UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________________________________________
FORM 8-K
_______________________________________________________
Current Report
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): April 10, 2018
_______________________________________________________
The Simply Good Foods Company
(Exact name of registrant as specified in its charter)
_______________________________________________________
DELAWARE | 001-38155 | 82-1038121 | ||
(State or other jurisdiction of incorporation or organization) | (Commission File Number) | (I.R.S. Employer Identification Number) | ||
1050 17th Street, Suite 1500
Denver, CO 80265
(Address of principal executive offices and zip code)
Registrant’s telephone number, including area code: (303) 633-2840
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company x
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. x
Item 2.02 Results of Operations and Financial Condition.
On April 10, 2018, The Simply Good Foods Company, a Delaware corporation, reported its results for the second quarter ended February 24, 2018. The results are discussed in detail in the press release attached hereto as Exhibit 99.1. In addition, we have posted an investor presentation at www.thesimplygoodfoodscompany.com.
The information in this item, including Exhibit 99.1, is being furnished, not filed. Accordingly, the information in this item will not be incorporated by reference into any registration statement unless specifically identified therein as being incorporated by reference therein.
Item 9.01 Financial Statements and Exhibits
(d) Exhibits
Exhibit No. | Description | |
99.1 | ||
SIGNATURE
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 hereunto duly authorized.
Date: | April 10, 2018 | By: | /s/ Todd E. Cunfer |
Name: | Todd E. Cunfer | ||
Title: | Chief Financial Officer | ||
(Principal Financial Officer) | |||
The Simply Good Foods Company Reports Second Quarter 2018 Financial Results
Denver, CO, April 10, 2018 - The Simply Good Foods Company (NASDAQ: SMPL, SMPL.W) (“Simply Good Foods,” or the “Company”), a developer, marketer and seller of branded nutritional foods and snacking products, today reported financial results for the thirteen and twenty-six week periods ended February 24, 2018.
“I’m pleased with our fiscal second-quarter results as we continued to build on our marketplace momentum, which resulted in a net sales increase of 6.9%, gross margin expansion and solid operating profit growth,” said Joseph E. Scalzo, President and Chief Executive Officer of The Simply Good Foods Company. “Retail takeaway performance continues to be strong and increased 4.7% and 5.1% for the thirteen and twenty-six weeks ended February 24, 2018. While early, fiscal third-quarter marketplace performance is off to a good start giving us confidence in our growth initiatives to create value for our shareholders.”
Results for the Successor Period for the Thirteen Weeks Ended February 24, 2018, and Predecessor Period for the Thirteen Weeks Ended February 25, 2017(1)
• | Successor net sales were $109.3 million and Predecessor net sales were $102.3 million |
• | Successor income tax benefit was $26.8 million and Predecessor income tax expense was $2.1 million |
• | Successor net income was $41.4 million and Predecessor net income was $3.5 million |
In order to present comparable financial information, the Company has also presented supplemental unaudited pro forma financial information for the thirteen weeks ended February 25, 2017, giving effect to the business combination (the “Business Combination”) with Conyers Park Acquisition Corp. (“Conyers Park”) and NCP-ATK Holdings, Inc. (“Atkins”) as if it had occurred on August 28, 2016. All references in this press release section to results for the second quarter ended February 25, 2017, refer to such unaudited pro forma results. The Company believes this pro forma information provides helpful supplemental information with respect to the performance of Simply Good Foods, and particularly the Atkins business, during this period.
Second Quarter 2018 Financial Highlights vs. Second Quarter 2017 Pro-Forma
• | Net sales increased 6.9%, or $7.0 million, to $109.3 million |
• | Gross profit margin of 46.0%, an increase of 50 basis points |
• | Net income increased to $41.4 million, an increase of $35.0 million, benefiting from changes to tax rates and other one-time gains |
• | Earnings per diluted share (“EPS”) of $0.56, an increase of $0.47 per fully diluted share |
• | Adjusted EBITDA(2) increased 3.9%, to $18.8 million. |
(All comparisons above are with respect to the Predecessor's pro forma thirteen week period ended February 25, 2017)
________________________________________
(1) On July 7, 2017, the Company completed the Business Combination between Atkins and Conyers Park, and as a result of the Business Combination, both Conyers Park and Atkins became wholly-owned subsidiaries of Simply Good Foods. Pursuant to GAAP and SEC requirements and the application of acquisition accounting, the Company's consolidated financial results are presented: (i) as of and for the thirteen weeks ended February 24, 2018 (Successor); and (ii) as of and for the thirteen weeks ended February 25, 2017 (Predecessor). All references to “Successor” refers to Simply Good Foods, and all references to “Predecessor” refers to Atkins prior to the Business Combination.
(2) Adjusted EBITDA is a non-GAAP financial measure. Please refer to “Non-GAAP Financial Measure and Related Information” and “Reconciliation of Adjusted EBITDA” in this press release for an explanation and reconciliations of this non-GAAP financial measure.
1
Net sales increased $7.0 million, or 6.9%, to $109.3 million driven by organic sales growth of 5.8%, and the acquisition of Wellness Foods, Inc., and its Simply Protein brand, which added a 1.1% increase to net sales.
Gross profit was $50.3 million for the second quarter of 2018, an increase of $3.7 million or 7.9%. Gross profit margin was 46.0% compared to 45.5% for the pro forma thirteen weeks ended February 25, 2017 due to a reduction in supply chain costs.
Net income increased $35.0 million, to $41.4 million primarily due to a one-time gain related to the re-measurement of deferred tax liabilities of $29.0 million, a $4.7 million gain in the fair value of the Tax Receivable Agreement, as well as improvement in gross profit. This was partially offset by slightly higher distribution costs and $1.9 million in business transaction costs related to the secondary offering in February and acquisition due diligence costs. Additionally, as planned, selling expense increased driven by higher levels of in-store advertising and on-line marketing investment, and a 5.0% increase in general and administrative expenses as a result of public company costs.
