Simply Good Foods Co (SMPL) Q2 2026 Earnings Call Transcript

Greetings, and welcome to the Simply Good Foods Company, second quarter, fiscal year 2026 conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I'd now like to turn the conference over to your hosts, Mr. Matt Seiler, Vice President, Investor Relations and Treasury. Thank you, sir. You may begin.

Thank you, Operator. Good morning and welcome to the Simply Good Foods Company's second quarter fiscal year 2026 earnings call for the period ended February 28, 2026. I'm happy to be here on my first earnings call and pleased to be joined this morning by President and CEO Joe Scalzo and Chris Buehler, Chief Financial Officer. A copy of our earnings release and accompanying presentation is available on the Investors section of the company's website at the simplygoodfoodscompany.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. On today's call, we refer to certain non-GAAP financial measures that we believe provide useful information for investors. Due to the company's asset-light 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. Finally, all retail takeaway data included in our discussion today, unless otherwise noted, reflects a combination of Cercana's Mulo++C measured retail channel data and company estimates for unmeasured channels for the 13 weeks ended February 28, 2026, as compared to the prior year. With that, I'll now turn the call over to Joe Scalzo.

Thanks, Matt, and welcome to the company. Good morning, everyone. Thank you for joining us today. For those of you that I know, it's nice to be back, and I look forward to getting to know all the new faces. I wanted to begin this morning's call by providing a framing for where Simply Good Foods is today. It's been 12 weeks since I rejoined the company, and we are not pleased with our performance. We've experienced executional challenges against the dynamic and highly competitive marketplace. Our second quarter net sales of $326 million and adjusted EBITDA of $55.5 million were both well below our expectations. Our fiscal year 2026 guidance now calls for net sales in the range of $1.31 to $1.35 billion, an adjusted EBITDA of $217 to $225 million. The good news is that we believe we are well positioned to fix this. We know what we need to do, and we are acting with urgency. Our brands each speak to unique consumer segments within the category, addressing relevant consumer benefits with differentiated positioning. And I believe Simply Good Foods can return to delivering the durable, long-term growth that you would expect from a leading nutrition company. With that perspective, I'll turn the call over to Chris, who will provide more details on this quarter's results and our updated outlook for the year. After Chris is finished, I'll return to discuss how we plan to get our performance back on track. Chris?

