SMPL - Earnings call transcript Q2 2018 | The Simply Good Foods Company

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Operator

Greetings and welcome to the Simply Good Foods Company Second Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require Operator assistance during the conference, please press star, zero on your telephone keypad.

As a reminder, this conference is being recorded. to conference like Pogharian. to now would turn over the Mark I you, may Thank begin. you

Mark Pogharian

session side quarter by Good Chief of Sherri. will you Foods A the live Officer, an earnings Joe website website Simply and days. you, at I for Company’s overview of Investors analysts. Chief on and will a the presentation press release today’s to approximately X:XX Good XX, be for the Company Executive second issued be then provide Scalzo, for with webcast available the President The its the at accompanying this call Todd sell thesimplygoodfoodscompany.com. Thank which am copy earnings and under archive morning. also Officer The financial welcome of Cunfer, morning XX Q&A results, am and Eastern an February will followed XXXX. release Financial ended This available pleased time. to you call are section remarks being of is

obligation based course call, A risks differ subject the that update listing Management are forward-looking release that SEC and statements risks uncertainties undertakes various and statements events. be of to and cause Company’s today’s the Company no The today’s can actual these press results may of materially. on will to in subsequent make During such to detailed uncertainties found filings.

a that the release GAAP will non-GAAP earnings Company’s In believes directly measure reconciliation performance. the to which investors EBITDA, non-GAAP measures a to of financial information operating addition, Management includes with with evaluate measures. financial comparable to make adjusted references provides it most useful Today’s

the from weeks presentation XX, XX release weeks information XX today’s in forma the information a pro order adjustments fiscal XX, applicable. President the The on my statements combination pro forma of included unaudited upon weeks of and on business Management forma way, had be of our All the ended the February financial today impact historical XXXX XXXX has of on entities, basis. all Company as business over discussed weeks reasonable provide XX are for financial and are earnings in pro to call available completed successor financial unaudited been financial pro transaction and measures the and and February fiscal the to based of combination pleasure of financial to ended Officer. Executive and turn beginning will my forma its Chief out believes Joe information the predecessor Finally, information as on Scalzo, the as our it’s pro The forma transaction XXXX. reflect to With XXXX. results XX related that that a assumptions basis

Joe Scalzo

second I’ll our Thank summary quarter our Good to us. everyone and thank update morning provide Todd we’ll you, second Mark. our Today year-to-date of your for and recap an the call results, that joining open and discuss business, of a financial after quarter then questions. highlights I’ll and will

with our and know consumer him. contributions in I a I addition as the years industry. our team. experience Mark brings and to VP, me and forward business areas Before joined he’ll to to bring be I goods He Pogharian and after he’ll just finance Relations, do Mark. great week XX last Treasury to packaged Welcome, significant the Investor let team us our these welcome broader Development. to Business look nearly that, working Mark in

quarter. continued strong momentum in Our business first experienced second the quarter the we

macro fiscal core year result a convenience, low in low powerful year-over-year EBITDA broader X.X% and sales grew net tailwinds and carb, nutritious business the sugar our resilience meal target quarter, growth of the strategic POS up X.X%. of of our strength X.X% second to snacking the with growth U.S. core efforts to underscore U.S. consumer generated continued the For snacking and XX our We continues as This marketing nutritional adjusted protein the of of and business a growth audience. products. weeks rich in first replacement,

accelerating. three, in velocity growth POS X.X%, than is our continued the our momentum our items. planned fewer expected, third by consumer first resonating is in our early, on and and refresh, second number continues that top of ingredients; consumers of the delivers distribution ecommerce channel expectations one, solid trial to our packaging number while clean year-to-date to with and offset repeats be are retail excludes the improved measured from in of our and quarter losses. performance line two, new label preferences our number resulting shelf it’s and a the most velocity some recognizable encouraging velocities new believe business, aisle number POS and coming and are This franchise; month with have accelerate, and in bringing campaign The strong four, to growth As become which of more quarter of our our number part shopability; entirely presence initiative We is base factors: X.X%. which product strong driven growth increased for marketing our still our

