SMPL - NASDAQ

Greetings, and welcome to The Simply Good Foods Company's Fiscal Year 2025 Second Quarter Conference Call. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. At this time, it is now my pleasure to introduce Josh Levine, Vice President of Investor Relations. Thank you, Josh. You may now begin.

Thank you, operator. Good morning, and welcome to The Simply Good Foods Company fiscal year 2025 second quarter earnings call for the 13-week period ended March 1, 2025. Today, Geoff Tanner, President and CEO, and Shaun Mara, CFO, will provide you with an overview of results, which will then be followed by Q&A session. The company issued its earnings release this morning at approximately 7 AM Eastern Time. A copy of the release and accompanying presentation are available on the Investors section of the company's website at www.thesimplygoodfoodscompany.com. This call is being webcast and an archive of today's remarks will also be available. During the course of today's call, management will make forward-looking statements that are subject to various risks and uncertainties that may cause actual results to differ materially. The company undertakes no obligation to update these statements based on subsequent events. A detailed listing of such risks and uncertainties can be found in today's press release and the company's SEC filings. Note that on today's call, we will refer to certain non-GAAP financial measures that we believe will provide useful information for investors. Due to the company's asset-light, strong cash flow business model, we evaluate our performance on an adjusted basis as it relates to EBITDA and diluted EPS. Please refer to today's press release for a reconciliation of the historical non-GAAP financial measures to the most comparable measures prepared in accordance with GAAP. The acquisition of Only What You Need, Inc., OWYN, was completed on June 13, 2025. Therefore, the company's year-ago performance for the 13 weeks ended February 24, 2024 does not include results of the OWYN business. The reference to organic or legacy Simply Good Foods refers to Simply Good Foods business excluding OWYN. All retail takeaway data included in our discussion today, unless otherwise noted, is for the 13 weeks ended March 2, 2025, and reflects a combination of MULO++C performance and company estimates for unmeasured channels as compared to the prior year. Finally, please note that today's earnings release includes a new table summarizing net sales by geography and brand for the current and prior year periods. I will now turn the call over to Geoff Tanner, President and CEO.