Adjusted EBITDA, a non-GAAP financial measure used by the Company that makes certain adjustments to net income calculated under GAAP, increased 3.9% to $18.8 million.
(All comparisons above are with respect to the Predecessor's pro forma thirteen week period ended February 25, 2017)
Results for the Successor Period for the Twenty-Six Weeks Ended February 24, 2018, and Predecessor Period for the Twenty-Six Weeks Ended February 25, 2017(3)
• | Successor net sales were $215.9 million and Predecessor net sales were $202.1 million |
• | Successor income tax benefit was $20.3 million and Predecessor income tax expense was $7.0 million |
• | Successor net income was $51.6 million and Predecessor net income was $10.3 million |
In order to present comparable financial information, the Company has also presented supplemental unaudited pro forma financial information for the twenty-six weeks ended February 25, 2017, giving effect to the business combination (the “Business Combination”) with Conyers Park Acquisition Corp. (“Conyers Park”) and NCP-ATK Holdings, Inc. (“Atkins”) as if it had occurred on August 28, 2016. All references in this press release section to results for the twenty-six weeks ended February 25, 2017, refer to such unaudited pro forma results. The Company believes this pro forma information provides helpful supplemental information with respect to the performance of Simply Good Foods, and particularly the Atkins business, during this period.
Year-to-Date Second Quarter 2018 Financial Highlights vs. Year-to-Date Second Quarter 2017 Pro-Forma
• | Net sales increased 6.8%, or $13.8 million, to $215.9 million |
• | Gross profit margin of 47.7%, an increase of 60 basis points |
• | Net income increased to $51.6 million, an increase of $36.1 million, benefiting from changes to tax rates and other one-time gains |
• | Earnings per diluted share (“EPS”) of $0.71, an increase of $0.50 per fully diluted share |
• | Adjusted EBITDA increased 5.3%, to $42.5 million. |
(All comparisons above are with respect to the Predecessor's pro forma twenty-six week second quarter ended February 25, 2017)
________________________________________
(3) On July 7, 2017, the Company completed the Business Combination between Atkins and Conyers Park, and as a result of the Business Combination, both Conyers Park and Atkins became wholly-owned subsidiaries of Simply Good Foods. Pursuant to GAAP and SEC requirements and the application of acquisition accounting, the Company's consolidated financial results are presented: (i) as of and for the twenty-six weeks ended February 24, 2018 (Successor); and (ii) as of and for the twenty-six weeks ended February 25, 2017 (Predecessor). All references to “Successor” refers to Simply Good Foods, and all references to “Predecessor” refers to Atkins prior to the Business Combination.
2
Net sales increased $13.8 million, or 6.8%, to $215.9 million driven by organic sales growth of 4.9%, and the acquisition of Wellness Foods, Inc., and its Simply Protein brand, which added a 1.9% increase to net sales.
Gross profit was $103.0 million for the twenty-six weeks ended February 24, 2018, an increase of $7.7 million or 8.1%. Gross profit margin was 47.7% compared to 47.1% for the pro forma thirteen weeks ended February 25, 2017 due to a reduction in supply chain costs and favorable product mix.
Net income increased $36.1 million to $51.6 million primarily due to a one-time gain related to the re-measurement of deferred tax liabilities of $29.0 million, a $4.7 million gain in the fair value of the Tax Receivable Agreement, as well as improvement in gross profit. This was partially offset by slightly higher distribution costs and $1.9 million in business transaction costs related to the secondary offering in February and acquisition due diligence costs, a 7.3% increase in selling expense, and a 10.8% increase in general and administrative expenses as a result of public company costs and the addition of Wellness Foods acquired in December 2016.
Adjusted EBITDA, a non-GAAP financial measure used by the Company that makes certain adjustments to net income calculated under GAAP, increased 5.3% to $42.5 million.
(All comparisons above are with respect to the Predecessor's pro forma twenty-six week period ended February 25, 2017)
Balance Sheet and Cash Flow
As of February 24, 2018, the Company had cash and cash equivalents of $79.0 million and $199.5 million in outstanding principal of the term loan, resulting in a trailing twelve month pro forma combined Net Debt to Adjusted EBITDA ratio of 1.6x. The Company also has a $75.0 million revolving line of credit available for borrowing which is not currently being utilized, with no borrowings outstanding as of February 24, 2018.
Tax Cuts and Jobs Act
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) was signed into law. The change in the tax law is partially effective in our current 2018 fiscal year and will be fully effective in our 2019 fiscal year. The Tax Act, among other things, reduces the top U.S. federal corporate tax rate from 35% to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred, and creates new taxes on certain foreign sourced earnings.
Due to the complexities involved in accounting for the Tax Act, the U.S. Securities and Exchange Commission's Staff Accounting Bulletin ("SAB") 118 requires that the Company include in its financial statements the reasonable estimate of the impact of the Tax Act on earnings to the extent such reasonable estimate has been determined. The Company is allowed a measurement period of up to one year after the enactment date to finalize the recording of the related tax impacts. As of February 24, 2018, we have not completed our accounting for the tax effects of enactment of the Tax Act; however, as described below, we have made a reasonable estimate of the effects on our existing deferred tax balances and the one-time transition tax. In other cases, we have not been able to make a reasonable estimate and continue to account for those items based on our existing accounting under ASC 740, Income Taxes, and the provisions of the tax laws that were in effect immediately prior to enactment. For the items for which we were able to determine a reasonable estimate, we recognized a provisional gain of $29.0 million, which is included as a component of Income tax (benefit) expense in the accompanying Condensed Consolidated Statements of Operations and Comprehensive Income. While our Tax Act assessment is provisional, we do not anticipate material changes.
The Tax Act reduces the corporate federal tax rate to 21%, effective January 1, 2018. As of February 24, 2018, we have recorded a provisional decrease to our deferred tax liabilities, with a corresponding net adjustment to deferred income tax benefit of $29.0 million. While we are able to make a reasonable estimate of the impact of the reduction in corporate rate, it may be affected by other analyses related to the Tax Act, including, but not limited to, our calculation of deemed repatriation of deferred foreign income and the state tax effect of adjustments made to federal temporary differences.
