The Simply Good Foods Company Q3 2026 Earnings Call - Turnaround in Early Stages as Quest Gains Ground While Atkins and OWYN Face Distribution Headwinds

Operator: Greetings, and welcome to The Simply Good Foods Company third quarter fiscal 2026 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the call over to your host, Matt Siler, Vice President, Investor Relations and Treasury. Please go ahead.

Matt Siler, Vice President, Investor Relations and Treasury, The Simply Good Foods Company: Thank you, operator. Good morning and welcome to The Simply Good Foods Company’s third quarter fiscal year 2026 earnings call for the period ended May 30th, 2026. I’m joined this morning by President and CEO, Joe Scalzo, and Chris Bealer, Chief Financial Officer. A copy of our earnings release and accompanying presentation is available on the investors section of the company’s website at thesimplygoodfoodscompany.com. This call is being webcast and an archive of today’s remarks will be made available. During today’s call, management will make forward-looking statements which 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 in the company’s SEC filings.

On today’s call, we will refer to certain non-GAAP financial measures that we believe provide useful information for investors. Due to the company’s asset-light business model, we evaluate our performance on an adjusted basis as it relates to EBITDA and diluted EPS. Please refer to today’s press release for a reconciliation of our non-GAAP financial measures to their most comparable measures prepared in accordance with GAAP. Finally, all retail takeaway data included in our discussion today, unless otherwise noted, reflects a combination of Circana’s MULO+C measured retail channel data and company estimates for unmeasured channels for the 13 weeks ended May 31st, 2026, as compared to the prior year. I will now turn the call over to Joe Scalzo.

Joe Scalzo, President and CEO, The Simply Good Foods Company: Thanks, Matt. Good morning, everyone. Thank you for joining us today. This morning, I’ll recap our third quarter results and then provide you with some perspective on the performance of our brands, as well as an update on our progress toward our turnaround objectives. I’ll turn the call over to Chris, who will discuss our financial results and our updated outlook in a bit more detail before we open it up to take your questions. In the third quarter, our results came in ahead of our expectations. While we’re not satisfied with our overall performance, the quarter reinforced our belief that the actions we are taking are the right ones. We are ensuring organizational focus, improving execution, and strengthening the economic foundation of the business.

As we discussed on our last earnings call, our overall performance remains well below where we believe this business should perform, with each key financial metric declining meaningfully versus the prior year. Importantly, we remain in the early stages of our turnaround and have significant work ahead. Net sales declined 6.3% to $357 million. Gross margin declined 390 basis points to 32.5%, and adjusted EBITDA declined 22.5% to $57.2 million. Quest and OWYN net sales grew 1.1% and 3.6% versus prior year respectively, and both brands performed slightly better than we expected. We continue to see encouraging momentum in some parts of the portfolio, particularly Quest chips and milkshakes. Atkins net sales declined 24.6% in the quarter, reflecting continued pressure from declining household penetration as a result of insufficient marketing support behind the brand. Our retail takeaway declined 6.7% during the quarter, essentially unchanged from the second quarter.

The purposeful nutrition category grew 10% during the same timeframe. As I have spent more time inside the business, it’s becoming increasingly clear to me that our challenges are largely execution driven rather than category driven. Purposeful nutrition remains an attractive category supported by favorable long-term consumer trends, and retailers continue to view the category as an important source of growth. Importantly, these execution challenges are within our control to fix, and the actions we are taking are designed to address each of them directly. Against that backdrop, we remain focused on three priorities that will determine the success of our turnaround. One, strengthening the economics of our business. Two, ensuring consistency and discipline in strategic choices, driving organizational clarity, focus, and efficiency. Three, rebuilding brand investment behind superior consumer insights and marketing execution.

We are making progress on each, although we are still in the early stages of the work. First, we are strengthening the economics of the business by improving our cost structure and rebuilding margin health. Remain disciplined in managing our cost base and are executing against the structural actions we previously outlined. On pricing, we are taking the actions needed to offset inflation and other cost pressures. In addition, our productivity initiatives are gaining traction and are expected to provide benefits as we move forward. Given the significant cost inflation we are experiencing this fiscal year and believe will continue into the next year, we recently announced a high single-digit price increase across most of our portfolio that will become effective in September. This increase is necessary to offset inflation we are experiencing across proteins, packaging, and other key cost inputs.

While we remain focused on productivity initiatives and cost reduction efforts, rebuilding margins requires decisive action on pricing, and we believe this increase is appropriate. Second, while still early, we are beginning to see signs that the organization is operating with greater focus and accountability. Decisions are being made faster, priorities are clearer, and resources are increasingly concentrated behind fewer, higher return opportunities. We believe our better than expected financial performance in the quarter is early evidence of our progress. Third, we are revamping our brand-building capabilities through stronger consumer insights, more effective marketing, and using ROI as our key metric in making future investment decisions. As an example of the progress in this area, we were already shifting investments towards top of the funnel streaming and connected brand media investments to drive higher returns and strengthen our brand metrics.

