Simply Good Foods Co (SMPL) Q3 2025 Earnings Call Transcript

Greetings. Welcome to Simply Good Foods Company's third quarter fiscal year 2025 earnings call. This time, all participants will be in listen-only mode. The question and answer session will follow today's formal presentation. If anyone should require operator assistance during the conference, please press star zero from your telephone keypad. Please note this conference is being recorded. At this time, I'll turn the conference over to Joshua Levine, Vice President of Investor Relations. Joshua, you may begin.

Thank you, Operator. Good morning and welcome to the Simply Good Foods Company's third quarter fiscal year for the 13-week period ended May 31st. We'll provide you with an overview of our results, which were provided in our earnings release issued earlier this morning at approximately 7 a.m. Eastern Time. Our prepared remarks will then be followed by a Q&A session. A copy of the release and accompanying presentation are available on the Investors section of the company's website at www.TheSimplyGoodFoodsCompany.com. This call is being webcast and an archive of today's remarks will be made available. During the course of today's call, management will make forward-looking statements which 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 provide useful information for investors. Due to the company's asset-light, high-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 reconciliation of our non-GAAP financial measures to their most comparable measures prepared in accordance with GAAP. The acquisition of Only What You Need, Inc., or OWEN, was completed on June 13, 2024. Therefore, the company's year ago performance for the 13 weeks ended May 25, 2024 does not include results of the OWEN business. References during this call to organic or legacy Simply Good Foods refers to Simply Good Foods' business, excluding Owen. As we have now lapped the anniversary date of the Owen acquisition, for future calls, the use of organic will refer to year-over-year growth for brands we have owned for more than 12 months. For Q4, that will include the growth of Simply Good Foods, excluding Owen, for the first few weeks of the quarter, and growth for the entire company for the balance of the quarter. Finally, all retail takeaway data included in our discussion today, unless otherwise noted, is for the 13 weeks ended June 1, 2025, and reflects a combination of Circona's MULO++C and company estimates for unmeasured channels. I will now turn the call over to Jeff Tanner, President and CEO.

