Q4 2023 Simply Good Foods Co Earnings Call

Greetings and welcome to the simply good Foods company fiscal fourth quarter of 2023 conference 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 conference over to your host Mr. Mark Magarian, Vice President Investor Relations for simply good Foods company thinking you may begin.

Operator.

I'm pleased to welcome you to the simply good Foods company earnings call for the fiscal fourth quarter and full year round in August 26 2023.

And our president and CEO and Sean Marett CFO will provide you with an overview of the results, which will then be followed by a Q&A session.

Company issued its earnings release this morning at approximately seven a M. Eastern a copy of the release and accompanying presentation are available under the investors section of the call.

<unk> web site at Www Dot the simply good foods company Dot com.

This call is being webcast and an archive of today's remarks will also be available during.

During the course of today's call management will make forward looking statements that are subject to various risks and uncertainties that may cause actual results to differ materially. The company undertakes no obligation to update these statements based on subsequent events a detailed list of such risks and uncertainties can be found in today's press release.

And the company's SEC filings note that on today's call, we will refer to certain non-GAAP financial measures that we believe will provide useful information for investors due to the company's asset light strong cash flow business model, we evaluate our performance on an adjusted basis as it relates to EBITDA and diluted EPS. We have included a detailed reconciliation of GAAP to <unk>.

Adjusted items in today's press release, we believe these adjusted measures are a key indicator of the underlying performance of the business. The presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Please refer to today's press release for a reconciliation of the non-GAAP financial measures.

And the most comparable measures prepared in accordance with GAAP.

With that I'll now turn the call over to Jeff.

Thank you Mike Good morning, Thank you for joining us.

Today, I'll recap simply good foods financial results and the performance of that brand.

And then Shawn will discuss our financial results in more detail before we wrap it up.

Discussion about fiscal 'twenty 'twenty four outlook.

To your question.

We ended the year with strong Q4 net sales staff was about 17%.

As expected net.

Sales outpaced retail takeaway pizza, the retail customer draw down last year.

Gross margin was slightly greater than our expectation, primarily due to lower supply chain costs.

Full year fiscal 2023 organic net sales increased nearly 7%.

This performance reflects that diversified portfolio across brands retail channels customers and product form.

We believe we exited the year trade inventory getting a whole level gross margin improved during the year and we expect to build on this momentum in fiscal 'twenty 'twenty four.

And my nearly seven months tenure at the company I'm, even more convinced of the long term growth outlook.

Additional snacking category in our business.

Category growth from Q4, and the yep. Thanks.

17% respectively.

With low household penetration of about 50%.

As legacy U S snacks, like 90% plus coupled with the 20th tailwind to snacking and helping well we believe the category will continue to maintain a multiyear growth trajectory and outperform U S packaged foods and snacks.

As the preeminent category leader and category adviser for the majority of our customers. We will continue to invest in our brands and partner with retailers to accelerate category growth.

I think over time this category will be twice its current size.

I don't have the exact sequence of pricing, but the opportunity is there.

Total simply good foods combined measured and unmeasured channels three so I'll take the white box in Q4, and yeah. It was about 11% and 15% respectively.

Effectively.

In fiscal 2023, Yeah, My extra question that increased 24% and 1%.

Atkins retail takeaway slowed in the second half of the year and was off about 3%.

<unk> performance is currently below our expectations and well below its full potential which is why our comprehensive revitalization plan has been deployed to stabilize the brand and return it to growth.

I bet.

As we look to fiscal 'twenty 'twenty four we're excited about the prospects for our category and I'd say that we're making investments in brand building and growth initiatives as well as investments to enhance capabilities.

The right graph.

In fiscal 2024, net sales growth will be driven by volume as we've lapped the pricing actions of the prior year.

Specifically, we expect net sales to increase at the high end of that 4% to 6% long term algorithm, including the benefit of a 50 <unk> week.

Gross margin expansion should be solid.

