Greetings, and welcome to The Simply Good Foods Company Fiscal First Quarter 2025 Conference Call. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Mark Pogharian, 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 year 2025 earnings call. 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 7:00 a.m. Eastern Time. A copy of the release and accompanying presentation are available under the Investors section of the company's website. 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 us 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 OWYN 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 OWYN business. The reference to organic or legacy Simply Good Foods refers to Simply Good Foods business, excluding OWYN. I'll now turn the call over to Geoff 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 brands. Then Shaun 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's growth was strong despite some shipment issues early in the quarter, and OWYN momentum continued. This was partially offset by expected Atkins declines, although Atkins performance was slightly better than our estimates. Net sales increased 10.6%, driven by the OWYN acquisition. Legacy net sales were affected by the timing of shipments. As Shaun 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%, which was better than our forecast. The gross profit growth, along with the inclusion of OWYN, resulted in adjusted EBITDA growth of 13.1%. Shaun will provide you with more details regarding our financial performance shortly. The Nutritional Snacking category momentum continued in the quarter with growth of about 12% that was largely driven by volume. All major subsegments of the category: bars, shakes, and chips increased in Q1. The growth of the category demonstrates 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, along with 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 and 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. Assuming a comparable full year of OWYN results and the exclusion of the 53rd week in fiscal 2024, fiscal year 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 net sales growth. 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've 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 current portfolio, 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 consumer trends in an efficient way to create new avenues for growth, instead of being constrained by what a specific company-owned asset can produce. In Q1, Quest retail takeaway growth was 10% and was solid across all major channels and customers. While early, we're pleased with our recent innovations, which are performing in line with our estimates. This includes new products such as strawberry-frosted cookies and bake 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 in specialty channels. Quest's 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' point of sale performance, where Q1 growth was 26%. However, as we noted on the last call, we were supply constrained going into the quarter, and we're starting to ramp up a second production line. As we exited Q1 with the second line operational, we are no longer capacity constrained. As we enter the new year and the New Year season, retail inventory is back at optimal levels. As evident, retail takeaway for Quest Chips in November and December was about 35%, marking the strongest growth rates we've achieved since June. Now we 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, with the retail takeaway improving 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's momentum to continue and anticipate fiscal year 2025 retail takeaway growth of 9% to 10%. Key drivers of growth include continued chips momentum, a calendar Q1 nationwide trial at a large new club customer, which we will assess results upon completion of the test, and the performance of our new bakeshop item that is proving to be highly incremental to both the brand and the category. The February launch of the Quest overload bar platform features bars loaded with inclusions, which have a unique texture and mouthfeel that will bring variety and excitement to the bar segment. Finally, we will carry forward a full year of the successful 'It's Basically Creating' advertising campaign. Gross Rating Points will increase significantly in fiscal 2025, particularly in Q2, supporting the New Year, New You season, which should drive greater brand awareness and trial. Regarding Atkins, Q1 retail takeaway was off 4%, which was slightly better than planned and sequentially improved from the Q4 decline of 5%. This better-than-expected performance was primarily driven by ready-to-drink shakes, where retail takeaway increased about 5%, with growth in both measured and unmeasured channels. We're particularly pleased that total brand retail takeaway increased at Atkins' two largest customers, who combined represent about 50% of total brand retail dollar sales. Specifically, e-commerce retail sales increased 12%, driven by growth of all three major forms: bars, shakes, and confections. Additionally, retail takeaway at Atkins' largest customer increased about 2%, driven by shakes growth of 13%. We remain focused on executing the Atkins revitalization plan and continue to be optimistic about the long-term future for the brand, especially given the renewed cultural