Atkins wellness, targeting first lifestyle low as demonstrates weight Rob loss our Atkins an following living of As is and He has spokesperson. brand the was delicious is both With Atkins lifestyle authentically we He consumers, of brand our health and possible know, and carbs protein eating for by are the with optimal principles nutritional a for emphasizes self-directed decades. programmatic Rob you consumer. in new many shift sugar. announced carbers lifestyle January as foods low-carb spokesperson. family, healthy health life, of for desire and epitome fewer living Rob self-directed well the lived Lowe he how our towards

by targets. ability consumer to his While still we’re to appeal early, encouraged both

photos the cyclists a call, another on Rob entitled, women we conference In with the addition, focused big as in hyperlink a to view spot whom in continue back sugars, Weapon, one to new Biker believe a namely Lowe and and refer the today’s communicate consumer After to ads, on we encourage Gang. hidden is idea, ads. what Secret two featuring group the click I to come you embedded we of that

recall up in carbs more sugars this bloodstream. We body why idea managing a new explain visits atkins.com are X to to carbs into the XX%. marketing foods a extremely the eating the year. pleased began easily Atkins may important of airing results. in believe percentage are January body your basis notable right. that consumer hidden single digits up factor Web early and is can The their is on converts an are dollars sugar impact last campaign on You Base high versus POS for and and we’re consumers non-fiber carbs with one to

our X%. to created most our Rob impressions, total Our partnership with the importantly PR campaign, XXX growth is buyer up of and start campaign million the nearly accelerating tied since

eating consumers. learned themes programmatic of for better of have universal that and the appeal We quality to not and and while both right life health self-directed taste satiety sacrificing

also communication. taste may retail, our at while have seen benefit appeal, also improving graphics and refreshed our packaging product our impact newly You modernizing shelf logo Atkins

leading and Here the butter. meal of peanut chocolate our after you before bar, see

meal broader the Consumers the increasingly success cleaner communicates to believe means having label to our ingredients recognizable that to. the been taste still extremely XX and third and new of benefit date, cleaner A are converted velocity consumers shelf our rolled demanding to initiative. stands set base. driver fewer bars improved base labels, a ingredients out and XX to net in with our of labels have clean us of of is and this packaging believe is the them, are also clean products, accustomed important carbs positive a consumers. profile seven brand out. growth To snack the and products on high our which on and We to future way current we while velocities fewer of that delivering Based consumer four out clear Atkins the it’s bars

which by butter. also seeking. believe snack We’re bars, of bars almond launched meal macadamia, our bar the encouraged both launched white recent added and snack product our bars which are benefits last almond spring four type deliver of number recently crisp, of number of one bars include they our consumers success in line many which These launches a where chocolate currently we are new in meal We vanilla the lemon and and and almond portfolio. and our caramel now chocolate distribution, items two are butter, two with velocity number number are highest we two

the turn grams grams response XX seek over encouraging. our shakes February. have We’re giving seven this of protein has low to consumers and began like net I’d fiber and With they carbs. very new the Early Todd. of They excited and overview, about sugars consumer in while protein shipping which still to and in customer been protein fiber, call

Todd Cunfer

and Thank everyone. morning good you, Joe,

to two me points numbers on slides the you follow. relates Let see with the start it as that

based amortization we expense new financial occurred XX, be a We the based during and the unaudited on of results performance First, statements discussed statements will forma basis. information on the on capital financial after and on the measures the combination believe as combined business pro discussion for of year-to-date today review for purposes for XXXX this ended structure. as February and interest presents All XX, this the period. our if the financial ended purchase, year-to-date XXXX, XXXX, February quarter helpful forma and assets which of provides XX, business comparative the expense had quarter including fair value will pro August

on our evaluate EBITDA cash an flow performance based also our adjusted on basis model. strong we Second, asset-light

a believe adjusted is indicator measure net underlying performance We included detailed press a of have this in reconciliation business. to the income of GAAP true today’s the We release. from EBITDA key

