Greetings, and welcome to the Simply Good Foods Company Fiscal First Quarter 2024 Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mark Pogharian, Vice President of Investor Relations. Thank you, Mr. Pogharian. 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 first quarter ended November 25, 2023. 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 07:00 A.M. Eastern Time. A copy of the release and the 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. We have included a detailed reconciliation from GAAP to adjusted items in today's press release. We believe these adjusted measures are a key indicator of the underlying performance of the business. The presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Please refer to today's press release for reconciliation of the non-GAAP financial measures to the most comparable measures prepared in accordance with GAAP. I'll now turn the call over to Geoff Tanner, our 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 2024 outlook and we take your questions. We're pleased with our fiscal first quarter results that were in line with estimates. Retail takeaway in the combined measured and unmeasured channels was slightly more than 8% and, as expected, outpaced net sales growth primarily due to the timing of shipments versus the year-ago period. We anticipate that shipments and consumption should be largely in line by the end of Q2. Net sales increased 2.6% to $308.7 million, driven by continued Quest momentum. First quarter gross margin was 37.3% and in line with our forecast. The 40 basis point increase versus the year ago period was primarily due to lower ingredient and packaging costs. Adjusted EBITDA in the first quarter was $62 million, an increase of 2% versus last year. Higher gross profit was partially offset by higher SG&A versus a year ago period, reflecting investments in marketing growth initiatives and G&A capabilities. Cash flow generation continues to be strong and provides us with financial flexibility to invest in organic growth, pursue value-enhancing acquisitions, pay down debt, or opportunistically buy back our shares. Our Q1 results are a positive start to the year, and while early, Q2 is off to a good start. Additionally, we have strong marketing and promotional plans in place for the New Year season, which started this week and will run through the second quarter of fiscal 2024. We're pleased with the progress we've made on the acceleration plan for Quest and the revitalization plan for Atkins. As such, we reaffirm our full-year fiscal 2024 outlook. The next slide provides you with a perspective of our retail takeaway performance within the IRI MULO + C-store universe and in the combined measured and unmeasured channels. The nutritional snacking category growth in the measured channel universe was 12%, driven primarily by volume growth. The category continues to be a standout performer within brick-and-mortar and e-commerce and as a result is increasingly a focus of our retail partners as they look for growth opportunities. We have category advisors at most major retailers, and we're working closely with them on how to further capitalize on the growth potential of this category. Simply Good Foods retail takeaway in the measured channel increased 7.1% driven by Quest volume growth of 20%. Atkins performance was similar to last quarter. And our e-commerce business continues to do well and resulted in total company combined measured and unmeasured channel POS growth slightly better than 8%. Now let me turn to Quest Q1 retail takeaway, where combined measured channel growth was 20%. Growth was driven by solid performance across all major forms and retail channels, driven by an increase in both household penetration and buy rates. Our retail customers view Quest as the pioneer of the category, and they're excited about our near and long-term innovation pipeline and growth initiatives that we have in place. A major focus for us is working with those retail partners to find additional space and merchandising opportunities for the brands. In Q1, we estimate total unmeasured channel retail takeaway increased about 14% as e-commerce strength was partially offset by softness in specialty channels. There is no denying Quest momentum. With nearly $700 million in net sales in fiscal 2023, we have essentially doubled the business since we acquired it in November 2019. Quest retail sales in US measured and unmeasured channel this past year was $945 million. So we clearly expect it will be a $1 billion retail sales brand in fiscal 2024, with a footprint across multiple forms. It's no small feat for a brand that's barely a dozen years old. In Q1, Quest bar business retail takeaway increased 16%. The snackier portion of Quest products continued to do well, with Q1 measured channel retail takeaway up 24%. But I'm particularly pleased with our salty snacks performance that we believe has a long runway for growth. The Quest Snacks segment now represents nearly 45% of total Quest measured channel retail sales and is roughly equal to Quest bars in household penetration. We expect that Quest will have a strong year behind innovation, distribution gains, and a new marketing campaign. I'm particularly excited to announce that we will debut a new advertising campaign in February that will be supported by a reach-based media model. Despite the size of the business, the brand awareness of Quest is significantly below that of several competitors, and this campaign has the potential to further accelerate growth. Turning to Atkins. Q1 retail takeaway in the IRI MULO + C-store universe and the combined measured and unmeasured channel, as expected, was similar to last quarter, up about 6% and 4%, respectively. As has been the case for a while, Atkins heavy users migrate to e-commerce, where we continue to see good growth. Specifically, Atkins Amazon POS increased 12%. As a result, e-commerce was additive to Atkins' measured channel POS. For perspective, in Q1, e-commerce was about 15% of total Atkins retail sales. In Q1, Atkins' retail takeaway trend stabilized from when we entered the quarter. October marketplace performance was somewhat better than September and November. Note, that given the consumption seasonality in November and December, we were not on air with advertising and we had minimal in-store merchandising. Now that the calendar has turned to January, we will heavy up on advertising and merchandising for the new year New Year season. We continue to have tremendous faith in the long-term potential of the brand, and in support, we're making good progress against the five-point Atkins revitalization plan we talked about on our last conference call. However, as you may recall, it's going to take some time before all of the elements of the plan are collectively in the marketplace. As a reminder, the Atkins five-point revitalization plan includes enhanced merchandising and assortment of select customers, new advertising supported with a reach-based media model, greater focus on a near and longer-term robust innovation funnel, product upgrades on our bar portfolio and new packaging, and multiple work streams targeting GLP-1 weight loss drug users. Getting Atkins back to green is our focus, and we believe we have the plans in place to improve marketplace performance over the remainder of the year. In summary, we're pleased with our start to the year, particularly our first quarter marketplace results. The Simply Good Foods Company competes in an attractive category and is uniquely positioned as the US leader in the nutritional snacking category with two scaled lifestyle nutritional snacking brands that are well developed across multiple forms of snacking occasions. Nutritional snacking category continues to be resilient with top-tier volume growth propelled by the consumer mega trends of healthy snacking with a nutritional profile that is protein-rich, low in carbs, and low in sugar. This profile has broad appeal to consumers across all generations, but particularly with Gen X, Gen Z, and millennial consumers that look to our brands as a means of helping them achieve their goals. Given the future growth runway of the nutritional snacking category, we continue to work closely with our retail partners on how to optimize the category today and where to source additional space from in the store to support new and emerging formats. We're executing against our priorities and we remain committed to delivering against our commitments while making the necessary investments in our business that should result in sustained long-term growth. Now, I'll turn the call over to Shaun who will provide you with some great financial details.

