Greetings and welcome to the Simply Good Foods Company fiscal fourth quarter 2025 conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the form of presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. It is now my pleasure to introduce your host, Joshua Levine, Vice President of Investor Relations. Thank you. You may begin.

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 makes no obligation to update these stages. 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 GAF. The acquisition of only what you need, or June 13th, 2020, as we have now lapped the anniversary date of the Owen acquisition, the use of organic refers to year-over-year growth for brands we have owned for more than 12 months on a comparable basis. For Q4, organic growth includes year-over-year growth for Simply Good Foods' business, the fact of lapping the extra week in the form. All retail takeaway data included in our discussion today, unless otherwise noted, reflects a combination of Circona's MULO++C measured channel data. The 13 weeks ended. I'll turn the call over to Jeff.

Thank you, Josh. Good morning, everyone, and thank you for joining us. It was a solid year for Simply Good Foods. We delivered 9% reported net sales on a pro-4 net sales and group plus protein, fewer carbs in their diet, while positioning us of the rapidly accelerating clean label movement in two years with construction on an additional production line now in progress. Compete against brands and consumers their more attractive entry price supply to meet consumer demand beginning modestly incurred to the markets and note that current potential favorability as we exit this year and primarily into fiscal 2027. In addition, we've also responded to inflation with aggressive productivity actions and pricing which we announced to the trade in August and which will be in market by the end of 26 and into 27. Strong position. High growth category benefiting from a generational shift towards high protein, low sugar, low carb product and create value for our shareholders. Enhanced selling capabilities give us a strong balance sheet. Over year consumption growth of 11% in the quarter and expanded household penetration to 19% up 170 basis points. By 2025, Quest grew consumption in 12% and net sales of 13% on a 52-week basis, hoping to deliver a five-year KGIF of nearly 20% under our ownership. As the brand approaches $1 billion in net sales, confident in our ability to continue to disrupt the nutritional macros across many categories. Quest Team, a nimble and competitive culture and a framework for growth based on disruptive innovation, expanding physical availability, and increasing brand awareness. with consumption up 31% for the quarter and 34% for the full year. Sending 20% of Quest retail sales three years ago, Salty is on target to be our largest platform by the end of fiscal year 2026. As a decline of innovation, we continue to gain shelf and merchandising space in and outside our aisle. And as mentioned, we've invested to expand capacity for the full year. If you recall, our hero or chocolate-covered crispy line of bars, inclusion-heavy offering, delivering the nutritional macros consumers are looking for. While we're moving in the right direction on Bars, the D category, as we rapidly evolve our organization, largely driven by the full year of the 30-gram Atkins Strong RTDs we launched a year ago, with a key partner, up mid-single digits. As mentioned, as we evolve our company, Atkins will be a more focused brand around a core assortment, and we are being proactive in our efforts to get there. We acknowledge that there will continue to be short-term pain for Atkins, with consumption expected to decline approximately 20% in fiscal year 2026. Atkins' core strength lies in its scientific credibility and proven history of helping consumers achieve their weight loss or maintenance goals. In short, Atkins was confident that, even as we are partnering with key retailers to repurpose Atkins, and Owen, when making the right and best sustainability, RTD retail sales benefited from new distribution gains at a key mass customer and a tested club. We want to address the somewhat slower consumption growth we've observed over the last few months. The impact of lapping distribution was exacerbated by a product quality issue made prior to the closing of the act. used in a portion of production during Q2, I want to be clear that it was 100% safe allergen testing program and showed up in ratings and reviews. Therefore, as we ran distribution and trial coming into Q4, our consumer response was not as robust as we would have liked. And as a result, Velocity mitigated the issue and began aggressive programming and trade and customer marketing aimed at re-accelerating trial and growth rate. That is the challenge. Owen still grew double digits in Q4, which is a testament to the unique positioning and strength of the brand. And early on here in Q1, Owen sustained a mid-teams growth rate in September, even as it lapped a big event at Club last year. With the integration largely completed, it was simply good to drive growth of the business, significantly set up trade and marketing investments I spoke about. In addition to leveraging our retail teams to drive distribution gaps and bring highly differentiated innovation to market. A huge opportunity for us. At 12% of the brands mixed today, free from the top nine allergens and the list of ingredients. Simply put, 20% conhedrin with ACV for shakes in the mid-60s, 6% for power. This is why we must invest more to drive cold penetration. The company can be the company. We're making the right investment in 2017 necessary to win in this category. being reshaped for the future, and productivity and pricing initiatives underway, we're confident in our value creation for years to come. I'll now hand the call over to Chris.

