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

PART I. Financial Information Item 1. Financial Statements (Unaudited) This section presents the unaudited consolidated financial statements of The Simply Good Foods Company and its subsidiaries for the period ended May 31, 2025, including balance sheets, statements of operations and comprehensive income, cash flows, and stockholders' equity, along with detailed notes explaining the company's operations, significant accounting policies, business combinations, revenue recognition, goodwill, debt, leases, and equity Consolidated Balance Sheets Consolidated Balance Sheet Highlights (May 31, 2025 vs. August 31, 2024) | Metric (in thousands) | May 31, 2025 | August 31, 2024 | Change | | :-------------------- | :----------- | :-------------- | :----- | | Total Assets | $2,430,388 | $2,436,144 | $(5,756) | | Total Liabilities | $589,437 | $708,658 | $(119,221) | | Total Stockholders' Equity | $1,840,951 | $1,727,486 | $113,465 | | Cash | $98,008 | $132,530 | $(34,522) | | Inventories | $164,464 | $142,107 | $22,357 | | Long-term debt, less current maturities | $248,920 | $397,485 | $(148,565) | Consolidated Statements of Operations and Comprehensive Income Key Financial Performance (Thirteen Weeks Ended) | Metric (in thousands) | May 31, 2025 | May 25, 2024 | Change (YoY) | | :-------------------- | :----------- | :----------- | :----------- | | Net Sales | $380,956 | $334,757 | +13.8% | | Gross Profit | $138,519 | $133,626 | +3.7% | | Income from Operations | $59,320 | $58,774 | +0.9% | | Net Income | $41,102 | $41,334 | -0.6% | | Basic EPS | $0.41 | $0.41 | 0.0% | | Diluted EPS | $0.40 | $0.41 | -2.4% | Key Financial Performance (Thirty-Nine Weeks Ended) | Metric (in thousands) | May 31, 2025 | May 25, 2024 | Change (YoY) | | :-------------------- | :----------- | :----------- | :----------- | | Net Sales | $1,081,879 | $955,634 | +13.2% | | Gross Profit | $399,142 | $365,614 | +9.2% | | Income from Operations | $168,666 | $158,677 | +6.3% | | Net Income | $115,971 | $110,018 | +5.4% | | Basic EPS | $1.15 | $1.10 | +4.5% | | Diluted EPS | $1.14 | $1.09 | +4.6% | Consolidated Statements of Cash Flows Cash Flow Summary (Thirty-Nine Weeks Ended) | Cash Flow Activity (in thousands) | May 31, 2025 | May 25, 2024 | Change | | :-------------------------------- | :----------- | :----------- | :----- | | Net cash provided by operating activities | $133,087 | $166,755 | $(33,668) | | Net cash used in investing activities | $(2,192) | $(2,345) | $153 | | Net cash used in financing activities | $(165,206) | $(43,569) | $(121,637) | | Net (decrease) increase in cash | $(34,311) | $120,841 | $(155,152) | | Cash at end of period | $98,008 | $208,681 | $(110,673) | - The decrease in cash provided by operating activities was primarily due to changes in working capital, driven by the timing of payments and receipts, the OWYN Acquisition, and inventory building, which consumed $29.9 million in cash for the thirty-nine weeks ended May 31, 2025, compared to $6.8 million provided in the prior year period[152] - Net cash used in financing activities significantly increased due to $150.0 million in principal payments on the Term Facility and $24.3 million in common stock repurchases during the thirty-nine weeks ended May 31, 2025, compared to $45.0 million in principal payments in the prior year[154] Consolidated Statements of Stockholders' Equity Stockholders' Equity Changes (August 31, 2024 to May 31, 2025) | Metric (in thousands) | August 31, 2024 | May 31, 2025 | Change | | :-------------------- | :-------------- | :----------- | :----- | | Total Stockholders' Equity | $1,727,486 | $1,840,951 | $113,465 | | Retained Earnings | $487,265 | $603,236 | $115,971 | | Treasury Stock | $(78,451) | $(102,789) | $(24,338) | | Common Stock Shares Issued | 102,515,315 | 103,583,702 | +1,068,387 | - Net income contributed $115.971 million to retained earnings during the thirty-nine weeks ended May 31, 