Thank you, Josh. Good morning, everyone, and thank you for joining us. I'll begin by reviewing our performance during the quarter, then Shaun will discuss our financial results in more detail before we wrap it up with a discussion of our fiscal year 2025 outlook and your question. Before I begin, I want to acknowledge the announcement we made back in January that our CFO, Shaun Mara, will be retiring this summer following a long and successful career. Shaun has been with the company in multiple senior management roles for many years, including as CFO of Atkins Nutritionals prior to the IPO and as the leader of the highly successful integration of Quest. More recently, in addition to leading our finance organization since late 2022, Shaun has been instrumental as a partner to me and as a strategic thinker and phenomenal financial executive. On behalf of everyone at Simply Good, I wish Shaun continued success in retirement. I'm also thrilled to welcome Chris Bealer to Simply Good Foods. Chris joined us last week as Senior Vice President of Finance and is expected to succeed Shaun upon his retirement in July. Chris brings almost 23 years of experience in consumer packaged goods and consumer durables in North America and global markets and, like Shaun, has extensive financial, strategic and operating experience. Chris is here with us today. However, given it's day seven for him, he won't be available for questions. Turning to our results. Our momentum continues with double-digit growth for Quest and OWYN, more than offsetting declines for Atkins. Specifically, first half retail sales for Quest and OWYN, which collectively represent approximately 70% of our net sales today, increased 12% and 57%, respectively. Across the company, we are executing well, adding new doors, winning with innovation, and driving brand awareness and household penetration. Specific to the quarter, net sales increased 15% versus last year with 4% organic growth, driven by Quest performance. Assuming OWYN was included in the year ago period, retail takeaway for total Simply Good Foods grew 7% and adjusted EBITDA increased 18%. Shaun will provide you with more details on our Q2 results shortly. Our growth and long-term strategy are underpinned by solid category fundamentals. We remain excited by the trajectory of the nutritional snacking category, as well as the interest and engagement from our retail partners. Total nutritional snacking category growth was 12% in Q2, marking the 16th consecutive quarter with category growth of at least high-single-digits. Category growth reflects the continued mainstreaming of consumer demand for high protein, low sugar, low carb food and beverage options. With a diversified portfolio of three uniquely positioned brands aligned with these consumer megatrends, we believe Simply Good is well positioned to lead this generational shift in food and beverage. Let me now turn to Quest, which delivered another quarter of strong double-digit retail takeaway and net sales growth. Quest now represents 60% of the company's net sales, is one of the leading brands in the nutritional snacking category and is arguably the pioneer of the mainstreaming of this category. As Quest approaches $1 billion in net sales, we continue to see a long runway for growth led by three key drivers. First, leading with innovation. By leveraging our world-class R&D and supply chain teams, we will build upon current platforms and enter new adjacent categories ripe for disruption. Our Salty Snacks platform is a great example where we've grown to a $300 million-plus business in just the last few years. Second, expanding physical availability of our products. We continue to seek ways to grow our presence across the store and online. This includes continuing to expand distribution in our current aisle, introducing the Quest brands in mainline snacking aisles, and increasing displays and merchandising everywhere, as well as penetrating new channels. And third, increasing brand awareness. Quest disruptive "It's Basically Cheating" campaign last year was a tremendous success, driving both a short- and long-term increase in net sales. Since we dropped the ads, household penetration is up over 100 basis points. However, at only 15% unaided brand awareness for the brand today, we have lots of room for further upside. Q2 retail takeaway for the brand was up 13%. There were several key drivers of Quest growth in the quarter. First, we saw continued broad-based growth from our Salty Snacks platform, which was up 45% in the quarter and which now represents approximately 35% of total Quest retail sales. Growth was enabled by the doubling of manufacturing capacity last fall that supported strong customer service levels and very strong merchandising and display support. An exciting element of our growth on Quest Salty was a successful national test at a key club customer, which was a nearly 3-point benefit to our consumption growth in the quarter. We are in active dialogue about further opportunities with this customer, where we're confident we can build a robust business in the quarters and years to come. Considering the size of the broader Salty Snacks category, low household penetration and awareness, leading loyalty rates, strong velocities and high incrementality, we remain very confident there is a long runway for growth for our Salty Snacks business. The second driver of Quest growth was the continued success of our Bake Shop platform, which is proving to be highly incremental to the brand and the category. We're excited about the future expansion we have coming on this platform in the fall. And third, as mentioned, the ongoing effect of our award-winning "It's Basically Cheating" advertising campaign. Turning to Quest bars, we're particularly excited about the launch of our new Overload bar platform, which you should have already begun to see show up on shelves and online. As a reminder, our delicious Overload bars come in three highly indulgent flavors and are loaded with inclusions. Finally, as we announced last month, we recently launched a line of delicious ready-to-drink Quest milkshakes. Sticking to Quest's disruptive ethos of flipping the macros, each milkshake features 45 grams of complete protein from ultra-filtered milk with only 2 grams of sugar and 4 grams or less of net carbs. We have been encouraged by initial retail acceptances for our three flavors of vanilla, chocolate and strawberry, and we're excited about the opportunity. Similar to our Overload bars, you should expect ACV to build through the calendar year. To wrap it up on Quest, we're pleased with our Q2 performance and we've increased our retail takeaway assumptions for the year, with growth now expected to be in the low-double-digit range. We continue to be very excited about the momentum and continued runway for the brand. Turning to Atkins. Consumption declined 10%, with combined January and February down low-double-digits. As we discussed on our Q1 conference call, accelerated declines were expected due to not repeating significant year ago volume driving displays and bonus pack programs at several key customers. Not repeating these events accounted for almost all of the incremental declines relative to negative 4% takeaway growth in Q1. Importantly for Total Simply, we were able to successfully partner with retailers to shift display support into Quest and OWYN, which both saw expanded features and displays to begin the calendar year. Similarly, at a key club customer, where Atkins is losing significant distribution this year, we have partnered to replace lost SKUs with wins for more productive Quest and OWYN SKUs. You will see those contributions build over the next year and be a benefit to growth for the total company. At roughly 30% of our net sales today, we know that Atkins trends are a meaningful drag on growth. As discussed, our goal is to right-size investment levels on the brand in support of building a sustainable, healthy business. These decisions will create short- to medium-term headwinds. Specifically, the declines we've observed since January will continue through Q3 and into Q4. Again, these declines are due to lapping significant low ROI merchandising from the year ago period and distribution losses at club. Again, to reiterate, we are partnering to offset those space declines with increases for Quest and OWYN that will show up over the next six months to 12 months. As a result of our first half performance and modestly reduced retail takeaway expectations for the second half, we now expect full year POS to decline in the low-double-digits range. While we expect a smaller footprint for Atkins moving forward, our consumer research and customer conversations continue to reinforce a strong need for a brand to help consumers with their weight loss journey. An important subset are those on GLP-1 drugs, where our research clearly shows an opportunity to position Atkins as an ally to consumers using or coming off of these drugs. We remain committed to supporting the brand with strong innovation, new packaging, a new website, and new advertising. This includes building upon our recently introduced Atkins Strong platform, which is resonating with new and existing households. All-in, we believe the actions we are taking will improve the trajectory of the brand over time in support of building a healthier, more profitable and sustainable long-term business. Moving on. OWYN had another strong quarter, with retail takeaway up 52%. Ready-to-drink shakes grew 53% with distribution up 22%, helped by expanding into new doors and by adding more SKUs per store. OWYN remains one of those rare gems that can grow distribution and velocity in parallel. Even as we lapped significant distribution gains at club from a year ago, we continue to be very optimistic about the year, supported by ongoing velocity growth and some incremental distribution gains beginning this spring. OWYN is one of the fastest growing brands of scale in the category. However, while we're very pleased with trends on the business today, there are several reasons why we believe we are still in the early innings of OWYN's growth story. First, while OWYN has emerged as the clear plant-based leader with RTDs turning 50% faster than our nearest competitor in MULO channels. The brand's superior taste profile is increasingly attracting mainstream consumers, which make up the lion's share of the high growth $8 billion category. Second, the brand has low-single-digit household penetration and awareness. Third, despite such low awareness levels, OWYN's velocities in MULO channels today are already among the industry leaders in its core 4-pack subsegment with continued double-digit momentum at many retailers. And fourth, we average about seven SKUs per store today, well below most competitors. And as we proved with Quest, our sales force is highly effective at driving distribution growth. With continued velocity increases and our plan to add new doors, channels, flavors and pack sizes, we remain confident we can double net sales of the core business in the next three to four years. The integration is progressing well, and with synergy capture starting at the onset of fiscal '26, we are confident OWYN will deliver on its adjusted EBITDA margin targets. To summarize, Simply Good is uniquely positioned as the leader in the fast-growing nutritional snacking category. Obviously, it's a dynamic time with a lot of uncertainty and pressure on consumer sentiment, but with that said, by far the majority of our products are made and sold in the United States. We have a very agile supply chain using co-packers for all our products, and our category over-indexes with high-income consumers with relatively low levels of private label and promoted volume. But despite today's uncertain backdrop, we plan to be at the forefront of the generational shift as demand for high protein, low sugar and low carbon food and beverage products continues to mainstream. We will do this by continuing to introduce innovative and delicious new products, expanding our physical availability across the store and through our brand building initiatives. And with approximately 70% of our portfolio, through Quest and OWYN, driving aggregate double-digit growth, we are confident in our ability to deliver sustainable growth and create meaningful shareholder value. I'll now turn the call over to Shaun, who will provide you with details of our financial results.

