sgflogotm.jpg
The Simply Good Foods Company Reports Third Quarter 2018 Financial Results
Denver, CO, July 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 week and thirty-nine week periods ended May 26, 2018.
“Our strong third quarter financial and marketplace results continue to reflect the effectiveness of the strategic initiatives we outlined earlier this year that focus on marketing investments targeting our broader lifestyle consumers, refreshed packaging, cleaner labels and new products,” said Joseph E. Scalzo, President and Chief Executive Officer of The Simply Good Foods Company. “Organic sales growth of 11.1% this quarter was driven by volume and more efficient trade spend, resulting in solid gross margin and adjusted EBITDA(1) expansion. Retail takeaway performance accelerated in the quarter and increased 9.8% and 6.9% for the thirteen and thirty-nine weeks ended May 26, 2018. Through the third quarter, we have grown year-to-date net sales 8.2% and are well positioned to deliver solid financial results in fiscal 2018.”
Results for the Successor Period for the Thirteen Weeks Ended May 26, 2018, and Predecessor Period for the Thirteen Weeks Ended May 27, 2017(1) 
Successor net sales were $107.2 million and Predecessor net sales were $96.5 million
Successor income tax expense was $2.8 million and Predecessor income tax expense was $1.8 million
Successor net income was $7.1 million and Predecessor net income was $4.3 million
In order to present comparable financial information, the Company has also presented supplemental unaudited pro forma financial information for the thirteen weeks and thirty-nine weeks ended May 27, 2017, which give 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 thirteen week and thirty-nine week third quarter ended May 27, 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.
Third Quarter 2018 Financial Highlights vs. Third Quarter 2017 Pro Forma
Net sales increased 11.1%, or $10.7 million, to $107.2 million
Gross profit margin of 47.8%, an increase of 270 basis points
Net income increased $1.7 million to $7.1 million
Earnings per diluted share (“EPS”) of $0.10, an increase of $0.03 per fully diluted share
Adjusted EBITDA(2) increased 21.4%, to $17.9 million.
(All comparisons above are with respect to the Predecessor's pro forma thirteen week third quarter ended May 27, 2017)

________________________________________
(1) On July 7, 2017, the Company completed the Business Combination between Atkins and Conyers Park. 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 and thirty-nine weeks ended May 26, 2018 (Successor); and (ii) as of and for the thirteen weeks and thirty-nine weeks ended May 27, 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 “Reconciliation of Adjusted EBITDA” in this press release for an explanation and reconciliations of this non-GAAP financial measure.

1



Net sales increased $10.7 million, or 11.1%, to $107.2 million. The net sales increase of 11.1% was entirely organic, driven by volume growth of 6.5% and a 4.6% benefit from lower levels of promotional allowances.
Gross profit was $51.3 million for the third quarter of 2018, an increase of $7.7 million or 17.7%. Gross profit margin was 47.8% compared to 45.1% for the pro forma thirteen weeks ended May 27, 2017 due primarily to the aforementioned net price realization.
Net income increased $1.7 million, to $7.1 million, primarily due to an improvement in gross profit, partially offset by a slight increase in distribution costs. Additionally, as discussed previously, the Company made investments in organizational capabilities and processes that positions it for further growth and ensures marketplace momentum continues into fiscal 2019. Specifically, selling and marketing expense increased $0.6 million and $1.3 million, respectively, driven by higher levels of brand building initiatives, advertising, and digital marketing investments. General and administrative expenses increased 14.7% as a result of higher public company costs and investments to enhance organizational capabilities in key functions, including preparation for future compliance requirements.
Adjusted EBITDA, a non-GAAP financial measure used by the Company that makes certain adjustments to net income calculated under GAAP, increased 21.4% to $17.9 million.
(All comparisons above are with respect to the Predecessor's pro forma thirteen week third quarter ended May 27, 2017)

