Q1 2025 Simply Good Foods Co Earnings Call

Thomson Reuters StreetEvents01-09 12:57

Participants Mark Pogharian; Vice President - Investor Relations, Treasury, Business Development; Simply Good Foods Co Geoff Tanner; President, Chief Executive Officer, Director; Simply Good Foods Co ...

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Geoff Tanner; President, Chief Executive Officer, Director; Simply Good Foods Co. Greetings and welcome to the Simply Good Foods Company fiscal first quarter 2025 conference call.  As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Mark Pogharian, Vice President of Investor Relations for Simply Good Foods Company. Thank you, sir. You may begin.Thank you, Mark. Good morning and thank you for joining us. Today, I will recap Simply Good Foods financial results and the pe","collect":0,"end_time":0,"defaultTopTitle":"yahoo.com","property":["earning"],"viewcount":null,"language":"en","relate_stocks":{"SMPL":"Simply Good Foods Company"},"translate_title":"2025年第一季度Simply Good Foods Co盈利看涨期权","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"SMPL":0.9},"content_text":"Participants\nMark Pogharian; Vice President - Investor Relations, Treasury, Business Development; Simply Good Foods Co\nGeoff Tanner; President, Chief Executive Officer, Director; Simply Good Foods Co\nShaun Mara; Chief Financial Officer; Simply Good Foods Co\nTom Palmer; Analyst; Citigroup\nMatt Smith; Analyst; Stifel Financial Corp.\nJohn Baumgartner; Analyst; Mizuho Group\nSteve Powers; Analyst; Deutsche Bank\nRobert Moskow; Analyst; TD Cowen\nBrian Holland; Analyst; D.A. Davidson & Co.\nJim Salera; Analyst; Stephens Inc.\nJon Andersen; Analyst; William Blair\nAlexia Howard; Analyst; Bernstein Research\nPresentation\nOperator\n Greetings and welcome to the Simply Good Foods Company fiscal first quarter 2025 conference call. (Operator Instructions) As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Mark Pogharian, Vice President of Investor Relations for Simply Good Foods Company. Thank you, sir. You may begin.\nMark Pogharian\n Thank you, operator. Good morning. I'm pleased to welcome into the Simply Good Foods Company first quarter fiscal year 2025 earnings call. Geoff Tanner, President and CEO, and Shaun Mara, CFO will provide you with an overview of results which will then be followed by a Q&A session. The company issued its earnings release this morning at approximately 7:00 AM. eastern time. A copy of the release and accompanying presentation are available on the investor section of the company's website at www.thesimplygoodfoodscompany.com. This call is being webcast and an archive of today's remarks will also be available. During the course of today's call, management will make forward-looking statements that are subject to various risks and uncertainties that may cause actual results to differ materially. The company undertakes no obligation to update these statements based on subsequent events. A detailed listing of such risks and uncertainties can be found in today's press release and the company's SEC filings. Note that on today's call, we will refer to certain non-GAAP financial measures that we believe will provide useful information for investors. Due to the company's asset light, strong cash flow business model, we evaluate our performance on an adjusted basis as it relates to EBITDA and diluted EPS. Please refer to today's press release for a reconciliation of the historical non-GAAP financial measures to the most comparable measures prepared in accordance with GAAP. The acquisition of Only What You Need or OWYN was completed on June 13, 2024. Therefore, the company's year ago performance for the 13 weeks ended November 25, 2023, does not include results from the OWYN business. The reference to organic or legacy Simply Good Foods refers to Simply Good Foods business excluding OWYN. I'll now turn the call over to Geoff Tanner, President and CEO.\nGeoff Tanner\n Thank you, Mark. Good morning and thank you for joining us. Today, I will recap Simply Good Foods financial results and the performance of our brands. Then Shaun will discuss our financial results in more detail before we wrap it up with a discussion of our fiscal year 2025 outlook and your question. We're pleased with our fiscal first quarter retail takeaway of about 8%. Quest's growth was strong despite some chip stockouts early in the quarter and OWYN momentum continued. This was partially offset by expected Atkins declines, although Atkins performance was slightly better than our estimates. Net sales increased 10.6% driven by the OWYN acquisition. Legacy net sales were affected by the timing of shipment. As Shaun will discuss shortly, we anticipate that legacy shipments and consumption should be more in line by the end of Q2. First quarter growth margin was 38.2% and greater than our forecast. The gross profit growth as well as the inclusion of OWYN resulted in adjusted EBITDA growth of 13.1%. Shaun will provide you with more details related to our financial performance in a bit. Nutritional snacking category momentum continued in the quarter with growth of about 12% that was largely driven by volume. All major sub segments of the category, bars, shakes, and chips increased in Q1. The growth of the category shows the increasing relevance in mainstreaming of nutritional snacking products as consumers seek high protein, low sugar, low carb food and beverage options. With three uniquely positioned brands aligned against these consumer mega trends and world class innovation and sales capabilities, we believe Simply Good Foods is well positioned to drive sustained growth and increased shareholder value. We're excited about the prospects for the category in our business and we are on track to deliver on our objectives. As a result, we reaffirm the fiscal year 2025 outlook discussed last quarter. Moreover, assuming a comparable full year of OWYN results are included in fiscal 2024 as well as the exclusion of the 53rd week in fiscal 2024, fiscal year 2025 is expected to be in line with the company's long term algorithm, specifically net sales growth in the 4% to 6% range and adjusted EBITDA growth slightly greater than the net sales increase. Let me now turn to Quest. the increased relevance and mainstreaming of consumers seeking high protein, low sugar, low carb foods is a driver of Quest growth. The brand is one of the pioneers of the mainstreaming of this category and has a broad range of products with this nutritional profile. Quest salty snacks is a great example, as we essentially created a $300 million retail sales business in a short amount of time since the acquisition. Given the size of the total salty snacks addressable market, we believe we are still in the early innings of growth for this platform. In addition to our portfolio today, our world class R&D team has an impressive pipeline of new products that represent a sustained source of growth for years to come. Unlike many large cap food companies, our outsourced co manufacturing business model provides us with the flexibility