SEC Filing | The Simply Good Foods Company

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atk-20231125

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_______________________________________________________

FORM 10-Q

_______________________________________________________


(Mark One)
☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended November 25, 2023


OR
o			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________

Commission File Number: 001-38115

___________________________________________________________________________________________________________

The Simply Good Foods Company

(Exact name of registrant as specified in its charter)

___________________________________________________________________________________________________________


Delaware						82-1038121
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

1225 17th Street, Suite 1000

Denver, CO 80202

(Address of principal executive offices and zip code)

(303) 633-2840

(Registrant’s telephone number, including area code)

___________________________________________________________________________________________________________

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading symbol

Name of each exchange on which registered

Common Stock, par value $0.01 per share

SMPL

Nasdaq

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Date File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of December 26, 2023, there were 99,812,510 shares of common stock, par value $0.01 per share, issued and outstanding.

THE SIMPLY GOOD FOODS COMPANY AND SUBSIDIARIES

FORM 10-Q

FOR THE QUARTER ENDED NOVEMBER 25, 2023

INDEX


		Page
PART I. Financial Information
Item 1.	Financial Statements (Unaudited)	3
	Consolidated Balance Sheets	3
	Consolidated Statements of Operations and Comprehensive Income	4
	Consolidated Statements of Cash Flows	5
	Consolidated Statements of Stockholders’ Equity	7
	Notes to Unaudited Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	26
Item 4.	Controls and Procedures	26
PART II. Other Information
Item 1.	Legal Proceedings	27
Item 1A.	Risk Factors	27
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	27
Item 3.	Defaults Upon Senior Securities	27
Item 4.	Mine Safety Disclosures	27
Item 5.	Other Information	27
Item 6.	Exhibits	28
	Signatures	29

PART I. Financial Information

Item 1. Financial Statements (Unaudited)

The Simply Good Foods Company and Subsidiaries

Consolidated Balance Sheets

(Unaudited, dollars in thousands, except share and per share data)


	November 25, 2023		August 26, 2023
Assets
Current assets:
Cash	$	121,391	$	87,715
Accounts receivable, net	135,561		145,078
Inventories	123,175		116,591
Prepaid expenses	6,076		6,294
Other current assets	10,336		15,974
Total current assets	396,539		371,652

Long-term assets:
Property and equipment, net	23,830		24,861
Intangible assets, net	1,104,318		1,108,119
Goodwill	543,134		543,134
Other long-term assets	47,238		49,318
Total assets	$	2,115,059	$	2,097,084

Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	43,249	$	52,712
Accrued interest	1,574		1,940
Accrued expenses and other current liabilities	34,083		35,062
Current maturities of long-term debt	83		143
Total current liabilities	78,989		89,857

Long-term liabilities:
Long-term debt, less current maturities	272,032		281,649
Deferred income taxes	120,200		116,133

Other long-term liabilities	36,660		38,346
Total liabilities	507,881		525,985
See commitments and contingencies (Note 9)

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, 102,175,233 and 101,929,868 shares issued at November 25, 2023 and August 26, 2023, respectively	1,022		1,019
Treasury stock, 2,365,100 shares and 2,365,100 shares at cost at November 25, 2023 and August 26, 2023, respectively	(78,451)		(78,451)
Additional paid-in-capital	1,303,411		1,303,168
Retained earnings	383,517		347,956
Accumulated other comprehensive loss	(2,321)		(2,593)
Total stockholders’ equity	1,607,178		1,571,099
Total liabilities and stockholders’ equity	$	2,115,059	$	2,097,084

See accompanying notes to the unaudited consolidated financial statements.

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The Simply Good Foods Company and Subsidiaries

Consolidated Statements of Operations and Comprehensive Income

(Unaudited, dollars in thousands, except share and per share data)


	Thirteen Weeks Ended
	November 25, 2023		November 26, 2022
Net sales	$	308,678	$	300,878
Cost of goods sold	193,560		189,886
Gross profit	115,118		110,992

Operating expenses:
Selling and marketing	31,990		28,534
General and administrative	26,950		25,641
Depreciation and amortization	4,358		4,327


Total operating expenses	63,298		58,502

Income from operations	51,820		52,490

Other income (expense):
Interest income	1,090		7
Interest expense	(6,034)		(7,055)


Gain on foreign currency transactions	226		108
Other income	6		6
Total other expense	(4,712)		(6,934)

Income before income taxes	47,108		45,556
Income tax expense	11,547		9,696
Net income	$	35,561	$	35,860

Other comprehensive income:
Foreign currency translation, net of reclassification adjustments	272		(222)
Comprehensive income	$	35,833	$	35,638

Earnings per share from net income:
Basic	$	0.36	$	0.36
Diluted	$	0.35	$	0.36
Weighted average shares outstanding:
Basic	99,629,188		99,200,557
Diluted	101,094,736		100,723,036

See accompanying notes to the unaudited consolidated financial statements.

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The Simply Good Foods Company and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited, dollars in thousands)


	Thirteen Weeks Ended
	November 25, 2023		November 26, 2022
Operating activities
Net income	$	35,561	$	35,860
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	5,605		4,952
Amortization of deferred financing costs and debt discount	385		532
Stock compensation expense	4,168		3,313

Estimated credit losses	51		(141)
Unrealized gain on foreign currency transactions	(226)		(108)
Deferred income taxes	4,084		3,206

Amortization of operating lease right-of-use asset	1,735		1,660



Other	301		571
Changes in operating assets and liabilities:
Accounts receivable, net	9,869		(26,288)
Inventories	(6,699)		638
Prepaid expenses	257		(541)
Other current assets	5,173		8,631
Accounts payable	(9,806)		(6,609)
Accrued interest	(366)		97
Accrued expenses and other current liabilities	(1,337)		(14,843)
Other assets and liabilities	(1,232)		(2,212)
Net cash provided by operating activities	47,523		8,718

Investing activities
Purchases of property and equipment	(744)		(1,151)



Investments in intangible and other assets	(56)		(87)
Net cash used in investing activities	(800)		(1,238)

Financing activities
Proceeds from option exercises	—		4,563
Tax payments related to issuance of restricted stock units and performance stock units	(3,642)		(2,298)
Payments on finance lease obligations	(61)		(78)
Cash received on repayment of note receivable	600		—
Repurchase of common stock	—		(16,448)
Principal payments of long-term debt	(10,000)		(6,500)

Net cash used in financing activities	(13,103)		(20,761)

Cash and cash equivalents
Net increase (decrease) in cash	33,620		(13,281)
Effect of exchange rate on cash	56		(69)
Cash at beginning of period	87,715		67,494
Cash and cash equivalents at end of period	$	121,391	$	54,144

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	Thirteen Weeks Ended
	November 25, 2023		November 26, 2022
Supplemental disclosures of cash flow information
Cash paid for interest	$	2,135	$	6,426
Cash paid for taxes	$	628	$	8

Non-cash investing and financing transactions


Non-cash credits for repayment of note receivable	$	229	$	—

Non-cash additions to property and equipment	$	99	$	—
Non-cash additions to intangible assets	$	75	$	53

See accompanying notes to the unaudited consolidated financial statements.

