SMPL - Earnings call transcript Q2 2019 | The Simply Good Foods Company

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Operator

Greetings and welcome to the Simply Good Foods Company Second Quarter 2019 Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. of for President Good Vice Pogharian, Investor Simply Relations Foods. Mark you. Thank

now You may begin.

Mark Pogharian

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

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

make to the Chief Scalzo, provides will And most adjusted earnings financial company's with EBITDA, includes way, Today's to financial management Executive the over references to and the investors with of to Joe with out release non-GAAP believes turn addition, Officer. the to useful call GAAP that measures. performance. In operating a evaluate comparable directly it of which the non-GAAP reconciliation it's my measure a information pleasure President that measures

Joseph Scalzo

of Todd over results, second I'll Mark. open questions. highlights update the the the Net EBITDA have financial momentum and call second with marketplace This recap us the the In a experienced business last maintained And year-to-date pleased we'll call four sales digits strong our we've your growth. for morning. joining second investments marketing and our our in capability, financial then months. business. last on Today, will you turn on And quarters. discuss strong increased to provide versus over who and for enabled gross quarter, our thank Thank to our consecutive results. which both us. quarter, quarter while XX percentage that, double exceeded expectations. delivering we to you, Good an make has year I'm after I'll and profit basis

Our And customers. offtake across to continued well, as growth consumer our channels, strong all IRI be all last over XX% six months. nearly up measured the also and in products, do e-commerce to by all business point-of-sale or continued major

As in promotional POS we supply we back to choice level. spending strategic bar last on resulted dialed This year, customer to discussed constraints on-shelf growth, the inventory given improved due unexpected promotions inventory. focus favorable, double-digit of QX in and retail base frequency

is quarter start. a off third our While to fiscal early, good

consumer and to enabled have levels, on improved to growth strong advertising to pace Our access us our volume keep supply, volume bars lower marketing drive with and continues promotional and customer increased strong inventory demand.

target against programmatic loss top in resilience both line The consumers large as our of by on gains up our weight core be grew low Turning EBITDA business consumer strong includes last XX.X%. velocity driven base core continues and Similar that carbers. well as products. second our to year-over-year adjusted quarters, to the net sales quarter, to increase strength the our underscores lifestyle-oriented with XX.X% four-plus brand

was the carb, both campaign convenience, low meal up low supporting megatrends snacking. to the contributor in growth, our consumers groups marketing of replacement, biggest resonating Volume successful growth complements and Our is XX.X%. including with sugar, QX, and protein-rich

As expected, bit These EBITDA direct promotion partially have G&A by customer The the of well direct result drive of offset increase shift consumption that benefit is in the confidence giving lower volumes. an POS the in as this in sales that gains Measured partially growth a higher from as to adjusted investment offset X.X-point be more frequency on moment. channel promotions strong US and non-price-related will to marketing a our growth. quarter. us accounting media effectiveness were a Todd was a by was increase we bar on discussed continues G&A. in growth last

up very partially from pleased offset was of These product across Our slightly, strong continues planned base by that driven entirely be retail almost new come growth. our bar protein velocity lower I'm growth balanced the our promotion. all well continue by to Distribution shake. XX-gram forms. were performance to gains frequency

studies. fat. low As low-carb, marketing a nutritional independent unique distinctive nutrition The designed by distinctively stands on Atkins' benefits among stored to help sugar philosophy supported traditional is reminder, based brands. body clinical spikes sugar, our the avoid over XXX strategy for is brand food It are burn blood protein-rich peer-reviewed whose and

the confections, brand approach, snacking marketing balanced convenient consumers is live developed across a to help philosophy, surprising only of Our unique growth our seeking brand's across lifestyle. and is all given low-carb communicating nutritional and our achieving and that we that shakes, on benefits this that these snacks forms. nutritious well focuses strategy are positioning Not marketing bars, delicious while the offering

quarter. from not Although slowed to sequentially expected, second first growth our the as the POS bar

to last As on a decision quarter, in February. the bars frequency made we stated January and promotion strategic of we curtail

business. to results invest strong the the financial Our have given flexibility us in

advertising began advertising such, with our committed January, growth. air. to least In line As at increasing new to sales and in we're marketing