conversation around weight wellness driven in part by new weight loss drugs. The new Atkins items we launched in the fall are performing well and are significantly outperforming the items they replaced. The top-performing items include the 30-gram Atkins Strong protein shake and Atkins and Dodge gummies and truffles. We know innovation is critical for our brands, and I'm pleased with the multiyear pipeline we now have in place. Our new advertising campaign, Atkins Way, has been in market since September and positions Atkins more strongly as a weight-wellness brand. The top-performing advertisement explicitly references the new GLP-1 drugs and positions Atkins as a sustainable dietary option for GLP-1 consumers and by extension, promoting effective weight maintenance. These ads scored exceptionally well, and while early, we believe they are contributing to the improved results we've seen this quarter. Other elements of the revitalization plan, including new packaging, reformulation, and enhanced category management capabilities, are also progressing as planned. However, despite the recent progress, we continue to anticipate Atkins' fiscal year 2025 retail takeaway to decline in the high single digits. Recall, we are proactively eliminating low Return on Investment investments, including trade and marketing programs that don't meet specific ROI hurdles. The effect of these decisions will disproportionately impact retail takeaway over the balance of the fiscal year, particularly in calendar Q1, where point of sale could be down low double digits. Additionally, during the New Year, New You season, we will not repeat a large volume-driving promotion at Atkins' largest customer. These are difficult decisions but necessary to ensure Atkins is a long-term sustainable business. As mentioned last quarter, in the space-constrained club channel, we lost distribution in October, and as expected, we will see some further losses in this channel in the spring. However, productive discussions with this customer are ongoing to repurpose and optimize space with other Simply Good Foods brands in force. More updates will come here in the second half of the year. In summary, we continue to believe in the long-term vitality of Atkins, and I'm pleased with the progress we are making to revitalize and position the brand for a new era of weight wellness. We believe the actions we are taking should improve the trajectory of the brand as we exit fiscal Q4 and enter fiscal 2026, all in support of building a healthy, profitable, and sustainable long-term business. Turning to our retail takeaway of 67% in the combined measured and unmeasured channels, that was driven by both distribution and velocity increases. In the measured channel universe, we are the third largest sports nutrition multipack brand in the U.S. and growing the fastest in dollar sales. Our measured channel growth was a solid 39%. We continue to be excited about the acquisition and the runway for sustained profitable growth. OWYN is the leading plant-based ready-to-drink protein shake in the market. The brand continues to outpace growth in both the plant and dairy-based protein shake segments due to its superior taste profile that appeals to mainstream consumers. Conversations with retailers are universally positive, and we expect both near-term and long-term distribution growth, not just on the existing line but also in new flavors and pack sizes. Looking further out, I'm excited by what I'm already seeing from our joint R&D team in terms of further extension for the brand. We continue to have confidence we'll double net sales in three to four years. The integration is progressing as planned. As a reminder, to align with our fiscal year 2025, we will achieve the majority of the synergies, around 80%, on the first day of fiscal 2026. This should result in OWYN's fiscal 2026 adjusted EBITDA margin in the mid- to high teens. 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. We're pleased with our Q1 results and retail takeaway in all three brands. Additionally, while early, Q2 is tracking to our expectations. Although, as we discussed, the proactive reduction of Atkins low ROI investments and lost club distribution will pressure brand performance. However, as I stated earlier, we believe our category and our brands represent the future of food and beverage, given the increased relevance and mainstreaming of consumers seeking high-protein, low-sugar, low-carb foods and beverages. We have three brands aligned with these consumer megatrends and world-class innovation and sales capabilities that we believe will position us well to drive sustained growth and increase shareholder value. Now I'll turn the call over to Shaun, who will provide you with greater 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 $341.3 million increased 10.6% versus last year, primarily driven by the OWYN acquisition. We're very pleased with OWYN's performance, and given the strong point of sale growth, OWYN's net sales increase was slightly greater than our plan. Legacy Q1 net sales of $309 million were about the same as the year-ago period. Atkins was in line with our estimates, while Quest was less than planned due to the timing of shipments that occurred subsequent to the end of the first quarter. We estimate that the timing of