Simply Good Foods Co (SMPL) 2024 Q1 法說會逐字稿

And welcome to The Simply Good Foods Company Fiscal First Quarter 2024 conference call.

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A brief question and answer session will follow the formal presentation.

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It is now my pleasure to introduce your host, Mark Pogharian, Vice President of Investor Relations.

Thank you, Mr. Praveen, you may begin.

Thank you, operator.

Good morning.

I'm pleased to welcome you to The Simply Good Foods Company earnings call for the fiscal first quarter ended November 25th, 2023.

Jeff Kessler, President and CEO, and Shaun Mara, CFO, will provide you with an overview of results, which will then be followed by a Q&A session.

The company issued its earnings release this morning at approximately 7 A.M. Eastern time.

A copy of the release and the accompanying presentation are available under the Investors section of the Company's website at w. w. w. dot Simply Good Foods Company.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 tool 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.

We have included a detailed reconciliation from GAAP to adjusted items in today's press release.

We believe these adjusted measures are a key indicator of underlining performance of the business.

The presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP.

Please refer to today's press release for a reconciliation of the non-GAAP financial measures to the most comparable measures prepared in accordance with GAAP.

I will now turn the call over to Jeff Tanner, President and CEO.

Thank you, Mark.

Good morning and thank you for joining us today.

I'll recap Simply Good Foods financial results and the performance of our brands.

Then Shawn will discuss our financial results in more detail before we wrap it up with a discussion of our fiscal 2024 outlook, and we take your questions.

We're pleased with our fiscal third quarter results that were in line with the estimate.

Retail takeaway and the combined measured and unmeasured channels was slightly more than 8% and as expected, outpaced net sales growth, primarily due to the timing of shipments versus the year ago period.

We anticipate that shipments and consumption should be largely in line by the end of Q2, net sales increased 2.6% to $308.7 million, driven by continued quest momentum.

First quarter gross margin was 37.3%.

And in line with our forecast, the 40 basis point increase versus the year-ago period was primarily due to lower ingredient and packaging costs.

Adjusted EBITDA in the first quarter was $62 million, an increase of 2% versus last year.

Higher gross profit was partially offset by higher SG&A versus the year ago period, reflecting investments in marketing growth initiatives and G&A capabilities.

Cash flow generation continues to be strong and provides us with financial flexibility to invest in organic growth, pursue value-enhancing acquisitions, pay down debt or opportunistically buy back our shares.

Our Q1 results had a positive start to the year, and while early Q2 is off to a good start.

Additionally, we have strong marketing and promotional plans in place for the new year new year's season, which started this week and which will run through the second quarter of fiscal 2024.

We're pleased with the progress we've made on the acceleration plan for Quest and the revitalization plan for Atkins.

As such, we reaffirm our full year fiscal 2024 outlook.

Next slide provides you with a perspective of our retail takeaway performance within the IRI MULO plus C-store universe and then the combined measured and unmeasured channels.

Nutritional snacking category growth in the measured channel universe was 12% driven primarily by volume or unit growth.

The category continues to be a standout performer within brick and mortar and e-commerce and as a result is increasingly a focus of our retail partners as they look for growth opportunities.

We are category advisors at most major retailers, and we're working closely with them on how to further capitalize on the growth potential of this category.

Since liquid foods, retail takeaway in the measured channel increased 7.1%, driven by Quest volume growth of 20%.

Our performance was similar to last quarter and our e-commerce business continues to do well and resulted in total company combined measured and unmeasured channel POS growth, slightly better and 8%.

Now let me turn to Quest Q1 retail takeaway where combined measured channel growth was 20%.

Growth was driven by solid performance across all major forms and retail channels, driven by an increase in both household penetration and buy rate.

Our retail customers view Quest as the pioneer of the category and are excited about our near and long-term innovation pipeline and growth initiatives that we have in place.

A major focus for us is working with those retail partners to find additional space and merchandising opportunities for the brand.

In Q1, we estimate total unmeasured channel retail takeaway increased about 14% of e-commerce strength was partially offset by softness in specialty channels.

Fare had no denying Quest momentum with nearly $700 million in net sales in fiscal 2023.

We have essentially doubled the business since we acquired it in November 2019.

Quest's retail sales in U.S. measured and unmeasured channel this past year was $945 million.

So we clearly expect it would be a $1 billion retail sales brand in fiscal 2024 with a footprint across multiple forms.

It's no small feat for a brand that's daily a dozen key adult in Q1, quite bad business retail takeaway increased 16%.

The snacking portion of Quest products continued to do well with Q1 measured channel retail takeaway up 24%, but particularly pleased with our salty snacks performance that we believe have a long runway of growth.