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The Simply Good Foods Company and Subsidiaries

Consolidated Statements of Stockholders’ Equity

(Unaudited, dollars in thousands, except share data)


	Common Stock			Treasury Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total
	Shares	Amount		Shares	Amount
Balance at August 26, 2023	101,929,868	$	1,019	2,365,100	$	(78,451)	$	1,303,168	$	347,956	$	(2,593)	$	1,571,099
Net income	—	—		—	—		—		35,561		—		35,561
Stock-based compensation	—	—		—	—		3,888		—		—		3,888
Foreign currency translation adjustments	—	—		—	—		—		—		272		272
Repurchase of common stock	—	—		—	—		—		—		—		—
Shares issued upon vesting of restricted stock units and performance stock units	245,365	3		—	—		(3,645)		—		—		(3,642)
Exercise of options to purchase common stock	—	—		—	—		—		—		—		—














Balance at November 25, 2023	102,175,233	1,022		2,365,100	(78,451)		1,303,411		383,517		(2,321)		1,607,178


	Common Stock			Treasury Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total
	Shares	Amount		Shares	Amount
Balance at August 27, 2022	101,322,834	$	1,013	1,818,754	$	(62,003)	$	1,287,224	$	214,381	$	(1,951)	$	1,438,664
Net income	—	—		—	—		—		35,860		—		35,860
Stock-based compensation	—	—		—	—		3,237		—		—		3,237
Repurchase of Common Stock	—	—		546,346	(16,448)		—		—		—		(16,448)
Foreign currency translation adjustments	—	—		—	—		—		—		(222)		(222)
Shares issued upon vesting of restricted stock units and performance stock units	180,342	2		—	—		(2,300)		—		—		(2,298)
Exercise of options and stock appreciation rights to purchase common stock	353,281	4		—	—		4,559		—		—		4,563
















Balance at November 26, 2022	101,856,457	1,019		2,365,100	(78,451)		1,292,720		250,241		(2,173)		1,463,356

See accompanying notes to the unaudited consolidated financial statements.

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Notes to Unaudited Consolidated Financial Statements

(Unaudited, dollars in thousands, except for share and per share data)

1. Nature of Operations and Principles of Consolidation

Description of Business

The Simply Good Foods Company (“Simply Good Foods” or the “Company”) is a consumer packaged food and beverage company that aims to lead the nutritious snacking movement with trusted brands that offer a variety of convenient, innovative, great-tasting, better-for-you snacks and meal replacements, and other product offerings. The product portfolio the Company develops, markets and sells consists primarily of protein bars, ready-to-drink (“RTD”) shakes, sweet and salty snacks and confectionery products marketed under the Quest® and Atkins® brand names. Simply Good Foods is poised to expand its wellness platform through innovation and organic growth along with acquisition opportunities in the nutritional snacking space.

The Company’s nutritious snacking platform consists of brands that specialize in providing products for consumers that follow certain nutritional philosophies and health-and-wellness trends: Quest® for consumers seeking a variety of protein-rich foods and beverages that also limit sugars and simple carbs and Atkins® for those following a low-carb lifestyle. The Company distributes its products in major retail channels, primarily in North America, including grocery, club, and mass merchandise, as well as through e-commerce, convenience, specialty, and other channels. The Company’s portfolio of nutritious snacking brands gives it a strong platform with which to introduce new products, expand distribution, and attract new consumers to its products.

The common stock of Simply Good Foods is listed on the Nasdaq Capital Market under the symbol “SMPL.”

Unaudited Interim Consolidated Financial Statements

The unaudited interim consolidated financial statements include the accounts of Simply Good Foods and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated. Unless the context otherwise requires, “we,” “us,” “our” and the “Company” refer to Simply Good Foods and its subsidiaries.

The Company maintains its accounting records on a 52/53-week fiscal year, ending on the last Saturday in August of each year.

The interim consolidated financial statements and related notes of the Company and its subsidiaries are unaudited. The unaudited interim consolidated financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) and the rules and regulations of the Securities and Exchange Commission (the “SEC”). The unaudited interim consolidated financial statements reflect all adjustments and disclosures which are, in the Company’s opinion, necessary for a fair presentation of the results of operations, financial position and cash flows for the indicated periods. All such adjustments were of a normal and recurring nature unless otherwise disclosed. The year-end balance sheet data was derived from the audited financial statements and, in accordance with the instructions to Form 10-Q, certain information and footnote disclosures required by GAAP have been condensed or omitted. The results reported in these unaudited interim consolidated financial statements are not necessarily indicative of the results that may be reported for the entire fiscal year and should be read in conjunction with the Company’s consolidated financial statements for the fiscal year ended August 26, 2023, included in the Company’s Annual Report on Form 10-K (“Annual Report”) filed with the SEC on October 24, 2023.

2. Summary of Significant Accounting Policies

Refer to Note 2, Summary of Significant Accounting Policies, to the consolidated financial statements included in the Annual Report for a description of significant accounting policies.

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Recently Issued and Adopted Accounting Pronouncements

Recently Issued Accounting Pronouncements Not Yet Adopted

In March 2020, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2020-04, Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”), which provides optional guidance for a limited period of time to ease the potential burden in accounting for reference rate reform on financial reporting. Additionally, in December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848), Deferral of the Sunset Date of Topic 848, which extended the period of time for which ASU 2020-04 could be applied. As a result, the amendments in ASU 2020-04 can be applied to contract modifications due to rate reform and eligible existing and new hedging relationships entered into between March 12, 2020 and December 31, 2024. The amendments of these ASUs are effective for all entities and are applied on a prospective basis.

On January 21, 2022, the Company entered into a repricing amendment (the “2022 Repricing Amendment”) to its credit agreement with Barclays Bank PLC and other parties (as amended to date, the “Credit Agreement”), as described in Note 5, Long-Term Debt and Line of Credit. In addition to replacing the London Interbank Offered Rate (“LIBOR”) as the Credit Agreement’s reference rate with the Secured Overnight Financing Rate (“SOFR”), the 2022 Repricing Amendment contemporaneously modified other terms that changed, or had the potential to change, the amount or timing of contractual cash flows as contemplated by the guidance in ASU 2020-04. As such, the contract modifications related to the 2022 Repricing Amendment were outside of the scope of the optional guidance in ASU 2020-04. The Company will continue to monitor the effects of rate reform, if any, on any new or amended contracts through December 31, 2024. The Company does not anticipate the amendments in this ASU will be material to its consolidated financial statements.

In November 2023, the Financial Accounting Standards Board (“FASB”) issues Accounting Standard Update (“ASU”) No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which updates reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses. The amendments are effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The amendments should be applied retrospectively to all prior periods presented in the financial statements. The Company is currently evaluating the provisions of the amendments and the effect on its future consolidated financial statements.

No other new accounting pronouncement issued or effective during the fiscal year had or is expected to have a material effect on the Company’s consolidated financial statements.

3. Revenue Recognition

Revenue from transactions with external customers for each of the Company’s products would be impracticable to disclose and management does not view its business by product line. The following is a summary of revenue disaggregated by geographic area and brands:


	Thirteen Weeks Ended
(In thousands)	November 25, 2023		November 26, 2022
North America (1)
Atkins	$	119,498	$	131,745
Quest	181,463		161,472
Total North America	300,961		293,217
International	7,717		7,661
Total net sales	$	308,678	$	300,878
(1) The North America geographic area consists of net sales substantially related to the United States and there is no individual foreign country to which more than 10% of the Company’s net sales are attributed or that is otherwise deemed individually material.

Charges related to credit loss on accounts receivables from transactions with external customers were $0.1 million for the thirteen weeks ended November 25, 2023, and $(0.1) million for the thirteen weeks ended November 26, 2022. As of November 25, 2023 and August 26, 2023, the allowances for doubtful accounts related to these accounts receivable were $0.9 million and $1.1 million, respectively. Additionally, as of November 25, 2023, the Company had an expected credit loss reserve of $1.0 million on a $3.0 million note receivable related to the Company’s sale of its SimplyProtein® brand and related assets during its fiscal year 2021.

