The Simply Good Foods Company Reports Third Quarter Fiscal Year 2023 Financial Results and Reaffirms Full Fiscal Year 2023 Outlook
Third Quarter Summary:(1)
- Net sales of
$324.8 million versus$316.5 million - Net income(2) of
$35.4 million versus$38.8 million - Earnings per diluted share (“EPS”)(2) of
$0.35 versus$0.38 - Adjusted Diluted EPS(3) of
$0.44 , the same as the year ago period - Adjusted EBITDA(4) of
$66.6 million versus$63.3 million
Reaffirm Full Year Fiscal 2023 Outlook:
- Net sales expected to increase slightly greater than the Company's long-term algorithm of 4-6%, including a headwind of almost 1 percentage point related to the frozen pizza licensing
- Adjusted EBITDA(4,6) anticipated to increase, but slightly less than the net sales growth rate.
“I’m pleased with our third-quarter financial and marketplace results that were greater than our expectations,” said
“As we enter the fourth quarter we are on track to deliver on our full-year objectives while also positioning the Company for success in fiscal 2024,” said
Fiscal Third Quarter 2023 Results
Net sales increased
Gross profit was
In the third quarter of fiscal 2023, the Company reported net income of
Operating expenses of
Net interest income and interest expense was
Adjusted EBITDA(4), a non-GAAP financial measure used by the Company that makes certain adjustments to net income calculated under GAAP, was
In the third quarter of fiscal 2023, the Company reported earnings per diluted share (“Diluted EPS”) of
Adjusted Diluted EPS(3), a non-GAAP financial measure used by the Company that makes certain adjustments to Diluted EPS calculated under GAAP, was
Year-to-Date Third Quarter 2023 Highlights vs. Year-to-Date Third Quarter 2022
- Net sales were
$922.3 million versus$894.5 million - Net income(2) of
$96.9 million versus$78.4 million - Earnings per diluted share (“EPS”)(2) of
$0.96 versus$0.78 - Adjusted Diluted EPS(3) of
$1.18 versus$1.23 - Adjusted EBITDA(4) of
$178.3 million versus$183.1 million
Net sales increased
Gross profit was
Net income was
Operating expenses of
Net interest income and interest expense was
Adjusted EBITDA(4), a non-GAAP financial measure used by the Company that makes certain adjustments to net income calculated under GAAP, declined 2.6% to
For the year-to-date third quarter fiscal 2023, the Company reported Diluted EPS of
Adjusted Diluted EPS(3), a non-GAAP financial measure used by the Company that makes certain adjustments to Diluted EPS calculated under GAAP, was
Balance Sheet and Cash Flow
As of
During the third quarter of fiscal 2023 the Company repaid
Outlook
The Company has a portfolio of brands aligned with consumer mega-trends of both health and wellness, convenience and on-the-go nutrition. As such, despite the challenging economic environment, the Company believes it is well positioned to deliver on its objectives. Therefore, the Company reaffirms its prior full year outlook and anticipates the following for the full fiscal year 2023:
- Net sales to increase slightly greater than the 4-6% long-term algorithm. Included in the sales outlook is a headwind of almost 1 percentage point related to the previously discussed agreement to license the Quest frozen pizza business;
- Gross margin will decline versus last year, although at a lower rate than fiscal 2022;
- Adjusted EBITDA(4,6) to increase, but slightly less than the net sales growth rate; and,
- Adjusted Diluted EPS(3,6) to increase less than the Adjusted EBITDA(4,6) growth rate primarily due to higher interest expense from an increase in the variable interest rate related to its term loan debt.
___________________________________
(1) All comparisons for the third quarter ended
(2) Reflects, for the reporting period, the Company’s private warrants to purchase shares of common stock now being classified as a liability and measured at fair value, with changes in fair value each period reported in earnings in accordance with Accounting Standards Codification 815-40, Derivatives and Hedging: Contracts in Entity’s Own Equity, which affected Net income and fully diluted shares outstanding.
(3) Adjusted Diluted Earnings Per Share is a non-GAAP financial measure. Please refer to “Reconciliation of Adjusted Diluted Earnings Per Share” in this press release for an explanation and reconciliation of this non-GAAP financial measure.
(4) Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA") is a non-GAAP financial measure. Please refer to “Reconciliation of EBITDA and Adjusted EBITDA” in this press release for an explanation and reconciliation of this non-GAAP financial measure.