Thank you, Josh. Good morning, everyone, and thank you for joining us. I'll start by reviewing our Q3 performance before turning it over to our new CFO, Chris Beeler, who will discuss our financial results and our updated fiscal year 2025 outlook. We will then be available to take your questions. Momentum continued in Q3, with net sales up 14% year-over-year, driven by the acquisition of Owen and approximately 4% organic growth. Consumption was once again up double digits for both Quest and Owen, more than offsetting the anticipated declines for Atkins. As a reminder, Quest and Owen, in aggregate, make up approximately 70% of our net sales Gross for the nutritional snacking category remains robust in Q3, up double digits again, reflecting the continued mainstreaming of consumer demand for high-protein, low-sugar, and low-carb food and beverage options. Simply Good is at the forefront of this generational shift with an attractive portfolio of three uniquely positioned brands powered by leading sales and marketing capabilities and a talented R&D and supply chain team. Adjusted EBITDA in the quarter grew approximately 3% year over year. While our margins remained strong overall, they were under pressure during the quarter as we realized higher levels of inflation, most notably from cocoa and whey. In response to these headwinds, we've substantially stepped up our productivity and cost management efforts and we've started to realize the contribution from pricing we've taken on select items. We expect to realize the full benefit of productivity and pricing actions over the next 12 to 18 months. Cash flow generation remains a hallmark of this organization. In the year since we acquired Owen, we have repaid essentially all of the $250 million we borrowed to finance the purchase. And during Q3, we repurchased over $24 million worth of our common stock. At only half a turn of leverage today, our balance sheet gives us optionality going forward. Considering our top and bottom line performance year-to-date and trends to begin the fourth quarter, we are tightening our ranges for full-year net sales and adjusted EBITDA. I want to commend our teams for the tenacity amidst a dynamic operating environment and delivering a year where we expect to generate approximately 3% organic growth and mid-single digit total adjusted EBITDA growth, as well as to successfully integrate Owen. Turning to our largest brand quest, which represents approximately 60% of our net sales today. The brand delivered another quarter of double-digit retail takeaway in net sales growth. Consumption in Q3 grew 11%, with household penetration up 120 basis points year-over-year to 18.3%. Approaches a billion dollars in net sales, we see a long runway of opportunity driven by a framework for growth based on disruptive innovation, expanding physical availability and increasing brand awareness. Our Salty Snacks platform embodies the strategy. Salty Snacks retail takeaway grew 31% this quarter and is on pace to become the largest platform on the Quest business. We continue to successfully launch exciting new flavors and sizes, expand distribution and merchandising in and out of our aisle, as well as in new channels, and we remain focused on building awareness through award-winning marketing. As we work to expand physical availability of chips, we're particularly excited about the support we're getting from retailers who see the growth and incrementality of the As an example, at a large mass merchant, Quest recently secured incremental shelf space within our core aisle during their upcoming reset later this year. In addition, at the same customer, Quest gained multiple placements outside our aisle, including on their highly visible health and wellness wall, as well as near their heavily trafficked. Consumption grew 3% this quarter, led by growth from our Hero Crispy line and our new Overload Distribution and velocities for Overload continue to build in line with that plan, and both consumer and retailer feedback has been positive. The launch of our 45-gram Quest milkshake is also progressing nicely, building ACV and awareness. We're supporting this new platform with activations across the country focused on driving trials. Similar to Overload, ACV is expected to build through the rest of the calendar year. We're also seeing solid contribution from our Bakeshot platform, which continues to be a highly incremental basket builder for us and retailers. We're excited about the innovation we have coming on this platform in fiscal 2026. We're pleased with our Q3 performance and execution. As we enter Q4, we remain committed to driving growth and investing in the brand, positioning Quest continue its growth trajectory into fiscal 2026. Assumption in the third quarter was down 13% versus prior year, consistent with our forecast. As we discussed last quarter, declines accelerated due to broader distribution losses at a key customer, and from not repeating high-volume merchandising events from a year ago. These two drivers accounted for most of the Q3 decline. We're on a journey towards a more focused and sustainable Atkins business. Importantly, the core SKUs of the Atkins portfolio perform above category velocity benchmarks. However, the brand does have a long tail of SKUs, many of which turn at below category average levels. Therefore, our approach continues to be to drive towards an optimized assortment for the brand, including bringing to market improved innovation like we've done with the 30-gram Acton Strong Shade. In channels like e-commerce, where we do not have space constraints, we continue to grow nicely with retail takeaway at a key customer up 7% this quarter. Part of the rationale in proactively pruning Acton shelf space is working with retailers where possible to more effectively utilize the total shelf space allocated to simply good foods. As an example, during upcoming resets, we expect Atkins to see a significant decline in distribution at a large mass retailer. However, we will offset a majority of Atkins space losses with gains for Quest and Owens SKUs that are higher turning and in the case of Quest more profitable. Our commitment to supporting the brand and confidence in the long-term vitality of the business is underpinned by the strengths of the core SKUs. Consumer research and customer conversations continue to reinforce a strong need for a science-based brand and products that help consumers with their weight loss journey, including those using or coming off GLP-1 drugs. We remain committed to our revitalization plan, again in support of building a healthier, more profitable, and more sustainable business. Retail takeaway increased 24% in Q3, with strong contribution across channels. Owen's ready-to-drink shakes retail takeaway grew over 20% in the quarter. Distribution increased 18%, benefiting from recent gains made during the spring resets. Reflecting on Q3 consumption growth, we fully anticipated that trends would slow relative to the first half, as we were lapping some sizable wins from the prior year. As we enter Q4, despite a slightly slower start in June, we expect retail takeaway trends to remain strong, benefiting from incremental distribution wins, as well as planned merchandising activity across several retail partners. Stepping back, we continue to see a long runway of growth for the brand, due to strong velocities and category incrementality that position Owen to continue to expand distribution, household penetration and awareness, which remain well below peers, and leveraging Simpli's R&D team to fill key portfolio gaps across flavors and sizes and even new formats. At approximately 10% of our net sales today, and with integration work nearly complete, we remain confident in our ability to drive strong double-digit growth. We have the team, capabilities, and insurgent mindset to enable Owens to contribute to Simpli's top and bottom line growth for years to come. I'm pleased with the momentum in our business, our fiscal year-to-date performance as we work to close the year. Simpli Good is uniquely positioned as a leader in the fast-growing nutritional snacking category, with a portfolio and team built to lead the generational shift of demand towards high-protein, low-sugar, and low-carb food and beverage products. We will do this by introducing delicious innovation, expanding physical availability of our products, and building brand awareness. With approximately 70% of our portfolio through Quest and Owens driving strong top and bottom line growth, as well as an agile culture, flexible supply chain, and a talented team, we are confident in our ability to deliver sustainable growth and create meaningful shareholder value. I will now turn the call over to Chris, who will provide you with the details of our financial results.

