The Simply Good Foods pany(SMPL) - 2025 Q3 - Quarterly Results

Financial Performance Overview This section details the company's financial results for Q3 and year-to-date FY2025, including key metrics, brand and geographic performance, and profitability analysis Q3 FY2025 Financial Highlights In Q3 FY2025, The Simply Good Foods Company reported a 13.8% increase in net sales to $381.0 million, primarily driven by the OWYN acquisition and 3.8% organic growth from the Quest brand. While net income remained flat, Adjusted EBITDA grew by 2.8% to $73.9 million and Adjusted Diluted EPS saw a slight increase to $0.51 Q3 FY2025 Key Financial Metrics (vs. Q3 FY2024) | Metric | Q3 FY2025 | Q3 FY2024 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $381.0M | $334.8M | +13.8% | | Net Income | $41.1M | $41.3M | -0.5% | | Adjusted EBITDA | $73.9M | $71.9M | +2.8% | | Diluted EPS | $0.40 | $0.41 | -2.4% | | Adjusted Diluted EPS | $0.51 | $0.50 | +2.0% | - Net sales growth of 13.8% was composed of a 10.0% contribution from the OWYN acquisition and 3.8% organic growth, driven by the Quest brand[3] - CEO Geoff Tanner highlighted that Quest and OWYN, now representing about 70% of net sales, experienced double-digit consumption growth, while Atkins remained under pressure as anticipated[2] YTD FY2025 Financial Results For the first thirty-nine weeks of FY2025, net sales grew 13.2% to $1.08 billion, with the OWYN acquisition contributing 10.4% to this growth. Adjusted EBITDA increased by 10.6% to $211.9 million, and Adjusted Diluted EPS rose 9.8% to $1.46 YTD FY2025 Key Financial Metrics (vs. YTD FY2024) | Metric | YTD FY2025 | YTD FY2024 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $1,081.9M | $955.6M | +13.2% | | Net Income | $116.0M | $110.0M | +5.5% | | Adjusted EBITDA | $211.9M | $191.7M | +10.6% | | Diluted EPS | $1.14 | $1.09 | +4.6% | | Adjusted Diluted EPS | $1.46 | $1.33 | +9.8% | - Year-to-date net sales growth was driven by a $99.6 million (10.4%) contribution from OWYN and 2.8% organic growth from Quest[10] Brand and Geographic Performance Brand performance was mixed, with strong retail takeaway growth for Quest (+11%) and OWYN (+24%) in Q3, while Atkins declined (-13%). North America remains the dominant market, with sales growing to $373.6 million in Q3, whereas International sales saw a slight decline Q3 Retail Takeaway Growth | Brand | Retail Takeaway Growth (Q3) | | :--- | :--- | | Quest | ~11% | | OWYN | ~24% | | Atkins | ~-13% | Net Sales by Brand (Q3, in thousands) | Brand | Q3 FY2025 | Q3 FY2024 | | :--- | :--- | :--- | | Atkins | $112,287 | $128,602 | | Quest | $227,737 | $198,096 | | OWYN | $33,551 | — | - North American net sales increased to $373.6 million in Q3 from $326.7 million in the prior year, while International sales decreased from $8.1 million to $7.4 million[36] Profitability and Expenses Q3 gross margin decreased by 350 basis points to 36.4%, impacted by net inflation and the inclusion of the lower-margin OWYN business. Operating expenses rose, driven by a $9.7 million increase in G&A, which included $5.2 million in integration expenses related to the OWYN acquisition - Q3 gross profit increased 3.7% to $138.5 million, but gross margin fell 350 basis points to 36.4% due to net inflation and the OWYN acquisition[3] - Q3 Selling and marketing expenses decreased by $2.7 million, while General and administrative (G&A) expenses increased by $9.7 million, primarily due to OWYN integration costs ($5.2 million) and the inclusion of OWYN's G&A[5] - YTD gross margin decreased by 140 basis points to 36.9%, primarily due to the inclusion of OWYN[12] Fiscal Year 2025 Outlook This section outlines the company's updated financial guidance for fiscal year 2025, including expected growth rates for net sales and Adjusted EBITDA, along with key underlying assumptions and anticipated headwinds Updated Guidance The company has narrowed its full-year fiscal 2025 outlook. It now expects net sales to increase by 8.5% to 9.5% and Adjusted EBITDA to grow by 4% to 5%. This guidance incorporates an approximate 2-percentage point headwind from the 53rd week in fiscal 2024 FY2025 Outlook | Metric | Expected Growth | | :--- | :--- | | Net Sales | 8.5% to 9.5% | | Adjusted EBITDA | 4% to 5% | - The outlook includes expected net sales of $145 million for OWYN, which is the midpoint of the previously provided range[23] - The 53rd week in FY2024 creates an approximate 2-percentage point headwind to both Net Sales and Adjusted EBITDA growth in FY2025, which is factored into the outlook[4][23] Key Assumptions and Headwinds The company's outlook is based on the assumption of