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The Simply Good Foods Company Reports Second Quarter 2018 Financial Results
Denver, CO, April 10, 2018 - The Simply Good Foods Company (NASDAQ: SMPL, SMPL.W) (“Simply Good Foods,” or the “Company”), a developer, marketer and seller of branded nutritional foods and snacking products, today reported financial results for the thirteen and twenty-six week periods ended February 24, 2018.
“I’m pleased with our fiscal second-quarter results as we continued to build on our marketplace momentum, which resulted in a net sales increase of 6.9%, gross margin expansion and solid operating profit growth,” said Joseph E. Scalzo, President and Chief Executive Officer of The Simply Good Foods Company. “Retail takeaway performance continues to be strong and increased 4.7% and 5.1% for the thirteen and twenty-six weeks ended February 24, 2018. While early, fiscal third-quarter marketplace performance is off to a good start giving us confidence in our growth initiatives to create value for our shareholders.”
Results for the Successor Period for the Thirteen Weeks Ended February 24, 2018, and Predecessor Period for the Thirteen Weeks Ended February 25, 2017(1) 
Successor net sales were $109.3 million and Predecessor net sales were $102.3 million
Successor income tax benefit was $26.8 million and Predecessor income tax expense was $2.1 million
Successor net income was $41.4 million and Predecessor net income was $3.5 million
In order to present comparable financial information, the Company has also presented supplemental unaudited pro forma financial information for the thirteen weeks ended February 25, 2017, giving effect to the business combination (the “Business Combination”) with Conyers Park Acquisition Corp. (“Conyers Park”) and NCP-ATK Holdings, Inc. (“Atkins”) as if it had occurred on August 28, 2016. All references in this press release section to results for the second quarter ended February 25, 2017, refer to such unaudited pro forma results. The Company believes this pro forma information provides helpful supplemental information with respect to the performance of Simply Good Foods, and particularly the Atkins business, during this period.
Second Quarter 2018 Financial Highlights vs. Second Quarter 2017 Pro-Forma
Net sales increased 6.9%, or $7.0 million, to $109.3 million
Gross profit margin of 46.0%, an increase of 50 basis points
Net income increased to $41.4 million, an increase of $35.0 million, benefiting from changes to tax rates and other one-time gains
Earnings per diluted share (“EPS”) of $0.56, an increase of $0.47 per fully diluted share
Adjusted EBITDA(2) increased 3.9%, to $18.8 million.
(All comparisons above are with respect to the Predecessor's pro forma thirteen week period ended February 25, 2017)



________________________________________
(1) On July 7, 2017, the Company completed the Business Combination between Atkins and Conyers Park, and as a result of the Business Combination, both Conyers Park and Atkins became wholly-owned subsidiaries of Simply Good Foods. Pursuant to GAAP and SEC requirements and the application of acquisition accounting, the Company's consolidated financial results are presented: (i) as of and for the thirteen weeks ended February 24, 2018 (Successor); and (ii) as of and for the thirteen weeks ended February 25, 2017 (Predecessor). All references to “Successor” refers to Simply Good Foods, and all references to “Predecessor” refers to Atkins prior to the Business Combination.
(2) Adjusted EBITDA is a non-GAAP financial measure. Please refer to “Non-GAAP Financial Measure and Related Information” and “Reconciliation of Adjusted EBITDA” in this press release for an explanation and reconciliations of this non-GAAP financial measure.

1



Net sales increased $7.0 million, or 6.9%, to $109.3 million driven by organic sales growth of 5.8%, and the acquisition of Wellness Foods, Inc., and its Simply Protein brand, which added a 1.1% increase to net sales.
Gross profit was $50.3 million for the second quarter of 2018, an increase of $3.7 million or 7.9%. Gross profit margin was 46.0% compared to 45.5% for the pro forma thirteen weeks ended February 25, 2017 due to a reduction in supply chain costs.
Net income increased $35.0 million, to $41.4 million primarily due to a one-time gain related to the re-measurement of deferred tax liabilities of $29.0 million, a $4.7 million gain in the fair value of the Tax Receivable Agreement, as well as improvement in gross profit. This was partially offset by slightly higher distribution costs and $1.9 million in business transaction costs related to the secondary offering in February and acquisition due diligence costs. Additionally, as planned, selling expense increased driven by higher levels of in-store advertising and on-line marketing investment, and a 5.0% increase in general and administrative expenses as a result of public company costs.
Adjusted EBITDA, a non-GAAP financial measure used by the Company that makes certain adjustments to net income calculated under GAAP, increased 3.9% to $18.8 million.
(All comparisons above are with respect to the Predecessor's pro forma thirteen week period ended February 25, 2017)

