Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________________________________________
FORM 8-K
_______________________________________________________

Current Report

Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): July 2, 2019
_______________________________________________________
The Simply Good Foods Company
(Exact name of registrant as specified in its charter)
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_______________________________________________________
DELAWARE
 
001-38115
 
82-1038121
(State or other jurisdiction of
 incorporation or organization)
 
(Commission File Number)
 
(I.R.S. Employer
Identification Number)

1225 17th Street, Suite 1000
Denver, CO 80202
(Address of principal executive offices and zip code)

Registrant’s telephone number, including area code: (303) 633-2840


Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading symbol
 
Name of each exchange on which registered
Common Stock, par value $0.01 per share
 
SMPL
 
Nasdaq Capital Market

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company  x
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  x




Item 2.02     Results of Operations and Financial Condition.

On July 2, 2019, The Simply Good Foods Company, a Delaware corporation, reported its results for the third quarter ended May 25, 2019. The results are discussed in detail in the press release attached hereto as Exhibit 99.1. In addition, we have posted an investor presentation at www.thesimplygoodfoodscompany.com.

The information in this item, including Exhibit 99.1, is being furnished, not filed. Accordingly, the information in this item will not be incorporated by reference into any registration statement unless specifically identified therein as being incorporated by reference therein.

Item 9.01    Financial Statements and Exhibits
 
(d) Exhibits
 
Exhibit No.
 
Description
 
 
 
 





SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Date:
July 2, 2019
By:
/s/ Todd E. Cunfer
 
 
Name:
Todd E. Cunfer
 
 
Title:
Chief Financial Officer
 
 
 
(Principal Financial Officer)



Exhibit


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The Simply Good Foods Company Reports Third Quarter 2019 Financial Results

Denver, CO, July 2, 2019 - 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.





________________________________________
(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.

1



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.









________________________________________
(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.

2



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

3



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



4



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


5



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



6




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.


7