Supporting the aforementioned investments and an increase of adjusted EBITDA slightly higher than the net sales growth right.

In addition, Eric Bader expenses model results and strong cash flow generation provides us with the financial flexibility to pursue value enhancing acquisitions pay down debt opportunistically buy back our shares.

We're confident in the strength of that business and diversified portfolio across brands products and channels.

The investments that we've made and will continue to make in the business will enable us to deliver on our net sales and earnings objectives.

The next slide provides you with a full year perspective, if retail takeaway in the IRI type same store universe, and then they combined Manchester unmeasured channels.

Similar to the last few quarters and years total unmeasured channel growth driven by e-commerce with additive the title company.

Yeah.

Let me now turn quite.

Quite performance well reach all takeaway was strong and consistent during the year.

Q4, and full year retail takeaway growth in measured and unmeasured channels with similar about 24%.

What I like is how balanced the growth profile continues to be on the brand.

Balanced across product forms and retail channels.

One just across key drivers, namely distribution base velocity and innovation and balanced across household penetration and buy rate.

More consumers buying more products and more stores.

In my experience when you rely on one or two drivers that can tap out.

The balanced growth profile on quest, however points to a long and sustained run way for growth.

In Q4.

I realize I think still a P O S scrap was 26% driven.

Driven by volume a 22 percentage point contribution.

Collecting solid distribution gains and new product performance during the year and that was about a four percentage point benefit.

Measured channel Q4 P. M that describes the size and snacks with similar.

About 25%.

Gains were driven by distribution base velocity and new product success.

Salty snacks were particularly strong with P O S.

At 40% proving the ability of quest to expand beyond the core and create new incremental segments in the category.

In Q4, we estimate total unmeasured channel retail takeaway increased about 15%.

E Commerce growth of approximately 18% was partially offset by softness in specialty channels.

Fiscal 'twenty 'twenty four we protect the quest will have another strong year driven by volume growth, we're making investments in the brands will continue to result in near and long term growth across retail channels and false.

A particular focus will be investments in marketing despite.

Despite the size of the pit that household penetration is only 15%.

Yeah, we will debut our new marketing campaign, and a higher reach based media time.

Believe will drive greater awareness and household penetration.

Additionally, what partnering closely with retail it. If your question is the leader and pioneer up in nutritional snacking category, they're excited about the investments you're making in the brand as well as the innovation pipeline and have shared with them.

It should continue to drive distribution gains.

Related to annual shelf reset.

Before getting into the trial, if the Atkins revitalization plan, let me provide you with a quick overview of Q4 performance.

Q4 retail takeaway in the combined measured and unmeasured channels was off 4%.

Clearly, we're not happy with the performance of the business, which we believe is well short of its full potential.

As has been the case all year if it uses of the product leveraging the convenience of E. Commerce as a result, Amazon has been additive to Atkins measured channel P O N.

Q4 retail takeaway in the channel increased 12% with solid bars and shakes the fault.

11% and 16% respectively.

And the IRI <unk> plus C store universe, Q4, retail takeaway was off 5.6%, although ready to drink shakes performance as well as P. O S at our largest mass retail customer a puzzle.

To stabilize the bank and get it to its full potential.

The comprehensive revitalization plan and I'll share this with you in the coming slides.

Over the past several months, we've conducted consumer research on the Atkins brand to inform revitalization effort.

The work strongly reaffirmed our belief that the high potential of the brand.

What we heard is that 80% of consumers are looking to maintain or lose weight and the atkins is distinctly and uniquely positioned as the most trusted leader and low carb low shuttle solution.

In addition, when consumers try our products, they're pleased and delighted.

Research suggests there's clearly significant potential for the brand.

I don't know that to some of the things we've developed over the last year I look also identified some opportunities for natural gas.

Specifically strengthening innovation.

Addressing execution on message from retail customers and enhancing and modernizing the brand experience in steps.