Results for the Successor Period for the Twenty-Six Weeks Ended February 24, 2018, and Predecessor Period for the Twenty-Six Weeks Ended February 25, 2017(3) 
Successor net sales were $215.9 million and Predecessor net sales were $202.1 million
Successor income tax benefit was $20.3 million and Predecessor income tax expense was $7.0 million
Successor net income was $51.6 million and Predecessor net income was $10.3 million
In order to present comparable financial information, the Company has also presented supplemental unaudited pro forma financial information for the twenty-six weeks ended February 25, 2017, giving effect to the business combination (the “Business Combination”) with Conyers Park Acquisition Corp. (“Conyers Park”) and NCP-ATK Holdings, Inc. (“Atkins”) as if it had occurred on August 28, 2016. All references in this press release section to results for the twenty-six weeks ended February 25, 2017, refer to such unaudited pro forma results. The Company believes this pro forma information provides helpful supplemental information with respect to the performance of Simply Good Foods, and particularly the Atkins business, during this period.
Year-to-Date Second Quarter 2018 Financial Highlights vs. Year-to-Date Second Quarter 2017 Pro-Forma
Net sales increased 6.8%, or $13.8 million, to $215.9 million
Gross profit margin of 47.7%, an increase of 60 basis points
Net income increased to $51.6 million, an increase of $36.1 million, benefiting from changes to tax rates and other one-time gains
Earnings per diluted share (“EPS”) of $0.71, an increase of $0.50 per fully diluted share
Adjusted EBITDA increased 5.3%, to $42.5 million.
(All comparisons above are with respect to the Predecessor's pro forma twenty-six week second quarter ended February 25, 2017)


________________________________________
(3) On July 7, 2017, the Company completed the Business Combination between Atkins and Conyers Park, and as a result of the Business Combination, both Conyers Park and Atkins became wholly-owned subsidiaries of Simply Good Foods. Pursuant to GAAP and SEC requirements and the application of acquisition accounting, the Company's consolidated financial results are presented: (i) as of and for the twenty-six weeks ended February 24, 2018 (Successor); and (ii) as of and for the twenty-six weeks ended February 25, 2017 (Predecessor). All references to “Successor” refers to Simply Good Foods, and all references to “Predecessor” refers to Atkins prior to the Business Combination.

2



Net sales increased $13.8 million, or 6.8%, to $215.9 million driven by organic sales growth of 4.9%, and the acquisition of Wellness Foods, Inc., and its Simply Protein brand, which added a 1.9% increase to net sales.
Gross profit was $103.0 million for the twenty-six weeks ended February 24, 2018, an increase of $7.7 million or 8.1%. Gross profit margin was 47.7% compared to 47.1% for the pro forma thirteen weeks ended February 25, 2017 due to a reduction in supply chain costs and favorable product mix.
Net income increased $36.1 million to $51.6 million primarily due to a one-time gain related to the re-measurement of deferred tax liabilities of $29.0 million, a $4.7 million gain in the fair value of the Tax Receivable Agreement, as well as improvement in gross profit. This was partially offset by slightly higher distribution costs and $1.9 million in business transaction costs related to the secondary offering in February and acquisition due diligence costs, a 7.3% increase in selling expense, and a 10.8% increase in general and administrative expenses as a result of public company costs and the addition of Wellness Foods acquired in December 2016.
Adjusted EBITDA, a non-GAAP financial measure used by the Company that makes certain adjustments to net income calculated under GAAP, increased 5.3% to $42.5 million.
(All comparisons above are with respect to the Predecessor's pro forma twenty-six week period ended February 25, 2017)
Balance Sheet and Cash Flow
As of February 24, 2018, the Company had cash and cash equivalents of $79.0 million and $199.5 million in outstanding principal of the term loan, resulting in a trailing twelve month pro forma combined Net Debt to Adjusted EBITDA ratio of 1.6x. The Company also has a $75.0 million revolving line of credit available for borrowing which is not currently being utilized, with no borrowings outstanding as of February 24, 2018.
Tax Cuts and Jobs Act
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) was signed into law. The change in the tax law is partially effective in our current 2018 fiscal year and will be fully effective in our 2019 fiscal year. The Tax Act, among other things, reduces the top U.S. federal corporate tax rate from 35% to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred, and creates new taxes on certain foreign sourced earnings.

Due to the complexities involved in accounting for the Tax Act, the U.S. Securities and Exchange Commission's Staff Accounting Bulletin ("SAB") 118 requires that the Company include in its financial statements the reasonable estimate of the impact of the Tax Act on earnings to the extent such reasonable estimate has been determined. The Company is allowed a measurement period of up to one year after the enactment date to finalize the recording of the related tax impacts. As of February 24, 2018, we have not completed our accounting for the tax effects of enactment of the Tax Act; however, as described below, we have made a reasonable estimate of the effects on our existing deferred tax balances and the one-time transition tax. In other cases, we have not been able to make a reasonable estimate and continue to account for those items based on our existing accounting under ASC 740, Income Taxes, and the provisions of the tax laws that were in effect immediately prior to enactment. For the items for which we were able to determine a reasonable estimate, we recognized a provisional gain of $29.0 million, which is included as a component of Income tax (benefit) expense in the accompanying Condensed Consolidated Statements of Operations and Comprehensive Income. While our Tax Act assessment is provisional, we do not anticipate material changes.

The Tax Act reduces the corporate federal tax rate to 21%, effective January 1, 2018. As of February 24, 2018, we have recorded a provisional decrease to our deferred tax liabilities, with a corresponding net adjustment to deferred income tax benefit of $29.0 million. While we are able to make a reasonable estimate of the impact of the reduction in corporate rate, it may be affected by other analyses related to the Tax Act, including, but not limited to, our calculation of deemed repatriation of deferred foreign income and the state tax effect of adjustments made to federal temporary differences.