2025[16][22] - The company repurchased 693,375 shares of common stock for $24.338 million during the period, increasing treasury stock[22][78] Notes to Unaudited Consolidated Financial Statements Note 1. Nature of Operations and Principles of Consolidation - The Simply Good Foods Company is a consumer packaged food and beverage company focused on nutritious snacking, marketing products under Quest, Atkins, and OWYN brands[25][27][98] - The company completed the acquisition of Only What You Need, Inc. (OWYN), a plant-based protein food company, on June 13, 2024, for approximately $280.0 million, expanding its wellness platform[26][36][99] - Products are distributed primarily in North America through grocery, club, mass merchandise, e-commerce, convenience, and specialty channels[27][100] Note 2. Summary of Significant Accounting Policies - The company is evaluating the impact of recently issued accounting pronouncements: ASU No. 2023-07 (Segment Reporting), ASU No. 2023-09 (Income Taxes), and ASU No. 2024-03 (Expense Disaggregation Disclosures), which are effective for fiscal years beginning after December 2023, 2024, and 2026, respectively[32][33][34] Note 3. Business Combination - The OWYN Acquisition was completed on June 13, 2024, for a cash purchase price of $281.9 million, funded by $250.0 million in incremental borrowings and cash on hand. Total net consideration paid was $280.2 million as of May 31, 2025, after a $1.7 million post-closing escrow release[36][37][147] Preliminary Purchase Price Allocation of OWYN Acquisition (June 13, 2024) | Assets Acquired / Liabilities Assumed (in thousands) | Fair Value | | :------------------------------------------------- | :--------- | | Cash and cash equivalents | $1,476 | | Accounts receivable, net | $14,214 | | Inventories | $38,955 | | Intangible assets, net | $243,626 | | Goodwill | $46,840 | | Deferred tax liability | $(41,513) | | Total assets acquired and liabilities assumed | $280,172 | OWYN Net Sales Included in Company Results (in thousands) | Period | Net Sales | | :-------------------- | :-------- | | Thirteen Weeks Ended May 31, 2025 | $33,551 | | Thirty-Nine Weeks Ended May 31, 2025 | $99,611 | Note 4. Revenue Recognition Net Sales by Brand and Geographic Area (Thirteen Weeks Ended) | Brand/Region (in thousands) | May 31, 2025 | May 25, 2024 | Change (YoY) | | :-------------------------- | :----------- | :----------- | :----------- | | Atkins | $112,287 | $128,602 | -12.69% | | Quest | $227,737 | $198,096 | +14.96% | | OWYN | $33,551 | — | N/A | | Total North America | $373,575 | $326,698 | +14.35% | | International | $7,381 | $8,059 | -8.35% | | Total Net Sales | $380,956 | $334,757 | +13.80% | Net Sales by Brand and Geographic Area (Thirty-Nine Weeks Ended) | Brand/Region (in thousands) | May 31, 2025 | May 25, 2024 | Change (YoY) | | :-------------------------- | :----------- | :----------- | :----------- | | Atkins | $329,105 | $370,855 | -11.39% | | Quest | $630,445 | $560,433 | +12.49% | | OWYN | $99,611 | — | N/A | | Total North America | $1,059,161 | $931,288 | +13.73% | | International | $22,718 | $24,346 | -6.77% | | Total Net Sales | $1,081,879 | $955,634 | +13.21% | Note 5. Goodwill and Intangibles Goodwill Balance (in thousands) | Metric | Amount | | :-------------------- | :----- | | Balance as of August 31, 2024 | $591,687 | | Acquisition of business | $(1,713) | | Balance as of May 31, 2025 | $589,974 | - The change in Goodwill is primarily due to the OWYN Acquisition, with no impairment charges recorded during the period[52] Intangible Assets, Net (in thousands) | Intangible Asset Category | May 31, 2025 Net Carrying Amount | August 31, 2024 Net Carrying Amount | | :------------------------ | :------------------------------- | :---------------------------------- | | Brands and trademarks | $1,197,000 | $1,197,000 | | Customer relationships | $119,604 | $129,329 | | Licensing agreements | $8,147 | $9,585 | | Software and website development