Quite snacks segment now represents nearly 45% of total credit measured channel retail sales and is roughly equal to Quest bars and household penetration.

We expect that Quest will have a strong year behind innovation, distribution gains and a new marketing campaign I'm particularly excited to announce that we will debut a new advertising campaign in February that will be supported by a rich base media model.

Despite the size of the business brand awareness of Quest is significantly below several competitors, and this campaign has the potential to further accelerate growth.

Turning to Atkins, Q1 retail takeaway in the IRI MULO plus C-store universe and the combined measured and unmeasured channels, as expected, was similar to last quarter of about 6% and 4%, respectively, as has been the case for a while and consider the use of migrates e-commerce, where we continue to see good growth.

Specifically, Atkins, Amazon POS increased 12%.

As a result, e-commerce was additive to Atkins measured channel POS for perspective in Q1.

E-commerce is about 15% of total Atkins retail sales in Q1.

Atkins retail takeaway trends stabilize from when we entered the quarter.

October marketplace performance was somewhat better than September and November note that given the consumption seasonality in November and December, we were not on air with advertising and we have minimal in-store merchandising now that the calendar has turned to January, we will heavy up on advertising and merchandising for the new year new year's season.

We continue to have tremendous faith in the long-term potential of the brands and in support we're making good progress against the five point Atkins revitalization plan we talked about on our last conference call.

However, as you may recall, that's going to take some time before all of the elements of the plan collectively in the marketplace.

As a reminder, the Atkins five point revitalization plan includes enhanced merchandising and assortment at select customers.

Your advertising supported with a rich base media model, greater focused on a near and longer term, robust innovation funnel, product upgrades on our bond portfolio and new packaging and multiple work streams targeting GLP-1 weight-loss drug users.

Getting Atkins back to green is our focus, and we believe we have the plans in place to improve market performance over the remainder of the year.

In summary, we're pleased with our start to the year, particularly our first quarter marketplace results.

Simply Good Foods Company competes in an attractive category and is uniquely positioned as the U.S. leader in the nutritional snacking category with two scaled lifestyle nutritional snacking brands that are well developed across multiple forms of snacking occasions.

Nutritional snacking category continues to be resilient with top-tier volume growth propelled by the consumer megatrends of healthy snacking with a nutritional profile that is protein-rich low in carbs and sugar.

This profile has broad appeal to consumers across all generations, but particularly with Gen X Gen Z and millennial consumers that look to our brands as a means of helping them achieve their goals, given the future growth runway of the nutritional snacking category, we continue to work closely with our retail partners on how to optimize the category today, and we'll source additional space from in the store to support new and emerging formats for executing against our priorities, and we remain committed to delivering against our commitments while making the necessary investments in our business that should result in sustained long-term growth.

Now I'll turn the call over to Sean, it will provide you with some greater financial detail.

Thank you, Jeff.

Good morning, everyone.

I will begin with an overview of our net sales total Simply Good Foods.

First quarter.

Net sales of $308.7 million increased $7.8 million or 2.6% versus the year ago period.

With our July 2022 price increase behind us.

The Q1 net sales increases driven by volume growth, North America and international net sales increased 2.6% and 0.7% respectively versus last year.

As Jeff stated earlier, as expected, retail takeaway at 8% outpaced North America sales growth, primarily due to the timing of shipments.

As such, we would expect Q2 net sales growth to be slightly greater than consumption with shipments and consumption relatively aligned at the end of the first half of fiscal 2024.

Moving on to other P&L items for the quarter.

Gross profit was $115.1 million, an increase of $4.1 million from the year ago period, resulting in gross margin of 37.3%.

A 40 basis point increase versus the year ago period was primarily due to lower ingredient and packaging costs.

Adjusted EBITDA was $62 million, an increase of $1.2 million from the year ago period.

Selling and marketing expenses were $32 million versus $28.5 million, an increase of 12.1% largely due to higher advertising costs and investments in growth initiatives.

Gaap G&A expenses were $27 million, an increase of $1.3 million versus last year, primarily due to higher employee stock-based compensation.

Excluding this as well as executive transition costs, G&A increased $0.3 million to $22.7 million.

Finally, net interest income and interest expense were $4.9 million, a decline of $2.1 million versus Q1 last year.

The decline was due to lower debt balances versus the year ago period.

As expected, our Q1 tax rate was about 25% versus 21.3% last year.

We continue to anticipate the full year 2024 tax rate to be about 25%.

As a result, net income was $35.6 million versus $35.9 million last year.

The next slide provides you with a reconciliation of reported and adjusted diluted EPS, first quarter reported EPS was $0.35 per share diluted compared to $0.36 per share diluted for the comparable period of 2023.