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4. Goodwill and Intangibles

As of November 25, 2023 and August 26, 2023, Goodwill in the Consolidated Balance Sheets was $543.1 million. There were no impairment charges related to goodwill during the thirteen weeks ended November 25, 2023 or since the inception of the Company.

Intangible assets, net in the Consolidated Balance Sheets consists of the following:


				November 25, 2023
(In thousands)	Useful life			Gross carrying amount		Accumulated amortization		Net carrying amount
Intangible assets with indefinite life:
Brands and trademarks	Indefinite life			$	974,000	$	—	$	974,000
Intangible assets with finite lives:
Customer relationships	15 years			174,000		56,203		117,797
Licensing agreements	13 years			22,000		10,977		11,023
Proprietary recipes and formulas	7 years			7,000		6,381		619
Software and website development costs	3	-	5 years	6,328		5,633		695
Intangible assets in progress	3	-	5 years	184		—		184
				$	1,183,512	$	79,194	$	1,104,318


				August 26, 2023
(In thousands)	Useful life			Gross carrying amount		Accumulated amortization		Net carrying amount
Intangible assets with indefinite life:
Brands and trademarks	Indefinite life			$	974,000	$	—	$	974,000
Intangible assets with finite lives:
Customer relationships	15 years			174,000		53,303		120,697
Licensing agreements	13 years			22,000		10,498		11,502
Proprietary recipes and formulas	7 years			7,000		6,131		869
Software and website development costs	3	-	5 years	6,328		5,356		972
Intangible assets in progress	3	-	5 years	79		—		79
				$	1,183,407	$	75,288	$	1,108,119

Changes in Intangible assets, net during the thirteen weeks ended November 25, 2023 were primarily related to recurring amortization expense. Amortization expense related to intangible assets was $3.9 million for the thirteen weeks ended November 25, 2023 and $3.9 million for the thirteen weeks ended November 26, 2022. There were no impairment charges related to intangible assets during the thirteen weeks ended November 25, 2023 and November 26, 2022.

Estimated future amortization for each of the next five fiscal years and thereafter is as follows:


(In thousands)	Amortization
Remainder of 2024	$	11,721
2025	13,980
2026	13,740
2027	13,556
2028	13,517
2029 and thereafter	63,620
Total	$	130,134

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5. Long-Term Debt and Line of Credit

On July 7, 2017, the Company (through certain of its subsidiaries) entered into the Credit Agreement. The Credit Agreement at that time provided for (i) a term facility of $200.0 million (“Term Facility”) with a seven-year maturity and (ii) a revolving credit facility of up to $75.0 million (the “Revolving Credit Facility”) with a five-year maturity. Substantially concurrent with the consummation of the business combination which formed the Company between Conyers Park Acquisition Corp. and NCP-ATK Holdings, Inc. on July 7, 2017, the full $200.0 million of the Term Facility (the “Term Loan”) was drawn.

On November 7, 2019, the Company entered into a second amendment (the “Incremental Facility Amendment”) to the Credit Agreement to increase the principal borrowed on the Term Facility by $460.0 million. The Term Facility together with the incremental borrowing make up the Initial Term Loans (as defined in the Incremental Facility Amendment). The Incremental Facility Amendment was executed to partially finance the acquisition of Quest Nutrition, LLC on November 7, 2019. No amounts under the Term Facility were repaid as a result of the execution of the Incremental Facility Amendment.

Effective as of December 16, 2021, the Company entered into a third amendment (the “Extension Amendment”) to the Credit Agreement. The Extension Amendment provided for an extension of the stated maturity date of the Revolving Commitments and Revolving Loans (each as defined in the Credit Agreement) from July 7, 2022 to the earlier of (i) 91 days prior to the then-effective maturity date of the Initial Term Loans and (ii) December 16, 2026.

On January 21, 2022, the Company entered into the “2022 Repricing Amendment” to the Credit Agreement. The 2022 Repricing Amendment, among other things, (i) reduced the interest rate per annum applicable to the Initial Term Loans outstanding under the Credit Agreement immediately prior to the effective date of the 2022 Repricing Amendment, (ii) reset the prepayment premium for the existing Initial Term Loans to apply to Repricing Transactions (as defined in the Credit Agreement) that occur within six months after the effective date of the 2022 Repricing Amendment, and (iii) implemented SOFR and related replacement provisions for LIBOR.

On April 25, 2023, the Company entered into the “2023 Repricing Amendment” to the Credit Agreement. The 2023 Repricing Amendment, (i) reduced the interest rate per annum applicable to the Initial Term Loans outstanding under the Credit Agreement immediately prior to April 25, 2023, and (ii) provided for an extension of the maturity date of the Initial Term Loans from July 7, 2024, to March 17, 2027.

The 2023 Repricing Amendment did not change the interest rate on the Revolving Credit Facility, which continues to bear interest based upon the Company’s consolidated net leverage ratio as of the end of the fiscal quarter for which consolidated financial statements are delivered to the Administrative Agent under the Credit Agreement. No additional debt was incurred, or any proceeds received by the Company in connection with the 2023 Repricing Amendment. No amounts under the Term Facility were repaid as a result of the execution of the 2023 Repricing Amendment.

Effective as of the 2023 Repricing Amendment, the interest rate per annum for the Initial Term Loans is based on either:

i.A base rate equaling the higher of (a) the “prime rate,” (b) the federal funds effective rate plus 0.50%, or (c) the Adjusted Term SOFR Rate (as defined in the Credit Agreement) applicable for an interest period of one month plus 1.00% plus (x) 1.50% margin for the Term Loan or (y) 2.00% margin for the Revolving Credit Facility; or

ii.SOFR plus a credit spread adjustment equal to 0.10% for one-month SOFR, 0.15% for up to three-month SOFR and 0.25% for up to six-month SOFR, subject to a floor of 0.50%, plus (x) 2.50% margin for the Term Loan or (y) 3.00% margin for the Revolving Credit Facility.

In connection with the closing of the 2023 Repricing Amendment, the Company expensed $2.4 million primarily for third-party fees and capitalized an additional $2.7 million primarily for the payment of upfront lender fees (original issue discount).

The Simply Good Foods Company is not a borrower under the Credit Agreement and has not provided a guarantee of the Credit Agreement. Simply Good Foods USA, Inc., is the administrative borrower and certain other subsidiary holding companies are co-borrowers under the Credit Agreement. Each of the Company’s domestic subsidiaries that is not a named borrower under the Credit Agreement has provided a guarantee on a secured basis. As security for the payment or performance of the debt under the Credit Agreement, the borrowers and the guarantors have pledged certain equity interests in their respective subsidiaries and granted the lenders a security interest in substantially all of their domestic assets. All guarantors other than Quest Nutrition, LLC are holding companies with no assets other than their investments in their respective subsidiaries.

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extensions in excess of 30% of the total amount of commitments available under the Revolving Credit Facility. Any failure to comply with the restrictions of the credit facilities may result in an event of default. The Company was in compliance with all covenants as of November 25, 2023 and August 26, 2023, respectively.

