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CST: 18/09/2019 15:03:42   

The Simply Good Foods Company Reports Third Quarter 2019 Financial Results

78 Days ago

DENVER, July 02, 2019 (GLOBE NEWSWIRE) -- The Simply Good Foods Company (NASDAQ: SMPL) (“Simply Good Foods,” or the “Company”), a developer, marketer and seller of branded nutritional snacking and meal replacement products, today reported financial results for the thirteen and thirty-nine week periods ended May 25, 2019.

“We’re pleased with our strong third quarter results and the continued business momentum,” said Joseph E. Scalzo, President and Chief Executive Officer of Simply Good Foods. “We delivered double-digit sales growth in both the third quarter and year-to-date periods driven by our successful marketing strategy that positions Atkins as the brand of choice for consumers seeking nutritious and delicious snacking and meal replacement products for low carb lifestyles. U.S. retail takeaway, as measured by IRI for the thirteen week period ended May 25, 2019, continued to be strong and was up 19.5% versus the prior year. Gross profit and adjusted EBITDA growth also increased double-digits in both the third quarter and year-to-date periods reflecting the strong sales growth as well as investments in marketing and capabilities that we believe will benefit the Company in the near and long term.”

Third Quarter 2019 Financial Highlights vs. Third Quarter 2018

  • Net sales increased 30.1%, or $32.2 million, to $139.5 million
  • Gross profit margin of 46.8%, a decrease of 100 basis points
  • Income tax expense was $4.6 million versus $2.8 million
  • Net income increased 88.7%, or $6.3 million, to $13.5 million
  • Earnings per diluted share (“EPS”) of $0.16 increased $0.06
  • Adjusted EBITDA(1) increased 38.8% to $24.9 million

Net sales increased $32.2 million, or 30.1%, to $139.5 million, primarily driven by volume growth. Net price realization was a slight benefit in third quarter and was more than offset by a shift in non-price related customer activity, as discussed last quarter. As expected, net sales growth outpaced retail takeaway driven by the timing of inventory changes compared to prior year at key retailers. Year-to-date net sales growth and retail takeaway are now relatively in-line. The Company’s supply situation has improved and we believe we are well positioned to meet consumer demand.

Gross profit was $65.3 million for the third quarter of 2019, an increase of $14.0 million or 27.3%. Gross profit margin was 46.8% compared to 47.8% for the thirteen weeks ended May 26, 2018, a decline of 100 basis points versus last year. As discussed previously, gross margin is impacted by a shift in non-price related customer activity that negatively impacted the third quarter of 2019 by 120 basis points. Savings from the strategic sourcing initiative in the third quarter were in-line with estimates and, as expected, offset inflation.

Net income for the third quarter of 2019 was $13.5 million, compared with $7.1 million for the comparable period of 2018 primarily due to the increase in gross profit, partially offset by higher operating expenses and income tax expense. Specifically, marketing expense increased $3.7 million, driven by higher television media and e-commerce investments. General and administrative expenses increased $4.1 million due primarily to greater incentive compensation and slightly higher distribution center costs. Selling expense was $2.2 million lower than last year due to the aforementioned shift in non-price related customer activity.

Adjusted EBITDA, a non-GAAP financial measure used by the Company that makes certain adjustments to net income calculated under GAAP, increased 38.8% to $24.9 million.

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(1) Adjusted EBITDA is a non-GAAP financial measure. Please refer to “Reconciliation of Adjusted EBITDA” in this press release for an explanation and reconciliations of this non-GAAP financial measure.

Year-to-Date Third Quarter 2019 Financial Highlights vs. Year-to-Date Third Quarter 2018

  • Net sales increased 18.9%, or $61.0 million, to $384.2 million
  • Gross profit margin of 47.4%, a decrease of 30 basis points
  • Income tax expense was $13.2 million versus a benefit of $17.5 million
  • Net income decreased 29.5%, or $17.3 million, to $41.4 million
  • Earnings per diluted share (“EPS”) was $0.49 versus $0.81
  • Adjusted EBITDA(1) increased 23.3% to $74.6 million

Net sales increased $61.0 million, or 18.9%, to $384.2 million, primarily driven by volume growth.

Gross profit was $182.0 million for the thirty-nine weeks ended May 25, 2019, an increase of $27.7 million, or 18.0%. Gross profit margin was 47.4%, compared to 47.7% for the thirty-nine weeks ended May 26, 2018, a decline of 30 basis points versus last year. Favorable trade promotion driven by lower frequency of bar promotions was more than offset by the previously mentioned shift related to non-price related customer activity. This shift only affects fiscal 2019 amounts, resulting in an unfavorable impact in 2019 year-to-date gross margin of about 90 basis points.