Results for the Successor Period for the Thirty-Nine Weeks Ended May 26, 2018, and Predecessor Period for the Thirty-Nine Weeks Ended May 27, 2017(1) 
Successor net sales were $323.2 million and Predecessor net sales were $298.6 million
Successor income tax benefit was $17.5 million and Predecessor income tax expense was $8.7 million
Successor net income was $58.7 million and Predecessor net income was $14.6 million
Year-to-Date Third Quarter 2018 Financial Highlights vs. Year-to-Date Third Quarter 2017 Pro-Forma
Net sales increased 8.2%, or $24.6 million, to $323.2 million
Gross profit margin of 47.7%, an increase of 120 basis points
Net income increased $37.8 million to $58.7 million, benefiting from changes to tax rates and other one-time gains
Earnings per diluted share (“EPS”) of $0.81, an increase of $0.52 per fully diluted share
Adjusted EBITDA(2) increased 9.7%, to $60.5 million.
(All comparisons above are with respect to the Predecessor's pro forma thirty-nine week third quarter ended May 27, 2017)

Net sales increased $24.6 million, or 8.2%, to $323.2 million driven by organic net sales growth of 6.9%, including a favorable change in trade expense of 0.6%, and the prior year acquisition of Wellness Foods added 1.3%.
Gross profit was $154.3 million for the thirty-nine weeks ended May 26, 2018, an increase $15.4 million, or 11.1%. Gross profit margin was 47.7% compared to 46.5% for the pro forma thirty-nine weeks ended May 27, 2017 due to lower trade expense and favorable mix.
Net income increased $37.8 million to $58.7 million primarily due to a one-time gain related to the re-measurement of deferred tax liabilities of $29.0 million, a one-time gain of $4.7 million 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, $1.9 million in business transaction costs related to the equity offering by one of our stockholders in February and merger & acquisition due diligence costs, a 9.7% increase in selling expense, a 6.7% increase in marketing expense, and a 12.2% 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 9.7% to $60.5 million.
(All comparisons above are with respect to the Predecessor's pro forma thirty-nine week third quarter ended May 27, 2017)

2



Balance Sheet and Cash Flow
As of May 26, 2018, the Company had cash and cash equivalents of $88.4 million and $199.0 million in outstanding principal of the term loan, resulting in a trailing twelve month pro forma combined Net Debt to Adjusted EBITDA ratio of 1.4x. The Company also has a $75.0 million revolving line of credit available for borrowing which is not currently being utilized.
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. As of May 26, 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 expense (benefit) in the accompanying thirty-nine week 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 May 26, 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 analysis 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.

Outlook
Given the strong year-to-date results, the Company has updated its outlook for the fiscal year 2018. Specifically, the Company expects the full year 2018 net sales growth rate to be similar to the year-to-date growth rate. Including the previously discussed investments in the business, the Company anticipates Adjusted EBITDA growth will be slightly lower than net sales growth.

3



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 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, July 24, 2018, by dialing 844-512-2921 from the U.S., or 412-317-6671 from international locations, and entering confirmation code 13680857.

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 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



4



The Simply Good Foods Company and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited, dollars in thousands, except share data)
 
May 26, 2018
 
 
August 26, 2017
Assets
(Successor)
 
 
(Successor)
Current assets:
 
 
 
 
Cash and cash equivalents
$
88,361

 
 
$
56,501

Accounts receivable, net
41,661

 
 
37,181

Inventories
24,955

 
 
29,062

Prepaid expenses
4,216

 
 
2,904

Other current assets
10,911

 
 
8,263

Total current assets
170,104

 
 
133,911


 
 
 
 
Long-term assets:
 
 
 
 
Property and equipment, net
2,460

 
 
2,105

Intangible assets, net
314,270

 
 
319,148

Goodwill
471,427

 
 
465,030

Other long-term assets
2,294

 
 
2,294

Total assets
$
960,555

 
 
$
922,488


 
 
 
 
Liabilities and stockholders' equity
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable
$
10,127

 
 
$
14,859

Accrued interest
527

 
 
561

Accrued expenses and other current liabilities
15,054

 
 
15,042

Current portion of TRA liability
2,579

 
 
2,548

Current maturities of long-term debt
664

 
 