(5) Net Debt to Adjusted EBITDA is a non-GAAP financial measure. Please refer to “Reconciliation of Net Debt to Adjusted EBITDA” in this press release for an explanation and reconciliation of this non-GAAP financial measure.
(6) The Company does not provide a forward-looking reconciliation of Adjusted Diluted Earnings Per Share to Earnings Per Share or Adjusted EBITDA to Net Income, the most directly comparable GAAP financial measures, expected for 2023, because we are unable to provide such a reconciliation without unreasonable effort due to the unavailability of reliable estimates for certain components of consolidated net income and the respective reconciliations, 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,
About
Forward Looking Statements
Certain statements made herein are not historical facts but are forward-looking statements for purposes of the safe harbor provisions under The Private Securities Litigation Reform Act of 1995. Forward-looking statements generally are accompanied by or include words such as “will”, “expect”, “intends” or other similar words, phrases or expressions. These statements relate to future events or our future financial or operational performance and involve known and unknown risks, uncertainties and other factors that could cause our actual results, levels of activity, performance or achievement to differ materially from those expressed or implied by these forward-looking statements. We caution that these forward-looking statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Undue reliance should not be placed on forward-looking statements. These statements reflect our current views with respect to future events, are based on assumptions and are subject to risks and uncertainties. These forward-looking statements include, among other things, statements regarding the effect of the novel coronavirus (“COVID-19”) on our business, financial condition and results of operations, our ability to continue to operate at a profit, the sufficiency of our sources of liquidity and capital, our ability to maintain current operation levels, our ability to maintain and gain market acceptance for our products or new products, our ability to capitalize on attractive opportunities, our ability to respond to competition and changes in the economy, unexpected costs, the amounts of or changes with respect to certain anticipated restructuring, raw materials and other costs, difficulties and delays in achieving the synergies and cost savings in connection with the Quest Acquisition, changes in the business environment in which we operate including general financial, economic, capital market, regulatory and political conditions affecting us and the industry in which we operate, unforeseen business disruptions or other effects due to current global geopolitical tensions, including relating to
Investor Contact
Vice President, Investor Relations,
(720) 768-2681
mpogharian@simplygoodfoodsco.com
| Consolidated Balance Sheets | ||||||||
| (Unaudited, dollars in thousands, except share and per share data) | ||||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash | $ | 68,794 | $ | 67,494 | ||||
| Accounts receivable, net | 145,430 | 132,667 | ||||||
| Inventories | 105,437 | 125,479 | ||||||
| Prepaid expenses | 5,759 | 5,027 | ||||||
| Other current assets | 24,390 | 20,934 | ||||||
| Total current assets | 349,810 | 351,601 | ||||||
| Long-term assets: | ||||||||
| Property and equipment, net | 24,414 | 18,157 | ||||||
| Intangible assets, net | 1,111,865 | 1,123,258 | ||||||
| 543,134 | 543,134 | |||||||
| Other long-term assets | 50,778 | 58,099 | ||||||
| Total assets | $ | 2,080,001 | $ | 2,094,249 | ||||
| Liabilities and stockholders’ equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 45,867 | $ | 62,149 | ||||
| Accrued interest | 43 | 160 | ||||||
| Accrued expenses and other current liabilities | 25,166 | 39,675 | ||||||