Thank you, Geoff. Good morning, everyone. I will begin with an overview of our net sales. Total Simply Good Foods first quarter net sales of $308.7 million increased $7.8 million or 2.6% versus the year-ago period. With our July 2022 price increase behind us, the Q1 net sales increase is driven by volume growth. North America and international net sales increased 2.6% and 0.7%, respectively, versus last year. As Geoff stated earlier, as expected, retail takeaway of 8% outpaced North America sales growth, primarily due to the timing of shipments. As such, we would expect Q2 net sales growth to be slightly greater than consumption, with shipments and consumption relatively aligned at the end of the first half of fiscal 2024. Moving on to other P&L items for the quarter, gross profit was $115.1 million, an increase of $4.1 million from the year-ago period, resulting in a gross margin of 37.3%. The 40 basis point increase versus the year-ago period was primarily due to lower ingredient and packaging costs. Adjusted EBITDA was $62 million, an increase of $1.2 million from the year-ago period. Selling and marketing expenses were $32 million versus $28.5 million, an increase of 12.1% largely due to higher advertising costs and investments in growth initiatives. GAAP G&A expenses were $27 million, an increase of $1.3 million versus last year, primarily due to higher employee stock-based compensation. Excluding this, as well as executive transition costs, G&A increased to $0.3 million to $22.7 million. Finally, net interest income and interest expense was $4.9 million, a decline of $2.1 million versus Q1 last year. The decline was due to lower debt balances versus the year-ago period. As expected, our Q1 tax rate was about 25% versus 21.3% last year. We continue to anticipate the full year of 2024 tax rate to be about 25%. As a result, net income was $35.6 million versus $35.9 million last year. The next slide provides you with a reconciliation of reported and adjusted diluted EPS. First quarter reported EPS was $0.35 per share diluted compared to $0.36 per share diluted for the comparable period of 2023. Adjusted diluted EPS was $0.43 compared to $0.42 in the year-ago period. Note, that we calculate 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, as of November 25, 2023, the company had cash of $121.4 million. Cash flow from operations in Q1 was about $47.5 million compared to $8.7 million last year, principally due to improvement in working capital. During the quarter, the company repaid $10 million of its term loan debt. At the end of the first quarter, the outstanding principal balance was $275 million. However, subsequent to the close of the quarter, the company repaid an additional $25 million of its term loan debt, bringing the outstanding principal balance to $250 million. Capital expenditures in Q1 was $0.7 million. In fiscal 2024, we continue to expect CapEx to be in the $8 million to $10 million range. In fiscal 2024, we anticipate net interest expense to be about $17 million to $19 million, including non-cash amortization expense related to deferred financing fees. Now to wrap up, as Geoff stated earlier, we are on plan across all key metrics in Q1 and therefore we reaffirmed the full-year outlook we discussed last quarter. We continue to expect that ingredient and packaging costs will be lower in fiscal 2024 compared to last year and drive solid gross margin expansion. This provides us with the flexibility to invest in marketing initiatives that will drive near and long-term growth and organizational capabilities. Therefore, for the full year of fiscal 2024, we anticipate net sales growth driven by volume to be at the high end of the company's long-term algorithm of 4% to 6%, including the benefit of the 53rd week. Adjusted EBITDA is anticipated to increase slightly greater than the net sales growth rate, and adjusted diluted EPS will increase greater than the adjusted EBITDA growth rate. We appreciate everybody's interest in our company, and we're now available to take your questions.