shipments that slipped into the second quarter accounted for about a 3 percentage point miss, and non-price display and promotion captured between gross and net sales presented a 1 percentage point headwind to growth. Importantly, demand for our products is strong, as evidenced by the Q1 legacy U.S. retail takeaway increase of about 4%. As we've said in the past, quarterly net sales and point of sale may not align due to shipment timing, but we are confident that it should be more in line by the end of Q2 and somewhat similar by year-end. Moving on to other P&L items for the quarter. Gross profit was $130.5 million, an increase of $15.4 million from the year-ago period, driven by lower-than-anticipated legacy business ingredient and packaging costs, as well as the inclusion of OWYN. This was partially offset by a noncash $1 million inventory purchase accounting step-up adjustment related to the OWYN acquisition. As a result, gross margin was 38.2%, a 90 basis point increase versus last year. The noncash inventory purchase accounting step-up adversely affected gross margin by 30 basis points. Adjusted EBITDA was $70.1 million, an increase of $8.1 million from the year-ago period. Selling and marketing expenses increased by $1 million to $33 million, primarily due to the inclusion of OWYN. GAAP SG&A expenses amounted to $38.1 million, an increase of $11.1 million versus last year. The increase was primarily driven by higher legacy employee-related costs and corporate expenses related to the inclusion of OWYN, as well as business combination and integration expenses. Excluding stock-based compensation and business combination costs, Q1 SG&A increased by $6.8 million to $29.5 million. Net interest income and interest expense totaled $7.1 million, an increase of $2.1 million versus Q1 of fiscal 2024. The increase versus the year-ago period is primarily due to a higher debt balance from the OWYN acquisition. Our Q1 effective tax rate was about 20% lower than the year-ago period, primarily due to equity compensation. We continue to anticipate the fiscal year 2025 tax rate to be around 25%. As a result, net income was $38.1 million versus $35.6 million last year. The next slide provides a reconciliation of reported and adjusted diluted EPS. First quarter reported EPS was $0.38 per share diluted compared to $0.35 per share diluted in 2024. Adjusted diluted EPS was $0.49 compared to $0.43 in the 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. As of November 30, 2024, the company had cash of $121.8 million. Cash flow from operations in Q1 was about $32 million compared to $47.5 million last year. The decline was primarily due to higher net working capital, principally inventory. During the quarter, the company repaid $50 million of its term loan debt. At the end of Q1, the outstanding principal balance was $350 million. Capital expenditures in Q1 were $300,000. Despite this, we expect CapEx to be in a $10 million to $15 million range for fiscal year 2025. We anticipate net interest expense to be around $23 million to $25 million, including noncash amortization expense related to the deferred financing fees. Now, to wrap up with our outlook. Due to solid retail takeaway, visibility in the second quarter orders, and strong adjusted EBITDA growth to start the year, we reaffirm our fiscal year 2025 outlook. We expect organic sales growth to be driven primarily by volume and have strong advertising and marketing plans in place, along with innovations, merchandising, and promotions that should enable us to achieve our objectives. As discussed last quarter, the company expects input cost inflation in fiscal year 2025, with headwinds increasing beginning in the second quarter. There is no material change to the company's fiscal year 2025 gross margin outlook, with productivity and cost savings initiatives expected to partially offset these higher costs. Therefore, for fiscal year 2025, total company reported net sales are expected to increase 8.5% to 10.5%. Embedded in that, we anticipate OWYN fiscal year 2025 net sales in the $135 million to $145 million range. Total company adjusted EBITDA is expected to increase 4% to 6%. Note that the 53rd week in fiscal year 2024 presents about a 2 percentage point headwind to both net sales and adjusted EBITDA growth in fiscal year 2025. Before we move to the Q&A, I want to highlight that this will be Mark Pogharian's last conference call as Head of Investor Relations at Simply Good Foods, as he will be retiring later this spring. I want to thank him for his leadership across a number of functions, especially in guiding us through our leaseback process, multiple M&A transactions, and building a strong IR practice here at Simply Good Foods. On behalf of the management team and Board of Directors, we commend Mark on a great career and wish him well. As we move forward, I am proud to announce that Josh Levine joined the company last month with a plan for him to succeed Mark beginning in February. Many of you know Josh from his prior roles on the sell and buy side as well as his time at SubWest brands. Josh is a seasoned and experienced professional, and given the overlap with Mark, we know it will be a seamless transition. We appreciate everybody's interest in our company, and we're now available to take your questions.

