Simply Good Foods Co (SMPL) 2021 Q1 法說會逐字稿

Greetings and welcome to The Simply Good Foods Company Fiscal First Quarter 2021 Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Mr. Mark Pogharian, Vice President of Investor Relations for The Simply Good Foods Company. Thank you. You may begin.

Thank you, operator. Good morning. I'm pleased to welcome you to The Simply Good Foods Company earnings call for the first quarter ended November 28, 2020. Joe Scalzo, President and Chief Executive Officer; and Todd Cunfer, Chief Financial Officer, 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 7:00 a.m. Eastern.

A copy of the release and the accompanying presentation are available under 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 made 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. 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.

With that, I'll now turn the call over to Joe Scalzo, President and Chief Executive Officer.

Thank you, Mark. Good morning, and thank you for joining us. Today, I'll recap Simply Good Foods first quarter results and provide you with some details on the performance of our brands. Then Todd will discuss our financial results in a bit more detail and we'll wrap it up with a discussion of our outlook before opening the call to your questions.

Before I discuss the first quarter results, let me briefly remind you of the unique advantages of our business and why we're confident that we're well positioned to drive long-term sustainable growth. Simply Good Foods is a U.S. leader in the attractive nutrition snacking -- nutritional snacking category. And while the category has significantly grown household penetration over the last 5-plus years, it is still well underpenetrated compared to most food categories at about 50% of U.S. households. We have 2 large-scale brands in Atkins and Quest with meaningful consumer benefits and broad appeal among 2 different consumer targets. Furthermore, we have demonstrated the marketing capabilities to grow new loyal consumers over time. We benefit from long-term compelling consumer mega trends of snacking, health and wellness, convenience and on-the-go nutrition.

We have a diversified business across retail channels, customers and products, which provides us multiple pathways to win in the marketplace. We operate an asset-light business model that has proven resilient and flexible in a volatile demand marketplace and generate strong free cash flow to fund our organic growth, while also enabling us to participate in M&A. And despite temporarily reduced consumption during the pandemic due to fewer on-the-go consumption occasions, our businesses quickly resumed growth, even though consumer mobility is still well below pre-pandemic levels. For these reasons, we're confident that as consumer mobility improves, the growth rate of our brands will also improve, driven by the underlying benefits of the consumer megatrends I mentioned earlier, and our ability to attract new consumers to our brands.

We remain committed to operating our business for the long term and do the right thing for our brands, our employees, our customers and our consumers during these challenging times. Lastly, I'm encouraged by the start to the year as first quarter sales and earnings growth as well as retail takeaway, all exceeded our estimates.

Moving to Slide 5. First quarter net sales exceeded our expectations, driven primarily by strong e-commerce growth, retail takeaway that exceeded our expectations. And the timing of shipments related to the seasonal inventory build by certain retailers.

Adjusted EBITDA for the first quarter increased 53.2%, primarily due to the -- to a full quarter of Quest, the greater-than-anticipated increase in sales versus our plan and strong cost controls. Total Simply Good Foods Q1 retail takeaway in measured and unmeasured channels increased mid-single digits and steadily improved as we moved through the quarter. Our performance was driven by the snackier portion of our portfolio, primarily confections, chips and cookies that are consumed mostly at home. While bars for both brands remain pressured in measured channels due to fewer on-the-go occasions. Importantly, we gained overall market share versus the category, which declined low single digits.

Our performance in the mass channel improved a bit versus last quarter but is still lower than the year-ago period due to reduced shopper trips since the start of the pandemic. The commitment to the nutritional snacking category by major retailers remained strong and our distribution gains on new products was in line with our estimates. Early consumer offtake of these new items is encouraging. As we discussed last quarter, measured channel retail takeaway plateaued in mid- to late July after sequentially improving versus the April trough as consumer mobility improvement stalled.

In September, the first month of our fiscal first quarter, our retail takeaway growth was flattish due to a weaker back-to-school season. However, in October and November, our marketplace trends steadily improved. Total Simply Good Foods nutritional snacking category retail takeaway in Q1 outpaced the category across all time frames, driven primarily by the more at-home snackier portion of our portfolio, as well as improving active shake trends and the last year's launch of Quest Shakes. In December, the first month of our fiscal second quarter, our performance continued to sequentially improve.