Additionally, we just completed a thorough assessment of GLP-1 therapies and their impact on consumption behaviors that provided us invaluable consumer insights to guide our marketing and innovation efforts moving forward. With that, let me turn to an update on each of our brands. Turning first to Quest. Quest remains our largest brand and most important growth engine of the company. In the third quarter, Quest retail takeaway grew 1.4% compared to 2.4% growth last quarter. Importantly, household penetration increased 120 basis points year-over-year to 20.5%. The most important takeaway is that Quest continues to recruit consumers, demonstrating that the brand remains highly relevant. Our challenge today is to refocus on our core bar and chip segments that represent 80% of the brand while improving buy rate, particularly within bars. Within Quest, chips continue to perform well as consumers increasingly seek better for you salty snack alternatives.

Quest chips consumption grew by over 17% in the quarter, and household penetration for Quest chips is now approximately 11%. This remains a strong example of where the brand is aligned with consumer demand and where focused investment can continue to drive growth. We see encouraging signs across pockets of our recent innovation. We’re seeing strong growth in our milkshake segment, which was up almost 50% in the period, albeit from a small base. This is another example of our ability to grow the brand when closely aligned with evolving consumer demand. At the same time, we’re not satisfied with the recent performance of our bar business. Despite an incremental club rotation that began during the quarter, bar consumption declined by roughly 5%, which impacted total brand buy rate. Re-accelerating growth in Quest bars is our highest priority.

Our work is focused on improving top of the funnel communication, ensuring our innovation pipeline reflects evolving consumer preferences, and supporting the bar segment with an appropriate level of marketing investment. During the quarter, we hired a new marketing agency on Quest with a single-minded objective of improving brand message to our key target consumer group by reasserting our superior nutritionals and taste across the entire brand portfolio, and most importantly in our key bar segment. Moving to Atkins. Atkins retail takeaway declined 23.9% in the quarter compared to a decline of 23.4% last quarter. Declining household penetration leading to distribution losses continue to be the main drivers of the decline. Total brand household penetration currently stands at 8.5%, down 220 basis points from last year. Consistent with what we said last quarter, there are also broad brand factors we are addressing.

Atkins has not received the proper level of marketing support. Messaging was less consistent and moved away from the brand’s core weight management proposition, and the ability to recruit new consumers weakened, which led to slower velocities. Our focus now is on resetting the retail baseline and managing Atkins in a more disciplined, fact-based manner. Many of our retail partners continue to view Atkins as a relevant brand with a meaningful base of loyal heavy buyers. Importantly, we do not believe Atkins needs to be a different brand. Rather, it needs to become a better executed version of the brand consumers have trusted for decades. We believe that Atkins can play a meaningful role in a GLP-1 world with consumers seeking weight management benefits. Of note, Atkins consumption was more consistent during the quarter on a weekly run rate basis.

As we move into the fourth quarter and into next year, Atkins comparisons become more favorable as we lap household and distribution losses during the prior year. This is very consistent with our second turnaround priority, remaining consistent in our strategic choices. For Atkins, that means restoring clarity around the consumer proposition, being disciplined about where we invest, and rebuilding the brand from a stronger, more focused foundation. Turning to OWYN. OWYN retail takeaway declined 1.3% in the third quarter compared to a decline of 2.4% last quarter. Total brand household penetration currently stands at 4.3%, flat year-over-year. As we reported last quarter, the combination of a product quality issue and ineffective marketing execution negatively impacted performance on a number of OWYN products. We have addressed the product issue, but do expect distribution losses over the next six to 12 months because of poor marketplace performance.

With that said, we continue to believe OWYN has meaningful long-term potential. Importantly, our confidence in OWYN is based on the underlying consumer proposition, not on recent execution. We believe the challenges we are addressing stem primarily from integration and execution issues rather than a lack of consumer demand for clean label plant-based nutrition. Our consumer research continues to indicate there is a significant and growing audience seeking functional nutrition benefits such as plant-based protein and clean label ingredients. Looking ahead, our priority is to complete the distribution reset and refocus OWYN growth on core ready-to-drink and powder business. Before I turn the call over to Chris, I’d like to leave you with why I remain confident in the future of Simply Good Foods, despite our current performance challenges. Simply put, I believe our category remains attractive and our brands remain relevant, and our challenges are fixable.

First, we operate in an attractive category supported by long-term consumer trends around health, wellness, and convenient nutrition. These trends remain highly relevant and retailers continue to view purposeful nutrition as an important source of growth. In the food and beverage sectors, where any type of growth is at a premium, this category continues to outperform. Second, we have a portfolio of strong brands that connect with distinct consumer segments, and we are confident we can grow these brands longer term. Quest continues to expand its household penetration and remains one of the leading brands in the category. Atkins retains a loyal consumer base and meaningful brand equity, ideally suited to address the needs of GLP-1 weight management consumers. While OWYN gives us access to the growing plant-based and clean label protein segment. Third, we have built strong capabilities in marketing, sales, R&D, and managing an outsourced supply chain.