to quickly follow the consumer and an efficient way to create new avenues for growth, rather than be constrained by what a specific company owned asset can produce. In Q1 Quest retail takeaway growth was 10% and was solid across all major channels and customers. While early, we're pleased with our recent innovation that is performing in line with our estimates. This includes new products such as strawberry frosted cookie and baked shop muffins and brownies. In Q1. Quest's total unmeasured channel retail takeaway increased mid teens driven by strong ecommerce growth of about 18%. Ecommerce strength was partially offset by softness in specialty channels. Quest snacks and bars retail takeaway and the combined measured and unmeasured channels increased about 19% and 1% respectively. We continue to be pleased with our salty snacks POS performance quarter. We were supply constrained. And we start, however, as we noted on the last call coming into the (inaudible) second production line. As we exited Q1 with the second line up and running, we are no longer capacity constrained. And as we enter the New year, New you season, retail inventory is back at optimal level. As evidenced, retail takeaway for Quest Chips in November and December was about 35%, the strongest growth rates we've achieved since June. We now have the capability to fully support merchandizing and programming as well as increase distribution. Quest bar growth of about 1% was relatively in line with expectations. The brand responded well to targeted marketplace investments in the C store channel. The retail takeaway improved to nearly 4%. Despite this, our bar growth is not what we expect from the leading protein bar brand, which is why we are accelerating an exciting new overload bar platform. Over the remainder of the year, we expect Quest momentum will continue and anticipate fiscal year 2025 retail takeaway growth of 9% to 10%. Key drivers of growth include continued chips momentum and a calendar Q1 nationwide trial at a large new club customer. We will assess results upon completion of the test that could potentially lead to an expanded presence. Performance of our new bake shop item that is proving to be highly incremental to both the brand and the category. The February launch of the Quest overload bar platform. These bars are loaded with inclusion and have a unique texture and mouth feel that will bring variety and excitement for the bar segment. And finally, a full year of the successful, it's basically cheating advertising campaign. GRPs will increase meaningfully in fiscal 2025 particularly in Q2 supporting the New Year, New You Season and should drive greater brand awareness and trial. Recall, the campaign debuted in mid-March of 2024 and helped drive an almost immediate lift in consumption. Turning to Atkins. Q1 retail takeaway was off 4%. This was slightly better than planned and sequentially improved from the Q4 decline of 5%. Better than expected performance was driven by ready-to-drink shakes where retail takeaway increased about 5% with growth in both measured and unmeasured channels. We're particularly pleased that total brand retail takeaway increased at Atkin's two largest customers which when combined represents about 50% of total brand retail dollar sales. Specifically, e-commerce PLS increased 12% driven by growth of all three major forms, bars, shakes, and confections. Additionally, retail takeaway at Atkins largest customer increased about 2% driven by shakes growth of 13%. We remain focused on executing the Atkins revitalization plan and continue to be optimistic about the long-term future for the brand, especially given the renewed cultural conversation and relevance of weight wellness driven in part by the new weight loss drugs. The new Atkins items we launched in the fall are performing well and importantly, are significantly outperforming the items they replaced. The top performing items are the 30 gram Atkins strong protein shake and Atkins indulge gummies and truffles. We know innovation is critical for the brands and I'm pleased with the multi-year pipeline we now have in place. The new advertising campaign, Atkins Way has been in market since September and more strongly positioned. Atkins is a weight wellness brand. The top performing spot specifically references the new GLP-1 drug and positions Atkins as a sustainable and diet free way for GLP-1 consumers. And by extension, anyone who has lost weight to hold on to their weight loss gain. These ads scored exceptionally well and while early we believe they are contributing to the improved results we've seen this quarter. Other elements of the revitalization plan including new packaging, bar reformulation, and enhanced category management capabilities attracting to plan. However, despite the recent progress, we continue to anticipate Atkin's fiscal year 2025 retail takeaway to decline high single digits recall. We are proactively eliminating low ROI investments including trade and marketing programs that don't meet specific ROI hurdles. The effect of these decisions will disproportionately affect retail takeaway over the balance of the fiscal year particularly in calendar Q1 where [PLS] could be down low double digits. Additionally, during the new year, new year season, we will not repeat a large volume driving promotion at Atkins largest customer. These are difficult decisions but necessary to ensure Atkins is a long-term sustainable business. Also, as mentioned last quarter in the space constrained club channel, we lost distribution in October and as expected, we will see some further losses in this channel in the spring. However, we are having very productive discussions with this customer to repurpose and optimize the space with other Simply Good Food brands and form. More to come here in the second half of the year. In summary, we continue to believe in the long term vitality of Atkins, and I'm pleased with the progress we're making to revitalize and position the brand for a new era of weight wellness. We believe the actions we are taking should improve the trajectory of the brand as we exit fiscal Q4 and enter fiscal '26, all in support of building a healthy, profitable, and sustainable long term business. However, as we have previously stated, it will take time to get there. Turning to OWYN, retail takeaway of 67% in the combined measured and unmeasured channels was driven by both distribution and velocity increases. In the measured channel universe, OWYN is the third largest sports nutrition multipack brand in the US and growing the fastest in dollar sales. Our measured channel growth was a solid 39%. We continue to be excited about the acquisition and the runway for sustained profitable growth. OWYN is the leading plant based ready to drink protein shake in the market. The brand continues to outpace growth of both the plant and dairy based protein shake segment because of its superior taste profile that also appeals to mainstream consumers. Conversations with retailers are universally and unanimously positive and we