Long-term debt consists of the following:


(In thousands)	November 25, 2023		August 26, 2023
Term Facility (effective rate of 8.0% at November 25, 2023)	$	275,000	$	285,000

Finance lease liabilities (effective rate of 5.6% at November 25, 2023)	83		143
Less: Deferred financing fees	2,968		3,351
Total debt	272,115		281,792

Less: Current finance lease liabilities	83		143
Long-term debt, net of deferred financing fees	$	272,032	$	281,649

The Company is not required to make principal payments on the Term Facility over the twelve months following the period ended November 25, 2023. The outstanding balance of the Term Facility is due upon its maturity in March 2027.

As of November 25, 2023, the Company had letters of credit in the amount of $3.5 million outstanding. These letters of credit offset against the $75.0 million availability of the Revolving Credit Facility and exist to support three of the Company’s leased buildings and insurance programs relating to workers’ compensation. No amounts were drawn against these letters of credit at November 25, 2023.

The Company utilizes market approaches to estimate the fair value of certain outstanding borrowings by discounting anticipated future cash flows derived from the contractual terms of the obligations and observable market interest and foreign exchange rates. The Company carries debt at historical cost and discloses fair value. As of November 25, 2023 and August 26, 2023, the book value of the Company’s debt approximated fair value. The estimated fair value of the Term Loan is valued based on observable inputs and classified as Level 2 in the fair value hierarchy.

6. Fair Value of Financial Instruments

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To increase the comparability of fair value measurements, a three-tier fair value hierarchy, which prioritizes the inputs used in the valuation methodologies, is used:

Level 1 – Valuations based on quoted prices for identical assets and liabilities in active markets.

Level 2 – Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

Level 3 – Valuations based on unobservable inputs reflecting the Company’s own assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment.

Components of the balance sheet such as accounts receivable, cash and cash equivalents and others approximated fair value as of November 25, 2023.

7. Income Taxes

The tax expense and the effective tax rate resulting from operations were as follows:


	Thirteen Weeks Ended
(In thousands)	November 25, 2023			November 26, 2022
Income before income taxes	$	47,108		$	45,556
Provision for income taxes	$	11,547		$	9,696
Effective tax rate	24.5		%	21.3		%

The effective tax rate for the thirteen weeks ended November 25, 2023 was 3.2% more than the effective tax rate for the thirteen weeks ended November 26, 2022, which was primarily driven by permanent differences.

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8. Leases

The components of lease expense were as follows:


		Thirteen Weeks Ended
(In thousands)	Statements of Operations Caption	November 25, 2023		November 26, 2022
Operating lease cost:
Lease cost	Cost of goods sold and General and administrative	$	2,259	$	2,252
Variable lease cost (1)	Cost of goods sold and General and administrative	796		738
Total operating lease cost		3,055		2,990


Finance lease cost:
Amortization of right-of-use assets	Cost of goods sold	53		68
Interest on lease liabilities	Interest expense	1		5
Total finance lease cost		54		73

Total lease cost		$	3,109	$	3,063
(1) Variable lease cost primarily consists of common area maintenance, such as cleaning and repairs.

The right-of-use assets and corresponding liabilities related to both operating and finance leases are as follows:


(In thousands)	Balance Sheets Caption	November 25, 2023		August 26, 2023
Assets
Operating lease right-of-use assets	Other long-term assets	$	38,286	$	40,022
Finance lease right-of-use assets	Property and equipment, net	73		125
Total lease assets		$	38,359	$	40,147
Liabilities
Current:
Operating lease liabilities	Accrued expenses and other current liabilities	$	7,724	$	7,566
Finance lease liabilities	Current maturities of long-term debt	83		143
Long-term:
Operating lease liabilities	Other long-term liabilities	35,306		37,272
Finance lease liabilities	Long-term debt, less current maturities	—		—
Total lease liabilities		$	43,113	$	44,981

Future maturities of lease liabilities as of November 25, 2023 were as follows:


(In thousands)	Operating Leases		Finance Leases
Fiscal year ending:
Remainder of 2024	7,145		84
2025	8,750		—
2026	6,952		—
2027	7,110		—
2028	6,447		—
Thereafter	13,496		—
Total lease payments	49,900		84
Less: Interest	(6,870)		(1)
Present value of lease liabilities	$	43,030	$	83

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The weighted-average remaining lease terms and weighted-average discount rates for operating and finance leases were as follows:


	November 25, 2023		August 26, 2023
Weighted-average remaining lease term (in years)
Operating leases	6.08		6.24
Finance leases	0.37		0.61
Weighted-average discount rate
Operating leases	4.4	%	4.4	%
Finance leases	5.6	%	5.6	%

Supplemental and other information related to leases was as follows:


	Thirteen Weeks Ended
(In thousands)	November 25, 2023		November 26, 2022
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	2,926	$	2,040
Operating cash flows from finance leases	$	175	$	131
Financing cash flows from finance leases	$	61	$	78

9. Commitments and Contingencies

Litigation

The Company is a party to certain litigation and claims that are considered normal to the operations of the business. From time to time, the Company has been and may again become involved in legal proceedings arising in the ordinary course of business. The Company is not presently a party to any litigation that it believes to be material, and the Company is not aware of any pending or threatened litigation against it that its management believes could have a material adverse effect on its business, operating results, financial condition or cash flows.

Other

The Company has entered into endorsement contracts with certain celebrity figures and social media influencers to promote and endorse the Quest® and Atkins® brands and product lines. These contracts contain endorsement fees, which are expensed ratably over the life of the contract, and performance fees, that are recognized at the time of achievement. Based on the terms of the contracts in place and achievement of performance conditions as of November 25, 2023, the Company will be required to make payments of $2.9 million over the next year.

10. Stockholders’ Equity

Stock Repurchase Program

The Company adopted a $50.0 million stock repurchase program on November 13, 2018. On April 13, 2022, and October 21, 2022, the Company announced that its Board of Directors had approved the addition of $50.0 million and $50.0 million, respectively, to its stock repurchase program, resulting in authorized stock repurchases of up to an aggregate of $150.0 million. Under the stock repurchase program, the Company may repurchase shares from time to time in the open market or in privately negotiated transactions. The stock repurchase program does not obligate the Company to acquire any specific number of shares or acquire shares over any specific period of time. The stock repurchase program may be suspended or discontinued at any time by the Company and does not have an expiration date.

The Company did not repurchase any shares of common stock during the thirteen weeks ended November 25, 2023. During the thirteen weeks ended November 26, 2022, the Company repurchased 546,346 shares of common stock at an average share price of $30.11 per share. As of November 25, 2023, approximately $71.5 million remained available under the stock repurchase program.

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11. Earnings Per Share

Basic earnings or loss per share is based on the weighted average number of common shares issued and outstanding. In computing diluted earnings per share, basic earnings per share is adjusted for the assumed issuance of all potentially dilutive securities, including the Company’s employee stock options and non-vested stock units.

In periods in which the Company has a net loss, diluted loss per share is based on the weighted average number of common shares issued and outstanding as the effect of including common stock equivalents outstanding would be anti-dilutive. The following table reconciles the numerators and denominators used in the computations of both basic and diluted earnings per share:


	Thirteen Weeks Ended
(In thousands, except per share data)	November 25, 2023		November 26, 2022
Basic earnings per share computation:
Numerator:
Net income available to common stockholders	$	35,561	$	35,860
Denominator:
Weighted average common shares outstanding - basic	99,629,188		99,200,557
Basic earnings per share from net income	$	0.36	$	0.36

Diluted earnings per share computation:
Numerator:
Net income available for common stockholders	$	35,561	$	35,860

Numerator for diluted earnings per share	$	35,561	$	35,860
Denominator:
Weighted average common shares outstanding - basic	99,629,188		99,200,557

Employee stock options	1,172,483		1,299,543
Non-vested stock units	293,065		222,936
Weighted average common shares - diluted	101,094,736		100,723,036
Diluted earnings per share from net income	$	0.35	$	0.36

Diluted earnings per share calculations for the thirteen weeks ended November 25, 2023 and November 26, 2022 excluded 0.8 million and 0.4 million shares of common stock issuable upon exercise of stock options, respectively, that would have been anti-dilutive.

