Greetings. Welcome to Simply Good Foods Company's Fiscal Fourth Quarter 2019 Conference Call. At this time all participants are in a listen-only mode. [Operator Instructions] Please note, this conference is being recorded.

I would now like to turn the conference over to Mark Pogharian, Vice President of Investor Relations, Treasury and Business Development. Thank you, you may begin..

Thank you, Sherry. Good morning. I am pleased to welcome you to Simply Good Foods Company earnings call for the fourth quarter ended August 31, 2019. Joe Scalzo, President and CEO; and Todd Cunfer, CFO, will provide you with an overview of our results, which will then be followed by a Q&A session.

Note that comments provided today related to the full-year fiscal 2020 outlook excludes any potential benefit from the Quest’s as the acquisition is yet to close. The Company issued its earnings press release this morning at approximately 7:00 AM. Eastern Time.

A copy of the release and accompanying presentation are available under the Investors section of the Company's website at www.thesimplygoodfoodscompany.com. The call is being webcast live on the website and an archive of today's remarks will also be available there.

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 risk and uncertainties can be found in today's press release and the Company's SEC filings. In addition, management will make references to adjusted EBITDA, a non-GAAP financial measure that it believes provides investors with useful information with which to evaluate the Company's operating performance.

Today's earnings release includes a reconciliation of the most directly comparable GAAP financial measures to non-GAAP measures. And with that out of the way, it's my pleasure to turn the call over to Joe Scalzo, President and Chief Executive Officer..

Growth in total buyers and increases in buy rate. The buy rate increases were well above historic levels and a significant driver of our unexpected strong double-digit growth. Our growth in buyers is attributed to the quality of our marketing execution as well as the media investments we made during the year.

Growth in buyers continue to trend, we experienced in fiscal 2018, as we communicated to a 4X larger consumer target. The buy rate growth in 2019 exceeded our expectations and surprised us. Going forward, we do not expect buy rate to grow at last year's rate. As such, we expect POS will moderate accordingly.

Overall, I'm very satisfied with our performance. fourth quarter and full year results were strong, and we're positioned nicely as we begin 2020. In fiscal 2020, year-over-year comps will be more challenging. Looking at the POS data, you'll note that the year-over-year growth rates in Q1 have been in the high single to low double-digit range.

That said, we expect retail takeaway growth to be top-tier within the U.S. food group although given our outstanding comps in 2019, we anticipate POS will return to more moderate levels. We believe our strategy of educating consumers on low-carb, low-sugar nutrition is working.

We are highly confident in the continued effectiveness of our marketing, our improved supply situation and our financial flexibility to invest improving growth initiatives. We remain focused on evolving the Atkins brand by growing total buyers, targeting both programmatic and lifestyle low-carb consumers.

We believe that our advertising continues to be effective, and we expect that the year-over-year total marketing investment rate to increase in line with sales growth. I'm excited to build on our record-setting year.

We are well positioned from a strategy, planning and investment standpoint to deliver solid growth in 2020 and over our strategic planning cycle. Now I'll turn the call over to Todd to provide you with some greater financial detail..

Thank you, Joe, and good morning, everyone. Let me start with two points as it relates to the numbers you see on the slides that follow. First, for comparative purposes, we will review financial statements for the 13 weeks ended August 25, 2018, and 14 weeks ended August 31, 2019.

Second, we evaluate our performance on an adjusted EBITDA basis based on our asset-light strong cash flow model. We have included a detailed reconciliation from GAAP net income to adjusted EBITDA in today's press release. We believe this measure is a key indicator of the true underlying performance of the business.

Let me start with a review of our fourth quarter and full year net sales drivers. There are some moving parts in here that affect the comparison to IRI-measured channel data, so let me walk you through it. Core volume growth has been solid all year and has been the primary driver of our sales increase.

Specifically for fourth quarter and full year, volume increased 29.3% and 22% respectively. The increase in Q4 is driven by the solid POS growth, the 53rd week, as well as the benefit of sales in transit that we discussed last year.