234

Total current liabilities
28,951

 
 
33,244


 
 
 
 
Long-term liabilities:
 
 
 
 
Long-term debt, less current maturities
191,084

 
 
191,856

Long-term portion of TRA liability
25,325

 
 
23,127

Deferred income taxes
55,033

 
 
75,559

Total liabilities
300,393

 
 
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
613,350

 
 
610,138

Retained earnings (accumulated deficit)
46,588

 
 
(12,161
)
Accumulated other comprehensive (loss) income
(482
)
 
 
19

Total stockholders' equity
660,162

 
 
598,702

Total liabilities and stockholders' equity
$
960,555

 
 
$
922,488



5



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 26, 2018
 
 
May 27, 2017
 
May 26, 2018
 
 
May 27, 2017
 
(Successor)
 
 
(Predecessor)
 
(Successor)
 
 
(Predecessor)
Net sales
$
107,233

 
 
$
96,503

 
$
323,167

 
 
$
298,614

Cost of goods sold
55,949

 
 
52,933

 
168,869

 
 
159,759

Gross profit
51,284

 
 
43,570

 
154,298

 
 
138,855

 
 
 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
 
 
Distribution
4,656

 
 
4,084

 
14,864

 
 
13,413

Selling
4,972

 
 
4,350

 
13,850

 
 
12,621

Marketing
10,999

 
 
9,733

 
30,905

 
 
28,969

General and administrative
14,158

 
 
12,276

 
38,948

 
 
33,975

Depreciation and amortization
1,911

 
 
2,482

 
5,793

 
 
7,409

Business transaction costs
35

 
 

 
1,912

 
 

Loss (gain) in fair value change of contingent consideration - TRA liability
614

 
 

 
(2,412
)
 
 

Other expense
137

 
 
17

 
567

 
 
75

Total operating expenses
37,482

 
 
32,942

 
104,427

 
 
96,462

 
 
 
 
 
 
 
 
 
 
Income from operations
13,802

 
 
10,628

 
49,871

 
 
42,393

 
 
 
 
 
 
 
 
 
 
Other income (expense):
 
 
 
 
 
 
 
 
 
Change in warrant liabilities

 
 
1,119

 

 
 
722

Interest expense
(3,057
)
 
 
(6,430
)
 
(9,169
)
 
 
(20,059
)
(Loss) gain on foreign currency transactions
(837
)
 
 
724

 
119

 
 
6

Other income
77

 
 
83

 
475

 
 
282

Total other expense
(3,817
)
 
 
(4,504
)
 
(8,575
)
 
 
(19,049
)
 
 
 
 
 
 
 
 
 
 
Income before income taxes
9,985

 
 
6,124

 
41,296

 
 
23,344

Income tax expense (benefit)
2,848

 
 
1,777

 
(17,453
)
 
 
8,747

Net income
$
7,137

 
 
$
4,347

 
$
58,749

 
 
$
14,597

 
 
 
 
 
 
 
 
 
 
Other comprehensive income:
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
299

 
 
(805
)
 
(501
)
 
 
(389
)
Comprehensive income
$
7,436

 
 
$
3,542

 
$
58,248

 
 
$
14,208

 
 
 
 
 
 
 
 
 
 
Earnings per share from net income:
 
 
 
 
 
 
 
 
 
Basic
$
0.10

 
 
 
 
$
0.83

 
 
 
Diluted
$
0.10

 
 
 
 
$
0.81

 
 
 
Weighted average shares outstanding:
 
 
 
 
 
 
 
 
 
Basic
70,582,573

 
 
 
 
70,578,687

 
 
 
Diluted
73,466,285

 
 
 
 
72,907,141

 
 
 

6



The Simply Good Foods Company and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited, dollars in thousands)
 
Thirty-Nine Weeks Ended
 
May 26, 2018
 
 
May 27, 2017
 
(Successor)
 
 
(Predecessor)
Operating activities
 
 
 
 
Net income
$
58,749

 
 
$
14,597

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
5,793

 
 