3



Outlook
Simply Good Foods reaffirms its net sales outlook for fiscal year 2018, and expects it to increase within its previously stated long-term target of 4% to 6% growth. The recently passed Tax Act will have a favorable impact on net income, earnings per share-diluted and cash flow. The Company will re-invest a portion of this benefit in:
Incremental strategic investments in marketing and brand building initiatives to drive growth that will enable the Company to finish the year strong and ensure marketplace momentum continues into fiscal 2019;
Investment in organizational capabilities in key functions and process that positions the Company for further growth and future compliance requirements; and
A $1,000 bonus for all employees below the director level.
Combined with the previously mentioned public company expense of $2.0 million, the Company expects Adjusted EBITDA growth rate to be slightly lower than net sales growth rate in fiscal 2018.

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, April 10, 2018 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, April 24, 2018, by dialing 844-512-2921 from the U.S., or 412-317-6671 from international locations, and entering confirmation code 13677712.

About The Simply Good Foods Company
The Simply Good Foods Company is the company created by the business combination of Conyers Park Acquisition Corp., with executive founders Jim Kilts and Dave West, long-time business leaders in the consumer products sector, and NCP-ATK Holdings, Inc. Today, our highly-focused product portfolio consists primarily of nutrition bars, ready-to-drink shakes, snacks and confectionery products marketed under the Atkins®, SimplyProtein®, Atkins Endulge®, and Atkins Harvest Trail brand names. Simply Good Foods will look to expand its platform through 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 https://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 availability of or competition for other brands, assets or other opportunities for investment by the Company or to expand the Company’s business; 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.

4



Non-GAAP Financial Measure and Related Information
This communication includes Adjusted EBITDA, a financial measure that is not prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The Company defines Adjusted EBITDA as net income (loss) before interest expense, income tax expense, depreciation and amortization with further adjustments to exclude the following items: stock-based compensation and warrant expense, transaction costs and IPO readiness costs, restructuring costs, management fees, frozen media licensing fees, transactional exchange impact, change in fair value of contingent consideration - TRA liability, business transaction costs, 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 Company's management believes that this non-GAAP measure of financial results provides useful information to management and investors regarding certain financial and business trends relating to the Company's financial condition and results of operations. You should review the reconciliation of the Company's non-GAAP financial measures to the comparable GAAP financial measures which are included in this press release, and not rely on any single financial measure to evaluate the business.

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

Katie Turner/ Rachel Perkins
ICR
646-277-1228
Katie.turner@icrinc.com
Rachel.perkins@icrinc.com





5



The Simply Good Foods Company and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited, dollars in thousands, except share data)
 
February 24, 2018
 
 
August 26, 2017
Assets
(Successor)
 
 
(Successor)
Current assets:
 
 
 
 
Cash and cash equivalents
$
79,010

 
 
$
56,501

Accounts receivable, net
41,355

 
 
37,181

Inventories
25,813

 
 
29,062

Prepaid expenses
4,025

 
 
2,904

Other current assets
11,294

 
 
8,263

Total current assets
161,497

 
 
133,911


 
 
 
 
Long-term assets:
 
 
 
 
Property and equipment, net
2,289

 
 
2,105

Intangible assets, net
315,896

 
 
319,148

Goodwill
471,427

 
 
465,030

Other long-term assets
2,294

 
 
2,294

Total assets
$
953,403

 
 
$
922,488


 
 
 
 
Liabilities and stockholders' equity
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable
$
12,322

 
 
$
14,859

Accrued interest
547

 
 
561

Accrued expenses and other current liabilities
16,779

 
 
15,042

Current portion of TRA liability
3,017

 
 
2,548

Current maturities of long-term debt
714

 
 
234

Total current liabilities
33,379

 
 
33,244


 
 
 
 
Long-term liabilities:
 
 
 
 
Long-term debt, less current maturities
191,522

 
 
191,856

Long-term portion of TRA liability
24,273

 
 
23,127

Deferred income taxes
52,517

 
 
75,559

Total liabilities
301,691

 
 
323,786

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, 70,582,573 and 70,562,477 issued and outstanding, respectively
706

 
 
706

Additional paid-in-capital
612,336

 
 
610,138

Retained Earnings (accumulated deficit)
39,451

 
 
(12,161
)
Accumulated other comprehensive (loss) income
(781
)
 
 
19

Total stockholders' equity
651,712

 
 
598,702

Total liabilities and stockholders' equity
$
953,403

 
 
$
922,488



6



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
 
Twenty-Six Weeks Ended
 
February 24, 2018
 
 
February 25, 2017
 
February 24, 2018
 
 
February 25, 2017
 
(Successor)
 
 
(Predecessor)
 
(Successor)
 
 
(Predecessor)
Net sales
$
109,347

 
 
$
102,308

 
$
215,934

 
 
$
202,111

Cost of goods sold
59,090

 
 
55,735

 
112,920

 
 
106,826

Gross profit
50,257

 
 
46,573

 
103,014

 
 
95,285

 
 
 
 
 
 
 
 
 
 
Operating Expenses:
 
 
 
 
 
 
 
 
 