Net income for the first nine months of 2019 was $41.4 million, compared with $58.7 million for the comparable period of 2018. The prior year period was impacted by previously discussed tax items and a gain related to the fair value of the Tax Receivable Agreement. Specifically, the thirty-nine weeks ended May 26, 2018 amounts include a $29.0 million one-time gain related to the re-measurement of deferred tax liabilities and a $4.7 million gain on the fair value of the Tax Receivable Agreement that were recorded in the second quarter of 2018. Net income in the thirty-nine weeks ended May 25, 2019 was primarily driven by gross profit, partially offset by higher operating expenses and income tax expense. Marketing expense increased $7.5 million, driven by higher television media and e-commerce investments. General and administrative expenses increased $9.0 million as a result of higher incentive compensation, professional fees and investments to enhance organizational capabilities in key functions. Selling expense was $4.7 million lower than last year; due to the aforementioned shift in non-price related customer activity.

Adjusted EBITDA, a non-GAAP financial measure used by the Company that makes certain adjustments to net income calculated under GAAP, increased 23.3% to $74.6 million.

Balance Sheet and Cash Flow

As of May 25, 2019, the Company had cash and cash equivalents of $247.6 million and $197.0 million in outstanding principal of the term loan, resulting in a trailing twelve month combined Net Debt to Adjusted EBITDA ratio of (0.5)x. In the fiscal third quarter, the Company repurchased $1.5 million in common stock against the $50 million authorization announced last year.

Outlook

The Company continues to expect that it will end the year strong with net sales and Adjusted EBITDA growth up meaningfully versus last year.  Given our momentum, we anticipate full year fiscal 2019 net sales and Adjusted EBITDA growth to be similar to the year-to-date percentage increases. This outlook reflects solid volume growth and the benefit of a fifty-third week, as well as incremental strategic investments in marketing and our expectation that retail takeaway will sequentially slow given the more challenging year-ago growth rates.

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(1) Adjusted EBITDA is a non-GAAP financial measure. Please refer to “Reconciliation of Adjusted EBITDA” in this press release for an explanation and reconciliations of this non-GAAP financial measure.

Conference Call and Webcast Information

The Company will host a conference call with members of the executive management team to discuss these results today, Tuesday, July 2, 2019 at 6:30 a.m. Mountain time (8:30 a.m. Eastern time). Investors interested in participating in the live call can dial 877-407-0792 from the U.S. and International callers can dial 201-689-8263.

In addition, the call and accompanying presentation slides will be broadcast live over the Internet hosted at the “Investor Relations” section of the Company's website at http://www.thesimplygoodfoodscompany.com. The webcast will be archived for 30 days. A telephone replay will be available approximately two hours after the call concludes and will be available through Tuesday, July 16, 2019, by dialing 844-512-2921 from the U.S., or 412-317-6671 from international locations, and entering confirmation code 13691455.

About The Simply Good Foods Company

The Simply Good Foods Company (Nasdaq: SMPL), headquartered in Denver, Colorado, is a highly-focused food company with a product portfolio consisting primarily of nutrition bars, ready-to-drink shakes, snacks and confectionery products marketed under the Atkins®, SimplyProtein® and Atkins Endulge® brand names. Simply Good Foods is poised to expand its wellness platform through innovation and organic growth along with investment opportunities in the snacking space and broader food category. Over time, Simply Good Foods aspires to become a portfolio of brands that bring simple goodness, happiness and positive experiences to consumers and their families. For more information, please visit http://www.thesimplygoodfoodscompany.com.

Forward Looking Statements

Certain statements made herein are not historical facts but are forward-looking statements for purposes of the safe harbor provisions under The Private Securities Litigation Reform Act of 1995. Forward-looking statements generally are accompanied by or include words such as “will”, “expect”, “aspire”, “outlook” or other similar words, phrases or expressions. These forward-looking statements include statements regarding future plans for the Company, the estimated or anticipated future results and benefits of the Company’s future plans and operations, future opportunities for the Company, and other statements that are not historical facts. These statements are based on the current expectations of the Company’s management and are not predictions of actual performance. These statements are subject to a number of risks and uncertainties and the Company’s business and actual results may differ materially. These risks and uncertainties include, but are not limited to, changes in the business environment in which the Company operates including general financial, economic, regulatory and political conditions affecting the industry in which the Company operates; changes in consumer preferences and purchasing habits; the Company’s ability to maintain adequate product inventory levels to timely supply customer orders; the impact of the Tax Act on the Company's business; changes in taxes, tariffs, duties, governmental laws and regulations; the availability of or competition for other brands, assets or other opportunities for investment by the Company or to expand the Company’s business; competitive product and pricing activity; difficulties of managing growth profitably; the loss of one or more members of the Company’s management team; and other risk factors described from time to time in the Company’s Form 10-K, Form 10-Q, and Form 8-K reports (including all amendments to those reports) filed with the U.S. Securities and Exchange Commission from time to time. In addition, forward-looking statements provide the Company’s expectations, plans or forecasts of future events and views as of the date of this communication. Except as required by law, the Company undertakes no obligation to update such statements to reflect events or circumstances arising after such date, and cautions investors not to place undue reliance on any such forward-looking statements. These forward-looking statements should not be relied upon as representing the Company’s assessments as of any date subsequent to the date of this communication.