Recall, in our Q4 2018 conference call, we disclosed that the company has historically recorded revenue using the FOB Shipping Point methodology. Far trade promotions resumed in the third quarter, continued in the fourth quarter, although the depth and frequency was slightly lower than last year, resulting in modest price realization.

These gains were partially offset by the change in how we account for services provided by some of our customers. And as we've discussed throughout the year, in the year-ago period, this cost was recorded in selling expense.

Before I discuss gross profit and adjusted EBITDA performance, note that in the fourth quarter, we updated our income statement presentation. The changes broken out by quarter for fiscal 2019 were posted to our website this morning.

Distribution costs, which were a separate line item in our P&L below gross profit, are now included in cost of goods in addition to our warehousing costs, which historically sat in our G&A line. This is similar to the presentation by most CPG companies.

We also combined selling and marketing expenses as the strategic rationale for these investments are similar. Also, there are two fiscal 2020 budget changes that will be headwinds to adjusted EBITDA growth in the first half of fiscal 2020.

In fiscal 2020, selling and marketing expense is expected to increase in line with sales growth, and the expense amount by quarter is expected to be about 13% of net sales. Our accounting methodology is to accrue marketing expense each quarter based on a full year outlook as a percent of net sales.

As an example, this time last year, our marketing budget for fiscal year 2019 was much lower than our final expenditures. Given the last year's increased investment in marketing in the third and fourth quarter due to our financial flexibility, the year-over-year comparison in the first half of fiscal 2020 is more pronounced.

We expect sales and marketing expense to grow about 15% to 20% in the first half of the year and be relatively flat in the second half. Second, we will begin to accrue incentive compensation more evenly throughout the year versus our previous practice of expensing more in the back of the year once internal targets are well on track to being cheap.

Therefore, given the timing of these moving parts, we expect adjusted EBITDA growth in the second half of fiscal 2020 to be greater than the first half of the year. Now for a review of fourth quarter results across major metrics. As I mentioned earlier, fourth quarter net sales increased 28.6%. Turning to the rest of the P&L.

Gross profit increased 27.9% to $59.2 million. Gross margin was 42.5% compared to 42.7%, a decline of 20 basis points versus last year. Note that distribution and warehousing costs, which historically were not included in cost of goods sold, are now included in this line item.

The decline in gross margin was primarily due to the non-price-related customer activity that is a shift from selling expense. On a quarter-over-quarter basis, this change in methodology, which only affects fiscal 2019, was a negative 100 basis point reduction in gross margin for the quarter.

Additionally, the savings from the strategic sourcing initiative was in line with our expectations and offset inflation.

Adjusted EBITDA increased 33% to $24.1 million, driven by the increase in gross profit, partially offset by a 38.7% increase in selling and marketing expense, driven by higher television media and e-commerce investments, which were somewhat offset by lower selling expenses due to the previously discussed accounting shift in non-price-related customer activity.

General administration – G&A expense, excluding reserves associated with a potential litigation settlement, increased 9.6%, significantly less than net sales growth. The increase was driven by higher professional fees and greater employee-related costs.

Also note that business transaction costs primarily associated with the Quest acquisition were $5 million in the fourth quarter. Income tax expense in Q4 was $3.5 million, resulting in an effective rate of about 36.5% due to a catch-up related to the state apportionment rates.

This is greater than a year-ago period, which reflects the final true-up associated with the Tax Reform Act. As a result, reported net income in the fourth quarter was $6.1 million versus $11.7 million last year. Full year results are as follows. As I stated earlier, the increase in full year net sales was primarily driven by volume growth.

Full year gross profit increased 20.5% to $217.4 million with gross margin down 30 basis points versus the prior year. The accounting shift in non-price-related customer activity from selling expense to trade resulted in an unfavorable effect on 2019 gross margin of about 100 basis points.

Excluding this shift, gross margin is a 70 basis point improvement for the full year due to strong price realization and supply chain savings greater than inflation.

Full year adjusted EBITDA increased 25.6% to $98.7 million, driven by the increase in gross profit, partially offset by other expenses including a 14.2% increase in selling and marketing, specifically, higher marketing related to television media and e-commerce investments was up 36.3%, partially offset by lower selling expenses due to the previously discussed accounting shift in non-price-related customer activity.