expect both near term and long term distribution growth, not just of the existing lines, but also new flavors and pack sizes. Looking a little further out, I'm excited by what I'm already seeing from our joint R&D team in terms of where we can further extend the brand. We continue to have confidence, we'll double net sales in three to four years. The integration is progressing as planned. As a reminder to align with our fiscal year in 2025 we will achieve the majority of the synergy about 80% at the onset or first day of fiscal 2026. This should result in OWYN fiscal 2026 adjusted EBITDA margin the mid to high teen. To summarize, Simply Good Foods is uniquely positioned as a $1.4 billion net sales leader in the nutritional snacking category with a diversified portfolio across brands and product forms. We're pleased with our Q1 results and retail takeaway on all three brands. Additionally, while early Q2 is tracking to our expectations. Although as we discussed, the proactive reduction of Atkins' low ROI investment and lost club distribution will pressure brand performance. However, as I stated earlier, we believe our category and our brands represent the future of food and beverage given the increased relevance and mainstreaming of consumers seeking high protein, low sugar, low carb foods and beverages. We have three brands that are aligned with this consumer megatrend and world class innovation and sales capabilities that we believe position us well to drive sustained growth and increased shareholder value. Now I'll turn the call over to Shaun who will provide you with some greater financial details.\nShaun Mara\n Thank you, Geoff. Good morning, everyone. I will begin with an overview of our net sales. Total Simply Good Foods' first quarter net sales of $341.3 million increased 10.6% versus last year, primarily driven by the OWYN acquisition. We're very pleased with OWYN's performance and given the strong [POS] growth, OWYN's net sales increase was slightly greater than our plan. Legacy Q1 net sales of $309 million was about the same as the year ago period. Atkins was in line with our estimates and Quest was less than planned due to the timing of shipments that occurred subsequent to the end of the first quarter. We estimate the timing of shipments that slipped into the second quarter was about a 3 percentage point miss and nonprice display and promotion captured between gross and net sales was a 1 percentage point headwind to growth. Importantly, demand for our products is strong as evidenced by the Q1 Legacy US retail takeaway increase of about 4%. As we have said in the past, quarterly net sales and POS may not align due to timing of shipments, but we are confident that it should be more in line by the end of Q2 and somewhat similar by year end. Moving on to other P&L items for the quarter. Gross profit was $130.5 million, an increase of $15.4 million from the year ago period driven by lower than anticipated legacy business ingredient and packaging costs as well as the inclusion of [OWYN] This was partially offset by a non-cash $1 million inventory purchase accounting step up adjustment related to the OWYN acquisition. As a result, gross margin was 38.2%, a 90 basis points increase versus last year. The non-cash inventory purchase accounting step up adversely affect the gross margin by 30 basis points. Adjusted EBITDA was $70.1 million an increase of $8.1 million from the year ago period. Selling and marketing expenses increased $1 million to $33 million, primarily due to the inclusion of OWYN. GAAP G&A expenses were $38.1 million, an increase of $11.1 million versus last year. The increase was primarily due to higher legacy employee related costs and corporate expenses, the inclusion of OWYN, as well as business combination and integration expenses. Excluding stock based compensation as well as business combination integration costs, Q1 G&A increased $6.8 million to $29.5 million. Net interest income and interest expense was $7.1 million, an increase of $2.1 million versus Q1 of fiscal 2024. The increase versus the year ago period is primarily driven by a higher debt balance due to the OWYN acquisition. Our Q1 effective tax rate was about 20% lower than the year ago period due to equity compensation. We continue to anticipate the fiscal year 2025 tax rate to be around 25%. As a result, net income was $38.1 million versus $35.6 million last year. The next slide provides you with a reconciliation of reported and adjusted diluted EPS. First quarter reported PS was $0.38 per share diluted compared to $0.35 per share diluted in 2024. Adjusted diluted EPS was $0.49 compared to $0.43 in the year ago period. Note that we calculate adjusted diluted EPS, as [adjusted EBITDA] the less interest income, interest expense and income taxes. We've referred to today's press release for an explanation and reconciliation of non-GAAP financial measures. Moving to the balance sheet and cash flow as of November 30, 2024, the company had cash of $121.8 million. Cash flow from operations in Q1 was about $32 million compared to $47.5 million last year. The decline was primarily due to higher networking capital, principally inventory including OWYN. During the quarter, the company repaid $50 million of its term loan debt. And at the end of the first quarter, the outstanding principal balance was $350 million. Capital expenditures in Q1 were $300,000. Despite this, in fiscal year 2025, we continue to expect CapEx to be in a $10 million to $15 million range. In fiscal year 2025, we anticipate net interest expense to be around $23 million to $25 million including non-cash amortization expense related to the deferred financing fees. Now, to wrap up with our outlook. Due to solid retail takeaway, visibility in the second quarter orders, and strong adjusted EBITA growth to start the year, we reaffirm our fiscal year 2025 outlook. We expect organic sales growth to be driven primarily by volume, and have strong advertising and marketing plans in place, as well as innovation, merchandizing, and promotions that should enable us to achieve our objectives. As discussed last quarter, the company expects input cost inflation in fiscal year 2025 with headwinds increasing beginning in the second quarter. There is no material change to the company's fiscal year 2025 gross margin outlook with productivity and cost savings initiatives expected to partially offset these higher costs. Therefore, in fiscal year 2025 the company reported net sales are expected to increase 8.5% to 10.5%. Embedded in that, we anticipate OWYN fiscal year 2025 net sales to be in the $135 million to $145 million range. And total company adjusted EBITA is expected to increase 4% to 6%. Note that the 53rd week in fiscal year 2024 is about a 2 percentage points headwind to both net sales and adjusted EBITDA growth in fiscal year 2025. Before we move to Q&A, I want to take a moment and highlight this will be Mark Pogharian's last conference call as head of investor relations at Simply Good Foods as he will be retiring later this spring. I have worked with Mark for many years, and I want to thank him for his leadership across a number of functions in particular, leading us through our destock process, multiple M&A transactions, and building a strong IR practice here at Simply Good Foods. On behalf of the management team and board of directors, we commend Mark on a great career and wish him well. As we move forward, I am proud to announce that Josh Levine joined the company last month with a plan for him to succeed Mark beginning in February. Many of you know Josh, from his prior roles on the sell and buyside as well as his time at several brands. Josh is a seasoned and experienced professional and given the overlap with Mark, we know it will be a seamless transition. We appreciate everybody's interest in our company and we're now available to take your questions.