Turning to the first quarter. Net sales increased 51.9%, driven by the Quest acquisition. Specifically, Quest net sales increased $78.7 million to $95.8 million. Atkins net sales increased 2.2% and was a 1.9% contribution to total company growth. The divestiture of SimplyProtein business was a 1.7% headwind. The increase in adjusted EBITDA is a direct result of higher gross profit, driven by the inclusion of Quest, legacy Atkins cost control and Quest acquisition synergies. Todd will provide greater details on these metrics in just in a bit. Atkins Q1 IRI MULO plus C-store measured channel retail takeaway was off 5.7% but outpaced the weight management category. Similar to last quarter, Atkins Bars were pressured due to lower on-the-go usage occasions for this form across the category. Atkins Shakes sequentially improved throughout the quarter, and in November, our shakes retail takeaway was about flat versus the year-ago period. Atkins confections momentum continued with retail takeaway up 13.2% as these products are primarily consumed at home.

We were encouraged by our improving marketplace trends during the quarter, especially given the soft start in September. Partially due to the weaker-than-expected back-to-school season. While so early, we're pleased with the distribution gains and consumption performance, while our recently launched new products, particularly our iced coffee protein shakes and Endulge dessert bars.

E-commerce growth continues to be a strength with consumption up 45% in Q1 with new to e-commerce consumers representing 1/3 of sales. And shakes continued to perform well in this channel, up double digits. E-commerce is now about 10% of Atkins sales, up from 4% just 2 years ago and should continue to be a driver of growth. Our brands are responsive to marketing initiatives and we're pleased that new buyer growth resumed in the quarter.

It was encouraging to see this positive trend as it was the first quarter of positive growth since the pandemic began. As expected, overall buy rate was down versus last year, reflecting lower on-the-go usage occasions. As we move into Q2, we expect continued strong e-commerce growth, improving consumption from new product distribution gains and new year seasonal merchandising that is at least equal to a year ago, although we remain cautious about consumer seasonal participation given the recent surge in COVID-19 cases throughout the U.S.

Let me now turn to Quest, where Q1 retail takeaway increased 15.2% in the measured IRI MULO plus C-store universe, driven by improving trends across major food, mass and club channels. Similar to last quarter, our performance was driven by cookies, chips and confections and the year-ago launch of shakes as well as distribution gains on new products. Quest snacks, chips, cookies and confections performed extremely well with retail takeaway in Q1 up 76%. Retailer and consumer demand for these products remain strong and represents about 26% and growing of the Quest business in Q1.

The majority of the Quest shake distribution gains occurred in calendar 2020 and is a slight headwind as we make our way through the remainder of the year. Quest bars declined 8% in Q1. And better than the bar segment, which was off low double digits. As mentioned previously, bars have been impacted by lower on-the-go consumption occasions. As I stated earlier, Quest's e-commerce business continues to do well with retail takeaway up 60%. Our business in Amazon continues to excel with similar growth rates for bars, chips and cookies.

As we move into Q2, we anticipate that retail takeaway will continue to be solid and that will outpace the category. E-commerce will remain strong. Chips, cookies and confection distribution gains will be a benefit and new year seasonal merchandise will be greater than last year. However, similar to Atkins, we remain cautious about consumer seasonal participation given the recent surge in COVID-19 cases. Additionally, Quest retail takeaway comparisons in the year-ago period, up 26.8%, are strong partially due to last year's shake launch.

In summary, we're pleased with the better-than-expected start to fiscal 2021 despite the ongoing challenges of operating in the COVID-19 environment. We exceeded our estimates, driven primarily by strong e-commerce growth, retail takeaway that was better than our expectations and the timing of shipments related to the seasonal inventory build by certain retailers. We're encouraged by our improving marketplace trends, and confident we'll outpace the category. Although in the near term, it could be challenging given the increase in COVID-19 cases across the U.S. We'll continue to engage with consumers and be flexible in our approach to brand investment to drive growth as we execute against our strategies to drive sales and earnings during the fiscal year.

Now I'll turn the call over to Todd, who'll provide you some greater financial details.

Thank you, Joe, and good morning, everyone. Let me start with 2 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 November 30, 2019, versus the 13 weeks ended November 28, 2020. Second, given our asset-light, strong cash flow business model, we evaluate our business performance on an adjusted basis as it relates to EBITDA and diluted earnings per share. We have included a detailed reconciliation from GAAP to adjusted historical items in today's press release. We believe these adjusted measures are a key indicator of the true underlying performance of the business.