costs | $87 | $113 | | Intangible assets in progress | $1,115 | $439 | | Total Intangible Assets, Net | $1,325,953 | $1,336,466 | - Amortization expense for intangible assets was $11.2 million for the thirty-nine weeks ended May 31, 2025, down from $11.4 million in the prior year period[53] Note 6. Long-Term Debt and Line of Credit - The company increased its Term Facility by $250.0 million on June 13, 2024, to partially finance the OWYN Acquisition, and further reduced the interest rate on January 31, 2025, through the 2025 Repricing Amendment[60][61][140][141] Long-Term Debt (in thousands) | Metric | May 31, 2025 | August 31, 2024 | | :-------------------- | :----------- | :-------------- | | Term Facility (outstanding) | $250,000 | $400,000 | | Long-term debt, net of deferred financing fees | $248,920 | $397,485 | - The company was in compliance with all debt covenants as of May 31, 2025, and August 31, 2024. The Term Facility matures in March 2027, with no principal payments required in the next twelve months[65][66][144][145] Note 7. Fair Value of Financial Instruments - The company defines fair value using a three-tier hierarchy (Level 1, 2, 3) based on input observability. As of May 31, 2025, the book value of the company's debt approximated fair value, classified as Level 2[68][69][70][71] Note 8. Income Taxes Income Tax Data (Thirty-Nine Weeks Ended) | Metric (in thousands) | May 31, 2025 | May 25, 2024 | | :-------------------- | :----------- | :----------- | | Income before income taxes | $151,395 | $145,213 | | Provision for income taxes | $35,424 | $35,195 | | Effective tax rate | 23.4% | 24.2% | - The effective tax rate decreased by 0.8% for the thirty-nine weeks ended May 31, 2025, primarily due to permanent differences, mainly stock-based compensation[72] Note 9. Leases Total Lease Cost (in thousands) | Period | Thirteen Weeks Ended May 31, 2025 | Thirty-Nine Weeks Ended May 31, 2025 | | :-------------------- | :-------------------------------- | :----------------------------------- | | Total Operating Lease Cost | $3,416 | $9,893 | | Total Finance Lease Cost | $0 | $0 | | Total Lease Cost | $3,416 | $9,893 | Lease Liabilities and Assets (in thousands) | Metric | May 31, 2025 | August 31, 2024 | | :-------------------- | :----------- | :-------------- | | Operating lease right-of-use assets | $45,785 | $35,097 | | Total lease liabilities | $55,813 | $39,824 | - The weighted-average remaining lease term for operating leases was 6.58 years as of May 31, 2025, with a weighted-average discount rate of 6.0%[74] Note 10. Commitments and Contingencies - The company is not currently a party to any material litigation or aware of any pending or threatened litigation that could have a material adverse effect on its business[75][165] - Future payments for endorsement contracts with celebrity figures and social media influencers are estimated at $1.8 million over the next year as of May 31, 2025[76] Note 11. Stockholders' Equity - The company repurchased 693,375 shares of common stock at an average price of $35.10 per share during the thirteen and thirty-nine weeks ended May 31, 2025[78][149] - As of May 31, 2025, approximately $47.2 million remained available under the $150.0 million stock repurchase program, which has no expiration date[78][150][173] Note 12. Earnings Per Share Earnings Per Share (Thirteen Weeks Ended) | Metric | May 31, 2025 | May 25, 2024 | | :-------------------- | :----------- | :----------- | | Basic EPS | $0.41 | $0.41 | | Diluted EPS | $0.40 | $0.41 | | Basic Weighted Average Shares | 100,923,690 | 100,024,230 | | Diluted Weighted Average Shares | 101,635,521 | 101,270,163 | Earnings Per Share (Thirty-Nine Weeks Ended) | Metric | May 31, 2025 | May 25, 2024 | | :-------------------- | :----------- | :----------- | | Basic EPS | $1.15 | $1.10 | | Diluted EPS | $1.14 | $1.09 | | Basic Weighted Average Shares | 100,787,087 | 99,852,203 | | Diluted Weighted Average Shares | 101,669,998 | 