7,409

Amortization of deferred financing costs and debt discount
977

 
 
1,474

Stock compensation expense
2,981

 
 
1,871

Change in warrant liabilities

 
 
(722
)
Gain in fair value change of contingent consideration - TRA liability
(2,412
)
 
 

Unrealized gain (loss) on foreign currency transactions
119

 
 
(111
)
Deferred income taxes
(20,876
)
 
 
(1,128
)
Loss on disposal of property and equipment
77

 
 

Changes in operating assets and liabilities:
 
 
 
 
Accounts receivable, net
(4,812
)
 
 
8,289

Inventories
4,003

 
 
(1,110
)
Prepaid expenses
(1,296
)
 
 
(399
)
Other current assets
(2,334
)
 
 
(7,964
)
Accounts payable
(4,676
)
 
 
(1,168
)
Accrued interest
(34
)
 
 
(490
)
Accrued expenses and other current liabilities
203

 
 
(1,846
)
Other
(239
)
 
 
39

Net cash provided by operating activities
36,223

 
 
18,741

 
 
 
 
 
Investing activities
 
 
 
 
Purchases of property and equipment
(1,347
)
 
 
(421
)
Acquisition of business, net of cash acquired
(1,757
)
 
 
(21,039
)
Net cash used in investing activities
(3,104
)
 
 
(21,460
)
 
 
 
 
 
Financing activities
 
 
 
 
Proceeds from option exercises

 
 
109

Cash received from warrant exercises
231

 
 

Deferred financing costs
(319
)
 
 

Principal payments of long-term debt
(1,000
)
 
 
(53,586
)
Net cash used in financing activities
(1,088
)
 
 
(53,477
)
Cash and cash equivalents
 
 
 
 
Net increase (decrease) in cash
32,031

 
 
(56,196
)
Effect of exchange rate on cash
(171
)
 
 
(133
)
 
 
 
 
 
Cash at beginning of period
56,501

 
 
78,492

Cash and cash equivalents at end of period
$
88,361

 
 
$
22,163



7



Supplemental Unaudited Pro Forma Combined Thirteen Week Period Ended May 27, 2017

The following unaudited pro forma financial information has been prepared from the perspective of Atkins and its thirteen week quarter ended May 27, 2017. The unaudited pro forma income statement presents the historical consolidated statement of operations of Atkins for the thirteen weeks ended May 27, 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.

8



Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the Pro Forma Thirteen Week Period Ended May 27, 2017
(In thousands)
 
 
Unaudited Historical (i)
 
 
 
Pro Forma
 
 
(Predecessor)
 
 
 
Unaudited
 
 
13-weeks ended
 
Pro Forma Adjustments
 
13-weeks ended
(in thousands)
 
May 27, 2017
 
 
May 27, 2017
Net sales
 
$
96,503

 
$

 
$
96,503

Cost of goods sold
 
52,933

 

 
52,933

Gross profit
 
43,570

 

 
43,570

 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
Distribution
 
4,084

 

 
4,084

Selling
 
4,350

 

 
4,350

Marketing
 
9,733

 

 
9,733

General and administrative
 
12,276

 
64

ii
12,340

Depreciation and amortization
 
2,482

 
(561
)
iii
1,921

Other expense
 
17

 

 
17

Total operating expenses
 
32,942

 
(497
)
 
32,445

 
 
 
 
 
 
 
Income from operations
 
10,628

 
497

 
11,125

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

 
(1,119
)
iv

Interest expense
 
(6,430
)
 
3,453

v
(2,977
)
(Loss) gain on foreign currency transactions
 
724

 

 
724

Other income
 
83

 

 
83

Total other expense
 
(4,504
)
 
2,334

 
(2,170
)
 
 
 
 
 
 
 
Income before income taxes
 
6,124

 
2,831

 
8,955

Income tax expense (benefit)
 
1,777

 
1,769

vi
3,546

Net income
 
$
4,347

 
$
1,062

 
$
5,409

 
 
 
 
 
 
 
Other financial data:
 
 
 
 
 
 
Adjusted EBITDA (vii)
 
$
14,773

 
 
 
$
14,773

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 additional 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, as of the time of the close of the Business Combination, 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. At the time of the Transaction, 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 accrued interest at 3 month LIBOR and 4%. The significant reduction in outstanding principal and lower interest rates drive significant expense savings on a Pro Forma basis. Refer to Note 5 for details on the Long-Term Debt and Line of Credit.
vi. Represents the effective income tax rate of 39.6%. The amounts presented may be rounded for presentation purposes.
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.