Adjusted diluted EPS was $0.43 compared to $0.42 in the year-ago period.

Note that we calculate adjusted diluted EPS as adjusted EBITDA, less interest income, interest expense and income taxes Please refer to today's press release for an explanation and reconciliation of non-GAAP financial measures.

Moving to the balance sheet and cash flow as of November 25th, 2023, the company had cash of $121.4 million.

Cash flow from operations in Q1 of about $47.5 million compared to $8.7 million last year, principally due to improvement in working capital.

During the quarter, the company repaid $10 million of its term loan debt at the end of the first quarter.

The outstanding principal balance of $275 million.

However, subsequent to the close of the quarter, the company repaid an additional $25 million of its term loan debt, bringing the outstanding principal balance to $250 million.

Capital expenditures in Q1 were $0.7 million in fiscal 2024.

We continue to expect CapEx to be in the $8 million to $10 million range in fiscal 2024, we anticipate net interest expense to be about $17 million to $19 million, including non-cash amortization expense related to deferred financing fees, not a wrap up.

As Jeff stated earlier, we are on-plan across all key metrics in Q1 and therefore, we reaffirm the full year outlook we discussed last quarter, we continue to expect that ingredient and packaging costs will be lower in fiscal 2024 compared to last year and drive solid gross margin expansion.

This provides us with the flexibility to invest in marketing initiatives that will drive near and long-term growth and organizational capabilities.

Therefore, for full year fiscal 2024, we anticipate net sales growth driven by volume to be at the high end of the Company's long-term algorithm of 4% to 6%, including the benefit of the 53rd week, adjusted EBITDA is anticipated to increase slightly greater than net sales growth rate and adjusted diluted EPS will increase greater than the adjusted EBITDA growth rate.

So we appreciate everybody's interest in our company, and we're now available to take your questions.

Thank you.

We will now be conducting a question and answer session.

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To accommodate everyone in the Q&A queue, please limit yourself to one question.

One moment, please.

While we poll for questions, our first question comes from Matt Smith from Stifel.

Please proceed.

Good morning and thank you for taking my question this morning that twin the 12% growth in the active or convenient nutrition category, which has been supported primarily by volume growth.

That's a stark contrast to the center store where volumes and consumptions remain pressured from a high level.

Could you talk about the trends supporting the strong consumption growth in the category?

Or are we seeing a period of accelerated household penetration growth?

Or is the buy rate increasing at a greater rate than it has historically or if the category remains relevant with consumers, could you just help us understand what's driving the strong category relative to the rest of the store?

Yes, good morning, Matt and Jeff, I appreciate the question.

And yes, you're right.

The nutritional snacking category has grow in recently and consistently low double digits versus center store, which is closer to one to two.

And as you noted in your question, most of that growth is now volume and it is a significant difference, which I think is due to several factors on the category, certainly benefiting from health and wellness and convenience snacking trends.

But in addition, the high-protein low-carb, low-sugar macros of the category are increasingly emerging as the new transit choice, particularly for younger millennial and Gen Z consumers, perhaps in contrast to high comp high sugar products.

And so that that that those the two macro drivers of the category, I think what's interesting is despite the strength we're seeing in the category versus same store, I still think we're in the early innings, and this momentum has a lot of continued runway from just a few thoughts on that.

Household penetration is only at 50% versus high 80s, low 90s percent of store.

And while the nutritional snacking category largely grew up from bars and shakes as we bring new formats to market, for example, our multi-platform OnQuest, it's increasingly driving by rate as well as penetration from retailers.

And I've met with all of them most of them recently.

And they're certainly seeing the growth they are looking to us as category advisors to the majority of those accounts and saying, how can we capitalize where can we find more space.

And lastly, while while in the early innings, we're on the right side of the GLP-1 drugs, which are an early stage, but I think that's a that's a future tailwind as well.

So there's certainly a difference we're seeing today.

You're seeing it in the numbers, but I think the category nutritional snacking category has a long runway of growth in front of it, and we're working as a company and in partnership with our retailers on how can we can accelerate that type further advantage of it.

Thanks, Jeff.

I'll pass it on.

And our next question comes from Pamela Kaufman from Morgan Stanley.

Please proceed.

Hi, good morning.

Happy new year from a revenue ratio here saying you are now a quarter into the Atkins revitalization plan that you announced at Q4 results.

Can you talk about what actions you've taken so far and remind us how you're thinking about the trajectory of Atkins improvement and milestones to gauge the improvement?

Yes, that's a good question, Pam.

As we talked about at the last quarter, we're not happy with the current performance of Atkins, especially given the long-term potential we see for the brands.

I talked about that on the last quarter to 80% of consumers looking to maintain weight, the brands highly trusted the MAT credits work, the products taste great.

