The Simply Good Foods Company (NASDAQ:SMPL) Q1 2022 Earnings Conference Call January 5, 2022 8:30 AM ET Company Participants Mark Pogharian - Vice President of Investor Relations Joe Scalzo - President and Chief Executive Officer Todd Cunfer - Chief Financial Officer Conference Call Participants Chris Growe - Stifel Nicolaus Jason English - Goldman Sachs Wendy Nicholson - Citi Kaumil Gajrawala - Credit Suisse Alexia Howard - Bernstein Rob Dickerson - Jefferies Ben Bienvenu - Stephens Inc Steve powers - Deut ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION For the quarterly period ended November 27, 2021 OR o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to ________ Commission File Number: 001-38115 ___________________________________________________________________________________________________________ The Simply Good Foods Company (Exact name of registrant as specified in its charter) Washington, D.C. 20549 __________________ ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _______________________________________________________ FORM 10-K _______________________________________________________ (Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended August 28, 2021 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______ to ______ Commission File Number: 001-38115 __ ...

Fourth Quarter Fiscal Year 2021 Earnings Conference Call & Webcast Presentation October 22, 2021 Disclaimer Forward Looking Statements Certain statements made herein are not historical facts but are forward-looking statements for purposes of the safe harbor provisions under The Private Securities Litigation Reform Act of 1995. Forward-looking statements generally are accompanied by or include words such as "will", "expect", "intends" or other similar words, phrases or expressions. These forward-looking stat ...

The Simply Good Foods Company (NASDAQ:SMPL) Q4 2021 Earnings Conference Call October 22, 2021 8:30 AM ET Company Participants Mark Pogharian - Vice President of Investor Relations Joe Scalzo - President and Chief Executive Officer Todd Cunfer - Chief Financial Officer Conference Call Participants Jason English - Goldman Sachs Chris Growe - Stifel Wendy Nicholson - Citi Steve Powers - Deutsche Bank Jon Andersen - William Blair Eric Larson - Seaport Research Partners Kaumil Gajrawala - Credit Suisse Disclaime ...

[PART I. Financial Information](index=4&type=section&id=PART%20I.%20Financial%20Information) [Item 1. Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents the unaudited condensed consolidated financial statements and accompanying notes covering key accounting policies and financial details [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) | Assets/Liabilities/Equity | May 29, 2021 (in thousands) | August 29, 2020 (in thousands) | | :------------------------ | :-------------------------- | :----------------------------- | | **Assets** | | | | Cash and cash equivalents | $90,173 | $95,847 | | Accounts receivable, net | $118,373 | $89,740 | | Inventories | $78,579 | $59,085 | | Total current assets | $309,621 | $260,263 | | Total assets | $2,039,123 | $2,008,445 | | **Liabilities** | | | | Accounts payable | $46,788 | $32,240 | | Total current liabilities | $97,960 | $71,478 | | Long-term debt, less current maturities | $500,154 | $596,879 | | Warrant liability | $154,352 | $93,638 | | Total liabilities | $870,717 | $869,112 | | **Stockholders' Equity** | | | | Total stockholders' equity| $1,168,406 | $1,139,333 | [Condensed Consolidated Statements of Operations and Comprehensive Income](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income) | Metric (in thousands, except per share) | Thirteen Weeks Ended May 29, 2021 | Thirteen Weeks Ended May 30, 2020 | Thirty-Nine Weeks Ended May 29, 2021 | Thirty-Nine Weeks Ended May 30, 2020 | | :-------------------------------------- | :-------------------------------- | :-------------------------------- | :----------------------------------- | :----------------------------------- | | Net sales | $284,001 | $215,101 | $745,760 | $594,355 | | Gross profit | $121,003 | $88,626 | $305,309 | $236,226 | | Income from operations | $60,322 | $31,108 | $132,850 | $53,392 | | Net income | $5,895 | $48,112 | $22,634 | $104,928 | | Basic EPS | $0.06 | $0.50 | $0.24 | $1.12 | | Diluted EPS | $0.06 | $0.17 | $0.23 | $0.23 | - The company recorded a **non-cash loss of $35.8 million and $60.7 million** in fair value change of warrant liability for the thirteen and thirty-nine weeks ended May 29, 2021, respectively, compared to gains in the prior year periods, significantly impacting net income[13](index=13&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) | Cash Flow Activity (in thousands) | Thirty-Nine Weeks Ended May 29, 2021 | Thirty-Nine Weeks Ended May 30, 2020 | | :-------------------------------- | :----------------------------------- | :----------------------------------- | | Net cash provided by operating activities | $91,488 | $24,100 | | Net cash provided by (used in) investing activities | $2,454 | $(984,306) | | Net cash (used in) provided by financing activities | $(99,889) | $805,586 | | Cash and cash equivalents at end of period | $90,173 | $111,134 | - Operating cash flow **significantly increased by $67.4 million**, driven by higher operating income and reduced cash outlays related to the Quest acquisition[15](index=15&type=chunk)[153](index=153&type=chunk) - Investing activities shifted from a large cash outflow in 2020 (due to Quest acquisition) to a net inflow in 2021, primarily from the **SimplyProtein Sale proceeds**[15](index=15&type=chunk)[154](index=154&type=chunk) - Financing activities moved from a net inflow in 2020 (equity offering, debt issuance for Quest) to a net outflow in 2021, mainly due to **principal payments on the Term Facility**[15](index=15&type=chunk)[155](index=155&type=chunk) [Condensed Consolidated Statements of Stockholders' Equity](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) | Stockholders' Equity (in thousands) | Balance at August 29, 2020 | Balance at May 29, 2021 | | :---------------------------------- | :------------------------- | :---------------------- | | Total Stockholders' Equity | $1,139,333 | $1,168,406 | | Net income (39 weeks ended) | $104,928 (May 30, 2020) | $22,634 (May 29, 2021) | | Stock-based compensation (39 weeks ended) | $5,945 (May 30, 2020) | $5,766 (May 29, 2021) | - **Total stockholders' equity increased** from **$1,139,333 thousand** at August 29, 2020, to **$1,168,406 thousand** at May 29, 2021[19](index=19&type=chunk) [Notes to Unaudited Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) [1. Nature of Operations and Principles of Consolidation](index=10&type=section&id=1.%20Nature%20of%20Operations%20and%20Principles%20of%20Consolidation) The company operates as a consumer-packaged food and beverage business with core brands Atkins® and Quest®, acknowledging ongoing uncertainty from COVID-19 - Core brands: **Atkins®** (low-carb lifestyle) and **Quest®** (protein-rich, low sugar/carbs)[22](index=22&type=chunk) - Primary distribution in North America via grocery, club, mass merchandise, e-commerce, convenience, and specialty channels[22](index=22&type=chunk) - Uncertainty remains regarding COVID-19's impact due to potential mutations, supply chain disruptions, customer operation changes, and consumer behavior shifts[26](index=26&type=chunk) [2. Summary of Significant Accounting Policies](index=10&type=section&id=2.%20Summary%20of%20Significant%20Accounting%20Policies) The company restated financials to reclassify warrants as a liability and adopted new accounting standards for credit losses and fair value measurements - **Restatement of financial statements** due to reclassification of private warrants as a liability, measured at fair value with changes reported in earnings, following SEC guidance issued April 12, 2021[27](index=27&type=chunk) - Adopted ASU 2016-13 (Financial Instruments—Credit Losses) in fiscal 2021, changing the allowance for doubtful accounts estimation method, but with **no material effect**[32](index=32&type=chunk) - Adopted ASU 2018-13 (Fair Value Measurement) in fiscal 2021, modifying disclosure requirements, with **no material effect**[33](index=33&type=chunk) - Evaluating ASU 2019-12 (Income Taxes), ASU 2020-04 (Reference Rate Reform), and ASU 2020-10 (Codification Improvements), none of which are anticipated to have a material effect[29](index=29&type=chunk)[30](index=30&type=chunk)[31](index=31&type=chunk) [3. Business Combination](index=11&type=section&id=3.%20Business%20Combination) The company acquired Quest Nutrition, LLC in November 2019 for $986.8 million to expand its nutritious snacking platform - Acquisition of Quest Nutrition, LLC completed on November 7, 2019, for a **total net consideration of $986.8 million**[34](index=34&type=chunk)[37](index=37&type=chunk) - Funding for Quest acquisition included **$195.3 million cash on hand**, **$350.0 million from public stock offering**, and **$443.6 million in new term loan debt**[36](index=36&type=chunk) | Quest Net Sales (in thousands) | Thirteen Weeks Ended May 29, 2021 | Thirteen Weeks Ended May 30, 2020 | Thirty-Nine Weeks Ended May 29, 2021 | Thirty-Nine Weeks Ended May 30, 2020 | | :----------------------------- | :-------------------------------- | :-------------------------------- | :----------------------------------- | :----------------------------------- | | Net sales | $127,097 | $87,234 | $327,891 | $192,621 | [4. Revenue Recognition](index=13&type=section&id=4.