Diluted earnings per share calculations for the thirteen weeks ended November 25, 2023 and November 26, 2022 excluded an immaterial number of shares and 0.1 million shares of non-vested stock units, respectively, that would have been anti-dilutive.

12. Omnibus Incentive Plan

Stock-based compensation includes stock options, restricted stock units, performance stock unit awards and stock appreciation rights, which are awarded to employees, directors, and consultants of the Company. Stock-based compensation expense for equity-classified awards is recognized on a straight-line basis over the requisite service period of the award based on their grant date fair value. Stock-based compensation expense is included within General and administrative expense, which is the same financial statement caption where the recipient’s other compensation is reported.

The Company recorded stock-based compensation expense of $4.2 million and $3.3 million in the thirteen weeks ended November 25, 2023 and November 26, 2022, respectively.

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Stock Options

The following table summarizes stock option activity for the thirteen weeks ended November 25, 2023:


	Shares underlying options	Weighted average exercise price		Weighted average remaining contractual life (years)
Outstanding as of August 26, 2023	2,668,462	$	20.41	5.56
Granted	17,633	33.02
Exercised	—	—
Forfeited	(3,815)	39.38
Outstanding as of November 25, 2023	2,682,280	$	20.47	5.35
Vested and expected to vest as of November 25, 2023	2,682,280	$	20.47	5.35
Exercisable as of November 25, 2023	2,188,820	$	16.69	4.64

As of November 25, 2023, the Company had $4.8 million of total unrecognized compensation cost related to stock options that will be recognized over a weighted average period of 1.5 years. During the thirteen weeks ended November 25, 2023 the Company did not receive cash from stock option exercises. During the thirteen weeks ended November 26, 2022, the Company received $4.6 million in cash from stock option exercises.

Restricted Stock Units

The following table summarizes restricted stock unit activity for the thirteen weeks ended November 25, 2023:


	Units	Weighted average grant-date fair value
Non-vested as of August 26, 2023	514,498	$	35.59
Granted	194,353	36.94
Vested	(151,239)	30.34
Forfeited	(7,589)	38.69
Non-vested as of November 25, 2023	550,023	$	37.47

As of November 25, 2023, the Company had $15.6 million of total unrecognized compensation cost related to restricted stock units that will be recognized over a weighted average period of 1.8 years.

Performance Stock Units

During the thirteen weeks ended November 25, 2023, the Company granted performance stock units under its equity compensation plan. Performance stock units vest in a range between 0% and 200% based upon certain performance criteria in a three-year period. Performance stock units were valued using a Monte Carlo simulation.

The following table summarizes performance stock unit activity for the thirteen weeks ended November 25, 2023:


	Units	Weighted average grant-date fair value
Non-vested as of August 26, 2023	191,779	$	42.41
Granted	178,788	38.66
Vested	(189,884)	21.52
Forfeited	—	—
Non-vested as of November 25, 2023	180,683	$	59.28

As of November 25, 2023, the Company had $7.6 million of total unrecognized compensation cost related to performance stock units that will be recognized over a weighted average period of 2.2 years.

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Stock Appreciation Rights

Stock appreciation rights (“SARs”) permit the holder to participate in the appreciation of the Company’s common stock price and are awarded to non-employee consultants of the Company. The Company’s SARs settle in shares of its common stock once the applicable vesting criteria have been met. The SARs outstanding as of November 25, 2023 cliff vest two years from the date of grant and must be exercised within five years.

The following table summarizes SARs activity for the thirteen weeks ended November 25, 2023:


	Shares underlying SARs	Weighted average exercise price
Outstanding as of August 26, 2023	150,000	$	37.67
Granted	—	—
Exercised	—	—
Forfeited	—	—
Outstanding as of November 25, 2023	150,000	$	37.67

The SARs exercised in the thirteen weeks ended November 26, 2022 resulted in a net issuance of 38,850 shares of the Company’s common stock. The SARs granted in the thirteen weeks ended November 26, 2022 are liability-classified; therefore the related stock-based compensation expense is based on the vesting provisions and the fair value of the awards.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report on Form 10-Q (this “Report”) contains forward-looking statements. When used anywhere in this Report, the words “expect,” “believe,” “anticipate,” “estimate,” “intend,” “plan” and similar expressions are intended to identify forward-looking statements. 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 achievements to differ materially from those expressed or implied by these forward-looking statements. These statements include, but are not limited to, our expectations regarding our supply chain, including but not limited to, raw materials and logistics costs, the effect of price increases, inflationary pressure on us and our contract manufacturers, and the unforeseen business disruptions or other effects due to current global geopolitical tension. We disclaim any undertaking to publicly update or revise any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based, except as required by applicable law. These statements reflect our current views with respect to future events and are based on assumptions subject to risks and uncertainties. Such risks and uncertainties include those related to our ability to sell our products.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended August 26, 2023 (“Annual Report”) and our unaudited consolidated financial statements and the related notes appearing elsewhere in this Report. In addition to historical information, the following discussion contains forward-looking statements, including, but not limited to, statements regarding the Company’s expectation for future performance, liquidity and capital resources that involve risks, uncertainties and assumptions that could cause actual results to differ materially from the Company’s expectations. The Company’s actual results may differ materially from those contained in or implied by any forward-looking statements. Factors that could cause such differences include those identified in Item 1A. “Risk Factors” of our Annual Report. The Company assumes no obligation to update any of these forward-looking statements.

Unless the context requires otherwise in this Report, the terms “we,” “us,” “our,” the “Company” and “Simply Good Foods” refer to The Simply Good Foods Company and its subsidiaries.

Overview

The Simply Good Foods Company is a consumer packaged food and beverage company that aims to lead the nutritious snacking movement with trusted brands that offer a variety of convenient, innovative, great-tasting, better-for-you snacks and meal replacements, and other product offerings. The product portfolio we develop, market and sell consists primarily of protein bars, ready-to-drink (“RTD”) shakes, sweet and salty snacks and confectionery products marketed under the Quest® and Atkins® brand names. We believe Simply Good Foods is poised to expand its wellness platform through innovation and organic growth along with acquisition opportunities in the nutritional snacking space.

Our nutritious snacking platform consists of brands that specialize in providing products for consumers that follow certain nutritional philosophies and health-and-wellness trends: Quest® for consumers seeking a variety of protein-rich foods and beverages that also limit sugars and simple carbs and Atkins® for those following a low-carb lifestyle. We distribute our products in major retail channels, primarily in North America, including grocery, club, and mass merchandise, as well as through e-commerce, convenience, specialty, and other channels. Our portfolio of nutritious snacking brands gives us a strong platform with which to introduce new products, expand distribution, and attract new consumers to our products.

Business Trends

During fiscal 2023 the Company was affected by the unfavorable effects of higher raw material costs, higher co-manufacturing costs, and supply chain challenges, including supply chain disruptions resulting from labor shortages and disruptions in ingredients.

