The Simply Good Foods Company Reports Fiscal Third Quarter 2021 Financial Results; Updates Full Fiscal Year 2021 Outlook
Third Quarter Highlights:(1)
- Net sales increased 32.0% driven by strong Atkins and Quest performance
- Net income(2) of
$5.9 million versus$48.1 million - Earnings per diluted share (“EPS”)(2) of
$0.06 versus$0.17 - Adjusted Diluted EPS(3) of
$0.43 versus$0.26 - Adjusted EBITDA(4) increased 55.6% to
$67.5 million - Updates full fiscal year 2021 outlook:
Net Sales expected to be in the$995-1,005 million range, greater than the previous estimate of$930-940 million - Adjusted EBITDA(3) expected to be in the
$200-205 million range, greater than the previous estimate of$180-185 million
“As expected, our third quarter sales and earnings growth improved driven by increasing consumer mobility and improving shopper traffic in brick and mortar retailers versus the year ago period that was pressured by COVID-19 movement restrictions,” said
“We were pleased with our earnings and margin growth in the third quarter, however, as we discussed last quarter we do expect higher raw materials and freight costs starting in the fourth quarter and in fiscal 2022. Given the anticipated inflation next year, in June, we notified customers of our plans to institute a price increase effective in September. The price increase will enable the Company to maintain gross margin and continue to invest in initiatives that drive growth. Due to our third quarter year-to-date business performance, we have increased our full year fiscal 2021 net sales, gross margin and Adjusted EBITDA outlook versus our previous forecast. Our fiscal fourth quarter is off to a good start, and we are positioned well to deliver on our plans and objectives over the remainder of the fiscal year.”
Fiscal Third Quarter 2021 Results
Net sales increased
Gross profit was
In the third quarter of fiscal 2021 the Company reported net income of
Operating expenses of
- Selling and marketing expenses increased
$6.3 million to$30.8 million driven by higher brand building initiatives that were reinstated following a decline in the year ago period due to lower nutritional snacking category trends related to COVID-19 movement restrictions. For the full year, the Company continues to anticipate that marketing and advertising expense related to its core businesses will increase at least in-line with organic sales growth. - General and administrative expenses declined
$3.0 million to$25.7 million primarily due to lower integration and restructuring costs versus last year. Higher incentive compensation was partially offset by cost control measures and Quest acquisition synergies.
Adjusted EBITDA(4), a non-GAAP financial measure used by the Company that makes certain adjustments to net income calculated under GAAP, increased 55.6% to
Interest expense was
In the third quarter of fiscal 2021, the Company reported Diluted EPS of
Year-to-Date Third Quarter 2021 Results Financial Highlights vs. Year-to-Date Third Quarter 2020
- Net sales increased 25.5%, or
$151.4 million , to$745.8 million - Gross profit margin of 40.9%, an increase of 120 basis points
- Net income(2) decreased
$82.3 million to$22.6 million - Adjusted EBITDA(4) increased 35.9%, to
$158.8 million - Earnings per diluted share (“EPS”)(2) of
$0.23 , flat from the prior year - Adjusted Diluted EPS(3) of
$0.97 , versus$0.71
Net sales increased
Gross profit was
Net income was
Operating expenses of
- Selling and marketing expenses increased 17.4% primarily due to the inclusion of Quest and higher brand building initiatives in the third quarter of fiscal 2021 that were reinstated following a decline in the year ago period due to lower nutritional snacking category trends related to COVID-19 movement restrictions;
- General and administrative expenses increased
$2.7 million to$77.6 million as a$4.4 million decline in costs related to the Quest acquisition and integration, as well as effective cost control and integration synergies, were partially offset by higher incentive compensation.
Adjusted EBITDA(4), a non-GAAP financial measure used by the Company that makes certain adjustments to net income calculated under GAAP, increased 35.9% to
For the year-to-date third quarter fiscal 2021, the Company reported Diluted EPS of
Balance Sheet and Cash Flow
Year-to-date third quarter fiscal 2021 combined cash flow from operations was
Outlook
Assuming there are no significant COVID-19 related disruptions in
The Company anticipates 2021 Adjusted Diluted EPS(3,6) to be in the range of
___________________________________
(1) All comparisons for the third quarter ended
(2) Reflects, for the reporting period, the Company’s private warrants to purchase shares of common stock now being classified as a liability and measured at fair value, with changes in fair value each period reported in earnings in accordance with Accounting Standards Codification 815-40, Derivatives and Hedging: Contracts in Entity’s Own Equity, which affected Net income and fully diluted shares outstanding.