I will begin with a review of our net sales. Total Simply Good Foods net sales increased 51.9%, driven by the Quest acquisition. Specifically, Quest's net sales increased $78.7 million to $95.8 million, a contribution of 51.7% to total Simply Good Foods' first quarter net sales growth. Recall, we only owned the business for 24 days in fiscal Q1 2020, so the majority of the increase in this quarter is driven by the acquisition. Atkins net sales increased 2.2% and was a 1.9% contribution to total company growth, driven by strong e-commerce performance, solid international growth in Australia, driven by increasing velocities of existing items, distribution gains and innovation and the timing of shipments related to the seasonal inventory billed by certain retailers. We estimate that these factors contributed about 2 to 3 percentage points each to Atkins' growth. These gains were partially offset by softness in measured channels.

As Joe mentioned, Atkins IRI measured channel retail takeaway in the first quarter was off 5.7%. The divestiture of SimplyProtein on September 24 was a 1.7% headwind. As previously stated, the divestiture of SimplyProtein and the exit from Europe is about a 2% headwind to both the first half and full year fiscal 2021 net sales growth.

Now for a review of first quarter results across other major metrics. Gross profit was $94 million, an increase of $31.8 million or 51.2% versus last year. The increase in gross profit was primarily driven by the Quest acquisition. Gross margin was 40.7% in the first quarter of fiscal 2021, a decline of 20 basis points versus last year due to a full quarter impact of the lower-margin Quest business and unfavorable mix. Gross profit in the prior year was affected by a noncash $2.4 million inventory purchase accounting step-up adjustment related to the Quest acquisition. Recall the noncash inventory purchase accounting step-up was a 160 basis point headwind in the fiscal first quarter of 2020.

Adjusted EBITDA increased 53.2% to $48.7 million, driven by the increase in gross profit, partially offset by a 36.7% increase in selling and marketing expenses, primarily due to the inclusion of Quest. For the full year, the company continues to anticipate that marketing will increase at least in line with organic sales growth. General and administrative expenses increased $7.3 million as a result of the inclusion of Quest and integration costs, restructuring expenses and stock-based compensation totaling $4.9 million.

Moving to other items in the P&L. Interest expense increased $3.4 million to $8.4 million, due primarily to a full quarter of Quest-related acquisition debt. Our effective tax rate in the first quarter was 27.1%. As a result, net income in Q1 was $22.5 million versus a loss of $4.8 million in the year-ago period.

Turning to EPS. First quarter reported EPS was $0.23 per share diluted compared with a loss of $0.05 per share diluted. Impacting reported EPS includes depreciation and amortization expense of $4.5 million, higher versus last year due to the inclusion of Quest; stock-based compensation of $1.1 million; integration costs of $1.2 million; and restructuring expenses of $2.5 million.

Meanwhile, adjusted diluted EPS, which excludes the items just mentioned, was $0.29, an increase of $0.07 versus 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. In November 2020, the company paid down $25 million of its term loan. And at the end of the first quarter, the outstanding principal balance was $581.5 million. In the first quarter of fiscal '21, combined cash flow from operations and proceeds from the sale of SimplyProtein was about $21 million. As of November 28, 2020, the company had $91.5 million of cash and the trailing 12-month net debt-to-adjusted EBITDA ratio was 2.9x. Capital expenditures were nominal in Q1. However, we still expect $5 million to $6 million of CapEx in fiscal 2021, driven primarily by equipment for our new warehouse. Our outlook this year for interest expense remains unchanged at approximately $30 million.

I would now like to turn the call back to Joe for closing remarks.

Thank you, Todd. As consumer mobility increases, we expect the growth rate of our business to improve. We have a portfolio of brands aligned with consumer mega trends of both health and wellness, convenience and on-the-go nutrition. Additionally, consumers continue to express that high-protein, low-carb and minimal sugar important attributes were making snacking decisions. As such, we feel good about our long-term business prospects. Our business is performing well and improved month-to-month in the first quarter, driven by the growth of confections, chips and cookies, which are more often consumed at home.

A return to more normal consumer shopping behavior is on the horizon, given the multiple vaccines that are now being deployed in the U.S. However, at this point in time, it's difficult to predict when this will occur. Therefore, the unknown duration of reduced consumer mobility could continue to pressure bar usage occasions and trips in the mass channel through the balance of the fiscal year. As a result, it remains difficult to provide the full year fiscal 2021 outlook at this time. Given our better-than-expected first quarter results, we've updated our outlook for the first half of the fiscal year. Assuming U.S. consumer movement restrictions remain at the current levels, we now anticipate net sales of $455 million to $465 million and adjusted EBITDA of $85 million to $90 million. This includes a 2% headwind to net sales growth related to the SimplyProtein divestiture and Europe exit that Todd mentioned earlier.