During the thirteen weeks ended November 25, 2023, our business performance improved as strong Quest sales volume growth more than offset Atkins softness. The Company benefited from lower ingredient and packaging costs which resulted in gross margin expansion versus the year ago period. The Company continues to engage and have discussions with its contract manufacturers and logistics and transportation providers to have its cost structure reflect lower market prices. We believe the Company's strategy and positioning will continue to drive profitable growth for our product offerings and growth within the growing nutritional snacking category.

We continue to actively monitor the dynamic supply chain environment in the United States and elsewhere as well as consumer purchasing behavior. Current or future governmental policies may increase the risk of inflation and possible economic recession, which could increase the costs of ingredients, packaging, logistics and finished goods for our business as well as negatively effect consumer behavior and demand for our products.

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Key Financial Definitions

Net sales. Net sales consist primarily of product sales less the cost of promotional activities, slotting fees and other sales credits and adjustments, including product returns.

Cost of goods sold. Cost of goods sold consists primarily of the costs we pay to our contract manufacturing partners to produce the products sold. These costs include the purchase of raw ingredients, packaging, shipping and handling, warehousing, depreciation of warehouse equipment, and a tolling charge for the contract manufacturer. Cost of goods sold includes products provided at no charge as part of promotions and the non-food materials provided with customer orders.

Operating expenses. Operating expenses consist primarily of selling and marketing, general and administrative, and depreciation and amortization expense. The following is a brief description of the components of operating expenses:

•Selling and marketing. Selling and marketing expenses comprise broker commissions, customer marketing, media and other marketing costs.

•General and administrative. General and administrative expenses comprise expenses associated with corporate and administrative functions that support our business, including employee compensation, stock-based compensation, professional services, executive transition costs, integration costs, restructuring costs, insurance and other general corporate expenses.

•Depreciation and amortization. Depreciation and amortization costs consist of costs associated with the depreciation of fixed assets and capitalized leasehold improvements and amortization of intangible assets.

Results of Operations

During the thirteen weeks ended November 25, 2023, our net sales increased to $308.7 million compared to $300.9 million for the thirteen weeks ended November 26, 2022, driven by Quest volume growth, which offset softness in Atkins net sales, resulting in a 2.6% increase in our aggregate North America net sales. Gross profit and gross profit margin improved driven by higher sales volumes and lower ingredient and packaging costs.

In assessing the performance of our business, we consider a number of key performance indicators used by management and typically used by our competitors, including the non-GAAP measures EBITDA and Adjusted EBITDA. Because not all companies use identical calculations, this presentation of EBITDA and Adjusted EBITDA may not be comparable to other similarly titled measures of other companies. See “Reconciliation of EBITDA and Adjusted EBITDA” below for a reconciliation of EBITDA and Adjusted EBITDA to net income for each applicable period.

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Comparison of Unaudited Results for the Thirteen Weeks Ended November 25, 2023 and the Thirteen Weeks Ended November 26, 2022

The following unaudited table presents, for the periods indicated, selected information from our Consolidated Statements of Operations and Comprehensive Income, including information presented as a percentage of net sales:


	Thirteen Weeks Ended				Thirteen Weeks Ended
(In thousands)	November 25, 2023		% of Net Sales		November 26, 2022		% of Net Sales
Net sales	$	308,678	100.0	%	$	300,878	100.0	%
Cost of goods sold	193,560		62.7	%	189,886		63.1	%
Gross profit	115,118		37.3	%	110,992		36.9	%

Operating expenses:
Selling and marketing	31,990		10.4	%	28,534		9.5	%
General and administrative	26,950		8.7	%	25,641		8.5	%
Depreciation and amortization	4,358		1.4	%	4,327		1.4	%


Total operating expenses	63,298		20.5	%	58,502		19.4	%

Income from operations	51,820		16.8	%	52,490		17.4	%

Other income (expense):
Interest income	1,090		0.4	%	7		—	%
Interest expense	(6,034)		(2.0)	%	(7,055)		(2.3)	%


Gain on foreign currency transactions	226		0.1	%	108		—	%
Other income	6		—	%	6		—	%
Total other expense	(4,712)		(1.5)	%	(6,934)		(2.3)	%

Income before income taxes	47,108		15.3	%	45,556		15.1	%
Income tax expense	11,547		3.7	%	9,696		3.2	%
Net income	$	35,561	11.5	%	$	35,860	11.9	%

Other financial data:
Adjusted EBITDA (1)	$	61,965	20.1	%	$	60,766	20.2	%
(1) Adjusted EBITDA is a non-GAAP financial metric. See “Reconciliation of EBITDA and Adjusted EBITDA” below for a reconciliation of net income to EBITDA and Adjusted EBITDA for each applicable period.

Net sales. Net sales were $308.7 million for the thirteen weeks ended November 25, 2023 compared to $300.9 million for the thirteen weeks ended November 26, 2022, representing an increase of $7.8 million, driven primarily by Quest volume growth which offset Atkins softness. North America net sales increased 2.6% in the thirteen weeks ended November 25, 2023 compared to the thirteen weeks ended November 26, 2022, and International net sales increased 0.7% during the same period.

Cost of goods sold. Cost of goods sold increased $3.7 million, or 1.9%, for the thirteen weeks ended November 25, 2023 compared to the thirteen weeks ended November 26, 2022. The cost of goods sold increase was primarily driven by higher sales volumes in the thirteen weeks ended November 25, 2023.

Gross profit. Gross profit increased by $4.1 million, or 3.7%, for the thirteen weeks ended November 25, 2023 compared to the thirteen weeks ended November 26, 2022. Additionally, gross profit of $115.1 million, or 37.3% of net sales, for the thirteen weeks ended November 25, 2023 increased 40 basis points from 36.9% of net sales for the thirteen weeks ended November 26, 2022. The increase in gross profit margin was primarily driven by lower ingredient and packaging costs.

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Operating expenses. Operating expenses increased $4.8 million, or 8.2%, for the thirteen weeks ended November 25, 2023 compared to the thirteen weeks ended November 26, 2022 due to the following:

•Selling and marketing. Selling and marketing expenses increased $3.5 million, or 12.1%, for the thirteen weeks ended November 25, 2023 compared to the thirteen weeks ended November 26, 2022, due to expenses related to growth initiatives.

•General and administrative. General and administrative expenses increased $1.3 million, or 5.1%, for the thirteen weeks ended November 25, 2023 compared to the thirteen weeks ended November 26, 2022. The increase in general and administrative expenses was primarily attributable to $0.7 million of stock based compensation expense, $0.4 million of executive transition costs, and other investments in organizational capabilities.

•Depreciation and amortization. Depreciation and amortization expenses was $4.4 million for the thirteen weeks ended November 25, 2023 and $4.3 million for the thirteen weeks ended November 26, 2022, respectively.

Interest income. Interest income increased by $1.0 million for the thirteen weeks ended November 25, 2023 compared to the thirteen weeks ended November 26, 2022, due to higher cash balances, the increase in interest rates, and other sources of interest income.

Interest expense. Interest expense decreased $1.0 million for the thirteen weeks ended November 25, 2023 compared to the thirteen weeks ended November 26, 2022, primarily due to the effect of principal payments reducing the outstanding balance of the Term Facility (as defined below) to $275.0 million as of November 25, 2023, from $400.0 million as of November 26, 2022. The reduction in the outstanding balance of the Term Facility was partially offset by the increase in interest rates on our Term Facility to 8.0% as of November 25, 2023 from 7.7% as of November 26, 2022. Additionally, interest expense related to the amortization of deferred financing costs and debt discount decreased $0.1 million for the thirteen weeks ended November 25, 2023 compared to the thirteen weeks ended November 26, 2022.