| Current maturities of long-term debt | 199 | 264 | ||||||
| Total current liabilities | 71,275 | 102,248 | ||||||
| Long-term liabilities: | ||||||||
| Long-term debt, less current maturities | 320,900 | 403,022 | ||||||
| Deferred income taxes | 117,281 | 105,676 | ||||||
| Other long-term liabilities | 39,727 | 44,639 | ||||||
| Total liabilities | 549,183 | 655,585 | ||||||
| Stockholders’ equity: | ||||||||
| Preferred stock, |
— | — | ||||||
| Common stock, |
1,019 | 1,013 | ||||||
| (78,451 | ) | (62,003 | ) | |||||
| Additional paid-in-capital | 1,299,318 | 1,287,224 | ||||||
| Retained earnings | 311,314 | 214,381 | ||||||
| Accumulated other comprehensive loss | (2,382 | ) | (1,951 | ) | ||||
| Total stockholders’ equity | 1,530,818 | 1,438,664 | ||||||
| Total liabilities and stockholders’ equity | $ | 2,080,001 | $ | 2,094,249 | ||||
| Consolidated Statements of Income and Comprehensive Income | ||||||||||||||||
| (Unaudited, dollars in thousands, except share and per share data) | ||||||||||||||||
| Thirteen Weeks Ended | Thirty-Nine Weeks Ended | |||||||||||||||
| Net sales | $ | 324,792 | $ | 316,531 | $ | 922,254 | $ | 894,514 | ||||||||
| Cost of goods sold | 205,546 | 197,883 | 589,284 | 550,788 | ||||||||||||
| Gross profit | 119,246 | 118,648 | 332,970 | 343,726 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Selling and marketing | 30,168 | 32,334 | 88,650 | 94,816 | ||||||||||||
| General and administrative | 30,510 | 26,721 | 82,085 | 76,711 | ||||||||||||
| Depreciation and amortization | 4,363 | 4,317 | 13,035 | 12,966 | ||||||||||||
| Total operating expenses | 65,041 | 63,372 | 183,770 | 184,493 | ||||||||||||
| Income from operations | 54,205 | 55,276 | 149,200 | 159,233 | ||||||||||||
| Other income (expense): | ||||||||||||||||
| Interest income | 407 | — | 660 | 1 | ||||||||||||
| Interest expense | (7,649 | ) | (4,881 | ) | (23,201 | ) | (16,528 | ) | ||||||||
| Loss in fair value change of warrant liability | — | — | — | (30,062 | ) | |||||||||||
| Gain on foreign currency transactions | 180 | 76 | 74 | 503 | ||||||||||||
| Other income | 4 | 17 | 10 | 26 | ||||||||||||
| Total other expense | (7,058 | ) | (4,788 | ) | (22,457 | ) | (46,060 | ) | ||||||||
| Income before income taxes | 47,147 | 50,488 | 126,743 | 113,173 | ||||||||||||
| Income tax expense | 11,716 | 11,654 | 29,810 | 34,726 | ||||||||||||
| Net income | $ | 35,431 | $ | 38,834 | $ | 96,933 | $ | 78,447 | ||||||||
| Other comprehensive income: | ||||||||||||||||
| Foreign currency translation, net of reclassification adjustments | (262 | ) | (72 | ) | (431 | ) | (820 | ) | ||||||||
| Comprehensive income | $ | 35,169 | $ | 38,762 | $ | 96,502 | $ | 77,627 | ||||||||
| Earnings per share from net income: | ||||||||||||||||
| Basic | $ | 0.36 | $ | 0.39 | $ | 0.98 | $ | 0.80 | ||||||||
| Diluted | $ | 0.35 | $ | 0.38 | $ | 0.96 | $ | 0.78 | ||||||||
| Weighted average shares outstanding: | ||||||||||||||||
| Basic | 99,518,546 | 100,426,227 | 99,404,174 | 98,294,114 | ||||||||||||
| Diluted | 100,909,972 | 102,237,457 | 100,847,970 | 100,190,068 | ||||||||||||
| Consolidated Statements of Cash Flows | ||||||||
| (Unaudited, dollars in thousands) | ||||||||
| Thirty-Nine Weeks Ended | ||||||||
| Operating activities | ||||||||
| Net income | $ | 96,933 | $ | 78,447 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | 15,044 | 14,398 | ||||||
| Amortization of deferred financing costs and debt discount | 2,011 | 2,073 | ||||||
| Stock compensation expense | 10,456 | 8,691 | ||||||
| Change in fair value change of warrant liability | — | 30,062 | ||||||
| Estimated credit losses | 206 | 148 | ||||||
| Unrealized loss (gain) on foreign currency transactions | (74 | ) | (503 | ) | ||||
| Deferred income taxes | 11,696 | 14,140 | ||||||
| Amortization of operating lease right-of-use asset | 5,018 | 4,955 | ||||||
