The Simply Good Foods Company

Greetings and welcome to the Simply Good Foods Company Fiscal First Quarter 2025 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 Pagarian, Vice President of Investor 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 first quarter fiscal year 2025 earnings call. Jeff Tanner, 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 accompanying presentation are available under 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 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 Only What You Need, or OWIN, was completed on June 13, 2024. Therefore, the company's year-ago performance for the 13 weeks ended November 25, 2023, does not include results from the Owen business. The reference to organic or legacy Simply Good Foods refers to Simply Good Foods' business excluding Owen. I'll now turn the call over to Jeff Tanner, President and CEO. Thank you, Mark.

Good morning, and 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 year 2025 outlook and your questions. We're pleased with our fiscal first quarter retail takeaway of about 8%. Quest growth was strong despite some chip stock outs early in the quarter and O and momentum continued. This was partially offset by expected Atkins declines although Atkins' performance was slightly better than our estimate. Net sales increased 10.6%, driven by the Owen acquisition. Legacy net sales were affected by the timing of shipment. As Sean will discuss shortly, we anticipate that legacy shipments and consumption should be more in line by the end of Q2. First quarter gross margin was 38.2%, and greater than our forecast. The gross profit growth, as well as the inclusion of Owen, resulted in adjusted EBITDA growth of 13.1%. Sean will provide you with more details related to our financial performance in a bit. Nutritional snacking category momentum continued in the quarter, with growth of about 12% that was largely driven by volume. All major sub-segments of the category, bars, shakes and chips, increased in Q1. The growth of the category shows the increasing relevance and mainstreaming of nutritional snacking products as consumers seek high-protein, low-sugar, low-carb food and beverage options. With three uniquely positioned brands aligned against these consumer megatrends and world-class innovation and sales capabilities, we believe Simply Good Foods is well-positioned to drive sustained growth and increase shareholder value. We're excited about the prospects for the category in our business, and we are on track to deliver on our objectives. As a result, we reaffirm the fiscal year 2025 outlook discussed last quarter. Moreover, assuming a comparable full year of O&N results are included in fiscal 2024, as well as the exclusion of the 53rd week in fiscal 2024, fiscal year 2025 is expected to be in line with the company's long-term algorithms. specifically net sales growth in the 4% to 6% range and adjusted EBITDA growth slightly greater than the net sales increase. Let me now turn to Quest. The increased relevance and mainstreaming of consumers seeking high-protein, low-sugar, low-carb foods is a driver of Quest's growth. The brand is one of the pioneers of the mainstreaming of this category and has a broad range of products with this nutritional profile. Quest Salty Snacks is a great example, as we essentially created a $300 million retail sales business in a short amount of time since the acquisition. Given the size of the total Salty Snacks addressable market, we believe we are still in the early innings of growth for this platform. In addition to our portfolio today, our world-class R&D team has an impressive pipeline of new products that represent a sustained source of growth for years to come. Unlike many large-cap food companies, our outsourced co-manufacturing business model provides us with the flexibility to quickly follow the consumer and an efficient way to create new avenues for growth, rather than be constrained by what a specific company-owned asset can produce. In Q1, Quest's retail takeaway growth was 10% and was solid across all major channels and customers. While early, we're pleased with our recent innovation that is performing in line with our estimates. This includes new products such as strawberry frosted cookie and baked shop muffins and brownies. In Q1, Quest's total unmeasured channel retail takeaway increased mid-teens, driven by strong e-commerce growth of about 18%. 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 19% and 1% respectively. We continue to be pleased with our salty snacks POS performance, where Q1 growth was 26%. However, as we noted on the last call, coming into the quarter, we were supply constrained and were starting up a second production line. As we exited Q1 with the second line up and running, we are no longer capacity constrained, And as we enter the new year, new year season, retail inventory is back at optimal level. As evidence, retail takeaway for Quest Chips in November and December was about 35%, the strongest growth rates we've achieved since June. We now have the capability to fully support merchandising and programming, as well as increased distribution. Quest bar growth of about 1% was relatively in line with expectations. The brand responded well to targeted marketplace investments in the C-Store channel, the retail takeaway improved to nearly 4%. Despite this, our bar growth is not what we expect from the leading protein bar brand, which is why we are accelerating an exciting new overload bar platform Over the remainder of the year, we expect Quest momentum will continue and anticipate fiscal year 2025 retail takeaway growth of 9% to 10%. Key drivers of growth include continued chips momentum and a calendar Q1 nationwide trial at a large new club customer will assess results upon completion of the test that could potentially lead to an expanded presence. Performance of our new bake shop item that is proving to be highly incremental to both the brands and the category. The February launch of the Quest overload bar platform. These bars are loaded with inclusion and have a unique texture and mouthfeel that will bring variety and excitement to the bar segment. And finally, a full year of the successful It's Basically Cheating advertising campaign. GRPs will increase meaningfully in fiscal 2025 particularly in Q2, supporting the new year, new you season, and should drive greater brand awareness and trial. Recall, the campaign debuted in mid-March of 2024 and helped drive an almost immediate lift in consumption.