Thanks, Joe. Good morning, everyone. As Joe mentioned, we are disappointed with our Q2 performance as our retail takeaway slowed significantly compared to Q1, especially in the second half of the quarter as we entered the New Year, New Year promotional period, declining 6.4% year over year. Quest consumption grew 2.4% as bars were impacted by softer baseline velocities. Salty grew 14% in the quarter, although this represented a deceleration from Q1. Owen consumption was down 2.4%, below our expectations, due to a lapping of heavy promotional period in the prior year and poor base velocities, including our newly expanded distribution. This poor performance will result in lost distribution in the coming months. Atkins' consumption declined by 23.4%, driven by known distribution losses and related trade inventory reductions, both of which were roughly in line with our expectations. Specifically, we reported second quarter net sales of $326 million, which declined 9.4% versus the prior year, mainly due to weaker consumption. Adjusted EBITDA was $55.5 million, a decline of 18.4% year-over-year. Gross profit of $103 million decreased 20.8% versus the prior year, driven by inflationary costs, most notably cocoa, whey, and tariffs. Gross margin was 31.6%, a decline of 460 basis points versus prior year, largely reflecting higher input costs and some one-time effects from actions taken to mitigate OWN product quality issues. Excluding $3.9 million of one-time OWN integration expenses in the current year period and a $0.4 million non-cash inventory purchase accounting step-up adjustment expense related to the OWN acquisition that occurred in the same period last year, gross margin was 32.8%, a 350 basis point decline versus the same period last year. Selling and marketing expenses of $28.2 million were down 19.7% versus prior year, primarily the result of the previously planned pullback in Atkins marketing. G&A expenses of $34.9 million decreased 3.2% versus the prior year period. Excluding for the current period $4.5 million in restructuring costs, integration expenses of $0.8 million and term loan transaction fees of $0.2 million for the prior year period integration expenses of $2 million and term loan transaction fees of $0.7 million, G&A declined 12% to $29.3 million, mainly due to a reduction in our short-term incentive accrual. It is worth noting that given the management transition, we increased our focus on controlling D&A costs earlier this quarter, I will speak to this in more detail in a moment. On a GAAP basis, we had an operating loss of $213.3 million compared to income from operations of $54.7 million last year due to a non-cash loss on impairment of $249 million related to the Owen and Atkins brand assets. Net interest expense was $5 million while the effective tax rate was 26.8%. Net loss was $159.7 million, down from net income of $36.7 million last year, primarily due to the impairment I noted a moment ago. Moving to the balance sheet and cash flows, as of the end of Q2, the company had cash of $107.4 million and an outstanding principal balance on its term loan of $400 million, bringing our net debt to trailing 12-month adjusted EBITDA to approximately 1.2 times. The company bought back almost 5 million shares in the second quarter. We have spent approximately $240 million repurchasing over 10% of our outstanding common stock over the past 12 months, including approximately $190 million this fiscal year. As of April 9, 2026, the company has approximately $182 million remaining under its current share repurchase authorization. The year-to-date cash flow from operations was $58.2 million compared to $63.3 million last year. The capsule expenditure was $7.6 million, reflecting the investment to support additional capacity in our Salty Snacks business that we've previously discussed. This month, we kicked off a major initiative to reduce total fixed costs in our company. The objective of this work is to improve the P&A structure by reducing staffing while increasing functional excellence in key areas, realigning our use of external agencies and brokers, and increasing efficiency in our manufacturing and logistics approaches. As a result of this effort, we will improve the shape of our P&L to provide improved profitability and generate fuel for increased brand investment. We expect the total one-time cost of these initiatives will be approximately $15 million, which includes costs already incurred in the CEO transition. Finally, moving to our updated outlook, we now expect the following. Fiscal year 2026 net sales are now expected in the range of $1.31 billion to $1.35 billion, representing a decline of between 10% and 7% respectively. This assumes weaker consumption trends and expected distribution losses. Gap gross margins are now expected to decline in the range of 300 to 350 basis points. This is a result of slightly higher input costs, especially weight, cost of mitigating the own product quality issue, and a slight delay in realized cost savings due to lower volumes. We continue to expect sequential improvement in the rate of year-over-year gross margin change, including Q4 margin expansion. We plan to hold marketing spend at planned levels to strengthen our brand equities and drive consumption. Our expectations for G&A include the partial year benefit from the major initiative previously noted to reduce fixed cost in the company. Fiscal year 2026 adjusted EBITDA is now expected in the range of $217 million to $225 million, representing a year-over-year decline of 22% to 19% respectively. We continue to expect our full-year effective tax rate to be roughly 25%. Our expectations on interest, expense, and capital expenditures remain unchanged. Given shares repurchased year-to-date, the company expects a weighted average diluted share count of approximately 92 million shares outstanding. As it relates to the third quarter, we expect net sales in the range of $328 million to $339 million, which represents a decline of 14% to 11% versus prior year. This incorporates consumption levels similar to what we experienced in the second quarter. We expect adjusted EBITDA in the range of $46 million to $50 million, representing a year-over-year decline of 38% to 32% as we hold marketing investment in line with plan. Finally, I would note that our outlook assumes current economic conditions, consumer purchasing behavior, and prevailing tariff rates will remain generally consistent across the company's fiscal year. I will now pass the call back to Joe.