Distribution
5,391

 
 
4,960

 
10,208

 
 
9,329

Selling
4,975

 
 
3,978

 
8,878

 
 
8,271

Marketing
10,056

 
 
10,030

 
19,906

 
 
19,236

General and administrative
12,711

 
 
11,768

 
24,790

 
 
21,699

Depreciation and amortization
1,948

 
 
2,474

 
3,882

 
 
4,927

Business transaction costs
1,877

 
 

 
1,877

 
 

Gain in fair value change of contingent consideration - TRA liability
(3,668
)
 
 

 
(3,026
)
 
 

Other expense
184

 
 
58

 
430

 
 
58

Total operating expenses
33,474

 
 
33,268

 
66,945

 
 
63,520

 
 
 
 
 
 
 
 
 
 
Income from operations
16,783

 
 
13,305

 
36,069

 
 
31,765

 
 
 
 
 
 
 
 
 
 
Other income (expense):
 
 
 
 
 
 
 
 
 
Change in warrant liabilities

 
 
(1,119
)
 

 
 
(397
)
Interest expense
(3,093
)
 
 
(6,566
)
 
(6,112
)
 
 
(13,629
)
Gain (loss) on foreign currency transactions
601

 
 
(108
)
 
956

 
 
(718
)
Other income
312

 
 
22

 
398

 
 
199

Total other expense
(2,180
)
 
 
(7,771
)
 
(4,758
)
 
 
(14,545
)
 
 
 
 
 
 
 
 
 
 
Income before income taxes
14,603

 
 
5,534

 
31,311

 
 
17,220

Income tax (benefit) expense
(26,791
)
 
 
2,071

 
(20,301
)
 
 
6,970

Net income
$
41,394

 
 
$
3,463

 
$
51,612

 
 
$
10,250

 
 
 
 
 
 
 
 
 
 
Other comprehensive income:
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
(101
)
 
 
113

 
(800
)
 
 
416

Comprehensive income
$
41,293

 
 
$
3,576

 
$
50,812

 
 
$
10,666

 
 
 
 
 
 
 
 
 
 
Earnings per share from net income:
 
 
 
 
 
 
 
 
 
Basic
$
0.59

 
 
 
 
$
0.73

 
 
 
Diluted
$
0.56

 
 
 
 
$
0.71

 
 
 
Weighted average shares outstanding:
 
 
 
 
 
 
 
 
 
Basic
70,582,573

 
 
 
 
70,576,744

 
 
 
Diluted
73,832,207

 
 
 
 
72,605,705

 
 
 

7



The Simply Good Foods Company and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited, dollars in thousands)
 
Twenty-Six Weeks Ended
 
February 24, 2018
 
 
February 25, 2017
 
(Successor)
 
 
(Predecessor)
Operating activities
 
 
 
 
Net income
$
51,612

 
 
$
10,250

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
 
 
 
 
Depreciation and amortization
3,882

 
 
4,927

Amortization of deferred financing costs and debt discount
645

 
 
983

Stock compensation expense
1,967

 
 
1,063

Change in warrant liabilities

 
 
397

Gain in fair value change of contingent consideration - TRA liability
(3,026
)
 
 

Unrealized (gain) loss on foreign currency transactions
(956
)
 
 
718

Deferred income taxes
(23,398
)
 
 
(1,369
)
Loss on disposal of property and equipment
72

 
 

Changes in operating assets and liabilities:
 
 
 
 
Accounts receivable, net
(4,672
)
 
 
1,584

Inventories
3,284

 
 
6,474

Prepaid expenses
(909
)
 
 
(51
)
Other current assets
(2,346
)
 
 
(3,345
)
Accounts payable
(2,601
)
 
 
(6,050
)
Accrued interest
(15
)
 
 
49

Accrued expenses and other current liabilities
1,726

 
 
3,748

Other
86

 
 
9

Net cash provided by operating activities
25,351

 
 
19,387

 
 
 
 
 
Investing activities
 
 
 
 
Purchases of property and equipment
(886
)
 
 
(284
)
Acquisition of business, net of cash acquired
(1,757
)
 
 
(21,039
)
Net cash used in investing activities
(2,643
)
 
 
(21,323
)
 
 
 
 
 
Financing activities
 
 
 
 
Proceeds from option exercises

 
 
109

Cash received from warrant exercises
231

 
 

Principal payments of long-term debt
(500
)
 
 
(3,586
)
Net cash used in financing activities
(269
)
 
 
(3,477
)
Cash and cash equivalents
 
 
 
 
Net increase in cash
22,439

 
 
(5,413
)
Effect of exchange rate on cash
70

 
 
(162
)
 
 
 
 
 
Cash at beginning of period
56,501

 
 
78,492

Cash and cash equivalents at end of period
$
79,010

 
 
$
72,917



8



Supplemental Unaudited Pro Forma Combined Thirteen Week Period Ended February 25, 2017

The following unaudited pro forma financial information has been prepared from the perspective of Atkins and its thirteen week quarter ended February 25, 2017. The unaudited pro forma income statement presents the historical consolidated statement of operations of Atkins for the thirteen weeks ended February 25, 2017, giving effect to the Business Combination as if it had occurred on August 28, 2016.