While we have not consistently translated those capabilities into performance recently, we believe they remain important competitive advantage that can support future growth and value creation. Fourth, our asset-light operating model remains a competitive advantage. It provides flexibility, supports strong cash generation, and allows us to direct resources towards the areas where we see the greatest opportunities to create value. Finally, we continue to maintain a strong balance sheet and substantial financial flexibility, which provides the ability to invest behind our brands, pursue the right strategic opportunities, and continue allocating capital to the best long-term return. Taken together, these strengths reinforce our confidence that we can restore profitable growth and deliver against our long-term financial algorithm. To be clear, we’re not satisfied with our current performance, and there is considerable work ahead.

However, I am increasingly confident that we’ve correctly identified the issues, established the right priorities, and are taking the actions necessary to improve execution, restore profitability, and return the company to sustainable growth. While the turnaround remains in its early stages, I believe we are building a stronger and more valuable company for the long term. I’ll turn the call over to Chris, who will provide more detail on this quarter’s results and our updated outlook for the year. Chris?

Chris Bealer, Chief Financial Officer, The Simply Good Foods Company: Thanks, Joe. Good morning, everyone. As Joe mentioned, our Q3 performance was ahead of our expectations. Specifically, we reported third quarter net sales of $357 million, which declined 6.3% versus the prior year, mainly due to weaker consumption. Adjusted EBITDA was $57.2 million, a decline of 22.5% year-over-year. Gross profit of $116.1 million decreased 16.2% versus last year, largely driven by volume declines, higher input costs, and one-time restructuring costs to streamline our operations. Gross margin was 32.5%, a decline of 390 basis points versus prior year due to the higher input and restructuring costs. Excluding $6.2 million in restructuring costs, gross margin was 34.3%, a 210 basis point decline versus the prior year period, exceeding our forecast driven by productivity initiatives.

Selling and marketing expenses of $39.2 million increased 15.9% versus the comparable year-ago period, driven by investments in our selling capability and increased spend to support longer-term brand growth. Excluding $1.1 million in one-time expenses due to a marketing agency change, selling and marketing expenses increased 12.7%. A portion of this marketing investment allows us to complete a key marketing mix study, which will improve the effectiveness of our future marketing spend. G&A expenses of $40.5 million decreased 1.9% versus the comparable year-ago period. Excluding $6.2 million in restructuring costs in the current period and $5.2 million of integration expenses from the prior period, G&A declined 5% to $34.2 million, principally due to the impact of lower employee costs.

On a GAAP basis, we had an operating loss of $49.9 million compared to income from operations of $59.3 million last year, primarily due to the non-cash loss on impairment of $82 million related to goodwill and the Atkins and OWYN brand intangible assets. Net interest expense was $5.1 million, while the effective tax rate was 5.4%. Net loss was $52 million, down from net income of $41.1 million last year, primarily due to the impairment I noted a moment ago. Moving to the balance sheet and cash flows, as of the end of Q3, the company had cash of $123.9 million and an outstanding principal balance on its term loan of $400 million, bringing our net debt to trailing 12-month adjusted EBITDA to approximately 1.2 times. The company bought back about 2 million shares in the third quarter.

We have spent approximately $240 million buying back our outstanding common stock over the past 12 months, including approximately $213 million this fiscal year. As of July 9th, 2026, the company has approximately $158 million remaining under its current share repurchase authorization. Year-to-date cash flow from operations was $102.2 million, compared to $133.1 million last year. Capital expenditure was $10.1 million, mainly reflecting the investment to support additional capacity in our salty snacks business that we previously discussed. Finally, moving to our updated outlook, we now expect the following. Fiscal year 2026 net sales are now expected in the range of $1.345 billion-$1.355 billion, representing a decline of 7%-6%. This assumes current consumption trends continue and includes the impact of expected distribution losses. GAAP gross margins are now expected to decline roughly 375 basis points.

This is a result of slightly higher input costs, especially proteins, restructuring costs within our supply chain, and the cost of mitigating the OWYN product quality issue earlier this year. Fiscal year 2026 adjusted EBITDA is now expected in the range of $220 million-$225 million, representing a year-over-year decline of 21%-19% respectively. We expect our Q4 effective tax rate to be roughly 25%. Our expectations on interest expense remain unchanged. We now expect capital expenditures to be in the range of $25 million-$30 million. Given shares repurchased year-to-date, the company expects a weighted average diluted share count of approximately 90 million shares outstanding. As it relates to the fourth quarter, we expect net sales in the range of $322 million-$332 million, which represents a decline of 13%-10% versus prior year.

This incorporates a similar consumption trend as we’ve been experiencing, plus our belief that we will undership consumption. We expect our Q4 GAAP gross margin performance will be our strongest of the year as productivity initiatives provide some relief against sustained inflationary pressure. We expect adjusted EBITDA in the range of $52 million-$57 million, representing a year-over-year decline of 22%-14%. With that, Joe and I will now take your questions.

Operator: Thank you. If you’d like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you’d like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. To allow for as many questions as possible, we ask that you each keep to one question and one follow-up. Thank you. Our first question comes from the line of Peter Grom with UBS. Please proceed with your question.