Thank you. We will now be conducting a question-and-answer session. Our first question comes from Matt Smith from Stifel. Please proceed.

Hi, good morning and thank you for taking my question.

Good morning, Matt.

The 12% growth in the active or convenient nutrition category, which has been supported primarily by volume growth, that's a stark contrast to the standard store where volumes and consumptions remain pressured. From a high level, could you talk about the trend supporting the strong consumption growth in the category? Are we seeing a period of accelerated household penetration growth or is the buy rate increasing at a greater rate than it has historically as the category remains relevant with consumers? Could you just help us understand what's driving the strong category relative to the rest of the store?

Yes, good morning, Matt. I appreciate the question. Yes, no, you're right. The nutritional snacking category has grown recently and consistently at low double digits versus standard store, which is closer to 1% to 2%. And as you noted in your question, most of that growth is now volume. And it is a significant difference, which I think is due to several factors. The category is certainly benefiting from health and wellness and convenience snacking trends. But in addition, the high protein, low carb, low sugar macros of the category are increasingly emerging as the nutrients of choice, particularly for younger millennial and Gen Z consumers, perhaps in contrast to high carb, high sugar products. So those are two macro drivers of the category. I think what's interesting is, despite the strength we're seeing in the category versus standard store, I still think we're in the early innings and that this momentum has a lot of continued runway. Just a few thoughts on that. Household penetration is only at 50% versus high 80s, low 90s for standard store. While the nutritional snacking category largely grew up on bars and shakes, as we bring new formats to market, for example, our salty platform on Quest, it's increasingly driving buy rate as well as penetration. Retailers, and I've met with all of them, are certainly seeing the growth. They're looking to us as category advisors to the majority of those accounts and asking how we can capitalize. Where can we find more space? Lastly, while we are in the early innings, we are on the right side of the GLP-1 drives, which are in the early stages, but I think that's a future tailwind as well. So there's certainly a difference we're seeing today. You're seeing it in the numbers, but I think the category, nutritional snacking category has a long runway of growth in front of it and we're working as a company and in partnership with our retailers on how we can accelerate that to take further advantage.