Thanks, Chris. Let me reiterate where I began today's call. We are not satisfied with our current performance, and we see a clear opportunity to improve our choices and our execution across the business. While we believe the long-term fundamentals of our category, our portfolio, and our company capabilities are compelling, our recent results have not met our expectations. And we are taking immediate and fundamental actions to turn around both our financial and in-market performance. Before I talk about our plans, let me step back and tell you why I remain optimistic and energized about the growth opportunities for our business. First, we compete in a trend-right consumer category that continues to show solid growth, even as much of the broader food and beverage industry as experienced pressure. From a U.S. household perspective, the purposeful nutrition category still has significant room to expand with meaningful runway for continued growth. The category also continues to benefit from powerful consumer tailwinds, health, wellness, the use of protein, and the increasing role of convenient snacking and meal replacement in consumers' daily routines. Importantly, it also remains a predominantly branded category with limited private label, which reflects the pace of innovation required to compete successfully. This category backdrop will always attract new entries, and we've seen some targeted directly at our business recently. With that said, we have competed effectively through this type of activity in the past, and we'll do so again moving forward. At the same time, the broader food and beverage landscape is impacted by the growing adoption of GLP-1 medications. While these therapies are changing how some consumers approach eating, they are also reinforcing the importance of nutrient-dense foods, particularly those high in protein and lower in carbs and sugar, as consumers focus on maintaining muscle mass and overall nutrition balance in a lower calorie environment. We believe these trends remain highly consistent with the nutritional principles that underpin our brands. From a customer perspective, both brick-and-mortar and online retailers continue to view our category as a growth category and remain committed to allocating space and resources to capture that growth. Second, we believe Simply Good Foods has a strong portfolio of consumer brands. Each brand speaks to a unique consumer segment, addresses different benefits with differentiated positioning and preferred products. And third, we've built a best-in-class company. We have developed strong capabilities in marketing, sales, and R&D that enable us to drive innovation and profitable growth. In addition, our asset light manufacturing and distribution network remains an enviable operating model that provides flexibility, scale, and high free cash flow for investment. Importantly, we also have significant retail scale within the category aisle and serve as a category advisor to many of our largest retail customers. However, it's clear that our performance has not reflected the strength of our company or the potential of our brands. Strategies shifted, priorities were not always clear, and execution did not consistently meet the standard required to compete at a time when competitive activity was increasing, particularly on bars. As a result, we made some strategic choices that ultimately weakened our performance and limited our ability to fully capitalize on the opportunities in front of us. Since returning to the role, I have focused on taking a clear-eyed assessment of the business to ensure that we have the discipline, the consistency, and the operational excellence required to compete and win. This work is already well underway, and we are acting with a sense of urgency. Before moving to our portfolio, I believe it's worth stepping back and highlighting a few structural issues within the business that have contributed to our recent performance. Over the past several years, we've experienced erosion in overall household fundamentals across the portfolio. In a category like ours, growth ultimately depends on continually recruiting new consumers into our brands while growing loyalty and buy rate. Consumer recruitment requires the proper economic structure in the business. For us, this was characterized by gross margins approaching 40%, with sustained marketing investment around 10% of sales, and adjusted EBITDA margins approaching 20%. The shape of our P&L has moved far from this ideal structure, with gross margins in the middle 30s, reductions in marketing spend as a percent of sales, and G&A dollars growing faster than our underlying business. As a result, our ability to consistently invest behind our brands has been constrained, which has ultimately led to slower household penetration growth, declining buy rate, and pressure on brand performance. To succeed, we will address these structural issues. Our turnaround beliefs moving forward are clear. We will relentlessly attack inefficiency in our supply chain. We will use pricing action as necessary to help offset cost inflation over time. We will be less reliant on price promotion. We will lower our fixed overhead structure while improving key areas of functional expertise. We will restore more consistent investment behind our brands. We'll focus more of our brand innovation on the core business with bigger consumer-driven ideas. And we will use ROI to evaluate the effectiveness of every marketing investment. We believe turning these concepts into actionable plans will lead to improvement in our economic structure. The good news here is that we've already started that work. We have built capacity in our supply chain and R&D organizations to systematically improve efficiency, attack cost, and lower our total cost of delivered goods.

You will see that play out as we close out this fiscal year and move through fiscal year 2027.