Good morning, everyone. This fiscal year finished generally in line with our guidance, acting on margins as we exited the year. Organic net sales grew at least 3% in each of the last three quarters. We continue to invest in our brands, our talent, to position the company for the long term, and we generated a lot of cash that we put to work. It's called 2026. A million dollars declined 1.8% anniversary date of the acquisition. Organic net sales. The key driver of this organic growth was Quest, which grew 15.9% primarily from strong performance in our salty snacks business. While Atkins declined 18.3% as a result of distribution losses and related trade inventory reductions. 3% on a reported basis points versus prior year on a gap basis, largely reflecting higher input costs and the initial impact of productivity and pricing. Step up related to the acquisition of Owen, which was a 90 basis points headwind to gross margins in the fourth quarter of last year. Gross margins declined 540 basis points. As of $32.4 million, we're down 20.6% versus prior year, primarily the result of a planned pullback in Atkins marketing and lapping the 53rd week. G&A expenses were due to lapping the 53rd week that was mostly offset by own integration expenses, compensation, and one-time integration and other costs to $27.6 million, driven by lapping the 53rd week and the initial realization of cost synergies was $66.2 million, down 14.5% from the year-ago period. In the third week, adjusted EBITDA declined in the high single-digit range. There were indicators of impairment related to the Atkins brand and related intangible assets. Assessment and updated projections of futures was down $4.3 million versus the prior year as a result of lower debt balances, while the effective tax rate was 20.2%. $4 million, $29.3 million last year, due primarily to the impairment charge I just mentioned. On a full-year basis, reported net sales grew 9%, mainly driven by the Owen acquisition, which added nearly 8 points from lapping the 53rd week. On a panic basis, net sales increased 3%, driven by Quest, which grew 13.4%, as well as a small contribution from Owen in Q4. Atkins was down 12.9%. It grew 2.8% year-over-year on a reported basis, driven by net sales growth that was partially offset, while gross margins for the full year declined 220 basis points as a result of elevated input cost. Solution from the net sales growth, the O and acquisition, are 29 cents in the year-ago period, which is a moment ago, headwind in the quarter. Adjusted diluted earnings per share was 46 cents compared to 50 cents in the year-ago period. On a full-year basis, the company generated diluted EPS of $1.02, a decline of 26.1% versus the prior year, largely due to the aforementioned impairment charge and one-time integration costs. Diluted EPS of $1.92 increased 4.9% versus the comparable prior year period. calculated adjusted diluted EPS as adjusted EBITDA, less interest income, interest expense, and income taxes, divided by diluted shares outstanding. It was $98 million, an outstanding principal balance on its term loan of $250 million, bringing our net debt to trailing 12-month adjusted EBITDA to approximately 0.5 times. The flow from operations was $178 million, $15 million last year. The decline was primarily due to higher uses of $40 million, strategic investment we're making to support additional capacity in detail in a moment. Loan debt, $40 million, or essentially $40 million borrowed to fund the purchase. $27 million to repurchase nearly 900,000 shares, approximately $51 million to repurchase nearly 1.6 million, approved $150 million increase. The company's existing stock, the company has approximately $171 million remaining under its revised stock repurchase authorization. I spoke with you in July hearing actions that will be in market by the end of Q1 and are expected to be a low single-digit benefit once fully implemented. These actions cover all three brands and will help us restore our margins, but in the near term will cause our top-line trends to be more subdued as a result of initial elasticity. For