XX%, quarter a and due TRA, fair million a million from re-measurement Net value on second Reform two aforementioned increased Wellness X.X%. captured about liabilities to driven Gross of chain true-up in X.X% results of million Simply to only one XX%. sales by in period Receivable gross up the gain million impacts Protein the quarter contributed driven X.X% of rate that core was Tax our gain or our to ago our and month to with Tax follows. million second organic $XXX tax tax specifically quarter, higher excludes margin profit basis $XX.X XX about $XX growth of Reform the to the and Due deferred acquisition $XX.X to in rate income X.X% this recall gross million lower $X.X Tax supply brand the year increased up year-to-date of $XX a costs. the Agreement. Note gain. million to sales. or $XX The reflecting sales points XX%, of profit to tax were Net by growth Foods effective Act, Foods as revaluation The Wellness the Act, are

in million result Also, $X.X their we in the quarter, reminder expenses, we to distribution as in company we’re offering quarter, the as and online had a higher secondary due February costs incurring our and incurred we legacy second our greater of acquisition customer activity, costs, costs public in their second G&A shareholder as as expense M&A shares a customer-specific well higher last transaction quarter. a Additionally sell Wellness in-store exercised as slightly levels service result diligence of right higher the and as expenses Foods. of to selling stated and customers and engage of

digital which TRA, million expense selling addition acquisition to million product with million the in continues by of for $X.X to favorable to and costs, $XX.X points partially approximately Year-to-date $XX.X Foods Net The as gain adjusted sales. due basis new by a first XX Capital a $X.X flow $XXX.X of half capex includes discussed similar $XX of flow the growth very increase tax increase higher to a distribution and gross to offset underpinned deferred results slightly million $XXX to Company cash costs, increase million mix. organic as the previously profit were X.X% our lower Net XXXX core previously due X.X% to cash EBITDA and increased Protein, of and investment Wellness XX.X% $XX.X the was ago expenditures X.X% asset-light of in benefit improvement. versus to up chain supply the model, by driven the in which on which period. X.X% profit the This million mentioned well. our We increased growth Gross the estimate gain income in margin and efforts $X.X driven to Simply X.X% strong characteristics liability in-store applications. result public approximately Lastly, $XX.X year million. to re-measurement million by attractive enables net company generation. million million X.X% activity, increased sales of G&A to from the our website in added transaction half business and full-year gross increased media costs. costs $X.X million from first the XX.X% in show

As from the January, will in see a Act XX. we signed Tax discussed law on into we benefit Reform December

benefits ongoing and Simply As to Foods in nature. both Good earlier, the stated I one-time are

For our gain due XXXX, blended previous of to estimate effective TRA, to than XX%, the the on year lower we one-time XX adjusted which taxable. not is XX% is fiscal a booked guidance of which rate

results While a tax to preliminary, and building to income, fiscal value. that of of we given XX% solid $X a cash rate decline balance anticipate cash The business shareholder XXXX benefit to our our in is XXXX our XX tax long-term and about effective will reinvest our and flexibility rate million adjusted we flow position in this fiscal in range. and sheet, the financial have be in portion net benefit

’XX, further of growth a in in second the capabilities carry investments for building incremental line and will half in Specifically fiscal key people. functions, will tax of and in include including enhance form top the momentum building XXXX, strategic preparation investments we of initiatives capabilities marketing savings to in organizational the fiscal brand requirements and and This reinvest portion into brand compliance future. the to drive

scale we status in for employees XXXX the preparedness it have required appreciation While not we Act, us past to director and XXXX during future the an all $X,XXX be decided their of and look compliant help are bonus will M&A, the for employee given to work integrate to Jobs in we hard SOX in as fiscal year, accelerate as we our cash our under level. below believe

X%. increase slightly growth, we this, expect sales Given a lower rate than target adjusted still EBITDA to net at we now fiscal at XXXX which to X

$XXX balance of X.X of outstanding, of line $XX outstanding million The no a loan of pro Moving $XX revolving cash resulting credit debt in XX, and also adjusted million February flows, million and sheet ratio onto XXXX XX, as has to XXXX. borrowings available the as a the cash had EBITDA February Company net of forma times. a with term Company

more on costs We also months. closing spread. I LIBOR successfully than March basis by associated with a my points, re-priced loan will the XXX now in call Joe XX the offset concludes of at reduction turn our overview. remarks. from term interest XX One-time plus previous That points basis five back the are financial to savings brief first for

Joe Scalzo

growth moving Todd. confident to Thanks the for our our and remain In summary, business forward in we ability opportunities execute.