Atkins the with Lowe target successful from off to self-directed Rob that builds our programmatic last Specifically, there campaign new year both are Similar today's ads a to ago. designed three spots are low-carbers. and year,

than tested marketplace early while the are copy last ads Importantly, year's results better encouraging.

and growth rate as the with consistent as well ability while total levels. POS historic evidence XX to last solid maintaining advertising months, has successful the campaign grow Over of our our buy loyalty been buyers,

important are products New strategy. marketing an our of element

Here innovation shakes. wafer new Atkins of XX-gram such our protein see you as bars some our the and

to important to that lever to bring and the allows and buyers. us to consumers an are enables potential excitement philosophy introduce nutritional products new New our brand us and also news

Additionally, us buyers, variety to typically our consume increases to needed servings the significantly new provide on current products allows first two. XX who This year. their in in year average

very see from in our to continue forms flavor, first well you'll the with Overall, as the performance quarter pleased as half new and So, us to line extensions introduce time I'm year. time. the value-added of

results and sales were with quarter meaningfully our greater year-to-date Second profitability than strong long-term and target.

improved the to ability our growth we're and marketing, year, in our effectiveness of supply in situation, the of balance the For invest proven confident initiatives.

driving growth, However, deliver quarter, challenging. lifestyle our especially begin fiscal objectives. new comps third us carbers year-over-year place with on topline beginning low self-directed positions in and get more in the to focused the on plans believe have We're our we to

I'll Now, the call Todd. turn over to

Todd Cunfer

morning, Thank And you, Joe. good everyone.

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

comparative review ended February XXth, financial purposes, the February quarters will we First, statements XXXX. XX, for for XXXX and

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

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

review of major quarter metrics. Now, for across second

our to has over Core Let increase. be been the solid driver continues of primary me year growth and start the sales with net last sales. volume

the increased second Specifically, XX.X%. in volume quarter,

how As frequency Last was of quarter, some mentioned products capacity expected, points was trade through change the reduced this we X.X in bars. managing to promotion favorable versus bar second our offset provided year. or lever some were in of a services particularly promotions driven constraints, price quarter, account realization the by These on by of customers. we for gains last by the on

the as last selling discussed in cost year-ago we expense. this recorded quarter, period, As was

expect first what the second impact the We than half. less in be half we to the the incurred in year of

is from gross Turning primarily $XX.X shift promotion, profit to the P&L, to that activity up a XX expense. favorable XX.X%. due the the XX.X% non-price-related by to rest to margin The the gross in gross margin customer was selling partially increased basis with increase points trade million, offset of

stated increase as of function profit basis about as shift the organizational and in value strategic with increase to tax last recorded versus amount due by the driven a we a than impacts that the QX results, an the $X.X fiscal and was a Income $XX.X on quarter of shift as gross fiscal unfavorable resulted customer by related media Note prior-year. utilization to impact sourcing only lower as well in higher was due remeasurement incentive non-price-related associated expense Recall we million tax The capabilities marketing, in investment, XX.X% million deferred last enhance benefit XXXX year e-commerce of selling receivable the XX% well initiative of in partially key offset As investments XXX increase activity. XXXX aforementioned one-time increased year million second XXXX costs of in and in $X $XX to G&A expense was gain of million liability, XXXX margin a gain on fair to agreement. of the quarter, compensation. points. in tax a this and gross in