Owen, as a result of trade and brand investment to re-accelerate growth, many changes in the prevailing tariff rates for Chinese imports, considering the ongoing negotiations where timing and magnitude remains uncertain. A significant change in prevailing tariff rates on China, we estimate our total tariff exposure will be less than 2% of our fiscal 2026 cost of goods sold on a net basis, including the benefit of currently identified mitigants against which we are already taking action. Given the trade agreements announced to date, the blended tariff rates will come in slightly higher than we were previously expecting. That as we move through the second half of fiscal 2026, we'll be progressively at prices below prior year, giving us good visibility on cost and margin improvement into 2027. We continue to diligently monitor the commodity markets with opportunity to further lock in more favorable costs and ensure supply. And finally, while not a change, I want to point out that we remain committed to investing in our growth platforms for the long term, even while we face higher inflation, especially in the first half, with growth from Quest and Owen offset by Atkins in the range of 100% and adjusted EBITDA year over year, positive 1%. As we look at the shape of fiscal year 2026, the year will be a tail of top and bottom line than our first half. Starting with net sale, full-year range, likely to be our weakest quarter of the year. The path will be impacted by initial elasticities, pricing actions, and the wraparound drag from Atkins distribution losses. We will see the underlying benefit of recent distribution gains on Quest and Owen. Growth will be muted by the lingering effects from the Owen quality issue and a generally tough lap for Quest and Owen, both of which benefited in the prior year from strong merchandising programs, particularly in Q2. By the second half, we expect, driven by an exciting slate of innovation launches across our brands, impacts from OAN's product issues, expect net sales growth in the second half of the year to be at the higher end of our full-year outlook range, impacting our margins in the first half, with a combination of lower cocoa costs and pricing in the second half. Most acute in Q1, when we will have very little benefit from pricing and productivity to help offset the higher costs, including the historically high cocoa inflation, presenting a year-over-year decline of nearly some gross margin. We expect our gross margins to be in line or slightly better than our full-year fiscal 2025 gross margins on a gap basis, implying gross margin expansion in Q4 of nearly 200 basis points year over year. Adjusted EBITDA should generally track the shape of our expectations of gross margins and much stronger results by the second half. First quarter adjusted EBITDA to decline by approximately 25% year over year. By Q2, we would expect more subdued year-over-year declines in the high single-digit range before we return to growth in the second half, as we expect to force up double digits year-over-year. I would note that our outlook assumes current economic conditions, consumer purchasing behavior, and prevailing tariff rates will generally remain in the fiscal year. This includes a number of important assumptions outside of our control, $20 million on CapEx in fiscal 2026, and particularly to reinforce our competitive mode in our salty business, expansion in our salty platform. Consumers love the products and retail enables us to support our long-term growth aspirations on the business. It's a hallmark of this company, and next year will be no different. Our low debt levels and high debt provides us the optionality to create meaningful long-term value for our shareholders in multiple ways, including by investing in capacity through share buybacks and via M&A. For a comprehensive summary, you see slide 17 in our presentation, capacity to deliver the year, and thank them for their support and collaboration in my first quarter as CFO. Prepared remarks. Thank you for your interest in our company. We are now available to take your...

