The Simply Good Foods Company Reports Fiscal First Quarter 2020 Financial Results; Updates Full Fiscal Year 2020 Outlook
“Simply Good Foods, first quarter results represent a good start to fiscal 2020 as we build on our strong 2019 performance,” said
"The Quest acquisition is an exciting milestone for
First Quarter 2019 Financial Highlights vs. First Quarter 2018
- Net sales increased 25.8%, or
$31.2 million , to$152.2 million
- Gross profit margin of 40.9%, a decrease of 200 basis points
- Includes a non-cash
$2.4 million inventory purchase accounting step-up adjustment related to the Quest acquisition
- Includes a non-cash
- Income tax benefit was
$1.7 million versus expense of$4.6 million
- Net loss of
$4.8 million vs. Net income of$15.3 million
- Adjusted EBITDA(1) increased 19.1% to
$31.8 million
- Earnings (loss) per diluted share (“EPS”),
$(0.05) , a decrease of$0.23 per fully diluted share
- Adjusted Diluted EPS (1) of
$0.22 , the same as the year ago period
Net sales increased
Gross profit was
In the first quarter of 2020 the Company reported a net loss of
- a 20.3% increase in selling and marketing expenses due to the inclusion of Quest, and the timing of greater legacy Atkins advertising expense discussed last quarter;
- a 51.2% increase in general and administrative expenses as a result of:
- the inclusion of Quest;
- the timing of higher legacy Atkins incentive compensation discussed last quarter; and
- integration expenses of
$1.4 million ;
- the inclusion of Quest;
- Business transaction costs of
$26.2 million ; and
- Higher net interest income and expense of about
$1.1 million due to an increase in the principal amount of the Company’s term loan related to the financing for the Quest acquisition.
Adjusted EBITDA1, a non-GAAP financial measure used by the Company that makes certain adjustments to net (loss) income calculated under GAAP, increased 19.1% to
Adjusted Diluted Earnings Per Share2, a non-GAAP financial measure used by the Company that makes certain adjustments to diluted earnings per share calculated under GAAP, was
Balance Sheet and Cash Flow
On
As of November 30, 2019, the Company had cash and cash equivalents of
Outlook
“We are pleased with our start to the year and the progress we are making against our strategic initiatives that build on our existing capabilities and strengthen our brands. Of course, one of our key goals in 2020 is the integration of Quest. I'm pleased to report that this work is well underway and progressing as planned. Collaboration of both leadership teams is excellent and gives us confidence that we will deliver on our integration plans. We have good marketplace momentum across the business and are confident in achieving our fiscal 2020 financial commitments,” Scalzo concluded.
For the full year fiscal 2020, the Company updated its outlook for the acquisition of Quest and anticipates full-year net sales of
The Company anticipates 2020 Adjusted Diluted Earnings Per Share2,4 to be in the range of
________________________________________
| (1) | Adjusted EBITDA is a non-GAAP financial measure. Please refer to “Reconciliation of Adjusted EBITDA” in this press release for an explanation and reconciliation of this non-GAAP financial measure. |
| (2) | Adjusted Diluted Earnings Per Share is a non-GAAP financial measure. The Company excludes acquisition related costs, such as business transaction costs, integration expense and depreciation and amortization expense in calculating Adjusted Diluted Earnings Per Share. Please refer to “Reconciliation of Adjusted Diluted Earnings Per Share” in this press release for an explanation and reconciliation of this non-GAAP financial measure. |
| (3) | London Interbank Offered Rate |
| (4) | The Company does not provide a forward-looking reconciliation of Adjusted Diluted Earnings Per Share to Earnings Per Share or Adjusted EBITDA to Net Income, the most directly comparable GAAP financial measures, expected for 2020, because we are unable to provide such a reconciliation without unreasonable effort due to the unavailability of reliable estimates for certain components of the respective reconciliations, including the timing of and amount of integration costs associated with the Quest acquisition, and the inherent difficulty of predicting what the changes in these components will be throughout the fiscal year. As these items may vary greatly between periods, we are unable to address the probable significance of the unavailable information, which could significantly affect our future financial results. |
Conference Call and Webcast Information
The Company will host a conference call with members of the executive management team to discuss these results today,