Thank you, Geoff. Welcome, Chris. And good morning, everyone. I will begin with an overview of our net sales. Total Simply Good Foods second quarter net sales of $359.7 million increased 15.2% versus last year, driven by the year one contribution from OWYN of $33.8 million or 10.8% as well as 4.4% organic growth. Quest net sales grew 16.5% in the quarter, benefiting from strong retail takeaway and the expected timing benefit of Q1 shipments that slipped into Q2. First half shipments and consumption growth were essentially in line for Quest as expected. Atkins net sales declined 11.5% due to lower consumption versus prior year as well as the expected reduction in trade inventory this year as a result of a lost club distribution, which compared to a trade build in Q2 of last year. OWYN had another strong quarter with retail takeaway again up strong double-digits. Gross profit was $130.1 million, an increase of $13.3 million or 11.4% from the year ago period, driven by volume growth and the inclusion of OWYN. From a margin perspective, gross margin was 36.2%, a 120 basis point decline with modestly favorable legacy input costs offset primarily by the inclusion of OWYN in our results. The non-cash inventory step-up purchase accounting adjustment, which is now completed, was a headwind of $438,000 or 10 basis points to gross margin in the quarter. GAAP selling and marketing expenses of $35.1 million were up modestly versus prior year driven by the inclusion of OWYN to the portfolio, offsetting declines on the legacy business. GAAP G&A expenses were $36 million, an increase of $6.1 million versus last year. Excluding stock-based compensation, one-time OWYN integration costs and term loan transaction fees, Q2 G&A increased $3 million to $28.6 million, driven primarily by the addition of OWYN to the portfolio. Adjusted EBITDA was $68 million, an increase of $10.2 million or 17.6% from the year ago period. Net interest expense was $5.6 million, an increase of approximately $1 million versus last year. The year-over-year increase was primarily driven by a higher debt balance due to the OWYN acquisition. Our Q2 effective tax rate was 25% compared to 23.7% in the year ago period. As a result, net income was $36.7 million, reflecting 10.9% growth versus last year. On a first-half basis, trends were similar to Q2, with gross profit and adjusted EBITDA growth of 12.3% and 15.2%, respectively, driven by net sales growth, favorable commodities and cost discipline. I want to commend our teams for their excellent focus on delivering strong results so far this year. Second quarter reported EPS was $0.36 per diluted share versus $0.33 in Q2 last year. Adjusted diluted EPS was $0.46 compared to $0.40 in the year ago period. Note that we calculated adjusted diluted EPS as adjusted EBITDA, less interest income, interest expense and income taxes. Please refer to the press release for an explanation and reconciliation of non-GAAP financial measures. Moving to the balance sheet and cash flow. As of March 1, 2025, the company had cash of $103.7 million and outstanding principal balance on its term loan of $300 million, bringing our net debt to trailing 12-month adjusted EBITDA to 0.7 times. During the quarter, the company repaid $50 million of its term loan debt and has voluntarily repaid $100 million since the beginning of the fiscal year. I would also highlight that during the quarter, we opportunistically repriced our term loan, lowering the effective margin on the debt by 60 basis points or nearly $2 million on an annualized pre-tax basis at the time of the refinancing. Fiscal year-to-date cash flow from operations was approximately $63.3 million compared to $94 million last year. The decline was primarily due to higher uses of working capital, principally inventory. Capital expenditures in the first half were $800,000. I will now discuss our updated outlook for the year. As you saw in this morning's press release, due to solid retail takeaway and adjusted EBITDA growth to start the year, we are reaffirming our fiscal year 2025 outlook. Therefore, in fiscal year 2025, total reported net sales are expected to increase 8.5% to 10.5%, with organic net sales growth driven primarily by volume. Embedded in that, we anticipate OWYN net sales to be in the $140 million to $150 million range and total company adjusted EBITDA is expected to increase 4% to 6% with gross margins expected to be down approximately 200 basis points versus last year. To be clear, our gross margin guidance for the year, which has not changed, continues to incorporate higher inflationary pressures in the second half as well as a preliminary estimate for the anticipated costs related to recently announced tariffs. As a reminder, the 53rd week in fiscal year 2024 is approximately 2 percentage point headwind to growth for net sales and adjusted EBITDA in fiscal year 2025. Below adjusted EBITDA, we now assume net interest expense will be in the range of $21 million to $23 million inclusive of non-cash amortization expense related to deferred financing fees. This is an improvement from last quarter, reflecting the additional $50 million reduction of our term loan balance and the opportunistic repricing of our term loan that closed in January. Our effective tax rate is now expected to be 24%, while we continue to assume capital expenditures will be $10 million to $15 million for the year. And by fiscal year-end, we expect to have repaid essentially all of the $250 million we borrowed to finance the OWYN acquisition less than a year ago, with net leverage expected to finish the fiscal year around 0.5 times. Finally, I would note that our outlook assumes current economic conditions and consumer purchasing behavior remain generally consistent over the balance of the company's fiscal year. For a comprehensive summary of our updated assumptions, see Slide 16 in our presentation. That concludes our prepared remarks. Thank you for the interest in our company. We are now available to take your questions.