We’re our to in well year tenth positioned we’re straight and growth XXXX with POS performance we snack of our year-to-date believe and U.S. pleased the deliver

stated expect deliver algorithm we consistent to result, our growth to X of long-term fiscal a net previously ’XX X%. As sales with

sales. less are with Operator? EBITDA, interest company and and the of of in Foods that adjusted growth take than The your Simply incremental Regarding benefit EBITDA the now anticipate net adjusted and Good rate Todd public with slightly Company, $X appreciate I available We million to reinvestment questions. expenses, tax previously communicated everyone’s we

Operator

[Operator from instructions] Please proceed. Sachs. is with English Our question Jason first Goldman

Jason English

Thank got for good questions, you to keep letting ask question. I’ve for others. Hey, a couple I’ll try me it but room morning of tight a leave folks. to

that should you perhaps Are forward, non-measured or data something the is can no showing relatively is in anticipate prepared at at First, look it so on not you can losses see in that Nielsen the channels? going source planned so happening least of data, mentioned in data, evidence offsetting elaborate velocity When on losses? strong they possible losses, they’re distribution there remarks. we up these distribution the the we of we recent,

Todd Cunfer

which some see really, year The Joe retail had than discontinuation and that have we’re we’ve the losses, base them of there that with gains we know, Jason, more really our as and other Life, about pointed replaced, pleased are discontinued a called bit velocity out, some were--you offset we so that. a in a Lift sub-brand normal biggest out we so been discontinue data takeaway a in the the ago, year, and losses, but last that’s for just in drag products

Jason English

That’s helpful, you. thank

assume incurred Is prices? diligence expenses to previous relation to activity; than any quarter. a the Are buyer’s what a in due of it they’re multiples in expenses out that so, out specific, tied seller’s but if there. be seeing nothing look give marketplace, much there obviously prospective there to that seeing bit mentioned us You environment, it out given not to the looks market acquisitions quality little reasonable you you this can and fair and of of at of some M&A color we you a market available more as assets across the you’re

Todd Cunfer

$X.X assets, of the to registration in shares, where all, transaction first some now Roark able so there. the was I about that as February, was combination M&A very a Yes, well portfolio. million those there have their of to speak incurred. offering, the obviously specifically where incur was active we can’t secondary shelf are but expenses. feel opportunities also of we on Obviously particular went need the expenses expenses a sell and out good which We

that is we’re going be people, going going We and smart throughout to we’re good feel buyers value. year, engage but to with to be we we continue and the feel to there opportunity purchase are things only

Jason English

pass on. good, it Very thanks guys. I’ll

Operator

Growe proceed. with next question Please is Our Chris Stifel. from

Chris Growe

XX-Q, further be disclosure, proxy or it have out around maybe you--will the at update potential perhaps in any Do you. a that follow-on There Hi, just believe come Jason’s filing had I would was you proxy. an - the in in Good M&A. was of there that secondary that? on bit least can a outline I acquisition the thank that, to morning. question a of on

Joe Scalzo

kind can’t, about comment and to any guys we than at be value, we in it. Chris. We point, pipeline where can of the really able will talk continue and we one on pretty can’t add we active second pipeline if hear pursue have think we a to we’re M&A, opportunities you other when about to it, this Yes,

Todd Cunfer

And nothing there that. that is in give color Q will on today’s more any

Joe Scalzo

Yes.