Peter Grom, Analyst, UBS: Great. Thank you, and good morning, everyone. I was just hoping to get some perspective on the top-line trajectory. I think the quarter itself came in better than most were expecting, the guidance does imply a bit of a weaker exit rate. Can you maybe speak to that? Maybe touch on kind of what we should be thinking about in terms of the gap relative from shipments and consumption? That’s part one. I guess, just as we think about, and I know we’ll get guidance at a later date, but just as we think about 2027, any thoughts around how we should be thinking about the exit rate as well as the fact that you touched on kind of this high single-digit pricing action in September?

Just any thoughts on how we should be thinking about the top-line trajectory and the related pricing as we look out to 2027 would be helpful as well. Thank you.

Chris Bealer, Chief Financial Officer, The Simply Good Foods Company: Thanks, Peter. I’ll take your first question. In terms of Q4, look, consumption, as we said in Q3, was slightly better than expected, and we expect those trends to continue into Q4. Similar consumption in Q4 as Q3 overall. We’ve incorporated those consumption trends, and as we said on the call, our belief that we’re going to slightly undership consumption in Q4 to enter next year with correctly organized and sized customer inventories. Part of the inventory reduction we talked about as well is related to the distribution losses we’re expecting mostly on OWYN. Then from an EBITDA perspective, we’ve updated guidance to reflect the Q3 outperformance and overall improving gross margins. Again, keeping in mind the restructuring costs that we had in Q3 we talked about again on the prepared remarks.

Joe Scalzo, President and CEO, The Simply Good Foods Company: Peter, I’ll talk about the second part of your question, which is about how to think about what’s happening now as it pertains to FY 2027. I thought we’d get at least three questions in before someone asked us about fiscal 2027, here we go. Look, I think we’re in the planning stages for next year, we’re still pulling together the assumptions necessary to get a view of what we think next year looks like, and we’re still obviously executing against this year. There’s still a lot of work in front of us before we have a confirmed view of next year. I think if you just step back, we now have two quarters of pretty consistent consumption change versus a year ago. I think that’s a pretty good jumping-off point as you think about next year. Then you mentioned the price increase.

I just want to step back. We believe the pricing action that we announced this quarter is appropriate for the current economic environment we are facing this year. When I came back to the business, substantial price inflation driven by protein complex packaging costs and other cost pressures. We did talk at the last earnings call that one of our turnaround beliefs was that we will use pricing to offset cost inflation. We expect the inflation we’re experiencing now to continue into the next fiscal year. Again, we think the pricing action is appropriate for the current economic environment. Frankly, not ideal for a turnaround. We’re going to take pricing. We would expect, as we look at fiscal 2027 elasticities to be at one or higher, so there’s going to be a volume impact to our business.

Volume drives household penetration and buy rate, just makes the consumer dynamics of the turnaround that much more difficult. You end up having to look at these situations as short-term pain for long-term gain. For us to be able to compete in this category effectively, we need a P&L that gives us the firepower to invest in marketing, which is one of the issues that we face, structural issues that we talked about last quarter. Gross margins eroding, marketing as a percent of sales going down, overreliance on price promotion, SG&A growing faster than the top line. The first step here is to address the cost inflation issue. As we go forward into next year, we’ll deal with the volume impact of that and the consumer dynamics of that as we work through the year. Did I answer the second part of your question?

Peter Grom, Analyst, UBS: No, that was great. Thank you both for that. Super helpful. I’ll pass it on.

Joe Scalzo, President and CEO, The Simply Good Foods Company: Thanks for that question.

Operator: Thank you. Our next question comes from the line of Matt Smith with Stifel. Please proceed with your question.

Matt Smith, Analyst, Stifel: Hi, good morning. Wanted to come back to the performance of Quest in the quarter. Consumption was down 5%, that included the benefit of a club rotation. Should we think of a deceleration in consumption for Quest in the fourth quarter without that rotation? Can you kind of expand on your view of the performance of the brand in the rotation and distribution expectations for Quest as we move forward?

Joe Scalzo, President and CEO, The Simply Good Foods Company: Yeah. Good morning. Let me talk Quest overall first, because I think it’s important to put bar in relationship to brand. If you just step back, the brand’s been able to consistently grow household penetration in the category. Don’t have a brand relevance issue based on the consumer dynamics. As you look at the business, there are parts of this portfolio doing particularly well. Our salty snack business continues to grow. We have a small but growing shake business with our milkshakes. As you look at the brand, not a brand relevance issue. We have a bar issue which we believe ties to a number of that we face with that business. The first one is our innovation over the last few years, frankly, hasn’t met our own expectations.

I don’t think we saw where the consumer was going, our innovation kind of failed to address the movement of the consumer in what is a pretty dynamic category. That’d be the first thing. Second thing, top of the funnel communication on this business has been less than optimal and not highly supportive of bars. Having to fix the top of the funnel communication and strategy such that it more directly addresses bars is important. Where I think we’ve been missing there is this is a brand that’s always been about superior nutritionals and craveable taste. I think we lost focus on that, we need to get that back. As we look at the investments that we’ve made in the business, just overall, spending less money on top of the funnel on the brand overall has not helped our bar business.