| Gain on lease termination | — | (30 | ) | |||||
| Other | 759 | 345 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable, net | (13,334 | ) | (35,269 | ) | ||||
| Inventories | 19,444 | (15,006 | ) | |||||
| Prepaid expenses | (745 | ) | (170 | ) | ||||
| Other current assets | (1,595 | ) | (37,288 | ) | ||||
| Accounts payable | (16,115 | ) | 5,585 | |||||
| Accrued interest | (117 | ) | 154 | |||||
| Accrued expenses and other current liabilities | (15,030 | ) | 676 | |||||
| Other assets and liabilities | (4,145 | ) | (4,045 | ) | ||||
| Net cash provided by operating activities | 110,412 | 67,363 | ||||||
| Investing activities | ||||||||
| Purchases of property and equipment | (10,108 | ) | (4,696 | ) | ||||
| Issuance of note receivable | — | (2,400 | ) | |||||
| Investments in intangible and other assets | (338 | ) | (187 | ) | ||||
| Net cash used in investing activities | (10,446 | ) | (7,283 | ) | ||||
| Financing activities | ||||||||
| Proceeds from option exercises | 5,035 | 4,343 | ||||||
| Tax payments related to issuance of restricted stock units and performance stock units | (2,755 | ) | (3,536 | ) | ||||
| Payments on finance lease obligations | (217 | ) | (235 | ) | ||||
| Repurchase of common stock | (16,448 | ) | (28,504 | ) | ||||
| Principal payments of long-term debt | (81,500 | ) | (50,000 | ) | ||||
| Deferred financing costs | (2,694 | ) | (544 | ) | ||||
| Net cash used in financing activities | (98,579 | ) | (78,476 | ) | ||||
| Cash and cash equivalents | ||||||||
| Net increase (decrease) in cash | 1,387 | (18,396 | ) | |||||
| Effect of exchange rate on cash | (87 | ) | (229 | ) | ||||
| Cash at beginning of period | 67,494 | 75,345 | ||||||
| Cash and cash equivalents at end of period | $ | 68,794 | $ | 56,720 | ||||
Reconciliation of EBITDA and Adjusted EBITDA
EBITDA and Adjusted EBITDA. EBITDA and Adjusted EBITDA are non-GAAP financial measures commonly used in our industry and should not be construed as alternatives to net income as an indicator of operating performance or as alternatives to cash flow provided by operating activities as a measure of liquidity (each as determined in accordance with GAAP).
The following unaudited table provides a reconciliation of EBITDA and Adjusted EBITDA to its most directly comparable GAAP measure, which is net income, for the thirteen and thirty-nine weeks ended
| (In thousands) |
Thirteen Weeks Ended | Thirty-Nine Weeks Ended | ||||||||||||||
| Net income | $ | 35,431 | $ | 38,834 | $ | 96,933 | $ | 78,447 | ||||||||
| Interest income | (407 | ) | — | (660 | ) | (1 | ) | |||||||||
| Interest expense | 7,649 | 4,881 | 23,201 | 16,528 | ||||||||||||
| Income tax expense | 11,716 | 11,654 | 29,810 | 34,726 | ||||||||||||
| Depreciation and amortization | 5,140 | 4,826 | 15,044 | 14,398 | ||||||||||||
| EBITDA | 59,529 | 60,195 | 164,328 | 144,098 | ||||||||||||
| Stock-based compensation expense | 4,124 | 2,994 | 10,456 | 8,691 | ||||||||||||
| Executive transition costs | 737 | — | 1,158 | — | ||||||||||||
| Integration of Quest | — | 175 | — | 468 | ||||||||||||
| Restructuring | — | — | — | 98 | ||||||||||||
| Loss in fair value change of warrant liability | — | — | — | 30,062 | ||||||||||||
| Term loan transaction fees | 2,423 | — | 2,423 | — | ||||||||||||
| Other (1) | (178 | ) | (73 | ) | (64 | ) | (331 | ) | ||||||||
| Adjusted EBITDA | $ | 66,635 | $ | 63,291 | $ | 178,301 | $ | 183,086 | ||||||||
| (1) Other items consist principally of exchange impact of foreign currency transactions and other expenses. | ||||||||||||||||
Reconciliation of Adjusted Diluted Earnings Per Share
Adjusted Diluted Earnings per Share. Adjusted Diluted Earnings per Share is a non-GAAP financial measure commonly used in our industry and should not be construed as an alternative to diluted earnings per share as an indicator of operating performance.