(3) Adjusted Diluted Earnings Per Share is a non-GAAP financial measure. The Company excludes acquisition related costs, such as business transaction costs, integration expense and depreciation and amortization expense in calculating Adjusted Diluted Earnings Per Share. Please refer to “Reconciliation of Adjusted Diluted Earnings Per Share” in this press release for an explanation and reconciliation of this non-GAAP financial measure.
(4) Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA") is a non-GAAP financial measure. Please refer to “Reconciliation of Adjusted EBITDA” in this press release for an explanation and reconciliation of this non-GAAP financial measure.
(5) Net Debt to Adjusted EBITDA is a non-GAAP financial measure. Please refer to “Reconciliation of Net Debt to Adjusted EBITDA” in this press release for an explanation and reconciliation of this non-GAAP financial measure.
(6) The Company does not provide a forward-looking reconciliation of Adjusted Diluted Earnings Per Share to Earnings Per Share or Adjusted EBITDA to Net Income, the most directly comparable GAAP financial measures, expected for 2021, because we are unable to provide such a reconciliation without unreasonable effort due to the unavailability of reliable estimates for certain components of consolidated net income and the respective reconciliations, including the timing of and amount of integration costs and restructuring charges associated with the Quest acquisition, and the inherent difficulty of predicting what the changes in these components will be throughout the fiscal year. As these items may vary greatly between periods, we are unable to address the probable significance of the unavailable information, which could significantly affect our future financial results.
Conference Call and Webcast Information
The Company will host a conference call with members of the executive management team to discuss these results today,
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. A telephone replay will be available approximately two hours after the call concludes and will be available through
About
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”, “intends” or other similar words, phrases or expressions. These forward-looking statements include the expected effects from the COVID-19 outbreak, statements regarding the integration of Quest, future plans for the Company, the estimated or anticipated future results and benefits of the Company’s future plans and operations, future capital structure, 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 the effect of the COVID-19 outbreak on the Company's business, suppliers (including its contract manufacturing and logistics suppliers), customers, consumers and employees along with disruptions or inefficiencies in the supply chain resulting from any effects of the COVID-19 outbreak; achieving the anticipated benefits of the Quest acquisition; difficulties and delays in achieving the synergies and cost savings in connection with the Quest acquisition; changes in the business environment in which the Company operates including general financial, economic, capital market, regulatory and political conditions affecting the Company and 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; 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 or Quest’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
Investor Contact
Vice President, Investor Relations,
(720) 768-2681
mpogharian@simplygoodfoodsco.com
Condensed Consolidated Balance Sheets
(Unaudited, dollars in thousands, except share data)
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 90,173 | $ | 95,847 | ||||
| Accounts receivable, net | 118,373 | 89,740 | ||||||
| Inventories | 78,579 | 59,085 | ||||||
| Prepaid expenses | 4,895 | 3,644 | ||||||
| Other current assets | 17,601 | 11,947 | ||||||
| Total current assets | 309,621 | 260,263 | ||||||
| Long-term assets: | ||||||||
| Property and equipment, net | 13,377 | 11,850 | ||||||
| Intangible assets, net | 1,142,199 | 1,158,768 | ||||||
| 543,134 | 544,774 | |||||||