3
Outlook
Simply Good Foods reaffirms its net sales outlook for fiscal year 2018, and expects it to increase within its previously stated long-term target of 4% to 6% growth. The recently passed Tax Act will have a favorable impact on net income, earnings per share-diluted and cash flow. The Company will re-invest a portion of this benefit in:
• | Incremental strategic investments in marketing and brand building initiatives to drive growth that will enable the Company to finish the year strong and ensure marketplace momentum continues into fiscal 2019; |
• | Investment in organizational capabilities in key functions and process that positions the Company for further growth and future compliance requirements; and |
• | A $1,000 bonus for all employees below the director level. |
Combined with the previously mentioned public company expense of $2.0 million, the Company expects Adjusted EBITDA growth rate to be slightly lower than net sales growth rate in fiscal 2018.
Conference Call and Webcast Information
The Company will host a conference call with members of the executive management team to discuss these results today, Tuesday, April 10, 2018 at 6:30 a.m. Mountain time (8:30 a.m. Eastern time). Investors interested in participating in the live call can dial 877-407-0792 from the U.S. and International callers can dial 201-689-8263.
In addition, the call and accompanying presentation slides will be broadcast live over the Internet hosted at the “Investor Relations” section of the Company's website at http://www.thesimplygoodfoodscompany.com. The webcast will be archived for 30 days. A telephone replay will be available approximately two hours after the call concludes and will be available through Tuesday, April 24, 2018, by dialing 844-512-2921 from the U.S., or 412-317-6671 from international locations, and entering confirmation code 13677712.
About The Simply Good Foods Company
The Simply Good Foods Company is the company created by the business combination of Conyers Park Acquisition Corp., with executive founders Jim Kilts and Dave West, long-time business leaders in the consumer products sector, and NCP-ATK Holdings, Inc. Today, our highly-focused product portfolio consists primarily of nutrition bars, ready-to-drink shakes, snacks and confectionery products marketed under the Atkins®, SimplyProtein®, Atkins Endulge®, and Atkins Harvest Trail brand names. Simply Good Foods will look to expand its platform through investment opportunities in the snacking space and broader food category. Over time, Simply Good Foods aspires to become a portfolio of brands that bring simple goodness, happiness and positive experiences to consumers and their families. For more information, please visit https://www.thesimplygoodfoodscompany.com.
Forward Looking Statements
Certain statements made herein are not historical facts but are forward-looking statements for purposes of the safe harbor provisions under The Private Securities Litigation Reform Act of 1995. Forward-looking statements generally are accompanied by or include words such as “will”, “expect”, “aspire”, “outlook” or other similar words, phrases or expressions. These forward-looking statements include statements regarding future plans for the Company, the estimated or anticipated future results and benefits of the Company’s future plans and operations, future opportunities for the Company, and other statements that are not historical facts. These statements are based on the current expectations of the Company’s management and are not predictions of actual performance. These statements are subject to a number of risks and uncertainties and the Company’s business and actual results may differ materially. These risks and uncertainties include, but are not limited to, changes in the business environment in which the Company operates including general financial, economic, regulatory and political conditions affecting the industry in which the Company operates; changes in consumer preferences and purchasing habits; the availability of or competition for other brands, assets or other opportunities for investment by the Company or to expand the Company’s business; and other risk factors described from time to time in the Company’s Form 10-K, Form 10-Q, and Form 8-K reports (including all amendments to those reports) filed with the U.S. Securities and Exchange Commission from time to time. In addition, forward-looking statements provide the Company’s expectations, plans or forecasts of future events and views as of the date of this communication. Except as required by law, the Company undertakes no obligation to update such statements to reflect events or circumstances arising after such date, and cautions investors not to place undue reliance on any such forward-looking statements. These forward-looking statements should not be relied upon as representing the Company’s assessments as of any date subsequent to the date of this communication.
4
Non-GAAP Financial Measure and Related Information
This communication includes Adjusted EBITDA, a financial measure that is not prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The Company defines Adjusted EBITDA as net income (loss) before interest expense, income tax expense, depreciation and amortization with further adjustments to exclude the following items: stock-based compensation and warrant expense, transaction costs and IPO readiness costs, restructuring costs, management fees, frozen media licensing fees, transactional exchange impact, change in fair value of contingent consideration - TRA liability, business transaction costs, and other non-core expenses. The Company believes that the inclusion of these supplementary adjustments in presenting Adjusted EBITDA are appropriate to provide additional information to investors and reflects more accurately operating results of the on-going operations. Adjusted EBITDA may not be comparable to other similarly titled captions of other companies due to differences in calculation. The Company's management believes that this non-GAAP measure of financial results provides useful information to management and investors regarding certain financial and business trends relating to the Company's financial condition and results of operations. You should review the reconciliation of the Company's non-GAAP financial measures to the comparable GAAP financial measures which are included in this press release, and not rely on any single financial measure to evaluate the business.