Additionally, we reaffirm our expectation that full year gross margin will be about the same as last year and adjusted EBITDA margin should increase. We have an advantaged asset-light, variable business model that enables strong cash flow from operations that provides us with financial flexibility. We are executing against our strategies and are well positioned for long-term sustainable net sales and earnings growth that we expect will create value for our shareholders.

We appreciate everyone's interest in our company and now are available to take your questions.

(Operator Instructions) Our first question comes from the line of Brian Holland with D.A. Davidson.

Congrats on the strong quarter here. I wanted to ask a couple of questions about the Quest business. I think you were surprised as you acquired the business, kind of the expandability of it, kind of the performance in some of these adjacencies that were rolled out. Clearly, that appears to continue to be a catalyst. As we see bars as a category sort of underperform, how quickly and how much of a focus is expanding into the chips, the cookies, some of the frozen products, et cetera, the adjacencies for Quest that seem to be doing quite well?

Yes. Brian, it's a good question. I think, first of all, we had high expectations of the Quest business when we bought it, and it has exceeded our expectations over the last year. The question you're asking about is around the balance between the protein bar business at Quest and the all other forms. And I think it's important that we stay focused on ensuring that the bar business continues to recover and starts growing. And the metric I would point to is, unlike the Atkins business, the Quest business overall brand awareness is still relatively low. For the most part, most households in the United States are not familiar with the -- or the Quest brand.

So the job from a brand standpoint is to continue to build brand awareness and get the brand better known. The easiest avenue to do that is through the protein bar business, which is the largest, most important part of the business. So you would -- you should expect us to continue to focus on that.

That said, alternative forms, especially right now when at-home consumption is more important, is an important component to the brand. So focusing on the chips, the cookies and now the confections on that business helps us introduce the brand, build brand awareness and drive consumption in at home. So I think you should see us continue to balance between those 2 things because we believe that there's upside growth in the bar form as well as the alternative forms.

Understood. Appreciate the color. And then just one other follow-up there on the Quest business. Can you just remind us, it started from a lower gross margin base product mix, et cetera, how -- where we are in the integration of that asset and thinking about the synergies flowing through this year? And any change as far as opportunities there to take cost out of that business or get those margins back up comparable to legacy Atkins?

Yes. So this is Todd. The margins are -- we're seeing improvement on the Quest side. They are definitely getting a bit closer to the legacy Atkins business. So we're probably about 2 points below from a margin -- gross margin perspective. Some of the synergies have kicked in from a logistics standpoint, some of the -- we're starting to see some of those benefits. We have a number of other projects from a supply chain perspective that will kick in later in the year. So I think we'll continue to see some progress against those gross margins.

Again, just the business channels that it's in, some of the forms that are in long term, it's probably always going to be a little bit less than legacy Atkins, but we're definitely making some progress.

Just as a follow-up to that, given the size of the bar business in both of the brands, it is -- it tends to be the more profitable form from a company standpoint. So driving bar performance over time is a margin-enhancing opportunity for the company.

Our next question comes from the line of Jason English with Goldman Sachs.

Congrats on the improving sales momentum throughout the quarter. I guess, let's pick up where you just left off on margins. Looking out to 2Q, I get that 2Q is sequentially always a bit of a margin step-down from 1Q, given seasonality. But Quest is in the prior year base, why are we going to flip to so much margin compression year-on-year, at least based at the midpoint of your guidance?

Yes. I don't think we're going to have a lot of margin compression from a Q2 to Q2 perspective. We'll have potentially a little bit depending on where the product and channel mix comes in. But I think the margins should be relatively in line with last Q2. From Q1 to Q2, as we talk about, Q2 is always the lowest gross margin and EBITDA margin quarter for us because of the heavy intensive merchandising that occurs in this quarter. But year-over-year, we should be fairly similar.

Are you referring to gross margin or EBITDA margin?

I'm referring to gross margin.