%20Revenue%20Recognition) The company disaggregates revenue by geography and core brands, with North America accounting for the vast majority of sales | Net Sales (in thousands) | May 29, 2021 (13 weeks) | May 30, 2020 (13 weeks) | May 29, 2021 (39 weeks) | May 30, 2020 (39 weeks) | | :----------------------- | :---------------------- | :---------------------- | :---------------------- | :---------------------- | | **North America** | | | | | | Atkins | $146,082 | $121,937 | $382,998 | $381,184 | | Quest | $127,097 | $87,234 | $327,891 | $192,621 | | Total North America | $273,179 | $209,171 | $710,889 | $573,805 | | International | $10,822 | $5,930 | $34,871 | $20,550 | | **Total net sales** | $284,001 | $215,101 | $745,760 | $594,355 | - Allowances for doubtful accounts **increased from $0.5 million** at August 29, 2020, to **$1.2 million** at May 29, 2021[45](index=45&type=chunk) [5. Goodwill and Intangibles](index=14&type=section&id=5.%20Goodwill%20and%20Intangibles) Goodwill and intangible assets were adjusted due to the Quest acquisition measurement period and the sale of the SimplyProtein® brand | Goodwill (in thousands) | Amount | | :---------------------- | :----- | | Balance as of August 29, 2020 | $544,774 | | Acquisition of business, measurement period adjustment | $1,178 | | Sale of business | $(2,818) | | Balance as of May 29, 2021 | $543,134 | - The SimplyProtein® brand was sold for approximately **$8.8 million**, resulting in the disposal of **$2.8 million of associated goodwill**[46](index=46&type=chunk) | Intangible Assets (in thousands) | May 29, 2021 Net Carrying Amount | | :------------------------------- | :------------------------------- | | Brands and trademarks (indefinite life) | $974,000 | | Customer relationships (15 years) | $146,797 | | Proprietary recipes and formulas (7 years) | $3,119 | | Licensing agreements (14 years) | $15,901 | | Software and website development costs (3-5 years) | $2,327 | | Intangible assets in progress (3-5 years) | $55 | | **Total Intangible assets, net** | **$1,142,199** | - Amortization expense for intangible assets was **$11.6 million** for the thirty-nine weeks ended May 29, 2021, up from $10.1 million in the prior year period[49](index=49&type=chunk) [6. Long-Term Debt and Line of Credit](index=15&type=section&id=6.%20Long-Term%20Debt%20and%20Line%20of%20Credit) The company's long-term debt consists primarily of a Term Facility used to finance the Quest acquisition, with all covenants met as of May 29, 2021 - Term Facility outstanding balance was **$506.5 million** as of May 29, 2021, with maturity in July 2024[55](index=55&type=chunk) - The Term Facility was increased by **$460.0 million** in November 2019 to partially finance the Quest acquisition, bearing interest at LIBOR plus 3.75% or base rate plus 2.75%[53](index=53&type=chunk) - The company was **in compliance with all financial covenants** as of May 29, 2021, and August 29, 2020[54](index=54&type=chunk) - No amounts were drawn against the **$75.0 million Revolving Credit Facility** as of May 29, 2021[55](index=55&type=chunk) [7. Fair Value of Financial Instruments](index=16&type=section&id=7.%20Fair%20Value%20of%20Financial%20Instruments) Private warrants are classified as a Level 3 liability and measured at fair value, resulting in a significant non-cash loss in the current period - Private Warrants to purchase 6,700,000 shares are classified as a **Level 3 liability**, valued using the Black-Scholes model with significant unobservable inputs, primarily expected volatility[61](index=61&type=chunk)[62](index=62&type=chunk) | Warrant Valuation Inputs | May 29, 2021 | May 30, 2020 | | :----------------------- | :----------- | :----------- | | Exercise Price | $11.50 | $11.50 | | Stock Price | $34.53 | $17.03 | | Expected Term (in Years) | 1.11 | 2.11 | | Risk-Free Interest Rate | 0.06 % | 0.16 % | | Expected Volatility | 23.90 % | 31.80 % | | Per Share Value of Warrants | $23.04 | $6.26 | - **Non-cash loss** in fair value change of warrant liability was **$35.8 million** for the thirteen weeks and **$60.7 million** for the thirty-nine weeks ended May 29, 2021, compared to gains in the prior year periods[62](index=62&type=chunk) [8. Income Taxes](index=17&type=section&id=8.%20Income%20Taxes) The effective tax rate increased significantly due to the non-cash change in fair value of the warrant liability and other permanent differences | Income Tax Data (in thousands) | Thirty-Nine Weeks Ended May 29, 2021 | Thirty-Nine Weeks Ended May 30, 2020 | | :----------------------------- | :----------------------------------- | :----------------------------------- | | Income before income taxes | $53,729 | $113,166 | | Income tax expense | $31,095 | $8,238 | | Effective tax rate | 57.9 % | 7.3 % | - The effective tax rate **increased by 50.6%** for the thirty-nine weeks ended May 29, 2021, primarily driven by the non-cash change in the fair value of the warrant liability and other permanent differences[63](index=63&type=chunk) [9. Leases](index=18&type=section&id=9.%20Leases) The company incurred lease costs for operations and financing, with significant future liabilities including a new lease commencing in Q4 fiscal 2021 | Lease Cost (in thousands) | Thirteen Weeks Ended May 29, 2021 | Thirteen Weeks Ended May 30, 2020 | Thirty-Nine Weeks Ended May 29, 2021 | Thirty-Nine Weeks Ended May 30, 2020 | | :------------------------ | :-------------------------------- | :-------------------------------- | :----------------------------------- | :----------------------------------- | | Total operating lease cost| $1,956 | $1,927 | $5,726 | $4,910 | | Total finance lease cost | $79 | $83 | $240 | $251 | | **Total lease cost** | **$2,035** | **$2,016** | **$5,966** | **$5,191** | - Incurred **$0.7 million in impairment charges** on operating lease right-of-use assets and a **$0.2 million gain on lease termination** due to restructuring activities[65](index=65&type=chunk) | Lease Liabilities (in thousands) | May 29, 2021 | August 29, 2020 | | :------------------------------- | :----------- | :-------------- | | Operating lease liabilities | $24,005 | $27,093 | | Finance lease liabilities | $758 | $922 | | **Total lease liabilities** | **$24,763** | **$28,015** | - A new lease with estimated total minimum future payments of **$32.2 million** over a 10-year term is expected to commence in Q4 fiscal year 2021[67](index=67&type=chunk) [10. Commitments and Contingencies](index=19&type=section&id=10.%20Commitments%20and%20Contingencies) The company is involved in routine litigation not deemed material and has future payment obligations for endorsement contracts - **No material litigation** is currently pending or threatened against the company[69](index=69&type=chunk) - Reserved **$0.7 million** for potential settlements as of May 29, 2021, down from $1.3 million at August 29, 2020[71](index=71&type=chunk) - Required to make **$2.8 million in payments** over the next year for endorsement contracts with celebrity figures and social media influencers[72](index=72&type=chunk) [11. Stockholders' Equity](index=20&type=section&id=11.%20Stockholders'%20Equity) The company completed a public equity offering in 2019 to fund the Quest acquisition and maintains a stock repurchase program - Completed a public equity offering on October 9, 2019, raising approximately **$350.0 million**, used to partially fund the Quest acquisition[73](index=73&type=chunk)[149](index=149&type=chunk) - **6,700,000 Private Warrants remain outstanding**, held by a related party, and are liability-classified; if exercised, they would increase cash by $77.1 million[78](index=78&type=chunk)[152](index=152&type=chunk) - A **$50.0 million stock repurchase program** was adopted in November 2018, with **$47.9 million remaining available** as of May 29, 2021[79](index=79&type=chunk)[80](index=80&type=chunk) [12. Earnings Per Share](index=21&type=section&id=12.%20Earnings%20Per%20Share) Basic and diluted earnings per share calculations reflect the impact of potentially dilutive securities, with private warrants being anti-dilutive this period | EPS (per share) | Thirteen Weeks Ended May 29, 2021 | Thirteen Weeks Ended May 30, 2020 | Thirty-Nine Weeks Ended May 29, 2021 | Thirty-Nine Weeks Ended May 30, 2020 | | :---------------- | :-------------------------------- | :-------------------------------- | :----------------------------------- | :----------------------------------- | | Basic EPS | $0.06 | $0.50 | $0.24 | $1.12 | | Diluted EPS | $0.06 | $0.17 | $0.23 | $0.23 | - Diluted EPS calculations for the thirteen and thirty-nine weeks ended May 29, 2021, excluded **4.3 million and 3.9 million shares**, respectively, issuable upon exercise of Private Warrants, as they were anti-dilutive[83](index=83&type=chunk) [13. Omnibus Incentive Plan](index=22&type=section&id=13.