The unaudited pro forma financial statements give effect to the Business Combination in accordance with the acquisition method of accounting for business combinations. The historical financial information has been adjusted to give pro forma effect to events that are related and/or directly attributable to the Business Combination, are factually supportable and are expected to have a continuing impact on the results of the combined company. The adjustments presented on the unaudited pro forma financial statements have been identified and presented to provide relevant information necessary for an accurate understanding of the combined company upon consummation of the Business Combination.

The unaudited pro forma financial information is for illustrative purposes only. The financial results may have been different if the Business Combination actually been completed sooner. You should not rely on the unaudited pro forma financial information as being indicative of the historical results that would have been achieved if the Business Combination been completed as of the beginning of fiscal 2017.

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Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the Pro Forma Thirteen Week Period Ended February 25, 2017
(In thousands)
 
 
Unaudited Historical (i)
 
 
 
Pro Forma
 
 
(Predecessor)
 
 
 
Unaudited
 
 
Thirteen Weeks Ended
 
Pro Forma Adjustments
 
Thirteen Weeks Ended
(in thousands)
 
February 25, 2017
 
 
February 25, 2017
Net sales
 
$
102,308

 
$

 
$
102,308

Cost of goods sold
 
55,735

 


55,735

Gross profit
 
46,573

 

 
46,573

 
 
 
 
 
 
 
Operating Expenses:
 
 
 
 
 
 
Distribution
 
4,960

 

 
4,960

Selling
 
3,978

 

 
3,978

Marketing
 
10,030

 

 
10,030

General and administrative
 
11,768

 
335

ii
12,103

Depreciation and amortization
 
2,474

 
(560
)
iii
1,914

Other expense
 
58

 

 
58

Total operating expenses
 
33,268

 
(225
)
 
33,043

 
 
 
 
 
 
 
Income from operations
 
13,305

 
225

 
13,530

 
 
 
 
 
 
 
Other income (expense):
 
 
 
 
 
 
Change in warrant liabilities
 
(1,119
)
 
1,119

iv

Interest expense
 
(6,566
)
 
3,709

v
(2,857
)
Gain (loss) on foreign currency transactions
 
(108
)
 

 
(108
)
Other income
 
22

 

 
22

Total other expense
 
(7,771
)
 
4,828

 
(2,943
)
 
 
 
 
 
 
 
Income before income taxes
 
5,534

 
5,053

 
10,587

Income tax (benefit) or expense
 
2,071

 
2,121

vi
4,192

Net income
 
$
3,463

 
$
2,932

 
$
6,395

 
 
 
 
 
 
 
Other Financial Data (Unaudited):
 
 
 
 
 
 
Adjusted EBITDA (vii)
 
$
18,109

 
 
 
$
18,109


i. The amounts presented represent the Predecessor’s historical GAAP results of operations.
ii. The adjustment represents the incremental stock-based compensation expense under the new Simply Good Foods omnibus incentive plan.
iii. The adjustment reflects the difference in the intangible asset amortization expense associated with the allocation of purchase price to intangible assets due to the Business Combination. The amortization expense decreased as more indefinite lived intangible assets were identified for the successor entity than the predecessor entity. The amount of amortizable intangible assets identified in the Business Combination decreased from $125.8 million to $88.0 million.
iv. Simply Good Foods warrants are not liabilities and are accounted for as equity warrants. To make the periods comparable the adjustment represents the corresponding reversal of the predecessor fair value adjustment of expense.
v. The adjustment represents the expected interest expense associated with the term loan and revolving debt facilities of Simply Good Foods. The predecessor entity had $337.2 million outstanding as of August 27, 2016 while the successor entity had $200.0 million outstanding. The long-term debt of the predecessor entity accrued interest at 6.25% on the first lien and 9.75% on the second lien while the successor debt accrues interest at 3 month LIBOR and 4%. The significant reduction in outstanding principal, and lower interest rates, drive significant expense savings.
vi. Represents the effective income tax rate of 39.6%
vii. Adjusted EBITDA is a non-GAAP financial measure. For a reconciliation to its most directly comparable GAAP measure, see “Reconciliation of Adjusted EBITDA” below.


10



Comparison of Unaudited Results for the Thirteen Week Period Ended February 24, 2018 and the Supplemental Pro Forma Thirteen Week Period Ended February 25, 2017

For comparative purposes, we are presenting an unaudited statement of operations for the thirteen week period ended February 24, 2018, compared to unaudited supplemental pro forma statement of operations for the thirteen week period ended February 25, 2017. The following table presents, for the periods indicated, selected information from our supplemented unaudited pro forma condensed consolidated financial results, including information presented as a percentage of net sales:
 
 
Historical
 
 
 Pro Forma
 
 
Successor
 
 
Predecessor
 
 
unaudited
 
 
 
 
unaudited
 
 
 
 
13-weeks ended
 
 
 
 
13-weeks ended
 
 
(in thousands)
 
February 24, 2018
 
% of sales
 
 
February 25, 2017
 
% of sales
Net sales
 
$
109,347

 
100.0
 %
 
 
$
102,308

 
100.0
 %
Cost of goods sold
 
59,090

 
54.0
 %
 
 
55,735

 
54.5
 %
Gross profit
 
50,257

 
46.0
 %
 
 
46,573

 
45.5
 %
 
 
 