Okay. I think your guidance, and maybe I need to go back and check my math, but at the midpoint of your guidance for the first half, and obviously, we can back out 1Q, implies that EBITDA margin would be down year-on-year. Is there something happening to the value of the P&L, like stepped-up SG&A? Or maybe it's just -- maybe I need to see to go back and check my math.

Yes. Slight increase in the SG&A rate is what we're projecting a little bit on the marketing side. So we're going to see a little bit of a bump up in marketing. We will see G&A as a percent a little bit higher. We just have some projects going on there, which will have some increase. And from quarter-to-quarter here, it always bumps up in the second quarter as the start of the new year. We get pay increases. FICA taxes start to kick in again. So G&A always tends to be a bit higher in Q2 as well. So again, gross margin should be similar. EBITDA margins may be a little bit lower, but no significant changes.

Okay. And with most of the shelf resets either behind you or good visibility to them, can you give us an update on how you believe your share of shelf has changed?

Yes. Jason, we had a good fall reset season so far, early returns, right? The legacy consumption, but for the most because consumption then gives you visibility into TDP growth. So both brands growing TDPs in the high single to low double digits on a percentage basis. So we did pretty well.

Now you got to -- it all comes down to how productive those items are and how incremental those items are to really understand the impact on consumption. So we need January, February, March to better understand that. As you know, November, December are low consumption months. And so you don't want to read too much into early reads. But for the most part, most of our new products, offtake has been pretty positive early. We want to see a little bit more data before we feel good about that.

Our next question comes from the line of Chris Growe with Stifel.

Nice quarter there. I just had a question. Just had a follow-on to Jason's question. As I think about -- you had some nice shelf space wins. Thank you for the -- quantifying the TDPs there. I'm just curious to how you define the competitive situation in your categories and what you're seeing from other big brands have you competing with Atkins and Quest. And if I could also add to that or get maybe a good perspective on kind of the new products and how those are contributing to your sales growth. You've got a pretty good new product lineup. Is there sort of incremental contribution you could help define from those new products?

Yes. Talking about ourself first, still really early innings from a consumption of new items. So we just look at kind of week-to-week velocities, offtake appears to be pretty good. So the peanut butter cup, the lemon bar on Quest both performing well. On Atkins, the iced coffee shakes and the Endulge dessert bars, all off to pretty good starts. But again, November, December are typically soft consumption months, so you don't want to read too much into that. But overall, we feel pretty good about the start.

It looks like, and I'll steal a little bit of Jason's theory. But I think retailers are coming back kind of in a COVID environment supporting bigger brands that appear. So in our category, it looks like Premier has done pretty well. Clearly, Atkins and Quest have done pretty well. I don't -- haven't really looked at the bar set. Appears that Kind has done pretty well most recently from a bar standpoint. So it looks like maybe retailers have invested in leadership brands in order to drive the category kind of in this -- kind of COVID environment. I want to see a little bit more data before I form a stronger opinion than that. Consumption, obviously, becomes more important than just looking at shelf space.

And I just want one other follow-up, which is in relation to the channel performance. Are you seeing a stronger performance in the mass channel versus, say, grocery? And does that relate to retailers getting behind some of these big brands? Is that going to help at a large retailer, for example, kind of help to push your performance there?

Yes. During the quarter and in the early part of Q2, in general, mass got a little bit better, so steadily improved their performance, I think, based upon the fact they got behind the bigger brands and their consumption improved. So in general, our business got better in mass. In general, mass business relative to other channels got better. So we saw kind of steady incremental improvement, even the bar business in mass got a little bit better. So I think coming out of the fall resets, mass in general improved their position. And obviously, they were weak in market share for a while. They're starting to move in the right direction. And that's obviously, given our development in mass, that's important to us.

Shopper traffic got a little bit better, but we didn't see significant improvements in shopper traffic yet. We haven't seen that yet. And obviously, with kind of COVID cases spiking as we close the year and entering the new year, I think that will be one of the headwinds that we want to keep -- continue to keep our eye on.

Our next question comes from the line of John Baumgartner with Wells Fargo.

So I guess going back to Quest and the peanut butter cup specifically. Still very early days, but the Nielsen takeaway looks very good. It looks like annualized is running around $9 million or so. So I'm wondering, Joe, if you could speak to the launch, what sort of expectations you have for ACV as F '21 progresses moving outside of target?

And then also, how aggressive are you with this product in e-comm nonmeasured channels? And how do you expect the marketing and distribution push will compare coming out of the gate relative to the cookies when they launched a few years ago?