101,240,471 | Note 13. Omnibus Incentive Plan - Stock-based compensation expense was $4.0 million for the thirteen weeks ended May 31, 2025, and $12.8 million for the thirty-nine weeks ended May 31, 2025[84] Stock Option Activity (Thirty-Nine Weeks Ended May 31, 2025) | Metric | Shares Underlying Options | Weighted Average Exercise Price | | :------------------------ | :------------------------------ | :------------------------------ | | Outstanding as of August 31, 2024 | 2,410,567 | $20.75 | | Granted | 34,035 | $36.49 | | Exercised | (868,665) | $13.76 | | Forfeited | (19,694) | $40.07 | | Outstanding as of May 31, 2025 | 1,556,243 | $24.75 | - As of May 31, 2025, unrecognized compensation cost for stock options was $1.6 million (over 1.1 years), for restricted stock units was $16.6 million (over 1.8 years), and for performance stock units was $6.4 million (over 1.5 years)[85][86][91] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial performance, condition, and liquidity, highlighting key business trends, the impact of the OWYN acquisition, and a detailed comparison of financial results for the thirteen and thirty-nine weeks ended May 31, 2025, versus the prior year. It also includes a reconciliation of non-GAAP measures like EBITDA and Adjusted EBITDA Overview - The Simply Good Foods Company is a consumer packaged food and beverage company focused on nutritious snacking, with brands Quest, Atkins, and OWYN, aiming for innovation, organic growth, and acquisitions[98][100] - The acquisition of OWYN, a plant-based protein food company, was completed in June 2024 for approximately $280.0 million, expanding the company's product offerings[99][146] Business Trends - Business performance improved due to the OWYN Acquisition and Quest volume growth, offsetting continued softness in Atkins. Fiscal year 2025 organic sales growth is expected to be volume-driven, supported by advertising, marketing, innovation, and promotions[101] - The company is monitoring macroeconomic trends like consumer uncertainty, ingredient inflation, supply chain challenges, and tariffs, which could impact net sales and profitability, but current performance is in line with fiscal year 2025 expectations[102] Key Financial Definitions - Net sales are product sales less promotional activities, slotting fees, and other adjustments[103] - Cost of goods sold includes costs paid to contract manufacturers for raw ingredients, packaging, shipping, warehousing, and tolling charges[104] - Operating expenses comprise selling and marketing, general and administrative, depreciation and amortization, and business transaction costs[105][107] Results of Operations (Thirteen Weeks Ended May 31, 2025, and May 25, 2024) Thirteen Weeks Ended Financial Performance (YoY Change) | Metric (in thousands) | May 31, 2025 | May 25, 2024 | Change ($) | Change (%) | | :-------------------- | :----------- | :----------- | :--------- | :--------- | | Net Sales | $380,956 | $334,757 | $46,199 | +13.8% | | Cost of Goods Sold | $242,437 | $201,131 | $41,306 | +20.5% | | Gross Profit | $138,519 | $133,626 | $4,893 | +3.7% | | Gross Profit Margin | 36.4% | 39.9% | -3.5% | -350 bps | | Operating Expenses | $79,199 | $74,852 | $4,347 | +5.8% | | Income from Operations | $59,320 | $58,774 | $546 | +0.9% | | Net Income | $41,102 | $41,334 | $(232) | -0.6% | | Adjusted EBITDA | $73,854 | $71,874 | $1,980 | +2.8% | - Net sales increased by 13.8% primarily due to the OWYN Acquisition and Quest volume growth, despite softness in Atkins. North America net sales increased 14.3%, while International net sales decreased by $0.7 million[108] - Gross profit margin decreased by 350 basis points to 36.4%, mainly due to unfavorable commodity expenses and lower gross profit margins from the OWYN business[110] - General and administrative expenses increased by 30.7% due to $5.2 million in integration costs and $3.2 million in employee-related costs from OWYN, plus higher corporate expenses[118] Results