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The Simply Good Foods Company Reports Second Quarter 2019 Financial Results

Denver, CO, April 4, 2019 - The Simply Good Foods Company (NASDAQ: SMPL) (“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 23, 2019.

“Our strong second quarter and year-to-date results reflect the successful execution of our annual plan as well as our strategic initiatives,” said Joseph E. Scalzo, President and Chief Executive Officer of Simply Good Foods. “We delivered double-digit sales, gross profit and adjusted EBITDA growth in both the second quarter and year-to-date periods. I’m particularly pleased that our U.S. retail takeaway, as measured by IRI for the thirteen week period ended February 23, 2019, continued to be strong and was up 22.1% versus the prior year. We continued to expand adjusted EBITDA margin while also making investments in marketing and organizational capabilities that we believe will benefit the company in the near and long term.”

Second Quarter 2019 Financial Highlights vs. Second Quarter 2018

Net sales increased 13.2%, or $14.5 million, to $123.8 million
Gross profit margin of 46.6%, an increase of 60 basis points
Income tax expense was $4.0 million versus a benefit of $26.8 million in the prior year
Net income decreased 69.3%, or $28.7 million, to $12.7 million
Earnings per diluted share (“EPS”) of $0.15 was a decrease of $0.41 per fully diluted share
Adjusted EBITDA(1) increased 22.1% to $23.0 million.

Net sales increased $14.5 million, or 13.2%, to $123.8 million, primarily driven by volume growth. As expected, net sales growth did benefit from lower frequency of bar promotions partially offset by a shift in non-price related customer activity, as discussed last quarter.

Gross profit was $57.6 million for the second quarter of 2019, an increase of $7.4 million or 14.7%. Gross profit margin was 46.6% compared to 46.0% for the thirteen weeks ended February 24, 2018 primarily driven by lower frequency of bar promotions, partially offset by the aforementioned non-price related customer activity. This shift in customer activity only impacts fiscal 2019 amounts, resulting in an unfavorable impact on 2019 year-to-date gross margin of about 110 basis points.

Net income for the second quarter of 2019 was $12.7 million, compared with $41.4 million for the comparable period of 2018. Recall, the second quarter of 2018 results include a $29.0 million one-time gain related to the re-measurement of deferred tax liabilities and a $4.7 million gain on the fair value of the Tax Receivable Agreement. Net income in the second quarter of 2019 was primarily driven by gross profit, partially offset by higher operating expenses and income tax expense. Specifically, marketing expense increased $2.1 million, driven by increased television media and e-commerce investments. General and administrative expenses increased $3.1 million as a result of higher professional fees, investments to enhance organizational capabilities in key functions, and greater incentive compensation. Selling expense was $2.4 million lower than last year; due to the aforementioned shift in non-price related customer activity.

Adjusted EBITDA, a non-GAAP financial measure used by the Company that makes certain adjustments to net income calculated under GAAP, increased 22.1% to $23.0 million.







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

1



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

Net sales increased 13.3%, or $28.8 million, to $244.7 million
Gross profit margin of 47.7% was flat
Income tax expense was $8.7 million versus a benefit of $20.3 million in the prior year
Net income decreased 45.8%, or $23.6 million, to $28.0 million
Earnings per diluted share (“EPS”) of $0.33 was a decrease of $0.38 per fully diluted share
Adjusted EBITDA(1) increased 16.8% to $49.7 million.

Net sales increased $28.8 million, or 13.3%, to $244.7 million, primarily driven by volume growth.

Gross profit was $116.7 million for the twenty-six weeks ended February 23, 2019, an increase of $13.7 million, or 13.3%. Gross profit margin was 47.7%, in-line with the prior year. As discussed last quarter, gross margin is impacted by a shift in non-price related customer activity that only affects fiscal 2019 amounts, resulting in an unfavorable impact in 2019 year-to-date gross margin of about 80 basis points.

Net income for the first six months of 2019 was $28.0 million, compared with $51.6 million for the comparable period of 2018. The year ago period was impacted by the aforementioned tax items and the gain related to the fair value of the Tax Receivable Agreement. Net income in 2019 was primarily driven by gross profit, partially offset by higher operating expenses and income tax expense. Specifically, marketing expense increased $3.8 million, driven by increased television media and e-commerce investments. General and administrative expenses increased $4.9 million as a result of higher professional fees and investments to enhance organizational capabilities in key functions and greater incentive compensation. Selling expense was $2.5 million lower than last year; due to the aforementioned shift in non-price related customer activity.

