Simply Good Foods Co. — Form 10-Q Summary
Reporting period: Fiscal third quarter ended May 25, 2024 (13 weeks), with year-to-date results for the 39 weeks ended May 25, 2024. Comparisons are with the periods ended May 27, 2023. The company sells nutritious snacks and meal replacements under Quest and Atkins; OWYN was acquired after quarter-end.
Financial performance
| Metric | Q3 2024 | Q3 2023 | 39 weeks 2024 | 39 weeks 2023 |
|---|---|---|---|---|
| Net sales | $334.8 million | $324.8 million | $955.6 million | $922.3 million |
| Gross profit / margin | $133.6 million / 39.9% | $119.2 million / 36.7% | $365.6 million / 38.3% | $333.0 million / 36.1% |
| Operating income / margin | $58.8 million / 17.6% | $54.2 million / 16.7% | $158.7 million / 16.6% | $149.2 million / 16.2% |
| Net income | $41.3 million | $35.4 million | $110.0 million | $96.9 million |
| Diluted EPS | $0.41 | $0.35 | $1.09 | $0.96 |
| Adjusted EBITDA | $71.9 million | $66.6 million | $191.7 million | $178.3 million |
Q3 sales rose 3.1% year over year; year-to-date sales increased 3.6%. Quest growth more than offset continued Atkins softness. Q3 North America sales grew 3.2%, while international sales declined 2.4%; year-to-date, North America and international sales rose 3.6% and 3.4%, respectively. Q3 Quest sales were $198.1 million versus $174.5 million; Atkins sales were $128.6 million versus $142.1 million.
Gross margin expanded 320 basis points in Q3 and 220 basis points year to date, primarily on lower ingredient and packaging costs. Increased marketing investment and $2.7 million of OWYN transaction costs raised operating expenses. Lower interest expense reflected debt repayments; higher interest income reflected larger cash balances and higher rates. Adjusted EBITDA is a non-GAAP measure and may not be comparable with similarly titled measures at other companies.
Cash, debt and liquidity
- At May 25, 2024, cash was $208.7 million, total assets $2.19 billion, and stockholders’ equity $1.69 billion.
- Term Facility principal was $240.0 million ($237.7 million reported total debt net of financing fees and including finance leases); effective interest rate was 7.9%. The term loan matures in March 2027, with no principal payments required in the next 12 months. No revolving credit facility borrowings were outstanding; $3.2 million of letters of credit reduced its $75 million availability.
- Net cash provided by operating activities was $166.8 million for the 39 weeks, compared with $110.4 million a year earlier. Investing used $2.3 million and financing used $43.6 million. Cash increased by $120.8 million from fiscal year-end.
- The company reported compliance with debt covenants and stated that liquidity should be sufficient for operations, its growth strategy and expected expenses for at least 12 months.
Material changes, outlook and risks
- Management attributed improved results to Quest volume growth and lower ingredient and packaging costs, while noting continued Atkins softness and monitoring ingredient inflation. Marketing spending increased for growth initiatives and advertising. The filing provides no quantified earnings or sales guidance.
- On June 13, 2024, after quarter-end, the company completed its approximately $280 million acquisition of plant-based protein company OWYN, subject to customary adjustments. It borrowed an additional $250 million under the Term Facility to partially finance the purchase. The filing reports approximately $490 million of outstanding indebtedness as of June 27, 2024; acquisition integration and realizing expected benefits are identified risks.
- Other disclosed risks include raw-material and logistics costs, inflation, supply-chain disruptions, geopolitical tensions, customer demand and the ability to service debt. Debt covenants restrict certain actions; the company was in compliance at May 25. Management reported no litigation it believed material and no material changes in market-risk exposure.
- No shares were repurchased during the 39 weeks; approximately $71.5 million remained available under the repurchase authorization. Disclosure controls were deemed effective, with no material change in internal control reported for the quarter.
Key facts for investors to verify
- Whether Quest growth can continue and Atkins softness stabilizes, including sales trends by brand and channel.
- Whether gross-margin gains persist as ingredient, packaging, manufacturing and logistics costs change.
- OWYN’s final purchase-price adjustments, integration costs, contribution to results and the effect of acquisition debt and interest expense.
- Cash generation, working-capital movements, debt levels, interest-rate exposure and compliance with credit covenants.
- Management’s future guidance and any material developments in acquisition integration or business risks.