Additionally, G&A expense, excluding the legal reserve, increased about 19%, driven by higher incentive compensation, professional fees and investments to enhance organizational capabilities in key functions. Business transaction costs of $7.1 million, primarily associated with Quest acquisition, increased $5.2 million versus the last year.

Full year income tax expense was $16.8 million versus a benefit of $17.4 million in the prior year. Recall that 2018 amounts include a $29 million one-time gain related to the remeasurement of deferred tax liabilities and a $4.7 million gain on the fair value of a tax receivable agreement that were recorded in the second quarter of 2018.

As a result, year-to-date reported net income was $47.5 million versus $70.5 million last year. We anticipate that our effective tax rate for fiscal 2020 to be about the same as fiscal 2019 and be in the 25% to 26% range. Moving on to the balance sheet and cash flow.

Full year cash generated by operating activities was $73 million, driven by strong earnings growth. As expected, inventory is down nearly 10% versus last quarter as we get back towards our desired level.

CapEx for the year was $1 million and net cash provided by financing activities was $83 million, primarily driven by the $113 million of cash received from the warrant exercises, partially offset by the $26 million TRA liability settlement previously discussed in the first quarter.

The company's solid balance sheet and cash flow provides us with a continued financial flexibility to support future organic growth and the ability to pay down debt related to Quest acquisition. As of year-end August 31, 2019, the company had cash of $266.4 million.

There is $196.5 million remaining on the outstanding term loan, resulting in a net cash position of approximately $70 million. After the end of the fourth quarter, on October 7, as part of generating the necessary capital to complete the Quest acquisition, we sold approximately 13.4 million shares of common stock.

We intend to use the $315 million of cash generated in this offering, other cash on our balance sheet and the anticipated proceeds from our planned incremental term loan borrowing to fund the acquisition and anticipated related expenses. I would now like to turn the call back to Joe for brief closing remarks..

Thanks, Todd. In summary, we're confident in our ability to execute and capture the growth opportunities in fiscal year 2020. We expect reported 2020 net sales growth to be at the high end of our long-term target, which is an annual increase of 4% to 6%.

Please note that the extra week included in fiscal year 2019 will be a headwind of about two points to year-over-year comparisons of reported net sales growth in fiscal year 2020. And we expect adjusted EBITDA will grow at a somewhat higher rate than sales.

The above outlook reflects continuing to grow total buyers with buy rate flat to prior year's historic levels, better in-stock position versus prior year and a return to more normal promotion frequency; more challenging POS comps and our expectation that retail takeaway will somewhat moderate; and input cost inflation expected to be offset by the company's previously disclosed strategic sourcing initiatives; and marketing expense will increase in line with sales growth.

We're really excited about the upcoming closing of the Quest transaction. The process is progressing and the business is tracking with our acquisition model. Quest retail takeaway across all forms including the core bar business remain strong.

With the equity raise behind us and the term loan syndication on track, we anticipate closing the transaction in the first half of November. And we anticipate net leverage of about three and 3.25 points or less by fiscal year-end, August 2020.

As we shared with you over the last year, we're confident in our business and we're confident in our ability to execute against our strategies. We're delivering on our financial objectives while investing smartly in the business, a path that we believe will continue to create value for our shareholders.

We appreciate everyone's interest in the company, and we're now available to take your questions..

Thank you. [Operator Instructions] Our first question is from Chris Growe with Stifel. Please proceed..

Hi, good morning..

Good morning, Chris..

Good morning, Chris..

Hi. I just wanted to ask you – you had a very strong fiscal 2019, so congrats on that. And I just want to get a better sense of, as you look to fiscal 2020, some of the demand-generating activities. You've got marketing up in line with sales.

Can you talk more – a little bit more about new products? And then promotional spending getting back to normal levels will still be up year-over-year, as I understand it.

So I just want to get a sense of how those things you think are going to help drive demand growth, if you will, in fiscal 2020?.

Yes, Chris. First, I'd say, we tend to look at our business first by – from a consumer perspective. So we've enjoyed now two years of total buyer growth.