%20Omnibus%20Incentive%20Plan) The company recorded stock-based compensation expense and reports activity for various equity awards, with significant unrecognized costs remaining - Stock-based compensation expense was **$5.8 million** for the thirty-nine weeks ended May 29, 2021, compared to $5.9 million in the prior year period[87](index=87&type=chunk) | Stock Option Activity | Shares Outstanding (May 29, 2021) | Weighted Average Exercise Price | | :-------------------- | :-------------------------------- | :------------------------------ | | Outstanding | 2,793,163 | $14.86 | | Exercisable | 2,215,040 | $13.25 | - Unrecognized compensation cost for stock options is **$2.9 million** (weighted average 1.7 years), for RSUs is **$9.8 million** (weighted average 2.1 years), for PSUs is **$3.7 million** (weighted average 1.3 years), and for SARs is **$0.2 million** (weighted average 1.4 years)[88](index=88&type=chunk)[89](index=89&type=chunk)[91](index=91&type=chunk)[93](index=93&type=chunk) [14. Restructuring and Related Charges](index=23&type=section&id=14.%20Restructuring%20and%20Related%20Charges) The company initiated restructuring activities to integrate Quest, incurring costs with total expected charges of approximately $9.9 million - Restructuring activities, announced in May 2020, aim to integrate Quest and include workforce reductions, management structure changes, and business relocation[94](index=94&type=chunk) - Incurred **$4.0 million in restructuring and restructuring-related costs** for the thirty-nine weeks ended May 29, 2021[96](index=96&type=chunk) - Total expected restructuring and related costs are approximately **$9.9 million**, to be paid throughout fiscal 2021 and the first quarter of fiscal 2022[97](index=97&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=25&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's financial condition and operational results, including key business events, performance comparisons, and liquidity analysis [Overview](index=25&type=section&id=Overview) - The company is a consumer-packaged food and beverage company focused on nutritious snacking with **Atkins® and Quest® brands**[102](index=102&type=chunk) - Business improved in Q3 2021 due to **increasing consumer mobility and shopper traffic** in brick-and-mortar retailers, particularly benefiting Quest and bar products[106](index=106&type=chunk) - Incurred **$4.0 million in restructuring and related costs** for the thirty-nine weeks ended May 29, 2021, with total expected costs of $9.9 million[109](index=109&type=chunk) - Sold the SimplyProtein® brand assets for approximately **$8.8 million** to focus on core Atkins® and Quest® businesses[110](index=110&type=chunk) - Management plans to institute a **price increase effective September 2021** (fiscal year 2022) to offset expected higher raw material and freight costs[111](index=111&type=chunk) [Key Financial Definitions](index=27&type=section&id=Key%20Financial%20Definitions) - **Net sales**: Product sales less promotional activities, slotting fees, and other sales credits/adjustments[113](index=113&type=chunk) - **Cost of goods sold**: Costs paid to contract manufacturers, including raw ingredients, packaging, shipping, warehousing, depreciation, and tolling charges[114](index=114&type=chunk) - **Operating expenses**: Selling and marketing, general and administrative, depreciation and amortization, and business transaction costs[115](index=115&type=chunk)[117](index=117&type=chunk) [Results of Operations](index=27&type=section&id=Results%20of%20Operations) [Comparison of Unaudited Results for the Thirteen Weeks Ended May 29, 2021 and the Thirteen Weeks Ended May 30, 2020](index=28&type=section&id=Comparison%20of%20Unaudited%20Results%20for%20the%20Thirteen%20Weeks%20Ended%20May%2029%2C%202021%20and%20the%20Thirteen%20Weeks%20Ended%20May%2030%2C%202020) | Metric (in thousands) | May 29, 2021 | May 30, 2020 | Change ($) | Change (%) | | :-------------------- | :----------- | :----------- | :--------- | :--------- | | Net sales | $284,001 | $215,101 | $68,900 | 32.0% | | Gross profit | $121,003 | $88,626 | $32,377 | 36.5% | | Income from operations| $60,322 | $31,108 | $29,214 | 93.9% | | Net income | $5,895 | $48,112 | $(42,217) | (87.7)% | | Adjusted EBITDA | $67,459 | $43,363 | $24,096 | 55.6% | - Gross profit margin **increased by 140 basis points to 42.6%** due to favorable product form and retail channel mix[120](index=120&type=chunk) - Net income decreased significantly due to a **$35.8 million non-cash loss** in fair value change of warrant liability, compared to a $31.7 million gain in the prior year[123](index=123&type=chunk)[126](index=126&type=chunk) - Selling and marketing expenses **increased by 25.8%** due to reinstated marketing spend following COVID-19 related declines[128](index=128&type=chunk) - General and administrative expenses **decreased by 10.6%** due to reduced Quest integration costs and restructuring charges, partially offset by increased incentive compensation[128](index=128&type=chunk) [Comparison of Unaudited Results for the Thirty-Nine Weeks Ended May 29, 2021 and the Thirty-Nine Weeks Ended May 30, 2020](index=30&type=section&id=Comparison%20of%20Unaudited%20Results%20for%20the%20Thirty-Nine%20Weeks%20Ended%20May%2029%2C%202021%20and%20the%20Thirty-Nine%20Weeks%20Ended%20May%2030%2C%202020) | Metric (in thousands) | May 29, 2021 | May 30, 2020 | Change ($) | Change (%) | | :-------------------- | :----------- | :----------- | :--------- | :--------- | | Net sales | $745,760 | $594,355 | $151,405 | 25.5% | | Gross profit | $305,309 | $236,226 | $69,083 | 29.2% | | Income from operations| $132,850 | $53,392 | $79,458 | 148.8% | | Net income | $22,634 | $104,928 | $(82,294) | (78.4)% | | Adjusted EBITDA | $158,800 | $116,889 | $41,911 | 35.9% | - Net sales increase primarily attributable to the **Quest brand's full inclusion** in fiscal year 2021 results and post-acquisition sales volume growth[129](index=129&type=chunk) - Gross profit margin **increased by 120 basis points to 40.9%**, primarily due to the absence of the $7.5 million non-cash inventory step-up related to the Quest acquisition in fiscal year 2020[131](index=131&type=chunk) - Net income decreased significantly due to a **$60.7 million non-cash loss** in fair value change of warrant liability, compared to an $82.7 million gain in the prior year[134](index=134&type=chunk)[137](index=137&type=chunk) - Business transaction costs **decreased by $26.9 million** as the prior year included expenses related to the Quest acquisition[138](index=138&type=chunk) [Reconciliation of EBITDA and Adjusted EBITDA](index=32&type=section&id=Reconciliation%20of%20EBITDA%20and%20Adjusted%20EBITDA) - EBITDA and Adjusted EBITDA are **non-GAAP financial measures** used by management and investors to assess operating performance, excluding non-operating and non-recurring items[139](index=139&type=chunk) | Reconciliation (in thousands) | Thirteen Weeks Ended May 29, 2021 | Thirteen Weeks Ended May 30, 2020 | Thirty-Nine Weeks Ended May 29, 2021 | Thirty-Nine Weeks Ended May 30, 2020 | | :---------------------------- | :-------------------------------- | :-------------------------------- | :----------------------------------- | :----------------------------------- | | Net income | $5,895 | $48,112 | $22,634 | $104,928 | | EBITDA | $33,774 | $66,940 | $91,585 | $147,162 | | Adjusted EBITDA | $67,459 | $43,363 | $158,800 | $116,889 | - Adjustments to EBITDA include business transaction costs, stock-based compensation, inventory step-up, integration costs, restructuring costs, non-core legal costs, warrant liability fair value changes, legal settlement gains/losses, and other non-core expenses[139](index=139&type=chunk)[140](index=140&type=chunk) [Liquidity and Capital Resources](index=33&type=section&id=Liquidity%20and%20Capital%20Resources) - Cash and cash equivalents totaled **$90.2 million** as of May 29, 2021[142](index=142&type=chunk) - The company believes its liquidity and capital sources are **sufficient for at least the next twelve months**[142](index=142&type=chunk) - The Term Facility had an outstanding balance of **$506.5 million** as of May 29, 2021, maturing in July 2024, with no principal payments required in the next twelve months[148](index=148&type=chunk) - The Quest acquisition was funded by **$195.3 million cash on hand**, **$350.0 million from a public equity offering**, and **$443.6 million in new term loan debt**[151](index=151&type=chunk) - Net cash provided by operating activities **increased by $67.4 million to $91.5 million** for the thirty-nine weeks ended May 29, 2021, driven by higher operating income and reduced Quest acquisition-related cash outlays[153](index=153&type=chunk) [Contractual Obligations](index=35&type=section&id=Contractual%20Obligations) - **No material changes** to contractual obligations from the Annual Report[157](index=157&type=chunk) [Off-Balance Sheet Arrangements](index=35&type=section&id=Off-Balance%20Sheet%20Arrangements) - **No material off-balance sheet arrangements** as of May 29, 2021[158](index=158&type=chunk) [New Accounting Pronouncements](index=35&type=section&id=New%20Accounting%20Pronouncements) - Refer to Note 2 of the unaudited interim consolidated financial statements for information regarding recently issued accounting standards[159](index=159&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=35&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company reports no material changes in market risk but plans a price increase in September 2021 to mitigate expected cost inflation - **No material changes** in market risk exposure during the thirteen weeks ended May 29, 2021[160](index=160&type=chunk) - Management notified customers of plans to institute a **price increase effective September 2021** (fiscal year 2022) to address expected higher raw material and freight costs[160](index=160&type=chunk) [Item 4. Controls and Procedures](index=35&type=section&id=Item%204.