Thanks, Goeff. I'll pass it on.

Thank you.

Thanks, Matt.

Our next question comes from Pamela Kaufman from Morgan Stanley. Please proceed.

Hi. Good morning. Happy New Year.

Happy New Year to you.

Thanks. You are now a quarter into the Atkins revitalization plan that you announced at Q4 results. Can you talk about what actions you've taken so far and remind us how you're thinking about the trajectory of Atkins improvement and milestones to gauge the improvement?

Yes, that's a great question, Pam. As we discussed last quarter, we’re not satisfied with the current performance of Atkins, especially considering the long-term potential we see for the brands. I mentioned this previously as well. Eighty percent of consumers are aiming to lose or maintain weight. The brand is highly trusted, the nutritional macros are effective, and the products taste great. We have implemented our five-point revitalization plan, which I detailed in our scripted remarks. I'm pleased with the progress the team is making. As discussed last quarter, we have set a 12 to 18-month timeframe for when all these elements will be on the market. Some aspects, like the packaging refresh, take a bit longer, but some elements are already available. For instance, the new configuration in the club store is showing a significant improvement in that channel. The new advertising launched in October. As we mentioned, we usually reduce our advertising efforts in November and December, but we are happy with how that advertising tested, and we plan to increase it as we head into January, February, and March. We’re also excited about new innovations like the bake bars and break bars. Some elements are already on the market, and I’m satisfied with our execution. The most important time for us to assess our performance will be January, February, and March when we will have more consistent advertising and merchandising. This is a key seasonal period for us. I want to emphasize that we are looking at a 12 to 18-month timeline for the revitalization of this brand because that is how long it will take for all elements to be fully implemented.

Great, thank you. And just wanted to ask about your capital allocation priorities. It seems you've paid down debt recently. Your balance sheet is in strong shape. So how do you think about the capital allocation options that you have in M&A versus buybacks and more debt pay down?

Yes, Pam. I think, overall, we spend a fair amount of time evaluating the best return of our cash to our shareholders. That includes, obviously, as you said, debt pay down, share repurchases, M&A, and even potentially a dividend. We had a very strong cash flow from operations this quarter. We had over $100 million in cash on our books. We evaluate opportunities to buy back shares pretty consistently as well as looking at other ways of spending them overall. But I think, if we take a step back, we're going to evaluate these opportunities as they come up. I wouldn't say that right now we've determined the best use of cash in Q1 was the debt pay down, and we'll continue to evaluate that on a quarterly basis. We are fortunate to be in a position where we have a lot of cash from operating activities that allows us to quickly pay down debt, as well as provide other opportunities for our shareholders.

Thank you, I'll pass it on.

Our next question comes from Steve Powers from Deutsche Bank. Please proceed.

Hey guys. Good morning. Thank you.

Good morning, Steve.

Good morning, Steve.

So two questions, if I could. The first one is just a little more tactical on the guidance. I think the 8% plus consumption that we saw in the first quarter was a bit better than going in expectations. The full-year guidance implies you still expect roundabout mid-single-digit consumption on the year. I'm just trying to think about how the phasing in your mind is going to work and kind of specific to 2Q and just because if you're going to catch up to consumption, just trying to figure out what you're trying to imply for shipments in the second quarter, if I could? And then broader, Goeff, you talked about the category advisory conversations that you've been having with the retailers. I guess I'd love a little bit of elaboration on that and kind of what are the points of emphasis that you're bringing to those conversations and trying to impart to retailers so that they can pay good on further category success.

Yes, thanks, Steve. Maybe I'll start on the guidance question, turn it over to Shaun, and then I'll come back on the category advisor question. As we noted, Q1 consumption was a little better than we expected, but as we said also, we're comfortable when we reaffirmed our guidance. As you know, the seasonality of this category, January, February, and March, is a critical period for us. And that's going to give us a much clearer picture on how Quest and Atkins will perform for the year. We're very pleased with our Quest retail takeaway, plus 19 in Q1. We're in the early innings of the Atkins revitalization plan. If we get another quarter, we'll have a much better view of the year, and then we'll think through longer term how to strategize accordingly. But I'll turn it over to Shaun for any added color there.