Again, bars is a piece of the business. We got to get back on track, but we’re doing that from the basis of a pretty healthy brand. As you look at what we experienced in the third quarter relative to the fourth quarter, consumption in the third quarter down 5%. We had a bar rotation at a club store, which we’ll continue to consume through the fourth quarter. We’ll see, we think, similar trends on bar and on Quest as we move third into fourth quarter. As we move into the next fiscal year, that rotation burns off, and we’re back to a more steady state consumption business. As we move into 2027, I would expect bars to be a little bit weaker than what we expected in the third and fourth quarter as we move into the next fiscal year.

Obviously, our top priority is to get that back on track.

Matt Smith, Analyst, Stifel: Thanks, Joe. If I could ask a follow-up. You talked about the requirement or one of the priorities for the business is increasing the investment in top of the funnel marketing or maybe marketing overall. You have a couple of changes underway, marketing agency and your marketing mix study. Do you have the ability to confidently increase the investment in marketing today, or are you kind of waiting out for the new messaging to be tailored and the new marketing mix results to come in? I guess, as we look ahead, you talked about some of the pressure in fiscal 2027. Is it waiting to increase the marketing spend, or do you feel confident you can start to pursue that more quickly?

Joe Scalzo, President and CEO, The Simply Good Foods Company: Yeah, great question. I think it’s, first of all, in coming back and fresh eyes in the business, where we’ve been spending the money deserves a hard look. I think first and foremost, there’s a reallocation of investment, right? We were shifting-- On Quest, we actually grew marketing investment, but we’re shifting it down the funnel. Money spent less in top of funnel activities, more down into the funnel, more closer with customers. I think we missed an opportunity there to strengthen our brand proposition, I think. That’s the first thing. Second, we’re going to get the marketing mix back in a few weeks, I’m going to get a sense of ROI, but historically, top of the funnel marketing investment is the highest return we have as a business, right? The shift down the funnel certainly has hurt ROI.

We know we’re going to be shifting mix. Your larger question, which I think is an important one, is more structural, right? I believe this is a business that we’re in a consumer-driven, brand-driven business, where you’re constantly recruiting consumers and driving buy rate. You need marketing firepower to do that, which is a P&L very different than the one I have right now. Gross margins approaching 40%. Marketing as a percent of sales at 10%. EBITDA margins approaching 20%. We’re not there today. We’re just not there today. I want to have the ability over time, with increasing gross margins, to put more money back into advertising to drive our top line and improve our overall brand metrics and attributes.

We’ll use marketing mix to justify even with the shape of the P&L that ideally we want to get to, we’re going to use ROI to justify further investments. That’s true on Quest, and that’s true on any other brand, right? That it’s got to be justified by the investment. My fundamental belief is that if your insights are good enough, your communication’s good enough, and I love the new agency that we brought on on Quest, you’ll have that ability to make those investments. I’m optimistic about the future. We’ve got some work to do right now to get there.

Matt Smith, Analyst, Stifel: Appreciate it, Joe. I’ll pass it on.

Joe Scalzo, President and CEO, The Simply Good Foods Company: Okay, Matt. Good day.

Operator: Thank you. Our next question comes from the line of Jim Salera with Stephens Inc. Please proceed with your question.

Jim Salera, Analyst, Stephens Inc.: Morning, guys. Thanks for taking our question. Joe, you talked about the distribution losses for Atkins and OWYN over the next, call it 6 to 12 months. I assume there’s probably still opportunity for Quest to continue to gain distribution. Can you just walk us through how we should think about the portfolio as a whole, plus or minus on distribution for the next kind of 6 to 12 months?

Joe Scalzo, President and CEO, The Simply Good Foods Company: Yeah. Jim, good morning. I have thought that the organization has been too focused on distribution as a key metric in running the business rather than household penetration and buy rate. We’re a consumer-driven company. How we think about driving our business should be more consumer-centric than distribution-centric. The reason I say that is I’ve been in businesses, this is one of them, where I’ve grown distribution and the business hasn’t grown, and I’ve lost distribution against the backdrop of rapidly growing consumption. I don’t find it to be a particularly predictive metric of your ability to grow the business. If your marketing is working, your innovation is good, and you’re bringing people into your brand, distribution could be a top spin, but I never believed it’s the most important metric. That said, I’ll answer your question.

I’ll talk about OWYN first because I think it’s easy to understand. Post-integration, we did a lot of line extension, non-core extensions on the business, at a time when we were taking control of the marketing on OWYN, and the marketing misfired, and those non-core items didn’t perform well. Those have to come out of the mix, and it’s a majority non-core items. If you look at the underlying core, that’s going to take us, call it 6-plus months for that to work out. Nicely, though, if you look at the core, our 32-gram protein shake business and our powders, they’re already starting to show signs of growth.

Our focus on OWYN is get the marketing back to what works, focus on our core powder and shake business, and start closing the gap between our household penetration, somewhere around 4%, and the universe of people interested in the benefits of plant-based and clean, which is closer to 18%, 19%. That one’s easy to understand. That’s going to happen over the next, call it six-plus months. Atkins, different story, kind of same situation, though. Atkins, it’s a kind of a chicken or an egg what you want to believe. I believe that when I was running this business and we grew it for over a decade, the key driver of it was our ability to recruit consumers, and the key weapon that we had is our ability to increase marketing support.

