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. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mark Pogharian, 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. Geoff Tanner, President and CEO; and Shaun 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 of 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 OWYN was completed on June 13, 2024. Therefore, the company's fourth quarter and full year 2024 results include about 11 weeks of OWYN performance. The reference to legacy Simply Good Foods encompasses Simply Good Foods business excluding OWYN. I'll now turn the call over to Geoff 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 Shaun will discuss our financial results in more detail before we wrap it up with a discussion of our 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 OWYN in the 53rd week are a 9 and 8 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 OWYN and the combined measured and unmeasured channels, was about 8% for both the Q4 and full fiscal year 2024 periods. Quest and OWYN full-year POS was about 13% and 80% and Atkins was off 5%. Importantly, nutritional snacking category growth remained strong, driven by volume. Key sub-segments 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…

Thank you, Geoff. 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 OWYN acquisition and the 53rd week that were about a 9 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. OWYN 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 growth. 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 OWYN acquisition. As a result, gross margin was 38.8%, a 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 OWYN. 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…

Thank you. [Operator Instructions] Our first question comes from the line of Brian Holland with D.A. Davidson. Please go ahead.

Yeah, thanks. Good morning. Maybe just starting with some of the recent innovation, 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 having gone quiet for a little while. Any perspective that you can provide about the incrementality of these launches, what you are seeing so far vis-à-vis previous innovation cycles at the company?

Yeah, good morning. Let me start with innovation on Quest and specifically Bake Shop. 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, protein, low carb, low sugar. It's also targeting a sizable, addressable market, just 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 were made into salty snacks. Now with baked, you can believe we're looking around the store, identifying other spaces where we can disrupt. 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 these new innovation items that are doing, two to two and a half. So whether that be the Atkins Strong, the Gummies, the Truffles, their rule of thumb kind of doubled the velocity performance of the items that they are 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, 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, 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. They replaced them with about 18 or 19 SKUs of innovation. That innovation to dimensionalize what Geoff 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. I appreciate that. And then just looking into New Year, New You, and maybe this follows on to the innovation point. I know historically that period can be voluble in both directions. You called out earlier the ‘24-resolution season impacted by another category participant and 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 in 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 OWYN as well. To your point, last year it was somewhat of an anomaly, because we were lapping – and you made this point, we were lapping 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. To your point, it's a competitive category. We don't 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 said it, we'll know much more in February, March.

I'll leave it there. Thanks.

Thank you. The next question is from the line of Matt Smith with Stifel. Please go ahead.

Hi. Good morning.

Hi, Matt.

I wanted to dig in a little bit about, 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?

Just 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 – 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 OWYN. And then EBITDA, depending again where you are 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 are 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'd been trending in the $4.75 to $5 million per week range in measured channels. Because of the stock-outs, we ended up close to the 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 co-man 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 two, perhaps three points to Quest growth versus what you are 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 are 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 continues through fiscal year. So you'll see it softer 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 Jon Andersen from William Blair. Please go ahead.

Hey, good morning everybody. Thanks for the questions.

Good morning.

Good morning. I wanted to ask about the point-of-sale assumptions for fiscal ‘25 by brand. It looks like the assumption that you communicated for both Quest and Atkins are kind of in line with recent scans, but quite a bit lower for OWYN. It looks to us like OWYN's been running up 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 OWYN in 2025? Is it more challenging comparisons, or is there a certain element of conservatism baked in as it's a new brand for your business? Thanks.

Yea, no I appreciate the questions. We continue to be excited about this acquisition. It spans our presence in the fast-growing shake category. Its fastest-growing multipack protein shake in measured channels, the last 13 and 26. We purchased this business because it reaches a new consumer, those looking for plant and clean labels, and clear and obvious cost synergies. To your point, if you look at current performance, it's exceptionally strong. It's up around 80% full outlet. Sam's Club is a big driver. You are 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 lacking some pipe. 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.

I think in the first half of the year you are going to see OWYN 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 a follow-up on marketing. I know you've tweaked, I think the messaging around some of the marketing campaigns for Atkins. Then you have some, I guess, in-market data on Quest. It's basically cheating messaging. Can you talk about the kind of the state of the marketing programs today and your sense of the ROI you are getting there, and then your overall level of marketing spending? Are you at the right level now, by brand? Thanks.