Investor Contacts
Mark Pogharian
Vice President, Investor Relations, Treasury and Business Development
The Simply Good Foods Company
717-307-8197
mpogharian@thesimplygoodfoodscompany.com
Katie Turner/ Rachel Perkins
ICR
646-277-1228
Katie.turner@icrinc.com
Rachel.perkins@icrinc.com
5
The Simply Good Foods Company and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited, dollars in thousands, except share data)
February 24, 2018 | August 26, 2017 | |||||||
Assets | (Successor) | (Successor) | ||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 79,010 | $ | 56,501 | ||||
Accounts receivable, net | 41,355 | 37,181 | ||||||
Inventories | 25,813 | 29,062 | ||||||
Prepaid expenses | 4,025 | 2,904 | ||||||
Other current assets | 11,294 | 8,263 | ||||||
Total current assets | 161,497 | 133,911 | ||||||
Long-term assets: | ||||||||
Property and equipment, net | 2,289 | 2,105 | ||||||
Intangible assets, net | 315,896 | 319,148 | ||||||
Goodwill | 471,427 | 465,030 | ||||||
Other long-term assets | 2,294 | 2,294 | ||||||
Total assets | $ | 953,403 | $ | 922,488 | ||||
Liabilities and stockholders' equity | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 12,322 | $ | 14,859 | ||||
Accrued interest | 547 | 561 | ||||||
Accrued expenses and other current liabilities | 16,779 | 15,042 | ||||||
Current portion of TRA liability | 3,017 | 2,548 | ||||||
Current maturities of long-term debt | 714 | 234 | ||||||
Total current liabilities | 33,379 | 33,244 | ||||||
Long-term liabilities: | ||||||||
Long-term debt, less current maturities | 191,522 | 191,856 | ||||||
Long-term portion of TRA liability | 24,273 | 23,127 | ||||||
Deferred income taxes | 52,517 | 75,559 | ||||||
Total liabilities | 301,691 | 323,786 | ||||||
See commitments and contingencies (Note 8) | ||||||||
Stockholders' equity: | ||||||||
Preferred stock, $0.01 par value, 100,000,000 shares authorized, none issued | — | — | ||||||
Common stock, $0.01 par value, 600,000,000 shares authorized, 70,582,573 and 70,562,477 issued and outstanding, respectively | 706 | 706 | ||||||
Additional paid-in-capital | 612,336 | 610,138 | ||||||
Retained Earnings (accumulated deficit) | 39,451 | (12,161 | ) | |||||
Accumulated other comprehensive (loss) income | (781 | ) | 19 | |||||
Total stockholders' equity | 651,712 | 598,702 | ||||||
Total liabilities and stockholders' equity | $ | 953,403 | $ | 922,488 | ||||
6
The Simply Good Foods Company and Subsidiaries
Condensed Consolidated Statements of Operations and Comprehensive Income
(Unaudited, dollars in thousands, except share data)
Thirteen Weeks Ended | Twenty-Six Weeks Ended | ||||||||||||||||
February 24, 2018 | February 25, 2017 | February 24, 2018 | February 25, 2017 | ||||||||||||||
(Successor) | (Predecessor) | (Successor) | (Predecessor) | ||||||||||||||
Net sales | $ | 109,347 | $ | 102,308 | $ | 215,934 | $ | 202,111 | |||||||||
Cost of goods sold | 59,090 | 55,735 | 112,920 | 106,826 | |||||||||||||
Gross profit | 50,257 | 46,573 | 103,014 | 95,285 | |||||||||||||
Operating Expenses: | |||||||||||||||||
Distribution | 5,391 | 4,960 | 10,208 | 9,329 | |||||||||||||
Selling | 4,975 | 3,978 | 8,878 | 8,271 | |||||||||||||
Marketing | 10,056 | 10,030 | 19,906 | 19,236 | |||||||||||||
General and administrative | 12,711 | 11,768 | 24,790 | 21,699 | |||||||||||||
Depreciation and amortization | 1,948 | 2,474 | 3,882 | 4,927 | |||||||||||||
Business transaction costs | 1,877 | — | 1,877 | — | |||||||||||||
Gain in fair value change of contingent consideration - TRA liability | (3,668 | ) | — | (3,026 | ) | — | |||||||||||
Other expense | 184 | 58 | 430 | 58 | |||||||||||||
Total operating expenses | 33,474 | 33,268 | 66,945 | 63,520 | |||||||||||||
Income from operations | 16,783 | 13,305 | 36,069 | 31,765 | |||||||||||||
Other income (expense): | |||||||||||||||||
Change in warrant liabilities | — | (1,119 | ) | — | (397 | ) | |||||||||||
Interest expense | (3,093 | ) | (6,566 | ) | (6,112 | ) | (13,629 | ) | |||||||||
Gain (loss) on foreign currency transactions | 601 | (108 | ) | 956 | (718 | ) | |||||||||||
Other income | 312 | 22 | 398 | 199 | |||||||||||||
Total other expense | (2,180 | ) | (7,771 | ) | (4,758 | ) | (14,545 | ) | |||||||||
Income before income taxes | 14,603 | 5,534 | 31,311 | 17,220 | |||||||||||||
Income tax (benefit) expense | (26,791 | ) | 2,071 | (20,301 | ) | 6,970 | |||||||||||
Net income | $ | 41,394 | $ | 3,463 | $ | 51,612 | $ | 10,250 | |||||||||
Other comprehensive income: | |||||||||||||||||
Foreign currency translation adjustments | (101 | ) | 113 | (800 | ) | 416 | |||||||||||
Comprehensive income | $ | 41,293 | $ | 3,576 | $ | 50,812 | $ | 10,666 | |||||||||
Earnings per share from net income: | |||||||||||||||||
Basic | $ | 0.59 | $ | 0.73 | |||||||||||||
Diluted | $ | 0.56 | $ | 0.71 | |||||||||||||
Weighted average shares outstanding: | |||||||||||||||||
Basic | 70,582,573 | 70,576,744 | |||||||||||||||
Diluted | 73,832,207 | 72,605,705 | |||||||||||||||
7
The Simply Good Foods Company and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited, dollars in thousands)
Twenty-Six Weeks Ended | ||||||||
February 24, 2018 | February 25, 2017 | |||||||
(Successor) | (Predecessor) | |||||||
Operating activities | ||||||||
Net income | $ | 51,612 | $ | 10,250 | ||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||||||
Depreciation and amortization | 3,882 | 4,927 | ||||||
Amortization of deferred financing costs and debt discount | 645 | 983 | ||||||
Stock compensation expense | 1,967 | 1,063 | ||||||
Change in warrant liabilities | — | 397 | ||||||
Gain in fair value change of contingent consideration - TRA liability | (3,026 | ) | — | |||||
Unrealized (gain) loss on foreign currency transactions | (956 | ) | 718 | |||||
