Q1 2021 Simply Good Foods Co Earnings Call

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 is 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 without altering 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 a Brand's then title 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

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 leader and the attractive nutrition snack its nutritional snacking category. And while the category has significantly grown household penetration over the last five plus years. It is still well under penetrated compared to most food categories at about 50% of us households.

We have two large scale Brands and Atkinson quest with meaningful consumer benefits and Broad appeal among two different consumer targets for the more. We have demonstrated the money in capabilities to grow new loyal consumers over time.

We benefit from long-term compelling the consumer megatrends 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 find organic growth while also enable us to participate in the day.

And despite temporarily reduced consumption during the pandemic do fewer on-the-go consumption occasions our business as quickly resumed growth, even though consumer Mobility is still well below prepay endemic levels.

For these reasons we're confident that has 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. Take away all exceeded our estimates.

Moving to slide five first-quarter net sales, exceeded our expectations driven primarily by strong e-commerce growth retail. Take away that are exceeded our expectations and the timing of shipments took it to the seasonal inventory build by certain retailers adjusted ebita for the first quarter increased 53.2% primarily due to the to a full-course request a greater than anticipated increase in sales versus our plan and strong cost controls.

Total Simply Good Foods q1 retail takeaway and measured an unmeasured channels increase mid single-digits and steadily improved as we move through the quarter.

Our performance was driven by the snappier portion of our portfolio. Primarily Confections chip cookies that are consumed mostly at home while bars for both Brands remain pressured and measure channels off due to fewer on-the-go occasions. Importantly. We gained overall market share versus the category which declined low single-digits.

Florence in the mass Channel improved a bit versus last quarter, but it's still lower than the year ago. Do to reduce shop for trips since the start of the pandemic.

The commitment to the Nutritional second category by Major retailers were made strong and our distribution games on new products was in line with our estimates early consumer off take of these new items is emerging.

As we discussed last quarter measure 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 number steadily improved

total Simply Good Foods nutritional snacking category retail takeaway q1 outpaced the category across all time frames driven primarily by the more at home snack your Porsche portfolio as well as improving Atkins 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.

Journeys the first quarter net sales increased 51.9% driven by the quest acquisition specifically Qwest net sales increased 78.75 to 95.8 million dollars.

Atkins net sales increased 2.2% and was a 1.9 contribution to Total company growth the divestiture. Simply protein business was a 1.7% Edwin.

Increase in adjusted ebitda is a direct result of higher gross profit driven by the inclusion of quest Legacy Atkins cost control and acquisition synergies.

God will provide greater details on these metrics in just a bit.

Atkins q1 iri New Low plus C Store retail takeaway was off 5.7% but outpaced the weight management category with similar to last quarter Atkins Bars were pressured to do to lower on-the-go usage occasions for this forum across the category.

I could sakes sequentially improved throughout the quarter and then November our shakes retail takeaway was about flat versus the year-ago.

Atkins Confections momentum continued with retail takeaway up 13.2% as these products are primarily consumed at home.

We're encouraged by are improving Marketplace Trends during the quarter, especially given the salt start in September partially due to the weaker-than-expected back-to-school season.

So early we're pleased with the distribution gays and consumption performance wire recently launched new products particularly our iced coffee protein shakes and indulge dessert bars.

E-commerce growth continues to be a strict with consumption up 45% in q1 with new to e-commerce consumers representing one third of sap.

And Sheiks continued to perform. Well in this channel up double-digits e-commerce is now about 10% of acting sales up from 4% Just two years ago and should continue to be a driver of growth.

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 begin with

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 games and New Year's seasonal merchandising that is least equal to Europe. Although we remain cautious about consumers season of participation given the recent surge in COVID-19 cases throughout the US.

Let me now turn the Quest for q1 retail takeaway increase 15.2% in the measure to a new low plus c-store Universe driven by improving Trends across major food and club channels.

So where the last quarter our performance was driven by cookies chips and Confections and the year ago launched 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 better than the bar segment, which was offload double digits.