Yes. Actually, I haven't looked at it relative to cookies. I think in general, peanut butter cups will build faster just because of the organization that's now driving it, right? We -- legacy SMPL organization, probably a little bit faster than building food, drug mass distribution. And historically, within a year, 12 months of launching a new product, we can get it pretty close to 50% ACV through drug mass. So I wouldn't -- I think that's a reasonable target from a 12-month standpoint. It is performing exceptionally well in e-commerce. And it's -- we have pretty high expectations.

Confections is a different use occasion, different need state than the existing business. It has proven -- and peanut butter cups in general has proven to be, whether it be on Atkins or on SlimFast, to be a pretty compelling item. So we have pretty high expectations for it, and it's off to a pretty good start. So we're very optimistic about it. And again, it ties back to use occasion need state, and it brings in new consumers to the brand because it's just -- it's a different type of product and appeals to a different consumer so we're pretty optimistic. And yes, I'm sorry, I don't have that comparison to cookies. I'd have to go back and look at the build-out from the legacy Quest business. I expect we'll do better, frankly.

Yes. Just one follow-on to that. I mean, it's doing -- it's off to a really strong start in C-store as well. C-store team has done a really nice job getting distribution. We'll continue to get distribution. It's a fantastic single-serve item. Not something we don't have a lot of history with on the Atkin side, but it has the potential to be a very large C-store item for us as well.

Okay. Great. And then just to follow up briefly on the shelf sets. Obviously, autumn was the big shelf reset period for you, very, very successful. Not to get ahead of ourselves, but as you kind of think across the next 12 months, the resets that still have yet to come in the market, was there anything discrete that benefited you in this August reset period that may suggest future resets may not be successful? Or do you think between new innovation coming through, the marketing ramping here in January be more promotion, not shelf into kind of beach season that you can kind of sustain this resettlement as the rest of your retailers kind of come forward here?

So your question is right after I got my reset in the fall, you want me to project what the spring looks like. So look, we feel we could -- you know we don't like to talk about what might happen in our business going forward. We feel really good about our product pipeline. We said that before this reset. I continue to like the innovation that's coming on both brands. We feel good about our position from an innovation standpoint. And after all, it's the ideas that you have and the ability to attract consumers that attract customers to want to add our items.

I think that -- I think there appears to be a move to drive leadership brands in order to drive the category. So that appears to play to us and that we've got 2 of the bigger brands in the set, so I feel good about that. But we're still in early innings of a fall reset. Let's see how that performs in January, February, March before we start declaring victories in March, April and May.

Our next question comes from the line of Faiza Alwy with Deutsche Bank.

Congratulations from me also. So I just -- I wanted to get some perspective on the back half, even though you're not providing an outlook. But if I look at your results this quarter, you weren't actually that far away from what we were expecting a year ago in this quarter on the top line and actually better on EBITDA. So it seems that in some ways, you've been able to offset on-the-go weakness by accelerating these other forms that we've been talking about and maybe even accelerating e-commerce. So just wanted to get a sense from you, how would you frame the uncertainty or the risks and opportunities of when things hopefully normalize in the back half, especially in light of easy comps?

Yes. So -- wow, great question. To tell you the truth, we haven't given much thought to the second half of the year at this point. I'll talk to it as -- from a perspective of brand by brand. If you look at the Atkins business, the 20 -- fiscal year 2020 softness was almost exclusively driven by our inability to grow new buyers at the rate that we were accustomed to. And if you then multiply their volume and put into the business in the second half of the year, that was our miss from a volume standpoint.

Probably the most encouraging thing in the first quarter was Atkins grew new buyers for the first time since the pandemic. That's a very encouraging sign. That means people are engaging, to some degree, back in the category and back into the brand. The opportunity in the quarter was buy rate. So we just didn't drive as much buy rate, and that has to do with the large component of our business in bars and the away-from-home consumption element of bars. I think if I would summarize on Atkins the second half of the year, there's 2 simple questions. Can we continue to bring new buyers to the brand at the rate we saw in the first quarter? And then can we improve on the buy rate? And obviously, that's the big uncertainty, both from a new buyer as well as a retained buyer. We can get the buy rate back up. I think we can have, obviously, a good back half of the year. And I want to see a little bit more data. It's a little dangerous to read a quarter of data from a panel buy rate standpoint, which is a little dangerous because it's just not a lot of data at this point. But that's how I would characterize Atkins, right? Can we get buy rate up? Can the bar start to improve? And can we get back closer to historic numbers?