In addition, the call and accompanying presentation slides will be broadcast live over the Internet hosted at the “Investor Relations” section of the Company's website at http://www.thesimplygoodfoodscompany.com. A telephone replay will be available approximately two hours after the call concludes and will be available through
About The
The
Forward Looking Statements
Certain statements made herein are not historical facts but are forward-looking statements for purposes of the safe harbor provisions under The Private Securities Litigation Reform Act of 1995. Forward-looking statements generally are accompanied by or include words such as “will”, “expect”, “intends” or other similar words, phrases or expressions. These forward-looking statements include statements regarding the integration of Quest, future plans for the Company, the estimated or anticipated future results and benefits of the Company’s future plans and operations, future capital structure, future opportunities for the Company, and other statements that are not historical facts. These statements are based on the current expectations of the Company’s management and are not predictions of actual performance. These statements are subject to a number of risks and uncertainties and the Company’s business and actual results may differ materially. These risks and uncertainties include, but are not limited to achieving the anticipated benefits of the Quest acquisition; difficulties and delays in achieving the synergies and cost savings in connection with the Quest acquisition; changes in the business environment in which the Company operates including general financial, economic, capital market, regulatory and political conditions affecting the Company and the industry in which the Company operates; changes in consumer preferences and purchasing habits; the Company’s ability to maintain adequate product inventory levels to timely supply customer orders; 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 or Quest’s management team; and other risk factors described from time to time in the Company’s Form 10-K, Form 10-Q, and Form 8-K reports (including all amendments to those reports) filed with the
Investor Contact
Vice President, Investor Relations, Treasury and Business Development
The
717-307-8197
mpogharian@thesimplygoodfoodscompany.com
The
Condensed Consolidated Balance Sheets
(Unaudited, dollars in thousands, except share data)
| November 30, 2019 | August 31, 2019 | ||||||||
| Assets | |||||||||
| Current assets: | |||||||||
| Cash and cash equivalents | $ | 72,711 | $ | 266,341 | |||||
| Accounts receivable, net | 69,593 | 44,240 | |||||||
| Inventories | 90,378 | 38,085 | |||||||
| Prepaid expenses | 7,570 | 2,882 | |||||||
| Other current assets | 12,388 | 6,059 | |||||||
| Total current assets | 252,640 | 357,607 | |||||||
| Long-term assets: | |||||||||
| Property and equipment, net | 13,080 | 2,456 | |||||||
| Intangible assets, net | 1,153,157 | 306,139 | |||||||
| Goodwill | 567,464 | 471,427 | |||||||
| Other long-term assets | 29,720 | 4,021 | |||||||
| Total assets | $ | 2,016,061 | $ | 1,141,650 | |||||
| Liabilities and stockholders’ equity | |||||||||
| Current liabilities: | |||||||||
| Accounts payable | $ | 34,413 | $ | 15,730 | |||||
| Accrued interest | 3,229 | 1,693 | |||||||
| Accrued expenses and other current liabilities | 51,798 | 29,933 | |||||||
| Current maturities of long-term debt | 5,291 | 676 | |||||||
| Total current liabilities | 94,731 | 48,032 | |||||||
| Long-term liabilities: | |||||||||
| Long-term debt, less current maturities | 638,034 | 190,259 | |||||||
| Deferred income taxes | 77,512 | 65,383 | |||||||
| Other long-term liabilities | 22,103 | 532 | |||||||
| Total liabilities | 832,380 | 304,206 | |||||||
| See commitments and contingencies (Note 10) | |||||||||
| 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, 95,416,772 and 81,973,284 issued at November 30, 2019 and August 31, 2019, respectively | 954 | 820 | |||||||
| Treasury stock, 98,234 and 98,234 shares at cost at November 30, 2019 and August 31, 2019, respectively | (2,145 | ) | (2,145 | ) | |||||
| Additional paid-in-capital | 1,084,671 | 733,775 | |||||||
| Retained earnings | 101,037 | 105,830 | |||||||
| Accumulated other comprehensive loss | (836 | ) | (836 | ) | |||||
| Total stockholders’ equity | 1,183,681 | 837,444 | |||||||
| Total liabilities and stockholders’ equity | $ | 2,016,061 | $ | 1,141,650 | |||||
The
Condensed Consolidated Statements of Operations and Comprehensive Income
(Unaudited, dollars in thousands, except share data)
| Thirteen Weeks Ended | ||||||||