That obviously has a nice effect as we move into 2020 and that the number of retained or multiple-year buyers that we have coming to the business this year given our historic rates will continue to be strong. So we feel really good about our total buyer growth. Our advertising, so we're shooting new spots with Rob as we speak.

Those will go on air in January behind pretty good media weight. We've got relatively consistent data on the effectiveness of those and the return for those. So we expect total new buyer growth during the year to continue to be strong. So we like the overall platform that will drive base velocities in our business due to buyer growth.

I expect new item distribution to be more flattish than not, maybe we'll grow a little bit, but we're not expecting huge gains from distribution. And as you mentioned, I think incremental volume will be good because we'll have more weeks of activity than we did a year ago..

Okay. And then – so just two quick – go ahead, sorry, just two out there..

No, go ahead, Chris..

Okay, sorry. So just a two quick follow-ups to that. One would be the new item distribution. Typically with a brand growing the way it is, especially base volume velocity being so strong, you tend to see distribution gains.

It sounds like you don't have those built in, but would you be – I guess, to understand, would you be – would you expect some of that potentially through the year? And then the second question relates to just the – you're going to have some benefit year-over-year due to the comps – due to – you'll have stronger shipment growth versus your point-of-sale shipments early in the year.

I just want to get a sense of if you have any kind of framing of how big a benefit that could be in the first half of fiscal 2020?.

Yes, I think – to answer your first question on distribution, we do have some new items going in. I don't think it's going to appreciably improve our distribution. Our business, we're, on average, pretty close to 40 items in distribution today. So in most cases, we're seeing swap out for weaker items.

We may see some gains, but we don't – we haven't factored that into our plan for the year.

Todd, do you want to talk about it?.

Yes. So you're absolutely correct, Chris. We expect the shipment flow to be a little bit back more to normal. Obviously, the first half of last year, it was a headwind of about four or five points per quarter. I do not expect all of that to come back. It will be probably in the middle.

So I would expect in the first half of the year, we will benefit from maybe two or three points in each of Q1 and Q2, as we kind of get back to normal shipping patterns. And then obviously, we'll have a little – we'll have a – we had a huge benefit, if you remember, in Q3, that will come out in Q.

But you're right, we'll get to more of a normal historical shipping pattern..

Okay. Thanks so much for that..

Our next question is from Brian Holland with D.A. Davidson & Co. Please proceed with your question..

Thanks. Good morning, gentlemen. I'm curious about the commentary, Joe, you made during your remarks about – it sounded like stronger confidence in not just buyer growth, but buy rate growth.

I know you had sort of talked about wanting to get more data and have more time to assess as you pivot from programmatic to self-directed dieters, what those buying trends might look like? It sounds like they're incrementally positive, but can you give us any sense? I mean, is the repeat rate of the loyalty or purchase frequency materially better? Or any sort of improvement off of what you've seen from kind of the historical, sort of, core consumer that you had in your base?.

Yes. Hey Brian, let me reiterate, I think what my comments said just to make sure we're clear. In 2019, we saw two major impacts from a buyer standpoint. We saw strong growth in total buyers.

So household penetration increased, what surprised us, we expected it based – we expected that based on our marketing – what we anticipated for marketing effectiveness and the amount of media spend. So we expected that. What was really expected to us was buy rate improved. And it improved beyond what we historically have seen buy rate to be.

And it was appreciable. So it was noticeable and it was a multiplier to our growth rate. As we planned 2020, we do not and we anticipate we'll hold on to that buy rate level, but it's going to be flat to prior year. So if you just kind of do the math, total buyers growing by rate flat, highly unlikely we're going to see 20% growth again.

We're going to – we'll be at more moderate levels, still top-tier in food, but we don't expect to see that kind of 20%-plus growth. And it's because buy rate, we can't – hard for us to imagine buy rate continue to grow at the rate it grew last year..

No, no. But, of course, you've got tailwinds as the consumer backdrop seems favorable for bringing in more households. So if you've got the strong buy rate, that's – but I appreciate you clarifying that. That's helpful. So just a quick question about the competitive landscape.