As mentioned previously bars have been impacted by lower on-the-go consumption occasions.

As I stated earlier eCommerce business continues to do well with retail takeaway up 60% our business and 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 Systems will be a benefit and New Year seasonal merchandise will be greater than last year.

however

Similar actions we remain cautious about consumer season of participation given the recent surge in COVID-19 cases additionally Quest retail. Take away comparisons in the year-ago breaks up 26.8% or strong partially due to last year's shape lunch.

In summary, we're pleased with a better-than-expected start to fiscal 2021 despite the ongoing challenges of operating in the COVID-19 environment. We exceeded our estimates during primarily e-commerce growth retail take away that was better than our expectations and the timing of shipments related to the seasonal inventory bill by certain retailers.

We're encouraged by improving Marketplace Trends and confident will outpace the category. Although in the near-term. It could be challenging given the increase in COVID-19 cases across the u.s.

Will 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 Alla turn the call over to talk to some greater Financial details.

Thank you, Joe and good morning everyone. Let me start with two points as they relate to the numbers. You see on the slide to follow first for comparative purposes. We will review financial statements for the 13 weeks ended ended November 30th, 2019 versus the 13 weeks ended November 28th, 2020. Second given our asset-light strong cash flow business model home value eight our business performance on an adjusted basis as it relates to a HEPA. And diluted earnings per share. We have included a detailed reconciliation from Gap to adjusted history 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 Quest net sales increase 78.7 million to 95.8 million dollars a contribution of 51.7% 2 total Simply Good Foods first-quarter net sales Grow recall. We only own the business for twenty four days and fiscal Q 12020. 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 Sawadee 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 build by certain retailers.

We estimate that these factors contributed it about 2 to 3 percentage Points each to Atkins growth. These games will partially offset by softness and measured Channel as Joe mentioned. I measured Channel retail take away in the first quarter was off 5.7% the divestiture of Simply protein on September 24th was a 1.7% headwind wage as previously stated the divestiture of Simply protein and the exit from Europe is about a 2% headwind to both the first half and full year fiscal 2021 net sales rep.

now for

You a first-quarter results across other major metrics gross profit was $94 million dollars an increase of thirty one point eight million or 51.2% versus last year wage 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 long do the full quarter impact of the lower-margin quest business and unfavorable mix gross profit in the prior-year was affected by a non-cash 2.4 million inventory purchased account Step Up adjustment related to the related to the quest acquisition recall the non-cash inventory purchased accounting Step Up was a 160 basis. I wind and what physical first quarter of 2020

Adjusted ebitda increased 53.2% of 48.7 million dollars driven by the increasing gross profit partially offset by a 36.7% increase in selling an office expenses primarily due to inclusion of quest for the full year. The company continues to anticipate that marketing will increase at least in line with Organic sales growth wage 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 four point five million dollars.

Moving to other items in the p&l interest expense increased 3.42 eight point four million dollars through primarily to a full quarter of quest related acquisition dead are effective tax rate in the first quarter was 27.1%

as a result that income in q1 was twenty two point five million dollars versus a loss of four point eight million in the year-ago.

Turning two EPS first quarter reported ETS was twenty-three cents per share diluted compared with a loss of $0.05 per share diluted impacting reported EPS in club depreciation and amortization expense of 4.5 million higher versus last year or two to the inclusion of quest stock-based compensation of 1.1 million integration coughing a 1.2 million at a restructuring expenses of two point five billion dollars.

Meanwhile adjusted diluted EPS which excludes the items just mentioned was $0.29 and an increase of $0.07 versus the year-ago. Note that we calculate adjusted diluted EPS has 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 dollars of its Term Loan and at the end of the first quarter of the outstanding principal balance with five hundred eighty one point five million dollars in the first quarter of fiscal 21 combined cash flow from operations and proceeds from the sale of Simply protein was about $21 as of November 28th, 2020. The company had ninety one point five million dollars of cash and the trailing-twelve-month net debt to adjusted ebitda ratio was 2.9 times Capital expenditures were nominal in q1. However, we still expect five to six million dollars of capex in fiscal 2021 driven primarily by equipment for a new Warehouse.