We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate a line is in the question queue. You may press star 2 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. And also, as a reminder, to allow time for everyone to ask a question, we ask that everyone in the queue to provide only one question. Our first question comes from the line of Peter Grom with UBS. Please proceed with your question.

Thank you, Operator, and good morning, Jeff, Chris, Josh. I hope you all are doing well. So I wanted to just pick up on the comments around Owen and kind of the product quality issues that you alluded to that impacted the quarter. Jeff, it sounds like these are now kind of in the rear view here. So just curious how you think about the past from here, maybe what you've seen more recently from the brand. And then I guess just related, when you think about the full year sales guidance, what's the range of outcomes as it relates to Owen based on what we know today? Thanks.

Yeah, I appreciate the question. As we said on the call, our guidance for the year had always expected Q4 to slow a bit. As we were lapping, no one distribution wins. However, as mentioned, Q4 was impacted by product quality issue. So related to the raw material sourcing for pea protein, a decision that was made prior to closing the acquisition, more specifically, the pea protein was used in production during Q2, which did impact taste and texture on certain lots of the product age, used in our estimate around 10%, but certainly material enough to impact consumption. And we certainly saw it come through in ratings and reviews. So as soon as we saw it, we jumped on it. I will say the product, 100% safe within the Owen allergen-free guidelines. A small portion of product was impacted, but enough to impact consumption and show up in ratings and reviews. So what did we do about it? We have rectified the issue. We've got a newer and more stable formulation that is shipping, been shipping since August. We'll be fully in market by fiscal Q2. Obviously, we work with customers that were more disproportionately impacted. We increased trade to restart trial, and we've increased marketing as part of that. So, you know, we've dealt with the issue. It's mostly in the rear vision mirror. There's probably a little bit of product out there, but that's why we're ramping up our investments in both trade and marketing. We continue to be extremely confident about the trajectory of this business. Strategically, it's expanded our presence in the Shake category. It reaches a new consumer, namely those looking for plants, clean label, feedback from retailers. is that this is a very distinct incremental segment. The integration has gone well. The synergies are on track. So, you know, this was this product issue, you know, we've jumped on it. We've dealt with it. But as you do look, as you look forward, I could not be more excited about the Owen brand. It's the clear leader in clean. And as we sit today, even versus where we were when we completed the acquisition, you're seeing the increasing emergence of clean and consumers looking for clean options. And we certainly hear that from retailers. We see distribution upside on the core business. ACV is still low. As you look at brand awareness, it's only aided awareness, around 20%. That's why we're significantly increasing marketing. But this is not just on the core shakes business. I think as we mentioned on the call, the powders business, smallest portion today, but that's extremely high growth, very incremental. And one of the things we did right at close of acquisition is we integrated the R&D team and we've been working, you should assume we've been working on some exciting platform innovation that we'll build from there. So, you know, we saw the product issue, it impacted consumption, we jumped on it, we've addressed it.

It's one of the reasons we're in investment just to really get that trial accelerated, confident in the near term, confident in the long term. and we're very pleased we acquired this business Thank you Our next question comes from the line of Steve Powers with Deutsche Bank Please proceed with your question Great, good morning guys Morning So Jeff maybe picking up on where you started the conversation just on the low sugar high protein macro trends assuming it's as strong and enduring a structural shift, as you discussed in your opening, and I think there are a lot of reasons to believe it is, how do you handicap future competition? Maybe how have those views changed since you first arrived at Simply? And maybe a bit more detail, how you've incorporated those allowances and forecasts into your business planning for fiscal 26? If I could also, Chris, just picking up on where you wrapped up on cap allocation, just given the dynamics that the business is contending with organically this year, both top-line and cost-related, as well as a decision to lean into CapEx a bit more to drive capacity, I was curious to see if there's any shift in your appetite or capacity to handle M&A. It didn't sound like it from your comments, but I just wanted to clarify that. Thank you.