Yes, just reiterating a little bit, I guess, overall. I mean, Q2 was better than we expected a little bit. Q1, I'm sorry, Q1, excuse me. I hope Q2 is better than expected. We're comfortable with our guidance overall. Let's see how we execute in the next quarter or so and that may impact our view on the year. But consumption in Q1 was encouraging as we look at what the results were. As we've talked about, we were on plan through Q1, and we have plans in place for Q2. We need to see how things turn out in the marketplace in Q2 and then we'll kind of reassess where we are as we get to the Q2 call.

I'll come back on the category advisor question. It's a good one. I've certainly been on the road a lot over the last three months having these conversations with retailers. As Matt noted in his question, the nutritional snacking category is now consistently showing growth versus standard store. Retailers are seeing that discrepancy and they're looking for growth. They're coming to us and saying, how much additional opportunity can we get after? What do we have to put in place to take further advantage of what seems to be a long-term trend, particularly around nutrients as more consumers switch to a protein-forward diet? We are investing a considerable amount in understanding the category, projecting where it is going over the next several years. We are building plans with them on how to further capitalize on that growth. Those plans will include a mix of where do we find more space, whether that be from close adjacencies or further out, how do we take advantage of the omni-channel, because this category does lend itself to heavy online purchases? How do we drive more traffic down the aisle? How do we use our combined marketing capabilities? They see the growth and they're looking to us to build it together. I'm excited to see where this goes, as I believe this is one of our pillars for sustained long-term growth, which is the continued growth of the category.

That's great. Thanks so much. Thanks to you both.

Thanks.

Thank you.

Our next question comes from Alexia Howard from Bernstein. Please proceed.

Good morning, everyone.

Good morning.

Good morning.

Hi there. Can you elaborate on how the improvement in gross margin this quarter will provide an opportunity to invest in organizational capabilities? I would appreciate some details on what you aim to achieve in that area. Thank you.

Yes, I'll take that. So we're fortunate to have some flexibility. As I mentioned in the scripted remarks, our focus is on delivering consistent growth quarter-to-quarter, but year-to-year. One of the biggest areas we have invested, back to Steve's question, is enhancing our category management capabilities. That includes research, bringing on additional talent, and bolstering our capability to develop long-term plans with retailers. Our industry is good at developing one-year joint business plans, but it's a different muscle to build two to three to four-year plans at the category level. That's been an investment we've made. As you saw in the financials, we've increased our marketing investment to just over 9%. We've also invested in bolstering our long-term innovation capabilities. I was disappointed with the lack of innovation on Atkins, and we want to ensure that doesn't happen again. So those are probably the three biggest areas: enhanced category management, additional marketing, and innovation. We're very pleased with the progress we're making there.

Just one more thing to throw out there. Capability-wise, we've also kind of made some assessments as we get into this year and talk about the plans we have going forward and the pillars that Geoff talked about, making sure we have the right longer-term capabilities to support that type of work and growth. We've looked internally and added some capabilities to support that. We've been very thoughtful about where that favorability in gross margin gets reinvested, ensuring it provides us with longer-term growth as well as hitting our short-term goals.

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

Thanks.

Our next question comes from Brian Holland from D.A. Davidson. Please proceed.

Yes, thanks. Good morning. I wanted to maybe just dive into a little bit from, I guess it sounds like first quarter consumption trends were better than expected. It sounds like that was maybe more specific to Atkins, so maybe being less negative than the expectations going in. You can correct me if I'm wrong on any of that. But just wanted to focus in on that and understand exactly what you're seeing there. Obviously, it's a seasonally lighter quarter, but you did run some fresh advertising as you said at the beginning of the quarter. So excuse me, I'm just curious about what you're seeing with respect to whether you're finding a new buyer. I know that some of the messaging around the advertising campaign was to try to address some misconceptions about the brand. So I'm just curious if you're seeing any early results from that and where exactly the better than expected consumption is coming from?