Thank you. We'll now be conducting a question-and-answer session. [Operator Instructions] And our first questions are from the line of John Baumgartner with Mizuho Securities. Please proceed with your questions.

Hi. Good morning. Thanks for the question.

Good morning, John.

Good morning, John.

Maybe two from me. First off on Atkins, Geoff, in light of the reduction in sales guidance for F '25, you're now down low-doubles versus the prior down high singles. Can you walk through what's driving that reduction? And I guess specifically, I'm curious as to what you're learning about the Atkins consumer as you move through these adjustments? Is the consumer proving more promo dependent than maybe you perceived? Are you seeing a larger spillover drag on baseline volumes resulting from lower promo? Any insights would be appreciated.

Yeah. So, our full POS year guidance is now down low-double digits versus high-single digits. I want to point out that first half consumption is in line with our forecast with Q1 slightly ahead, Q2 slightly behind. As we stated in the January call, we expected accelerated declines in Q2 as a result of not repeating significant display space from last year. So, as an example, John, at one of our largest customers, display space was down 70% through the New Year and New Year period, which I will say we did manage to offset with some gains for Quest and OWYN, but that was a significant decline in display space for Atkins, which is what we expected. The new news is that over the balance of the year, we did lose a little more distribution at a key club customer than we thought. And that's the extent of the change in our guidance for the back half of the year. Again, we expect to largely offset this decline -- this customer with gains for Quest and OWYN with a bit of a lag, but those offsets will go into place. So, the story here is that we have very strong customer relationships. We're category advisors to most customers. And in conversations with those customers, which we've had over the last three months or four months, where we see opportunities to switch out tail SKUs, underperforming SKUs on Atkins with faster turning Quest and OWYN SKUs, we will do this. So that's the story on Atkins, largely as we expected, just with that additional reduction from a club customer.

So, John, just to...

Okay. So, nothing incrementally -- I'm sorry, go ahead.

Let me ask -- add a couple of points here. So, in addition to maintaining our shelf space for the portfolio, the shift from Atkins space to Quest is actually accretive to the company's overall contribution margin. So, Quest contribution margin percentage is about 10 points higher than Atkins. I bring this up as historically we've said contribution margins of the brands are basically similar. A couple of things have driven this over the last few years. First of all is inflation. Inflation on the majority of the Atkins portfolio has been significant with cocoa and CLI in our bars and confections, while Quest has seen this inflation as well. The growth in Quest in the last few years is really driven by chips, where we've seen a little inflation in the ingredients. And second, as we talked about over the last year, investment levels on Atkins have remained high despite the sales declining and are above the investment levels for Quest. As a result of that, the contribution margins of the two brands have diverged. Just one last point is we think going forward, once we get the synergy capture for OWYN, its contribution margin should be in line with Atkins beginning next year. So, just want to dimensionalize it a little bit.

That's a great point, Shaun. So, what we're really doing here, John, is where it makes sense tail SKUs, underperformance SKUs for Atkins, we're switching in faster turning more profitable SKUs on Quest and OWYN.

Yeah. Great. And then, secondly, just sticking with Quest and the relaunch of the shakes, the brands participated in that segment for probably five years or so, but there's been pretty large variations in distribution and I think very little brand investment. What prompted you to pursue this relaunch in shakes now? How are you thinking about positioning in the category, given the changes to the protein base, to the packaging? Should we expect higher incrementality as we're seeing with Bake Shop? Maybe just, Geoff, what -- high level, what do you anticipate will be different relative to Version 1.0?

Yeah, it's a great point. What I'll say is 1.0, which I think was launched around the time of the acquisition, was essentially just another 30-gram milkshake. And the ethos of what Quest does is it flips the macros on generally unhealthy categories. So, replacing high carb, high sugar with high protein, low sugar. And so, when Quest launched, what we had met was a me-too product didn't do very well. We challenged ourselves. Obviously, we look at the size of the shakes category, the growth of it. How would Quest enter this category? How would we do it in a Quest way? And the concept is, well, we can't flip the macros on a 30-gram regular shake, but we can flip the macros on a milkshake. And our research showed that the indulgence of a milkshake was one of a huge unmet demand for our consumer base. So, we said, how would we flip those macros on a milkshake? And that led us to this concept which we then backed up by taking protein levels up to a category leading 45 grams, highest in the category, 2 grams of sugar, 4 grams or less of net carbs. We're also able to deliver that with ultra-filtered milk, which we believe delivers a superior taste experience for the consumers. So, I don't want to overburden this with high expectations, but it is a very, very different proposition that was launched. This is what was launched five years ago. Our research suggests that it is bullseye for the Quest consumer. We've been very pleased with retailer acceptances so far. But that being said, it really is the first month of the launch of this platform.