Adjusted EBITDA, a non-GAAP financial measure used by the Company that makes certain adjustments to net income calculated under GAAP, increased 16.8% to $49.7 million.

Balance Sheet and Cash Flow

As of February 23, 2019, the Company had cash and cash equivalents of $218.9 million and $197.5 million in outstanding principal of the term loan, resulting in a trailing twelve month combined Net Debt to Adjusted EBITDA ratio of (0.2)x. In the fiscal second quarter, the Company repurchased $0.1 million in common stock against the $50 million authorization announced last year.

Outlook

Given the strength and momentum of the business in the first half of the year, the Company is more optimistic than last quarter in its ability to exceed its long-term net sales growth target of 4% to 6%. Specifically, we anticipate full-year fiscal 2019 net sales and adjusted EBITDA to both increase double digits, on a percentage basis versus last year. This outlook reflects anticipated solid volume growth and the benefit of a fifty-third week, as well as incremental strategic investments in marketing and brand building initiatives that should continue to drive growth over the long term.













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

2



Conference Call and Webcast Information

The Company will host a conference call with members of the executive management team to discuss these results today, Thursday, April 4, 2019 at 6:30 a.m. Mountain time (8:30 a.m. Eastern time). Investors interested in participating in the live call can dial 877-407-0792 from the U.S. and International callers can dial 201-689-8263.

In addition, the call and accompanying presentation slides will be broadcast live over the Internet hosted at the “Investor Relations” section of the Company's website at http://www.thesimplygoodfoodscompany.com. The webcast will be archived for 30 days. A telephone replay will be available approximately two hours after the call concludes and will be available through Thursday, April 18, 2019, by dialing 844-512-2921 from the U.S., or 412-317-6671 from international locations, and entering confirmation code 13688887.

About The Simply Good Foods Company

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

Forward Looking Statements

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

Investor Contact

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

3



The Simply Good Foods Company and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited, dollars in thousands, except share data)
 
 
February 23, 2019
 
August 25, 2018
Assets
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
218,897

 
$
111,971

Accounts receivable, net
 
45,318

 
36,622

Inventories
 
45,803

 
30,001

Prepaid expenses
 
2,448

 
2,069

Other current assets
 
6,671

 
5,077

Total current assets
 
319,137

 
185,740

 
 
 
 
 
Long-term assets:
 
 
 
 
Property and equipment, net
 
2,874

 
2,565

Intangible assets, net
 
309,391

 
312,643

Goodwill
 
471,427

 
471,427

Other long-term assets
 
2,890

 
2,230

Total assets
 
$
1,105,719

 
$
974,605

 
 
 
 
 
Liabilities and stockholders' equity
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable
 
$
17,247

 
$
11,158

Accrued interest
 
2,531

 
582

Accrued expenses and other current liabilities
 
14,383

 
15,875

Current portion of TRA liability
 

 
2,320

Current maturities of long-term debt
 
653

 
648

Total current liabilities
 
34,814

 
30,583

 
 
 
 
 
Long-term liabilities:
 
 
 
 
Long-term debt, less current maturities
 
190,598

 
190,935

Long-term portion of TRA liability
 

 
25,148

Deferred income taxes
 
62,930

 
54,475

Other long-term liabilities
 
663

 
863

Total liabilities
 
289,005

 
302,004

See commitments and contingencies (Note 8)
 
 
 
 
 
 
 
 
 
Stockholders' equity:
 
 
 
 
Preferred stock, $0.01 par value, 100,000,000 shares authorized, none issued
 

 

Common stock, $0.01 par value, 600,000,000 shares authorized, 81,915,213 and 70,605,675 issued and outstanding at February 23, 2019 and August 25, 2018, respectively
 
819

 
706

Treasury stock, 6,729 and 0 shares at cost at February 23, 2019 and August 25, 2018, respectively
 
(127
)
 