9



Comparison of Unaudited Results for the Thirteen Week Period Ended May 26, 2018 and the Supplemental Pro Forma Thirteen Week Period Ended May 27, 2017

For comparative purposes, we are presenting an unaudited statement of operations for the thirteen week period ended May 26, 2018, compared to unaudited supplemental pro forma statement of operations for the thirteen week period ended May 27, 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)
 
May 26, 2018
 
% of sales
 
 
May 27, 2017
 
% of sales
Net sales
 
$
107,233

 
100.0
 %
 
 
$
96,503

 
100.0
 %
Cost of goods sold
 
55,949

 
52.2
 %
 
 
52,933

 
54.9
 %
Gross profit
 
51,284

 
47.8
 %
 
 
43,570

 
45.1
 %
 
 
 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
 
 
Distribution
 
4,656

 
4.3
 %
 
 
4,084

 
4.2
 %
Selling
 
4,972

 
4.6
 %
 
 
4,350

 
4.5
 %
Marketing
 
10,999

 
10.3
 %
 
 
9,733

 
10.1
 %
General and administrative
 
14,158

 
13.2
 %
 
 
12,340

 
12.8
 %
Depreciation and amortization
 
1,911

 
1.8
 %
 
 
1,921

 
2.0
 %
Business transaction costs
 
35

 
 %
 
 

 
 %
Loss (gain) in fair value change of contingent consideration - TRA liability
 
614

 
0.6
 %
 
 

 
 %
Other expense
 
137

 
0.1
 %
 
 
17

 
 %
Total operating expenses
 
37,482

 
35.0
 %
 
 
32,445

 
33.6
 %
 
 
 
 
 
 
 
 
 
 
Income from operations
 
13,802

 
12.9
 %
 
 
11,125

 
11.5
 %
 
 
 
 
 
 
 
 
 
 
Other income (expense):
 
 
 
 
 
 
 
 
 
Change in warrant liabilities
 

 
 %
 
 

 
 %
Interest expense
 
(3,057
)
 
(2.9
)%
 
 
(2,977
)
 
(3.1
)%
(Loss) gain on foreign currency transactions
 
(837
)
 
(0.8
)%
 
 
724

 
0.8
 %
Other income
 
77

 
0.1
 %
 
 
83

 
0.1
 %
Total other expense
 
(3,817
)
 
(3.6
)%
 
 
(2,170
)
 
(2.2
)%
 
 
 
 
 
 
 
 
 
 
Income before income taxes
 
9,985

 
9.3
 %
 
 
8,955

 
9.3
 %
Income tax expense
 
2,848

 
2.7
 %
 
 
3,546

 
3.7
 %
Net income
 
$
7,137

 
6.7
 %
 
 
$
5,409

 
5.6
 %
 
 
 
 
 
 
 
 
 
 
Earnings per share from net income:
 
 
 
 
 
 
 
 
 
Basic
 
$
0.10

 
 
 
 
$
0.08

 
 
Diluted
 
$
0.10

 
 
 
 
$
0.07

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

 
 
 
 
70,582,573

 
 
Diluted
 
73,466,285

 
 
 
 
73,466,285

 
 
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.

10



Supplemental Unaudited Pro Forma Combined Thirty-Nine Week Period Ended May 27, 2017

The following unaudited pro forma financial information has been prepared from the perspective of Atkins and for the thirty-nine weeks ended May 27, 2017. The unaudited pro forma income statement presents the historical consolidated statement of operations of Atkins for the thirty-nine weeks ended May 27, 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.