\nQuestion and Answer Session\nOperator\n (Operator Instructions) Tom Palmer, Citi.\nTom Palmer\n Good morning. Thanks for the questions and congratulations both Mark and Josh. I hope for you just fine tune expectations, I guess, on the gross margin side. I think you previously discussed around 200 basis points of gross margin compression in each of the next three quarters. Is this still the outlook or might there be a bit more nuance to consider from quarter to quarter at this point?\nShaun Mara\n Yeah, I mean, let's take a step back on Q1 first of all. So the headline for Q1 is the margin came in better than we thought. That's largely due to more favorable commodities than we had forecasted. The main reason here is the fact that our commands had slightly higher levels of lower priced raw materials than we expected. Took a little longer for the higher cost raw material inventory to flow through the P&L. Our guidance for the full year holds around down 200. Q1 favorability helping it offset greater than expected inflation we're seeing in cocoa in a way that will happen towards the end of the year. As it relates to Q2, we expect gross margin decline to be close to about 300 basis points versus last year as the flow through the higher commodity cost we thought about in Q1 will hit us in Q2, in addition to the impact of OWYN, which is about a third of the decline. You didn't ask the question, but overall, from a coverage standpoint, we're covered through fiscal Q3 a little longer with the flow through to the P&L. I want to be cautious here as we consider the inflationary levels of some of the input costs, particularly coco one way. All that said we're in a much better sense of where we are for margin for the year and the April conference call. At that point in time, we commodities largely locked up for the year. So did I answer to your question or not?\nTom Palmer\n That answered it in more. So, thank you for that. Second, you noted the collaborative discussions with a flood channel customer just related to kind of offsetting the distribution losses for Atkins and repurposing that. Just I know it's still early but any details on kind of what products are really being focused on here and when that placement might take hold?\nGeoff Tanner\n It's a little early. You know, we're, we're midway through those conversations that have been very productive. They're big fans of both Quest and OWYN. And both brands have have opportunity there. Hopefully, by April we will be able to share more detail on where we see opportunity across both of those businesses.\nTom Palmer\n Great. Thank you.\nOperator\n Matt Smith, Stifel.\nMatt Smith\n Hi, good morning. And before jumping in, Mark, thanks for the help over the years, wish you well in and what comes next. Geoff, just to start at a high level, the overall category growth remains a stand out in the store with volume growth accelerating on a sequential basis. As you look at the category and the sub segments that drove the sequential improvement. Has your expectation for the category growth changed over the remainder of fiscal '25?\nGeoff Tanner\n Not materially, Matt. We continue to be excited about the level of growth we are seeing which is high single digit on average. And as you noted, it is materially greater than rest of food and beverage. They are -- the reason that nutritional snacking is a standout is that we continue to see a mainstreaming of demand for nutritional food and beverage products. The products that historically perhaps would have been more specialty or targeted towards athletes or your gym goers are now mainstreaming, as consumers seek high protein, low sugar, low carb. And this trend is accelerating. It's backed by science. It's amplified on social media. One of the drivers of the growth underlying that is that we continue to bring new products to market that are more mainstream. Products like chips where we built a $300 million business. We're very pleased with the early read on that bake shop platform. We've got a crackers' business that we're going to be able to accelerate as we get additional supply. And as we bring more mainstream products to the market, what we're seeing is those products are bringing in more and more consumers and they're more -- they're highly incremental to the category. So I think that this represents -- what we're seeing is a long term trend. And very simply, it's consumers seeking high protein versus high carbs and seeking low sugar and products, where we will continue to be the leader in offering them more choices. And I will say that that trend is also obviously noticed very much by retailers, who are working with us very proactively on how we can expand the presence of those products in the store.\nMatt Smith\n Thank you for that, Geoff. And Shaun, as a follow up to the comments on the shipment timing, there are three points of timing impact in the first quarter. Can you clarify if that was entirely for the Quest brand? And is the comment that shipments and take away are more aligned in 2Q, imply that headwind reverses in the second quarter. So that fiscal year-to-date consumption and shipments are aligned or that shipments and consumption align going forward without that reversal?\nShaun Mara\n Okay. Fair question. I know it's a little complicated. So let me just start with the quarter. To answer your specific question about Quest, it's probably about two thirds of the three points if you want to call it that. So the driver here is really timing of shipments to a single customer for Quest at the end of the quarter where we think the focus for that customer was on Black Friday and separate money, less so on the food side. The balance of the changes is basically gross net adjustments. If I just take a step back and look at consumption, overall, consumption continues to be solid. We're essentially on plan through the first quarter, up 4% on a combined legacy basis. Quest is up around 10% snacking, and as Geoff said, in particular, chips continuing to grow nicely and even bars up again. At the same time, Atkins came in a little better than we were thinking helped by performance in the two key customers, as Geoff mentioned with innovation and performance in RTVs encouraging for us. As we look to Q2, we accept shipments and consumption to be much more in line with each other. If you look at it by brand, we continue to expect Quest consumption to be high single digit, low double digits. Shipments largely in line with consumption through the first half. Atkins could show high single digit declines in Q2 driven by a number of items we've previously talked about. Reducing the low roi trade events. Additionally, in Q2, we anticipate shipments will trail consumption due to expected club distribution losses. So for the first half, we'll be largely in line with consumption overall. For the full year, we expect consumption and shipments to be largely in line by the end of the year. Does that help you, Matt?