Additional paid-in-capital
 
730,584

 
614,399

Retained earnings
 
86,273

 
58,294

Accumulated other comprehensive loss
 
(835
)
 
(798)

Total stockholders' equity
 
816,714

 
672,601

Total liabilities and stockholders' equity
 
$
1,105,719

 
$
974,605



4



The Simply Good Foods Company and Subsidiaries
Condensed Consolidated Statements of Operations and Comprehensive Income
(Unaudited, dollars in thousands, except share data)
 
 
Thirteen Weeks Ended
 
Twenty-Six Weeks Ended
 
 
February 23, 2019
 
February 24, 2018
 
February 23, 2019
 
February 24, 2018
Net sales
 
$
123,800

 
$
109,347

 
$
244,731

 
$
215,934

Cost of goods sold
 
66,166

 
59,090

 
127,986

 
112,920

Gross profit
 
57,634

 
50,257

 
116,745

 
103,014

 
 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
 
Distribution
 
5,797

 
5,391

 
11,081

 
10,208

Selling
 
2,533

 
4,975

 
6,389

 
8,878

Marketing
 
12,196

 
10,056

 
23,659

 
19,906

General and administrative
 
15,855

 
12,711

 
29,724

 
24,790

Depreciation and amortization
 
1,939

 
1,948

 
3,825

 
3,882

Business transaction costs
 
290

 
1,877

 
1,329

 
1,877

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

 
(3,668
)
 
533

 
(3,026
)
Other expense
 
22

 
184

 
21

 
430

Total operating expenses
 
38,632

 
33,474

 
76,561

 
66,945

 
 
 
 
 
 
 
 
 
Income from operations
 
19,002

 
16,783

 
40,184

 
36,069

 
 
 
 
 
 
 
 
 
Other income (expense):
 
 
 
 
 
 
 
 
Interest income
 
884

 

 
1,665

 

Interest expense
 
(3,344
)
 
(3,093
)
 
(6,605
)
 
(6,112
)
Gain on settlement of TRA liability
 

 

 
1,534

 

Gain (loss) on foreign currency transactions
 
130

 
601

 
(268
)
 
956

Other income
 
77

 
312

 
121

 
398

Total other expense
 
(2,253
)
 
(2,180
)
 
(3,553
)
 
(4,758
)
 
 
 
 
 
 
 
 
 
Income before income taxes
 
16,749

 
14,603

 
36,631

 
31,311

Income tax expense (benefit)
 
4,027

 
(26,791
)
 
8,652

 
(20,301
)
Net income
 
$
12,722

 
$
41,394

 
$
27,979

 
$
51,612

 
 
 
 
 
 
 
 
 
Other comprehensive income:
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
 
(179
)
 
(101
)
 
(37
)
 
(800
)
Comprehensive income
 
$
12,543

 
$
41,293

 
$
27,942

 
$
50,812

 
 
 
 
 
 
 
 
 
Earnings per share from net income:
 
 
 
 
 
 
 
 
Basic
 
$
0.16

 
$
0.59

 
$
0.35

 
$
0.73

Diluted
 
$
0.15

 
$
0.56

 
$
0.33

 
$
0.71

Weighted average shares outstanding:
 
 
 
 
 
 
 
 
Basic
 
81,900,352

 
70,582,573

 
79,595,330

 
70,576,744

Diluted
 
85,350,196

 
73,832,207

 
84,062,479

 
72,605,705


5



The Simply Good Foods Company and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited, dollars in thousands)
 
 
Twenty-Six Weeks Ended
 
 
February 23, 2019
 
February 24, 2018
Operating activities
 
 
 
 
Net income
 
$
27,979

 
$
51,612

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
3,825

 
3,882

Amortization of deferred financing costs and debt discount
 
668

 
645

Stock compensation expense
 
2,478

 
1,967

Loss (gain) on fair value change of contingent consideration - TRA liability
 
533

 
(3,026
)
Gain on settlement of TRA liability
 
(1,534
)
 

Unrealized loss (gain) on foreign currency transactions
 
268

 
(956
)
Deferred income taxes
 
8,463

 
(23,398
)
Loss on disposal of property and equipment
 
6

 
72

Changes in operating assets and liabilities:
 
 
 
 
Accounts receivable, net
 
(8,774
)
 