%20Controls%20and%20Procedures) Disclosure controls were deemed effective, and while a material weakness in warrant accounting was noted, financial statements are fairly stated - **Disclosure controls and procedures were effective** as of May 29, 2021[163](index=163&type=chunk) - A **material weakness** in internal controls over financial reporting related to warrant accounting was previously disclosed, but management concluded financial statements are fairly stated[162](index=162&type=chunk) [Changes in Internal Control over Financial Reporting](index=35&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) - **No material changes** in internal controls over financial reporting during the quarter ended May 29, 2021[164](index=164&type=chunk) [Inherent Limitations on Effectiveness of Controls](index=35&type=section&id=Inherent%20Limitations%20on%20Effectiveness%20of%20Controls) - Internal control systems, regardless of design, have inherent limitations and can only provide **reasonable assurance**[164](index=164&type=chunk) [PART II. Other Information](index=36&type=section&id=PART%20II.%20Other%20Information) [Item 1. Legal Proceedings](index=36&type=section&id=Item%201.%20Legal%20Proceedings) The company is not currently a party to any litigation expected to have a material adverse effect on its business - **No material legal proceedings** are currently pending or threatened against the company[166](index=166&type=chunk) [Item 1A. Risk Factors](index=36&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the risk factors previously disclosed in the company's Form 10-K/A - **No material changes** in the risk factors included in the company's Form 10-K/A[167](index=167&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=36&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) There were no unregistered sales of equity securities or use of proceeds to report for the period - **None to report**[168](index=168&type=chunk) [Item 3. Defaults Upon Senior Securities](index=36&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) There were no defaults upon senior securities to report for the period - **None to report**[169](index=169&type=chunk) [Item 4. Mine Safety Disclosures](index=36&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) Mine safety disclosures are not applicable to the company's operations - **Not Applicable**[170](index=170&type=chunk) [Item 5. Other Information](index=36&type=section&id=Item%205.%20Other%20Information) There is no other information to report for the period - **None to report**[171](index=171&type=chunk) [Item 6. Exhibits](index=37&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed as part of the Form 10-Q, including officer certifications and XBRL-related documents - Includes **certifications (302 and 906 of Sarbanes Oxley Act)** from Principal Executive Officer and Principal Financial Officer[173](index=173&type=chunk) - Contains **XBRL Instance Document** and Taxonomy Extension Documents[173](index=173&type=chunk) [Signatures](index=38&type=section&id=Signatures) The report is duly signed on behalf of The Simply Good Foods Company by its Chief Accounting Officer - Signed by **Timothy A. Matthews**, Vice President, Controller, and Chief Accounting Officer[176](index=176&type=chunk)

The Simply Good Foods Company (NASDAQ:SMPL) Q3 2021 Earnings Conference Call July 1, 2021 8:30 AM ET Company Participants Mark Pogharian - Vice President of Investor Relations Joe Scalzo - President and Chief Executive Officer Todd Cunfer - Chief Financial Officer Conference Call Participants Jason English - Goldman Sachs Chris Growe - Stifel Faiza Alwy - Deutsche Bank Wendy Nicholson - Citi Rob Dickerson - Jefferies Eric Larson - Seaport Research Partners Jon Andersen - William Blair Pamela Kaufman - Morga ...

Third Quarter Fiscal Year 2021 Earnings Conference Call & Webcast Presentation July 1, 2021 Disclaimer Forward Looking Statements Certain statements made herein are not historical facts but are forward-looking statements for purposes of the safe harbor provisions under The Private Securities Litigation Reform Act of 1995. Forward-looking statements generally are accompanied by or include words such as "will", "expect", "intends" or other similar words, phrases or expressions. These forward-looking statement ...

Financial Data and Key Metrics Changes - Second quarter net sales increased by 1.5%, with core ongoing net sales, excluding the impact of the SimplyProtein divestiture and European business exit, increasing by 2.7% driven by e-commerce growth and Quest's success in new forms [10][33] - Adjusted EBITDA for the second quarter increased by 2.2% due to strong cost controls and Quest acquisition synergies [12][40] - Gross profit was $90.3 million, an increase of 5.7% compared to the previous year, with a gross margin decline of 70 basis points due to higher in-store merchandising and unfavorable product mix [36][60] Business Line Data and Key Metrics Changes - The active nutrition segment, including Quest, increased mid-single digits, with Quest's point of sale (POS) outperforming the segment nearly 3 to 1 [16][26] - The weight management segment, including Atkins, declined by high-single digits due to fewer on-the-go usage occasions, although Atkins outpaced the weight management category [17][18] - E-commerce growth was strong, with consumption up about 50% in the quarter, particularly in bars, shakes, and confections [21][22] Market Data and Key Metrics Changes - Simply Good Foods' second quarter retail takeaway in measured channels increased mid-single digits, with IRI measured channel growth of 1.7% [12][15] - Quest's second quarter retail takeaway increased by 16% in the measured IRI MULO C-store universe, driven by snacks consumed at home [26][30] - Atkins' U.S. retail takeaway in measured and unmeasured channels declined low-single digits, with solid e-commerce growth offset by softness in traditional brick-and-mortar [18][19] Company Strategy and Development Direction - The company aims to leverage its asset-light business model to maintain strong cash flow and invest in organic growth opportunities and M&A [62] - The combination of Atkins and Quest is positioned around consumer megatrends of wellness snacking, convenience, and meal replacement, with a focus on adapting marketing strategies to changing consumer behaviors post-COVID [61][100] - The company anticipates full-year net sales of $930 million to $940 million and adjusted EBITDA of $180 million to $185 million, factoring in headwinds from divestitures [58][60] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about improving retail takeaway trends driven by easier year-ago comparisons and increasing shopper traffic in brick-and-mortar stores [57][31] - The company expects solid growth in the second half of the fiscal year, supported by improving consumer mobility and renewed interest in weight management [31][32] - Management noted that the correlation between consumer mobility and brand consumption is significant, particularly for bars and shakes [24][78] Other Important Information - The company paid down $25 million of its term loan debt, with an outstanding principal balance of $556.5 million at the end of the second quarter [53] - Year-to-date net income was $41.6 million compared to $5.9 million in the prior year, driven by the Quest acquisition and lower integration-related costs [49][52] - Adjusted diluted EPS for the second quarter was $0.25, an increase of $0.02 compared to the previous year [51][60] Q&A Session Summary Question: What was the organic sales growth for Atkins and Quest brands? - Atkins was down about 10% due to shipment delays, while Quest was up in the high teens [67][68] Question: Is the guidance based on current consumer mobility levels or expecting improvement? - The guidance assumes status quo for consumer mobility [71] Question: How does the current mobility and sales momentum affect revenue expectations? - The third quarter is expected to show strong sales momentum, but a softening is anticipated in the fourth quarter due to seasonality [77][80] Question: How does the company plan to adjust marketing and product assortment in response to changing consumer behavior? - The company plans to innovate in snacks that are less dependent on being at work and adjust marketing strategies accordingly [100] Question: What is the company's stance on potential price increases due to inflation? - The company has not raised prices on Atkins in several years but is prepared to do so if necessary, with confidence in maintaining strong volumes [102] Question: What is the company's acquisition strategy moving forward? - The company remains on the lookout for strong consumer brands with good innovation pipelines, similar to the Quest acquisition [110]