The following unaudited tables below provide a reconciliation of Adjusted Diluted Earnings Per Share to its most directly comparable GAAP measure, which is diluted earnings per share, for the thirteen and thirty-nine weeks ended
| Thirteen Weeks Ended | Thirty-Nine Weeks Ended | |||||||||||||||
| Diluted earnings per share | $ | 0.35 | $ | 0.38 | $ | 0.96 | $ | 0.78 | ||||||||
| Depreciation and amortization | 0.05 | 0.05 | 0.15 | 0.14 | ||||||||||||
| Stock-based compensation expense | 0.04 | 0.03 | 0.10 | 0.09 | ||||||||||||
| Executive transition costs | 0.01 | — | 0.01 | — | ||||||||||||
| Term loan transaction fees | 0.02 | — | 0.02 | — | ||||||||||||
| Other (1) | — | — | — | — | ||||||||||||
| Tax effects of adjustments (2) | (0.03 | ) | (0.02 | ) | (0.07 | ) | (0.06 | ) | ||||||||
| Loss in fair value change of warrant liability (3) | — | — | — | 0.30 | ||||||||||||
| Dilution impact from adjustments (3, 4) | — | — | — | (0.03 | ) | |||||||||||
| Rounding (5) | — | — | 0.01 | 0.01 | ||||||||||||
| Adjusted diluted earnings per share | $ | 0.44 | $ | 0.44 | $ | 1.18 | $ | 1.23 | ||||||||
| (1) Other items consist principally of exchange impact of foreign currency transactions and other expenses. | ||||||||||||||||
| (2) This line item reflects the aggregate tax effect of all non-tax adjustments reflected in the preceding line items of the table. The tax effect of each adjustment is computed (i) by dividing the gross amount of the adjustment, as shown in the Adjusted EBITDA reconciliation, by the number of diluted weighted average shares outstanding for the applicable fiscal period and (ii) applying an overall assumed statutory tax rate of 25% for the thirteen and thirty-nine weeks ended |
||||||||||||||||
| (3) Diluted earnings per share includes the fair value loss and related exclusion of anti-dilutive shares related to the Private Warrants in accordance with GAAP. With respect to the Company's non-GAAP measure, the non-cash fair value loss is reversed. The fair value adjustments are a permanent tax difference and do not effect tax expense. Note, mark to market gain adjustments are already excluded from the numerator, and dilutive shares are included, in calculating diluted earnings per share in accordance with GAAP. | ||||||||||||||||
| (4) As noted above, the Company excludes the non-cash fair value loss related to its private warrant liabilities. The Company subsequently considers the dilutive share count effect of such adjustment such that the shares excluded in accordance with GAAP are included in this non-GAAP measure. | ||||||||||||||||
| (5) Adjusted Diluted Earnings Per Share amounts are computed independently for each quarter. Therefore, the sum of the quarterly Adjusted Diluted Earnings Per Share amounts may not equal the year to date Adjusted Diluted Earnings Per Share amounts due to rounding. | ||||||||||||||||
Reconciliation of Net Debt to Adjusted EBITDA
Net Debt to Adjusted EBITDA. Net Debt to Adjusted EBITDA is a non-GAAP financial measure which
The following unaudited table below provides a reconciliation of Net Debt to its most directly comparable GAAP measure, which is total debt, and the calculation of the Net Debt to Adjusted EBITDA as of
| (In thousands) | ||||
| Total debt to Net Debt: | ||||
| Current maturities of long-term debt | $ | 199 | ||
| Long-term debt, less current maturities | 320,900 | |||
| Total debt | 321,099 | |||
| Less: Deferred financing fees | 4,103 | |||
| Less: Finance lease liabilities | (202 | ) | ||
| Total debt outstanding under the Credit Agreement | 325,000 | |||
| Less: Cash | (68,794 | ) | ||
| Net Debt | $ | 256,206 | ||
| Trailing twelve months Adjusted EBITDA: | ||||
| Add: Adjusted EBITDA for the thirty-nine weeks ended |
$ | 178,301 | ||
| Add: Adjusted EBITDA for the fiscal year ended |
234,043 | |||
| Less: Adjusted EBITDA for the thirty-nine weeks ended |
(183,086 | ) | ||
| Trailing twelve months Adjusted EBITDA as of |
$ | 229,258 | ||
| Net Debt to Adjusted EBITDA | 1.1 | x | ||
Source: Simply Good Foods USA, Inc.