You pull the marketing back, you stop recruiting consumers, your household penetration shrinks, you lose distribution. We’ve been undoing, over the last few years, what we did to build the business over the previous decade. You have to get back to the fundamentals in Atkins. We’re seeing distribution losses that reset the business at retail in line with our current household penetration. That, you’re going to start seeing as we move through the fourth quarter and into next year, the household penetration is getting flatter, you’re going to start seeing the business start to stabilize. That’s going to happen, call it it’ll start getting the comps get a little bit better in the fourth quarter, as we move through next year, the comps continue to improve. Right?

It’s going to be our job, once we get that reset, can we actually grow household penetration on these brands? Can we find a consumer insight idea, the room in the P&L to make the investment to grow household penetration? By the way, when I ran this company before, the highest return on marketing was Atkins’ top-of-funnel communication. If you just reverse that, pulling it out is the worst decision you could possibly make. Thirdly, we’ve been growing distribution on Quest. We had growth this last year on our bar business. We had growth on our salty snack business. We even grew our baked business. Right? Despite the TDP growth, we’ve seen softening of consumption. I expect we’re going to continue to see a benefit from distribution gains on Quest. I’m not sure that’s the issue on this business.

I think the issue on our business is top-of-funnel communication, innovation on bars that has consumer insight to it, our ability to drive household penetration on the brand over time. Did I address that, Jim?

Jim Salera, Analyst, Stephens Inc.: Yeah. That was exceptionally expansive, and if you’ll indulge me in a small follow-up, just kind of expanding on the conversation related to the household penetration. How should we think about the impact of some of the changes you’re making on the marketing front, whether it’s the messaging or scaling? What’s sort of the timeframe when we should really start to see that flow through to velocity and presumably back to household penetration in a positive way?

Joe Scalzo, President and CEO, The Simply Good Foods Company: Yeah. It’s a good question, and it’s probably the question that keeps me up the most at night, and it’s the magic question. It’s the when question in a turnaround. I caution against thinking about turnaround in terms of a time, a quarter when all of a sudden everything gets better. I’ve been in a few turnarounds. My experience, they happen in stages. Let me try to give you what I think how this thing will play out so you get some sense of what to be paying attention to. The first part of a turnaround is diagnosing the issue, get focused on addressing those issues, improve accountability, execute better, make better decisions, right? That’s the earliest stages. I think we’ve been doing a pretty good job on that. Early stages, more work to do.

Rather than anchor you on a specific timeline, I’d encourage you to watch leading indicators. First group would be, are we being consistent in our choices? You talk to us quarterly, you get to have conversations with us. Are we saying the same things in a consistent basis? Are we executing better? Do we say what we’re going to do and deliver on what we say we’re going to do? A real key one, are our margins improving? We’ve told you we’ve got structural margin issues. Are those getting better over time? Because that provides us the fuel we need to drive our top line. You get to strengthening household metrics. With household metrics strengthening, do you start seeing stability in Atkins? Do you see core performance improving on Quest, right? That’s kind of the sequence.

Once you get to those brand metrics getting better, the brand starting to stabilize and grow, I’m pretty confident the financial results will follow. The when, it’s going to come in stages, it’s going to take some time. My crystal ball’s not that good, frankly. We’re just going to play the hand we got and make it better as we go along.

Jim Salera, Analyst, Stephens Inc.: Great. Well, I appreciate all the detail. I’ll back in the queue.

Joe Scalzo, President and CEO, The Simply Good Foods Company: All right. Thanks, Jim.

Operator: Thank you. Our next question comes from the line of Alexia Howard with Bernstein. Please proceed with your question.

Alexia Howard, Analyst, Bernstein: Good morning, everyone. Can I switch to the margin side of things and the inflation question? I’m specifically interested in cocoa. I think the inputs must be coming down at this point. That was a problem last year. You’re now faced with a fairly sharp spike in trucking costs here in the U.S., and I assume that dairy input cost inflation is also trending up fairly meaningfully. Where are you at in terms of expected COGS growth? Therefore, how much pricing are you expecting to take in September?

Chris Bealer, Chief Financial Officer, The Simply Good Foods Company: Hi, Alexia. Good question. We are seeing input inflation across multiple areas of the business, as we talked about in the prepared remarks. I would keep in mind, Joe also said earlier that we’d be taking a high single-digit price increase that’ll be effective in September. We feel that’s appropriate to offset input inflation that we’re seeing. To your specific comment on cocoa, as I’ve said, I think on the last couple of calls, we were expecting and have seen a consistent reduction in cocoa prices in our P&L over this year, and we are still seeing what we expected for Q4. There’s really no change in the cocoa price we’ll have in the P&L in Q4, and that’s a significant-- Actually, there is a deflation there versus what we had this time last year. Again, that’s very consistent with what we said.

That’s been, as I said, last quarter, significantly offset by the very high ramp-up in whey pricing. Yes, we’re seeing input overall ingredient inflation, we’re seeing packaging inflation, we are seeing some freight inflation as well. This is exactly why we’ve announced recently a high single-digit price increase, that we need to offset the input inflation and start to move our economic structure of the business back towards the long-term algorithm that Joe laid out earlier.