Our first question comes from Tom Palmer with Citi.

Congratulations to both Mark and Josh. I hope for you to fine-tune expectations, I guess, on the gross margin side. I think you previously discussed around 200 basis points of gross margin compression in each of the next 3 quarters. Is this still the outlook? Or might there be a bit more nuance to consider from quarter to quarter at this point?

Yes. Let's take a step back on Q1, first of all. So the headline for Q1 is that margin came in better than we thought. That's largely due to more favorable commodities than we had forecasted. The main reason here is that we had slightly higher levels of lower-priced raw materials on hand than we expected. It took a little longer for the higher cost raw material inventory to flow through the P&L. Our guidance for the full year holds around down 200. Q1 favorability helped offset the greater-than-expected inflation we're seeing in cocoa and whey that will impact us towards the end of the year. As it relates to Q2, we expect gross margin decline to be close to or above 300 basis points versus last year as the flow-through of the higher commodity costs we noted in Q1 will hit us in Q2, in addition to the impact from OWYN, which accounts for about one-third of the decline. You didn't ask the question, but overall, from a coverage standpoint, we're covered through fiscal Q3, a little longer with the flow-through to the P&L. I want to be cautious here as we consider the inflationary levels of some of the input costs, particularly cocoa. All that said, we're in a much better sense of where we are for margin for the year in the April conference call. At that point in time, commodities will largely be locked in for the year. So I hope that answers your question.

That addressed my question and more. You mentioned the collaborative discussions with a channel customer aimed at offsetting the distribution losses for Atkins and repurposing that. I know it’s still early, but can you provide any details on which products are being prioritized and when we might expect that placement to occur?

It's a little early. We're probably midway through those conversations. They've been very productive; they're big fans of both Quest and OWYN, and both brands have opportunity there. Hopefully by April, we'll be able to share more details on where we see opportunity across both of those businesses.

Our next question comes from the line of Matt Smith with Stifel.

And before jumping in, Mark, thanks for the help over the years. I wish you well in what comes next. Geoff, just to start at a high level, the overall category growth remains a stand out in the store with volume growth accelerating on a sequential basis. As you look at the category and the subsegments that drove the sequential improvement, has your expectation for the category growth changed over the remainder of fiscal '25?

Not materially, Matt. We continue to be excited about the level of growth we are seeing, which is high single digits on average. As you noted, it is materially greater than the rest of food and beverage. The reason that nutritional snacking is a standout is that we continue to see a mainstreaming of demand for nutritional food and beverage products. Products that historically perhaps would have been more specialty or targeted toward athletes or gym-goers are now mainstreaming as consumers seek higher protein, low sugar, and low carb. This trend is accelerating; it's backed by science and amplified on social media. One of the drivers of growth is that we continue to bring new products to market that are more mainstream. Our chips business, for example, has built a $300 million business. We're very pleased with the early read on our bake shop platform. We have our practice business that we're going to be able to accelerate as we gain additional supply. As we continue to bring more mainstream products to market, those products are attracting more and more consumers, and they're highly incremental to the category. So I believe we are witnessing a long-term trend. Very simply, consumers are seeking high protein, low sugar options, and we will continue to be the leader in offering them more choices. Retailers are very much on board with this, actively looking into how we can expand the presence of these products in stores.

And Shaun, as a follow-up to the comments on the shipment timing. There were three points of timing impact in the first quarter. Can you clarify if that was entirely for the Quest brand? And is the comment that shipments and takeaway are more aligned in Q2 imply that the headwind reverses in the second quarter so that fiscal year-to-date consumption and shipments are aligned or that shipments and consumption align going forward without that reversal?

Fair question. I know it's a bit complicated. So let me start with the quarter. To answer your specific question about Quest, it's probably about two-thirds of the three points, if you want to call it that. The driver here is really the timing of shipments to a single customer request at the end of the quarter, where we believe the focus for that customer was on Black Friday and the holiday season, less so on food. The balance of the change came from gross to net adjustments. If I take a step back and look at consumption overall, consumption continues to be solid. We're essentially on plan through the first quarter, up 4% on a combined legacy basis. Quest is up around 10%, and as Geoff mentioned, in particular, chips continue to grow nicely, even bars are on the rise. At the same time, Atkins came in a little better than we were thinking, assisted by performance with the two key customers Geoff mentioned, along with innovation and performance in ready-to-drink shakes, which is encouraging for us. As we look to Q2, we expect shipments and consumption to be much more in line with each other. If you look at it by brand, we anticipate Quest consumption to be in high single digits or low double digits, with shipments closely aligning with consumption through the first half. Atkins could show high single-digit declines in Q2, driven by a number of items we've previously discussed. We also anticipate shipments will trail consumption due to expected club distribution losses. So for the first half, shipments should largely be in line with consumption overall. For the full year, we expect consumption and shipments to align by year-end. Does that help?

Our next question comes from the line of John Baumgartner with Mizuho Securities.