Outlook this year

Interest expense remains unchanged at approximately Thirty million dollars. I would now like to turn the call back to Joe foreclosure and marks.

Thank you, Todd. If consumer Mobility increases we expect the growth rate of our business to improve.

We have a portfolio Brands aligned with consumer Mega Transit both health and wellness convenience and on-the-go nutrition additionally consumers continue to express that high of 18 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 of the month in the first quarter driven by the growth of Confections chips and cookies which are more often consumed at home.

It return to more normal consumer shopping Behavior was on the rising given the multiple vaccines that are now being deployed in the however at this point in time. It's difficult to predict when this will be there for 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 remains difficult to provide a full year fiscal 2021 Outlook at this time.

Given our better-than-expected first-quarter results, we have updated our outlook for the first half of the fiscal year. Assuming us consumer movement restrictions remain at the current levels. We now anticipate net sales a $455 to $465 and adjusted either the a of eighty-five to ninety million dollars.

This includes a 2% headwind to net sales growth related to the simply protein 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 life. He's had a 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.

Thank you at this time will be conducting a question-and-answer session. If you'd like to ask a question, please press star one on your telephone keypad or confirmation tone will indicate your line is in the question about me, press start to if you'd like to remove your question from the Q4 participants using speaker equipment. It may be necessary to pick up your handset before pressing the star key. Our first question comes from the line of faith in Holland with d a Davidson. Please proceed with your question.

No, thanks a good morning and congrats on.

The strong quarter here. I wanted to ask a couple questions about the quest business. Um, you know, I think I think you were surprised as you acquired the business wage the expandability of it, you know kind of a performance and 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 them perform how quickly and how much of a focus is, you know, expanding into the the chips the cookies, you know, some of the Frozen products Etc the adjacent requested seem to be doing quite well.

Yeah, good morning. It's a good question. You know, I think first of all we had high expectations of the quest business when we bought it and it has exceeded our expectations, uh over the last year. The the question you're asking about is around the balance between the protein bar business at Quest and the all of the forms and I think it's important that we stay focused on ensuring that the bar business continues to recover and starts growing and and the metric I would point to is unlike the Atkins business the quest business over a 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 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 wage.

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 wage 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 month and drive consumption. And so I I think you should see us continue to balance between those two 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 on the quest business. Could you just remind us, you know the starter from a lower gross margin base unique product mix etcetera how where we are in the integration of that asset and thinking about the synergies flowing through this year and any change is as as far as opportunities there to to take costs out of that business or get those margins back up comparable to Legacy Atkins.

Yeah, so, this is Todd the margins are we're seeing Improvement on on the West Side. They are definitely getting a bit closer to the Legacy Atkins business office will probably about two points below from a larger percent gross margin perspective. Some of the some of the synergies have have kicked in from a logistics standpoint of some of the responding to see some of them 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 margin again, that's 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 acting but we're definitely making progress.

like everyone

Go ahead up to that, you know given the given the size of the bar business in both of the brands it is it tends to be the more profitable form for the Compaq standpoint. So driving bar performance over time is a margin enhancing opportunity for the company. Got it. That's the like everyone thinks right. Thank you, ma'am. Thank you. Our next question comes from line of Jason English with Goldman Sachs. Please proceed with your question.

Hey, good morning, folks. Happy New Year and congrats on on on the improving sales momentum throughout the quarter. I guess let's pick up where you just left off on margins looking at the two Q I get that two Q is sequentially always a bit of a marginal step down from one Cube going to seasonality but questions in the prior to base. Why are we going to flip to so much margin compression year-on-year at least based at the whole point of your guidance?

yeah you know I don't think we're going to have a lot of margin compression from a cute too too cute to perspective will have you know potentially a little bit depending on where the product and and channel mix come back then but I think I think the margins should be relatively you know in line with with last cute too from from q1 and Q2 as a life mate who talk about Q2 is always the lowest gross margin and you put that margin a quarter for us just because of the heavy intensive merchandising that occurs in this quarter but your thoughts are we should be we should be fairly similar

Are you referring to gross margin or ebitda? Margin? I'm referring to gross. Margin. Okay, I think you got in and maybe I need to go back and check on that but the midpoint of your guidance for the first half and obviously we can back out one Q implies that ebitda margin would be down year-on-year is is there something happening in the belly of the p&l like except up sg&a, or maybe it's just maybe I need to see to go back and check my map.