XX% was range. year-ago rate anticipate Our year about the will the gain full-year the the tax XX% aforementioned that XXXX, QX in in rate excluding tax XXXX XX% We in effective versus XX% period. fiscal in be to

million $XX.X in year. quarter XX.X% million was income results adjusted last follows. As sales increased EBITDA are a the $XX.X result, and Net Year-to-date XX.X% net million. were million versus reported as $XX.X to $XXX.X up second to

profit compensation. strategic offset associated about expense well. This to in expense XX XX.X% on $XXX.X by costs The G&A marketing in non-price-related the year-to-date as As organic points due frequency other of basis was an XXXX I sales impact of and XXXX the including primarily taxes investments is was increases gains enhance customer expenses, key prior-year. partially on bar earlier, XX% sourcing organizational to mentioned margin the products by growth. and initiatives, annualization selling shift gross in unfavorable of gross in offset XX.X% increase gross points, increase mentioned earlier. promotions resulted million, with in and a to incentive about increase an increased driven volume line XX core primarily capabilities trade to reduced from of with with basis The functions year-to-date QX Year-to-date net FY by driven by XXXX higher in activity margin

$XX year. income last $XX.X net year-to-date million was result, a million As versus

by Moving on by future higher activity. participate financial and promotional in offset combination solid flexibility sheet support us and was flows, M&A. inventory. quarter, organic rebuilt value-enhancing the $XX.X In continued by of through the operating inventory Year-to-date to generated balance and cash levels and flow net sheet in with to partially provides to balance company's growth the reductions cash we income, a acceptable second million, improvements activities driven supply cash

demand consumer activity and reinstate retailer meet to of remainder position some the improved the an promotional and year. in are we forward, Going over

was we nominal. cash from in million result, finished by goods Share year. the expect was Year-to-date half the and million, cash driven of to lower inventory provided were a the financing net activities As quarter $XX.X second be received in $X.X exercise. the primarily by warrant the buybacks CapEx

that as term forecast now net is call credit for our The has the turn $XXX.X $X remarks. available I company company XX, closing brief cash There million. the note February a million would CapEx the outstanding Additionally, borrowings in Joe of to full-year $XX.X back with cash like position of no $XXX revolving million XXXX, $XX Therefore, of about million. loan is a also resulting outstanding. line of million. had on remaining to

Joseph Scalzo

our year the third summary, position. significant and half in have improved and In momentum entered we Todd. an with the Thanks, chain strong quarter the results of were supply first

than Given our optimistic more long-term sales our we're quarter strength target and exceed last our the to in of ability XX% net growth. momentum,

bar initiatives marketing year, will net challenging continued growth full building more we we that reflects second Specifically, term. over lower year demand digits and in EBITDA increase and POS in the outlook promotional long last sales year drive incremental both basis our prior fiscal investments versus versus to the continue a volume This within supply bars on as on brand year. strategic manage available the comps percentage adjusted to half anticipate of full-year XXXX double and significantly

to Additionally, please interest week. discussed, in financial executing on of the to XXrd exist entered our while year-on-year impact the opportunities benefits everyone's of the increase from appreciate sales business about in in year year-over-year now than positive a second growing note the and quarter that previously growth our transit our as questions. with we're and We as objectives. in We're against will strategies changes prior-year. our in delivering available well the net we lower growth category. excited company inventory our and this due that sales customer the year your fourth we buyers And outperform We're and inventory QX the levels half of anticipate in point-of-sales

Operator

[Operator Thank you. Instructions].

of Sachs. Our with Jason comes your first question with Goldman the English line from Please question. proceed

Jason English

in? XX% It's is consumption all by that are not year-to-date. seeing all folks. start, but strip Hey, sales of of letting delivered growing value for driving Why me showing so the the ask revenue a you mentioned track good on strong impressive, bit delta? another not quarter. you you a out question. the was north that closer morning, in. or The still net the lagging you're certainly that amount, the a What's still start you're if fair growth like online here consumption point-of-sale strong you accounting, XX% Thank and Congratulations kind – to strong we

Todd Cunfer

We we a new into our pipeline have strong for in typically lapping talk do promotional inventory prior of how activity. and us shipping a build in Because at has end of in retailers all for all our the in bar year. and back product not We're did constraints as lot we built this we is, in did – you a our and basically promotions volume the it it almost period sowe're QX, heard this of build. pulled think that what of on our in not so year, that about supply QX happened inventory year, build. promotional QX So, did calendar business we

and what build much is, QX then year, in – typically system, we as not we out inventory obviously that So, happens going happen comes QX, the and to because what did of year, And second mentioned, half have will is outstrip the POS to not the that's that. the as of POS and half deplete year. of second as in – the what's causing much in will will net Joe sales this

first second it tailwind it's half, but our a half, a really inventory So, in in the it that's a was level. what obviously It's at the shift customer headwind in is.