Yes, the consumption was slightly better than we had forecasted. Actually, it was across both Atkins and Quest. I'll start with Atkins. As we said in the scripted remarks, October was a pretty good month for us versus the previous month as we came into the quarter. But it's only five weeks, and we don't want to overreact to five weeks of advertising. We have to throttle back in November and December given the seasonality. We were encouraged with what we saw in October when we had several of these revitalization plan elements in market, particularly the advertising. But in addition, Quest came in stronger than we had forecasted as well. What's interesting about Quest is, if you go back two or three years, the majority of growth on Quest was coming from penetration, which was distribution-driven. Now you look at the drivers of growth, and it's roughly a 50-50 balance across penetration and buy rate. Consumers are coming in to buy chips, and they're buying bars and vice versa. We've just seen a more balanced growth profile on Quest that I think is carrying the momentum through. Despite the size of the business, it will be a $1 billion retail brand this year. Brand awareness is still relatively low compared to a lot of key competitors, and we're excited to debut new advertising in February on Quest. So yes, the consumption was a little better than we thought, across both brands. The critical period for us is again January, February, and March.

Yes, appreciate the color Goeff. And fully recognizing we're just a few days into the new year, new you, I'll ask anyway, just curious about anything you are seeing either from the competitive landscape, i.e., innovation, promotion, etc., or consumer engagement with the category, again, admittedly, only a few days into the new year, but obviously, given its significance, I trust you're watching that closely.

Yes, we're blowing it away. I'm just kidding. I think right now, we are set up as we get into the new year to engage with our retailers. Everything is in storage; you see the displays, you see a lot of activity ready to go in all of our key retailers. There's some advertising that started for Atkins on January 1st, and you'll see that continuing through the month. We've got significant investment in both consumer communication for both brands in Q2, as well as the merchandising and promotional activity that's out there. As you said, I mean, it's still early. We haven't even received early results. So I can't really comment on progress, but we feel confident in our plans.

It is obviously early, but we feel very confident in the consumer and retail plans we have as we enter this critical period.

Thanks, Shaun. Thanks, Goeff. Best of luck.

Thanks.

Our next question comes from Jim Salera from Stephens Inc. Please proceed.

Thanks for taking our question. We've already discussed some of the trends with Quest in the category, but I was wondering if you could give us a sense of how much of the broader category growth is being driven by the expansion of products and the appeal that that brings to expand buy rates versus consumers that are increasingly health conscious kind of engaging with these protein-dense low-calorie snacks?

Yes, it's a good question. I don't have that information at a category level. As we look at our brands, we see a balance across both household penetration and buy rate. This category largely grew up as bars and shakes. Over time, it has expanded well beyond that, including new formats, new usage occasions, and different day parts. So that's a big driver of buy rate. We continue to see consumers increase household penetration as well. I think the opportunity for us is to continue to drive both as category leaders. That's the job of advertising and to continue to drive buy rate, which is the job of innovation. The biggest driver here underlying all of this is protein has really emerged as the nutrient of choice, particularly for younger consumers. They are looking to take out sugar and carbs from their diets. As these nutrients become broadly adopted, you're seeing more and more consumers look for our products. We still believe the category has tremendous runways, both on buy rate and penetration.

Yes, building off that a little bit, I think Goeff mentioned bringing consumers in through advertising, getting the innovation in, but then also working with the retailers to continue to expand their shelf space. Quest has actually expanded into other formats very successfully. We see expansion opportunities in other categories as well.

When Quest was acquired, the business was by far a majority bar business. Now bars represent just about 50% of sales. So that shows you the expansion opportunities, and it shows you the potential there.

Great, I appreciate the color. And if I could sneak in maybe one follow up to that. Do you have a sense of consumers that are actively using the GLP-1 drugs, that they gravitate more towards Atkins versus Quest?

Not between brands. We do know from our own research that when consumers are on the drugs, their appetite is suppressed, but they are looking for smaller, more convenient, healthier, high protein, low sugar options. That's where our category majors. In talking to consumers on the drugs, we see increased interest in products from Atkins and Quest. Our category is on the right side of these drugs. We have been able to identify these consumers on Atkins, send them targeted communication, and invest in research to better understand it. We think both brands have a strong role to play here.