Yes slight increase in the sg&a rate as 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 seat GNA as a percent a little bit higher would just have some some projects going on there, which will have some increase and from quarter-to-quarter here it always bumps up in the wage has has the start of the new year. We get pay increases FICA taxes start to you know, kick in against it with T&A always tends to be a bit higher in Q2 as well. So again gross margin should be similar even on margins maybe a little bit lower but no significant changes.

Okay, and most of the Shelf resets either behind you or good disability to them. Can you give us an update on how you're you believe your share of Shelf has changed.

Yeah, Jason, we had a good we had a code for all three sets season so far early returns, right? You got to see consumption, but for the most because consumption that gives off a bility that TDP growth so both Brands, um growing pdp's and the high single too low double digits on a percentage basis. So we did pretty well. Now you got a you know, it all comes down to how productive those items are how we prevent all those items are to really understand the impact on consumption. So we need you know, we need January 1st of March to better understand that is, you know, November December on low consumption months. And so you don't want to read too much into early reads. But you know for the for the most part most of our new products out all takers been pretty positive early. We want to see a little bit more data before we

For we feel good about that.

Thank you guys. So I'll pass it on have a good day.

Thank you. Our next question comes from Steve, please press you to question. Hi, good morning. And next quarter there. I just had a question. I'm just a follow-on to to Jason's question is I think about you get some nice shelf space wins. Thank you for the quantifying the tdp's there. I'm just curious how you define the competitive situation in your categories and you know what you're seeing from other big Brands and have you competing with with Atkins inquest and if it could also add to that get maybe a good perspective on kind of the new products and off all those are contributing to your sales growth have a pretty good new product line up, you know, is there sort of the incremental contribution you could help Define from those new products?

Yes, they talked to a talking about ourselves first still really early Innings from a consumption of new items. So we just look at kind of weak the weak velocities off taking appears to be pretty good. So the peanut butter cup lemon the lemon bar on both performing. Well on Atkins the lights coffee shakes and the indulge dessert bars all off the pretty good start off again, November December are typically soft consumption month. So you don't want to read too much into that. But overall. We're we feel pretty good about the start. It looks like and I'll still a little bit of Jason Bang Theory but I think retailers are coming back, you know kind of in a koban environment supporting bigger brands that appear. So inartistic Glory looks like at Premier has done pretty well clearly active requested done pretty. Well. I I don't haven't really looked at the bar set appears. That kind has done wage.

Very well most recently from a bar standpoint. So looks like maybe retailers have invested in leadership brands in order to drive the category kind of innocent life kind of cold environment. I want to see a little bit more data before I you know form a stronger opinion than that consumption obviously becomes more important than just looking at shelf space. I just want one of the follow-up which is in relation to the channel performance. Are you seeing a stronger performance in the mass Channel versus a grocery? And is that relate to you know, I'm not getting behind some of these big Brands. Is that going to help at a you know, a large retailer for example, kind of help push your performance there? Yeah during the quarter and then the early part of two two in general. You've got a little bit better. So steadily improve their performance. I think based upon the fact that got behind the bigger Brands and their consumption improved. So in general are busy

Got better at mass in general Mass business relative to other channels got better. So we saw kind of steady incremental Improvement even the bar business in mascotte a little bit better. So I am coming out of the Fall resets mass in general improve their position. And obviously they were leaking market share for a while. They're starting to they're starting to move in the right direction and that's basically given our development in Mass that's important to us shop or traffic got a little bit better, but we didn't seem are we didn't see significant improvements in Shopper traffic yet. We haven't seen that yet. Obviously with kind of covet cases spiking as we close the year and everything new year. I think that'll be one of the headwinds that we want to keep continue to keep our eye on.