Gain on foreign currency transactions. Foreign currency transactions resulted in a gain of $0.2 million and a gain of $0.1 million for the thirteen weeks ended November 25, 2023 and November 26, 2022, respectively. The variance is attributable to changes in foreign currency rates related to our international operations.

Income tax expense. Income tax expense increased $1.9 million for the thirteen weeks ended November 25, 2023 compared to the thirteen weeks ended November 26, 2022. The increase in our income tax expense was primarily driven by higher income from operations and changes in permanent differences.

Net income. Net income was $35.6 million for the thirteen weeks ended November 25, 2023, a decrease of $0.3 million compared to net income of $35.9 million for the thirteen weeks ended November 26, 2022. Net income benefited by higher gross profit, higher interest income, and lower interest expense, partially offset by growth in marketing expenses, higher stock based compensation expenses, executive transition costs, and higher income tax expense.

Adjusted EBITDA. Adjusted EBITDA increased $1.2 million, or 2.0% for the thirteen weeks ended November 25, 2023 compared to the thirteen weeks ended November 26, 2022, driven primarily by higher gross profit, partially offset by growth in marketing expenses. For a reconciliation of Adjusted EBITDA to its most directly comparable GAAP measure, see “Reconciliation of EBITDA and Adjusted EBITDA” below.

Reconciliation of 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 Company defines EBITDA as net income or loss before interest income, interest expense, income tax expense, depreciation and amortization, and Adjusted EBITDA as further adjusted to exclude the following items: stock-based compensation expense, executive transition costs, and other non-core expenses. The Company believes that EBITDA and Adjusted EBITDA, when used in conjunction with net income, are useful to provide additional information to investors. Management of the Company uses EBITDA and Adjusted EBITDA to supplement net income because these measures reflect operating results of the on-going operations, eliminate items that are not directly attributable to the Company’s underlying operating performance, enhance the overall understanding of past financial performance and future prospects, and allow for greater transparency with respect to the key metrics the Company’s management uses in its financial and operational decision making. The Company also believes that EBITDA and Adjusted EBITDA are frequently used by securities analysts, investors and other interested parties in the evaluation of companies in its industry. EBITDA and Adjusted EBITDA may not be comparable to other similarly titled captions of other companies due to differences in the non-GAAP calculation.

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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 weeks ended November 25, 2023 and November 26, 2022:


(In thousands)	Thirteen Weeks Ended
	November 25, 2023		November 26, 2022
Net income	$	35,561	$	35,860
Interest income	(1,090)		(7)
Interest expense	6,034		7,055
Income tax expense	11,547		9,696
Depreciation and amortization	5,605		4,952
EBITDA	57,657		57,556
Stock-based compensation expense	4,168		3,313
Executive transition costs	366		—




Other (1)	(226)		(103)
Adjusted EBITDA	$	61,965	$	60,766
(1) Other items consist principally of exchange impact of foreign currency transactions and other expenses.

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Liquidity and Capital Resources

Overview

We have historically funded our operations with cash flow from operations and, when needed, with borrowings under our Credit Agreement (as defined below). Our principal uses of cash have been working capital, debt service, repurchases of our common stock, and acquisition opportunities.

We had $121.4 million in cash as of November 25, 2023. We believe our sources of liquidity and capital will be sufficient to finance our continued operations, growth strategy and additional expenses we expect to incur for at least the next twelve months. As circumstances warrant, we may issue debt and/or equity securities from time to time on an opportunistic basis, dependent upon market conditions and available pricing. We make no assurance that we can issue and sell such securities on acceptable terms or at all.

Our material future cash requirements from contractual and other obligations relate primarily to our principal and interest payments for our Term Facility, as defined and discussed below, and our operating and finance leases. Refer to Note 5, Long-Term Debt and Line of Credit, and Note 8, Leases, of the Notes to Unaudited Consolidated Financial Statements in this Report for additional information related to the expected timing and amount of payments related to our contractual and other obligations.

Debt and Credit Facilities

On July 7, 2017, we (through certain of our subsidiaries) entered into a credit agreement with Barclays Bank PLC and other parties (as amended to date, the “Credit Agreement”). The Credit Agreement at that time provided for (i) a term facility of $200.0 million (“Term Facility”) with a seven-year maturity and (ii) a revolving credit facility of up to $75.0 million (the “Revolving Credit Facility”) with a five-year maturity. Substantially concurrent with the consummation of the business combination which formed the Company between Conyers Park Acquisition Corp. and NCP-ATK Holdings, Inc. on July 7, 2017, the full $200.0 million of the Term Facility (the “Term Loan”) was drawn.

On November 7, 2019, we entered into a second amendment (the “Incremental Facility Amendment”) to the Credit Agreement to increase the principal borrowed on the Term Facility by $460.0 million. The Term Facility together with the incremental borrowing make up the Initial Term Loans (as defined in the Incremental Facility Amendment). The Incremental Facility Amendment was executed to partially finance the acquisition of Quest Nutrition, LLC on November 7, 2019. No amounts under the Term Facility were repaid as a result of the execution of the Incremental Facility Amendment.

Effective as of December 16, 2021, we entered into a third amendment (the “Extension Amendment”) to the Credit Agreement. The Extension Amendment provided for an extension of the stated maturity date of the Revolving Commitments and Revolving Loans (each as defined in the Credit Agreement) from July 7, 2022 to the earlier of (i) 91 days prior to the then-effective maturity date of the Initial Term Loans and (ii) December 16, 2026.

Effective as of the 2023 Repricing Amendment, the interest rate per annum for the Initial Term Loans is based on either:

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The Credit Agreement contains certain financial and other covenants that limit the Company’s ability to, among other things, incur and/or undertake asset sales and other dispositions, liens, indebtedness, certain acquisitions and investments, consolidations, mergers, reorganizations and other fundamental changes, payment of dividends and other distributions to equity and warrant holders, and prepayments of material subordinated debt, in each case, subject to customary exceptions materially consistent with credit facilities of such type and size. The Revolving Credit Facility has a maximum total net leverage ratio equal to or less than 6.00:1.00 contingent on credit extensions in excess of 30% of the total amount of commitments available under the Revolving Credit Facility. Any failure to comply with the restrictions of the credit facilities may result in an event of default. The Company was in compliance with all covenants as of November 25, 2023 and August 26, 2023, respectively.

At November 25, 2023, the outstanding balance of the Term Facility was $275.0 million. We are not required to make principal payments on the Term Facility over the twelve months following the period ended November 25, 2023. The outstanding balance of the Term Facility is due upon its maturity in March 2027. As of November 25, 2023, there were no amounts drawn against the Revolving Credit Facility.

Stock Repurchase Program

On October 21, 2022, we announced that our Board of Directors had approved the addition of $50.0 million to our stock repurchase program, resulting in authorized stock repurchases of up to an aggregate of $150.0 million. The Company did not repurchase any shares of common stock during the thirteen weeks ended November 25, 2023. During the thirteen weeks ended November 26, 2022, the Company repurchased 546,346 shares of common stock at an average share price of $30.11 per share.

As of November 25, 2023, approximately $71.5 million remained available for repurchases under our $150.0 million stock repurchase program. Refer to Note 10, Stockholders’ Equity, of the Notes to Unaudited Consolidated Financial Statements in this Report for additional information related to our stock repurchase program.