consistent economic conditions. It anticipates a significant gross margin decline of approximately 200 basis points for the full year, driven by inflation and tariff headwinds. To counteract these pressures, the company is increasing its productivity, cost savings, and pricing initiatives - The company is maintaining its outlook for a full-year gross margin decline of approximately 200 basis points year-over-year[20] - The margin pressure is attributed to elevated inflation and tariff headwinds, particularly in the second half of the fiscal year[20] - Management is stepping up productivity, cost savings, and other mitigation efforts to offset headwinds while continuing to invest in long-term growth drivers[2][20] Financial Position and Cash Flow This section reviews the company's balance sheet, debt management, and cash flow performance, highlighting liquidity, leverage, and operational cash generation Balance Sheet and Debt As of May 31, 2025, the company held $98.0 million in cash. It has been actively deleveraging, repaying $50.0 million of its term loan in Q3 and a total of $150.0 million year-to-date. The outstanding principal on its term loan is $250.0 million, resulting in a low Net Debt to Adjusted EBITDA ratio of 0.5x Key Balance Sheet Items (as of May 31, 2025) | Item | Amount (in thousands) | | :--- | :--- | | Cash | $98,008 | | Total Current Assets | $436,939 | | Total Assets | $2,430,388 | | Long-term Debt | $248,920 | | Total Liabilities | $589,437 | | Total Stockholders' Equity | $1,840,951 | - The company repaid $50.0 million of its term loan debt during Q3, bringing fiscal year-to-date repayments to $150.0 million[19] - The company's trailing twelve-month Net Debt to Adjusted EBITDA ratio was 0.5x as of May 31, 2025[20][42] Cash Flow For the thirty-nine weeks ended May 31, 2025, net cash provided by operating activities was $133.1 million, a decrease from $166.8 million in the prior-year period. The decline was primarily attributed to higher uses of working capital, specifically an increase in inventory YTD Cash Flow Summary (in thousands) | Activity | YTD FY2025 | YTD FY2024 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $133,087 | $166,755 | | Net Cash used in Investing Activities | ($2,192) | ($2,345) | | Net Cash used in Financing Activities | ($165,206) | ($43,569) | - The decline in cash flow from operations was primarily due to higher uses of working capital, principally a $23.2 million increase in inventories[19][35] Non-GAAP Financial Measures Reconciliations This section provides detailed reconciliations of non-GAAP financial measures, including Adjusted EBITDA, Adjusted Diluted EPS, and Net Debt to Adjusted EBITDA, to their most directly comparable GAAP equivalents Reconciliation of EBITDA and Adjusted EBITDA The company provides a reconciliation from GAAP Net Income to non-GAAP Adjusted EBITDA. For Q3 FY2025, Net Income of $41.1 million was adjusted for items including interest, taxes, D&A, stock-based compensation ($4.0M), and OWYN integration costs ($5.2M) to arrive at an Adjusted EBITDA of $73.9 million Adjusted EBITDA Reconciliation Summary (Q3, in thousands) | Line Item | Q3 FY2025 | Q3 FY2024 | | :--- | :--- | :--- | | Net Income | $41,102 | $41,334 | | EBITDA | $64,314 | $63,943 | | Adjustments (Stock Comp, Integration, etc.) | $9,540 | $7,931 | | Adjusted EBITDA | $73,854 | $71,874 | Reconciliation of Adjusted Diluted Earnings Per Share This section reconciles GAAP Diluted EPS to non-GAAP Adjusted Diluted EPS. For Q3 FY2025, GAAP Diluted EPS of $0.40 was adjusted for items like D&A ($0.05), stock-based compensation ($0.04), and OWYN integration costs ($0.05), net of tax effects, resulting in an Adjusted Diluted EPS of $0.51 Adjusted Diluted EPS Reconciliation Summary (Q3) | Line Item | Q3 FY2025 | Q3 FY2024 | | :--- | :--- | :--- | | Diluted EPS (GAAP) | $0.40 | $0.41 | | Adjustments (D&A, Stock Comp, etc.) | $0.14 | $0.12 | | Tax Effects of Adjustments | ($0.04) | ($0.03) | | Adjusted Diluted EPS | $0.51 | $0.50 | Reconciliation of Net Debt to Adjusted EBITDA The report details the calculation of the Net Debt to Adjusted EBITDA ratio. As of May 31, 2025, total debt of $250.0 million less cash of $98.0 million resulted in Net Debt of $152.0 million. Divided by the trailing twelve months Adjusted EBITDA of $289.4 million, this yields a leverage ratio of 0.5x Net Debt to Adjusted EBITDA Calculation (as of May 31, 2025) | Component | Amount (in thousands) | | :--- | :--- | | Total Debt | $250,000 | | Less: Cash | ($98,008) | | Net Debt | $151,992 | | Trailing 12-Month Adj. EBITDA | $289,374 | | Net Debt to Adj. EBITDA Ratio | 0.5x |