Chris Growe

that Thank brand, will that Then investments or to especially at growth, thing, to kind look making, you increased is that you good. investments investment that’s provide. you’re to to required with going related--those just kind of there those growth the - is a benefit marketing, related understand, forward? if Okay, you. the a--is desire going forward that accelerate X% that could curious to revenue that X how and Just are investment an to try of support the

Joe Scalzo

this the good know, this accelerate to apart our XXXX, pretty to we’re it’s first Chris, is so do from know, XXXX, right that hard--you hard would to and so saw and really past So going going to we happy hard we’re it’s seeing investments It’s it, now investments than opportunity. parse making, we’re parse is we’re the I what X make with right? what tell we you in apart we other foremost, bit that opportunity the perspective, areas wherewithal ideas our reform have have making feel the That’s it, it it do we difficult things benefit late is in going--where we’re that flexibility are little we like that we know to extra X? we’re in to us investments. gave investment, of and tax see a category, a have on those lean to worthy so so You the return, those to the

Chris Growe

little Okay, then. follow-on that, one and just to

seem and as planned. investing occurred declines increases the heavily, to As about to velocities very little start strong? up distribution see but get to should you that mean, occur curious maybe as a I distribution pick were just Is--should some things one-time but would expect that you--you’ve business, what we have remain you’re more talked they bit, radically, it around, not there. like across some

Joe Scalzo

into--you pretty the spring, and - interesting split we we present to it fall, shelves year about bifurcation the a fall in to know, thing from takes their Yes, between spring make evenly decide category the to retailers’ so resets, in is their of time XXX% half launch so decisions ACV. shelves the so half of something reset customers be see in really able and it the get reset we--so in it about let this

interesting items, to today. know, you think our year that we resets that items, product We it’s of see, as think, some impacts kind out. close you’re takes in next fully move it I shelf compelling. and out year and spring, play the of a you’re innovation calendar So out; if we the into to gaining and start year about on pay calendar talked then like a year. to takes We losing We’ll that again as about

Chris Growe

thank very Okay, you much.

Joe Scalzo

Have welcome. good a you’re day. Yes,

Operator

Deutsche Our next Dickerson is from proceed. Rob with question Bank. Please

Rob Dickerson

Thank you much. very Good morning.

Joe Scalzo

Good Rob. morning,

Rob Dickerson

- Simply of sales wanted Very up have is guess few Mark. all basic. for front. I pretty in welcome questions, say First, organic at happy Protein to that first terms you just A just to year. the

You’re says to we now, X close the deceleration? potential the could half, guidance; right that QX cause back half there or of but in that X% is acceleration anything you’re Thanks. or of X, should first to guide aware the I guess, be midpoint in

Todd Cunfer

recent the we first go second all Yes, to being in so feel growth. really not will that in point from half, in I in core X Foods we’re Wellness because away thing going POS out so obviously is half. that benefit. will it’s know, to else our so down still really it equal, numbers growth, benefited the just That good you acquisition of be the about X% having the only want But everything range, to be

the in pointed half. Joe pretty to feeling--you we’re category know, where project second it’s good it’s about very point we’re As we but volatile, because out, feeling at this this hard are

Rob Dickerson

Okay, thanks. initial extend line, potentially? in - any speak, better just results to to so Lowe the enough as have kind you of contract thoughts good you know, progressing, of a terms effect, Just that’s in how expected, great. Then just than to

Joe Scalzo

his presently business, remarks about in by impact, best to is high. PR, we his of website great indicators his and growth leading the an mentioned kind most for Lowe our think our is generate to indicator, question. The favorable Yes, good to done ability buyer surprised I the of appeal feel - key is We our really both he’s is ability up. and probably of groups buyers, as indicator what effect early

to it’s early relatively to So so closely, very everyone, March, leaning under increasing something penetration. he there’s bring that to reasons and indicators, brand, February the under-penetrated, important remind to expectations are still pay XX%, and category is January, of a and we’re very The we’re of and category, attention accelerated that us, we this very our is our encouraged, to buyer is is lot one to growth, headroom a which and that our exceeded marketing the in investment. people so

Rob Dickerson

yes. the driven did organic packaging, Is your too. summary? quarter well probably consumer the was more the partially of category growth you’re point, also into fair because good obviously that sales but tapping the into That kind and by of my that bringing because look kind self-directed commercials new brand, in but Okay, buyers pretty you’re a

Joe Scalzo

Well said, yes.