And we've put the Five Point revitalization plan into market, and I outlined those elements in our scripted remarks.

And now I'm pleased with the progress the team is making as we as we talked last quarter, we've said it 12 to 18 month timeframe for when all of those elements will be the markets some of them take a little longer than others.

For example, the packaging refresh some of the elements have on our end market today that would be the new configuration and club store, which has shown a marked improvement in trends in that channel and the new advertising is out without in October.

As we as we noted, we we tend to throttle back more in November, December, but we're pleased with how that advertising tested.

And as we move into January, February, March, we'll be heavy enough that appetizing.

And then we're pleased with some of the new innovation and how that's turning, for example, the back bars and the break that stuff, some of the elements are in market, and I'm pleased with our execution.

But I think the most critical period for us to evaluate how we're performing is January, February, March, when we'll have more sustained advertising and market more merchandising and market.

As you know, it's a critical seasonal period for us.

So I just want to reiterate, we are taking a 12 to 18-month view on the revitalization of this brand because that is how long it will take before all of the elements are in market of.

Okay, thank you.

And just wanted to ask about your capital allocation priorities.

It seems you've paid down debt recently your balance sheet is in strong shape.

So how do you think about the capital allocation options that you have in M&A versus buybacks and more debt paydown?

Yes, Tim, I think in our overall spend a fair amount of time looking to evaluate the best return of our cash to our shareholders.

That includes, obviously, as you said, debt paydown, share repurchases, M&A and even potentially a dividend.

We had a very strong cash from operations.

This quarter.

We had over $100 million in cash on our books.

We evaluate opportunities to buy back shares pretty consistently as well as looking at other ways of spending that overall.

But I think we take a step back.

We're going to evaluate these opportunities as they come up.

I wouldn't say they're right now.

We thought the best use of cash in Q1 was the debt paydown, and we'll continue to evaluate that on a quarterly basis.

But we are very fortunate to be in a position where we have a lot of cash from operating activities allows us to quickly pay down debt as well as provide other opportunities for our shareholders.

Thank you.

On our next question comes from Steve Powers from Deutsche Bank.

Please proceed.

Hey, guys, good morning.

Thank you.

Yes, I took two questions, if I could.

The first one is just more tactical on the guidance.

Yes, I think the 8% plus consumption that we saw in the first quarter was a bit better than going in expectation.

The full year guidance implies you still expect around about mid-single digit consumption on the year.

I'm just trying to think about how the phasing in your mind isn't going to work and kind of specific to 2Q just because if you're going to catch up to consumption, I'm just trying to figure out what that what you're trying to imply for shipments in the US second quarter, if I could.

And then broader, just you talked about the category advisory conversations that you've been having with the retailers.

I guess I'm I'd love a little bit good elaboration on that.

And kind of what are the points of emphasis that you're and you're bringing to those conversations and trying to impart to retailers so that they can, yes, a good coupon on further categories.

Yes.

Thanks, Dave.

I'll maybe I'll start on the guidance question, turn it over to Shawn.

And then I'll come back on Care category advisor question.

As we as we noted, Q1 consumption was a little better than we expected some, but as we said also, we're comfortable and we reaffirmed our guidance.

And as you know, the seasonality of this category, January, February, March are a critical period for us, and that's going to give us a much clearer picture on how Quest and Atkins will perform for the year.

We're very pleased with how Quest retail takeaway plus 19 in Q1 were in the early innings of the Atkins revitalization plan, but I think another quarter and we'll have a much better view of the year.

And then we'll and we'll think through in a longer term how to think about that.

But I'll turn it over to Sean for any added color there.

Just reiterating a little bit.

I guess the overall, I mean, Q2 was better than we expected a little bit Q1.

Our Q1, excuse me, I hope you did, but we're comfortable with our guidance overall, let's see how we execute next quarter.

So that may impact our view on the year.

But consumption in Q1 was encouraging as we look at the results were and I think as we've talked about it internally, on-plan through Q1, like what we have for plans in place for Q2.

We need to see how things turn out marketplace in Q2.

And then we'll kind of reassess where we are as we get to the Q2 call.

And I'll come back on the category advisor question.

That's a good one, have certainly been on the road to a lot over the last three months having these conversations with retailers.

And as Matt noted, in his question category, nutritional snacking category is now consistently disproportionately showing growth versus same store and retailers are seeing that, and they're seeing that discrepancy.

They're looking for growth and they're coming to us and saying how much additional opportunity can we get out there?

What do we have to put in place to take further advantage of what seems to be a long term trends, particularly around the new trends as more and more consumers switch to protein Ford, I want to take out sugar or they want to take out costs from their diets.