| November 30, 2019 | November 24, 2018 | |||||||
| Net sales | $ | 152,153 | $ | 120,931 | ||||
| Cost of goods sold | 89,947 | 69,011 | ||||||
| Gross profit | 62,206 | 51,920 | ||||||
| Operating expenses: | ||||||||
| Selling and marketing | 18,434 | 15,319 | ||||||
| General and administrative | 18,145 | 11,998 | ||||||
| Depreciation and amortization | 2,453 | 1,849 | ||||||
| Business transaction costs | 26,159 | 1,039 | ||||||
| Loss in fair value change of contingent consideration - TRA liability | — | 533 | ||||||
| Total operating expenses | 65,191 | 30,738 | ||||||
| Income (loss) from operations | (2,985 | ) | 21,182 | |||||
| Other (expense) income: | ||||||||
| Interest income | 1,379 | 781 | ||||||
| Interest expense | (4,969 | ) | (3,261 | ) | ||||
| Gain on settlement of TRA liability | — | 1,534 | ||||||
| Gain (loss) on foreign currency transactions | 16 | (398 | ) | |||||
| Other income | 37 | 44 | ||||||
| Total other expense | (3,537 | ) | (1,300 | ) | ||||
| (Loss) income before income taxes | (6,522 | ) | 19,882 | |||||
| Income tax (benefit) expense | (1,729 | ) | 4,625 | |||||
| Net (loss) income | $ | (4,793 | ) | $ | 15,257 | |||
| Other comprehensive (loss) income: | ||||||||
| Foreign currency translation adjustments | — | 142 | ||||||
| Comprehensive (loss) income | $ | (4,793 | ) | $ | 15,399 | |||
| Earnings per share from net (loss) income: | ||||||||
| Basic | $ | (0.05 | ) | $ | 0.20 | |||
| Diluted | $ | (0.05 | ) | $ | 0.18 | |||
| Weighted average shares outstanding: | ||||||||
| Basic | 89,708,633 | 77,290,307 | ||||||
| Diluted | 89,708,633 | 82,774,761 | ||||||
The
Condensed Consolidated Statements of Cash Flows
(Unaudited, dollars in thousands)
| Thirteen Weeks Ended | ||||||||
| November 30, 2019 | November 24, 2018 | |||||||
| Operating activities | ||||||||
| Net (loss) income | $ | (4,793 | ) | $ | 15,257 | |||
| Adjustments to reconcile net (loss) income to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | 2,525 | 1,886 | ||||||
| Amortization of deferred financing costs and debt discount | 455 | 334 | ||||||
| Stock compensation expense | 1,673 | 1,061 | ||||||
| Loss on fair value change of contingent consideration - TRA liability | — | 533 | ||||||
| Gain on settlement of TRA liability | — | (1,534 | ) | |||||
| Unrealized (gain) loss on foreign currency transactions | (16 | ) | 398 | |||||
| Deferred income taxes | (1,853 | ) | 4,465 | |||||
| Amortization of operating lease right-of-use asset | 626 | — | ||||||
| Other | 566 | — | ||||||
| Changes in operating assets and liabilities, net of acquisition: | ||||||||
| Accounts receivable, net | 4,304 | (592 | ) | |||||
| Inventories | (9,740 | ) | (8,112 | ) | ||||
| Prepaid expenses | (3,513 | ) | (2,042 | ) | ||||
| Other current assets | (1,416 | ) | (2,567 | ) | ||||
| Accounts payable | (6,533 | ) | 5,777 | |||||
| Accrued interest | 1,536 | (36 | ) | |||||
| Accrued expenses and other current liabilities | 8,556 | (1,885 | ) | |||||
| Other assets and liabilities | (305 | ) | 5 | |||||
| Net cash (used in) provided by operating activities | (7,928 | ) | 12,948 | |||||
| Investing activities | ||||||||
| Purchases of property and equipment | (280 | ) | (494 | ) | ||||
| Issuance of note receivable | (1,250 | ) | — | |||||
| Acquisition of business, net of cash acquired | (984,201 | ) | — | |||||
| Net cash (used in) investing activities | (985,731 | ) | (494 | ) | ||||
| Financing activities | ||||||||
| Proceeds from option exercises | 208 | 53 | ||||||
| Tax payments related to issuance of restricted stock units | (70 | ) | — | |||||
| Payments on finance lease obligations | (78 | ) | — | |||||
| Cash received from warrant exercises | — | 113,464 | ||||||
| Settlement of TRA liability | — | (26,468 | ) | |||||
| Principal payments of long-term debt | (1,000 | ) | (500 | ) | ||||
| Proceeds from issuance of common stock | 352,542 | — | ||||||
| Equity issuance costs | (3,323 | ) | — | |||||
| Proceeds from issuance of long term debt | 460,000 | — | ||||||
| Deferred financing costs | (8,208 | ) | — | |||||
| Net cash provided by financing activities | 800,071 | 86,549 | ||||||
| Cash and cash equivalents | ||||||||
| Net increase (decrease) in cash | (193,588 | ) | 99,003 | |||||
| Effect of exchange rate on cash | (42 | ) | (213 | ) | ||||
| Cash at beginning of period | 266,341 | 111,971 | ||||||
| Cash and cash equivalents at end of period | $ | 72,711 | $ | 210,761 | ||||
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 (loss) income as an indicator of operating performance or as an alternative to cash flow provided by operating activities as a measure of liquidity (each as determined in accordance with GAAP).