(4,672
)
Inventories
 
(15,855
)
 
3,284

Prepaid expenses
 
(384
)
 
(909
)
Other current assets
 
(2,092
)
 
(2,346
)
Accounts payable
 
6,143

 
(2,601
)
Accrued interest
 
1,949

 
(15
)
Accrued expenses and other current liabilities
 
(1,810
)
 
1,726

Other
 
(32
)
 
86

Net cash provided by operating activities
 
21,831

 
25,351

 
 
 
 
 
Investing activities
 
 
 
 
Purchases of property and equipment
 
(887
)
 
(886
)
Acquisition of business, net of cash acquired
 

 
(1,757
)
Net cash used in investing activities
 
(887
)
 
(2,643
)
 
 
 
 
 
Financing activities
 
 
 
 
Proceeds from option exercises
 
361

 

Issuance of common stock
 
(5
)
 

Cash received from warrant exercises
 
113,464

 
231

Repurchase of common stock
 
(127
)
 

Settlement of TRA liability
 
(26,468
)
 

Principal payments of long-term debt
 
(1,000
)
 
(500
)
Net cash provided by (used in) financing activities
 
86,225

 
(269
)
 
 
 
 
 
Cash and cash equivalents
 
 
 
 
Net increase in cash
 
107,169

 
22,439

Effect of exchange rate on cash
 
(243
)
 
70

Cash at beginning of period
 
111,971

 
56,501

Cash and cash equivalents at end of period
 
$
218,897

 
$
79,010

 
 
 
 
 
Supplemental disclosures of cash flow information
 
 
 
 
Cash paid for interest
 
$
3,988

 
$
5,481

Cash paid for taxes
 
$
420

 
$
1,755



6




Reconciliation of Adjusted EBITDA
Adjusted EBITDA. Adjusted EBITDA is a non-GAAP financial measure commonly used in our industry and should not be construed as an alternative to net income as an indicator of operating performance or as an alternative to cash flow provided by operating activities as a measure of liquidity (each as determined in accordance with GAAP). Simply Good Foods defines Adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) as net income before interest expense, income tax expense, depreciation and amortization with further adjustments to exclude the following items: stock-based compensation and warrant expense, business transaction costs, restructuring costs, management fees, frozen media licensing fees, transactional exchange impact, change in fair value of contingent consideration - TRA liability, and other non-core expenses. The Company believes that the inclusion of these supplementary adjustments in presenting Adjusted EBITDA are appropriate to provide additional information to investors and reflects more accurately operating results of the on-going operations. Adjusted EBITDA may not be comparable to other similarly titled captions of other companies due to differences in calculation.
The following unaudited table below provide a reconciliation of adjusted EBITDA to its most directly comparable GAAP measure, which is net income, for the thirteen weeks and twenty-six weeks ended February 23, 2019 and February 24, 2018:

Adjusted EBITDA Reconciliation:
(in thousands)
 
Thirteen Weeks Ended
 
Twenty-Six Weeks Ended
 
February 23, 2019
 
February 24, 2018
 
February 23, 2019
 
February 24, 2018
Net income
 
$
12,722

 
$
41,394

 
$
27,979

 
$
51,612

Interest income
 
(884
)
 

 
(1,665
)
 

Interest expense
 
3,344

 
3,093

 
6,605

 
6,112

Income tax expense (benefit)
 
4,027

 
(26,791
)
 
8,652

 
(20,301
)
Depreciation and amortization
 
1,939

 
1,948

 
3,825

 
3,882

EBITDA
 
21,148

 
19,644

 
45,396

 
41,305

Business transaction costs
 
290

 
1,877

 
1,329

 
1,877

Share-based compensation expense
 
1,417

 
899

 
2,478

 
1,967

Restructuring
 
22

 
184

 
22

 
430

Non-core legal costs
 
208

 
403

 
1,150

 
779

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

 
(3,668
)
 
533

 
(3,026
)
Gain on settlement of TRA liability
 

 

 
(1,534
)
 

Other (1)
 
(120
)
 
(532
)
 
289

 
(815
)
Adjusted EBITDA
 
$
22,965

 
$
18,807

 
$
49,663

 
$
42,517

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


7

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