And so we are working with them.

We're investing a considerable amount and understanding the category projecting out where the category is going to go over the next several years.

And then we've started on building plans with them on how to further capitalize on that growth.

So those plans will include a mix of whether we find more space, whether that be from close adjacencies or further out how do we take advantage of the omnichannel?

Because this category does lend itself to a heavy online purchases?

How do we drive more traffic down the aisle, how do we use our combined marketing capabilities?

They see the growth and they're looking to us and say, how can we build it together, you bring your resources will bring our resources because it is a bright spot.

And so we've just started those conversations in earnest with several of the customers, our largest customers.

And I'm excited to see where this goes because I think this is one of our pillars for sustained long-term growth, which is the growth and the continued growth of the category.

Next question comes from Alexia Howard from Bernstein.

Please proceed.

Good morning, Everyone.

So I'm kind of you commented about how the year our gross margin improvement this quarter, it goes through our digital opportunity to invest in organizational capabilities.

I can you give us a little bit more color on exactly what you're hoping to accomplish that, I'll pass it on.

Thank you.

Yes, I'll take that.

And so and as it's done, we're fortunate to have some flexibility.

And as I mentioned in the scripted remarks, our focus is on delivering consistent growth quarter to quarter, year to year to hear from one of the biggest areas we have invested back to Steve's question is enhancing our category management capabilities, and that includes research.

It includes bringing on some additional talent and bolstering our capability to develop these long-term plans with retailers.

Our industry is pretty good at developing one year joint business plans with retailers, Alexia, it's a different muscle to build to the three to four year growth plans at the category level.

So that's been an investment we've made with, as you saw in the financials, we've increased our investment in marketing taking up to just over 9%.

And we've also invested in bolstering our long-term innovation capability as I talked on the last quarter, we were disappointed with the lack of innovation on Atkins, and we don't want that to happen again.

And so we're invested in building and bolstering our pipeline.

And as you know, innovation is kind of the lifeblood, of course.

So we wanted to ensure that we keep our foot on the gas there.

So those are probably the three biggest areas, enhanced category management, additional marketing and innovation, which by the way, is in a much better place a him from when I came to simply very pleased with the progress we're making there.

John, anything you want just one more thing that's ever dropped there, just the capability wise?

I think we also can make some assessment as we as we've kind of kind of get into this year and talk about what the plans we have going forward and the pillars that Jeff talked about last quarter and making sure we have the right longer-term capabilities to support that type of work as well as the growth associated with that.

So we've also kind of looked at that internally and added some capabilities within within that within the organization to support that.

So one of the areas that we've invested in, but we've been very thoughtful about where that favorability is for gross margin gets reinvested and have really been thoughtful about making sure which provides us with longer-term growth as well as hitting our short-term goals.

Great.

Thank you very much.

I'll pass it on.

Our next question comes from Brian Holland from D.A. Davidson.

Yes, thanks.

Good morning.

I wanted to point out maybe just dive into a little bit from I guess it sounds like first quarter consumption trends were better than expected.

It sounds like that was maybe more specific to ac And so maybe being less negative than maybe the expectations going into you can correct me if I'm wrong on any of that, but just wanted to kind of and focusing on that and understand exactly what you're seeing there.

Obviously, it's a seasonally lighter quarter but you did we run some fresh advertising, as you said, at the beginning of the quarter, so it's good.

Excuse me.

I'm just curious what you're seeing with respect to whether you're finding a new buyer.

I know that some of the messaging around the advertising campaign was to tried to address some some misconceptions about the brands.

So I'm just curious if you're seeing any early results from that and where exactly the better than expected consumption is coming from?

And yes, the consumption was slightly better than we than we had forecasted.

And actually it was across both Atkins and Quest.

Some of that with Atkins, as we as we said in the scripted remarks, October was a pretty good month for us versus the previous month as we came into the quarter and

still below our expectations.

Yes, not not happy with and with the number in absolute, but on a relative basis, it was a much better month for us.

And that coincided with us dropping the new advertising and strengthening our merchandising and also having had this new configuration and club.

And so now it's only five weeks.

And we don't want to overreact to five weeks of advertising because, as you know, we have to throttle back in November, December, given the seasonality.

So as we've said, the real test on Atkins, I think comes in January, February, but we were encouraged with what we saw in October when we did have several of these revitalization plan elements in market, particularly the advertising, but in addition, Quest to come and came in stronger than we had forecasted as well.

What's interesting about Quest?

If you go back two, three years, the majority of growth on Quest was coming from penetration, which was which is right distribution driven.

Now you look at the drivers of growth and it's roughly 50 50 balanced, 50 50 balanced across penetration and buy rate as consumers are coming in via chats and they're fine buyers and vice versa.