 
 
 
 
 
 
 
Operating Expenses:
 
 
 
 
 
 
 
 
 
Distribution
 
5,391

 
4.9
 %
 
 
4,960

 
4.8
 %
Selling
 
4,975

 
4.5
 %
 
 
3,978

 
3.9
 %
Marketing
 
10,056

 
9.2
 %
 
 
10,030

 
9.8
 %
General and administrative
 
12,711

 
11.6
 %
 
 
12,103

 
11.8
 %
Depreciation and amortization
 
1,948

 
1.8
 %
 
 
1,914

 
1.9
 %
Business transaction costs
 
1,877

 
1.7
 %
 
 

 
 %
Gain in fair value change of contingent consideration - TRA liability
 
(3,668
)
 
(3.4
)%
 
 

 
 %
Other Expense
 
184

 
0.2
 %
 
 
58

 
0.1
 %
Total operating expenses
 
33,474

 
30.6
 %
 
 
33,043

 
32.3
 %
 
 
 
 
 
 
 
 
 
 
Income from operations
 
16,783

 
15.3
 %
 
 
13,530

 
13.2
 %
 
 
 
 
 
 
 
 
 
 
Other income (expense):
 
 
 
 
 
 
 
 
 
Changes in warrant liabilities
 

 
 %
 
 

 
 %
Interest expense
 
(3,093
)
 
(2.8
)%
 
 
(2,857
)
 
(2.8
)%
Gain (loss) on foreign currency transactions
 
601

 
0.5
 %
 
 
(108
)
 
(0.1
)%
Other income
 
312

 
0.3
 %
 
 
22

 
 %
Total other expense
 
(2,180
)
 
(2.0
)%
 
 
(2,943
)
 
(2.9
)%
 
 
 
 
 
 
 
 
 
 
Income before income taxes
 
14,603

 
13.4
 %
 
 
10,587

 
10.3
 %
Income tax (benefit) expense
 
(26,791
)
 
(24.5
)%
 
 
4,192

 
4.1
 %
Net income
 
$
41,394

 
37.9
 %
 
 
$
6,395

 
6.3
 %
 
 
 
 
 
 
 
 
 
 
Earnings per share from net income:
 
 
 
 
 
 
 
 
 
Basic
 
$
0.59

 
 
 
 
$
0.09

 
 
Diluted
 
$
0.56

 
 
 
 
$
0.09

 
 
Weighted average shares outstanding: (i)
 
 
 
 
 
 
 
 
 
Basic
 
70,582,573

 
 
 
 
70,582,573

 
 
Diluted
 
73,832,207

 
 
 
 
73,832,207

 
 

i. For comparability purposes the historical financial information has been adjusted to give pro forma effect to events that are related and/or directly attributable to the Business Combination.The Company has assumed the pro forma weighted average shares outstanding of the predecessor to be the same as the comparable period of the successor as the pro forma results of the predecessor is adjusted for the incremental difference in stock-based compensation and the treatment of the warrant liabilities. Prior to the Business Combination the predecessor had 508,219 shares of Common Stock outstanding.

11



Supplemental Unaudited Pro Forma Combined Twenty-Six Week Period Ended February 25, 2017

The following unaudited pro forma financial information has been prepared from the perspective of Atkins and for the twenty-six weeks ended February 25, 2017. The unaudited pro forma income statement presents the historical consolidated statement of operations of Atkins for the twenty-six weeks ended February 25, 2017, giving effect to the Business Combination as if it had occurred on August 28, 2016.

The unaudited pro forma financial statements give effect to the Business Combination in accordance with the acquisition method of accounting for business combinations. The historical financial information has been adjusted to give pro forma effect to events that are related and/or directly attributable to the Business Combination, are factually supportable and are expected to have a continuing impact on the results of the combined company. The adjustments presented on the unaudited pro forma financial statements have been identified and presented to provide relevant information necessary for an accurate understanding of the combined company upon consummation of the Business Combination.

The unaudited pro forma financial information is for illustrative purposes only. The financial results may have been different if the Business Combination actually been completed sooner. You should not rely on the unaudited pro forma financial information as being indicative of the historical results that would have been achieved if the Business Combination been completed as of the beginning of fiscal 2017.


12



Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the Pro Forma Twenty-Six Week Period Ended February 25, 2017
(In thousands)
 
 
Unaudited Historical (i)
 
 
 
Pro Forma
 
 
(Predecessor)
 
 
 
Unaudited
 
 
26-weeks ended
 
Pro Forma Adjustments
 
26-weeks ended
(in thousands)
 
February 25, 2017
 
 
February 25, 2017
Net sales
 
$
202,111

 
$

 
$
202,111

Cost of goods sold
 
106,826

 


106,826

Gross profit
 
95,285

 

 
95,285

 
 
 
 
 
 
 
Operating Expenses:
 
 
 
 
 
 
Distribution
 
9,329

 

 
9,329

Selling
 
8,271

 

 
8,271

Marketing
 
19,236

 

 
19,236

General and administrative
 
21,699

 
681

ii
22,380

Depreciation and amortization
 
4,927

 
(1,121
)
iii
3,806

Other expense
 
58

 