[PART I. Financial Information](index=4&type=section&id=PART%20I.%20Financial%20Information) Comprehensive financial data including statements, notes, and management's analysis of performance and liquidity [Item 1. Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations and comprehensive income, cash flows, stockholders' equity, and detailed notes, providing a snapshot of the company's financial position and performance for the reported periods [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Presents the company's financial position with assets, liabilities, and equity at specific dates **Condensed Consolidated Balance Sheets (Unaudited, dollars in thousands):** | Category | February 27, 2021 | August 29, 2020 | | :-------------------------- | :---------------- | :---------------- | | Cash and cash equivalents | $91,307 | $95,847 | | Accounts receivable, net | $97,329 | $89,740 | | Inventories | $82,771 | $59,085 | | Total current assets | $289,134 | $260,263 | | Total assets | $2,021,518 | $2,008,445 | | Accounts payable | $43,585 | $32,240 | | Total current liabilities | $80,560 | $71,478 | | Long-term debt, less current maturities | $548,884 | $596,879 | | Total liabilities | $742,860 | $775,474 | | Total stockholders' equity | $1,278,658 | $1,232,971 | | Total liabilities and stockholders' equity | $2,021,518 | $2,008,445 | [Condensed Consolidated Statements of Operations and Comprehensive Income](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income) Details the company's revenues, expenses, and net income over specific periods **Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited, dollars in thousands, except share and per share data):** | Metric | Thirteen Weeks Ended Feb 27, 2021 | Thirteen Weeks Ended Feb 29, 2020 | Twenty-Six Weeks Ended Feb 27, 2021 | Twenty-Six Weeks Ended Feb 29, 2020 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | :---------------------------------- | :---------------------------------- | | Net sales | $230,607 | $227,101 | $461,759 | $379,254 | | Gross profit | $90,265 | $85,394 | $184,306 | $147,600 | | Income from operations | $33,341 | $25,269 | $72,528 | $22,284 | | Net income | $19,120 | $10,657 | $41,620 | $5,864 | | Basic EPS | $0.20 | $0.11 | $0.43 | $0.06 | | Diluted EPS | $0.19 | $0.11 | $0.41 | $0.06 | [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Summarizes cash inflows and outflows from operating, investing, and financing activities **Condensed Consolidated Statements of Cash Flows (Unaudited, dollars in thousands):** | Activity | Twenty-Six Weeks Ended Feb 27, 2021 | Twenty-Six Weeks Ended Feb 29, 2020 | | :-------------------------------- | :---------------------------------- | :---------------------------------- | | Net cash provided by (used in) operating activities | $39,764 | $(14,886) | | Net cash provided by (used in) investing activities | $5,237 | $(985,932) | | Net cash (used in) provided by financing activities | $(49,893) | $780,705 | | Net decrease in cash | $(4,892) | $(220,113) | | Cash and cash equivalents at end of period | $91,307 | $46,115 | [Condensed Consolidated Statements of Stockholders' Equity](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders%27%20Equity) Outlines changes in equity components, including common stock, retained earnings, and paid-in capital **Condensed Consolidated Statements of Stockholders' Equity (Unaudited, dollars in thousands):** | Category | Balance at Aug 29, 2020 | Net Income (Aug-Nov 2020) | Net Income (Dec-Feb 2021) | Balance at Feb 27, 2021 | | :-------------------------- | :---------------------- | :------------------------ | :------------------------ | :---------------------- | | Common Stock (Shares) | 95,751,845 | — | 30,810 | 95,856,715 | | Common Stock (Amount) | $958 | — | $1 | $959 | | Additional Paid-In Capital | $1,094,507 | $1,110 | $2,484 | $1,098,375 | | Retained Earnings | $140,530 | $22,500 | $19,120 | $182,150 | | Total Stockholders' Equity | $1,232,971 | $22,500 | $19,120 | $1,278,658 | [Notes to Unaudited Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) The notes provide detailed information on the company's business, significant accounting policies, the Quest acquisition, revenue recognition, goodwill and intangibles, long-term debt, fair value measurements, income taxes, leases, commitments, stockholders' equity, earnings per share, stock-based compensation, and restructuring activities [Note 1. Nature of Operations and Principles of Consolidation](index=9&type=section&id=Note%201.%20Nature%20of%20Operations%20and%20Principles%20of%20Consolidation) Describes the company's business, core brands, and accounting principles for interim financial reporting - The Simply Good Foods Company is a consumer-packaged food and beverage company focused on nutritious snacking with core brands Atkins® (low-carb) and Quest® (protein-rich, low sugar/carbs) Products are distributed primarily in North America across various retail channels and e-commerce[19](index=19&type=chunk)[89](index=89&type=chunk) - The company's fiscal year ends on the last Saturday in August Interim financial statements are unaudited and prepared in accordance with GAAP and SEC rules[21](index=21&type=chunk)[22](index=22&type=chunk) - COVID-19 continues to create uncertainty regarding its ultimate effect on the business, including potential supply chain disruptions, changes in customer operations, and shifts in consumer behavior, despite vaccine distribution and easing restrictions[23](index=23&type=chunk)[96](index=96&type=chunk) [Note 2. Summary of Significant Accounting Policies](index=9&type=section&id=Note%202.%20Summary%20of%20Significant%20Accounting%20Policies) Details the company's adoption and evaluation of new accounting standards and their impact - The company adopted ASU 2016-13 (Credit Losses) and ASU 2018-13 (Fair Value Measurement) as of the first day of fiscal 2021, neither of which had a material effect on the consolidated financial statements[29](index=29&type=chunk)[30](index=30&type=chunk) - The company is evaluating ASU 2019-12 (Income Taxes) and ASU 2020-10 (Codification Improvements), effective for fiscal years beginning after December 15, 2021 and 2020 respectively, and does not anticipate a material effect from their adoption[26](index=26&type=chunk)[28](index=28&type=chunk) - The company will monitor ASU 2020-04 (Reference Rate Reform), applicable through December 31, 2022, and does not anticipate a material effect[27](index=27&type=chunk) [Note 3. Business Combination](index=10&type=section&id=Note%203.%20Business%20Combination) Covers the acquisition of Quest Nutrition, its strategic rationale, and purchase price allocation - Simply Good Foods acquired Quest Nutrition, LLC on November 7, 2019, for a total net consideration of **$986.8 million**, funded by cash on hand, a public offering of common stock, and new term loan debt[31](index=31&type=chunk)[33](index=33&type=chunk)[137](index=137&type=chunk) - The acquisition aimed to expand the company's nutritious snacking platform with Quest's protein-rich, low-sugar/carb products[32](index=32&type=chunk) **Final Purchase Price Allocation of Quest Acquisition (in thousands):** | Category | Amount | | :-------------------------------- | :------- | | Total identifiable net assets | $912,295 | | Goodwill | $74,525 | | **Total assets acquired and liabilities assumed** | **$986,820** | - Quest's operations have been included in the Company's financial statements since November 7, 2019 Net sales from Quest were **$105.0 million** for the thirteen weeks ended Feb 27, 2021, and **$200.8 million** for the twenty-six weeks ended Feb 27, 2021[37](index=37&type=chunk) [Note 4. Revenue Recognition](index=12&type=section&id=Note%204.%20Revenue%20Recognition) Provides disaggregated net sales data by geographic area and core brands **Disaggregated Net Sales by Geographic Area and Core Brands (in thousands):** | Category | 13 Weeks Ended Feb 27, 2021 | 13 Weeks Ended Feb 29, 2020 | 26 Weeks Ended Feb 27, 2021 | 26 Weeks Ended Feb 29, 2020 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Atkins (North America) | $114,155 | $131,435 | $236,916 | $259,247 | | Quest (North America) | $105,025 | $88,305 | $200,794 | $105,387 | | Total North America | $219,180 | $219,740 | $437,710 | $364,634 | | International | $11,427 | $7,361 | $24,049 | $14,620 | | **Total Net Sales** | **$230,607** | **$227,101** | **$461,759** | **$379,254** | [Note 5. Goodwill and Intangibles](index=12&type=section&id=Note%205.%20Goodwill%20and%20Intangibles) Details changes in goodwill and intangible assets, including amortization expense and the SimplyProtein Sale - Goodwill decreased by **$1.6 million** from August 29, 2020, to February 27, 2021, primarily due to a **$2.8 million** disposal related to the SimplyProtein Sale, partially offset by a **$1.2 million** measurement period adjustment for the Quest acquisition[40](index=40&type=chunk)[41](index=41&type=chunk) - The SimplyProtein® brand assets were sold for approximately **$8.8 million**, including cash of **$5.8 million** and a note receivable for **$3.0 million**, resulting in no recognized gain or loss[41](index=41&type=chunk)[99](index=99&type=chunk) **Intangible Assets, Net (in thousands):** | Category | Feb 27, 2021 Net Carrying Amount | Aug 29, 2020 Net Carrying Amount | | :-------------------------------- | :--------------------------------- | :--------------------------------- | | Brands and trademarks (indefinite) | $974,000 | $979,000 | | Customer relationships (15 years) | $149,697 | $155,497 | | Proprietary recipes and formulas (7 years) | $3,369 | $3,869 | | Licensing agreements (14 years) | $16,294 | $17,080 | | Software and website development costs (3-5 years) | $2,624 | $3,322 | | Intangible assets in progress (3-5 years) | $55 | — | | **Total Intangible Assets, Net** | **$1,146,039** | **$1,158,768** | - Amortization expense for intangible assets was **$3.9 million** for the thirteen weeks ended Feb 27, 2021, and **$7.7 million** for the twenty-six weeks ended Feb 27, 2021[43](index=43&type=chunk) [Note 6. Long-Term Debt and Line of Credit](index=14&type=section&id=Note%206.