Thank you, Jeff. Good morning, everyone. Total Simply Good Foods' third quarter net sales of $381 million increased 13.8% versus last year, driven by the contribution from Owen of $33.6 million, or 10%, as well as 3.8% organic growth. Organic net sales growth was driven by Quest, which grew 15% in Q3. The brand benefited mainly from strong retail takeaway, as well as a modest improvement in retailer trade inventory to ensure operational continuity during a warehouse transition early in Q4. Net sales for Atkins declined 12.7% in line with consumption, and Owen had another solid quarter with retail takeaway up double digits versus prior year. Most profit of $138.5 million increased 3.7% from the year-ago period, driven mainly by the inclusion of Owen. Gross margin was 36.4%, a decline of 350 basis points versus prior year, driven mainly by elevated input costs, most notably cocoa and whey, that were only partially mitigated by productivity and pricing. The inclusion of Owen in our results was also a headwind in the quarter. Selling and marketing expenses of $33.8 million were down modestly versus prior year. with declines on the legacy business partially offset by the inclusion of Owen to the portfolio. G&A expenses were $41.2 million, an increase of $9.7 million versus last year, primarily due to integration expenses and the inclusion of Owen. Excluding stock-based compensation and one-time integration costs, G&A increased $4.8 million to $31.4 million, driven mainly by the addition of EWIN to the portfolio. As a result, adjusted EBITDA of $73.9 million increased 2.8% from the year-ago period. That interest expense of $4.2 million was up modestly versus the prior year, while the effective tax rate was 25.2%, up slightly versus last year. Net income was $41.1 million, down from $41.3 million last year. On a fiscal year-to-date basis, net sales are up 13.2%, supporting gross profit and adjusted EBITDA growth of 9.2% and 10.6% respectively. Margins have compressed mainly as a result of the inclusion of Owen in our results. Third quarter reported EPS was $0.40 per diluted share versus $0.41 in Q3 last year. Adjusted diluted EPS was $0.51 compared to $0.50 in the year-ago period. On a fiscal year-to-date basis, the company generated reported diluted EPS of $1.14 up 4.6% versus the prior year, whereas adjusted diluted EPS of $1.46 increased 9.8% versus the comparable prior year period. I want to commend the team for their hard work and strong execution on delivering our results so far this year and their perseverance amidst a dynamic environment. Note that we calculate adjusted diluted EPS as adjusted EBITDA, less interest income, interest expense, and income taxes, divided by diluted shares outstanding. Please refer to the press release for an explanation and reconciliation of non-GAAP financial measures. Moving to the balance sheet and cash flow, as of May 31, 2025, the company had cash of $98 million and an outstanding principal balance on its term loan of $250 million, dollars, bringing our net debt to trailing 12-month adjusted EBITDA to approximately 0.5 times. Fiscal year-to-date cash flow from operations was $133 million, compared to approximately $167 million last year. The decline was primarily due to higher uses of working capital, principally inventory. Capital expenditures were approximately $3 million. During the quarter, the company repaid $50 million of its term loan debt, bringing fiscal year-to-date repayments to $150 million. In the 11 months since we've acquired Owen, the company has now repaid $240 million of the $250 million borrowed to fund the purchase. In addition, during the quarter, the company used $24 million to repurchase nearly 700,000 shares. The company has nearly $50 million remaining on its current share repurchase authorization. Moving on to our outlook, as you saw in this morning's press release, we are updating the ranges of our full-year net sales and adjusted EBITDA guidance. Specifically, we expect the following. Total company reported net sales are expected to increase 8.5% to 9.5%, with organic net sales growth driven primarily by volume. Embedded within that, we anticipate owing net sales to finish the year at approximately $145 million, which is the midpoint of our previously provided range. Total company-adjusted EBITDA is expected to increase 4% to 5%, which continues to include an assumption that gross margins will decline 200 basis points on a full-year basis. Please note that our outlook includes the 53rd week in fiscal year 2024, which represents an approximately 2% point headwind to full year growth for net sales and adjusted EBITDA in fiscal year 2025. As it relates to the fourth quarter, I would like to highlight a few items. First, we expect Q4 organic net sales to grow around 3% at the midpoint, which as a reminder will include Owen within the organic net sales growth calculation for most of the quarter. Second, our implied gross margin outlook for Q4 reflects an increase in realized inflation as well as the impact of tariffs which are beginning to flow into our P&L Please note that both of these drivers are expected to continue for some time. As Jeff said earlier, we are stepping up our productivity and other mitigation efforts, but these offsets will take time to be fully realized. And third, our updated full-year adjusted EBITDA growth outlook implies a low double-digit decline at the midpoint in Q4 or a mid-single-digit decline excluding the extra week. Finally, I would note that our outlook assumes current economic conditions and consumer purchasing behavior will remain generally consistent over the balance of the company's fiscal year. For a comprehensive summary of our full-year outlook and details on certain below-the-line items, please see slide 16 in our presentation. That concludes our prepared remarks. Thank you for our interest in our company. We are now available to take your questions.

Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question at this time, please press star 1 from your telephone keypad and a confirmation tone to indicate your lines in the question queue. You may press star 2 if you'd like to withdraw your question from the queue. For participants that are using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please while we poll for questions. Thank you. Thank you. And the first question today is from the line of Matt Smith with Stiefel. Please receive your questions.

Hi, good morning. Jeff, you call that distribution expectations across the portfolio for the upcoming fall shelf reset, including what sounds like significant losses for Adkins. Can you expand on how much of a distribution headwind you expect for the brand and product segments and how you expect that to impact sales through the channel, kind of help bridge the comments between significant distribution laws against consolidating the distribution behind the hardest working SKUs.

The clients on Adkins. Step back a little bit, the priority of sales, the job it does for consumers, that we're being, you know, eyes wide open and realistic.

Very helpful. And as a follow-up, you talked about still expecting double-digit declines on Adkins as you look out to fiscal 26. I think there was an aspiration for the total company to grow towards its long-term algorithm, call it 4% to 6%. Are your expectations for Quest and Owen such that you think that's still reasonable, or do you think the Adkins decline at this point is a little above what you had previously expected as you look out to next year?

Chris, I'll take that question. Look, it's still very early in our planning process, and we'll give it, obviously, a full guide in October. What I can say on the top line, we'll expect to see similar consumption trends on Quest and Owen as we've seen in recent times. We do expect Atkins trends to get slightly worse than 25, as Jeff just said. So I think we'd still be looking at growth, But like Jeff said, Atkins would definitely be a slight headwind to total company growth.

Matt, when you strip out the merchandising cuts and distribution losses on Atkins and a large club company.