11



Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the Pro Forma Thirty-nine week Period Ended May 27, 2017
(In thousands)
 
 
Unaudited Historical (i)
 
 
 
Pro Forma
 
 
(Predecessor)
 
 
 
Unaudited
 
 
39-weeks ended
 
Pro Forma Adjustments
 
39-weeks ended
(in thousands)
 
May 27, 2017
 
 
May 27, 2017
Net sales
 
$
298,614

 
$

 
$
298,614

Cost of goods sold
 
159,759

 

 
159,759

Gross profit
 
138,855

 

 
138,855

 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
Distribution
 
13,413

 

 
13,413

Selling
 
12,621

 

 
12,621

Marketing
 
28,969

 

 
28,969

General and administrative
 
33,975

 
745

ii
34,720

Depreciation and amortization
 
7,409

 
(1,682
)
iii
5,727

Other expense
 
75

 

 
75

Total operating expenses
 
96,462

 
(937
)
 
95,525

 
 
 
 
 
 
 
Income from operations
 
42,393

 
937

 
43,330

 
 
 
 
 
 
 
Other income (expense):
 
 
 
 
 
 
Change in warrant liabilities
 
722

 
(722
)
iv

Interest expense
 
(20,059
)
 
11,127

v
(8,932
)
(Loss) gain on foreign currency transactions
 
6

 

 
6

Other income
 
282

 

 
282

Total other expense
 
(19,049
)
 
10,405

 
(8,644
)
 
 
 
 
 
 
 
Income before income taxes
 
23,344

 
11,342

 
34,686

Income tax expense (benefit)
 
8,747

 
4,989

vi
13,736

Net income
 
$
14,597

 
$
6,353

 
$
20,950

 
 
 
 
 
 
 
Other Financial Data (Unaudited):
 
 
 
 
 
 
Adjusted EBITDA (ix)
 
$
55,133

 
 
 
$
55,133

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 additional 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, as of the time of the close of the Business Combination, 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. At the time of the Transaction, 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 accrued interest at 3 month LIBOR and 4%. The significant reduction in outstanding principal and lower interest rates drive significant expense savings on a Pro Forma basis. Refer to Note 5 for details on the Long-Term Debt and Line of Credit.
vi. Represents the effective income tax rate of 39.6%. The amounts presented may be rounded for presentation purposes.
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.

12



Comparison of Unaudited Results for the Thirty-Nine Week Period Ended May 26, 2018 and the Supplemental Pro Forma Thirty-Nine Week Period Ended May 27, 2017

For comparative purposes, we are presenting an unaudited statement of operations for the thirty-nine week period ended May 26, 2018, compared to unaudited supplemental pro forma statement of operations for the thirty-nine week period ended May 27, 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
 
 
 
 
39-weeks ended
 
 
 
 
39-weeks ended
 
 
(in thousands)
 
May 26, 2018
 
% of sales
 
 
May 27, 2017
 
% of sales
Net sales
 
$
323,167

 
100.0
 %
 
 
$
298,614

 
100.0
 %
Cost of goods sold
 
168,869

 
52.3
 %
 
 
159,759

 
53.5
 %
Gross profit
 
154,298

 
47.7
 %
 
 
138,855

 
46.5
 %
 
 
 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
 
 
Distribution
 
14,864

 
4.6
 %
 
 
13,413

 
4.5
 %
Selling
 
13,850

 
4.3
 %
 
 
12,621

 
4.2
 %
Marketing
 
30,905

 
9.6
 %
 
 
28,969

 
9.7
 %
General and administrative
 
38,948

 
12.1
 %
 
 
34,720

 
11.6
 %
Depreciation and amortization
 
5,793

 
1.8
 %
 
 
5,727

 
1.9
 %
Business transaction costs
 
1,912

 
0.6
 %
 
 

 
 %
Loss (gain) in fair value change of contingent consideration - TRA liability
 
(2,412
)
 
(0.7
)%
 
 