\nMatt Smith\n Yes, thank you for that. I'll leave it there and pass it on.\nOperator\n John Baumgartner, Mizuho Securities.\nJohn Baumgartner\n Good morning. Thanks for the question. Good morning. Mark, all the best. Many thanks for your assistance over the years, greatly appreciate it. Maybe first question. I wanted to come back to the innovation that was launched at the end of the summer, both for Atkins snacks and the Quest bake shop. The run rate contributions are created by about two points to sales in Nielsen. And I know it's still early. But can you comment at all, Geoff, on what you're seeing? How incremental are these products? Do you have a sense for the return of lapsed users to the brand? Is it mostly new first time consumers? Just any high level thoughts there would be appreciated.\nGeoff Tanner\n Yeah, let me start with Atkins. We are very pleased with how the new items are performing. And Recall, we launched around about 17 new items in the fall that essentially replaced items on shelf. Those new items are outperforming the items they replaced by about 2 to 1. And as you look at the sequential improvement we've been seeing in Atkins, that's a key driver of that improvement. And to drill down one more level, the top performing new items are the Atkins strong, a 30 gram shake which is highly incremental to the Atkins brand. And actually proven to be relatively incremental to the category. And then you have gummies and chocolates also performing very well, gummies in particular is proving out to be highly incremental. Turning to Quest. As I referenced, I think it was Matt's question. The Bake Shop platform is meeting our expectations. It's proven to be 50% incremental to Quest and 30% incremental to the category. And this comes back to the view that we have around how this category is mainstreaming that when we bring more products that are beyond just sizes and shapes, we're reaching new consumers. They're coming to the category. And what we're seeing early is that those consumers then that becomes a gateway into other products across the business. And certainly, that's what we saw on Quest Chips. The Quest Chips, which is our $300 million business has become a gateway into the rest of the portfolio. On Quest. So it's an astute question because to judge innovation, you want to look at how well is it performing in total. But importantly, how incremental is it, how incremental is it to the brand and how incremental is it to the category. And on both of those measures, I'm very pleased on both Quest and Atkins.\nJohn Baumgartner\n Okay. Thanks for that. And then on OWYN, Q1 sales I think were better than expected. You reiterated the guide for the full year. In terms of the sales drivers, you're looking at the Nielsen data. It looks as though the multipacks are becoming a larger share of sales. You've got some new flavors seeing a strong contribution. And in distribution also building, it looks like a bit in the drug channel as well. Are there any components over the next 9 to 12 months, are tracking more broadly, better than expected or areas where you see potential risks at this point, whether it's supply chain, shelf resets, just your thoughts there in terms of the balance of upside versus downside?\nGeoff Tanner\n Yeah, we look, we continue to be really pleased with how OWYN is performing. Very pleased with the acquisition, consumption, nearly 70% in Q1. And you know, notably you're seeing growth in both distribution and velocity. You don't normally see those two trend in the same direction but we are with OWYN. As you know, the growth is coming from the core. And multi pack in particular has been a GAAP on the business that we have been working against, and we continue to drive additional doors on the business. In recent customer meetings, they're very positive and we have strong support for expanded distribution gains across 2025. I would also highlight powders. It's a smaller part of the business right now. But it is growing and is proving to be highly incremental. If you think OWYN, the average number of SKUs at retail is about six. Okay, so there is significant headroom for multipacks. LTO is limited time offerings and just expanding the number of doors. Then household penetration obviously is low awareness is low. So you know that's why we're confident that we'll be able to deliver on our commitment for this business to double sales in the next three to four years.\nJohn Baumgartner\n Thanks, Geoff. Thanks, Shaun.\nGeoff Tanner\n Thank you.\nOperator\n Steve Powers, Deutsche Bank.\nSteve Powers\n Hey, great. Good morning, everybody. Geoff, I wanted to drill into some of your comments on Atkins, if I could. So I 100% appreciate the incremental headwinds that will build January forward on the brand, consistent with what you call that coming into the year. But as you also highlighted, the consumption through December has been ahead of expectation. And there are some consumer trends that you can as you talked about lean into a bit. So I'm just trying to take your temperature a little bit on whether you're feeling at all more optimistic on the trajectory of that brands and kind of maintaining the full year, call down high single digits more out of prudence or if the January forward headwinds are really going to be as material a setback as it was?