The following unaudited tables below provide a reconciliation of Adjusted EBITDA to its most directly comparable GAAP measure, which is net (loss) income, for the thirteen weeks November 30, 2019 and November 24, 2018:
| Adjusted EBITDA Reconciliation: (in thousands) |
Thirteen Weeks Ended | |||||||
| November 30, 2019 | November 24, 2018 | |||||||
| Net (loss) income | $ | (4,793 | ) | $ | 15,257 | |||
| Interest income | (1,379 | ) | (781 | ) | ||||
| Interest expense | 4,969 | 3,261 | ||||||
| Income tax (benefit) expense | (1,729 | ) | 4,625 | |||||
| Depreciation and amortization | 2,525 | 1,886 | ||||||
| EBITDA | (407 | ) | 24,248 | |||||
| Business transaction costs | 26,159 | 1,039 | ||||||
| Stock-based compensation expense | 1,673 | 1,061 | ||||||
| Inventory step-up | 2,437 | — | ||||||
| Integration of Quest | 1,438 | — | ||||||
| Non-core legal costs | 479 | 942 | ||||||
| Loss in fair value change of contingent consideration - TRA liability | — | 533 | ||||||
| Gain on settlement of TRA liability | — | (1,534 | ) | |||||
| Other (1) | 16 | 411 | ||||||
| Adjusted EBITDA | $ | 31,795 | $ | 26,700 | ||||
(1) Other items consist principally of exchange impact of foreign currency transactions, frozen licensing media and other expenses.
Reconciliation of Adjusted Diluted Earnings Per Share
Adjusted Diluted Earnings per Share. Adjusted Diluted Earnings per Share is a non-GAAP financial measure commonly used in our industry and should not be construed as an alternative to diluted earnings per share as an indicator of operating performance.
The following unaudited tables below provide a reconciliation of Adjusted Diluted Earnings Per Share to its most directly comparable GAAP measure, which is diluted earnings per share, for the thirteen weeks ended November 30, 2019 and November 24, 2018, and fifty three weeks ended
| Thirteen Weeks Ended | 53-Weeks Ended | |||||||||||
| November 30, 2019 | November 24, 2018 | August 31, 2019 | ||||||||||
| Diluted earnings (loss) per share | $ | (0.05 | ) | $ | 0.18 | $ | 0.56 | |||||
| Depreciation and amortization | 0.02 | 0.02 | 0.07 | |||||||||
| Business transaction costs | 0.22 | 0.01 | 0.06 | |||||||||
| Stock-based compensation expense | 0.01 | 0.01 | 0.05 | |||||||||
| Inventory step-up | 0.02 | — | — | |||||||||
| Integration of Quest | 0.01 | — | — | |||||||||
| Non-core legal costs | — | 0.01 | 0.04 | |||||||||
| Loss (gain) in fair value change of contingent consideration - TRA liability | — | — | — | |||||||||
| Gain on settlement of TRA liability | — | (0.01 | ) | (0.01 | ) | |||||||
| Other (1) | — | — | — | |||||||||
| Net loss impact on diluted earnings per share | (0.01 | ) | — | |||||||||
| Adjusted diluted earnings per share | $ | 0.22 | $ | 0.22 | $ | 0.77 | ||||||
(1) Other items consist principally of exchange impact of foreign currency transactions, frozen licensing media, restructuring and other expenses.
Source: The Simply Good Foods Company