Thanks, Geoff. Thanks, Shaun.

Thanks, John.

The next questions are from the line of Megan Clapp with Morgan Stanley. Please proceed with your questions.

Hi. Good morning. Thanks so much for taking our question. First question, I just want...

Good morning, Megan.

Good morning. First question I just wanted to ask on the gross margin guide, first half, obviously, I think much better than at least consensus and I think you were expecting you did maintain the full year. It does seem like a part of that is tariffs. But, I guess, if looking at your slides, I think you called out 100 basis points from input costs and tariffs versus, I think, it was 150 basis points prior and maybe a little bit more from OWYN. So, it just seems like there's some puts and takes. Maybe you could just help us unpack what's changing in the gross margin guide and how much visibility you have on input costs at this point? I think you said in April you expected to be covered for the year? Thank you.

Yeah. I mean, honestly a lot of unknowns at this point in time, especially on tariffs, but let me start with the Q2 results. I mean, our gross margin was better than we planned for two major reasons. One, we had a slower flow-through of higher-priced cocoa and CLI that we anticipated, largely because of the fact that Atkins had a sales miss in the Q. Said differently, the higher costs are there. They just haven't hit our P&L yet, are sitting in raw material inventory at our co-mans. And second, [there was favorable] (ph) brand mix from Atkins to Quest helping the gross margin. I also point out that in the second quarter we benefited from a key ingredient in our chips that was down about 50% versus the first half of last year. Now that was masking the unfavorable impact on inflation we've seen in whey, which basically doubled in the first half this year versus last year. We largely planned for that, but I mentioned that as we look to the second half we anticipate the inflation on whey continuing, we expect CLI and cocoa inflation to increase significantly, while the benefit we saw on -- in the first half lapping these elevated commodity costs in our chips is going to go away as we procure that lower price in the second half of last year. The second dynamic here really is tariffs. Let me start with a caveat here. Like everybody else, we're still trying to figure this out and try to understand where we are. First and foremost, thankfully our manufacturing network is largely based in the US. We have a limited number of items produced in Canada that we believe should be covered under USMCA exemptions, which, at this point, remain exempt from the 25% tariff imposed on imports from Canada and Mexico. As it relates to raw materials and packaging, we estimate about 15% to 20% of our total COGS will be affected by tariffs. That should be a headwind of about $5 million to $10 million in fiscal '25, really depending a little bit on flow-through and product mix. So, we largely have that covered in our guidance. That said, we have not been able to estimate the impact of any retaliatory tariffs and those are not built in. Conversely, some ingredients we're currently assuming are impacted by the tariff may be covered by USMCA exemption or other exemptions for ingredients, i.e., dairy, which would reduce the exposure. But by and large we don't estimate this is a major impact for fiscal '25 results as we believe it's limited to raw materials and flow-through that will only impact us in the last two or three months of the year. A lot of unknowns there. If tariffs somehow go away or delayed further, our margins would improve, but it's likely we'll reinvest that back into the business, probably in marketing. And the last point I'll make is to your question, we're largely covered for commodities through the rest of the year, so there really isn't any exposure on that. The real big exposure is going to be in tariffs. I don't know if it helps or not, but...

The only build I would give to that is, over the past 12 months, we have stepped up our productivity initiatives. If you recall going back a year ago, cocoa spiked considerably. In response to that, we realized we needed a stepped-up productivity program, which I'm very, very pleased with how that is delivering with results that have certainly helped us in '25, but will flow through into '26 to help mitigate some of these cost shocks.

That's really helpful. Obviously, very uncertain time period, so appreciate all the color. Maybe a follow-up for Geoff on Atkins, to John's question earlier. Last quarter, I think, you talked about you were focused on three calendar timeframes. We're through two of the three now. Maybe as you think about the fall 2025 resets, maybe you can spend a little bit more time unpacking performance maybe of your new innovation. I think last quarter you gave us some color around performance at your largest customer. Maybe you could just talk about how some of that performed through the new year and just get a sense of how you're feeling about this third calendar timeframe as we head into the fall '25 resets?

Yeah. I mean, as we head into the fall '25 resets, we do expect, and we said this in the script, Atkins to have a slightly smaller footprint. Coming back to John's question, as we continue to -- where there are opportunities to mix in faster turning, more profitable Quest and OWYN SKUs. So, we expect that, because they have a slightly smaller footprint. That being said, we do believe and remain very committed to the long-term role and vitality of this business. We -- as you look at the demand for weight wellness solutions is higher than ever. 60% of people actively looking to lose or maintain weight. The cultural conversation on weight has changed and increased very much driven by these new GLP-1 drugs. And our research shows that Atkins is a trusted brand in this space to help consumers on their weight loss journey. And particularly we see GLP-1 drugs and consumers on those drugs as representing a significant opportunity, whether it'd be helping them when they're on the drugs or helping them as an off ramp. So, while we expect a slightly smaller physical footprint moving forward, we're still committed to building this brand, stabilizing this brand. The new products that we launched are a critical component of that. If you recall, last fall we launched 17 new items, generally performing very well and at key accounts, roughly turning 2 times the rate the items that they replaced. Atkins Strong, which is the 30-gram protein shake platform, is performing very well. We've got new packaging coming out, we've got new advertising coming out, and we're certainly working with retailers as they try to figure out how to take a leadership position in weight wellness with -- particularly with GLP-1 consumers. So, yeah, on the one hand, in partnership with retailers, expect a smaller footprint. On the other hand, pleased with the revitalization efforts and we're very committed to stabilizing this business going forward.