%20Long-Term%20Debt%20and%20Line%20of%20Credit) Outlines the company's credit facilities, outstanding debt, and compliance with financial covenants - The company's Credit Agreement includes a **$200.0 million** Term Facility (drawn in full) and a **$75.0 million** Revolving Credit Facility (undrawn as of Feb 27, 2021)[46](index=46&type=chunk)[51](index=51&type=chunk) - The Term Facility was increased by **$460.0 million** on November 7, 2019, to partially finance the Quest acquisition, with an interest rate of LIBOR plus **3.75%** or base rate plus **2.75%**[48](index=48&type=chunk)[131](index=131&type=chunk)[132](index=132&type=chunk) - As of February 27, 2021, the outstanding balance of the Term Facility was **$556.5 million**, due upon its maturity in July 2024 The company was in compliance with all financial covenants[51](index=51&type=chunk)[134](index=134&type=chunk) **Long-Term Debt (in thousands):** | Category | Feb 27, 2021 | Aug 29, 2020 | | :-------------------------------- | :----------- | :----------- | | Term Facility | $556,500 | $606,500 | | Finance lease liabilities | $826 | $922 | | Less: Deferred financing fees | $(8,164) | $(10,272) | | **Total debt** | **$549,162** | **$597,150** | [Note 7. Fair Value of Financial Instruments](index=15&type=section&id=Note%207.%20Fair%20Value%20of%20Financial%20Instruments) Explains the fair value hierarchy and valuation methods for financial instruments - The company uses a three-tier fair value hierarchy (Level 1, 2, 3) for financial instruments The Term Loan's fair value is estimated using observable inputs and classified as Level 2[54](index=54&type=chunk)[55](index=55&type=chunk)[56](index=56&type=chunk)[53](index=53&type=chunk) - Carrying amounts of cash and cash equivalents, accounts receivable, and accounts payable approximated fair value as of February 27, 2021 and August 29, 2020 due to their relatively short maturity[56](index=56&type=chunk) [Note 8. Income Taxes](index=15&type=section&id=Note%208.%20Income%20Taxes) Presents income tax expense and effective tax rates for the reported periods **Income Tax Expense and Effective Tax Rate (in thousands):** | Category | 26 Weeks Ended Feb 27, 2021 | 26 Weeks Ended Feb 29, 2020 | | :-------------------- | :-------------------------- | :-------------------------- | | Income before income taxes | $57,307 | $8,057 | | Income tax expense | $15,687 | $2,193 | | **Effective tax rate** | **27.4%** | **27.2%** | - The effective tax rate for the twenty-six weeks ended February 27, 2021, was **0.2%** greater than the prior year, primarily driven by permanent differences[57](index=57&type=chunk) [Note 9. Leases](index=16&type=section&id=Note%209.%20Leases) Details total lease costs, lease assets, and liabilities, including impairment charges **Total Lease Cost (in thousands):** | Category | 13 Weeks Ended Feb 27, 2021 | 13 Weeks Ended Feb 29, 2020 | 26 Weeks Ended Feb 27, 2021 | 26 Weeks Ended Feb 29, 2020 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Operating lease cost | $1,874 | $1,867 | $3,770 | $2,983 | | Short term lease cost | — | $18 | — | $24 | | Finance lease cost | $80 | $82 | $161 | $168 | | **Total lease cost** | **$1,954** | **$1,967** | **$3,931** | **$3,175** | - The company incurred impairment charges of **$0.7 million** and a gain on lease termination of **$0.2 million** for the twenty-six weeks ended February 27, 2021, related to restructuring activities in Toronto and the Netherlands[58](index=58&type=chunk)[84](index=84&type=chunk) **Lease Assets and Liabilities (in thousands):** | Category | Feb 27, 2021 | Aug 29, 2020 | | :-------------------------------- | :----------- | :----------- | | Operating lease right-of-use assets | $23,089 | $25,703 | | Finance lease right-of-use assets | $776 | $912 | | Total lease assets | $23,865 | $26,615 | | Operating lease liabilities (current) | $4,235 | $4,329 | | Finance lease liabilities (current) | $278 | $271 | | Operating lease liabilities (long-term) | $20,880 | $22,764 | | Finance lease liabilities (long-term) | $548 | $651 | | **Total lease liabilities** | **$25,941** | **$28,015** | [Note 10. Commitments and Contingencies](index=17&type=section&id=Note%2010.%20Commitments%20and%20Contingencies) Addresses potential legal matters, reserves, and contractual obligations like endorsement contracts - The company is not currently a party to any material litigation and is unaware of any pending or threatened litigation that could have a material adverse effect on its business, operating result, financial condition or cash flows[62](index=62&type=chunk)[151](index=151&type=chunk) - As of February 27, 2021, the company had **$0.7 million** reserved for potential settlements, down from **$1.3 million** as of August 29, 2020[64](index=64&type=chunk) - The company has entered into endorsement contracts with celebrity figures and social media influencers, requiring payments of **$2.8 million** over the next year[65](index=65&type=chunk) [Note 11. Stockholders' Equity](index=18&type=section&id=Note%2011.%20Stockholders%27%20Equity) Covers public equity offerings, outstanding warrants, and stock repurchase programs - On October 9, 2019, the company completed a public offering of **13,379,205 shares** of common stock at **$26.35 per share**, generating net proceeds of approximately **$350.0 million**, used to partially fund the Quest acquisition[66](index=66&type=chunk)[135](index=135&type=chunk) - **6,700,000 private placement warrants** to purchase common stock remain outstanding as of February 27, 2021[67](index=67&type=chunk)[138](index=138&type=chunk) - A **$50.0 million** stock repurchase program was adopted on November 13, 2018, with approximately **$47.9 million** remaining available as of February 27, 2021 No shares were repurchased during the twenty-six weeks ended February 27, 2021 or February 29, 2020[68](index=68&type=chunk)[69](index=69&type=chunk) [Note 12. Earnings Per Share](index=19&type=section&id=Note%2012.%20Earnings%20Per%20Share) Provides basic and diluted earnings per share calculations and related data **Basic and Diluted Earnings Per Share (in thousands, except per share data):** | Category | 13 Weeks Ended Feb 27, 2021 | 13 Weeks Ended Feb 29, 2020 | 26 Weeks Ended Feb 27, 2021 | 26 Weeks Ended Feb 29, 2020 | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net income | $19,120 | $10,657 | $41,620 | $5,864 | | Weighted average common shares - basic | 95,734,591 | 95,339,489 | 95,712,057 | 92,524,061 | | **Basic earnings per share** | **$0.20** | **$0.11** | **$0.43** | **$0.06** | | Weighted average common shares - diluted | 101,152,896 | 100,336,571 | 100,604,137 | 97,597,614 | | **Diluted earnings per share** | **$0.19** | **$0.11** | **$0.41** | **$0.06** | [Note 13. Omnibus Incentive Plan](index=19&type=section&id=Note%2013.%20Omnibus%20Incentive%20Plan) Details stock-based compensation expense and unrecognized compensation costs for various equity awards - Stock-based compensation expense was **$2.5 million** for the thirteen weeks ended February 27, 2021, and **$3.6 million** for the twenty-six weeks ended February 27, 2021[75](index=75&type=chunk) - As of February 27, 2021, total unrecognized compensation cost for stock options was **$3.5 million** (weighted average period of **1.9 years**), for restricted stock units was **$7.6 million** (**2.2 years**), for performance stock units was **$4.4 million** (**1.6 years**), and for SARs was **$0.2 million** (**1.7 years**)[76](index=76&type=chunk)[77](index=77&type=chunk)[79](index=79&type=chunk)[81](index=81&type=chunk) [Note 14. Restructuring and Related Charges](index=21&type=section&id=Note%2014.