys. Thanks for fitting this in. Appreciate all the detail on Owen. Wanted to ask a follow-up there. Do you continue to see household adoption and higher velocities? Can you just give us a sense for what the capacity is for 2025, especially in light of some of the success you saw with the quest ships leading to capacity constraints there? Is there kind of an upper bound for Owen for what you guys can do for 2025?

Yeah, I mean, short answer is no, we don't. There are no capacity issues near-term or even medium-long-term for Owen. I will say one of the benefits of bringing them into Simply Network is we have significantly helped them expand their capacity. And in this industry, yes, capacity was constrained, but a lot of new capacities either come online or coming online. So capacity is not an issue at all.

And I'd also say as we look at it, we think there's an opportunity, and we're working on it right now as we optimize that network for RQDs for the overall business for Quest, Atkins, and Owens. I think there's an opportunity from a cost-saving standpoint. We wouldn't see that in fiscal 25, but we are looking hard at that, and that could be a meaningful synergy for us.

Great. And then one final question. Given that you guys have already levered the balance sheet back down to just one times, just any thoughts on capital allocation into FY25, given that it sounds like you guys have a a pretty detailed plan on marketing, but I would expect there's going to be some cash left over. Any thoughts on buybacks or anything there?

Let's take a step back. I think cash generation is a hallmark of the company. I think we had a fantastic year last year. Cash from operating activities, $215 million should be strong again this year. We have over $100 million in cash on the balance sheet right now. We continue to evaluate what the best way to return cash to our shareholders is. That look at that pay down, we look at share repurchases, we look at M&A. So we'll continue to evaluate that, and we'll look at opportunities to buy back shares and really finalize and continue to fine-tune our capital allocation strategy as we get into the year.

Great. Thanks, guys. Thank you.

Thank you. Ladies and gentlemen, this concludes our question and answer session. I would now hand the conference over to the management for closing comments.

Thank you so much for joining us today. I'll be available for any follow-up calls you may have, and we'll look forward to updating on our first quarter results in January.

Thank you. The conference of Simply Good Foods Company has now concluded. Thank you for your participation. You may now disconnect your line.