Deferred income taxes | (23,398 | ) | (1,369 | ) | ||||
Loss on disposal of property and equipment | 72 | — | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable, net | (4,672 | ) | 1,584 | |||||
Inventories | 3,284 | 6,474 | ||||||
Prepaid expenses | (909 | ) | (51 | ) | ||||
Other current assets | (2,346 | ) | (3,345 | ) | ||||
Accounts payable | (2,601 | ) | (6,050 | ) | ||||
Accrued interest | (15 | ) | 49 | |||||
Accrued expenses and other current liabilities | 1,726 | 3,748 | ||||||
Other | 86 | 9 | ||||||
Net cash provided by operating activities | 25,351 | 19,387 | ||||||
Investing activities | ||||||||
Purchases of property and equipment | (886 | ) | (284 | ) | ||||
Acquisition of business, net of cash acquired | (1,757 | ) | (21,039 | ) | ||||
Net cash used in investing activities | (2,643 | ) | (21,323 | ) | ||||
Financing activities | ||||||||
Proceeds from option exercises | — | 109 | ||||||
Cash received from warrant exercises | 231 | — | ||||||
Principal payments of long-term debt | (500 | ) | (3,586 | ) | ||||
Net cash used in financing activities | (269 | ) | (3,477 | ) | ||||
Cash and cash equivalents | ||||||||
Net increase in cash | 22,439 | (5,413 | ) | |||||
Effect of exchange rate on cash | 70 | (162 | ) | |||||
Cash at beginning of period | 56,501 | 78,492 | ||||||
Cash and cash equivalents at end of period | $ | 79,010 | $ | 72,917 | ||||
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Supplemental Unaudited Pro Forma Combined Thirteen Week Period Ended February 25, 2017
The following unaudited pro forma financial information has been prepared from the perspective of Atkins and its thirteen week quarter ended February 25, 2017. The unaudited pro forma income statement presents the historical consolidated statement of operations of Atkins for the thirteen weeks ended February 25, 2017, giving effect to the Business Combination as if it had occurred on August 28, 2016.
The unaudited pro forma financial statements give effect to the Business Combination in accordance with the acquisition method of accounting for business combinations. The historical financial information has been adjusted to give pro forma effect to events that are related and/or directly attributable to the Business Combination, are factually supportable and are expected to have a continuing impact on the results of the combined company. The adjustments presented on the unaudited pro forma financial statements have been identified and presented to provide relevant information necessary for an accurate understanding of the combined company upon consummation of the Business Combination.
The unaudited pro forma financial information is for illustrative purposes only. The financial results may have been different if the Business Combination actually been completed sooner. You should not rely on the unaudited pro forma financial information as being indicative of the historical results that would have been achieved if the Business Combination been completed as of the beginning of fiscal 2017.
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Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the Pro Forma Thirteen Week Period Ended February 25, 2017
(In thousands)
Unaudited Historical (i) | Pro Forma | |||||||||||
(Predecessor) | Unaudited | |||||||||||
Thirteen Weeks Ended | Pro Forma Adjustments | Thirteen Weeks Ended | ||||||||||
(in thousands) | February 25, 2017 | February 25, 2017 | ||||||||||
Net sales | $ | 102,308 | $ | — | $ | 102,308 | ||||||
Cost of goods sold | 55,735 | — | 55,735 | |||||||||
Gross profit | 46,573 | — | 46,573 | |||||||||
Operating Expenses: | ||||||||||||
Distribution | 4,960 | — | 4,960 | |||||||||
Selling | 3,978 | — | 3,978 | |||||||||
Marketing | 10,030 | — | 10,030 | |||||||||
General and administrative | 11,768 | 335 | ii | 12,103 | ||||||||
Depreciation and amortization | 2,474 | (560 | ) | iii | 1,914 | |||||||
Other expense | 58 | — | 58 | |||||||||
Total operating expenses | 33,268 | (225 | ) | 33,043 | ||||||||
Income from operations | 13,305 | 225 | 13,530 | |||||||||
Other income (expense): | ||||||||||||
Change in warrant liabilities | (1,119 | ) | 1,119 | iv | — | |||||||
Interest expense | (6,566 | ) | 3,709 | v | (2,857 | ) | ||||||
Gain (loss) on foreign currency transactions | (108 | ) | — | (108 | ) | |||||||
Other income | 22 | — | 22 | |||||||||
Total other expense | (7,771 | ) | 4,828 | (2,943 | ) | |||||||
Income before income taxes | 5,534 | 5,053 | 10,587 | |||||||||
Income tax (benefit) or expense | 2,071 | 2,121 | vi | 4,192 | ||||||||
Net income | $ | 3,463 | $ | 2,932 | $ | 6,395 | ||||||
Other Financial Data (Unaudited): | ||||||||||||
Adjusted EBITDA (vii) | $ | 18,109 | $ | 18,109 | ||||||||
i. The amounts presented represent the Predecessor’s historical GAAP results of operations. | |||||||||
ii. The adjustment represents the incremental stock-based compensation expense under the new Simply Good Foods omnibus incentive plan. | |||||||||
iii. The adjustment reflects the difference in the intangible asset amortization expense associated with the allocation of purchase price to intangible assets due to the Business Combination. The amortization expense decreased as more indefinite lived intangible assets were identified for the successor entity than the predecessor entity. The amount of amortizable intangible assets identified in the Business Combination decreased from $125.8 million to $88.0 million. | |||||||||
iv. Simply Good Foods warrants are not liabilities and are accounted for as equity warrants. To make the periods comparable the adjustment represents the corresponding reversal of the predecessor fair value adjustment of expense. | |||||||||