%20Restructuring%20and%20Related%20Charges) Explains restructuring activities for Quest integration, incurred costs, and future projections - In May 2020, the company initiated restructuring activities to integrate Quest, involving workforce reductions, management structure changes, and the relocation of business activities[82](index=82&type=chunk)[97](index=97&type=chunk) - For the twenty-six weeks ended February 27, 2021, the company incurred **$3.8 million** in restructuring and related costs, primarily termination benefits and severance[84](index=84&type=chunk)[98](index=98&type=chunk) - Total restructuring and related costs incurred since May 2020 amount to **$9.3 million**, with an expected total of approximately **$10.0 million** to be paid throughout fiscal 2021 and the first quarter of fiscal 2022[85](index=85&type=chunk)[98](index=98&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=22&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition, results of operations, and cash flows for the thirteen and twenty-six weeks ended February 27, 2021, compared to the prior year periods, including the impact of the Quest acquisition, COVID-19, and restructuring activities [Overview](index=22&type=section&id=Overview) Introduces the company's business model and the strategic acquisition of Quest Nutrition - The Simply Good Foods Company is a consumer-packaged food and beverage company focused on nutritious snacking with core brands Atkins® and Quest®[89](index=89&type=chunk) - The company completed the acquisition of Quest Nutrition, LLC in November 2019 for approximately **$1.0 billion**, aiming to lead the nutritious snacking movement[90](index=90&type=chunk) [Effects of COVID-19](index=22&type=section&id=Effects%20of%20COVID-19) Discusses the ongoing impact of COVID-19 on consumer behavior, brand performance, and business uncertainty - COVID-19 continues to impact consumer shopping and consumption behavior, leading to decreased shopping trips and fewer on-the-go usage occasions, particularly affecting the nutrition and protein bar segments of both Atkins and Quest brands[95](index=95&type=chunk) - The Atkins brand's performance has remained slower due to what the company believes is temporary softer interest in weight management for consumers, fewer on-the-go usage occasions, and weakness in the mass channel, while the Quest brand has outperformed its portion of the nutritious snacking segment[95](index=95&type=chunk) - The company remains uncertain of the ultimate effect of COVID-19, citing potential for continued high case rates, mutations, unexpected supply chain disruptions, changes to customer operations, and shifts in consumer purchasing behavior[96](index=96&type=chunk) [Restructuring and Related Charges](index=23&type=section&id=Restructuring%20and%20Related%20Charges) Summarizes costs and projections for restructuring activities related to Quest integration - Restructuring activities, initiated in May 2020 for Quest integration, resulted in **$1.3 million** and **$3.8 million** in costs for the thirteen and twenty-six weeks ended February 27, 2021, respectively[97](index=97&type=chunk)[98](index=98&type=chunk) - Total restructuring and related costs are projected to be approximately **$10.0 million**, with **$9.3 million** incurred as of February 27, 2021[98](index=98&type=chunk) [SimplyProtein Sale](index=23&type=section&id=SimplyProtein%20Sale) Details the sale of the SimplyProtein® brand assets to focus on core brands - The company sold its SimplyProtein® brand assets for approximately **$8.8 million** on September 24, 2020, to focus resources on core Atkins® and Quest® brands No gain or loss was recognized[99](index=99&type=chunk) [Key Financial Definitions](index=24&type=section&id=Key%20Financial%20Definitions) Defines key financial terms such as net sales, cost of goods sold, and operating expenses - Net sales consist primarily of product sales less the cost of promotional activities, slotting fees, and other sales credits and adjustments[100](index=100&type=chunk) - Cost of goods sold includes costs paid to contract manufacturers for raw ingredients, packaging, shipping and handling, warehousing, depreciation of warehouse equipment, and tolling charges[101](index=101&type=chunk) - Operating expenses are comprised of selling and marketing, general and administrative, depreciation and amortization, and business transaction costs[102](index=102&type=chunk)[104](index=104&type=chunk) [Results of Operations](index=24&type=section&id=Results%20of%20Operations) Analyzes the company's financial performance for the reported periods, including sales, profit, and expenses [Comparison of Unaudited Results for the Thirteen Weeks Ended February 27, 2021 and the Thirteen Weeks Ended February 29, 2020](index=25&type=section&id=Comparison%20of%20Unaudited%20Results%20for%20the%20Thirteen%20Weeks%20Ended%20February%2027%2C%202021%20and%20the%20Thirteen%20Weeks%20Ended%20February%2029%2C%202020) For the thirteen weeks ended February 27, 2021, the company reported a 1.5% increase in net sales, a 5.7% increase in gross profit, and a significant 79.4% increase in net income, primarily driven by Quest brand growth, reduced operating expenses, and lower interest expense **Key Financial Highlights (13 Weeks Ended, in thousands):** | Metric | Feb 27, 2021 | Feb 29, 2020 | Change ($) | Change (%) | | :-------------------------- | :----------- | :----------- | :--------- | :--------- | | Net sales | $230,607 | $227,101 | $3,506 | 1.5% | | Gross profit | $90,265 | $85,394 | $4,871 | 5.7% | | Gross profit margin | 39.1% | 37.6% | 1.5 pp | | | Total operating expenses | $56,924 | $60,125 | $(3,201) | (5.3)% | | Income from operations | $33,341 | $25,269 | $8,072 | 32.0% | | Net income | $19,120 | $10,657 | $8,463 | 79.4% | | Adjusted EBITDA | $42,644 | $41,731 | $913 | 2.2% | - Net sales growth was primarily driven by Quest brand net sales growth and solid e-commerce growth across both the Atkins and Quest brands, partially offset by the SimplyProtein Sale, European restructuring, seasonal inventory timing, and higher trade promotions[105](index=105&type=chunk) - Gross profit margin improved by **150 basis points**, mainly due to the absence of a **$5.1 million** non-cash inventory purchase accounting step-up adjustment in fiscal year 2020, partially offset by higher trade promotions in fiscal year 2021[107](index=107&type=chunk) - Operating expenses decreased due to lower selling and marketing expenses (SimplyProtein Sale, European restructuring) and reduced general and administrative expenses (Quest integration costs), despite increased restructuring charges[108](index=108&type=chunk)[114](index=114&type=chunk) [Comparison of Unaudited Results for the Twenty-Six Weeks Ended February 27, 2021 and the Twenty-Six Weeks Ended February 29, 2020](index=27&type=section&id=Comparison%20of%20Unaudited%20Results%20for%20the%20Twenty-Six%20Weeks%20Ended%20February%2027%2C%202021%20and%20the%20Twenty-Six%20Weeks%20Ended%20February%2029%2C%202020) For the twenty-six weeks ended February 27, 2021, the company achieved a 21.8% increase in net sales, a 24.9% increase in gross profit, and a substantial 610.0% increase in net income, primarily due to the full inclusion and growth of the Quest brand and reduced business transaction costs **Key Financial Highlights (26 Weeks Ended, in thousands):** | Metric | Feb 27, 2021 | Feb 29, 2020 | Change ($) | Change (%) | | :-------------------------- | :----------- | :----------- | :--------- | :--------- | | Net sales | $461,759 | $379,254 | $82,505 | 21.8% | | Gross profit | $184,306 | $147,600 | $36,706 | 24.9% | | Gross profit margin | 39.9% | 38.9% | 1.0 pp | | | Total operating expenses | $111,778 | $125,316 | $(13,538) | (10.8)% | | Income from operations | $72,528 | $22,284 | $50,244 | 225.5% | | Net income | $41,620 | $5,864 | $35,756 | 610.0% | | Adjusted EBITDA | $91,341 | $73,526 | $17,815 | 24.2% | - Net sales increased primarily due to the Quest brand's partial inclusion in fiscal year 2020 compared to fiscal year 2021, as well as post-acquisition Quest brand sales volume growth, partially offset by decreased sales volume from the SimplyProtein Sale, European restructuring, COVID-19 related movement restrictions, and higher trade promotions[115](index=115&type=chunk) - Gross profit margin improved by **100 basis points**, mainly due to the effect of the **$7.5 million** non-cash inventory step-up related to the Acquisition of Quest in fiscal year 2020, offset by higher trade promotions in fiscal year 2021[117](index=117&type=chunk) - Operating expenses decreased significantly due to the absence of **$26.9 million** in business transaction costs related to the Quest acquisition in the prior year, partially offset by increased selling and marketing, general and administrative (including restructuring charges), and depreciation and amortization expenses[118](index=118&type=chunk)[124](index=124&type=chunk) [Reconciliation of Adjusted EBITDA](index=29&type=section&id=Reconciliation%20of%20Adjusted%20EBITDA) Provides a reconciliation of net income to Adjusted EBITDA, a non-GAAP financial measure - Adjusted EBITDA is a non-GAAP financial measure used to reflect the operating results of ongoing operations, defined as net income adjusted for interest, tax, depreciation, amortization, business transaction costs, stock-based compensation expense, inventory step-up, integration costs, restructuring costs, non-core legal costs, and other non-core expenses[125](index=125&type=chunk) **Adjusted EBITDA Reconciliation (in thousands):** | Metric | 13 Weeks Ended Feb 27, 2021 | 13 Weeks Ended Feb 29, 2020 | 26 Weeks Ended Feb 27, 2021 | 26 Weeks Ended Feb 29, 2020 | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net income | $19,120 | $10,657 | $41,620 | $5,864 | | EBITDA | $38,936 | $29,677 | $82,692 | $29,270 | | Business transaction costs | — | $694 | — | $26,853 | | Stock-based compensation expense | $2,484 | $2,122 | $3,594 | $3,795 | | Inventory step-up | — | $5,085 | — | $7,522 | | Integration of Quest | $968 | $3,903 | $2,214 | $5,341 | | Restructuring | $1,267 | — | $3,786 | — | | Non-core legal costs | — | $76 | — | $555 | | Other | $(1,011) | $174 | $(945) | $190 | | **Adjusted EBITDA** | **$42,644** | **$41,731** | **$91,341** | **$73,526** | [Liquidity and Capital