Okay, great. Thank you so much.

The next questions are from the line of Brian Holland with D.A. Davidson. Please proceed with your questions.

Yeah. Thanks. Good morning. I wanted to start with OWYN. Just trying to get a sense -- the revenue number came in a bit light of what I was forecasting. Your full year guide, you took it up implying second half would accelerate from what we saw in the first half. So, just curious, obviously, with the consumption data has been -- has decelerated, lapping the big distribution gains, but as you pointed out, you're still growing velocity on top of that. So, just the specific catalyst driving your confidence in an acceleration in the revenue number in the second half of the year for OWYN?

Yeah. No. So, we did expect and plan for a decel on OWYN as we were lapping some new doors as well as a program we didn't repeat at a large customer. But as you think about OWYN moving forward, we remain extremely excited about this acquisition. Still in the early innings, and there's several reasons for that. We see continued distribution upside on the business. The brand ACV today is only 60%. We only have seven SKUs on average. We see upside relative to our peers as we look banner by banner. We've got an exciting innovation platform and we know that new distribution is coming in April and we expect those gains to continue based on the conversations we're having with retailers. So there's significant distribution upside. The velocities continue to impress me. The highest velocities in the plant-based shake segment, number two within 4-packs and MULO channels, even compared to our dairy-based competitors. And we're increasingly sourcing volume from mainstream consumers. We've got a powders business that's small, $25 million, but growing triple-digit with distribution runway. And the brand has low awareness, low single-digit. So, to deliver on the targets we set, we need mid-20% growth. And we believe this is very, very doable. And that's without even thinking about any other vectors, whether it'd be expanding into bars. So, the Q2 results were fully in line with our forecast. We're excited about the distribution we have in the bank in spring and the conversations we're having in the fall, but more broadly, we think this brand has a lot of runway and that we're in the early innings.

Okay. Perfect. And I know I'm sure you want to address kind of looking 18 months out in this current backdrop is something that I'm sure you'd love to dive into, but I'll take a swing. 70% of your portfolio is growing high-teens right now. As we go into next year, my math, which is, I grant you, dangerous, would suggest 70% of your sales grow double-digits or 10% and Atkins declines 5%. That already puts you at the high end of your algorithm. So, I'm just wondering if that's consistent with kind of how you're thinking about the setup into fiscal '26. And the reason we're looking ahead is obviously a lot of what's happening with Atkins is proactive, but there's also some proactive stuff, innovation, distribution, et cetera, on these other brands. And we start to put the math together, it seems compelling. So, just curious if that's consistent with how you're looking at it or thinking about it internally, or if there's any caveats there that I'm just obviously missing as we look ahead?

Shockingly, we don't want to talk about '26. We're only halfway through '25. We just began planning for '26. We're very early in the process, and obviously with Chris joining, he clearly wants to put a stamp on things for next year. At this point in the cycle, I would say, our goal is to come up with a plan to grow on algo. So, 4% to 6% top- and bottom-line. There are a number of negative, potentially negative macro issues that could impact the guidance, including the health of the consumer, headwinds not only on inflation, but also potentially in tariffs. On the positive side, as you said, we remain confident on Quest and OWYN. We expect the benefit of a full year of productivity, as Geoff talked about, from synergies with the OWYN integration, both in the tens of millions of dollars. And then, obviously, as I mentioned before, Quest growing faster than Atkins has actually a positive margin mix. Net-net, very early in the planning cycle. Lot to do between now and October when we report Q4 results.

Yeah. The only build I would give on that and it is early and it is murky as we look forward. With that being said, our category and our company are very well positioned against this broader mainstreaming of consumer demand for high protein, low carb, low sugar products. As we said in the script, the category has had 16 quarters of consecutive high-single, low-double-digit growth. As you mentioned, 70% of our net sales are growing double-digits. We have exciting innovation in the market, distribution opportunities in front of us. Now, on the bottom-line, there are some headwinds, and whether that be tariffs or cocoa. As I mentioned earlier, we put a much more comprehensive productivity program in place. So, in that mix, it is early, but with Shaun, we'd like to think we could deliver a plan that was on algo, but as you noted, there are uncertain times.

Appreciate all the color. Thanks. Best of luck.

Our next questions are from the line of Matt Smith with Stifel. Please proceed with your questions.

Hi. Good morning. Thank you for taking my question.

Good morning.

Good morning, Matt.

Shaun, just following up on your comments regarding the contribution margin differences between the brands, does the 10-point gap between Atkins and Quest, should we think of that as improving as the brand goes through this reset or, I guess, differently, is there an opportunity to narrow that gap over time, or would you expect Quest margin to outpace any improvement in Atkins given the scale of that business?

Yeah. I think, we'd like to improve the margins on Atkins. As Geoff said, we are investing in the Atkins brands. So, I think overall we don't expect that to drastically improve in the next, I'd say, 18 months or so. And we do have some pressures there, as I mentioned, more on the Atkins side with inflation than we do on the Quest side. So, I think over time, we'd like to get that a little bit closer, but in the near term, I don't see that changing drastically from where we are today.

Thank you for that. And as a follow-up, Geoff, you've talked about the low awareness and household penetration, OWYN as an opportunity going forward. How do you build the awareness and household penetration at this point? Is it more a story of gaining distribution and space on shelf to communicate with the consumer, or should we expect you to increase the investment level behind OWYN to drive that awareness and household penetration? Thank you. I'll pass the line.