of Operations (Thirty-Nine Weeks Ended May 31, 2025, and May 25, 2024) Thirty-Nine Weeks Ended Financial Performance (YoY Change) | Metric (in thousands) | May 31, 2025 | May 25, 2024 | Change ($) | Change (%) | | :-------------------- | :----------- | :----------- | :--------- | :--------- | | Net Sales | $1,081,879 | $955,634 | $126,245 | +13.2% | | Cost of Goods Sold | $682,737 | $590,020 | $92,717 | +15.7% | | Gross Profit | $399,142 | $365,614 | $33,528 | +9.2% | | Gross Profit Margin | 36.9% | 38.3% | -1.4% | -140 bps | | Operating Expenses | $230,476 | $206,937 | $23,539 | +11.4% | | Income from Operations | $168,666 | $158,677 | $9,989 | +6.3% | | Net Income | $115,971 | $110,018 | $5,953 | +5.4% | | Adjusted EBITDA | $211,923 | $191,679 | $20,244 | +10.6% | - Net sales increased by 13.2% driven by the OWYN Acquisition and Quest volume growth, partially offset by Atkins' softness. North America net sales increased 13.7%, while International net sales decreased by $1.6 million[119] - Gross profit margin decreased by 140 basis points to 36.9%, primarily due to lower gross profit margins of the OWYN business, partially offset by favorable commodity expenses[121] - General and administrative expenses increased by 30.4% due to $12.1 million in integration costs and $9.2 million in employee-related costs from OWYN, and higher corporate expenses[129] Reconciliation of EBITDA and Adjusted EBITDA - EBITDA and Adjusted EBITDA are non-GAAP measures used by management to reflect ongoing operations and provide additional information to investors, excluding items not directly attributable to underlying operating performance[130] EBITDA and Adjusted EBITDA Reconciliation (Thirteen Weeks Ended) | Metric (in thousands) | May 31, 2025 | May 25, 2024 | | :-------------------- | :----------- | :----------- | | Net income | $41,102 | $41,334 | | EBITDA | $64,314 | $63,943 | | Adjusted EBITDA | $73,854 | $71,874 | EBITDA and Adjusted EBITDA Reconciliation (Thirty-Nine Weeks Ended) | Metric (in thousands) | May 31, 2025 | May 25, 2024 | | :-------------------- | :----------- | :----------- | | Net income | $115,971 | $110,018 | | EBITDA | $183,824 | $174,847 | | Adjusted EBITDA | $211,923 | $191,679 | Liquidity and Capital Resources - The company had $98.0 million in cash as of May 31, 2025, and believes its liquidity and capital sources are sufficient for operations and growth for at least the next twelve months[133] - The OWYN Acquisition was funded by $250.0 million in incremental borrowings under the Term Facility and cash on hand, with the Term Facility balance at $250.0 million as of May 31, 2025, maturing in March 2027[145][147] - The company repurchased 693,375 shares of common stock for $24.3 million during the period, with $47.2 million remaining available under its $150.0 million stock repurchase program[149][150] Cash Flows Cash Flow Summary (Thirty-Nine Weeks Ended) | Cash Flow Activity (in thousands) | May 31, 2025 | May 25, 2024 | Change | | :-------------------------------- | :----------- | :----------- | :----- | | Net cash provided by operating activities | $133,087 | $166,755 | $(33,668) | | Net cash used in investing activities | $(2,192) | $(2,345) | $153 | | Net cash used in financing activities | $(165,206) | $(43,569) | $(121,637) | - Operating cash flow decreased by $33.7 million, primarily due to a $36.7 million negative swing in working capital, driven by inventory building and the OWYN Acquisition[152] - Financing cash flow saw a significant increase in usage, primarily due to $150.0 million in Term Facility principal payments and $24.3 million in common stock repurchases[154] New Accounting Pronouncements - The company refers to Note 2, Summary of Significant Accounting Policies, for information regarding recently issued accounting standards[155] Item 3. Quantitative and Qualitative Disclosures about Market Risk There were no material changes in the company's market risk exposure during the thirteen-week