v. The adjustment represents the expected interest expense associated with the term loan and revolving debt facilities of Simply Good Foods. The predecessor entity had $337.2 million outstanding as of August 27, 2016 while the successor entity had $200.0 million outstanding. The long-term debt of the predecessor entity accrued interest at 6.25% on the first lien and 9.75% on the second lien while the successor debt accrues interest at 3 month LIBOR and 4%. The significant reduction in outstanding principal, and lower interest rates, drive significant expense savings. | |||||||||
vi. Represents the effective income tax rate of 39.6% | |||||||||
vii. Adjusted EBITDA is a non-GAAP financial measure. For a reconciliation to its most directly comparable GAAP measure, see “Reconciliation of Adjusted EBITDA” below. | |||||||||
10
Comparison of Unaudited Results for the Thirteen Week Period Ended February 24, 2018 and the Supplemental Pro Forma Thirteen Week Period Ended February 25, 2017
For comparative purposes, we are presenting an unaudited statement of operations for the thirteen week period ended February 24, 2018, compared to unaudited supplemental pro forma statement of operations for the thirteen week period ended February 25, 2017. The following table presents, for the periods indicated, selected information from our supplemented unaudited pro forma condensed consolidated financial results, including information presented as a percentage of net sales:
Historical | Pro Forma | ||||||||||||||
Successor | Predecessor | ||||||||||||||
unaudited | unaudited | ||||||||||||||
13-weeks ended | 13-weeks ended | ||||||||||||||
(in thousands) | February 24, 2018 | % of sales | February 25, 2017 | % of sales | |||||||||||
Net sales | $ | 109,347 | 100.0 | % | $ | 102,308 | 100.0 | % | |||||||
Cost of goods sold | 59,090 | 54.0 | % | 55,735 | 54.5 | % | |||||||||
Gross profit | 50,257 | 46.0 | % | 46,573 | 45.5 | % | |||||||||
Operating Expenses: | |||||||||||||||
Distribution | 5,391 | 4.9 | % | 4,960 | 4.8 | % | |||||||||
Selling | 4,975 | 4.5 | % | 3,978 | 3.9 | % | |||||||||
Marketing | 10,056 | 9.2 | % | 10,030 | 9.8 | % | |||||||||
General and administrative | 12,711 | 11.6 | % | 12,103 | 11.8 | % | |||||||||
Depreciation and amortization | 1,948 | 1.8 | % | 1,914 | 1.9 | % | |||||||||
Business transaction costs | 1,877 | 1.7 | % | — | — | % | |||||||||
Gain in fair value change of contingent consideration - TRA liability | (3,668 | ) | (3.4 | )% | — | — | % | ||||||||
Other Expense | 184 | 0.2 | % | 58 | 0.1 | % | |||||||||
Total operating expenses | 33,474 | 30.6 | % | 33,043 | 32.3 | % | |||||||||
Income from operations | 16,783 | 15.3 | % | 13,530 | 13.2 | % | |||||||||
Other income (expense): | |||||||||||||||
Changes in warrant liabilities | — | — | % | — | — | % | |||||||||
Interest expense | (3,093 | ) | (2.8 | )% | (2,857 | ) | (2.8 | )% | |||||||
Gain (loss) on foreign currency transactions | 601 | 0.5 | % | (108 | ) | (0.1 | )% | ||||||||
Other income | 312 | 0.3 | % | 22 | — | % | |||||||||
Total other expense | (2,180 | ) | (2.0 | )% | (2,943 | ) | (2.9 | )% | |||||||
Income before income taxes | 14,603 | 13.4 | % | 10,587 | 10.3 | % | |||||||||
Income tax (benefit) expense | (26,791 | ) | (24.5 | )% | 4,192 | 4.1 | % | ||||||||
Net income | $ | 41,394 | 37.9 | % | $ | 6,395 | 6.3 | % | |||||||
Earnings per share from net income: | |||||||||||||||
Basic | $ | 0.59 | $ | 0.09 | |||||||||||
Diluted | $ | 0.56 | $ | 0.09 | |||||||||||
Weighted average shares outstanding: (i) | |||||||||||||||
Basic | 70,582,573 | 70,582,573 | |||||||||||||
Diluted | 73,832,207 | 73,832,207 | |||||||||||||
i. For comparability purposes the historical financial information has been adjusted to give pro forma effect to events that are related and/or directly attributable to the Business Combination.The Company has assumed the pro forma weighted average shares outstanding of the predecessor to be the same as the comparable period of the successor as the pro forma results of the predecessor is adjusted for the incremental difference in stock-based compensation and the treatment of the warrant liabilities. Prior to the Business Combination the predecessor had 508,219 shares of Common Stock outstanding. | |||||||||
11
Supplemental Unaudited Pro Forma Combined Twenty-Six Week Period Ended February 25, 2017
The following unaudited pro forma financial information has been prepared from the perspective of Atkins and for the twenty-six weeks ended February 25, 2017. The unaudited pro forma income statement presents the historical consolidated statement of operations of Atkins for the twenty-six weeks ended February 25, 2017, giving effect to the Business Combination as if it had occurred on August 28, 2016.
The unaudited pro forma financial statements give effect to the Business Combination in accordance with the acquisition method of accounting for business combinations. The historical financial information has been adjusted to give pro forma effect to events that are related and/or directly attributable to the Business Combination, are factually supportable and are expected to have a continuing impact on the results of the combined company. The adjustments presented on the unaudited pro forma financial statements have been identified and presented to provide relevant information necessary for an accurate understanding of the combined company upon consummation of the Business Combination.
The unaudited pro forma financial information is for illustrative purposes only. The financial results may have been different if the Business Combination actually been completed sooner. You should not rely on the unaudited pro forma financial information as being indicative of the historical results that would have been achieved if the Business Combination been completed as of the beginning of fiscal 2017.