\nGeoff Tanner\n Yeah. No, it's a very fair question. Look, I remain confident in the long-term trajectory of Atkins, and that's somewhat reinforced by the sequential improvement we have seen. And as we mentioned earlier, when you click underneath that with better innovation without performing the items that replaced, the advertising is performing. You can see the impact it's having on the business. And I think the proof of that is in two of our most important customers that represent over 50% of the business, we're growing. Now with that being said and particularly as we look to Jan, Feb, March, there are some actions that we're taking that will have a short term disproportionate negative impact on consumption. And they are the right decisions for the business long term. But we did want to call them out because for example, we're not repeating a large bonus pack program that was unprofitable, but certainly drove a lot of volume. We are reducing our footprint in [SAM]. Now we hope and expect to offset that through gains from OWYN and Quest, but we'll certainly see the impact of that. And as we've noted before, we are pulling low ROI trade that has been subsidizing the business. They're all the right decisions for the long term, but they will have a short-term volume effect that we believe would be most pronounced January, February, March. But that notwithstanding, I am very pleased with what I'm seeing in the business. The demand for weight loss, weight wellness is still high. 60% of people looking to lose and maintain weight. As we've talked about in the past, the weight loss drugs have amplified the cultural conversation. We're part of that. I think it's a GLP. It can work very well with people on the GLP, whether you're on it or coming off the drugs. I think that the long term future for this business is strong. But what we have to do is we've got some short term decisions that will have a short term volume impact. But I think as we look forward to particularly '26, like to see this business, expect to see this business come back and be a lot more stable.\nShaun Mara\n Just another point just to build off of that, Steve. Just we entered the year, I think we knew there were three time frames from a calendar standpoint that would present some challenges to the business. One was the fall resets and how the innovation did in the last fall. New Year, New you performance with less trade and the competitive activity. And then fall '25 resets and what the innovation is to help offset that. I think as we get through the first quarter, we're happy that we performed better than plan in Q1. As Geoff said, innovation performed well and allowed us to secure distribution related to the fall resets. We're going to have a much better picture on New Year, New You in the next couple of months. And we'll have fall '25 resets, sort of decided later this year. So as we look past this year, as Geoff said, we expect expect velocities to stabilize and we shouldn't have further investments to remove. But we need to see where we are in New Year, New You and the fall resets before we get a feel of '26 and beyond performance overall. It's going to be bumpy, not linear to go through this. But we do think we need to do the right things as longer term for the business despite the short-term pain. So I just think that's how we're looking at it internally as we think about it, calendarization wise. I don know if it helps you or not, but that's just effective.\nSteve Powers\n Yeah. No, that is very helpful and actually kind of dovetails into my next question it. But because I think Geoff, you called out an expectation that you'd enter fiscal '26 right, with momentum, kind of from the get go is the way I interpreted your commentary. And I guess, if there's these incremental headwinds building in the back half of '25, they're going to carry over into 2026 and you're going to be lapping this better performance in the early part of '25. So the call for improved performance to kick off '26 seems to put a lot of pressure on those fall resets that Shaun just mentioned. If I'm thinking about it correctly or but maybe I'm not. So I just want to clarify that.\nGeoff Tanner\n Well, the four resets are critical. For us, they always are. And I'm really pleased with the innovation that we have in the pipeline that we will do what we did this year, which is replace lower performing items with better performing items. If you think about fiscal '26, I wouldn't sit here and say, we expect the brand to return to growth necessarily. But what we've done in '25 is we've removed unsustainable investment. And that's why we've got the high single digit decline for '25 on Atkins. So as Shaun noted when we get to '26, we won't be repeating that. To your point, we will be likely lapping fans. But that will be part of the lap in '26, but that's very specific, less profitable part of the business. So I don't know if that answers your question. I wouldn't sit here and say model growth on for '26. But what I would -- what I do want to emphasize is we're using '25 to remove the unsustainable investment in the brand that crept in over the past few years. And that is why '25 will be a more challenging year for us.\nSteve Powers\n Yeah, okay. Very helpful discussion. Thank you.\nOperator\n Robert Moskow, TD Cowen.\nRobert Moskow\n Hi. Thanks for the question. And Mark, thanks for all the help over the years. I wanted to know Geoff, if you could kind of focus in on Quest bars. And I think you said yourself it's a little bit weaker than you thought. Can you talk about the new product launch that you have planned and how it's differentiated from what I perceive as a pretty crowded and low entry -- low barriers to entry category. If you, if you look at all these small players, I think that it's very confusing to shop that area. And so my next question would be, down the road, does your bars business still need to grow in order to hit your targets for Quest? Like could you foresee the growth of Quest coming from other segments of the portfolio rather than bars or does bars really need to grow in order to hit your numbers?\nGeoff Tanner\n Yeah, it's a good question. I'll answer it directly and then come back. For us to hit our forecast, long range forecast on Quest, we need bars low single digits. The majority of growth of Quest is going to come from chips where we still we think we're still in the early innings even with $300 million in retail sales. That platform is still growing 30% and now we've doubled supply. Bake Shop represents another big platform opportunity for us and we have such an impressive pipeline that I'm excited to bring to market over the coming years that will prove to be very additive and incremental to the brand. Yes, bars is a more mature segment. And for us to hit our algorithm, low single -- all we need is low single digit growth on bars. With that being said, I'm not satisfied with that. And that is why over the last year we have significantly ramped up our innovation and focus on that. And this is a category that does respond to new news and excitement. And the new overload platform that we're bringing out in the spring, in my opinion, the best tasting protein bar I've had in my life. It is shocked full of inclusions. It's absolutely delicious. And I think it's going to bring needed news and excitement, not just to Quest but to the category. But coming behind that, we now have multi years of exciting new bar innovation that will certainly bring new life into quest if not a category. We're turning on more of a focus on advertising on bars. So we're certainly not giving up on bars. All we need is low single digit, but I think we can do significantly better than that.\nRobert Moskow\n It's very helpful. A follow up to that. When you talk about the pipeline broadly, are there -- is there a consistent or is there a considerable effort to come up with new categories to extend into as well? Or is most of the innovation you have in the pipeline just to build out chips more, bake shop more, et cetera?