 
 %
Other expense
 
567

 
0.2
 %
 
 
75

 
 %
Total operating expenses
 
104,427

 
32.3
 %
 
 
95,525

 
32.0
 %
 
 
 
 
 
 
 
 
 
 
Income from operations
 
49,871

 
15.4
 %
 
 
43,330

 
14.5
 %
 
 
 
 
 
 
 
 
 
 
Other income (expense):
 
 
 
 
 
 
 
 
 
Change in warrant liabilities
 

 
 %
 
 

 
 %
Interest expense
 
(9,169
)
 
(2.8
)%
 
 
(8,932
)
 
(3.0
)%
(Loss) gain on foreign currency transactions
 
119

 
 %
 
 
6

 
 %
Other income
 
475

 
0.1
 %
 
 
282

 
0.1
 %
Total other expense
 
(8,575
)
 
(2.7
)%
 
 
(8,644
)
 
(2.9
)%
 
 
 
 
 
 
 
 
 
 
Income before income taxes
 
41,296

 
12.8
 %
 
 
34,686

 
11.6
 %
Income tax expense (benefit)
 
(17,453
)
 
(5.4
)%
 
 
13,736

 
4.6
 %
Net income
 
$
58,749

 
18.2
 %
 
 
$
20,950

 
7.0
 %
 
 
 
 
 
 
 
 
 
 
Earnings per share from net income:
 
 
 
 
 
 
 
 
 
Basic
 
$
0.83

 
 
 
 
$
0.30

 
 
Diluted
 
$
0.81

 
 
 
 
$
0.29

 
 
Weighted average shares outstanding: (i)
 
 
 
 
 
 
 
 
 
Basic
 
70,578,687

 
 
 
 
70,578,687

 
 
Diluted
 
72,907,141

 
 
 
 
72,907,141

 
 

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.

13




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, 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, for the thirteen week periods ended May 26, 2018 (Successor), May 27, 2017 (Predecessor), and pro forma period ended May 27, 2017.
Adjusted EBITDA Reconciliation:
(in thousands)
13-weeks ended
 
 
13-weeks ended
 
13-weeks ended
May 26, 2018
 
 
May 27, 2017
 
May 27, 2017
(Successor)
 
 
(Predecessor)
 
(Pro Forma)
Net income
$
7,137

 
 
$
4,347

 
$
5,409

Interest expense
3,057

 
 
6,430

 
2,977

Income tax expense
2,848

 
 
1,777

 
3,546

Depreciation and amortization
1,911

 
 
2,482

 
1,921

EBITDA
14,953

 
 
15,036

 
13,853

Business transaction costs
35

 
 

 

Stock-based compensation and warrant expense
1,014

 
 
(311
)
 
872

Transaction fees / IPO readiness

 
 
(184
)
 
(184
)
Restructuring
137

 
 
17

 
17

Roark management fee

 
 
389

 
389

Frozen licensing media
63

 
 
459

 
459

Non-core legal costs
274

 
 
163

 
163

Loss in fair value change of contingent consideration - TRA liability
614

 
 

 

Other (1)
850

 
 
(796
)
 
(796
)
Adjusted EBITDA
$
17,940

 
 
$
14,773

 
$
14,773

_____________________
(1) Other items consist principally of exchange impact of foreign currency transactions and other expenses

14



The following unaudited tables below provides a reconciliation of Adjusted EBITDA to its most directly comparable GAAP measure, which is net income, for the thirty-nine week periods ended May 26, 2018 (Successor), May 27, 2017 (Predecessor), and pro forma period ended May 27, 2017.
Adjusted EBITDA Reconciliation:
(in thousands)
39-weeks ended
 
 
39-weeks ended
 
39-weeks ended
May 26, 2018
 
 
May 27, 2017
 
May 27, 2017
(Successor)
 
 
(Predecessor)
 
(Pro Forma)
Net income
$
58,749

 
 
$
14,597

 
$
20,950

Interest expense
9,169

 
 
20,059

 
8,932

Income tax (benefit) expense
(17,453
)
 