12
Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the Pro Forma Twenty-Six Week Period Ended February 25, 2017
(In thousands)
Unaudited Historical (i) | Pro Forma | |||||||||||
(Predecessor) | Unaudited | |||||||||||
26-weeks ended | Pro Forma Adjustments | 26-weeks ended | ||||||||||
(in thousands) | February 25, 2017 | February 25, 2017 | ||||||||||
Net sales | $ | 202,111 | $ | — | $ | 202,111 | ||||||
Cost of goods sold | 106,826 | — | 106,826 | |||||||||
Gross profit | 95,285 | — | 95,285 | |||||||||
Operating Expenses: | ||||||||||||
Distribution | 9,329 | — | 9,329 | |||||||||
Selling | 8,271 | — | 8,271 | |||||||||
Marketing | 19,236 | — | 19,236 | |||||||||
General and administrative | 21,699 | 681 | ii | 22,380 | ||||||||
Depreciation and amortization | 4,927 | (1,121 | ) | iii | 3,806 | |||||||
Other expense | 58 | — | 58 | |||||||||
Total operating expenses | 63,520 | (440 | ) | 63,080 | ||||||||
Income from operations | 31,765 | 440 | 32,205 | |||||||||
Other income (expense): | ||||||||||||
Change in warrant liabilities | (397 | ) | 397 | iv | — | |||||||
Interest expense | (13,629 | ) | 7,674 | v | (5,955 | ) | ||||||
Gain (loss) on foreign currency transactions | (718 | ) | — | (718 | ) | |||||||
Other income | 199 | — | 199 | |||||||||
Total other expense | (14,545 | ) | 8,071 | (6,474 | ) | |||||||
Income before income taxes | 17,220 | 8,511 | 25,731 | |||||||||
Income tax (benefit) or expense | 6,970 | 3,219 | vi | 10,189 | ||||||||
Net income | $ | 10,250 | $ | 5,292 | $ | 15,542 | ||||||
Other Financial Data (Unaudited): | ||||||||||||
Adjusted EBITDA (ix) | $ | 40,360 | $ | 40,360 | ||||||||
i. The amounts presented represent the Predecessor’s historical GAAP results of operations. | |||||||||
ii. The adjustment represents the incremental stock-based compensation expense under the new Simply Good Foods omnibus incentive plan. | |||||||||
iii. The adjustment reflects the difference in the intangible asset amortization expense associated with the allocation of purchase price to intangible assets due to the Business Combination. The amortization expense decreased as more indefinite lived intangible assets were identified for the successor entity than the predecessor entity. The amount of amortizable intangible assets identified in the Business Combination decreased from $125.8 million to $88.0 million. | |||||||||
iv. Simply Good Foods warrants are not liabilities and are accounted for as equity warrants. To make the periods comparable the adjustment represents the corresponding reversal of the predecessor fair value adjustment of expense. | |||||||||
v. The adjustment represents the expected interest expense associated with the term loan and revolving debt facilities of Simply Good Foods. The predecessor entity had $337.2 million outstanding as of August 27, 2016 while the successor entity had $200.0 million outstanding. The long-term debt of the predecessor entity accrued interest at 6.25% on the first lien and 9.75% on the second lien while the successor debt accrues interest at 3 month LIBOR and 4%. The significant reduction in outstanding principal, and lower interest rates, drive significant expense savings. | |||||||||
vi. Represents the effective income tax rate of 39.6% | |||||||||
vii. Adjusted EBITDA is a non-GAAP financial measure. For a reconciliation to its most directly comparable GAAP measure, see “Reconciliation of Adjusted EBITDA” below. | |||||||||
13
Comparison of Unaudited Results for the Twenty-Six Week Period Ended February 24, 2018 and the Supplemental Pro Forma Twenty-Six Week Period Ended February 25, 2017
For comparative purposes, we are presenting an unaudited statement of operations for the twenty-six week period ended February 24, 2018, compared to unaudited supplemental pro forma statement of operations for the twenty-six week period ended February 25, 2017. The following table presents, for the periods indicated, selected information from our supplemented unaudited pro forma condensed consolidated financial results, including information presented as a percentage of net sales:
Historical | Pro Forma | ||||||||||||||
Successor | Predecessor | ||||||||||||||
unaudited | unaudited | ||||||||||||||
26-weeks ended | 26-weeks ended | ||||||||||||||
(in thousands) | February 24, 2018 | % of sales | February 25, 2017 | % of sales | |||||||||||
Net sales | $ | 215,934 | 100.0 | % | $ | 202,111 | 100.0 | % | |||||||
Cost of goods sold | 112,920 | 52.3 | % | 106,826 | 52.9 | % | |||||||||
Gross profit | 103,014 | 47.7 | % | 95,285 | 47.1 | % | |||||||||
Operating Expenses: | |||||||||||||||
Distribution | 10,208 | 4.7 | % | 9,329 | 4.6 | % | |||||||||
Selling | 8,878 | 4.1 | % | 8,271 | 4.1 | % | |||||||||
Marketing | 19,906 | 9.2 | % | 19,236 | 9.5 | % | |||||||||
General and administrative | 24,790 | 11.5 | % | 22,380 | 11.1 | % | |||||||||
Depreciation and amortization | 3,882 | 1.8 | % | 3,806 | 1.9 | % | |||||||||
Business transaction costs | 1,877 | 0.9 | % | — | — | % | |||||||||
Gain in fair value change of contingent consideration - TRA liability | (3,026 | ) | (1.4 | )% | — | — | % | ||||||||
Other Expense | 430 | 0.2 | % | 58 | — | % | |||||||||
Total operating expenses | 66,945 | 31.0 | % | 63,080 | 31.2 | % | |||||||||
Income from operations | 36,069 | 16.7 | % | 32,205 | 15.9 | % | |||||||||
Other income (expense): | |||||||||||||||
Changes in warrant liabilities | — | — | % | — | — | % | |||||||||
Interest expense | (6,112 | ) | (2.8 | )% | (5,955 | ) | (2.9 | )% | |||||||
Gain (loss) on foreign currency transactions | 956 | 0.4 | % | (718 | ) | (0.4 | )% | ||||||||
Other income | 398 | 0.2 | % | 199 | 0.1 | % | |||||||||