And so we've just seen a more balanced growth profile in place that I think is carrying the momentum through and with what's really interesting about Quest is despite the size of the business and it will be a 1 billion retail brand this year of brand awareness, it's still relatively low versus allow a lot of key competitive, and we're excited to debut new advertising in February, OnQuest.

So yes, the consumption was a little better than we thought Farm brands.

But the critical period for us is, again, January, February, March.

Appreciate the color, Jeff.

And fully recognizing we're just a few days into a new year new you and I'll ask anyway just curious what, if anything you are seeing either from the competitive landscape, i.e., innovation, promotion, et cetera, or on consumer engagement with the category up again, admittedly only a few days into the new year, but obviously, given its significance, I trust you're watching that closely.

Yes, we're blown away.

I'm just kit at home I think right Fam justnow we are set up as we get into the new year new you to kind of get with our retailers, everything in the stores, you have displays, you see a lot of the activity ready to go in all of our key retailers use some advertising.

I dropped off for a second specifically on January first, and you'll see that continuing through there without significant investment in for consumer communication for both brands in Q2 as well as the merchandising and promotional activity that's out there.

As you said, I mean, it's still early evidence.

It's very early.

So we have indefinitely results from other than the day day in and day out basis.

So I can't really comment on progress, but we feel confident in our plans is to service the LAP-BAND.

We feel very confident in the consumer and retail plans we have as we enter this critical period.

Our next question comes from Jim Valero from Stephens Inc. Please proceed.

Yes, thanks for taking our question.

You've already discussed and some of the trends with Quest in the category but I was wondering if you could give us a sense for how much of the broader category growth is being driven by the expansion of products in the appeal that that brings to expand by rate versus consumers that are increasingly health-conscious kind of engaging with these protein dense caloric, low calories?

Yes, that's a good question.

I don't have that information at a category level.

As we look at our brands, we certainly see a balance prudent excuse me, balanced across both household penetration and buy rate.

And as I said, again to Matt with Matt's question, this category largely grew up as bars and shakes and over time has expanded well beyond that new format, new usage occasions, new dayparts.

So that's a big driver of BioArray, but we continue to see also consumers and we still continue to see household penetration increase.

So it's both.

And I think the opportunity for us is to continue to drive both to continue as particularly as category leaders to continue to bring consumers into the into the space.

That's the job of advertising and then to continue to drive five rate which is the job of innovation.

I think the biggest driver here on the line, all of this protein has really emerged as the new train of choice, particularly for younger consumers sugar that I won't share that won't have.

And so as these new trends become more and more broadly adopted, you're seeing more and more consumers look for our products as a way of delivering against they're looking for and to power their lifestyle.

But we still believe the category has tremendous runway, both on buy rate and penetration

And I think just building off that a little bit.

I think Jeff mentioned the spring decisions for advertising given the innovation, but then also working with the retailers to continue to expand shelf space that allows us to have new formats are out there.

I think your question suggests seven prepared prepared remarks as actually expanded in other formats pretty successfully, which is great because salty snacks I think is about $300 million business at retail.

So it's grown from just a bar and shake the bar business, particularly and then into the other categories.

And we see that expansion opportunity really in other categories as well, other formats as well when that when

when Quest with acquired the business was by far majority about this, I know for sure now balance represents just about 50% of sales.

So that's that shows you the expansion opportunities and it shows you the opportunity on particularly I think they are on BioArray Great.

I appreciate the color.

If I could sneak in maybe one follow-up to that.

Do you have a sense for consumers that are actively using the GLP-1 drugs that they gravitate more towards this versus Quest?

No, no, no, not between brands and we do know from our own research, but I think you're seeing it from other research as well that when consumers are on the drug.

Their appetite is depressed, but they're looking for smaller, more convenient, healthy high-protein, low sugar options that were category majors and that in talking to consumers on the drug.

We certainly see an increased interest in products from Atkins and Quest.

And that's why I decided to think our categories on the right side of these drugs.

That's why we've got out of the gate early.

We have identified we've been able to identify these consumers on Atkins.

We're sending them targeted communication.

We're investing in research to better understand it But specifically to your question, we think both Atkins and Quest have a strong role to play here.

It's not one versus the other grades.

Our next question comes from Carmel Sarawak from Jefferies.

Please proceed.

Hey, guys.

Good morning.

If I could follow up on that on your last response on GLP-1 does is M&A part of the strategy on trying to leverage the opportunity that's in front of you as it relates to GLP-1?

if not not explicitly it, would it be something that we would look at if a right asset came along.

Yes, but I think it's we're very much in the early innings on GLP. one.

We've got a lot to learn.