Investor Contact

Mark Pogharian
Vice President, Investor Relations, Treasury and Business Development
The Simply Good Foods Company
717-307-8197
mpogharian@thesimplygoodfoodscompany.com


The Simply Good Foods Company and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited, dollars in thousands, except share data)

    May 25, 2019   August 25, 2018
Assets        
Current assets:        
Cash and cash equivalents   $ 247,618     $ 111,971  
Accounts receivable, net   42,809     36,622  
Inventories   41,574     30,001  
Prepaid expenses   3,318     2,069  
Other current assets   3,870     5,077  
Total current assets   339,189     185,740  
         
Long-term assets:        
Property and equipment, net   2,460     2,565  
Intangible assets, net   307,765     312,643  
Goodwill   471,427     471,427  
Other long-term assets   3,768     2,230  
Total assets   $ 1,124,609     $ 974,605  
         
Liabilities and stockholders’ equity        
Current liabilities:        
Accounts payable   $ 17,326     $ 11,158  
Accrued interest   1,478     582  
Accrued expenses and other current liabilities   19,841     15,875  
Current portion of TRA liability       2,320  
Current maturities of long-term debt   655     648  
Total current liabilities   39,300     30,583  
         
Long-term liabilities:        
Long-term debt, less current maturities   190,429     190,935  
Long-term portion of TRA liability       25,148  
Deferred income taxes   64,301     54,475  
Other long-term liabilities   593     863  
Total liabilities   294,623     302,004  
See commitments and contingencies (Note 8)        
         
Stockholders’ equity:        
Preferred stock, $0.01 par value, 100,000,000 shares authorized, none issued        
Common stock, $0.01 par value, 600,000,000 shares authorized, 81,928,540 and 70,605,675 issued at May 25, 2019 and August 25, 2018, respectively   819     706  
Treasury stock, 75,989 and 0 shares at cost at May 25, 2019 and August 25, 2018, respectively   (1,664 )    
Additional paid-in-capital   732,181     614,399  
Retained earnings   99,739     58,294  
Accumulated other comprehensive loss   (1,089 )   (798 )
Total stockholders’ equity   829,986     672,601  
Total liabilities and stockholders’ equity   $ 1,124,609     $ 974,605  
 


The Simply Good Foods Company and Subsidiaries
Condensed Consolidated Statements of Operations and Comprehensive Income
(Unaudited, dollars in thousands, except share data)

    Thirteen Weeks Ended   Thirty-Nine Weeks Ended
    May 25, 2019   May 26, 2018   May 25, 2019   May 26, 2018
Net sales   $ 139,468     $ 107,233     $ 384,199     $ 323,167  
Cost of goods sold   74,204     55,949     202,190     168,869  
Gross profit   65,264     51,284     182,009     154,298  
                 
Operating expenses:                
Distribution   6,246     4,656     17,327     14,864  
Selling   2,802     4,972     9,191     13,850  
Marketing   14,748     10,999     38,407     30,905  
General and administrative   18,271     14,158     47,994     38,948  
Depreciation and amortization   1,929     1,911     5,754     5,793  
Business transaction costs   758     35     2,087     1,912  
Loss (gain) in fair value change of contingent consideration - TRA liability       614     533     (2,412 )
Other expense       137     22     567  
Total operating expenses   44,754     37,482     121,315     104,427  
                 
Income from operations   20,510     13,802     60,694     49,871  
                 
Other income (expense):                
Interest income   1,066         2,731      
Interest expense   (3,428 )   (3,057 )   (10,033 )   (9,169 )
Gain on settlement of TRA liability           1,534      
(Loss) gain on foreign currency transactions   (153 )   (837 )   (421 )   119  
Other income   55     77     176     475  
Total other expense   (2,460 )   (3,817 )   (6,013 )   (8,575 )
                 
Income before income taxes   18,050     9,985     54,681     41,296  
Income tax expense (benefit)   4,584     2,848     13,236     (17,453 )
Net income   $ 13,466     $ 7,137     $ 41,445     $ 58,749  
                 
Other comprehensive income:                
Foreign currency translation adjustments   (254 )   299     (291 )   (501 )
Comprehensive income   $ 13,212     $ 7,436     $ 41,154     $ 58,248  
                 