Cash Flows

The following table sets forth the major sources and uses of cash for each of the periods set forth below (in thousands):


	Thirteen Weeks Ended
	November 25, 2023		November 26, 2022
Net cash provided by operating activities	$	47,523	$	8,718
Net cash used in investing activities	$	(800)	$	(1,238)
Net cash used in financing activities	$	(13,103)	$	(20,761)

Operating activities. Our net cash provided by operating activities increased $38.8 million to $47.5 million for the thirteen weeks ended November 25, 2023 compared to $8.7 million for the thirteen weeks ended November 26, 2022. The increase in cash provided by operating activities was primarily attributable changes in working capital for the thirteen weeks ended November 25, 2023 as compared to the thirteen weeks ended November 26, 2022. Changes in working capital, comprised of changes in accounts receivable, net, inventories, prepaid expenses, accounts payable, and accrued expenses and other current liabilities, which are driven by the timing of payments and receipts and seasonal building of inventory, consumed cash of $7.7 million in the thirteen weeks ended November 25, 2023 compared to $47.6 million of cash consumed in the thirteen weeks ended November 26, 2022. These increases in cash provided by operating activities were partially offset by the $0.7 million decrease in income from operations to $51.8 million for the thirteen weeks ended November 25, 2023 as compared to $52.5 million for the thirteen weeks ended November 26, 2022. Additionally, cash paid for interest was $2.1 million

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in the thirteen weeks ended November 25, 2023, which was a decrease of $4.3 million as compared to the $6.4 million paid for interest in the thirteen weeks ended November 26, 2022. Interest income increased by $1.0 million for the thirteen weeks ended November 25, 2023 compared to the thirteen weeks ended November 26, 2022, due to higher cash balances, the increase in interest rates, and other sources of interest income. In addition, cash paid for taxes increased $0.6 million.

Investing activities. Our net cash used in investing activities was $0.8 million for the thirteen weeks ended November 25, 2023 compared to $1.2 million for the thirteen weeks ended November 26, 2022. Our net cash used in investing activities for the thirteen weeks ended November 25, 2023 primarily comprised $0.7 million of purchases of property and equipment. The $1.2 million of net cash used in investing activities for the thirteen weeks ended November 26, 2022 primarily comprised $1.2 million of purchases of property and equipment.

Financing activities. Our net cash used in financing activities was $13.1 million for the thirteen weeks ended November 25, 2023 compared to $20.8 million for the thirteen weeks ended November 26, 2022. Net cash used in financing activities for the thirteen weeks ended November 25, 2023 primarily consisted of $10.0 million in principal payments on the Term Facility, and $3.6 million in tax payments related to issuance of restricted stock units and performance stock units, partially offset by $0.6 million of cash proceeds received from the partial repayment of an outstanding note receivable. Net cash used in financing activities for the thirteen weeks ended November 26, 2022 primarily consisted of $16.4 million in repurchases of common stock, $6.5 million in principal payments on the Term Facility, and $2.3 million in tax payments related to issuance of restricted stock units and performance stock units, partially offset by $4.6 million of cash proceeds received from option exercises.

New Accounting Pronouncements

For a description of critical accounting policies that affect our significant judgments and estimates used in the preparation of our consolidated financial statements, refer to our Annual Report. Refer to Note 2, Summary of Significant Accounting Policies, of our unaudited interim consolidated financial statements in this Report for further information regarding recently issued accounting standards.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

There were no material changes in our market risk exposure during the thirteen week period ended November 25, 2023. For a discussion of our market risks, see “Quantitative and Qualitative Disclosures About Market Risk” in Part II, Item 7A of our Annual Report.

Item 4. Controls and Procedures

We maintain disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required financial disclosures.

Management, including the participation of our Chief Executive Officer and our Chief Financial Officer, conducted an evaluation (pursuant to Rule 13a-15(b) under the Exchange Act) of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of November 25, 2023, the Company’s disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting

There were no changes in our internal controls over financial reporting during the quarter ended November 25, 2023, that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

Inherent Limitations on Effectiveness of Controls

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Additionally, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

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PART II. Other Information

Item 1. Legal Proceedings

From time to time, we have been and may again become involved in legal proceedings arising in the ordinary course of our business. We are not presently a party to any litigation that we believe to be material and we are not aware of any pending or threatened litigation against us that we believe could have a material adverse effect on our business, operating results, financial condition or cash flows.

Item 1A. Risk Factors

Readers should carefully consider the factors discussed in Part I, Item 1A. “Risk Factors” in our Annual Report, which could materially affect our business, financial condition, cash flows or future results. There have been no material changes in our risk factors included in our Annual Report. The risks described in our Annual Report are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially adversely affect our business, financial condition or future results.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not Applicable.

Item 5. Other Information

In the three months ended November 23, 2023, no directors or officers adopted or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.

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Item 6. Exhibits


Exhibit No.						Document
31.1*						Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002.
31.2*						Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002.
32.1**						Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes Oxley Act.
101.INS*						XBRL Instance Document (the instance document does not appear on the Interactive Data File because the XBRL tags are embedded within the Inline XBRL document)
101.SCH*						XBRL Taxonomy Extension Schema Document
101.CAL*						XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*						XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*						XBRL Taxonomy Extension Label Linkbase Document
101.PRE*						XBRL Taxonomy Extension Presentation Linkbase Document
104						Cover Page Interactive Data File (embedded within the Inline XBRL document and contained in Exhibit 101).
* Filed herewith.
** Furnished herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

By:

THE SIMPLY GOOD FOODS COMPANY

/s/ Timothy A. Matthews

Date:

January 4, 2024

Name:

Timothy A. Matthews

Title:

Vice President, Controller, and Chief Accounting Officer

(Duly Authorized Officer and Principal Accounting Officer)

Document

Exhibit 31.1

CERTIFICATION

PURSUANT TO RULES 13a-14(a) AND 15d-14(a)

OF THE U.S. SECURITIES EXCHANGE ACT OF 1934

(Section 302 of the Sarbanes-Oxley Act of 2002)

I, Geoff E. Tanner, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of The Simply Good Foods Company (the "registrant");

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date:	January 4, 2024	By:	/s/ Geoff E. Tanner
		Name:	Geoff E. Tanner
		Title:	Chief Executive Officer, President and Director
			(Principal Executive Officer)

Document

Exhibit 31.2

CERTIFICATION

PURSUANT TO RULES 13a-14(a) AND 15d-14(a)

OF THE U.S. SECURITIES EXCHANGE ACT OF 1934

(Section 302 of the Sarbanes-Oxley Act of 2002)

I, Shaun Mara, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of The Simply Good Foods Company (the "registrant");

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date:	January 4, 2024	By:	/s/ Shaun Mara
		Name:	Shaun Mara
		Title:	Chief Financial Officer
			(Principal Financial Officer)

Document

Exhibit 32.1

CERTIFICATION

PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

(SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002)

In connection with the Quarterly Report of The Simply Good Foods Company (the “Company”) on Form 10-Q for the fiscal period ended November 25, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned officers of the Company hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to such officer's knowledge:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company covered by the Report.

This certificate is being furnished solely for the purposes of 18 U.S.C. Section 1350 and is not being filed as part of the Report or as a separate disclosure document.

Date:

January 4, 2024

By:

/s/ Geoff E. Tanner

Name:

Geoff E. Tanner

Title:

Chief Executive Officer, President and Director

(Principal Executive Officer)

Date:

January 4, 2024

By:

/s/ Shaun Mara

Name:

Shaun Mara

Title:

Chief Financial Officer

(Principal Financial Officer)