Thank you. I'll pass it on.

The next questions are from the line of Peter Grant with UBS. Please receive your questions.

Thanks, Operator. Good morning, everyone. I wanted to ask on Owen, a bit of a slowdown in the track data, and I think it was a bit weaker than we had modeled in the quarter. So we'd just love some perspective on how the brand is performing relative to your expectations. Was this slowdown largely contemplated as you think about the guidance? And then, Chris, I just wanted to make sure I understand your response to Matt's question. I think you said you would expect growth similar to what we've seen recently. So can you maybe put some guardrails in terms of what that might mean for Owen as we think about fiscal 26?

Yeah, I'll take the first question and then hand it off to the current meaningful gains starting in the summer and into the fall, and even looking beyond that, I'm excited about additional platform innovation that should keep that distribution engine going.

Yeah, and then maybe just to clarify, what I was saying is if you look at Quest and Owen. Recent consumption trends, we expect those to continue into FY26. So just to specify a couple of points, on Owen in Q3, we had, let's call it roughly 24% consumption growth. We'd expect something similar to that in FY26 on a full-year basis. And what that's going Okay, that's how... As you think about the portfolio, what that's going to do, it's going to continue mixing Quest and Owen larger in the portfolio and Atkins smaller in the portfolio, given the numbers that Jeff's already laid out earlier.

Okay, that's really helpful. And I guess my second question just is on the 4Q exit rate and how we should be thinking about that in the context of 26. And you kind of called out top line 3% at the midpoint. it's a little bit below the long-term I'll go. Profit down is single digits, excluding the extra week. And as mentioned, these costs are going to continue with maybe the offset likely to take some time. So I know you're still early in the planning process here, but just any thoughts in terms of how we should be thinking about or how this exit rate should inform our view on the path forward?

I wouldn't think too much about the exit rate. I would really say that it is a bit too early to give guidance on even double we'll do that in October we've got a lot of moving parts so we're still waiting like everyone else for clarity on tariffs which you know as you know as we've seen this week that continues to shift we generally do have good visibility to our input costs through the end of the calendar year and we're working to build coverage through the through more of fiscal 26 we're also working to quantify the benefits and timing of our productivity program that we talked about in the script and on and on pricing actions what what I can say on EBITDA as well we're working to land the plan we can see already that the shape of the year is going to be more challenged in the first half than the second half as we get the higher cost into our base and the benefits of productivity and other mitigants will build as they are slightly on the lag yeah and I just want to build up for that we all got a double digit.

It's not slowing down. It's accelerating through Quest and Owen that represents 70% of our net sales. The double digit is significant.

Great. Thanks so much.

The next question is from the line of Jim Solera with Stevens. Please receive your question.

Hi, Jeff. Hey, Chris. Good morning. Thanks for taking our question. I wanted to start and see if you guys could give us an update just on the number of average SKUs Quest has across retail and particularly with kind of a focus on as you continue to expand the portfolio and Salty becomes a bigger mix. What should we think about as being kind of a target or a goal number of SKUs? As I imagine, if you're getting into other placements outside of kind of your traditional aisles, that should probably increase, you know, the overall number of placements you got. So any thoughts on that to start off?

I don't really think about a brand having a target number of SKUs, particularly in the case of its ability to stand well beyond the few brands that I've seen in my career that can do that. I see continued distribution growth in the flexible market, which is $50 billion, and Quest is the disruptor in that space and clear market leader. We're working on additional forms of SALTI that will continue to drive distribution. The priceable market on SALTI is significant, or whether it be in new channels such as away from home and places we're not today. So don't really view it.

I appreciate the thoughts there. And then, Chris, if I could ask a question on gross margin, if you're able to kind of quantify, I know we have the cocoa headwinds, but you mentioned tariffs starting to throw through the P&L. But on a go-forward basis, and just as we think about where 26 might land, is it fair to assume kind of gross margin more in a range of, you know, 36 to 37 versus kind of the upper 30s if we still assume kind of tariff impact is around where it's at today?