 
58

Total operating expenses
 
63,520

 
(440
)
 
63,080

 
 
 
 
 
 
 
Income from operations
 
31,765

 
440

 
32,205

 
 
 
 
 
 
 
Other income (expense):
 
 
 
 
 
 
Change in warrant liabilities
 
(397
)
 
397

iv

Interest expense
 
(13,629
)
 
7,674

v
(5,955
)
Gain (loss) on foreign currency transactions
 
(718
)
 

 
(718
)
Other income
 
199

 

 
199

Total other expense
 
(14,545
)
 
8,071

 
(6,474
)
 
 
 
 
 
 
 
Income before income taxes
 
17,220

 
8,511

 
25,731

Income tax (benefit) or expense
 
6,970

 
3,219

vi
10,189

Net income
 
$
10,250

 
$
5,292

 
$
15,542

 
 
 
 
 
 
 
Other Financial Data (Unaudited):
 
 
 
 
 
 
Adjusted EBITDA (ix)
 
$
40,360

 
 
 
$
40,360


i. The amounts presented represent the Predecessor’s historical GAAP results of operations.
ii. The adjustment represents the incremental stock-based compensation expense under the new Simply Good Foods omnibus incentive plan.
iii. The adjustment reflects the difference in the intangible asset amortization expense associated with the allocation of purchase price to intangible assets due to the Business Combination. The amortization expense decreased as more indefinite lived intangible assets were identified for the successor entity than the predecessor entity. The amount of amortizable intangible assets identified in the Business Combination decreased from $125.8 million to $88.0 million.
iv. Simply Good Foods warrants are not liabilities and are accounted for as equity warrants. To make the periods comparable the adjustment represents the corresponding reversal of the predecessor fair value adjustment of expense.
v. The adjustment represents the expected interest expense associated with the term loan and revolving debt facilities of Simply Good Foods. The predecessor entity had $337.2 million outstanding as of August 27, 2016 while the successor entity had $200.0 million outstanding. The long-term debt of the predecessor entity accrued interest at 6.25% on the first lien and 9.75% on the second lien while the successor debt accrues interest at 3 month LIBOR and 4%. The significant reduction in outstanding principal, and lower interest rates, drive significant expense savings.
vi. Represents the effective income tax rate of 39.6%
vii. Adjusted EBITDA is a non-GAAP financial measure. For a reconciliation to its most directly comparable GAAP measure, see “Reconciliation of Adjusted EBITDA” below.


13



Comparison of Unaudited Results for the Twenty-Six Week Period Ended February 24, 2018 and the Supplemental Pro Forma Twenty-Six Week Period Ended February 25, 2017

For comparative purposes, we are presenting an unaudited statement of operations for the twenty-six week period ended February 24, 2018, compared to unaudited supplemental pro forma statement of operations for the twenty-six week period ended February 25, 2017. The following table presents, for the periods indicated, selected information from our supplemented unaudited pro forma condensed consolidated financial results, including information presented as a percentage of net sales:
 
 
Historical
 
 
 Pro Forma
 
 
Successor
 
 
Predecessor
 
 
unaudited
 
 
 
 
unaudited
 
 
 
 
26-weeks ended
 
 
 
 
26-weeks ended
 
 
(in thousands)
 
February 24, 2018
 
% of sales
 
 
February 25, 2017
 
% of sales
Net sales
 
$
215,934

 
100.0
 %
 
 
$
202,111

 
100.0
 %
Cost of goods sold
 
112,920

 
52.3
 %
 
 
106,826

 
52.9
 %
Gross profit
 
103,014

 
47.7
 %
 
 
95,285

 
47.1
 %
 
 
 
 
 
 
 
 
 
 
Operating Expenses:
 
 
 
 
 
 
 
 
 
Distribution
 
10,208

 
4.7
 %
 
 
9,329

 
4.6
 %
Selling
 
8,878

 
4.1
 %
 
 
8,271

 
4.1
 %
Marketing
 
19,906

 
9.2
 %
 
 
19,236

 
9.5
 %
General and administrative
 
24,790

 
11.5
 %
 
 
22,380

 
11.1
 %
Depreciation and amortization
 
3,882

 
1.8
 %
 
 
3,806

 
1.9
 %
Business transaction costs
 
1,877

 
0.9
 %
 
 

 
 %
Gain in fair value change of contingent consideration - TRA liability
 
(3,026
)
 
(1.4
)%
 
 

 
 %
Other Expense
 
430

 
0.2
 %
 
 
58

 
 %
Total operating expenses
 
66,945

 
31.0
 %
 
 
63,080

 
31.2
 %
 
 
 
 
 
 
 
 
 
 
Income from operations
 
36,069

 
16.7
 %
 
 
32,205

 
15.9
 %
 
 
 
 
 
 
 
 
 
 
Other income (expense):
 
 
 
 
 
 
 
 
 
Changes in warrant liabilities
 

 
 %
 
 

 
 %
Interest expense
 
(6,112
)
 
(2.8
)%
 
 
(5,955
)
 
(2.9
)%
Gain (loss) on foreign currency transactions
 
956

 
0.4
 %
 
 
(718
)
 