 
8,747

 
13,736

Depreciation and amortization
5,793

 
 
7,409

 
5,727

EBITDA
56,258

 
 
50,812

 
49,345

Business transaction costs
1,912

 
 

 

Stock-based compensation and warrant expense
2,981

 
 
1,149

 
2,616

Transaction fees / IPO readiness

 
 
372

 
372

Restructuring
567

 
 
74

 
74

Roark management fee

 
 
1,370

 
1,370

Frozen licensing media
188

 
 
794

 
794

Non-core legal costs
1,053

 
 
618

 
618

Gain in fair value change of contingent consideration - TRA liability
(2,412
)
 
 

 

Other (1)
(90
)
 
 
(56
)
 
(56
)
Adjusted EBITDA
$
60,457

 
 
$
55,133

 
$
55,133

_____________________
(1) Other items consist principally of exchange impact of foreign currency transactions and other expenses


15

View differences made from one to another to evaluate Simply Good Foods Co's financial trajectory

Compare SEC Filings Year-over-Year (YoY) and Quarter-over-Quarter (QoQ)
Sample 10-K Year-over-Year (YoY) Comparison

Compare this 8-K Corporate News to its predecessor by reading our highlights to see what text and tables were  removed  ,   added    and   changed   by Simply Good Foods Co.

Continue

Never Miss A New SEC Filing Again


Real-Time SEC Filing Notifications
Screenshot taken from Gmail for a new 10-K Annual Report
Last10K.com Member Feature

Receive an e-mail as soon as a company files an Annual Report, Quarterly Report or has new 8-K corporate news.

Continue

We Highlighted This SEC Filing For You


SEC Filing Sentiment Analysis - Bullish, Bearish, Neutral
Screenshot taken from Wynn's 2018 10-K Annual Report
Last10K.com Member Feature

Read positive and negative remarks made by management in their entirety without having to find them in a 10-K/Q.

Continue

Widen Your SEC Filing Reading Experience


Increased Reading Area for SEC Filings
Screenshot taken from Adobe Inc.'s 10-Q Quarterly Report
Last10K.com Member Feature

Remove data columns and navigations in order to see much more filing content and tables in one view

Continue

Uncover Actionable Information Inside SEC Filings


SEC Filing Disclosures
Screenshot taken from Lumber Liquidators 10-K Annual Report
Last10K.com Member Feature

Read both hidden opportunities and early signs of potential problems without having to find them in a 10-K/Q

Continue

Adobe PDF, Microsoft Word and Excel Downloads


Download Annual and Quarterly Reports as PDF, Word and Excel Documents
Screenshots of actual 10-K and 10-Q SEC Filings in PDF, Word and Excel formats
Last10K.com Member Feature

Export Annual and Quarterly Reports to Adobe PDF, Microsoft Word and Excel for offline viewing, annotations and analysis

Continue

FREE Financial Statements


Download Annual and Quarterly Reports as PDF, Word and Excel Documents
Screenshot of actual balance sheet from company 10-K Annual Report
Last10K.com Member Feature

Get one-click access to balance sheets, income, operations and cash flow statements without having to find them in Annual and Quarterly Reports

Continue for FREE

Intrinsic Value Calculator


Intrinsic Value Calculator
Screenshot of intrinsic value for AT&T (2019)
Last10K.com Member Feature

Our Intrinsic Value calculator estimates what an entire company is worth using up to 10 years of financial ratios to determine if a stock is overvalued or not

Continue

Financial Stability Report


Financial Stability Report
Screenshot of financial stability report for Coco-Cola (2019)
Last10K.com Member Feature

Our Financial Stability reports uses up to 10 years of financial ratios to determine the health of a company's EPS, Dividends, Book Value, Return on Equity, Current Ratio and Debt-to-Equity

Continue

Get a Better Picture of a Company's Performance


Financial Ratios
Available Financial Ratios
Last10K.com Member Feature

See how over 70 Growth, Profitability and Financial Ratios perform over 10 Years

Continue

Log in with your credentials

or    

Forgot your details?

Create Account