Yeah, let me start with Quest. In fiscal 2025, we will have a full year of, its basically cheating campaigns. I've been doing marketing for 20, 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. And 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 there. And in fiscal 2025, you'll see over an increase, a 20% increase in advertising on Quest and getting the Quest advertising levels up to that 8%-ish range, which probably is 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, euro 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 has 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 impact.

Yeah, and just in terms of level of spend, I think if you look at ‘24 results, we're probably no low nines as a percentage of sales. We'll probably be mid to low eights overall as a company. But as Geoff said, a big chunk of that is actually non-working media that we – our 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 OWYN 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've kind of doubled the business. So it's not like it's an insignificant growth on the overall business.

Absolutely. Thanks so much.

Thanks Jon.

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, we shouldn't expect an inflection and back to positive sales growth organically until fiscal ‘26?

I mean, I think that's fair. So we've made these difficult, but they are the right decisions to right size investments. The focus has been on very low ROI spend on marketing. The predominant of the cuts have come in non-working, but there will be a small impact to media, and in more space constrained channel like clubs, 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 sequence – we'd like to see sequential improvement, but we have to address these issues and we've decided to do it now.

Yeah, I could just, I guess I mentioned 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 Geoff 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’ll 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 ‘25.

Yeah, simple, the goal on Atkins is a relevant, modern, contemporary brand that is sustainable and profitable and one that we can bid 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 growth numbers or dollar numbers by customer. We've had a small, very regional test with this customer, mostly on the West Coast, and we're very pleased with the performance based on that performance. We had now a nationwide test. Now that's a significant customer, but 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.

Thanks Alexia.

Thank you. The next question is from the line of John Baumgartner with Mizuho 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, it 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 Bar’s 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.

You know, 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 look, 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're focused on protein bars, not the better-for-you bars, but high-protein bars. So the overall 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 the 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 will strongly support it with the it's basically cheating marketing campaign. We are and we did acknowledge that we have seen competition in this space that's not new in the context of the level of our 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 a 100% incremental. But rest assured, by the 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 are 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 Quest 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, if I look at consumption quarter-to-date, the first six weeks of the quarter, including all out that we're up 3% in bars overall for Quest, so we're making some progress there. As Geoff said, not exactly where we want to be yet, but I feel like we're kind of bouncing back from where we're in Q4.

Great. Thank you for the color, and then for the OWYN business, what are you learning about the business? Is it taking an appreciable amount of sales 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 OWYN’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 OWYN? 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 plants 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 OWYN is increasingly pulling in consumption from more mainstream consumers. And when we dug underneath that, we did our own research that showed that on this, on pure taste study, and we did a comprehensive taste study, that OWYN has separated from plant-based shakes and it's gotten much closer to dairy-based shakes. And this explains why they are pulling in consumption from consumers who want to add a cleaner 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 plant and increasingly grow through attracting consumption from more mainstream consumers. But that's what we saw in our research, and we continue to see it in the results. That's why they are up to 80%. What I will say is, 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 OWYN 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, it'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 Salera from Stephens Inc. Please go ahead.

Hey guys. Thanks for a fitting us in. I appreciate all the detail on OWYN. I wanted to ask a follow-up there. If 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 chips leading to capacity constraints there's. Is there kind of an upper bound for OWYN, for what you guys can do for 2025?

Yeah, I mean the short answer is, no, we don't. There are no capacity issues, near term or even medium, long term for OWYN. 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.

Yeah, 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 RTDs for the overall business for Quest, Atkins and OWYN. 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 1x, just any thoughts on capital allocations into FY’25, given that it sounds like you guys have a pretty detailed plan on marketing, but I would expect there's going to be some cash left over, so any thoughts on buybacks or anything there?

Yeah, I mean, let's take a step back. I think cash generation's a hallmark of the company. I mean, 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. So we continue to evaluate what the best way to return cash to our shareholders is. We look at debt pay down, we look at share repurchases, 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. I’ll hop back in queue.

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.

Great. 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 lines.