Great. Appreciate the color, guys. I'll hop back in the queue.

Thank you.

Our next question comes from Kamil Sarawalla from Jeffreys. Please proceed.

Hey guys, good morning. If I could follow up on your last response on GLP-1, is M&A part of the strategy on trying to leverage the opportunity that's in front of you as it relates to GLP-1?

Not explicitly. Would it be something we would look at if a right asset came along? Yes, but I think we're very much in the early innings on GLP-1. We've got a lot to learn. I don't think it would be a front-and-center M&A driver, but it would be a factor we would generally consider as we look at any asset.

Got it. And then how about M&A in general? You mentioned a few times the potential for value-enhancing acquisitions. What does the M&A environment look like? Have multiples come down? There's obviously debates about asset prices and interest rates. How do you see the environment at the moment?

Yes, take a step back. We love the cash flow, and we believe the potential to double that is there over the next five to ten years. We look at a lot of assets that come into our space, especially those that are complementary to our portfolio where we can get synergies. To your point about seller expectations, they're still high, and we're not going to overpay quickly. We evaluate complementary brands and businesses of size, preferably shelf-stable, warehouse-delivered, and really in or adjacent to our aisle. That's what we think the synergies really are. Our targets are strong consumer brands that are complementary. We have a strong balance sheet that allows us to do these things, but we're not going to overpay for anything either. We evaluate everything that comes up in the space and assess whether that's the right move for our shareholders.

Got it, thank you.

Our next question comes from John Baumgartner from Mizuho Securities. Please proceed.

Good morning. Thanks for the question.

Good morning, John.

I wanted to ask about Quest and specifically the snacks business. The distribution growth has remained strong in measured channels. It's been strong sequentially since the shelf reset exiting summer, but the resilience and velocities at the same time has been pretty surprising. I'm wondering, Goeff, can you speak to anything different in the retail programming, the merchandising, or maybe the composition of the store doors when you're gaining the TDPs, that sort of explains the velocity resilience at a time when a number of categories are seeing softness in higher-priced brands?

Yes, you're right. Distribution was the primary driver of Quest growth, certainly following the acquisition, which speaks to the strength of the selling organization at Simply. More recently, we've seen growth be more balanced across not just distribution but also buy rate. It speaks to the underlying strength of this business. It is one of the most culturally relevant on-trend growth businesses I've seen. It will cross $1 billion in retail sales this year. What's interesting about Quest versus most other brands is it has permission to extend into other forms, and this is what Quest consumers expect and demand. They look to Quest to come into snacking categories, flip the macros, and come out with great-tasting products that have high protein and low sugar. This is what consumers want, and we have an incredible R&D organization that has been able to develop wonderfully tasting products that deliver on these macros. Retail partners see it too, which is why they continue to support the brand, support our innovation, and participate in the long-term space conversations as we show them our pipeline. That highlights the strength of the Quest brand and the demand of its consumers to drive more innovation and engagement.

Thanks for that. And then just on Atkins, you're looking back to the non-programmatic portion of the consumer base has been the main growth for mock over the years. I'm curious as GLP-1 awareness takes hold, do you see the programmatic dieting consumer sort of also making a comeback? Shaking off some of the dormancy there on growth? Or, as you're working through your five-point plan for recovery, are you still expecting the vast majority of growth to come from the non-programmatic segment?

I would say that we would look to both segments as growth opportunities for the brand. We do have those consumers who do look to Atkins as a regime. That's why the buy rate on the brand is virtually double that of anything else I've ever worked with. They are very critical to us. They are front and center in our media planning, and I think they will be open to Atkins on GLP-1. We also think that the opportunity for Atkins is to continue to expand the funnel and bring in new users to introduce them to the brand and its benefits.

You will also notice the advantages of the category expansion that Geoff mentioned in the growth, particularly since we are part of a growing category. This enables us to keep progressing alongside the category as a whole. Although we haven't experienced that recently with Atkins, as we implement this plan, we expect to see more of that growth overall. I believe these three factors will contribute to the return to growth that we anticipate for Atkins.