And I don't think it would be front and center as an M&A driver, but it would be a factor that we would probably look at as we would look at any asset.

Got it.

And then how about M&A in general?

You mentioned a few times kind of value-enhancing acquisition.

What does the M&A environment look like as multiples come down there's obviously debates about asset prices and interest rates.

How do you see the environment at the moment?

Yes.

I mean, I guess step back, we love the cap rate and we believe the potential to double that is there over the next second timeframe, five, 10 years, we look at a lot of assets that come into our space, especially those that are complementary to our portfolio where we can get synergies to your point about seller expectations.

They're still high and we're not going to overpay.

Quite candidly, we evaluate continue to evaluate complementary brands and businesses of size, preferably shelf-stable warehouse delivered and really in or adjacent to our IOS, what we think the synergies really are.

So our targets really here are strong consumer brands that are complementary.

We've got a strong balance sheet.

We've talked about it already that allows us to do those things.

But the but we're not going to overpay for anything either.

So we evaluate everything that comes up in the space and we kind of assess whether that's the right move for our shareholders.

Our next question comes from John Baumgartner from Mizuho Securities.

Please proceed.

Good morning.

Thanks for the question.

When I just I wanted to ask about Quest and specifically the snacks and the distribution growth has remained strong and measured channels.

It's been strong sequentially since self reset exiting summer, but the resilience and velocities at the same time has been pretty surprised.

And I'm wondering, Jeff, can you speak to anything different in the retail programming, the merchandise and even maybe the composition of the store doors, we are gaining TDPs that sort of explains the velocity resilience there at a time when a number of categories are seeing softness and higher price?

Yes.

I mean, the you're right, distribution was the primary driver of Quest growth.

Certainly following the acquisition, which speaks to the strength of them selling organization, it simply some But more recently, we've seen growth be more balanced crop, not just distribution, as I mentioned, but also by rate.

And I think it just speaks to the underlying strength of this business.

It is one of the most culturally relevant on-trend growth businesses.

I've seen, as we mentioned in the scripted remarks, it will cross 1 billion in retail sales this year.

And what's really interesting about Quest versus most other brands, it has not just permission to extend into other forms but this is what Quest consumers expect and demand.

They'll look to Quest to come into snacking categories, flip the macros and come out with a great tasting product that has high high protein and low sugar.

And this this is what consumers want from the brands.

And we have an incredible R&D organization best I've ever worked with in my career that has been able to develop wonderfully tasting products that deliver on these macros.

Our retail partners see it to.

It's why they continue to support the brand.

That's why they continue to give us great merchandising support our innovation.

We're having a longer term space conversations as we show them the pipeline.

But I think at the very heart of your question is the strength of the craft brands and in particular, the demand of Quest consumers for the brand to come into snacking categories and flip those macros and offer them snacking occasions for different dayparts different usage occasions, different products.

I think that that is why, in my opinion, is unique about Quest versus almost any other brand I've seen in my career.

Thanks for that.

And then just on active, looking back, historically, the non-programmatic portion of the consumer base has been the big growth unlock over the years.

And I'm curious that the GLP-1 awareness sort of takes hold.

Do you see the programmatic dieting consumer sort of also making a comeback in your shipment of some of the dormancy there on growth or as you're working through your five point plan for recoveries, are you still expecting the vast majority of growth to come from the non-programmatic segment?

I would say that we would look to both segments as well as growth opportunities for the brand.

And I think we do have those consumers who do them look at look to Atkins is the regime.

That's why the fee rate on the brand is virtually double any other I've ever worked with.

And we think that the obviously the consumers are very critical to us front and center in our media planning.

And I think they will be very often to Atkins on GLP-1.

But we also think the opportunity for Atkins is to expand, continue to expand the funnel, bringing new users, introduce them to the brand, the benefits, it offers some stuff that if you do if you look historically programmatic, it's always been a smaller portion of the brand sales as a 10% to 15%.

But as I mentioned, the buy rate tied to the critical we have to continue to talk to those consumers, but we also have to bring new consumers into the funnel.

I think both groups are very firm, but I see Parker as having an opportunity for GLP-1.

And I think you're also to see the benefit of the category expansion that Jeff talked about and the growth there as we kind of we're in a growing category and it allows us to continue to grow with the category overall, we haven't seen that recently with that, and we're going to get to that plan.

We'll see more of that overall.

So I think it's all three of those things are going to drive the eventual return to growth that we're looking for for Atkins.

Our next question comes from Matt Smith from stifle.

Please proceed.

No, Jeff and John, thanks for taking another question here looking back in past years would simply has benefited from stronger consumption.

The Company has elected to increase its investments behind the business, given the strong returns on those investments, given the strong input cost favorability and consumption trends today.