Mark, all the best, many thanks for your assistance over the years. I really appreciate it. Maybe first question, I wanted to come back to the innovation that was launched at the end of the summer, both for Atkins Snacks and the Quest Bake Shop. The run rate contributions are accretive by over about two points to sales in Nielsen. And I know it's still early, but can you comment at all, Geoff, on what you're seeing? How incremental are these products? Do you have a sense for the return of lapsed users to the brand? Is it mostly new first-time consumers? Just any high-level thoughts would be appreciated.

Yes, let me start with Atkins. We're very pleased with how the new items are performing. Recall, we launched around 17 new items in the fall that substantially replaced previous Atkins items on shelf. Those new items are outperforming their predecessors by about two-to-one. Sequential improvement we've seen in Atkins is a key driver of that growth. To drill down one level further, the top-performing new items, the Atkins Strong 30-gram shake, are highly incremental to the Atkins brand and have proven to be relatively incremental to the category too. Gummy products are also performing very well. Turning to Quest, as I referenced earlier, the bake shop platform is meeting our expectations, having proven to be 50% incremental to Quest and 30% incremental to the category. This ties back to our view around mainstreaming the demand for high-protein, low-sugar products. When we launch products beyond basic sizes and shapes, we're attracting new consumers. Early indications suggest that those consumers are finding gateway products across our other offerings. This has certainly been the case with Quest Chips. So, it is crucial to evaluate innovation by assessing how well it performs for the total brand and its overall incremental impact, and I'm very pleased with both Quest and Atkins in that respect.

Okay. And then on OWYN, Q1 sales, I think, were better than expected. You reiterated the guide for the full year. In terms of the sales drivers, looking at the Nielsen data, it seems that multipacks are becoming a larger share of sales. You've got some new flavors, and we're seeing strong contribution. Additionally, it looks like distribution is also building, particularly in the drug channel. Are any components tracking better than expected or areas where you see potential risks at this point, whether it's the supply chain or shelf resets? What are your thoughts on the balance of upside versus downside?

Yes, we remain very pleased with how OWYN is performing. Consumption growth in Q1 was an impressive 70%. Notably, you're seeing growth in both distribution and velocity, which is unique for a brand like OWYN. As you know, growth is coming from both the core and multipack in particular, which we have been focused on expanding. In recent customer meetings, there has been a strong positive reception, and we have good support for expanded distribution gains in 2025. I would also highlight that powders are a smaller part of the business but are proving to be highly incremental. Overall, we believe that the average number of SKUs at retail can expand significantly, along with potential for limited time offerings. Household penetration and product awareness remain low, meaning there is considerable future opportunity, which is why we are confident we will double sales in the next three to four years.

Our next question comes from the line of Steve Powers with Deutsche Bank.

Geoff, I wanted to drill into some of your comments on Atkins, if I could. I appreciate the incremental headwinds that will build January forward on the brand, consistent with what you called out coming into the year. But as you also highlighted, the consumption through December has been ahead of expectations, and there are some consumer trends that you can tap into. So I'm trying to gauge whether you're feeling more optimistic about the trajectory of that brand and whether you’re maintaining the full year expectation of down high single digits, more out of prudence, or if the January forward headwinds are going to be as substantial a setback as implied.

Yes, Steve, that's a fair question. I remain confident in the long-term trajectory of Atkins, which has been reinforced by the sequential improvement we've seen. As previously mentioned, better innovation is leading to improved performance according to the new advertising, which has proven effective. This positive trend is evident in our two most important customers that collectively represent over 50% of the business, where we are experiencing growth. However, I must note that there are short-term decisions being made that will negatively impact consumption in the near term. These are the correct long-term decisions, but we wanted to highlight them due to their potential short-term implications. We aren't repeating a large bonus pack program that, despite being unprofitable, drove significant volume. We are trimming our footprint where necessary. We hope to offset these declines through gains in OWYN and Quest, but we do expect some impact. Demand for weight loss and weight wellness remains robust with 60% of people seeking to lose or maintain weight. The cultural conversation has intensified due to weight loss drugs, which we believe will benefit the brand in the long term. Hence, significant actions will have a short-term volume impact, but I have confidence that we will see stabilization in the performance of the brand.