Yeah, good question.

I'm not going to specifically talk about a specific range on gross margin. like I said earlier that one of the we've got good visibility to our cost in the first you know for the rest of this calendar year we're looking to lock in some more coverage and to get ability to the second half of the year we've also got a moving all the moving pieces on tariffs but frankly we don't have a lot of clarity on given the recent extension second extension of the tariff deadline I'd like and like I said the the second half the you know the second half gross margin challenges we have this year we're going to see those flowing into the first half as I talked about earlier we do expect to have a better gross margin picture in the second half of FY 26 as are you know the high cost get into our base and productivity and pricing benefits build as I said earlier yeah Our target as a company continues to be high 30s, you know, gross margin.

And that's something that we remain very committed to. Obviously, that will cycle down, but it's something that we believe is extremely important for our investment in innovation and brand building.

I appreciate the detail. I'll hop back in to you. Thanks, Jim.

The next questions are from the line of Camille Gargwala with Jefferies. Please receive your questions.

Hey, everyone. Good morning. One just, I guess, quick clarification and then a question on Quest, which is on the clarification, is Atkins double digit declines next year just as simple as the distribution cuts sort of lapping over the course of next year? Do you think on a sort of distribution adjusted, the brand is also declining? I think you said so far at the moment it's flat. Just curious in that comment. And then on Quest, sort of the real question is, as you talked about capacity expansion, if you can maybe just dig into that a little bit, you know, how much, how fast is that maybe the biggest limiting factor, you know, for growth at Quest? And then the commentary on entering other parts of the store, where is it going? So, you know, outside of its own aisle, but what are the sort of target locations?

To your first question, averages, working with retailers to rebalance that across new to be, as I said, very, we're seeing on Salty, you know, week to week, it's 25 to 30 percent consumption growth week in, week out. we continue to be retailers with additional merchandising I called out in the script customer on the test going on with the dedicated and we've got additional display around the store and that has necessitated up to pull forward activity planning see no sign of the business slowing down and service the market and service consumers with our products for years to come so asked about the key elements of that, where we're not, is putting driving availability at Quests.

Thank you. That's useful. No follow-up. I think I asked you three questions at once. Thank you.

Thank you. So we may address questions from as many participants as possible. We ask you to please name yourself to one question. The next question comes from the line of Robert Moscow with TD Cowan. Please receive your question.

Hi. Thank you. So, Jeff, I was wondering if you have any color for us on the fight for distribution space in the ready-to-drink protein shake category. I would imagine, you know, more new entrants are coming in, more capacity is being billed. How has that influenced your ability to get your new Quest shake on the shelf? and do you foresee any change in the fight for shelf space going forward?

Yeah, good morning, Rob. Yeah, it's not a surprise to me that we're seeing stepped-up levels of competition in the ready-to-drink estate of the Santa store. It's a reflection, which, as I mentioned, now 17 double-digit growth. So particularly in ready-to-drink, which is snacking, It's not a surprise to me that there's been some recent entrants, but that will build as we get into the four resets. So we've been able to distribution four months into the launch here. Despite the competitive environment, which you referenced, I'm pretty optimistic about what I'm seeing out of this milkshake launch and increasingly optimistic about, you know, what a sizable beverage business could mean for the Quest.

Can you be more specific? Do you think it'll get into Club Stores, the new Quest item, or is it focused on different channels initially?

It's a little early.

If we have the ability to test on Club, we might do that. Club invite.

Our next question is from the line of John Anderson and William Blair. Please proceed with your question.

Hi, good morning. Thanks for the question. I have a two-parter. You've talked about pricing that you've executed some and are considering more across the portfolio. Can you provide a little bit more color around the pricing you've implemented to date and how you're thinking about that going forward? And then I wanted to kind of shift gears and ask about capital allocation priorities. You know, you paid down some debt and bought back some stock in the quarter. Leverage ratio is in great shape, but well below a turn. How are you thinking about, you know, where you want to apply capital, you know, going forward, you know, to best use?