Starting with innovation, we clearly dropped the ball on these actions, particularly snack bars and indulge confection.

Innovation variety and new year's is a critical driver of the business, especially in the buy segment, we fell short and that resulted in distribution losses.

Second we had some execution missteps, but a few key customers that resulted in suboptimal assortment.

Price points.

Yes, we heard that some potential constraint I just don't understand the benefits of the product or a skeptical the atkins delicious and easy way for maintaining a lose weight.

Let's move to the next slide I'll tell you what we're doing to address these issues, which I really view as opportunities.

To address our innovation gap, we have quickly accelerated some new items to market to bring variety and new news to the brand.

And the second half of fiscal 2024.

Expect that will have even more meaningful innovation.

Importantly, we've enhanced our efforts to build a robust multiyear pipeline.

We're also working on product upgrades to deliver a better taste experience.

Humans like the products that we buy.

You have to find an opportunity to deliver a superior taste experience in some cases. This may also reduce costs and provide credit shock loss.

To address gaps keep kept them in our plan includes optimizing assortment and getting to the right price point.

Example of that is that recent transition from variety packs the stripe slack in the club channel and hitting our key price points in that channel.

Additionally, what got them down at customers, where we have strong momentum.

For example, Amazon has been additive to Atkins measured channel P. O S and we will continue to invest with them and other winning customers to accelerate growth.

And so improve brand perception, a comprehensive advertising and marketing plan it's underway.

Atkins overall appeal and relevant with the goal of continuing to bring in New Jersey.

As we indicated last quarter.

We believe the G. L. P class the whitelaw struggle will be a tailwind for our business.

As a strong proponent of weight wellness. We're excited consumers have another option to help with what can be a difficult struggle.

We recently conducted our own proprietary research of concern is on the truck.

The recent sharp our products are a perfect complement for concern.

We win there on the dry one smaller and more nutritious option.

Furthermore, our research suggests the majority of J L. P units is.

Once you eventually come off the drug.

What we found is that a product like <unk>.

All right when they do make their way to hold onto their physical and emotional benefits at the white claw.

Potently being mindful of privacy laws, we are working with several external partners to build a sizable addressable audience of consumers, Hawaii, they're interested in or on the drugs to whom we will deliver targeted communication brand messaging and often about how our products can be used as a companion.

And our offline.

We expect to be in the market with this campaign later in the fiscal year.

Luckily we're working on a packaging refresh project that will modernize the brand and make it easier to shop.

The goal of the revitalization plan is to first stabilize marketplace performance and then deliver the brand to its full potential.

To execute this plan with excellence.

And our sense of urgency with established a new leadership team and structure.

We have a very strong and experienced team and I have confidence in them and our collective ability to reshape the strategy and growth trajectory of the brands or.

I will not spend a lot of time here, but on this slide you'll see some of the accelerated innovation currently making its way into the marketplace and they refer.

Simon and optimize pack types in the club and E Commerce channel.

We have a category adviser at most three pilot and we'll continue to work with them to ensure our products all familiar positions on the shelf.

I Wanna caused the update on the revitalization plan with some additional perspective on the new advertising and marketing campaign.

The campaign to address its feedback with some potential new buyers are unaware or skeptical of the brand benefits have delicious the product tastes.

Titles, but.

Who knew campaign it gives voice to the skeptic as well as our core existing concerned at reinforcing that you can eat and enjoy these delicious products and maintain or lose weight.

<unk> remains a brand ambassador and embodiment of the brand benefits.

Joining him in a trifle dialogue of converting a skeptic until in vaccines consumer as we're now I'm Canadian and knowing skeptic formed effects.

It created three spots that will rotate over the coming months.

Chad it's focused on a different aspect of the business, which should position us nicely for the upcoming new year, new year's season.

Consumer testing sharper spots drive greater appeal I'm on the life and non music, but also resonates strongly with existing leases.

And we're taking a slightly different approach the way consumers will see our advertising, which will increase our reach.