period ended May 31, 2025 - No material changes in market risk exposure occurred during the thirteen-week period ended May 31, 2025[156] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of May 31, 2025. The assessment scope excluded the recently acquired OWYN business, which accounted for 15% of total assets and 9% of net sales, consistent with SEC guidance for new acquisitions - Disclosure controls and procedures were deemed effective as of May 31, 2025, by the CEO and CFO[158] - The assessment of disclosure controls excluded the OWYN Acquisition, which represented 15% of total assets and 9% of total net sales, in line with SEC guidance for recently acquired businesses[159] - New processes and controls are being implemented for OWYN's internal control over financial reporting following the acquisition[160] PART II. Other Information Item 1. Legal Proceedings 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 a party to any material litigation and is unaware of any pending or threatened litigation that could materially adversely affect its business[165] Item 1A. Risk Factors The primary risk factor highlighted is the volatility of ingredient and packaging costs, which can significantly rise due to global competition, currency fluctuations, weather, climate change, geopolitical events, and tariffs. These cost increases may negatively affect profitability if not offset by price increases or cost savings, potentially reducing sales volume - Ingredient and packaging costs are volatile and may rise significantly due to factors like global competition, currency fluctuations, weather, climate change, geopolitical events, and tariffs, potentially affecting profitability[167][168] - Attempts to offset cost pressures through price increases or cost savings may not be successful and could lead to reductions in sales volume or profitability[169] - The company does not use hedges for core ingredient or packaging availability, making it vulnerable to upward price movements that could negatively impact margins if costs cannot be passed on or efficiencies found[170] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 693,375 shares of common stock at an average price of $35.10 per share during the three months ended May 31, 2025. As of May 31, 2025, approximately $47.2 million remained available under the $150.0 million stock repurchase program Issuer Purchases of Equity Securities (March 2, 2025 - May 31, 2025) | Period | Total Shares Purchased | Average Price Paid Per Share | Maximum Dollar Value Remaining (in thousands) | | :-------------------------- | :--------------------- | :--------------------------- | :-------------------------------------------- | | March 2, 2025 - March 29, 2025 | 38,586 | $33.01 | $70,272.9 | | March 30, 2025 - April 26, 2025 | 92,902 | $32.96 | $67,211.0 | | April 27, 2025 - May 31, 2025 | 561,887 | $35.60 | $47,209.4 | | Total | 693,375 | $35.10 | $47,209.4 | - Approximately $47.2 million remained available under the $150.0 million stock repurchase program as of May 31, 2025[173] Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities - No defaults upon senior securities were reported[174] Item 4. Mine Safety Disclosures This item is not applicable to the company - Mine Safety Disclosures are not applicable to the company[175] Item 5. Other Information No directors or officers adopted or terminated a "Rule 10b5-1 trading arrangement" or a "non-Rule 10b5-1 trading arrangement" during the three months ended May 31, 2025 - No directors or officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the three months ended May 31, 2025[176] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including the Third Amended and Restated Executive Severance Plan, certifications from the Principal Executive Officer and Principal Financial Officer, and XBRL-related documents - Exhibits include the Third Amended and Restated Executive Severance Plan, Section 302 and 906 certifications, and XBRL documents[177]