Alexia Howard, Analyst, Bernstein: Great. As a follow-up, you mentioned the plan to lean into the GLP-1 opportunity more deliberately. Could you talk about how you’re planning to do that based on the insights you’ve generated so far? I think previously the former management team thought they were going to help people who were coming off those drugs to maintain their weight loss once they gave up the GLP-1 drugs. Is there a new idea here for how to lean into that? Thank you, and I’ll pass it on.

Joe Scalzo, President and CEO, The Simply Good Foods Company: Alexia, I love the question. Can I just ask you to be a little patient? I’ve just reviewed the strategy work on it. I just want to step back. I brought back the agency that crafted the lifestyle work on Atkins a few years back. They did the very successful Rob Lowe work, understand the brand and the category better than any folks I’ve ever worked with, right? Very talented. They’ve been on a project since I came back to address that exact same question you’re asking about. I saw their strategic work and their insight work about three weeks ago. There’s a little bit more work we need to do. We are hopefully going to be, as we move into the next fiscal year, testing some ideas in the marketplace that’ll give us some confidence that we’re on the right path.

I’d like to kind of answer that question for you maybe the next time we get together when we’re closer to the marketplace. Suffice it to say, in just stepping back and looking at GLP-1 consumers, those that are using the therapies for weight management, a lot of really compelling insights coming out of that work that are, I think, important for a brand like Atkins, but I think important for the entire category going forward. On Atkins, the one tidbit I would give you is high interactivity between Atkins snack product buyers and the use of GLP-1s for weight management. There’s already high interactivity between the two, which just tells you the brand’s relevant among these people.

You have to tap into an insight that can help you start growing the population of people using the brand, and I’m pretty confident that we can do that. We got some work to do, and we got to prove the economics of that work, too. We got to prove that we get a return for marketing investment, that we can grow household penetration on the brand and get some confidence that we can get back into the marketing business on Atkins. Work to do.

Great.

Give me a little bit more time, and I’ll come back to you with some of those insights.

Alexia Howard, Analyst, Bernstein: Sounds good. I’ll look forward to that. Thank you. I’ll pass it on.

Operator: Thank you. Our next question comes from the line of Jon Andersen with William Blair. Please proceed with your question.

Jon Andersen, Analyst, William Blair: Yeah. Thanks, operator. Two quick ones. For Quest, the chips business has really been kind of a workhorse for the franchise the past few years. I was wondering, Joe, if you could talk a little bit about the recent performance of the chips part of that portfolio and maybe more important, your outlook, kind of performance outlook as you look ahead to maybe more fiscal 2027, and maybe the competitive backdrop. The second is just related to capital allocation. You obviously have plans for reinvestment in the business, and you’ve talked about top-of-funnel marketing, et cetera. Also have bought back quite a bit of stock. How are you thinking about capital allocation going forward relative to the past couple of years? Thanks.

Joe Scalzo, President and CEO, The Simply Good Foods Company: Yeah, good question on our chips business. Just try to frame it a little bit. It’s a half a billion-dollar brand already. Big brand growing in the mid-teens, and we’ve continued to show the ability to grow the top line by growing household penetration and driving buy rate. We continue to be pretty confident in our ability to do that. We believe focusing on the core of our business on Quest, reallocating our marketing investment to the top of the funnel around a message around nutrition and taste can only help in that regard. As you step back a little bit and you look at kind of our recent innovation on our tortilla business, we’ve kind of played through the flavor variety, and that as you add more flavors to the business, they become less incremental over time.

It puts a little bit of pressure on us to come up with innovation ideas that are more incremental, and we think we can do that. We think there’s other areas of salty snacks that we can continue to perform well in. One of the areas when I came back that I was surprised hadn’t progressed more was our cheese cracker business, and I believe there’s opportunities for that business to grow. I’ve looked at the innovation pipeline. I’m very confident that there are ideas coming in salty that will enable us to continue to grow. Overall, very optimistic in it. In the first quarter, I think the business was growing 35%. Can you grow a half a billion-dollar brand at 20%-30% into perpetuity? No, you can’t do that.

Can we grow household penetration, grow that business, continue to drive the top line? Yes, we can, and we intend to do that.

Chris Bealer, Chief Financial Officer, The Simply Good Foods Company: I’ll take the capital allocation question. I mean, our first priority on capital is to provide funding for the turnaround, as Joe mentioned. Second priority that we’ve again, commitments we’ve already made, we talked about previously, is the capacity expansion on chips. As you probably noted in the updated guidance, we did reduce our capital expenditure outlook. We made some investment priority changes, so we reduced our outlook to $25 million-$30 million from $30 million-$40 million. We’re taking a hard look at everything we’re spending capital on. As we look to the balance of the year and maybe into next year, we’ll continuously assess the best uses of cash, which could be for the turnarounds, it could be for buybacks, it could be for debt pay downs, it could be for other strategic priorities.

We’ll continuously assess where the best returns are for the business.

Operator: Thank you. Our next question comes from the line of Robert Moskow with TD Cowen. Please proceed with your question.