You're not the only player that maybe is emerged from some capacity constraints in the industry. Premier Protein, I know this is on the shake side. I know there may be limited exposure or limited channel overlap. So maybe I'm answering my own question.

But as you see some folks come back and get some distribution back and get some capacity back, are you seeing any changes from a promotional standpoint, from a competitive or a distribution standpoint that's squeezing maybe particularly on shakes, but just broadly overall..

Yes, great observation. I think that's one of the factors to Chris' earlier question, why don't we see more incremental distribution? There's a fair amount of new product entry coming in right now. In the case of Premier, they've kind of relaunched the SKUs that they discontinued when they had their supply issues.

Quest actually just launched their ready-to-drink shake within the marketplace right now. There are a lot of activity from – in keto items. So it's a kind of a phenomenon we're seeing right now, particularly from SlimFast. There's a lot of pressure on the shelf right now from a new product standpoint.

We don't typically see a lot of switching with any of those brands. But what it does is it puts pressure on the shelf, it puts pressure on promotion, to access to display. We're seeing a little of that in our business right now, nothing that would greatly concern us, but stuff that we keep our eye on..

Thanks. And then last question for me. If you can comment, I know that we haven't yet closed Quest, but noticed that the debt priced a week or two ago a little bit higher than what I might have been looking at in sort of my pro forma outlook.

I'm curious, if that fell with – if you can comment as to whether that fell within your range of expectations and whether there would be any expectation that, that would impact cash EPS guidance?.

So obviously, we're not done with the pricing yet. We're hoping to get the term loan debt finished in the next week. So a little bit too early to tell. Obviously, if the pricing moves up, yes, it will have a slight impact on cash EPS. But we're confident that we'll get a very competitive rate..

Got it. Thanks for the color..

Our next question is from Bill Chappell with SunTrust Robinson Humphrey. Please proceed..

Thanks. Good morning..

Good morning, Bill..

Can you talk a little bit more – I mean, just – obviously, the business growth is moderating. Just kind of trying to understand how you compare to where it moderates? I mean, in terms of data or something that kind of – as we see the growth go from 25% down to the mid-teens. That's understandable with – as it was such a strong number.

But I'm just trying to understand, does it moderate all the way back down to 6% to 8% – 4% to 6%, especially if you've still got 4x the market opportunity? And it seems like over the past two years, you've kind of broken through.

I'm just trying to understand how you get comfortable on how fast it flows?.

Yes, we – first of all, we wouldn't consider our growth slow growth. That would be my first observation. So I think you have to put this in perspective. Our growth rate for 2020 is going to be top-tier in food, full stop, right. So for us, it's – we take a look at it across a number of vectors and just kind of triangulate.

So the first thing we look at is buyer flow, which has been the most predictive in our business. How many buyers, how much are they buying, what's their loyalty? That has been, for us, the most predictable model. Where it kind of broke down last year a little bit for us was the buy rate just accelerated.

We're still trying to dig into that and understand that a little bit. So we get a good view of the year just based upon horizontal buyer flow over time or longitudinal buyer flow over time. We then take a look at it from a customer standpoint.

And we do it a little bit like Chris' question earlier, what do we expect in base velocities? What do we expect in distribution? And then how do we view incremental volume or promotion volume? And then we triangulate, frankly that way, building up from customer first and then we get a decent estimate.

So that – those are the points that we'd use to really understand where we expect the year to kind of fall. We then factor in what we sense is competitive environment, so access to display, access to shelving, any sourcing, any interaction that we might see among competitive brands in our business. And we use that kind of to affect our thinking too.

But it's a good question. It's in fact – and I've had this experience in the last 15 years with some other businesses I've run. In fast-growing categories and fast-growing brands, it's really hard to call growth rate because they tend to be a little bit more volatile than your average zero to 1% businesses.

So we do our best to look at a number of factors. And the only thing I would tell you, it tends to be more of a factor of what we do than what competition does. So if you can execute well, if you have good plans, if you have good data around the effectiveness of your plans, you typically have a pretty good feel for what your business is going to do.