We have already identified low-returning customer spend and are targeting its elimination in fiscal 2027 to reduce our reliance in that area and rebalance our consumer and customer investments. We will assess the use of pricing to regain the gross margin we lost to inflation over time. Lastly, as Chris mentioned earlier, we have a major initiative underway to immediately reduce our fixed cost structure. Specifically, we're taking aggressive actions to lower our G&A investments. When completed by the end of this fiscal year, we'll have an organization that is the right size with the right capabilities to compete and win. With that broader context in mind, let me now turn to our brand portfolio and the role we believe each brand plays in our strategy moving forward. I'll start with Quest, a billion-dollar retail brand, the most important brand in our portfolio, and the primary driver of our long-term growth. We believe Quest remains one of the most differentiated brands in the entire category, with significant growth runway ahead. We bought Quest in 2020, confident that it would become a huge success given the strength of its core promise. Quest has built its position by delivering a unique combination of great taste and highly differentiated nutritional profile. Since its founding, the brand has focused on using high-quality dairy-based proteins that provide the full spectrum of essential amino acids while avoiding ingredients that can cause blood sugar spikes. That positioning has resonated with a broad range of consumers that has helped Quest build strong loyalty and equity. Solid growth and household penetration has continued for Quest. However, recently we've experienced a slowdown in buy rate, partially due to elevated competitive activity, which has resulted in slowing consumption on the brand. At the core of the Quest franchise are two key product platforms, bars and chips. Together, these products represent the foundation of the brand and approximately 80% of sales. They continue to resonate strongly with consumers seeking convenient, high-protein snacks. Quest Chips remains an important and growing part of the brand, continuing to perform well as consumers increasingly look for better-for-you alternatives to traditional salty snacks. Chips continue to drive household penetration rates for Quest, which are now over 19% of U.S. households. Going forward, we'll continue to innovate products and invest in marketing to drive chip awareness, consideration, and trial. While the performance of chips has remained strong, consumption of Quest bars has weakened in recent periods, resulting in a slowing of the brand's overall buy rate. A significant factor in the slowdown is the result of our focused investments in other parts of our portfolio beyond chips, which haven't met our expectations at a time when competitive activity in core categories has increased. Given the scale and strategic importance of Quest to our company, re-accelerating growth in the bar business will be one of our highest priorities moving forward. Our focus will be on strengthening core bar velocities, ensuring our innovation pipeline is aligned with consumer preferences, and supporting bars through more competitive communication, driven by continuing the level of marketing investment required to recruit new consumers and drive buy rate. Re-accelerating growth in Quest bars while continuing to scale the momentum we are experiencing Quest chips is central to unlocking the full growth potential of the brand. Turning to Atkins, the brand has played a foundational role in the history of Simply Good Foods and in many ways represents the origin of the company. This brand traces its roots back to Dr. Robert Atkins, whose work decades ago helped introduce millions of consumers to the concept of managing carbohydrates to support healthier eating and weight management. His philosophy ultimately formed the foundation of the Atkins brand and the broader low carb nutritional health movement that many consumers continue to follow today. For many years, Atkins was the primary engine of growth for the business, and during my previous tenure we worked to reposition the brand from a programmatic diet into a broader weight management lifestyle brand focused on helping consumers manage carbohydrates while still enjoying great-tasting foods. During that time, Atkins grew for over a decade by recruiting consumers to the low-carb lifestyle. Over time, however, a combination of factors contributed to the brand's recent decline. As gross margins came under pressure, the level of marketing support behind the brand declined. It is worth noting that marketing investment in Atkins historically generated among the highest returns in the company, so reducing investment negatively affected net sales and consumer recruitment. In addition, consumer messaging around the brand became less consistent and strayed from the core weight management proposition that historically resonated so strongly with consumers. As marketing support declined and consumer messaging became less focused, our ability to consistently recruit new users into the brand weakened, which ultimately led to slower velocities and pressure on retail distribution. Given these factors, we expect Atkins will continue to decline in the near term, largely due to anticipated retail distribution losses as shelf sets continue to evolve in the category. Moving forward, our focus is on resetting the retail baseline of the business