Rob Dickerson

All then to year, up or for advertising is right, X that is and X, the bit that was expectation a it number I up the before think the X? of reinvestment, given

Todd Cunfer

than higher yes. slightly we’ve be talked previously, about It’ll

Rob Dickerson

West, Okay, specific innovation Protein, of this, is some such have on timing just shelf? great. I Expo the then What at is and missed that may that would tasted the I saw be looked, Simply

Todd Cunfer

it. on come to More

we’ll next news the well, have conference go things If call. at some close. We’re

happen before XXXX Protein. expect something on year Simply calendar We to

Rob Dickerson

did ecommerce you? you remarks? that Then great. mention could growth, in lastly, If Okay, prepared not,

Todd Cunfer

not. shipments, Did are about up XX%. we about--on we’re Year-to-date,

Rob Dickerson

Lovely. All right, thank you.

Joe Scalzo

That’s a number. round

Rob Dickerson

Perfect.

Todd Cunfer

Thank you.

Operator

on you would ask As question, keypad. to telephone like a it reminder, star, if your a one is

Please Robinson from proceed. SunTrust is Chappell with question next Our Bill Humphrey.

Grant O’Brien

I is do on have of reformulation, just more actually Bill. the we guess update, go and process, there? much this on question Hi, that to timeline we Grant are how for packaging first kind time was the our for where in

Joe Scalzo

new shelf so new on you’re When in Yes, transition SKUs you is packaging, Packaging run moving behind, inventory, old retailers, a SKUs Joe. typically faster quicker, this is working slower. velocity velocity today. the retailers, slower it’s refresh packaging, velocity slower inventory, through XX% faster so

have long, it��ll else mentioned know, current our I and have bars half have think in comments already the you been board date, to so the there, against test take parity through of everything we get and we’ve so changed. the of if to that reformed our it. current, to is snack our be in So we bars to be--key reformed product we big make not got about From preference summer have a back standpoint, early It’ll that that, liking, about is before most spring retail go why shelf. reform, challenge at the don’t and do. SKUs feel stores we sure the reform if until our on reform, meal least probably and on we drawing We good

items are the new the shelf, those we accelerating. velocity think I where reforms seeing mentioned in our of we’re on comments that

Grant O’Brien

it. up maybe there any to out that, I impact? following parse on impact from those marketing the way of the spend, Rob versus kind I Lowe guess--so got is reforms

Joe Scalzo

that I I for cannot. wish you. could do I

Grant O’Brien

here, increasing, the for question outlook Okay, freight costs of on and then rest lot What’s here hearing year? the actually just we’ve our a maybe. your last been

Todd Cunfer

mitigate on and mentioned, probably not we that I have freight to the some we’ve magnitude The to projects the pressures had--as have We’ve seeing some you’re impact higher us distribution. in some our had good costs, we seen cost inflation from enabled distribution standpoint of have on and news is others. place from

benefit us. that’s doing a bit some ships [indiscernible] a warehouses, for our been of of from customers’ some direct major to We’re

seen we’ll in not we date seeing we’re have the has been I’m continue that sure some to yes, dramatic. inflation fortunately to pressure, the pressure see So on but second half,

Grant O’Brien

Great, thanks so much.

Operator

question and the over have to like call back for Mr. end the of turn gentlemen, would reached and the Ladies remarks. we session. closing answer Scalzo to I

Joe Scalzo

quarter for to in third look call. has a We your updating on day. our everyone Thanks We good hope participation again you results today’s on forward July.

Operator

you. concludes conference. today’s Thank This

your may at lines You and thank disconnect this your time, participation. you for

The Simply Good Foods Company (SMPL) 10 Apr 182018 Q2 Earnings call transcript