| Other long-term assets | 30,792 | 32,790 | ||||||
| Total assets | $ | 2,039,123 | $ | 2,008,445 | ||||
| Liabilities and stockholders’ equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 46,788 | $ | 32,240 | ||||
| Accrued interest | 334 | 960 | ||||||
| Accrued expenses and other current liabilities | 50,556 | 38,007 | ||||||
| Current maturities of long-term debt | 282 | 271 | ||||||
| Total current liabilities | 97,960 | 71,478 | ||||||
| Long-term liabilities: | ||||||||
| Long-term debt, less current maturities | 500,154 | 596,879 | ||||||
| Deferred income taxes | 98,100 | 84,352 | ||||||
| Warrant liability | 154,352 | 93,638 | ||||||
| Other long-term liabilities | 20,151 | 22,765 | ||||||
| Total liabilities | 870,717 | 869,112 | ||||||
| See commitments and contingencies (Note 10) | ||||||||
| Stockholders’ equity: | ||||||||
| Preferred stock, |
— | — | ||||||
| Common stock, issued at |
959 | 958 | ||||||
| (2,145 | ) | (2,145 | ) | |||||
| Additional paid-in-capital | 1,082,617 | 1,076,472 | ||||||
| Retained earnings | 87,561 | 64,927 | ||||||
| Accumulated other comprehensive loss | (586 | ) | (879 | ) | ||||
| Total stockholders’ equity | 1,168,406 | 1,139,333 | ||||||
| Total liabilities and stockholders’ equity | $ | 2,039,123 | $ | 2,008,445 | ||||
Condensed Consolidated Statements of Operations and Comprehensive Income
(Unaudited, dollars in thousands, except share data)
| Thirteen Weeks Ended | Thirty-Nine Weeks Ended | |||||||||||||||
| Net sales | $ | 284,001 | $ | 215,101 | $ | 745,760 | $ | 594,355 | ||||||||
| Cost of goods sold | 162,998 | 126,475 | 440,451 | 358,129 | ||||||||||||
| Gross profit | 121,003 | 88,626 | 305,309 | 236,226 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Selling and marketing | 30,826 | 24,510 | 82,171 | 69,985 | ||||||||||||
| General and administrative | 25,668 | 28,713 | 77,645 | 74,961 | ||||||||||||
| Depreciation and amortization | 4,187 | 4,248 | 12,643 | 10,988 | ||||||||||||
| Business transaction costs | — | 47 | — | 26,900 | ||||||||||||
| Total operating expenses | 60,681 | 57,518 | 172,459 | 182,834 | ||||||||||||
| Income from operations | 60,322 | 31,108 | 132,850 | 53,392 | ||||||||||||
| Other income (expense): | ||||||||||||||||
| Interest income | 1 | 29 | 4 | 1,493 | ||||||||||||
| Interest expense | (7,985 | ) | (8,324 | ) | (24,352 | ) | (23,882 | ) | ||||||||
| (Loss) gain in fair value change of warrant liability | (35,833 | ) | 31,703 | (60,714 | ) | 82,655 | ||||||||||
| Gain on legal settlement | 5,000 | — | 5,000 | — | ||||||||||||
| (Loss) gain on foreign currency transactions | (272 | ) | (418 | ) | 712 | (596 | ) | |||||||||
| Other income | 70 | 59 | 229 | 104 | ||||||||||||
| Total other (expense) income | (39,019 | ) | 23,049 | (79,121 | ) | 59,774 | ||||||||||
| Income before income taxes | 21,303 | 54,157 | 53,729 | 113,166 | ||||||||||||
| Income tax expense | 15,408 | 6,045 | 31,095 | 8,238 | ||||||||||||
| Net income | $ | 5,895 | $ | 48,112 | $ | 22,634 | $ | 104,928 | ||||||||
| Other comprehensive income: | ||||||||||||||||
| Foreign currency translation adjustments | 95 | 61 | 293 | (80 | ) | |||||||||||
| Comprehensive income | $ | 5,990 | $ | 48,173 | $ | 22,927 | $ | 104,848 | ||||||||
| Earnings per share from net income: | ||||||||||||||||
| Basic | $ | 0.06 | $ | 0.50 | $ | 0.24 | $ | 1.12 | ||||||||
| Diluted | $ | 0.06 | $ | 0.17 | $ | 0.23 | $ | 0.23 | ||||||||
| Weighted average shares outstanding: | ||||||||||||||||
| Basic | 95,767,629 | 95,378,495 | 95,730,581 | 93,475,539 | ||||||||||||
| Diluted | 97,589,656 | 98,322,316 | 97,197,180 | 97,812,342 | ||||||||||||
Condensed Consolidated Statements of Cash Flows
(Unaudited, dollars in thousands)
| Thirty-Nine Weeks Ended | ||||||||
| Operating activities | ||||||||
| Net income | $ | 22,634 | $ | 104,928 | ||||
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||||||
| Depreciation and amortization | 13,508 | 11,607 | ||||||
| Amortization of deferred financing costs and debt discount | 3,449 | 2,312 | ||||||
| Stock compensation expense | 5,766 | 5,945 | ||||||