\nGeoff Tanner\n Yes and yes. We must innovate on as we talked about. We're in the very early innings on chips. Think about the size of the addressable market of salty. We're a tiny fraction of that market with a very small range of products. So probably, not a surprise that we have a very robust salty line of products to come out over the coming years. But with that being said, what Quest does is it flips the macros on unhealthy, high carb, high sugar categories, like we've just done on baked shop. So you should assume that we're looking at large addressable categories where we can go in and flip those macros. And for me, this all add back to the mainstreaming of the demand for high protein, low sugar. And Quest have pioneered the expansion, the product expansion under that trend and we will continue to do so and we'll continue to look at where we can continue to bring products that flip those macros. So it's an end. It's yes and yes.\nRobert Moskow\n Got it. Thank you.\nOperator\n Brian Holland, DA Davidson.\nBrian Holland\n Yeah. Good morning, everyone. Mark, Congrats and thanks, and Josh, look forward to working with you. Great to have you back. Maybe just -- as we step in here to New Year, New You season. Obviously, you've gone into great detail, talking about some of the forces that play within your own portfolio and the drivers and things to be mindful of. Just wondering, what your perspective is with respect to the category. So, retail activity, competitive activity, consumer behavior. Last year, obviously, you were kind of set up and then we were impacted by a competitor bringing product back on shelf. So just curious if you could compare contrast, the broader set up into New Year, New You in 2025 versus 2024?\nGeoff Tanner\n Yeah. So from what we can see, retailers are continuing to get behind New year, New You in a bigger way, year on year on year. Again, it comes back to they're seeing the same trends that we're seeing, which is consumers seeking out these products. So at a total category level across the customer base, we're seeing increased support for the category, whether that merchandizing displays, promotions, et cetera. Drilling down, we're very pleased with our own plans. As we've noted, Atkins has a couple of areas where we, where we are pulling back. But Quest extremely pleased with the level of support we're getting to drill down one level lower. Chips in particular is a part of the business where we expect significantly increased support over the New Year and New You period. Now, with that being said, it's too early to see the level of competitive activity. As you noted last year, a major competitor came back, and we were negatively impacted by that. I think we're more eyes wide open to the competitive landscape this year. But it will play out. But the retailers look, they're looking across the store, they're seeing the same growth we are. They're moving their assets to support that growth. And I think at a total company level, we will perform very well.\nBrian Holland\n I appreciate that. And then forgive me if this was addressed clearly and I just missed it. But with respect to input cost and direction where they're moving, just views on if or when pricing action would need to be taken in response?\nShaun Mara\n But we did do pricing actions as it relates to RTDs. We announced a mid-single digit price increase in effect in the spring. So we did do that. We continue to evaluate commodities and we've really focused more on productivity at this point in time. And with productivity, we'll see some of that in this year and a full impact of that really in '26. So we'll continue to evaluate pricing, but we have not announced anything beyond the mid single increase for RTDs.\nGeoff Tanner\n Great. We'll leave it there. Thanks.\nShaun Mara\n Thank you.\nOperator\n Jim Salera, Stephens Inc.\nJim Salera\n Guys, thanks for taking our question and echo all the congrats for, for Mark and look forward to working with you in the future, Josh. I want to drill a little bit on the RTD shaike growth at Atkins. and I think general Atkins is better than expected, but that was a kind of particular bright spot. In those RTD shake consumers, are you seeing Atkins consumers that maybe have kind of gotten away from the brand reengaging or do you find that those are new consumers coming to the Atkins brand through that very popular RTD shake format?\nGeoff Tanner\n It's both. We're seeing new users come into the brand more than we had forecast. We're also seeing buy rate increase. I think there's a couple of drivers of that. One, it's early, but we think the new advertising is performing exceptionally well. And then the other driver of that is we launched a 30 gram shake or action strong with fiber, which was positioned as a great companion for those on a GLP-1, but certainly not limited to that. And that has been an important driver of the growth we're seeing in shakes. And so if you look at the overall performance of shakes, that addition of the 30 grams, this is the thing we have right now is proving to be highly incremental to the Atkins shake business.\nJim Salera\n And I know it's still early days but is there an opportunity if you're bringing new consumers to the Atkins brand through the shake platform to convert them to some of the other innovations like the Gummies or the Truffles or do you find that they, if you're a shape consumer, your kind of siloed in that consumption format?\nGeoff Tanner\n No, it's a great point. One of the strengths of Atkins is the breadth of the portfolio. And we do see that when they come in on a shake, they'll go over to ready to eat or vice versa. So there's a lot of switching within the portfolio. And you know, it's too early to know if that's happening on strong, for example. But certainly, that's consistent with how the brand has grown in the past, which is I'll come into the brand. They understand the brand promise, they see the effective products and then they'll shop across those products. So that's what I would expect. But it's a little early to tell right now whether that's happening on strong, for example.\nJim Salera\n Great. I appreciate the color. I'll hop back in the queue.\nOperator\n Jon Andersen, William Blair.\nJon Andersen\n Yeah. Thanks for the question, operator. And Mark, shout out to you on retirement and thanks for your help over the years and one question Atkins and one on one. On Atkins, you've talked a lot about optimizing spend and eliminating low ROI spend. Can you give us a little bit more context on what this means from -- how much the historical spend has been, what it might look like post optimization and the margin implications for the Atkins brand? And then on OWYN, are you seeing or expecting any changes from a competitive standpoint in the category or the segment? And are those kind of baked in to your kind of expectations through the balance of the year and into fiscal '26? Thank you.