Jason English

the there Any third for quarter? magnitude of sense that expect should we

Todd Cunfer

I about second – the first half can it or quarter don't points. probably about think but X know specifically of the in X you the third quarter,

Jason English

it. Got

on in interesting made – the year you've last and that you And you us once into give you comments consumers rates a us year some and seeing more it Okay. consumers fold. buy two give bit guys in the us if brought tell about sense Can new up stepping elaborate with of new brought little you're now any magnitude?

Joseph Scalzo

step Jason, year this three is Joe. Historically, we've seen in a up significant two, buyers. year

one year buyer in buying mid-XXs. our the So, is

You about kind every-other-week of as consumer of think product. it our

As they it eat year three, a year two twice they into move week. and

step at year a that and see and consumer. in you more-than-weekly-buyer two pretty stay three year So, significant beyond buyers up

is total year you to going important And to the But year. answer so, innovation we tell XXXX made to it's comment to is business. why was because the hard like the the look don't to total what around you know that get until our

brand you're you components new more One, amount fair variety. way twice importantly it's snack consuming need but two it. the buyers, have of introducing a a when a to week, to a You of

So, daily. to imagine, very new year it So, buyers products are week. that's those are heavier the eating especially average two a who products our can eating are buyer, And twice you buyers right? important,

Jason English

Thanks, Sure, helpful. on. it guys. sure. pass it. Got really I'll That's

Operator

you. Thank

Chris from comes question Growe Please with next Our proceed with your question. Stifel.

Christopher Growe

Good morning. Hi.

Joseph Scalzo

Hi, Chris.

Christopher Growe

usually of increase questions there get velocity don't increase in distribution. one want suggest – in as ourselves, you the ahead shelf base consumption points showed, Two of here. space, Hi. and I slides and of Nice the sort was quick part the but some of growth an quarter far for of too to you. growth

if the that was supply does, from able I question, if modestly. it more a for Is guess, in do in facings, Jason's And that retailers? to positive said quarter You to to get accelerating? answer that able it relation accommodate distribution more to your you're example, you're have you

Joseph Scalzo

question. good a It's

We we've our have, our on business core velocity. built for mentioned the months, last as on remarks, XX

in the In seen actually fact, shelf. we've items forms, some on fewer

growth as actually So, our to months We're to done if we've little move shake than I just at is we've to we the positive, be back. not some pairing bit year-to-date in next kind the stabilize, we've suspect point. XX as the resets, net say, suspect with next we'll XX because would – pairing supply forced we'll able I what issues. do a of little into be been business. stable, items That a on our going That's will some we ready-to-drink seen seeing better we've months. the focused bit stabilized. now of some over Hard this and

Christopher Growe

lead just you you I in was half marketing second marketing here it terms want an to did year the does I'm and more, you quarter or quarter? than relation greater have for then, that have you your you'd supply you And your you at don't of constraints, any even the in increased in for would get increase Okay. up, guess, to curious, more a which marketing normalized question which just to the think supply into rate of about the in what as more

Joseph Scalzo

Yes.

Christopher Growe

Okay.