| Loss (gain) in fair value change of warrant liability | 60,714 | (82,655 | ) | |||||
| Unrealized (gain) loss on foreign currency transactions | (712 | ) | 596 | |||||
| Deferred income taxes | 13,670 | 8,055 | ||||||
| Amortization of operating lease right-of-use asset | 3,385 | 2,702 | ||||||
| Loss on operating lease right-of-use asset impairment | 686 | — | ||||||
| Gain on lease termination | (156 | ) | — | |||||
| Other | 769 | 229 | ||||||
| Changes in operating assets and liabilities, net of acquisition: | ||||||||
| Accounts receivable, net | (28,737 | ) | 6,407 | |||||
| Inventories | (20,318 | ) | (2,636 | ) | ||||
| Prepaid expenses | (1,189 | ) | (351 | ) | ||||
| Other current assets | (5,376 | ) | (7,865 | ) | ||||
| Accounts payable | 13,380 | (11,561 | ) | |||||
| Accrued interest | (626 | ) | (406 | ) | ||||
| Accrued expenses and other current liabilities | 12,745 | (10,496 | ) | |||||
| Other assets and liabilities | (2,104 | ) | (2,711 | ) | ||||
| Net cash provided by operating activities | 91,488 | 24,100 | ||||||
| Investing activities | ||||||||
| Purchases of property and equipment | (3,232 | ) | (766 | ) | ||||
| Issuance of note receivable | — | (1,250 | ) | |||||
| Acquisition of business, net of cash acquired | — | (982,084 | ) | |||||
| Proceeds from sale of business | 5,800 | — | ||||||
| Investments in intangible assets | (114 | ) | (206 | ) | ||||
| Net cash provided by (used in) investing activities | 2,454 | (984,306 | ) | |||||
| Financing activities | ||||||||
| Proceeds from option exercises | 700 | 931 | ||||||
| Tax payments related to issuance of restricted stock units | (320 | ) | (84 | ) | ||||
| Payments on finance lease obligations | (269 | ) | (272 | ) | ||||
| Principal payments of long-term debt | (100,000 | ) | (21,000 | ) | ||||
| Proceeds from issuance of common stock | — | 352,542 | ||||||
| Equity issuance costs | — | (3,323 | ) | |||||
| Proceeds from issuance of long-term debt | — | 460,000 | ||||||
| Proceeds from Revolving Credit Facility | — | 25,000 | ||||||
| Deferred financing costs | — | (8,208 | ) | |||||
| Net cash (used in) provided by financing activities | (99,889 | ) | 805,586 | |||||
| Cash and cash equivalents | ||||||||
| Net decrease in cash | (5,947 | ) | (154,620 | ) | ||||
| Effect of exchange rate on cash | 273 | (587 | ) | |||||
| Cash at beginning of period | 95,847 | 266,341 | ||||||
| Cash and cash equivalents at end of period | $ | 90,173 | $ | 111,134 | ||||
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).
The following unaudited tables below provide a reconciliation of Adjusted EBITDA to its most directly comparable GAAP measure, which is net income, for the thirteen and thirty-nine weeks ended
| (In thousands) | Thirteen Weeks Ended | Thirty-Nine Weeks Ended | ||||||||||||||
| Net income | $ | 5,895 | $ | 48,112 | $ | 22,634 | $ | 104,928 | ||||||||
| Interest income | (1 | ) | (29 | ) | (4 | ) | (1,493 | ) | ||||||||
| Interest expense | 7,985 | 8,324 | 24,352 | 23,882 | ||||||||||||
| Income tax expense | 15,408 | 6,045 | 31,095 | 8,238 | ||||||||||||
| Depreciation and amortization | 4,487 | 4,488 | 13,508 | 11,607 | ||||||||||||
| EBITDA | 33,774 | 66,940 | 91,585 | 147,162 | ||||||||||||
| Business transaction costs | — | 47 | — | 26,900 | ||||||||||||
| Stock-based compensation expense | 2,172 | 2,150 | 5,766 | 5,945 | ||||||||||||
| Inventory step-up | — | — | — | 7,522 | ||||||||||||
| Integration of Quest | 244 | 4,094 | 2,458 | 9,435 | ||||||||||||
| Restructuring | 206 | 1,386 | 3,992 | 1,386 | ||||||||||||
| Non-core legal costs | — | 48 | — | 603 | ||||||||||||
| Loss (gain) in fair value change of warrant liability | 35,833 | (31,703 | ) | 60,714 | (82,655 | ) | ||||||||||
| Gain on legal settlement | (5,000 | ) | — | (5,000 | ) | — | ||||||||||
| Other (1) | 230 | 401 | (715 | ) | 591 | |||||||||||
| Adjusted EBITDA | $ | 67,459 | $ | 43,363 | $ | 158,800 | $ | 116,889 | ||||||||
(1) Other items consist principally of exchange impact of foreign currency transactions and other expenses.