Thanks, Goeff. Thanks, Shaun.

Thank you.

See you, John.

Our next question comes from Matt Smith from Stifel. Please proceed.

Hi, Goeff and Shaun. Thanks for taking another question here.

Welcome back.

In past years, when Simply has benefited from stronger consumption, the company has elected to increase its investments behind the business given the strong returns on those investments. Given the strong input cost favorability and the consumption trends today, I know it's early days, but is it reasonable given what you're seeing from investments you're making now? When you look at the business today, how do you balance investment behind Quest to maintain momentum and drive growth versus the ability to accelerate the Atkins stabilization plan to the extent you're able to this year?

Yes, it's a really good question. Shaun and I discuss this almost every day because we see the long-term growth of the category and the multi-year runway that exists. We believe that creates the opportunity for continued investment to take full advantage of it. I think it was Alexia’s question where she asked where we are investing to capitalize on that growth. We have increased our investment in marketing, it's now just a little over 9%. We have increased our investment in innovation and in category management, because we see the potential for the investments to pay off long-term. As for Quest versus Atkins, we have to invest in both. Both brands play a critical role in the category. Each brand plays a different role, so we need to invest in both businesses. The investment levels will vary; where they are in their life stages is different. But the commitment to investing in both is there because we see the long-term growth potential in this category, and we're going to follow through.

It's a great question, and something we talk about all the time. We balance it as we go through each month and quarter review. We think of where we are overall in relation to getting ahead of the investment and the return on those investments. This goes back to the pillars that Goeff discussed when we started this dialogue last quarter. We’re throwing gasoline on the fire for Quest, revitalizing Atkins, focusing on category management, and using the fuel to fund that growth through commodity and cost savings as well as productivity we have in the supply chain. We have discussions regularly, and we balance everything to ensure both brands get support.

That's exactly it. It's about delivering the quarterly commitments we're making, but also ensuring we're set up for sustained long-term growth.

Got it. Thank you for your perspective, and I'll pass it on.

Thanks, Matt.

Thanks.

Our last question is from Jon Andersen from William Blair. Please proceed.

Good morning, everybody, and thanks for the question.

Good morning.

I want to take a different angle on Atkins and potential outcomes of the revitalization plan. You know, it seems that some of the Atkins innovations outside the core, such as chips, have not had the same uptake as Quest has seen outside its core. Do you think Atkins has less permission or rationale to travel? And if so, is the intent, at least in the near to medium term, to focus Atkins innovation, retail assortment on core bars and shakes, rather than trying to further extend the brand into other categories?

Yes, it's an interesting question. The short answer is yes, we have been disappointed with the lack of innovation on Atkins, particularly in the bars segment. That's certainly contributed to some of the trends we've seen. When I joined, there was a big focus on jump-starting that pipeline and getting products out now, as well as building a robust innovation pipeline for the future. Some of the more recent products we've launched have performed well. The bake bar, for example, is doing really well. The break bar is also performing well. Those are early products from a much more robust pipeline. In comparison to Quest, the question really is why has it worked for Quest and not for Atkins? Very few brands can extend out of their core successfully, but Quest is one of those brands because the consumers demand that Quest come into snacking categories and flip the macros. Conversely, we are focusing on strengthening the core of Atkins, primarily its bars and shakes, as part of the revitalization plan, which involves focusing on the core rather than push beyond where we are today.

If you go back in time, Quest before we bought them, it took a while for salty snacks to gain significant traction. It wasn't immediate success; it took time for consumers to adapt and understand it. Where we are with Atkins is a little early in the process, and I wouldn’t say it’s not going to work. The point is we need to ensure the core business is running strong, and then we can discuss expansion.

That's really helpful. Thank you.

I just want to thank everyone for participating in today's call. Happy New Year, and we look forward to updating you on our second-quarter results in April. Have a great day.

Thanks, guys.

This concludes today's question-and-answer session. I would like to turn the floor back over to Geoff Tanner for closing comments.