Resources](index=30&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains sufficient liquidity through cash flow from operations and credit facilities, with $91.3 million in cash as of February 27, 2021 It continues to manage debt, having made a $50.0 million principal payment on its Term Facility, and may opportunistically issue debt or equity [Overview](index=30&type=section&id=Overview) Describes the company's funding sources, principal uses of cash, and current liquidity position - The company has historically funded operations with cash flow from operations and, when needed, with borrowings under its credit facilities, with principal uses being debt service, working capital, and the Acquisition of Quest[127](index=127&type=chunk) - As of February 27, 2021, cash and cash equivalents totaled **$91.3 million**, which the company believes will be sufficient to finance continued operations and growth for at least the next twelve months[128](index=128&type=chunk) [Debt and Credit Facilities](index=30&type=section&id=Debt%20and%20Credit%20Facilities) Details the company's credit agreement, outstanding debt, and compliance with covenants - The company's Credit Agreement includes a **$200.0 million** Term Facility and a **$75.0 million** Revolving Credit Facility, with the Term Facility increased by **$460.0 million** in November 2019 to partially finance the Quest acquisition[129](index=129&type=chunk)[131](index=131&type=chunk) - As of February 27, 2021, the Term Facility had an outstanding balance of **$556.5 million**, maturing in July 2024, and the Revolving Credit Facility had no amounts drawn The company was in compliance with all financial covenants[134](index=134&type=chunk) [Public Equity Offering](index=31&type=section&id=Public%20Equity%20Offering) Summarizes the net proceeds and purpose of the October 2019 public equity offering - In October 2019, a public offering of **13,379,205 common shares** generated approximately **$350.0 million** in net proceeds, used to partially finance the Quest acquisition[135](index=135&type=chunk) [Acquisition of Quest](index=31&type=section&id=Acquisition%20of%20Quest) Recaps the funding and strategic rationale behind the Quest acquisition - The Quest acquisition was completed on November 7, 2019, for approximately **$1.0 billion**, funded by cash on hand, equity offering proceeds, and new term loan debt[136](index=136&type=chunk)[137](index=137&type=chunk) [Equity Warrants](index=31&type=section&id=Equity%20Warrants) States the number of outstanding private placement warrants to purchase common stock - **6,700,000 private placement warrants** to purchase common stock remain outstanding[138](index=138&type=chunk) [Cash Flows](index=31&type=section&id=Cash%20Flows) Analyzes major sources and uses of cash from operating, investing, and financing activities **Major Sources and Uses of Cash (26 Weeks Ended, in thousands):** | Category | Feb 27, 2021 | Feb 29, 2020 | | :-------------------------------- | :----------- | :----------- | | Net cash provided by (used in) operating activities | $39,764 | $(14,886) | | Net cash provided by (used in) investing activities | $5,237 | $(985,932) | | Net cash (used in) provided by financing activities | $(49,893) | $780,705 | - Operating cash flow significantly improved to **$39.8 million** provided in 2021 from **$14.9 million** used in 2020, driven by higher income before taxes (Quest growth) and reduced cash outlays for Quest acquisition-related costs[139](index=139&type=chunk) - Investing activities shifted from **$985.9 million** used in 2020 (Quest acquisition) to **$5.2 million** provided in 2021 (SimplyProtein Sale proceeds)[140](index=140&type=chunk) - Financing activities shifted from **$780.7 million** provided in 2020 (equity offering, term loan issuance) to **$49.9 million** used in 2021 (principal debt payment)[141](index=141&type=chunk) [Contractual Obligations](index=32&type=section&id=Contractual%20Obligations) Confirms no material changes to contractual obligations since the Annual Report - There have been no material changes to contractual obligations (Credit Agreement, finance and operating leases) from the Annual Report[142](index=142&type=chunk) [Off-Balance Sheet Arrangements](index=32&type=section&id=Off-Balance%20Sheet%20Arrangements) States the absence of material off-balance sheet arrangements as of the reporting date - As of February 27, 2021, the company had no material off-balance sheet arrangements[143](index=143&type=chunk) [New Accounting Pronouncements](index=32&type=section&id=New%20Accounting%20Pronouncements) Refers to Note 2 for information on recently issued accounting standards and policy changes - There have been no significant changes to critical accounting policies since August 29, 2020 Refer to Note 2 for further information regarding recently issued accounting standards[144](index=144&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=32&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company experienced no material changes in market risk exposure during the thirteen weeks ended February 27, 2021, but is assessing alternatives to mitigate potential input cost inflation for fiscal year 2022 - There were no material changes in the company's market risk exposure during the thirteen week period ended February 27, 2021[145](index=145&type=chunk) - The company is observing some inflationary pressure on input costs and is assessing available alternatives to mitigate potential input cost inflation for fiscal year 2022[145](index=145&type=chunk) [Item 4. Controls and Procedures](index=32&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of February 27, 2021, with no material changes in internal controls over financial reporting during the quarter - Management, including the Chief Executive Officer and Chief Financial Officer, concluded that the company's disclosure controls and procedures were effective as of February 27, 2021[147](index=147&type=chunk) - There were no changes in internal controls over financial reporting during the quarter ended February 27, 2021, that have materially affected, or are reasonably likely to materially affect, internal controls over financial reporting[148](index=148&type=chunk) [PART II. Other Information](index=33&type=section&id=PART%20II.%20Other%20Information) Presents additional disclosures including legal proceedings, risk factors, equity sales, and exhibits [Item 1. Legal Proceedings](index=33&type=section&id=Item%201.%20Legal%20Proceedings) The company is not currently involved in any material legal proceedings and is unaware of any pending or threatened litigation that could significantly impact its business, operating results, financial condition, or cash flows - The company is not presently a party to any litigation that it believes to be material, and is not aware of any pending or threatened litigation against it that its management believes could have a material adverse effect on its business, operating result, financial condition or cash flows[151](index=151&type=chunk) [Item 1A. Risk Factors](index=33&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the risk factors previously disclosed in the company's Annual Report, and readers should consider those factors, along with other unknown or immaterial risks, which could adversely affect the business - There have been no material changes in the company's risk factors included in its Annual Report[152](index=152&type=chunk) - Readers should carefully consider the factors discussed in Part I, Item 1A. "Risk Factors" in the Annual Report, as well as additional risks and uncertainties not currently known or deemed immaterial, which may materially adversely affect the business[152](index=152&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=33&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No unregistered sales of equity securities or use of proceeds to report for the period - None to report[153](index=153&type=chunk) [Item 3. Defaults Upon Senior Securities](index=33&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) No defaults upon senior securities to report for the period - None to report[154](index=154&type=chunk) [Item 4. Mine Safety Disclosures](index=33&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) Not applicable to the company's operations - Not Applicable[155](index=155&type=chunk) [Item 5. Other Information](index=33&type=section&id=Item%205.%20Other%20Information) No other information to report for the period - None to report[156](index=156&type=chunk) [Item 6. Exhibits](index=34&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed as part of the Form 10-Q, including certifications and XBRL-related documents - Exhibits include certifications of Principal Executive Officer and Principal Financial Officer pursuant to Sections 302 and 906 of the Sarbanes Oxley Act of 2002, along with various XBRL (eXtensible Business Reporting Language) documents[158](index=158&type=chunk) [Signatures](index=35&type=section&id=Signatures) The report is duly signed on behalf of The Simply Good Foods Company by Timothy A. Matthews, Vice President, Controller, and Chief Accounting Officer, on April 7, 2021 - The report was signed on behalf of The Simply Good Foods Company by Timothy A. Matthews, Vice President, Controller, and Chief Accounting Officer, on April 7, 2021[162](index=162&type=chunk)