Does that answer your question?.

Yes. I mean, yes, it does. I guess, second, maybe I missed it, but kind of contribution from SimplyProtein. I know you've talked about how that's -- distribution gains and kind of outlook for that business in terms of contributing to growth..

Yes, Early innings. Distribution is building. So I think we closed the year just under 20% ACV. Velocity, where it is, is doing really well. So I would say too early to call on SimplyProtein and how it's doing in the U.S. We'll keep updating as we get more data over time..

Okay, and then last one for me. Just – I know it's a different focus. You're not a diet plan and the disclaimers that come with that. But the announcement, Jenny Craig and Walgreens, and they're kind of focused next year.

Does that have any impact? Or how will that impact your business?.

Actually, you know what, I'm not familiar with what you're talking about, maybe I lost track of that category. So what's going on so I can understand it..

It's more of they're going to promote and bring Jenny Craig type programs in their stores in the U.S., and so that was just announced yesterday or the day before, so.

Yes, that channel, Bill, for us is very small, unlike some other categories where drug is a major component of our sales, it's very small for us. So I do not anticipate it will be a major impact..

Are the selling meal kits?.

From what I have seen it is kind of a full-on push or partnership, but it's just for now….

So, the challenge, obviously we are – there's a difference between – so people can understand. If you ask adults in the United States are they on the diet? It's percent of adults is in the kind of low to mid-single digits. If you ask consumers in the United States are they managing their weight? It's about two-thirds of adults.

So there's a real big difference between being on a diet and managing your weight. As we've evolved back and it's more about helping people manage the weight than it's being on the diet. Jenny Craig's model, Weight Watchers' model, Nutrisystem's model is much more about food plans. It's a much bigger capital expenditure.

It focuses on giving people the food they need to be on a diet, and it's really a different business model. So we watch it because we pay attention to how companies talk about weight management and diet, but they're not direct competitors to us, and we don't view it that way..

Got it. Thank you..

Our next question is from Alexia Howard with Bernstein. Please proceed..

Hello there..

Hello, good morning Alexia..

Okay, so a couple of quick ones for me. First of all, in the prepared remarks, you mentioned confection as a growth area for you. Is that becoming more strategic from the point of view of innovation and marketing? And should we expect that to become a bigger part of the portfolio over time? And then I have a follow-up..

Yes, Alexia. You know what, it's been a fast-growing element of our portfolio of products since I've been here, so seven years. It's a different – and the way to think about it is it's a slightly different product and very different day part. So our indulge products, our confection products tend to be an after dinner indulgence.

So – and the construction of the product from a nutritional standpoint is low protein, little bit more fat and continues to be relatively low-carb and have a fair amount of fiber in them. So their construction is lower protein than our other products. And so we're seeing that day part grow. And I think because of that confections to grow.

And then secondly, there really isn't anybody in the category with those kinds of products. We're starting to see a little bit – some emergence of peanut butter cups from some other competitors, but we're pretty much the only player in that space right now. And I think it has a lot to do with our products such as delicious. They're just great products.

And then I mentioned – I mentioned in my remarks, we're seeing, and I'm sure you've all been seeing a little bit of this keto craze going on right now. So keto is another approach to low carb. It's a more extreme approach. And our indulge products fit the profile, which is a high-fat profile for keto enthusiasts.

So we're seeing some offtake, I think, from a consumer standpoint just based upon that fad that's going on right now..

Great, and then just a broader question on the buy rate comments that you made earlier.

Can you talk a little bit about what drove those buy rates? Or what you think drove those buy rates to improve so significantly this year? Was that within newly acquired customers or was that the existing consumer base that suddenly sought to eat more? And then I'll pass it on. .

Yes, great question. It was more new buyers than it was retained buyers, but we saw growth among year two and year three buyers. We're still trying to analyze what's going on. The one thing I would say is over the last few years, we've done a really good job of trading consumers up in pack sizes. So in the early days in 2008, Atkins sold only singles.