\nShaun Mara\n I guess on the Atkins one, we don't really want to get into a lot of profitability by brand for competitive reasons. We don't really look at that. I think what we're trying to do is use the spending that we have overall in the most efficient and effective way. We do see a lot of the spend that we are reducing for Atkins being reinvested in Quest and a little bit more in OWYN. So I think overall we're trying to get to a business that we think is a sustainable business longer term. And that's what we think we can get to for Atkins by eliminating some of the investments and the returns on those and aligning those more with expectations. So I don't really want to get more into the detail on that if that's okay.\nGeoff Tanner\n Yeah, the only example I'll give you is trade, where over the years, and I think driven perhaps by not having efficiently robust innovation pipeline. Trade did creep into the business. And when we review, we review every single trade event, what we found is that many of those events are very unprofitable. But perhaps even more importantly, we're subsidizing based business. And that -- looking at the business from that lens, it's the right decision to remove trade that is unprofitable and it's generally to subsidize the face. So just to give you one example. And on marketing, our marketing spend had gotten out of line with even our own guidelines on marketing as a percentage of sales. What I would note is that the majority of the cuts in marketing were to non working. I would also note that through a new media partnership, we have -- we're able to offset the working impact, but there still is an impact as we bring that spin back into line. I think your question, I just want to clarify was it on competitive response to OWYN? Was that the question?\nJon Andersen\n Yes, OWYN, and any change to the competitive landscape and plant based segment?\nGeoff Tanner\n No, we haven't seen any. OWYN is the clear leader in plant based. And I think when we announced the deal, the data point that really convinced me to make this acquisition was that OWYN just excels on taste. It's the plant-based offering that is now close enough for the dairy based alternative on taste. And that's why it is a clear leader and plant based. And it's not easy to get there, but they've figured it out. Actually, we're working with them on getting an even improved taste profile. But that taste profile is now close enough to dairy, which is why we're seeing the majority of new consumers come into that business from dairy. So we're not hearing, we're not seeing plant-based competitors of note to OWYN, it has emerged as the clear plant-based leader. What I would say is as we look at the future of the business, we want it in the rotation as part of the mainstream consumers. That where we're going with this business\nJon Andersen\n That's great. Thank you so much for the color.\nOperator\n Alexia Howard, Bernstein Research.\nAlexia Howard\n Good morning, everyone.\nShaun Mara\n Good morning.\nAlexia Howard\n Okay. So can I start with the GLP-1 question? You mentioned your plans to tap into that GLP-1 trend in your prepared remarks. Can you give us a little bit more color on what that -- what it is that you're doing? And by when is it messaging and marketing, is it on pack labels? Is it dedicated new products? Just a little bit more color would be helpful and then I have a follow up.\nGeoff Tanner\n Yeah, so Lexi, I mean, it's obviously still early innings with the GLP-1 drugs. But we do see this as a tailwind to our category. And the tailwind is both our products are a great companion. When you're on the drug, what we found even in our own research is that consumers, when they're on the drugs are looking for protein to maintain muscle mass. And fiber is very important because many of them have got health issues. And then the equal opportunity if not greater is as an offramp, which is they've achieved their weight loss goals. They're looking to how they can sustainably hold on to the emotional and physical benefits of that weight loss, which is where Atkins in particular has an important role to play. So then your question is, what are we doing? How are we tapping into that? On Atkins, a new advertising specifically references GLP-1 users and specifically the positions Atkins as a sustainable offramp to hold on to those gains. That ad was the best ad, best growing ad we've ever had on Atkins. And while early we believe that is part of the reason we're seeing sequential improvement in the consumption numbers right now. And as we -- as I mentioned, just previously, we also launched a product Atkin Strong that is positioned as a perfect companion high protein by fiber. And that product continues to do very well. And then we obviously have supporting all of that, we do have targeted advertising where we're positioning that product in digital to as a GLP-1 companion. So our primary focus on tapping into GLP-1 is Atkins. But what I would say is that quest will also benefit just from that demand that consumers have for high protein and healthy products. Lastly, we are working with customers at a category level to reinforce the importance of the category. And it's how important it is to support consumers, whether they're on the drug GLP-1 consumers and on the drug retailers get it. It's a benefit to be located near the pharmacy section. We're working on some tie ins with some pharmacies with some retailers. So we see that as a significant tailwind and we are pleased with the early response. We're seeing to some of the tactics and initiatives we have in place.\nAlexia Howard\n Perfect. Just to finish up here, first of all. Mark, thank you so much for your help over the years and Josh, welcome. Do you have any data specifically on repeat rates for OWYN and how those are trending over time? I'll leave it there. Thank you so much.\nGeoff Tanner\n Yeah, so OWYN repeats have actually improved significantly over the last three years. Again, this was another data point we looked at closely during diligence. And what's really interesting is you can tie the increase in repeat rates, which I think now are around 40%-ish to the product improvements they've made over time. And that was another data point that gave us confidence that this was the right acquisition. I've always. If you have a repeat rate with a four in front of it, Alexia, you're in pretty good shape. And, OWYN is there right now. And I think actually, as we combine our two R&D organizations, we'll get even, we'll get even better.\nAlexia Howard\n Wonderful. Thank you very much. I'll pass it on.\nOperator\n Thank you. That concludes our question-and-answer session. I'll turn the floor back to management for any final comments.\nMark Pogharian\n Great. Thank you so much for joining us for today's call. Josh and I will be around to answer any follow up questions you may call and we'll speak to you again during our fiscal second quarter conference call in early April. Thank you.\nOperator\n Thank you. This concludes today's conference call. You may disconnect your lines at this time. 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