Further to that point, Steve, we entered the year aware of three calendar timeframes that present challenges to the business. The fall resets, the performance of innovation, as well as the New Year period along with competitive activity. We believe we're prepared for the New Year season, and we’re happy with the Q1 performance that has occurred; the innovation performed well, enabling us to secure distribution tied to fall resets. We will have a clearer picture on New Year performance in the next few months and on the fall resets later this year. We anticipate velocity will stabilize, so there may be bumps along the way, but we are taking the right actions to ensure long-term sustainability even if it means short-term impacts.

That is very helpful and dovetails into my next question. Geoff, you've indicated that you expect to enter fiscal '26 with positive momentum from the get-go. If there are headwinds building in the back half of '25 that will carry over into ‘26, lapping stronger performance in the early part of ‘25, the expectation for improved performance in fiscal '26 puts a lot of pressure on those fall resets that Shaun just mentioned, if I’m understanding correctly.

The fall resets are indeed critical for us, as they always are. I'm very pleased with the innovation pipeline we have that follows the same approach as this year, replacing poorer-performing items with better ones. When it comes to fiscal '26, I won't claim that we expect the brand to return to growth just yet. The focus on '25 has been about eliminating unsustainable investments, which is why we’re forecasting a high single-digit decline. As Shaun noted, when we reach '26, we will likely be entailed in lapping achievement without repeating such high investments. While that may sound challenging, we feel confident about our long-term outlook.

Our next question comes from the line of Robert Moskow with TD Cowen.

And Mark, thanks for all the help over the years. I wanted to know if you could focus in on Quest bars, which you've mentioned are performing slightly weaker than expected. Can you talk about the new product launch that you have planned and how it's differentiated from what appears to be a crowded, low-barrier-to-entry category? Additionally, does your bars business still need to grow in order to hit your targets for Quest? Could the growth of Quest come from other segments of the portfolio instead?

This is a good question. For us to achieve our long-term forecast for Quest, we do need low single-digit growth from bars. A majority of the anticipated growth for Quest will rely on chips, where we believe we are still in the early stages of growth even at $300 million in retail sales and are currently growing at 30%, now that we have more supply available. The bake shop platform also offers significant growth potential. We have a strong pipeline of new innovations that I’m excited to introduce over the coming years, which will be beneficial and incremental to the brand. That said, I am not satisfied with the current bars performance, which is why we have ramped up our focus on innovation. The new overload platform launching in the spring is, in my opinion, the best one we've ever produced and features outstanding inclusions and flavors. This will help generate excitement not just for Quest but for the entire category. I need to emphasize that while we’re looking for any growth, we aspire to exceed the low single-digit growth target.

That's very helpful. As a follow-up to that, when you talk about the broader pipeline, is there a considerable effort to innovate into new categories as well, or is most of the innovation focused on expanding more products into the chips and bake shop lines?

Yes and yes. We are investing heavily in bar innovation, and as I’ve said, we are still at the very early stages for chips. Keep in mind the size of the addressable market; we are only a tiny fraction of that market with a limited product range. This may not be a surprise, as we have substantial prospects for expanding our salty snack offerings over the coming years. That said, we are also exploring opportunities to create healthy alternatives for lower-carb and lower-sugar categories that are currently trending, continuing to lead in offering nutritional alternatives. Expect ongoing efforts to flip the macros on unhealthy products.

Our next question comes from the line of Brian Holland with D.A. Davidson.

And Mark, congrats on your retirement, and Josh, welcome back. I look forward to working with you. As we step into the New Year, New You season, you've detailed some of the factors impacting your portfolio. What is your perspective on the category overall? Specifically, can you comment on retail activity, competitive landscape, and consumer behavior? Last year, you were kind of set up and then impacted by a competitor coming back on shelf. How does the setup into New Year, New You in 2025 compare to 2024?

From what we can see, retailers continue to support the New Year, New You initiative in a more significant way annually. They are observing the same trends we are—that consumers are actively seeking our products. Therefore, we’re seeing increased retail support across the category through displays, promotions, and more. In terms of our plans, we are confident about our own marketing initiatives. Although Atkins will be adjusting on multiple fronts, we are exceptionally pleased with the anticipated support for Quest. To drill down one level deeper, our chips division, in particular, is poised to gain considerable leverage during the New Year, New You period. With that said, it's too early to gauge competitive activity this year; as you mentioned, a competitor negatively impacted us last year. We are certainly more alert to the competitive landscape this time around, but retailers recognize the growth potential and are reallocating resources to support that growth. I believe we will perform exceptionally well across the company.