to a viable core assortment. Encouragingly, several of our important retail partners continue to view Atkins as a highly relevant brand with a substantial loyal group of heavy buyers. We also believe there is a meaningful role for Atkins with consumers who increasingly choose GLP-1s to lose weight. While the baseline is resetting at retail, we'll take a thoughtful, fact-based approach to repositioning the brand and evaluating future investments to drive profitable growth, and we'll assess our ability to grow the consumer base once again. Let me now turn to Owen. Owen was founded in 2017 by former professional athletes Catherine Muz and Jeff Maratz, who set out to create a plant-based shake brand focused on clean, allergen-friendly nutrition with transparent ingredient sourcing. The brand quickly developed a strong following among consumers seeking plant-based alternatives with simple, recognizable ingredients. We acquired the brand in June of 2024, believing it provided an attractive entry point into the rapidly expanding plant-based and clean-label protein segment. Importantly, the acquisition allowed us to expand our reach to a new consumer segment within our category while adding a third differentiated brand to the portfolio. Owen's product lineup today consists of plant-based, ready-to-drink protein shakes and powders designed to deliver functional nutrition with clean label ingredients. Owen's household penetration remains relatively small at 4.4 percent, which highlights the runway for future growth among existing plant protein consumers. Our recent segmentation work indicates that approximately 18% of U.S. households are actively seeking functional nutritional benefits such as plant-based protein and clean label ingredients and are willing to compromise somewhat on taste to obtain those benefits. This represents a large and growing consumer segment that aligns closely with Owen's positioning and products. While the growth opportunity with Owen is compelling, we did not meet our own expectations with the integration of the brand into our company. As a result, we lost some important brand expertise, our marketplace execution was poor, and our brand performance fell well short of our plans. During the past year, we significantly expanded the distribution of Owen's Pro Elite 32-gram protein shake, which was our entry into the high-protein segment of Ready to Drink. Our belief was that we could accelerate the recruitment of plant-based interested consumers with a higher-protein product and, in doing so, accelerate the brand's growth. However, a combination of a product quality issue on that product that impacted taste, texture, and consumer acceptance and poor marketing execution negatively impacted performance during the critical expansion window. While the product quality issue has been addressed, the retail performance of Pro Elite, as well as a number of line extensions, did not meet retail velocity expectations, and we expect some near-term distribution losses over the next year. Given the interest in plant-based protein and the strong brand equity in Owen, we believe that we will restore growth to Owen once the near-term reset is behind us. Looking ahead, we'll refocus on the Owen Winning Playbook, which includes marketing to drive awareness, consideration, and trial, and pacing, distribution, expansion of our core products in a disciplined manner to ensure strong velocities and sustainable growth for the brand over time. In summary, the role of each brand in our portfolio is as follows. Quest is our growth engine and our largest, most important brand. We will invest for growth and refocus on its unique protein-forward brand promise of athlete-worthy nutrition, behind its core products of bars and chips. Atkins is the leading weight management brand and our second-largest business. We will reset its retail product assortment with customers in line with its smaller yet loyal consumer base as we investigate our ability to profitably invest to grow its consumer households in the future. And lastly, Owen is our entry into clean, plant-based protein. After distribution reset, we will restart its marketing engine targeting plant-based protein seekers and our great-tasting, ready-to-drink shakes and powders. We will pace our distribution growth in line with household growth. As I look ahead, it's clear to me that our mindset must be on turning around company performance. The category remains strong, our brands retain meaningful consumer equity, and we are acting with urgency to unlock their full potential. In summary, my focus going forward will be on three turnaround priorities. First, we must strengthen the economic model of the business through pricing and cost reduction. Second, ensuring consistency and discipline in our choices, working on fewer, bigger initiatives so that the organization can execute with clarity, focus, and urgency, driving the portfolio strategy I just discussed. And third, rebuilding investment in our brands behind superior consumer insights and marketing execution to expand household penetration while ensuring we allocate investments with the strongest return. I rejoined the company because I strongly believe in the prospects of this business. I'm fortunate to have a motivated organization and an active, engaged board that is supportive of the steps I'm taking. We collectively believe Simply Good Foods has a very bright future. And with that, we're open to answering your questions. Operator?

Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. To allow for as many as possible, we ask that you each keep to one question and one follow-up. Thank you. Our first question comes from the line of Matt Smith with Stiefel. Please proceed with your question.

Hi, good morning, and thank you for taking my question. Joe, you outlined the strategic priorities, including addressing the cost structure. When you look at the business today, are there structural reasons why the aspirational financial structure is no longer the right benchmark? You called out previously looking for gross margins approaching 40%. There's been inflation that likely tamps that down a bit. But is the goal to drive gross margins higher to fund the marketing investment into that upper 30s range?

Rebuilding.

And then as a follow-up, when you think about the phasing of the cost structure opportunity, Are you expecting to make progress into heading into fiscal 27, or does addressing the non-marketing SG&A opportunity, is that pushed out further and required to fund the marketing investment you're seeking to restart that household penetration growth?

Well, that's about what we hinted in our prepared comment. I'll play down in 2017.

Appreciate it, Joe.

Thank you. Our next question comes online of Megan Clapp with Morgan Stanley. Please proceed with your question.

Hi. Good morning. Thanks so much. Maybe just a couple follow-ups there. So maybe getting a little bit more into the details. So in the slides, you did reiterate that long-term algo of 4% to 6% top-line growth and EBITDA margins approaching 20%. And this is even as you called out in your remarks, just a more competitive environment. And then you took an impairment charge in the quarter again on Atkins and now one on Owen. So just trying to kind of reconcile all of that, and maybe, you know, Joe, you can just spend a little bit more unpacking what specifically underpins your confidence and kind of getting back to that level of growth at that margin structure and how we should be thinking about the contribution from each brand within that framework going forward, understanding, you know, as you mentioned, it will take time.

That is a loaded question, which if I can unpack it a little bit. Why am I confident in our ability to rebuild, as I said, we compete in a really growth. We're in a category that is branded, so I feel like we're in a good category. They are well together, so for us to be positioned to acquisition of our own, I love the plan. I love the brand. We just got to exit that. we've got the right we're in a good category fewer big um you know what i would say is prove there exactly how that plays out what growth i can get from each of the brands over time that's still that's still uh work that we've got to do and we'll get to the financial profile we talked about and we'll get back to that algorithm it's just there's going to be some resetting that's going to take place just and once we get that behind okay thanks joe and and that's maybe a follow-up for Chris.

So the back half, I think 3Q implies kind of mid-teens EBITDA margins and then stepping up to closer to high teams in the fourth quarter. So two-part, can you just walk us through kind of the primary drivers of that step-up part one? And then secondly, is that 4Q level kind of a reasonable run rate to think about as we look ahead? Just, again, trying to reconcile with some of the comments that the turnaround will take time. You've got some investments you clearly want to make. You also have expectations for cost savings and efficiency coming in in 27 and hopefully some cocoa recovery too. So just trying to understand the puts and takes. Thanks.

One of the elements that we did talk about in the prepared remarks is the slight reduction on total productivity driven by the lower volumes over the year. Prepared remarks, Joe just mentioned.

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

Please proceed with your question. um hey thanks chris um i wanted to dive into those some of those tailwinds a little bit more um i i think we all thought there was a pretty substantial cocoa cost deflation benefit that was coming your way maybe as soon as fourth quarter and then into fiscal 27 can we kind of isolate that like it it must be even bigger than you thought and and then the second question would be, you know, the G&A in fourth quarter. What percent of sales do you think is the right number for us to kind of plug in here? It's been as low as 9%, I think, in the past, and now it's, well, you know, it's above 11. So where's the right level for us?

Start flowing through in Q4. We have actually weighed one of our biggest commodity increases that we've seen since the last quarter. The cost of weigh has gone up significantly. um that's actually partially offsetting the cocoa savings so i'm not sure if i fully understood your question on gross margin but cocoa is not really that much just to remind um and that that commodity has been running up frankly all fiscal year a little bit of gna perspective uh we are going to have the first quarter of savings on gna there's obviously some puts and takes but somewhere in the 10% range, you know, go forward for detail on that when we get to, obviously, getting to F27. But when you see the Q4 P&R, that'll be a pretty good baseline just as a starting point.

And Joe, you know, this kind of leads to the follow-up here is you talked about price increases being part of the strategy, but you also talked a lot about, you know, weaker velocities, losing some distribution with retail, and then competition. So are the brands healthy enough for more price increases at this time? And, you know, where do you see the bigger opportunities to do it? Thank you.

Thank you. Our next question comes from the line of Steve Powers with Deutsche Bank. Please proceed with your question.

Hey, great. Thank you and good morning. Joe, I wanted to focus on the slowing base velocity within Quest chips and bars and maybe get a better sense for your root cause diagnosis on each because my sense is there may be a little bit of nuance and differential between the two. Just kind of what you're seeing as the main driver or drivers and how that informs your plans to reaccelerate that.

Is it best to just step back?

Okay, makes sense. Maybe as a follow-up to Rob's question on pricing, You had also alluded earlier to maybe an over-reliance on promotional intensity. I guess, you know, to what extent do you see sort of the first wave of pricing opportunity to be actual sort of justified, you know, price-taking versus just, you know, a toggle on normalized promotional intensity? Very good.