Reconciliation of Adjusted Diluted Earnings Per Share
Adjusted Diluted Earnings per Share. Adjusted Diluted Earnings per Share is a non-GAAP financial measure commonly used in our industry and should not be construed as an alternative to diluted earnings per share as an indicator of operating performance.
The following unaudited tables below provide a reconciliation of Adjusted Diluted Earnings Per Share to its most directly comparable GAAP measure, which is diluted earnings per share, for the thirteen and thirty-nine weeks ended
| Thirteen Weeks Ended | Thirty-Nine Weeks Ended | |||||||||||||||
| Diluted earnings per share | $ | 0.06 | $ | 0.17 | $ | 0.23 | $ | 0.23 | ||||||||
| Depreciation and amortization | 0.05 | 0.05 | 0.14 | 0.12 | ||||||||||||
| Business transaction costs | — | — | — | 0.27 | ||||||||||||
| Stock-based compensation expense | 0.02 | 0.02 | 0.06 | 0.06 | ||||||||||||
| Inventory step-up | — | — | — | 0.08 | ||||||||||||
| Integration of Quest | — | 0.04 | 0.03 | 0.10 | ||||||||||||
| Restructuring | — | 0.01 | 0.04 | 0.01 | ||||||||||||
| Non-core legal costs | — | — | — | 0.01 | ||||||||||||
| Gain on legal settlement | (0.05 | ) | (0.05 | ) | — | |||||||||||
| Other (1) | — | — | (0.01 | ) | — | |||||||||||
| Tax effects of adjustments (2) | (0.01 | ) | (0.03 | ) | (0.06 | ) | (0.17 | ) | ||||||||
| Loss in fair value change of warrant liability(3) | 0.37 | — | 0.62 | — | ||||||||||||
| Dilution impact from adjustments(3, 4) | (0.02 | ) | — | (0.04 | ) | — | ||||||||||
| Rounding (4) | 0.01 | — | 0.01 | — | ||||||||||||
| Adjusted diluted earnings per share | $ | 0.43 | $ | 0.26 | $ | 0.97 | $ | 0.71 | ||||||||
(1) Other items consist principally of exchange impact of foreign currency transactions and other expenses.
(2) This line item reflects the aggregate tax effect of all non-tax adjustments reflected in the preceding line items of the table. The tax effect of each adjustment is computed (i) by dividing the gross amount of the adjustment, as shown in the Adjusted EBITDA reconciliation, by the number of diluted weighted average shares outstanding for the applicable fiscal period and (ii) applying an overall assumed statutory tax rate of 27% for the thirteen and thirty-nine weeks ended
(3) Diluted earnings per share includes the fair value loss and related exclusion of anti-dilutive shares related to the Private Warrants in accordance with GAAP. With respect to the Company's non-GAAP measure, the non-cash fair value loss is reversed. The fair value adjustments are a permanent tax difference and do not effect tax expense. Note, mark to market gain adjustments are already excluded from the numerator, and dilutive shares are included, in calculating diluted earnings per share in accordance with GAAP.
(4) As noted above, the Company excludes the non-cash fair value loss related to its private warrant liabilities. The Company subsequently considers the dilutive share count effect of such adjustment such that the shares excluded in accordance with GAAP are included in this non-GAAP measure.
(5) Adjusted Diluted Earnings Per Share amounts are computed independently for each quarter. Therefore, the sum of the quarterly Adjusted Diluted Earnings Per Share amounts may not equal the year to date Adjusted Diluted Earnings Per Share amounts due to rounding.
Reconciliation of Net Debt to Adjusted EBITDA
Net Debt to Adjusted EBITDA. Net Debt to Adjusted EBITDA is a non-GAAP financial measure which
The following unaudited table below provides a reconciliation of Net Debt to Adjusted EBITDA as of
| (In thousands) | ||||
| Net Debt: | ||||
| Total debt outstanding under the Credit Agreement | $ | 506,500 | ||
| Less: cash and cash equivalents | (90,173 | ) | ||
| Net Debt as of |
$ | 416,327 | ||
| Trailing twelve months Adjusted EBITDA: | ||||
| Add: Adjusted EBITDA for the thirty-nine weeks ended |
$ | 158,800 | ||
| Add: Adjusted EBITDA for the fiscal year ended |
153,912 | |||
| Less: Adjusted EBITDA for the thirty-nine weeks ended |
(116,889 | ) | ||
| Trailing twelve months Adjusted EBITDA as of |
$ | 195,823 | ||
| Net Debt to Adjusted EBITDA | 2.1 | x | ||
Source: Simply Good Foods USA, Inc.