Yeah, I'll take the price question. I'll turn it over to Chris. as I mentioned earlier when we talked about it.

And, yes, our net debt is down cash. We use a structured framework. Our main use of excessive operations, our main use is M&A, and we do see some interesting M&A things in the pipeline. Second priority would be debt pay down. Obviously, we've said on the call that, you know, we've paid down now. It's about $250 million, and we're pretty happy with that debt level. and then the last or the third capital use is going to be on buybacks if it makes sense and when it makes sense but as we've said before we're you know we're a high margin asset line model we do convert a lot of annually with our to cash and as we said on the call we have about 100 million of cash today and we talked again on the call about things we use that cash for over the last sort of the last 12 months. But yeah, priorities would be number one, M&A, number two, debt pay down, and then lastly, any buybacks.

That's helpful. Can I squeeze in one more? I apologize. I know you're not ready to comment specifically on 2026, but you have said that you're running 70% of the business now in the two high growth brands, Quest, and Owen, you expect those to kind of continue to grow consumption in the double digit range, um, or better. Um, and then a bit of a drag from Atkins kind of carrying over into fiscal 26. It seems if you kind of do the math, you could still see top line growth, you know, at algorithm next year. Is that a fair assessment or do you think that the drag from Atkins is a little bit, a little bit bigger than initially anticipated. Thanks.

Yeah, no, I'd reiterate where we build the plan both on the top and bottom line, double digit, as we go into 20.

Thank you.

The next question comes from the line of Alexia Howard with Bernstein. Please proceed with your question.

Good morning, everyone. Can I ask a slightly different question around the legislation that's just been passed in Texas requiring warning labels to go on to foods containing 44 additives by 2027. I'm just curious about how much of your portfolio might be affected, whether you can take steps over the next 18 months to actually eliminate a lot of those additives. Is that going to be a major challenge for you? And which specific ingredients might be most challenging? What we've heard from others is that things like preservatives and antioxidants are actually much more challenging because of shelf life than the original list of artificial dyes that have been wandering around the media for the last few months.

Not just.

Great. Thank you very much and good to hear it. I'll pass it on.

The next question is from the line of Brian Holland with DA Davidson. Please proceed with your question.

Quest protein bars have seen a nice inflection here relative to the past few quarters. Obviously, you had the overload rollout, which I presume has some, if not all, of the contribution there. But just kind of curious what you're hearing, seeing with respect to the response to that launch, how it informs sort of your go for it and what is still your biggest category under that Quest banner today. and maybe just some sense of what the innovation pipeline, how that's forming for that specific line. ...to bring disruptive innovation.

And so you're seeing the category, and now our business respond to when we bring out gray innovation. And I think I've been transparent over the last year or so. We kind of took our foot off the gas a little bit. Obviously, you see the pipeline on the business, and it is now very, very exciting to me. and the performance of our...

The next question is from the line of John Baumgartner with Mizuho. Please receive your questions.

Good morning. Thanks for the question.

Good morning, John.

Jeff, I wanted to come back to Atkins. You mentioned the strength of the core SKUs, and I'm curious if you could speak to innovation for the brand going forward. This class of 24 that launched back in August, the truffles, the gummy bears, those are nicely accretive to sales. Would you consider those types of products included among the core at this point? Have they proven themselves? And how aggressive do you plan on being with innovation at Atkins moving forward?

Yeah, innovation has been very candid. I've been transparent about that. We dropped the ball on bringing – we have ramped up those efforts. The disruptors.

At this time, we've reached the end of the question and answer session. I'll turn the call over to Jeff Tanner for closing remarks.

I just want to thank everyone for joining the call, and we look forward to seeing you on October.

This will conclude today's conference. Let me disconnect your lines at this time. Thank you for your participation. Have a wonderful day.