Total other expense | (4,758 | ) | (2.2 | )% | (6,474 | ) | (3.2 | )% | |||||||
Income before income taxes | 31,311 | 14.5 | % | 25,731 | 12.7 | % | |||||||||
Income tax (benefit) expense | (20,301 | ) | (9.4 | )% | 10,189 | 5.0 | % | ||||||||
Net income | $ | 51,612 | 23.9 | % | $ | 15,542 | 7.7 | % | |||||||
Earnings per share from net income: | |||||||||||||||
Basic | $ | 0.73 | $ | 0.22 | |||||||||||
Diluted | $ | 0.71 | $ | 0.21 | |||||||||||
Weighted average shares outstanding: (i) | |||||||||||||||
Basic | 70,576,744 | 70,576,744 | |||||||||||||
Diluted | 72,605,705 | 72,605,705 | |||||||||||||
i. For comparability purposes the historical financial information has been adjusted to give pro forma effect to events that are related and/or directly attributable to the Business Combination.The Company has assumed the pro forma weighted average shares outstanding of the predecessor to be the same as the comparable period of the successor as the pro forma results of the predecessor is adjusted for the incremental difference in stock-based compensation and the treatment of the warrant liabilities. Prior to the Business Combination the predecessor had 508,219 shares of Common Stock outstanding. | |||||||||
14
Reconciliation of Adjusted EBITDA
Adjusted EBITDA. Adjusted EBITDA is a non-GAAP financial measure commonly used in our industry and should not be construed as an alternative to net income as an indicator of operating performance or as an alternative to cash flow provided by operating activities as a measure of liquidity (each as determined in accordance with GAAP). Simply Good Foods defines Adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) as net income (loss) before interest expense, income tax expense, depreciation and amortization with further adjustments to exclude the following items: stock-based compensation and warrant expense, transaction costs and IPO readiness costs, restructuring costs, management fees, frozen media licensing fees, transactional exchange impact, change in fair value of contingent consideration - TRA liability, business transaction costs, and other non-core expenses. The Company believes that the inclusion of these supplementary adjustments in presenting Adjusted EBITDA are appropriate to provide additional information to investors and reflects more accurately operating results of the on-going operations. Adjusted EBITDA may not be comparable to other similarly titled captions of other companies due to differences in calculation.
The following unaudited tables below provides a reconciliation of Adjusted EBITDA to its most directly comparable GAAP measure, which is net income (loss), for the thirteen week periods ended February 24, 2018 (Successor), February 25, 2017 (Predecessor), and pro forma period ended February 25, 2017.
Adjusted EBITDA Reconciliation: (in thousands) | Thirteen Weeks Ended | Thirteen Weeks Ended | Thirteen Weeks Ended | |||||||||
February 24, 2018 | February 25, 2017 | February 25, 2017 | ||||||||||
(Successor) | (Predecessor) | (Pro Forma) | ||||||||||
Net income | $ | 41,394 | $ | 3,463 | $ | 6,395 | ||||||
Interest | 3,093 | 6,566 | 2,857 | |||||||||
Taxes Expense (Gain) | (26,791 | ) | 2,071 | 4,192 | ||||||||
Depreciation/Amortization | 1,948 | 2,474 | 1,914 | |||||||||
EBITDA | 19,644 | 14,574 | 15,358 | |||||||||
Business transaction costs | 1,877 | — | — | |||||||||
Stock-based compensation and warrant expense | 899 | 1,656 | 872 | |||||||||
Transaction Fees / IPO Readiness | — | 548 | 548 | |||||||||
Restructuring | 184 | 57 | 57 | |||||||||
Roark Management Fee | — | 551 | 551 | |||||||||
Frozen Licensing Media | 62 | 335 | 335 | |||||||||
Non-core legal costs | 403 | 272 | 272 | |||||||||
Gain in fair value change of contingent consideration - TRA liability | (3,668 | ) | — | — | ||||||||
Other (1) | (594 | ) | 116 | 116 | ||||||||
Adjusted EBITDA | $ | 18,807 | $ | 18,109 | $ | 18,109 | ||||||
_____________________ (1) Other items consist principally of exchange impact of foreign currency transactions as well as minor impacts of channel inventory returns | ||||||||||||
15
The following unaudited tables below provides a reconciliation of Adjusted EBITDA to its most directly comparable GAAP measure, which is net income (loss), for the twenty-six week periods ended February 24, 2018 (Successor), February 25, 2017 (Predecessor), and pro forma period ended February 25, 2017.
Adjusted EBITDA Reconciliation: (in thousands) | Twenty-Six Weeks Ended | Twenty-Six Weeks Ended | Twenty-Six Weeks Ended | |||||||||
February 24, 2018 | February 25, 2017 | February 25, 2017 | ||||||||||
(Successor) | (Predecessor) | (Pro Forma) | ||||||||||
Net income | $ | 51,612 | $ | 10,250 | $ | 15,542 | ||||||
Interest | 6,112 | 13,629 | 5,955 | |||||||||
Taxes Expense (Gain) | (20,301 | ) | 6,970 | 10,189 | ||||||||
Depreciation/Amortization | 3,882 | 4,927 | 3,806 | |||||||||
EBITDA | 41,305 | 35,776 | 35,492 | |||||||||
Business transaction costs | 1,877 | — | — | |||||||||
Stock-based compensation and warrant expense | 1,967 | 1,460 | 1,744 | |||||||||
Transaction Fees / IPO Readiness | — | 556 | 556 | |||||||||
Restructuring | 430 | 57 | 57 | |||||||||
Roark Management Fee | — | 981 | 981 | |||||||||
Frozen Licensing Media | 125 | 335 | 335 | |||||||||
Non-core legal costs | 779 | 455 | 455 | |||||||||
Gain in fair value change of contingent consideration - TRA liability | (3,026 | ) | — | — | ||||||||
Other (1) | (940 | ) | 740 | 740 | ||||||||
Adjusted EBITDA | $ | 42,517 | $ | 40,360 | $ | 40,360 | ||||||
_____________________ (1) Other items consist principally of exchange impact of foreign currency transactions as well as minor impacts of channel inventory returns | ||||||||||||
16