Joseph Scalzo

demand we constraints, a our Chris. pull. Yes. a – With The question, had in Good slowdown few supply levers demand. we can

on lot a of out pulled and we back we of held bars, So, on marketing. promotions inventory, focused on-shelf on

to want growth. future Now, to it you zero don't, go generates because new obviously, there creates buyers,

marketing spend. we try to So, the modulate

not As a the the in a situation, but out position. stronger we've of supply we're of out in we're position. We're emerged stronger woods,

the investments half us of year. expect to can You the lean marketing on second in in

Todd Cunfer

sales peg we will it a total we this way advertising what full-year our forecast as of the the a before, about talked a on account just way Chris, spend of is percent And based be. of for clarification, we point

full-year what on the not It's based on P&L, half actually seeing up in is not our media So, coming spend on we're first through substantially. again, was estimate. The media. what you're very spending the

much We now as in position year the actually enjoy a and, hopefully, on have will as in in inventory. second that new We better well. on-air will buyers bring advertising of half we're more the

Joseph Scalzo

would thing mention the I year. [indiscernible] one to is the also Chris, just don't we end of spend and go

end reading we're market. So,

can attribution as real-time ties our website, We data the We people, register. to that have POS. that an website on we follow model get

should we're And are based And not So, – expect have or we – positive if down spending and us to our the if results to flexibility in-marketplace the expect really in media the results lean would is up you you us, investment. as coming going modest to we're in modulate on the financial that then, money. the more case, be in.

Christopher Growe

sense. you color. That makes of for Thank a lot that

Operator

Thank with Group. next your Larson proceed Research of from the comes you. question Eric Please our line Buckingham with question.

Eric Larson

capital morning follow-up to couple line? quality co-packers your questions. all upfront you were get able the that product your the or good on given a to of to your A some really most To this Did with happen and put good that kind capital you have alleviate congratulations of co-packers? constraints, quarter. of of to of some committed supply your Yeah,

Joseph Scalzo

capital-driven not a business. It's really

we saw business access start capacity. our really to summer, a to becomes more as get So, to last negotiation it accelerate about available

And of available can bigger more their are you get us access to suppliers, that. then capacity lock accelerating, their co-manufacturers in some try imagine, XXX% customers. negotiation of to like as a it's So, their customers of then, when with

and we have doing in move that. we – success as will, some We

kind to supply XX% keep of we are has which today, us range where increased to the available helped summer Our from pace. in the

willing may to this promise what the you surge to in anticipate. what to right, need minimum, order longer-term, going you around at not a look that you're future as you're meet in and As it's

more So, much it's about negotiating.

capacity. a capacity bringing to us surge bit on some time also manufacturers over be more little help available and provide will other We some

Eric Larson

not which Okay. that low and follow-up to But bars product correct? Am on other in constraints Is growth the how is now. I it primarily was your in And I you had of that in you've just also had I exactly you POS think inventory. beverages. also managing is I kind goal kind of get been to thought thought assessment? It's right incorrect that where that to lines. in that capacity been mid-teens, some to down

Joseph Scalzo

hit Again, on on display supply in on January, you So, to have to stores, we available will happen focus the [ph]. – promotional out try exchange levers, on first as we our items available had We moved shakes. seen and right? into pull bar. to shelf supply core some And us two we

we So, back we so just leaned dial and and back we could supply. on get promotion it in in stock

combination not We're and put two really not the the quarter. again, So, out things those into up have moving now business as woods. in pretty second position If of supply. we are the good January a sufficient we exited of would our stepped

much position – quarter. we're we're expect going manage better second to we into the were to continue in but So, us going to than that, certainly a

Eric Larson

it Okay, a was then, It so was your I'm expense. plus final just was and accrual clear, perfectly great. what follow-up, so that just XX%. of XX%. Todd's of up sounds marketing was was one up like just accrued And part was think under first that –what half lot I explanation an spend here, QX

have you market effectively the going into more actual in are marketing, more half? impressions heat more in second market, the the So, to

Todd Cunfer

more the it than Yes. that second half half. spend in in substantially was first will be the up in Media and the actual mid-single-digits

Eric Larson

you. Thank

Operator

you. Thank

question Robinson question. next with Please Bill comes from Humphrey. Our with SunTrust the proceed your line Chappell of

Grant O'Brien

Grant you? Bill. Hi. This on is Thanks are for the How question. actually taking for

Joseph Scalzo

Good.