Yes, I'll start, Steve. So to your question on the category and competition, this is a fantastic category, especially versus center store. You know, we're seeing now five years of high single or low double digit growth category grew 13% and fiscal 25% and most of that was volume. To your point on competition, you know, it's not a surprise to us that it's a very competitive space, particularly with those growth rates. What I will say is competition is not new to us. It's not a new dynamic for Simply. This category has always had a pretty high level of competition. We've always been able to do well. And it's the reason why we've invested so heavily in R&D, more recently bolstered our sales capabilities with category cap and at retailers. And we've got a very agile and robust supply chain, I think M&A capabilities and the success we've had play a role there. As you think about the market, though, what I would point out is one of the dimensions, Steve, is if the category is mainstreaming, it's not just limited anymore to the poor traditional aisle. And as that category mainstream, the addressable market for us is increasing substantially, which is why we're putting much more emphasis on getting out of our aisle. You can see that with chips, displays we're getting, merchandising, placement, secondary placement. And you can see that with the kind of products we're bringing to market, more mainstream products like chips, like baked, like milkshake. So, competitions are dynamic. It's something we've always dealt with. What I would say, and then I hand it over to Chris, is one of the things I've tried to do at Simply is to up our beats per minute, our output, you know, to better handle competition than we have in the past. So, that's a more agile organization. everything needs to be faster innovation needs to be faster to market our marketing more digital more always on um our the the the decision making that was in the organization needs to be quicker um and you know this is something that we're we continue to work on as an organization as we face up to large-scale competitors and insurgent brands. It has to be part of the DNA of Simply Good, and we're committed to being an organization that combines the best of a scaled organization with the mindset and agility of an insurgent operator. So I'll turn it over to Chris for the second part.

Thanks for the question. So just maybe just to set the table a bit, in 25, just to remind you, we generated around $180 million of cash from operations. We spent about $20 million in CapEx. We paid off $150 million in debt, and we bought back just over $50 million in shares. So as we look at that, this business continues to generate a lot of cash. We're starting out 26 with a very low net debt level, and we're very comfortable with our debt levels. As we look at cash priorities, we're constantly evolving the best use of excess cash through a very structured framework. I would say our priorities have not changed. I would say that we look at these options really as an and and not an all. So we believe we can buy back shares. We believe we can invest in capital. believe that if the right M&A opportunity comes along, we certainly have capacity to take that on. And we do look at M&A really through a constant lens. But in the short term today, we look at our stock, we believe it's attractively valued. And we do think buyback represents a good opportunity for us to create long-term value.

That's just the one build on that with me from a CapEx perspective. As you think about our supply chain, Steve, we have an agile supply chain built to follow the consumer, which is a real asset for us, and that is part of our operating model. However, where we see an opportunity to invest to strengthen a competitive mode, we will, which we've seen on chip. It's obviously the fastest growing part of our portfolio. And in that instance, we're willing to invest capital in partnership with a key strategic co-man to strengthen our competitive mode.

Thank you. Our next question comes from the line of Robert Moskow with TD Cowan.

Please proceed with your question.

Hi, thanks for the question. I just want to make sure, hi, I'm getting my math right. Because, you know, the top line guidance was a thing that I think surprised us being, you know, lower and zero at the midpoint. The Atkins decline was not the surprise, though. So, given that I think Quest exited the year at 14% organic growth, and I think you even said that despite the problems on O, and you were also double-digit there, just mathematically, it looks like these two are going to be up high single-digit in fiscal 26. I just want to make sure I got that math right. And if so, are you forecasting a deceleration in Quest in 26? Is that also part of the guide along with Owen's issues?

Yeah, so I think you got the math roughly right. We're looking at Quest up really high single digits. Owen will be in double-digit range. And as we talked about on the call, Atkins is going to be down in consumption about 20%. I think a couple of factors that perhaps will explain it. We have, as we said on the call, we have a price increase that we've announced to trade. It's not in market yet. So it won't be showing up in consumption numbers yet. So we do have a price elasticity effect that'll be heaviest in the first half. We're also assuming Atkins trade inventories will come down. driven by the distribution losses which also helps explain a little bit the consumption versus net sales guidance um and then from a from a quest perspective an own perspective is if you look at the first half they have some tough laps um which you know which which we will we will have to to work through which is also why half one is a little bit lower uh perhaps in the full year thank you thank you our next question comes from the line of john anderson with william blair Please proceed with your question.

Thanks for the question. I've got several, but I'll just hone in on this. Maybe big picture. So, Jeff, you mentioned earlier that, and we're seeing this obviously too, that the category is mainstreaming to some extent. And as you pointed out, not necessarily constrained to the traditional aisle anymore as a result. So I guess my question is if kind of the incremental household or incremental consumer for these types of products may not be in that traditional aisle, maybe more in a mainline aisle, how are you kind of approaching, you know, serving that customer, getting in front of that customer, interrupting that path to purchase? What kind of capabilities are you building if you invest in? How do you see the offering evolving and maybe moving around the store?