Okay. Thank you for that color. You're welcome.

Thank you. Our next question comes from line of John Baumgartner with Wells Fargo, please press you with your question. Good morning. Thanks for the question.

John. I guess go back to Quest in the peanut butter cups specifically still very early days, but you know, the Nielsen take labels very good looks like annualized is running around nine million dollars or so. So I'm wondering if you could speak to the launch, you know, what sort of expectations you have for a CV as F21 progresses, you know, moving outside of Target. And then also, you know, how aggressive are you with this product in Ecom non measure channels and you how do you expect the marketing and distribution push will compare, you know coming out of the gate relative to the cookies when they launched a few years ago. Thanks. Yeah. 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. I'm driving it, right we the Legacy smpl organization probably a little bit faster than building Food Drug Mass distribution and historically within a year off.

12 months of launching a new product we can get it pretty close to fifty percent a CD through drug Mass. So I wouldn't you know, I think that's a reasonable Target from the 12 months to a joint. It is performing exceptionally well in e-commerce and you know, it's we we have pretty high expectations Confections is a different use of cage and different need State than the existing business. It has proven in the particular peanut butter cups in general has proven to be whether it be on Atkins or on Slim-Fast to be a pretty compelling you don't uh, 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's it ties back to use occasion need State and burns in new new consumers to the brand cuz it's just it's a different it's a different type of product and appeals to it a different consumer. So we're pretty optimistic. And yeah, sorry, I don't have birth.

Carson to cookies I'd have to go back and look into the build out from a from the Legacy Quest business. I expect we will do better frankly sucked into that just one follow-on to that. I mean it's doing its off to a really strong to start in NC Store as well. See store team is done a really nice job getting distribution will continue to get distribution. It's a fantastic single Serb item and not something we don't have a lot of history with on the inside but it's it has the potential to be a very large 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. For you very very successful, you know, not to get ahead of ourselves. But you kind of think across, you know, next twelve months this the reset that still have yet to come in the market. Was there anything discreet that benefited you in this August reset. That may suggest, you know future resets may not be a sixth month.

For or do you think between new innovation coming through the marketing ramping here in January the more promotion. Shelton to to kind of beach season that you can kind of sustained this this reset moment as the rest of your life is kind of, you know, come forward here. So your question is right after I got my reset in the

All you want me to project with the screen looks like so we good, you know, we, you know, we don't like to talk about what might happen in our business going forward. We feel really good about a product pipeline. We send that before this reset. I continue the 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 idea that you have and the ability to track 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 track the category so that appears to play to us and that we've got two of the bigger brands in the set. So I feel good about that, but, you know, we're still in early Innings of the Fall reset. Let's see how that performs January February March before we start declaring victories in March April and May. Thanks Joe. Thanks. I appreciate it.

Yeah, you're welcome.

Thank you. Our next question comes to the adviser. Please proceed with your question. Yes. Hi, good morning and and 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 you know your results this quarter, you weren't actually that far off from what we were expecting a year ago in this quarter on the top line and actually better on eBay. So it seems that you know in some ways you've been able to offset on the go weakness by accelerating, you know these other forms that we've been talking about and maybe even accelerating e-commerce. So just wanted to get a sense from you and you know, how would you frame the uncertainty or the risks and opportunities but one thing's hopefully normalize in the back half especially in light of easy comps.