I appreciate that. Forgive me if this was addressed clearly and I just missed it, but regarding input costs and how they are moving, do you have general views on whether or when pricing action may need to be taken in response?

We did make pricing actions affecting ready-to-drink shakes, with a mid-single-digit price increase effective in spring. We continue to monitor commodity trends and are focusing more on productivity initiatives for cost savings, which should yield benefits for this fiscal year and a more substantial impact in 2026. We will reassess pricing in light of commodity movements, but besides the aforementioned price increase for ready-to-drink products, we haven't announced further pricing actions.

Our next question comes from the line of Jim Salera with Stephens Inc.

Echo all the congrats for Mark, and I look forward to working with you in the future, Josh. I wanted to drill a little bit on the RTD shake growth in Atkins. I think generally Atkins performed better than expected, but the ready-to-drink shake line was a bright spot. Are you seeing Atkins consumers that may have veered away from the brand returning, or do you find that those are new consumers coming to Atkins through this popular RTD shake format?

It's both. We're witnessing new users entering the brand at a rate exceeding our forecasts. We're also observing an increase in buy rates. There are a couple of key drivers for this. Although it's still early, we believe our new advertising is performing exceptionally well. The introduction of the Atkins Strong, a 30-gram shake, has proven to be a perfect companion for those on GLP-1, but is certainly not limited to that market and has driven growth in our shake segment. If we analyze overall shake performance, we find that the addition of the 30-gram shake has been highly incremental to the Atkins shake business.

I know it's still early days, but is there an opportunity to convert new consumers brought into the Atkins brand through the shake platform into some of your other innovations? Or do you find that they're mainly choosing to stick with that consumption format?

That's an excellent point. One of Atkins' strengths lies in the breadth of its product portfolio. When new users come in through a shake, they often transition to ready-to-eat and vice versa. However, it's too early to analyze if this is happening with the Strong product line, but historically, we've noticed that new customers who enter the brand tend to understand our overall brand promise and are more likely to shop across a range of our offerings. So while we can expect that behavior based on historical trends, it's too soon to determine its effect with the Strong shakes specifically.

Our next question comes from the line of Jon Andersen with William Blair.

And Mark, shout-out to you on retirement, and thanks for your help over the years. One question on Atkins and one on OWYN. On Atkins, you've discussed optimizing spend and eliminating low ROI expenditures. Can you provide a bit more context on what that means regarding how much historical spend has been and what the numbers might look like post-optimization along with margin implications for Atkins? And then on OWYN, are you seeing or expecting any changes in the competition within the category or segment? Are those changes factored into your expectations through the year and into fiscal '26?

We prefer to avoid extensive conversations regarding profitability by brand for competitive reasons. Our approach focuses on maximizing the effectiveness of our overall spend. We see a significant portion of the reductions in Atkins' spend being reinvested in Quest and OWYN. Overall, we aim to align investments with expected returns to create a sustainable long-term business. While I cannot share specific historical figures, I can say that our reviews indicate unprofitable trade events that have subsidized base business, necessitating the right choices for the brand.

I'll provide one example, which is our trade spending. In recent years, we have observed trade creep into the business driven in part by insufficient innovation. Our review of each trade event revealed that many of these were highly unprofitable and were intended to sustain base business. It was essential for us to cut those unprofitable trade events but remain cautious. With marketing strategies, we found that our marketing spend had been disproportionately high compared to our own sales percentage guidelines. Nonetheless, we identified new media partnerships to offset working impacts while recognizing that there will still be some effects while re-aligning spending practices. So that might clarify your question. Regarding competitive responses in the OWYN category, we haven't identified major changes. OWYN is recognized as the clear leader in plant-based offerings, with research indicating that it sells mainly because of taste, paralleling it closely with dairy alternatives. Thus, we're optimistic about OWYN's trajectory.

That concludes our question-and-answer session. I'll turn the floor back to management for any final comments.

Great. Thank you so much for joining us for today's call. Josh and I will be around to answer any follow-up questions you may have, and we'll speak to you again during our fiscal second quarter conference call in early April. Thank you.

Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.