Robert Moskow, Analyst, TD Cowen: Thanks, Joe. Thanks, Chris. Just a clarification there, Chris. The guidance for share count of 90 million would imply that there’s a lot of share repurchase going on in fourth quarter. As you went through your capital priorities, I didn’t hear you bring that up. Am I doing the math right? Is there a big slug coming in fourth quarter?

Chris Bealer, Chief Financial Officer, The Simply Good Foods Company: No, Robert, actually, we’re essentially telling you what the diluted share count is as of today. That’s our guidance for 2024 as it typically is, right? We typically just guide to whatever our share count is on the day of the earnings call.

Robert Moskow, Analyst, TD Cowen: Oh, okay. I understand now. All right. Maybe just a broader kind of marketing question. Joe, I remember you talking a lot about how not all proteins are created equal and that net protein or net carbs is a really important metric that consumers should be more educated on. Is there any effort from a marketing standpoint that you’re working on to try to educate the consumer, either through retailer advocates or others, to help you versus competition?

Joe Scalzo, President and CEO, The Simply Good Foods Company: Great question and good memory. It was actually Dr. John that I think when you came into town that kind of did the nutritional 101. Yeah, look, the strength of Quest has always been craveable taste with the best in the industry nutritionals. When you’re looking to restore, accelerate growth, you always go back to the core DNA of a brand. I firmly believe that. You can expect us, going back to the core, which is our R&D business, going back to the core DNA, which is nutrition and taste, going back to the core of top-of-funnel communication. Yes, you can expect us to go back there, and you can expect us through all elements of the funnel. Influencers, social, digital, top of the funnel to be talking about those two things going forward.

As we innovate, those are the two vectors you innovate on. Craveable taste, best-in-class nutrition. We will absolutely do that. As we get down into the funnel and other parts of our marketing mix, do that in a more competitive way. Point out opportunities in some of the competition for where they may not be as compelling a nutritional profile as maybe consumers would think. A little bit of education on that too. Great question.

Robert Moskow, Analyst, TD Cowen: Thank you.

Joe Scalzo, President and CEO, The Simply Good Foods Company: You’re welcome. Have a good day, Rob.

Operator: Thank you. Our final question this morning comes from the line of Steve Powers with Deutsche Bank. Please proceed with your question.

Steve Powers, Analyst, Deutsche Bank: Hey, great. Thanks so much. Chris, just a quick follow-up on just to 100% clarify on the share count. You’re saying round about 90 million for the fourth quarter, which I think would imply more like 93 for the year, as opposed to, I think a lot of people this morning were thinking 90 for the full year. Just want to fully confirm that.

Chris Bealer, Chief Financial Officer, The Simply Good Foods Company: Yeah. Our diluted share count is around 90 million shares. Keep in mind, we have a net loss on the GAAP basis, a net loss for the year, that might be feeding into the calculation you’re looking at.

Steve Powers, Analyst, Deutsche Bank: I see.

Chris Bealer, Chief Financial Officer, The Simply Good Foods Company: As I said on the prepared remarks, we did purchase some shares during the quarter we just ended.

Steve Powers, Analyst, Deutsche Bank: Yeah. Okay. I got it. Joe, we’ve talked about it a lot across the portfolio, but the perspective I wanted to get from you was more around kind of aggregate SKU complexity and productivity per SKU. It sounds like on OWYN, there’s some envisioned reduction there as you refocus on the core. As I think about plans on Quest and Atkins, you’re talking more about top-of-the-funnel communication and that kind of stuff. Didn’t seem like there’s as much work to clean up the portfolio in terms of eradicating less productive SKUs. Just wanted to get your perspective on where that stands and whether there is work to do there or not.

Joe Scalzo, President and CEO, The Simply Good Foods Company: It’s an area where I think the team here has done a pretty good job over the last year or 18 months. They’ve done a nice job of cleaning up the portfolio, replacing less productive SKUs with more productive SKUs. I don’t see it as a burning platform for us. I think we’ve done a pretty good job. I think it’s always work. I have a simple philosophy. If you’re going to launch an item, you’re deleting an item. You’re always trying to have your most productive assortment in the marketplace and keeping your complexity down. It’s never a surprise that when you look at any business that 20%-25% of the SKUs drive most of the value in a company. You want to be focusing on those items and driving those items.

The team has done a pretty good job in driving efficiency in SKUs, which drives efficiency back into your supply chain. We have a little bit of trimming to do, but it’s not excessive at all.

Steve Powers, Analyst, Deutsche Bank: Okay, great. Thank you very much.

Operator: Thank you. Ladies and gentlemen, that concludes our question and answer session. I’ll turn the floor back to Alzo for final comments.

Joe Scalzo, President and CEO, The Simply Good Foods Company: Yeah, thanks for your participation today. I did want to close with thanking the employees here at Simply Good Foods. Turnarounds are never easy. The team here has done a marvelous job of rallying around the turnaround, getting focused on priorities and executing better. Really proud of the organization, and I just want to say thank you to all of them, and thank you for your interest in our business. Look forward to talking to you next quarter. Have a good day.

Operator: Thank you. This concludes today’s conference call. You may disconnect your lines at this time. Thank you for your participation.