Yeah, it's a good question, and we certainly see it. If you just look at the increase in household penetration that Quest has experienced and Owen has experienced, Quest up 19% and Owen up close to a point. You're right. So as the category has mainstreamed, as more and more consumers are looking for high-protein, low-carb, low-sugar options, they're looking for those options everywhere they shop. This is no longer just isolated to the more traditional aisle near the pharmacy. In my opinion, this is one of the biggest trends that is shaping this category, the mainstreaming of it. And that is why we, over the last year in particular, we've had a focused effort on expanding the physical availability of our products outside our aisle. And so you will see secondary placement in mainline aisles, for example, chips. We've built a new retail team that is focused on driving displays across the store. We have made progress in new channels, particularly in the club space. We've invested in away from home. So I think universities, gyms, and airports. And what I would say is we're still in the early inning of that. That is one of the biggest growth vectors that we are focused against right now. And we've built the capabilities to do that. The second piece to that is continuing to bring products that are more mainstream, not just limiting our innovation to bars and shapes. And we've seen that with Quest Chips, and we are in the early inning of Quest Chips. You've seen that with our bake shop launch, which has proven to be highly incremental. And, you know, that thinking more broadly with innovation and really tapping into what I think is possibly the greatest strength we have in our organization, which is our R&D team, and disrupting the macros of large snacking categories. So this is all in support of mainstreaming, being available everywhere consumers shop and are looking for our products, and offering them a broader range of products that flip the macros on large, unhealthy snacking categories.

Thank you. Our next question comes from the line of Megan Clapp with Morgan Stanley.

Please proceed with your question.

Hi, good morning. Thanks for all the detail. I wanted to ask about Atkins, Jeff. I think you mentioned at this point 75% of the brand sales come from SKUs in the top two core tiles of category velocity. Are you able to just tell us are those SKUs growing at this point? I'm just trying to kind of square with the 20% decline you're expecting this year. Is that concentrated in kind of the lower velocity SKUs, or are you still seeing some pressure within the core? And just how should we think about kind of that 10% to 15% in the bottom core tile? Is the bulk of the rationalization you think, you know, as we get through 26 going to be behind you?

Yeah. So, yes, by far the majority of the SKUs in the top two quartiles that represent 75% of sales are growing and healthy. The issue with Atkins, as we've talked about in the past and on the call today, is it had a long tail. of SKUs that have underperformed. So the declines that have impacted Atkins have been mostly driven by what you're seeing in the tail SKUs. And if you want to zero in on that 10% to 15% in the bottom quartile of the category. So that's where we're focused. That's where we're focused on rationalizing that tail and working with retailers to drive to a more optimal assortment, a more sustainable assortment, concentrated around the core.

Okay.

That's helpful.

Thank you. Our next question comes from the line of Ryan Holland with DA Davidson.

Please proceed with your question.

Thanks. I wanted to ask about the selling and marketing line, which, you know, if we go back, depending on what starting point you want to use, it's come down about 300, 400 base points as a percentage of sales. This obviously dates back to, you know, when Atkins was the only asset in the portfolio. You know, you talked this morning about leaning into the Owen brand, despite the fact that you have margin pressures elsewhere, so you're taking an incremental hit to support that brand. And you've had pretty clear success since you rolled out copy on Quest. So you have some proof of concept there back in early 24. And obviously Atkins maybe is in a different place than it was, you know, if we go back, you know, five or six years as far as what it requires from a support level. But, you know, again, just thinking about where that number's come down and thinking about modeling this business going forward and the earnings power, just wondering what the right level of brand support for this portfolio requires.