Grant O'Brien

forward? did have additional kind you maybe give just negotiating you go guys one, so, of some questions up when for on capacity would margin And following need margin First pressures to copackers? here, if to abate those for back the come us kind that we back expect of going to the supply were and

Joseph Scalzo

question. good Really

– it up, I I wouldn't margin. saying not – we would phrase up gave So, we I'm gave say

the get we the larger just any a more of will little upside As that get engaged our co-management, on take should and not We tend for very, next of capacity, we was back. rebates. gave and the we but will very larger months, impact full be more be have secure volume our bit to up in to we minor. Once XX there issues. normal margin we impact capacity the some And

to a very tiny secure term, in of impact again, bit an more very minor. was but So, the it short

Grant O'Brien

Got how initiative, that in real a are it. label second have And that you and at one, far impact then, on from the program? just seen retail guys along a process clean you

Todd Cunfer

mostly Yeah. on just bars on snack We're meal complete our and complete about bars.

So, as close them. out year, be Really will the the we hard tease ago. components certainly a driving done. that initiative our year January I out would the business mostly started to of highlight three

The first one bar be clean would a initiative.

Second over our then, the years. in first which campaign would our of was be updated graphics we our refresh way. And advertising XX with brand new media

those what market know of three Hard hit contribute components frankly. think in January. kind of simultaneously the to I the each things

Grant O'Brien

Got you. it. Thank

Todd Cunfer

bet. You

Operator

Thank Instructions]. you. [Operator

with Bank. of Our with Please comes final Dickerson the your Rob Deutsche question from line proceed question.

Unidentified Analyst

on morning. Good It's for the Matt Thanks question. Rob. for Hi.

Joseph Scalzo

Sure.

Unidentified Analyst

the know in ahead to potential the can all growth Thanks. second inflation your outlook in that And moving half, give if in update investments you is sales marketing with rather Wanted you've the more safe the us it given now previously balance year. to on slightly expected than of on line for grow an is EBITDA expected? your cost growth like assume to

Todd Cunfer

Yeah.

in very but continue now see input visibility be good it's inflation, the have modest. to second cost we benign. for half So, We to some

to for be be to at full news. really year. EBITDA relationship the are continues So, going that what and the between this Hard net point to say growth sales positive

business and invest to really mentioned growth. our we has gains continue will new velocity see really, strong buyers in earlier, continue Joe As as we growth and to

invest So, opportunity see the in we short an term. to

we feel the both We will sales about growth good that, year. absolutely for and do but net EBITDA

Unidentified Analyst

since can changes if more, Fair availability year of of And or noticed of the me. terms valuations it beginning have any from M&A in to environment that's you I the And one maybe enough. ask the assets?

Todd Cunfer

Still big active market. No very a very, change.

lot assets. best We continue for be to fairly continue assets of Valuations the high. a to look

coming a active tiny probably But bit. very, out think there. I still market very a down they're

Unidentified Analyst

Great.

Operator

Scalzo to the our and session. turn Mr. I'll back Thank you. comments. concludes that Ladies for question-and-answer gentlemen, final any floor

Joseph Scalzo

Thanks call results Have the day. again April. you good forward We for your on to today. look our participation on updating in a

Operator

you. teleconference. concludes Thank This today's

time. disconnect for participation. your Thank at your may You you lines this

Mark Pogharian	Vice President, Investor Relations, Treasury and Business Development
Joseph Scalzo	President and Chief Executive Officer
Todd Cunfer	Chief Financial Officer
Jason English	Goldman Sachs
Christopher Growe	Stifel Nicolaus
Eric Larson	Buckingham Research Group
Grant O'Brien	SunTrust Robinson Humphrey
Rob Dickerson	Deutsche Bank

The Simply Good Foods Company (SMPL) 4 Apr 192019 Q2 Earnings call transcript