Good question, Matt. I'd say in the near-term, it will be focused on distribution. And if you think back, that was the Quest playbook. And the ROI on marketing is very much a function of the breadth of your distribution. We'll initially focus on building out that distribution. As I said earlier, we only average seven SKUs on shelf. So, I would say, for the next couple of years, the focus for us will be distribution and innovation. Obviously, the brand does some terrific marketing today. It's at lower levels, it's more digital influencer driven. We'll keep that going. If you think about Quest, really only a year ago, maybe 18 months did we start turning on nation -- national advertising, which was obviously had a big positive for the brand, but you don't really want to do that until you've built a sizable distribution footprint.

Thanks, Geoff. I'll leave it there.

Thank you. The next questions are from the line of Rob Moskow with TD Cowen. Please proceed with your questions.

Hey, good morning. This is Jacob on for Rob Moskow. I just have one question. Just curious...

Good morning, Jacob.

Good morning. Just curious on to get more details on the bar category specifically as it relates to Quest. Our tracking data shows decent trends for the overall category, but Quest continues to underperform. Just curious if you can talk about what you're doing in addition to the Overload bar to try to get back to that low-single-digit growth target that you have for Quest bars?

Yeah. I'm honestly not sure I would characterize Quest bars as underperforming. Certainly, we can do a lot better than we have been. But we are very excited about the innovation that we're bringing to market. This is a category that is highly responsive to new news and innovation. And starting only about 12 months ago, we significantly stepped up our innovation efforts on Quest bars. The Overload platform, which we're very excited about, it's early consumer reviews though have been very, very, very positive. Distribution acceptances have been very positive, but it's early. Innovation like that is what will move the bar business within Quest. And that's incumbent upon us therefore to never let up on bringing continuous exciting innovation to market. And as I look into the pipeline, I'm very pleased and excited with what we have coming in market. And I'll say if you look, one of the leading spots in the bar category is the C-store channel. It's a place where there's a lot of trial and where you look more recently on Quest trends. We're very pleased with what we're seeing.

Great. Thank you. I'll leave it there.

Thanks.

The next questions are from the line of Jon Andersen with William Blair. Please proceed with your questions.

Hey, good morning, everybody. Thanks for the question.

Good morning.

Two questions. Good morning. First question is on Quest. Second is on Atkins. On Quest, you took your full year outlook up for the brand, at least the point of sale. Wondering there what the story is with respect to your prior expectations and new expectations. If you can talk a little bit about that? Also on Quest, part of that question, have you found over time as you expand the brand into other categories, like Salty Snacks, the Bake Shop line now that there's kind of a synergistic benefit to the brand as a whole, i.e., the more penetration you make in Salty Snacks or Bake Shop, it has a halo effect on the bars. Want to kind of understand that dynamic? And then, on Atkins, because there's so many moving parts, what should we be looking for over the next 12 months to 18 months from Atkins as signals of kind of your success stabilizing that brand? In other words, another way to ask the question would be, at what point should we maybe expect takeaway to kind of level out? Thank you.

Yeah. Great questions. Let me start with what is leading us to take up our expectation on Quest. Salty is the biggest driver here, it's currently 35% of the business. $300 million retail sales growing well in excess of 30%. If you recall what happened was as we went into Q4 last year, even we were caught a little bit by surprise with the growth on the business. And we were supply constrained. We started up a second site, accelerated that. We're now back in full supply and we're seeing the full -- starting to see the real full potential of this business. And if you take a step back, the addressable market where we're flipping the macros is massive. And we are finding that there is a large number of consumers who are putting Quests into the rotation from buying more mainline snacks. We've increased our merchandising and displays. Retailers are getting behind it in a big way. We had a very successful test with a large club customer, and we're in very exciting conversations about how to roll that up more broadly. So, as you think about what is inflecting Quest more positively than we originally thought, it's really Salty. And if you fast forward a year from now, Salty and Bars will be roughly the same size. And that's a point worth noting, because it then bridges to your second question. Well, what's the impact of a platform like Salty back on the business? And what we're finding is that through these platforms like Salty and like Bake, which is also being -- it's earlier, but it's been very successful, we're bringing in new consumers to the full franchise. And so, a lot of consumers coming into Bars are coming in via Chips. A lot of consumers coming into Chips are coming in via Bake as they understand the brand. So, the -- as we broaden the shoulders of the brand, it is generating increased household penetration more holistically. And I'll point out that there are very few brands in my career that I've seen who can do this. Quest almost stands alone in its ability to pull this off, which is why we're very bullish on the continued runway of Quest, despite the fact it's doing over $1 billion in retail sales. Before I answer your Atkins question, does that...

Geoff, that's terrific. That is, yeah, helpful.

And then, to your question on Atkins, great question. What you have to do is, when we're looking at Atkins trends, as we've said, we expect a smaller physical footprint as we mix in more productive and profitable Quest and OWYN SKUs. That will have an impact on Atkins consumption. So what we'll be looking at is underlying base velocity of the business. And obviously, we'll have to adjust for the impact of losing some shelf space, which we expect, but that's the metric of this business, a base-driven business. So, when you ex out some of the merchandising we lost and you have to adjust a little bit where we've lost some tail SKUs, the underlying health of the base business and working to stabilize that is the key metric.