Yeah, and I'll take it and turn off to Chris. So we've been really pleased with the impact that advertising has had on Quest. Over the last couple of years, Quest is up substantially, up double digit in dollars. And the new campaign that we rolled out just over a year ago had an almost immediate impact on consumption. You could see it. I've been doing this for 25 years, and it's very rare to see such an immediate impact of advertising on the business. just rolled out, released a 2.0 version of It's Basically Cheating, and the test scores there were terrific. So advertising works for us, and it works in this space. As you think about how we're allocating our marketing spend, so Quest up double digits, significant advertising to support that business, And then as we look at the trajectory we see on Owen and the future we see on Owen and the customer conversations with Owen, we think the right decision for us is to make a substantial increase in marketing on that business for the long term. You're right where we have rationalized advertising is on Atkins as we've brought spending back in line with the size of that business and with the trajectory of that business. And then just one more point on advertising, shifting more and more to digital, so social media, winning with influencers, retail media outlets. So there's also a mixed shift within a marketing span.

And then the only thing I'd really add to Jeff's comments is, you know, as we find opportunities through the year to invest more in marketing, we absolutely will. And that's definitely a priority for us is to set ourselves up well for future continued sustained growth.

Thank you.

Our next question comes from the line of Camille Gajewala with Jeffries. Please proceed with your question.

Hey, guys. Good morning. I wanted to dig into something that you talked about related to the OWEN product issue on. I don't know if you said if it was reviews or if it was something on social, But maybe if you could just talk a little bit about how you might be addressing Owen from a brand issue, you know, maybe the product quality issues are resolved, but what impact did it have on the brand? You've talked a lot about sort of incremental marketing, but, you know, maybe what specifically are you doing and perhaps what is the narrative or has the narrative been impacted in any way from this issue? Thanks.

Yeah, so let me just reinforce that the product issue is largely behind us. We've been shipping new, more stable product since August, and the impact was less than 10% of product. That notwithstanding, it did have an impact on consumption and ratings and reviews, which did drop. So the product and market was a little more concentrated in a few channels. We've over-invested in those channels to get the ratings back up, to drive trial. And I'm confident that this business will be, you know, very quickly back to where it was. And, you know, to underscore that, even with the issue in market, the brand is growing mid-teens. As you look long term, again, we have tremendous confidence in this business. The clean movement is really accelerating. We're hearing it from retailers. We're planning on making significant investments in marketing to drive awareness from a pretty low base. We see distribution opportunities in front of us, and I'm really excited about disruptive innovation we'll be bringing out within the next year on the business.

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

Thanks for the question. Good morning.

Good morning. Jeff, you mentioned the price increase that's forthcoming at retail. How are you thinking about elasticity on the back of that? Should it be higher than history given the health of the consumer? And related to that, if you can just please clarify, the focus on the entry prices for Atkins bars. Are you finding that absolute prices today, after the last few price increases taken, have prices become an impediment to consumption among existing buyers? Or is this more of a mixed shift, whereas as the category mainstreams, new households come in, maybe more middle-income consumers, does it require lower prices to attract new households?

Yeah, so on pricing, we have announced pricing on portions of the portfolio, kind of in the mid to high single digit range. We expect elasticity to be in line with what we would historically see. But we have seen that initially the elasticity impact may be a little higher and then tends to burn off, which is, as you heard Chris mention earlier, is one of the drivers of our first half, second half inflection. To your question on have we seen pricing dampen, you know, growth, absolutely not. This has proven to be a category that is pretty resilient to pricing in the long run. You don't get to five years of high single, low double-digit growth if that's happening. um so this seems to be a category that's very resilient to pricing in the long run um to your question on the atkins more attractive entry price point um we at the atkins uh products our entry price point was in a five pack where the majority of competition was in a four pack and that just created a higher absolute price on shelf. As we did our research, we identified an opportunity to come out with a four-pack at a lower absolute price. And it's early, too early to call it. We are certainly seeing the entry price point bring in new users to the brand.

Thank you.

Thank you. Our next question comes from the line of Matt Smith with Stiefel. please proceed with your question.