Yeah, so great question. You tell you the truth. We haven't given much thought to the second half of the year at this point. You know, I'll I'll talk to it as you know from a perspective of vibrant. If you look at the Atkins business the 20 physical year twenty-twenty softness was almost exclusively driven by our inability to grow out fires at the rate that we were accustomed to and if he then multiply their volume and put into the business and the second half of the year. That was our Miss from a volume standpoint. Probably the most encouraging thing in the first quarter. What is a congruent new tires 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 of back into the brand the way the the opportunity in the quarter was Buy rate. So we just didn't drive as much by rate and that has to do with the large component of our business in bars and the away from home consumption that wage

A bars, I think if I would if I would if I would summarize on Atkins the second half of the year, there's two simple questions. Can we continue to bring new back tires 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. Is it retained by we can get the Buy rate back up? I think we could have obviously a good back half of the year. I want to see a little bit more data. It's a little dangerous to read a quarter of data from a from a m i a panel by great stamp on just a little dangerous cuz it's just not a lot of data at this point, but that's how I would characterize actions. Right? Can we get Buy rate up can the bar start to improve and Kolb get back closer to Historic numbers on Quest. I think, you know, the one comparison inquest is, you know prior to covet the business started to step up its growth

In the second half of the year and obviously slowed that down for a bit, but we saw more aggressive console in the west. So can we continue and then obviously

A big bar business by rate on Quest becomes really important, you know, can we grow through the you know, the challenges in a way from home consumption? So for us the big metric and that's after the year is going to be what Mobility look like. How does it impact bars? And then how does that impact by rate on both businesses as we go forward? I think the other metrics that we could control but which is Sheriff shelf marketing media investment. I think we'll do the right things. They're the overhang will be you know, how does this how does the vaccine roll loud? How does it improve mobility? And then how quickly does the away from home consumption come back to the two businesses?

Great, and then as I 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 trans and those forms even as Mobility increases. Is that the right way to characterize it. Yeah, they tend to be particularly chips off 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 whitespace consumption continues to be good. The job in quest is to build brand awareness consideration and trial and from a two business standpoint of it 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 brass.

It's still relatively low. We have a big loyal consumer group on Quest but still relatively low brand awareness outside that group. So you're off getting 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 on class. So lots of opportunity on quest to build awareness all the forms matter right bars matter as do the other forms. So we tend not we tend to define the issue much more from the consumer standpoint than a product and form standpoint. Got to build brand awareness all quests got to continue to change people's points of view. What they believe on Atkins in order of household penetration the products clearly help us to do that because they attack different need states that use occasions and that helps us.

Great. Thank you so much. You're welcome.

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

Good morning, everyone.

Morning, Alexia. Hi there. I can ask about pricing Dynamics particularly on the bar business. We only get visibility in the measured Channel, but would I be right in thinking that you probably did have a pricing benefit of the net pricing line earlier in the pandemic because of the whole back in promotional activity log, and I'm just wondering with the step up and Merchandising on particular on the west side of things. Is that going to lead to declines in pricing year-on-year as we look out through the course of of twenty one, and then I have a follow-up.

Yeah, 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, you know, we retailers in our in our Q3 and that March two months time. Retailers really pushed out or cut promotional activity just you know, just to reduce the complexity and their stores a lot of those fell into Q4. So we saw, you know with some price realization benefit lower volume a price realization benefit in Q3 that kind of flipped on the other side and q4q. One of them here kind of normal. We we didn't see much of a change. We don't we we kind of have similar merchandising activities here in in in Q2 as well. So it was really just a short-term march to May time. For us where we got that price realization do is relax Q3. Yeah. We'll probably see higher trade rate in Q3. Yep.

I mean certainly Mobility. Okay, and maybe a little bit of benefit Q4 is we don't have as much as we kind of pushed together a bunch of activity in Q4, but right now it's normalized.

Perfect. That's that's super helpful. And then the second question is really around m&a. And now that your Leverage is down below three times. I know that was a goal. I now have been increased appetite to look for possible deals. And what would the criteria be for any future you might look at? Thank you, and I'll talk to Don Jose.

Yeah with leverage improving with the integration mostly not completely all behind us and synergies on track. We have started to we popped up and start looking at possible assets again. We like the category where in we search for assets that fit our supply chain and said our front end customer standpoint. We like branded strong consumer branded businesses that have shown the ability to track users. So we tend to look at our business from a consumer standpoint first and I think the only criteria is may have shifted over the last year or so. It's size will probably looking at assets that you know, or above seventy five to a hundred bucks in in Revenue. So we went it's challenging when you have two businesses as big as we are to nurture smaller Brands, so we're probably looking at assets that a little bit big issue in size. So that dead

Portfolio it's meaningful. We can focus on it. So, you know, that was obviously one of the reasons we divested simply protein just setting it was we would be sized Challenge from an organization standpoint. So yeah, we are we are we are up and looking at assets right now. And those are the kind of criterias that we think about.