Yeah, that makes sense. Thanks so much.

Thanks, Jon.

Thank you. Our next questions are from the line of Steve Powers with Deutsche Bank. Please proceed with your questions.

Good morning, and thanks everybody.

Good morning.

Good morning.

Congrats again, Shaun, and welcome, Chris.

Thank you.

I got a couple of -- yeah. Got a couple of follow-up questions. The first one is probably for you, Shaun, on tariffs. And I guess, as we think about what you're talking about in terms of ingredient sourcing and your co-manufacturing footprint, should we think of those as effectively fixed as you look forward due to contract provisions or ingredient scarcity, or do you see a potential to alternatively source some ingredients or shift production domestically just in the event that tariff conditions persist or extend?

No, we're looking at a number of potential mitigants as we look into fiscal '26 and beyond. I think we're working through those. Yes, there are some limitations on how fast you can get there based on contracts that we have, but we've been working honestly on this for a little while. So, we have some -- as Geoff said, we have some productivity initiatives that are out there that are going to help -- should help offset this, so in process.

Okay. Very good. Thank you. And then, Geoff, you highlighted -- you had a couple times this morning the successful club test this quarter for Quest and the prospects for -- continue to expand the relationship there. I guess, I just wanted to, if I could, get you to clarify just the degree to which your remainder of your outlook includes continued sales to that customer and then whether some of the discussions you referenced could lead to upside in the near-term or whether that's more of a fiscal '26 and beyond consideration?

Yeah. So, Steve, the remainder of '25 does not include another rotation at the customer. We've got some business in their business side, but the real volume that we expect to come is going to be at '26.

Okay. That's what I assume, but thank you for clarifying.

Which we expect to build out over time region by region, expanding on the tests that we did this year.

Yeah. Makes sense. Okay. Thank you very much.

The next questions come from the line of Jim Salera with Stephens. Please proceed with your questions.

Hey, Geoff. Hey, Shaun. Good morning. Thanks for taking the question.

Good morning.

I wanted to ask maybe a kind of a total company level, if we net out the Quest and OWYN gains with the Atkins losses, where does that shake out at kind of a total SKU level at club? Are we about the same? Is there still a little bit of loss there? Is there actually some upside?

Sorry, are you specifically asking about club?

Yeah, that's correct.

Yeah. Probably slightly positive in terms of total space, but certainly the losses we're going to see on Atkins will be offset by gains on Quest and OWYN. The timing may not line up exactly because of the different reset timings that the different categories have there. So, minimally an offset, and over time, a net positive.

Okay, great. And then, Geoff, you had mentioned in, I think, a year's time, Salty and Bar should be roughly the same as Quest. Can you just talk about the positioning in the store on the Salty for Quest and are you seeing more retailers either actively placing it with kind of traditional Salty or if not placing it there, open to that, maybe getting some kind of end cap or display around the traditional stacking aisle versus kind of the other section of the store, the rest of your product set?

Yeah. I appreciate the question, because what you're poking at is what I think is one of the biggest upside opportunities for Quest and even more broadly, which is increased physical availability of our products. So, if you think about where Quest Chips started, it started in the nutritional snacking aisle, which on the one hand, we love that aisle. We're category leaders, it's our home base, but it has a lower household penetration of foot traffic. So, one of the things I've challenged our organization with is as this category is mainstreaming, as consumer demand for high protein, low carb, low sugar products is mainstreaming, increasing the physical availability of our products is a huge long-term growth vector for us, and particularly -- excuse me, particularly products that are more impulse driven like chips. So, we have a significant initiative in the organization to do that. So, what does that look like? Well, we have a test in place at a large mass customer, where we're in the mainline aisle and we just expanded a number of doors there. We have put in place a new retail execution team focused on driving displays out of our aisle, gaining distribution in additional channels like the club customer we just talked about represents an upside. And we'll probably start looking even further afield, where impulse -- where you see a lot of impulse snacking. So, I would say that while we're very excited about the size of the chips business, and as I mentioned, it'll be roughly the same as bars in a year, what I would suggest is as a result of this increased physical availability, the runway on this business is significant and that we are in the early innings of our Salty expansion.

Great. Appreciate the detail. I'll hop back in the queue.

Thanks, Jim.

Thank you. Our final questions are from the line of [Cindy Lin] (ph) with Bernstein. Please proceed with your question.

Hi. Good morning. This is Cindy dialing in for Alexia Howard at Bernstein.

Good morning.

I just wanted to -- hey, good morning. I just wanted to jump back to the OWYN distribution comment earlier. Can you talk a little bit more about the velocities of the product? I'm just trying to get a sense of how much growth is driven from new stores versus recurring customer purchases, especially since you cited low customer awareness as a big growth opportunity?

Yeah. No, it's roughly 50-50. So, half the growth coming from new doors, new SKUs, and half of it coming from velocity increases, which is unusual to see growth both in distribution and velocity. What you'll normally see with most brands is as you increase distribution, the velocity rates will decline, but that's not happening here.

Yeah, exactly. It's impressive. Thank you so much.

Thank you. There are no further questions at this time. I'd like to turn the floor back to Shaun Mara for closing remarks.

Yeah. Just my last call. I just wanted to thank The Simply team for all support over the years to me. Big shout out to my team in FP&A, accounting, IT and IR for the great support and help they've given over the years. I'm really proud of what we've built here at Simply. I wish the team continued success in the future.

Thanks, Shaun.