Hi, good morning. Just wanted to come back to the comments on sales expectations by brand and phasing. First, Adkins consumption is expected to be down around 20%. You also called out that inventories may move lower given some of the distribution losses. Do you have an estimate for where you would expect that inventory headwind to come in. And second, you called out a tough merchandising comparison in the second quarter, specifically for Quest. Is that related to lapping the large club event last year? And can you provide an update on how your distribution opportunity or expansion is going within the club channel? I think you had some positive takeaways from a large event last year and you were going through an evaluation period and curious how you're continuing to see that evolve. Thank you.

Yeah, just to start with I'll address Atkins. Yeah, we do see Atkins, we think net sales will be down more than 20% in the first half, which is, as you rightly pointed out, is the consumption decline we called out on the call earlier, as well as the distribution impact. As that distribution comes out, obviously, we'll be low at retail for those points. So that will be coming down more than 20% in the first half, a bit better in the second half. In terms of Quest, yeah, we are lapping some heavy merchandising in Q2 last year. Also remember that, as we just talked about, we have price elasticities that will be really in effect, full effect in the second quarter, which is an impact. But we're very happy with where especially the Salty business is running, obviously still very strong and lots of momentum left on our business.

Yeah, I can pick up the question on Quest. So, yeah, you're right. Last year, during New Year, New Year, we had a test, a large club customer where we have really not had any business at all. test performed very well and we've had continued conversations with with that customer about how to roll that out and the way that looks like it's going to phase at this point is that it will be more spread out throughout the year more consistent distribution versus having all of that distribution as we as we did in january february and a little bit into march so So that's where we're landing right now. We continue to work with that customer. I'm really excited about the new relationship we're building with that customer. It does represent for simply significant white space from a distribution perspective. And just more specifically, back to the Quest chips and the lap is the spreading effect of that volume that will now be more spread throughout the rest of the year as the process is concentrated.

Thank you.

Our last question comes from the line of Jim Solera with Stevens, Inc. Please proceed with your question.

Hey, Jeff. Good morning. Thanks for taking our question. I wanted to circle back on the margin component of the guidance. Are you guys able to remind us what percentage of COGS COCO represents, and if you can give any commentary around kind of the layering of your hedges. There's been a lot of volatility in COCO, so we're just trying to get a sense. You know, if prices continue to fall, could there be gross margin relief maybe earlier than 3Q or to a greater magnitude in 3Q? Just any comments that would be helpful.

Yeah, I mean, in terms of COCO, just to remind you, COCO is, we do buy COCO directly. We also have cocoa as a significant component of our coatings, layers, and inclusions. As a percentage of our overall cast, it's in the mid-single-digit range. And then from a coverage perspective, which I think was the other part of your question, we are covered out quite far into the year. So in the first half, to remind you, I think we talked about it on the call, We are covered in the first half of the year at fairly high prices that we took as we were just insuring supply. As we get into Q3, we'll be transitioning into much lower costs and actually deflationary year over year. And then as we go into Q4, that will take even more into effect. Lower prices, which will then carry into FY27. And then the only other point I would say on margins, as you started with a more general point, is we have pricing, as we said, really starting in Q1, really mostly in fiscal November, and building into Q2. Productivity, we've always said, is on a lag, and that will be really kicking in fully in the second half. So that's why we have pretty good confidence if you look at our costs. Costs are well understood through most of the fiscal year. Pricing is building, productivity is building, and we do see, even in the spot prices, specifically on cocoa, even further opportunity, again, as we think about Q4 and into 27.

The spot has come down quite considerably in the last couple of months, and certainly considerably from the position we have today through the first half.

Thank you.

And we have reached the end of the question and answer session. I'll now turn the floor back to Jeff Tanner for closing remarks.

I just want to thank everyone for the participation today on the call. If you've got any follow-ups, please feel free to reach out to Josh. We look forward to speaking to you in January.

This concludes today's conference, and you may disconnect your line at this time.

Thank you for your participation.