On Quest, I think the one comparison in Quest is prior to COVID, the business started to step up its growth in the second half of the year. And obviously, COVID slowed that down for a bit. But we saw more aggressive comps on Quest. So can we continue? And then obviously, a big bar business, buy rate on Quest becomes really important. Can we grow through the challenges and away-from-home consumption? So for us, the big metric in the second half of the year is going to be what's mobility look like? How does it impact bars? And then how does that impact buy rate on both businesses as we go forward?

I think the other metrics that we can control, which is share of shelf, marketing, media investment, I think we'll do the right things there. The overhang will be how does the vaccine roll out? How does it improve mobility? And then how quickly does the away-from-home consumption come back to the 2 businesses?

Great. And then as I think about sort of, again, these other forms, I mean, it doesn't sound like that's where the concern is. Like it seems that you can continue to grow that business. You're not worried about the sustainability of trends in those forms even as mobility increases. Is that the right way to characterize this?

Yes, they tend to be, and particularly chips and confections tend to be more at-home consumption. So less affected by the pandemic. There's white space on both of those forms. So we have the ability to fill out white space. Consumption continues to be good. The job in Quest is to build brand awareness, consideration and trial. Again, from a 2-business standpoint, if you just step back and look at the marketing challenges on Atkins, everybody is aware of the brand, the job is to change their perspective of what the brand stands for. The job on Quest is to create brand awareness. It's still relatively low. We have a big loyal consumer group on Quest, but still relatively low brand awareness outside that group.

So your marketing pressure, we continue to build awareness consideration and trial on that business, right? I'm trying to remember the unaided brand awareness, I don't think it's over 20% on Quest. So lots of opportunity on Quest to build awareness. All the forms matter, right? Bars matter as do the other forms. So we tend to define the issue much more from a consumer standpoint than a product and form standpoint. Got to build brand awareness on Quest. Got to continue to change people's points of view of what they believe on Atkins in order to grow household penetration. The products clearly help us to do that because they attack different need states and use occasions, and that helps us.

Our next question comes from the line of Alexia Howard with Bernstein.

So can we ask about pricing dynamics, particularly on the bars business. We only get visibility into the measured channel data, but would I be right in thinking that you probably did have a pricing benefit as the net pricing line earlier in the pandemic perhaps because of a pullback in promotional activity? And I'm just wondering, with the step-up in merchandising on -- particularly on the Quest side of things, is that going to lead to declines in pricing year-on-year as we look out through the course of 2021? And then I have a follow-up.

Yes. I mean, the pricing benefit that we got from the pandemic was actually fairly short-lived. If you remember, we talked about on the last couple of calls, retailers in our Q3, in that March to May time period, retailers really pushed out or cut promotional activity just to reduce the complexity in their stores. A lot of those fell into Q4. So we saw some price realization benefit, lower volume. But price realization benefit in Q3, that kind of flipped on the other side in Q4.

Q1 of this year, kind of normal. We didn't see much of a change. We don't -- we kind of have similar merchandising activity here in Q2 as well. So it was really just a short-term March to May time period for us where we got that price realization. So as we lap Q3, yes, we'll probably see higher trade rate in Q3, assuming mobility is okay and maybe a little bit of benefit in Q4 as we don't have as much as we kind of push together a bunch of activity in Q4. But right now, it's pretty normalized.

Perfect. That's super helpful. And then the second question is really around M&A. And now that your leverage is down below 3x. I know that was a goal you're choosing for, perhaps you now have an increased appetite to look for possible deals. And what would the criteria be for any future that you might look at?

Yes. With leverage improving with the integration, mostly, not completely all behind us and synergies on track, we have started to -- we've popped up and started looking at possible assets. Again, we like the category we're in. We search for assets that fit our supply chain and fit our front-end customer standpoint. We like branded, strong consumer branded businesses that have shown the ability to attract users. So we tend to look at our business from a consumer brand standpoint first. And I think the only criteria that may have shifted over the last year or so is size. We're probably looking at assets that are above $75 million to $100 million in revenue. So we went -- it's challenging when you have 2 businesses as big as we are to nurture smaller brands. So we're probably looking at assets that are a little bit big-ish in size so that in the portfolio, it's meaningful and we can focus on it. So -- and that was obviously one of the reasons we divested SimplyProtein, just it -- we would be size challenged from an organization standpoint. So yes, we are up and looking at assets right now, and those are the kind of criteria that we think about.