(0.4
)%
Other income
 
398

 
0.2
 %
 
 
199

 
0.1
 %
Total other expense
 
(4,758
)
 
(2.2
)%
 
 
(6,474
)
 
(3.2
)%
 
 
 
 
 
 
 
 
 
 
Income before income taxes
 
31,311

 
14.5
 %
 
 
25,731

 
12.7
 %
Income tax (benefit) expense
 
(20,301
)
 
(9.4
)%
 
 
10,189

 
5.0
 %
Net income
 
$
51,612

 
23.9
 %
 
 
$
15,542

 
7.7
 %
 
 
 
 
 
 
 
 
 
 
Earnings per share from net income:
 
 
 
 
 
 
 
 
 
Basic
 
$
0.73

 
 
 
 
$
0.22

 
 
Diluted
 
$
0.71

 
 
 
 
$
0.21

 
 
Weighted average shares outstanding: (i)
 
 
 
 
 
 
 
 
 
Basic
 
70,576,744

 
 
 
 
70,576,744

 
 
Diluted
 
72,605,705

 
 
 
 
72,605,705

 
 
i. For comparability purposes the historical financial information has been adjusted to give pro forma effect to events that are related and/or directly attributable to the Business Combination.The Company has assumed the pro forma weighted average shares outstanding of the predecessor to be the same as the comparable period of the successor as the pro forma results of the predecessor is adjusted for the incremental difference in stock-based compensation and the treatment of the warrant liabilities. Prior to the Business Combination the predecessor had 508,219 shares of Common Stock outstanding.

14




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 (loss) before interest expense, income tax expense, depreciation and amortization with further adjustments to exclude the following items: stock-based compensation and warrant expense, transaction costs and IPO readiness costs, restructuring costs, management fees, frozen media licensing fees, transactional exchange impact, change in fair value of contingent consideration - TRA liability, business transaction costs, 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 tables below provides a reconciliation of Adjusted EBITDA to its most directly comparable GAAP measure, which is net income (loss), for the thirteen week periods ended February 24, 2018 (Successor), February 25, 2017 (Predecessor), and pro forma period ended February 25, 2017.
Adjusted EBITDA Reconciliation:
(in thousands)
Thirteen Weeks Ended
 
 
Thirteen Weeks Ended
 
Thirteen Weeks Ended
February 24, 2018
 
 
February 25, 2017
 
February 25, 2017
(Successor)
 
 
(Predecessor)
 
(Pro Forma)
Net income
$
41,394

 
 
$
3,463

 
$
6,395

Interest
3,093

 
 
6,566

 
2,857

Taxes Expense (Gain)
(26,791
)
 
 
2,071

 
4,192

Depreciation/Amortization
1,948

 
 
2,474

 
1,914

EBITDA
19,644

 
 
14,574

 
15,358

Business transaction costs
1,877

 
 

 

Stock-based compensation and warrant expense
899

 
 
1,656

 
872

Transaction Fees / IPO Readiness

 
 
548

 
548

Restructuring
184

 
 
57

 
57

Roark Management Fee

 
 
551

 
551

Frozen Licensing Media
62

 
 
335

 
335

Non-core legal costs
403

 
 
272

 
272

Gain in fair value change of contingent consideration - TRA liability
(3,668
)
 
 

 

Other (1)
(594
)
 
 
116

 
116

Adjusted EBITDA
$
18,807

 
 
$
18,109

 
$
18,109

_____________________
(1) Other items consist principally of exchange impact of foreign currency transactions as well as minor impacts of channel inventory returns

15



The following unaudited tables below provides a reconciliation of Adjusted EBITDA to its most directly comparable GAAP measure, which is net income (loss), for the twenty-six week periods ended February 24, 2018 (Successor), February 25, 2017 (Predecessor), and pro forma period ended February 25, 2017.
Adjusted EBITDA Reconciliation:
(in thousands)
Twenty-Six Weeks Ended
 
 
Twenty-Six Weeks Ended
 
Twenty-Six Weeks Ended
February 24, 2018
 
 
February 25, 2017
 
February 25, 2017
(Successor)
 
 
(Predecessor)
 
(Pro Forma)
Net income
$
51,612

 
 
$
10,250

 
$
15,542

Interest
6,112

 
 
13,629

 
5,955

Taxes Expense (Gain)
(20,301
)
 
 
6,970

 
10,189

Depreciation/Amortization
3,882

 
 
4,927

 
3,806

EBITDA
41,305

 
 
35,776

 
35,492

Business transaction costs
1,877

 
 

 

Stock-based compensation and warrant expense
1,967

 
 
1,460

 
1,744

Transaction Fees / IPO Readiness

 
 
556

 
556

Restructuring
430

 
 
57

 
57

Roark Management Fee

 
 
981

 
981

Frozen Licensing Media
125

 
 
335

 
335

Non-core legal costs
779

 
 
455

 
455

Gain in fair value change of contingent consideration - TRA liability
(3,026
)
 
 

 

Other (1)
(940
)
 
 
740

 
740

Adjusted EBITDA
$
42,517

 
 
$
40,360

 
$
40,360

_____________________
(1) Other items consist principally of exchange impact of foreign currency transactions as well as minor impacts of channel inventory returns


16

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