Earnings per share from net income:                
Basic   $ 0.16     $ 0.10     $ 0.52     $ 0.83  
Diluted   $ 0.16     $ 0.10     $ 0.49     $ 0.81  
Weighted average shares outstanding:                
Basic   81,898,276     70,582,573     80,362,978     70,578,687  
Diluted   85,962,151     73,466,285     84,695,703     72,907,141  
                         


The Simply Good Foods Company and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited, dollars in thousands)

    Thirty-Nine Weeks Ended
    May 25, 2019   May 26, 2018
Operating activities        
Net income   $ 41,445     $ 58,749  
Adjustments to reconcile net income to net cash provided by operating activities:        
Depreciation and amortization   5,754     5,793  
Amortization of deferred financing costs and debt discount   1,001     977  
Stock compensation expense   3,922     2,981  
Loss (gain) on fair value change of contingent consideration - TRA liability   533     (2,412 )
Gain on settlement of TRA liability   (1,534 )    
Unrealized loss (gain) on foreign currency transactions   421     119  
Deferred income taxes   9,841     (20,876 )
Loss on disposal of property and equipment   6     77  
Changes in operating assets and liabilities:        
Accounts receivable, net   (6,388 )   (4,812 )
Inventories   (11,700 )   4,003  
Prepaid expenses   (1,258 )   (1,296 )
Other current assets   (253 )   (2,334 )
Accounts payable   6,284     (4,676 )
Accrued interest   896     (34 )
Accrued expenses and other current liabilities   3,698     203  
Other   (39 )   (239 )
Net cash provided by operating activities   52,629     36,223  
         
Investing activities        
Purchases of property and equipment   (777 )   (1,347 )
Acquisition of business, net of cash acquired       (1,757 )
Net cash used in investing activities   (777 )   (3,104 )
         
Financing activities        
Proceeds from option exercises   518      
Tax payments related to issuance of restricted stock units   (9 )    
Cash received from warrant exercises   113,464     231  
Repurchase of common stock   (1,664 )    
Settlement of TRA liability   (26,468 )    
Deferred financing costs       (319 )
Principal payments of long-term debt   (1,500 )   (1,000 )
Net cash provided by (used in) financing activities   84,341     (1,088 )
         
Cash and cash equivalents        
Net increase in cash   136,193     32,031  
Effect of exchange rate on cash   (546 )   (171 )
Cash at beginning of period   111,971     56,501  
Cash and cash equivalents at end of period   $ 247,618     $ 88,361  
         
Supplemental disclosures of cash flow information        
Cash paid for interest   $ 8,136     $ 8,226  
Cash paid for taxes   $ 3,759     $ 2,098  
                 

Reconciliation of Adjusted EBITDA

Adjusted EBITDA . Adjusted EBITDA is a non-GAAP financial measure commonly used in our industry and should not be construed as an alternative to net income as an indicator of operating performance or as an alternative to cash flow provided by operating activities as a measure of liquidity (each as determined in accordance with GAAP). Simply Good Foods defines Adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) as net income before interest expense, income tax expense (benefit), depreciation and amortization with further adjustments to exclude the following items: stock-based compensation expense, business transaction costs, restructuring costs, change in fair value of contingent consideration - TRA liability, gain on settlement of TRA liability and other non-core expenses. The Company believes that the inclusion of these supplementary adjustments in presenting Adjusted EBITDA are appropriate to provide additional information to investors and reflects more accurately operating results of the on-going operations. Adjusted EBITDA may not be comparable to other similarly titled captions of other companies due to differences in calculation.

The following unaudited table below provide a reconciliation of adjusted EBITDA to its most directly comparable GAAP measure, which is net income, for the thirteen weeks and thirty-nine weeks ended May 25, 2019 and May 26, 2018:

Adjusted EBITDA Reconciliation:
 (in thousands)
  Thirteen Weeks Ended   Thirty-Nine Weeks Ended
  May 25, 2019   May 26, 2018   May 25, 2019   May 26, 2018
Net income   $ 13,466     $ 7,137     $ 41,445     $ 58,749  
Interest income   (1,066 )       (2,731 )    
Interest expense   3,428     3,057     10,033     9,169  
Income tax expense (benefit)   4,584     2,848     13,236     (17,453 )
Depreciation and amortization   1,929     1,911     5,754     5,793  
EBITDA   22,341     14,953     67,737     56,258  
Business transaction costs   758     35     2,087     1,912  
Stock-based compensation expense   1,444     1,014     3,922     2,981  
Restructuring       137     22     567  
Non-core legal costs   179     274     1,330     1,053  
Loss (gain) in fair value change of contingent consideration - TRA liability       614     533     (2,412 )
Gain on settlement of TRA liability           (1,534 )    
Other (1)   171     913     459     98  
Adjusted EBITDA   $ 24,893     $ 17,940     $ 74,556     $ 60,457  

(1) Other items consist principally of exchange impact of foreign currency transactions, frozen licensing media and other expenses.

 

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