I know it's early days, but is it reasonable given what you're seeing from investments you're making now?

And then when you look at the business today.

How do you balance investment behind class to maintain momentum and drive growth versus the ability to accelerate the ag and stabilization plant to the extent you're able to this year?

Yes.

So it's a great question.

It's a really good question, Sean and I discuss this almost every day, right?

Because we see the long-term growth of the category and the multiyear runway.

We believe that that creates the opportunity for investment to take full advantage of it.

I think it was Alexia's question, which you asked about where are we investing to capitalize on that run rate on that runway of growth.

We have increased our investment in marketing now just a little bit over 9%.

We've increased our innovation and investment in innovation.

And we've increased our innovation and category management because we think and we see the potential for those investments to pay off over the long term.

To your question on Quest versus Atkins.

We have to invest in both.

Both brands are critical.

They play a critical role in the category.

As I mentioned, I've been on the road a lot over the last three months talking to consumers about the category and the role that Atkins and Quest play to a retailer, they're committed to supporting both brands.

Each brand plays a different role.

And so we need to invest in both businesses.

The investment obviously is a little different.

The levers we pull are a little different the brand's lifestyle at their within their life stages a little different.

So that's why the plans are different.

But the commitment to investing in both is there and in all of that is because we see the long-term growth potential of this category and we're going to get after.

Yes, I think over as a great question, it's something we talk about pretty much all the time.

And I think it's something that we balance as we go through each really, I'd say, month quarter review as we think where we are overall and getting ahead of the investment and the return on those things.

It goes back to a lot of the kind of pillars of Jeff set up when we started this discussion last quarter and really throwing gasoline on fire for Quest revitalizing Atkins category management and using the fuel to fund that to be related to the offtake commodity cost savings that we have as well as some of the cost saving productivity we have in the supply chain.

So it's a discussion we have overtime time.

We balance all those things and tried to make sure that we support both brands because as Jeff said, retailers expect that.

And on top of that build for this year and for future years.

That's really it's about delivering the quarterly commitments we make we're making, but also ensuring we're set up for sustained long-term growth.

Our last question is from Jon Andersen from William Blair.

Please proceed.

Good morning, everybody, and thanks for the question.

Tying I wanted to take a different angle on Atkins and potential outcome of the revitalization plan.

It seems that some of the Atkins innovation outside the core.

So outside of bars and shakes and chips, as an example, it has not had the same uptake as Quest is seen outside its core and do you think Atkins has less permission or rationale to travel?

And if so, is the intent at least in the near to medium term to to focus Atkins innovation, focus Atkins' retail assortments on core bars and shakes rather than to train further extend the brand into other categories?

Yes, that's a it's an astute question.

I guess the short answer is yes.

And we have I mentioned on the last call, I was disappointed and disappointed with the lack of innovation on ac and particularly in the BIS segment.

And that certainly has contributed to some of the trends we've seen on the business when I came, it was a big focus on jump-starting that pipeline and getting products out now, but also building a robust innovation pipeline for the future.

So we're never sure, again, some of the more recent products we've brought out have performed pretty well.

The backpack, for example, turning really well, the break bar is turning very well, but that those are some of the early products from the pipeline.

I think that's now a lot more robust to your to your question on chips and your comparison to Quest, I think I think the question there is more around why did it work on Quest versus why did it not work on Atkins?

There's very very few brands can probably count them.

On one hand, they've been able to extend out of the core.

Quest is one of those brands.

And as I mentioned earlier, that is because the consumer is demanding that Quest comes into snacking categories and flip the macros on Atkins, what we've focused on strengthening our core, strengthening our bar business and strengthening our shakes business as part of an overarching revitalization plan.

So on Quest, it is about pushing beyond where we are today on actions right now.

It is about focusing on the core and strengthening the core and revitalizing the brands.

Yes, just to add onto that, I think just if you go back in time, when we said we looked at Quest before we bought them.

It took a while for, I'll say, salty snacks to become what it is today.

It wasn't like an immediate success and that was a linear growth every year.

That's me fantastic.

It sort of took a little while for the consumer too, except it understand it and then kind of see the growth that we see there right now.

So where we are back end is a little early in the process and I wouldn't necessarily say it's not going to work.

But to Jeff's point, I think the point we're trying to do is we need to make sure the core business and the core bars and shakes business is really humming before we start talking about expansion into other areas.

And that's where we're kind of getting back to basics there.

So I just want to thank everyone for the participation on today's call and happy new year, and we look forward to updating you on our second quarter results in April and have a great day.

Yes, this concludes today's question and answer session.

I would like to turn the floor back over to Jeff Tanner for closing comments.