We moved people through kind of 2012, 2013,2014 to larger sizes. So four packs on shakes, five packs on bars. Over the last few years, we've moved people to eight packs and 15 packs. So there's some trade up going on that might be generating a little of that. Also we tend to promote in twofers – two for 13, two for 14.

That might be driving a little bit, but it's an area we're digging into right now trying to better understand..

Right, thank you very much. I’ll pass it on. .

Hey, you are welcome..

Our next question is from John Baumgartner with Wells Fargo. Please proceed..

Good morning, thanks for the question..

Hey, John..

Just wanted to stick with the growth in buy rates. Just to be clear, we are aware that came in ahead of expectations in fiscal 2019. Was that more on the programmatic side or the non-programmatic side..

Yes, that's an area that we're digging into. I don't have that data. I don't get that data every week or every month. We actually have to go into the panel and do a segment to attitudinal segmentation to get that data. So I can't do that all the time. So as we start analyzing, we'll get a better sense of that. It's a great question..

And I was just thinking – yes, thinking through the advertising spending. So there were a couple of new ad spots that were launched, I think, about Q2 and Q3. I'm curious, just broadly speaking, you have the ROI holding up on the advertising overall. With still kind of that high return that you're seeing.

Any inclination of a slowdown there? And then, I guess, is it too soon to analyze the incrementality of new ad spots that began hitting middle of fiscal 2019? Thank you..

Yes, So the ROIs that we've been able to track continue to be very, very high. We don't have the fourth quarter ROIs yet. With marketing being up 70% in Q4, our expectations is it probably came down a little bit. And I guess that's the slightly negative news.

The more positive news is that's now in our base, and we'll be able to spend that money more evenly throughout the year, more efficiently.

And we're very, very confident we'll get really high ROIs from it going into FY 2020 But everything we've seen in the data so far suggests the marketing continues to work, ROIs are still best-in-class and again we’ll smooth it out this year and get the most effectiveness we can..

Okay, thanks for your time..

Our next question is from Eric Larson with Buckingham Research Group. Please proceed..

Yes, thanks everyone. Thanks for squeezing me in. Joe we're probably beating this to [indiscernible]– you said you're kind of analyzing the effects of the new buyers, et cetera.

But I believe in the past, you – when you brought a new buyer and then you retained that buyer and became a very loyal buyer, you'd see that buyer increase their buy rate over the course of three years, more in the second year and then become kind of a full buyer by year three.

So if you look at kind of the raw blow campaign, which I think this January will be the second full year, if I'm not correct -- if I'm not mistaking, it seems that's that three-year build in frequency for retained buyer, it seems like you'd still have some tailwind behind you in your fiscal 2020 year from buyers that you brought on in the last two years.

Is that a reasonable thought process or not?.

So, if loyalty is predictable, which it has been in this business, so my ability to move people from new buyers to second year and third year buyers, that remains and I have a relatively predictable number of retained buyers when I start my year.

So yes, that's the basis to the earlier questions, how do we forecast what we believe our business is going to be? A relatively good insight into the number of retained buyers that I'm going to have during the year and until last year, relatively predictable buy rate.

So then the real – the only thing that we have to figure out is how many total new buyers that we can bring in and is there any change to the buy rate? So yes, that's been the nice thing about this business. When I bring somebody in, they return in relatively predictable numbers and they buy a relatively predictable levels.

And just to remind you, so they come in, in the first year. They're buying somewhere in the mid-30 servings, and they move to a second year and third year buyer, and they're buying close to a 100 servings. So I move them from less than a weekly buyer to somebody who's eating product twice, sometimes three times a week. So high level.

That's the one thing about this business that's really interesting. You have people that are daily eaters of our products or snacking on our product every day. So very unusual even in broad scale confection to see something like that..

Okay, thanks again Joe. That was my assumption here and so thank you for that clarification. I'll pass it on..

Thank you..

We have reached the end of our question-and-answer session. I would like to turn it back over to management for closing remarks. .

Yes. Thank you all for your questions and thanks for your participation on the call today. We look forward to updating you on the first quarter results in January. Have a nice day..

Thank you. This concludes today's conference. You may disconnect your lines at this time. And thank you for your participation..