Simply Good Foods Co. — FY2021 Form 10-K
Reporting period: Fiscal year ended August 28, 2021 (52 weeks), compared with the 52 weeks ended August 29, 2020. This is an annual filing, not a standalone fourth-quarter report. The company sells Atkins and Quest nutrition snacks and meal replacements; its Atkins and Quest operating segments are combined into one reportable segment.
Financial performance
| Metric | FY2021 | FY2020 | Change / context |
|---|---|---|---|
| Net sales | $1,005.6 million | $816.6 million | Up 23.1% |
| Gross profit / margin | $409.8 million / 40.7% | $324.3 million / 39.7% | Margin up 100 basis points |
| Operating income | $173.7 million | $78.2 million | Up $95.5 million |
| Net income | $40.9 million | $65.6 million | Down $24.8 million; affected by warrant remeasurement and higher tax expense |
| Diluted EPS | $0.42 | $0.35 | FY2020 diluted EPS included a warrant fair-value gain that reduced its diluted-EPS numerator |
| Adjusted EBITDA | $207.3 million | $153.9 million | Up 34.7%; non-GAAP measure |
| Cash from operations | $132.1 million | $58.9 million | Up $73.2 million |
Cash and liquidity: Cash was $75.3 million at year-end, down from $95.8 million. Management said available liquidity was sufficient for operations and expected needs for at least 12 months. The $75 million revolving facility had no borrowings outstanding; $3.5 million of letters of credit reduced availability. The filing does not provide a separate current-liquidity forecast.
Debt: Term Facility principal was $456.5 million at year-end, after $150 million of FY2021 principal repayments. It matures in July 2024, with no required term-loan principal payments in the following 12 months. The reported effective interest rate was 4.8%; debt covenants were met. A 1 percentage-point rate increase was estimated to add approximately $5.3 million of annual interest expense, assuming average variable-rate debt levels.
Balance sheet: Total assets were $2.05 billion, total liabilities $863.4 million, and stockholders’ equity $1.19 billion. Inventories increased to $97.3 million from $59.1 million; the company attributed higher-than-historical inventory partly to supply-chain and logistics challenges.
Material changes versus prior year
- Sales growth reflected Quest’s full-year inclusion in FY2021 versus partial-year inclusion in FY2020, post-acquisition Quest volume growth, improved consumer mobility and stronger retail traffic. Quest reported $453.6 million in FY2021 net sales versus $286.8 million in FY2020.
- Atkins sales improved during FY2021 as mobility and store traffic recovered, but management described its recovery as slower than Quest’s. International sales were $45.1 million, or about 4.5% of total sales.
- Operating expenses fell to $236.1 million from $246.1 million, principally because FY2020 included $27.1 million of Quest acquisition transaction costs and a $3.0 million SimplyProtein impairment. FY2021 selling and marketing costs rose to $112.9 million from $94.5 million.
- Operating cash flow increased, while investing cash use declined sharply because FY2020 included the Quest acquisition. FY2021 financing cash use included $150 million of debt repayment.
- The company sold SimplyProtein assets in September 2020 for approximately $8.8 million of consideration ($5.8 million cash and a $3.0 million note receivable), with certain related liabilities assumed by the buyer; no gain or loss was recorded.
Outlook, risks and unusual items
- Costs and pricing: Management expected higher raw-material and freight costs in FY2022. Customers were notified of a price increase effective September 2021; management expected pricing and productivity initiatives to support growth investment, but did not quantify the expected impact or guarantee full cost recovery.
- Supply and demand: Logistics challenges had contributed to out-of-stocks, lower retail and e-commerce sales, delayed sales recognition and elevated inventory. Risks include supplier, contract-manufacturer and logistics labor constraints.
- COVID-19: Business performance remained tied to consumer mobility and return to out-of-home activities. Management cited uncertainty from variants, supply disruptions, customer operations and possible reversals in consumer behavior.
- Customer concentration: Walmart represented about 31% of FY2021 sales and Amazon about 12%. Retailer agreements generally do not require minimum purchases.
- Warrant accounting: Following SEC guidance, the company classified 6.7 million private warrants as liabilities and restated prior-period financial statements. FY2021 included a $66.2 million non-cash warrant fair-value loss, versus a $30.9 million gain in FY2020; the year-end warrant liability was $159.8 million.
- Controls and audit: A material weakness related to private-warrant accounting led to the restatement. The company said it remediated the weakness in FY2021; management and the auditor reported effective internal control over financial reporting as of August 28, 2021. The auditor issued unqualified opinions on the financial statements and controls. Trade-promotion allowances of $22.3 million were identified as a critical audit matter.
- Other items: FY2021 included a $5.0 million legal-settlement gain and $4.3 million in restructuring and related costs. Management expected total restructuring costs of approximately $10.1 million, with the remaining amount payable through FY2022’s second quarter. No material pending litigation was identified. The company does not expect to pay dividends in the foreseeable future.
- Guidance: The filing provides no quantified revenue, earnings or margin guidance for FY2022.
Investor verification points
- Track whether the September 2021 price increase offsets inflation and freight costs without materially reducing volume or distribution.
- Monitor out-of-stocks, inventory levels, logistics performance and the recovery in Atkins sales as consumer mobility changes.
- Assess customer concentration and retailer order patterns, particularly Walmart and Amazon.
- Separate operating performance from non-cash warrant fair-value changes when evaluating net income and EPS; review the dilution potential of outstanding warrants and equity awards.
- Confirm progress on debt reduction, 2024 maturity planning, covenant headroom and variable-rate exposure.
- Review the completed remediation of the prior control weakness and the estimates underlying trade-promotion allowances.