Our next question comes from the line of Ryan Bell with Consumer Edge.

E-commerce has become an increasingly important part of your business. Would you be able to give some context about the share of Atkins and Quest within the space and maybe some of your perspective about it going forward?

Yes, I'll take that one. So from a share of business, Quest -- for both businesses, it's been accelerating. So it's 20% to 25% of the business for Quest. As Joe said in his opening remarks, it's close to 10% right now on the Atkins side. Both businesses doing exceptionally well, and we anticipate that will continue to increase over time.

Okay. That's helpful. And would you be able to discuss any consumer work that you've done about how much or how little consumers have focused on weight management during the pandemic? And maybe any forward-looking thoughts on that and whether or not that's maybe impacted your marketing efforts around the new year's resolution period?

Yes, it's a great question. It's one question we ask ourselves a lot. The -- probably the metric that I would point to right now is the new buyer growth in the first quarter on Atkins was encouraging, right? Because the concern that we had is while on average, people have gained in the U.S., adults have gained about 12 pounds during the pandemic. There hasn't been the trigger point to get them to start acting on that. It clearly didn't occur like we thought it would be at back-to-school. We're kind of hoping and merchandising and marketing as if it's going to happen in January, February, March. So I think that, that will be, I think, the important key. When do people kind of reengage to start making lifestyle changes in order to get that part of their life back under control? So the household penetration, the new buyer data would suggest people are more engaged than that. It will be interesting to see how it plays out in January, February, March.

That's helpful. And one last one for me. I believe you may have mentioned this in your prepared remarks, but could you talk about the sell-in versus sell-out dynamics versus 1Q -- during 1Q rather?

Sorry, could you ask that question again? Are you talking about inventory? Or are you talking about sell-through consumer dynamics?

So the sell-in versus the sell-out dynamics during the quarter.

So we picked up, because of our positive benefit from the shelf resets, we got a nice little pipeline fill from that. That kind of offset, if you remember, we had some -- back-to-school time period brought some revenue into Q4 of last year. We thought that was going to be about a 2-point headwind to Q1. The reset timing and how well we did kind of mitigated that piece of it largely, that was kind of an offset. So that was a nice benefit for us in the quarter. And as we talked about, we did have some seasonal shifting between November, December versus the prior year. And that's helped us by about 2 points.

Ladies and gentlemen, our final question this morning comes from the line of Rebecca Scheuneman with Morningstar.

Congratulations on the good quarter despite the difficult environment. So thank you for the insight on the 12-pound gain on average during the pandemic, I was wondering about that. I'm also wondering if your consumer insight data shows anything that could point to habits that have potentially changed permanently that could make weight loss look different when we emerge from the pandemic? For example, home-cooked meals have become more prevalent. I'm wondering if there's any way that might potentially dampen demand for meal replacement shakes and bars.

Yes. I don't have data that would suggest that the habits and practices that people have formed during the pandemic is going to change that. I just have observation that as mobility has improved, so has the consumption of our business. So I think that, that is probably the big debate going on in food companies with larger food companies trying to convince folks that meals are going to come back in vogue and moms are going to continue to cook. I just happen to think that, frankly, convenience is always going to be an important consumer benefit that our lives, whether we like it or not, it's going to become hectic and time-challenged as they were before and on-the-go nutritional consumption is going to become ever important, right? I just don't think -- I just don't think that all of a sudden, we're going to return to the 1950s or 1960s when it comes to eating meals.

If you look at millennials, they actually almost don't see a difference between snacking and eating meals. In fact, they don't even -- they don't even see them as meals. So they're snacking as everyday eating just as they see a meal. It's almost seamless between the 2. I don't think that's changing either, quite frankly. So I'm pretty optimistic that -- just in our own behaviors as a business that when the pandemic's behind us, we're going back to the office because it's not as efficient to operate remotely. And with that will come a lot of the habits and practices that we had prior to the pandemic. My guess is that's going to be more true than not. And so we're pretty optimistic as that mobility improves so our business and so our bar consumption and that mass shopping behavior will go back to more norms.

Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Mr. Scalzo for any final comments.

Yes. Thanks again for your participation on our call today. We hope you continue to remain safe, and we look forward to updating you on our second quarter results in April. I hope everyone has a happy and safe day. Thanks. Bye.

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