Thank you. Our next question comes from the line of Jim Solera with Stephen Zink. Please proceed with your question.

Thanks for taking our question. Joe, I wanted to start with maybe a little bit of a high-level takeaway since you're coming back to the company but have a lot of experience with these brands. I think the view previously from investors is that Quest and Owen would bolster results while you got Atkins back into fighting shape. But based on some of the commentary today, it seems like there's more work to be done really across the whole portfolio. How do you think about allocating resources across the different brands? And do you have the bandwidth to go deep with multiple brands at the same time? Or should we expect, you know, fix Quest, then fix Owen, then kind of like a rolling effort? As a follow-up to some of your commentary on the marketing component in particular, In the prepared remarks, you guys talked about, you know, kind of ideally marketing around 10% of sales. But since it's stepped below that, and there's a lot of noise in the space with other competitors and upstart brands, should we think about marketing spend in the near term, however you want to define that, six months, 18 months, whatever, as stepping up above that 10% of sales level, given the sales declines and the need to maybe boost the relevancy? or should we think of that 10% as a ceiling? I appreciate the thoughts. I'll hop back in the queue.

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

Great. Good morning, everybody. Can I start by just asking about the guidance for the second half and what it implies for sales growth by brand? I mean, if we assume that Atkins is still down mid-20s, then the guidance you provided suggests that both Quest and Owen could be down mid to high single digits. Is that the way we should think about this? And if so, what's driving that? Because both brands had retail takeaway that were comfortably double digit last quarter. I know that you've got the distribution losses at Owen. Maybe that's a big piece of it. Is it extra competition from Pepsi's Doritos protein chips launch that's maybe causing some more pressure on the Quest side, just trying to understand what's going on with the sales outlook and what that implies for fiscal 27 and beyond. Thank you. And then are you able to quantify how much brand investment you're adding into the second half investment versus what the previous management team was initially expecting? Thank you.

I'll pass it on. Thank you. Our next question comes from the line of John Baumgartner with Mizuho Securities. Please proceed with your question.

Good morning. Thanks for the question. Maybe first off for Joe, just coming back to Atkins and your reset of the fundamentals, you touched on the alignment with GLP-1. And I'm curious, based on what you see now, internally looking at external competition, how would you compare and contrast making this alignment with GLP-1 with the prior repositioning of the brand from weight management into low-carb, low-sugar 15 years ago. Chris, just going back to the staffing reductions in SG&A, just to get a better sense, was there excessive hiring to support revenue that didn't materialize and that now leads to rationalization? Was hiring reasonable, but now you have new technology to let you run leaner versus history? Or is this kind of more of a function of having the same tools but reducing silos and leveraging folks across all three brands?

Yeah, perfect. Thank you, Joe.

Thank you. Our final question this morning comes from the line of John Anderson with William Blair. Please proceed with your question.

Hey, good morning. Thanks for the question. Two quick ones. It sounds like you've kind of talked about these baseline resets for Atkins and now Owen. Sounds like there may be a little bit of one with Quest even if you're refocusing on the core. I don't know what that means for bake shop, some of the other items. But could you give us a sense for how long you think it takes for the reset to play out, you know, the core assortment reset at retail for each of these brands so we get a little bit of a sense for how that might affect the consumption for them going forward? And then a second question, maybe more for Chris, you've been buying back stock, and I'm just kind of wondering how you're thinking about capital allocation, you know, going forward from here. Thank you.

The buyback question, as you know, we use the structured framework to assess uses of excess cash. We have leveraged just over a turn at the moment, so we still have plenty of capacity. But from an excess cash standpoint, once we've used cash for operational needs, we are going to look at excess cash and uses of that. And we continue to see buybacks as a good option for uses of excess cash. I would just say the level of cash, if you look at our balance sheet at the end of Q2, our level of cash has obviously come down significantly versus where it was at the end of Q1 given the refinancing we did last year. So think about the magnitude that we probably do, but buying back stock is two for this valuation.

Thank you. Ladies and gentlemen, that concludes our question and answer session. I'll turn the floor back to Mr. Scalzo for any final comments. Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.