Perfect. Thank you very much, and I'll talk to you. Happy New Year. Have a good day.

Thank you. Our next question comes from the line of Ryan Bell with consumer Ed. Please proceed with your question.

Hey, everyone on eCommerce has become an increasingly in important part of your business. Would you be able to give some context about the share of Atkins inquest within the space and maybe some of your perspective about it going forward?

Yeah, I'll take that one. So from from a from a share of business, you know, it can for both businesses. It's been accelerated. So it's off its twenty to twenty-five percent of business for request is Joe said in his opening remarks. It's close to 10% right now on the Atkins side. Both businesses not doing exceptionally well, and you know, 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 forward-looking thoughts on that and and whether or not that's maybe impacted your marketing efforts around the New Year's resolution.

Yeah, it's got great question. It's one 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 because the concern that we had a while on average people have gained in the u.s. Adults have gained about twelve 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 a 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'll be I think the important to when do people kind of re-engage to start making Lifestyle Changes in order to get that part of their life back under control. So the the household penetration the the new buyer data would suggest people are more engaged in that it'll be interesting to see how it plays out in January for very large that's helpful. And and one last one for me ma'am.

If you may have mentioned this in your prepared remarks, but could you talk about the selling versus sell-out Dynamics versus one Q?

During one, could you ask that question again? Are you talking about inventory or you talking about self through consumer Dynamic? So the cell phone now in versus the sellout Dynamics during the quarter?

So we we picked up because of our positive, you know benefit from the Shelf resets. We you know, we got a nice little pipeline Phil from that page that kind of offset. If you remember we had, you know some uh back to school time. Brought some Revenue in the Q4 of last year. We thought that was going to be about two point headwind 2001 the the reset timing and how well we did kind of mitigated that piece of it largely that that was kind of an offset. So that was that was a nice benefit for us in the quarter month. And as we talked about we get to have some seasonal but shifting between November December versus prior Year and that that helps by about two points.

Perfect. Thank you.

Thank you. Ladies and gentlemen, our final question this morning comes from the line of Rebecca schoeneman with Morningstar. Please proceed with your question.

Good morning, and congratulations on the good quarter despite the difficult environment. So thank you for the the Insight that on the 12th pounds gained on average during the Panthers. I was wondering about that. I'm also wondering if your consumer inside data shows anything that could point to habits that have potentially change permanently, you know, that could make weight loss look different when we emerged from the pandemic, you know, 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. Thank you.

Yeah, I don't have I don't have beta that would suggest that the the habits and practices that people have formed during during the pandemic is going to change that. I I I just have observation that as Mobility has improved so has the consumption of our business so, you know, I think that that that is probably the big debate going on in food companies with larger companies trying to convince folks. That meals are going to come back in Vogue and moms are going to kick or going to continue to cook. I I just happened to think that way, you know, frankly convenience is always going to be an important consumer benefit that our lives whether we whether we like it or not it going to be come hectic and time off as they were before and on-the-go nutritional consumption is going to become ever important right? I just don't think

That's it for me.

I just don't think that all of a sudden we're going to return to the 1950s and 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 snacking is every as every day eating just as they see a meal almost seamless between the two. I don't think that's changing either quite frankly. So, you know, I'm pretty optimistic that you just in our own behaviors as a business that way when the pandemic 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 to the pandemic. My guess is that's going to be more true than not and so we're we're we're pretty optimistic. Is that November 3rd?

Approved so our business and so what bar consumption and that, you know, Matt shopping Behavior will go back to more norms.

Okay, great. Thank you so much. Yeah. You're welcome. Have a good day. Thank you. Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to mister 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. Hope everyone has a happy and safe day next month. Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.