Most recently, we debuted a new add on October 12th during Thursday night football and Mukhtar about 20 seconds during Sunday night football.

Can you just say are at during the year across cable streaming and digital channels.

Yes.

We know what we need to do to change the trajectory of the brand performance.

Beginning to deploy to plan and it will continue to build during the year and into fiscal 2025.

Look forward to keeping you up to date with that progress.

In summary, I'm pleased with our overall fiscal 'twenty twenty-three results.

We compete in an attractive category and is well positioned against the mega trends of healthy snacking, but theyre focused on convenience products across multiple forms.

Hi, I'm pricing and low in carbs and sugar.

In fiscal 'twenty, 'twenty, four driven by quite marketplace momentum.

It's a good level of solid net sales growth driven by volume.

As such we're excited about our plan our business and the opportunities ahead.

Lastly, I want to thank our amazing employees, who work tirelessly everyday to provide nutritious delicious and convenient food options that concern us.

Our team believes food should work for people not against them and Theyre passionate about helping consumers live a healthy lifestyle I'm very grateful for their passion and commitment.

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

Thank you, Jeff and good morning, everyone.

I will begin with an overview of our net sales.

Total simply good foods fourth quarter net sales of $324 million increased 16, 9% versus the year ago period.

Looking at the Q4 drivers of growth.

Net price realization was about three five percentage points and volume was up 13, 4%.

As Jeff stated earlier net sales growth outpaced retail takeaway.

Operator: Greetings and welcome to the Simply Good Foods Company, fiscal fourth quarter 2023 conference call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation.

At the bottom of this slide we attempt to reconcile Q4, Peter West of 11%.

Q4, North American net sales growth of 17%.

The biggest driver is in the prior year period due to the retail customer inventory draw down last year.

Operator: 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.

As we've discussed throughout the year and fiscal 2022 retailers increased their maturity levels to address supply chain challenges and depleted. This inventory in Q4 of fiscal 2022, which is atypical.

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

This year, we've returned to a more normalized path, where retailers built a week or two of inventory in the first half of the year and completed the majority of it in Q3 with minimal change in Q4.

Mark Pogharian: Good morning.

Mark Pogharian: I'm pleased to welcome you to the Simply Good Food Company earnings call for the fiscal fourth quarter and full year ended August 26, 2023. Now that on today's call, we will refer to certain non-gap financial measures that we believe will provide useful information for investors. Due to the company's asset life, strong cash flow business model, we evaluate our performance on an adjusted basis that relates to EBITDA and diluted EPS. We have included a detailed reconciliation from gap to adjusted items in today's press release.

Full year net sales of one point to $4 billion increased six 3% versus the year ago period.

As we exited fiscal year, 2021, and 2022 inventory at retail moves around due to supply chain issues.

However, as we exit 2023, we believe we ended the year with more normal retail inventory levels. Therefore in fiscal 2024, we anticipate for full year net sales and retail takeaway growth will be largely in line.

Okay.

Moving on to other P&L items for Q4 gross profit was $125 million, an increase of $18 $6 million from the year ago period, resulting in gross margin of 37, 6%.

50 basis point increase versus a year ago period was primarily due to lower ingredient and packaging costs.

Adjusted EBITDA was $67 $3 million, an increase of $16 $3 million from the year ago period.

Selling and marketing expenses were $38 million versus $26 $9 million, an increase of 14, 8% largely due to the timing of spend within the year.

Mark Pogharian: We believe these adjusted measures are a key indicator of the underlying performance of the business. The presentation of this information is not intended to be considered in isolation or the substitute for the financial information presented in accordance with gap. Please refer to today's press release for a reconciliation of the non-gap financial measures for the most comparable measures prepared in accordance with gap.

GAAP G&A expenses were $29 $5 million, an increase of $2 $4 million versus last year, primarily due to the executive transition costs. Excluding these costs because we're all stock based compensation G&A declined $900000 to $3 $2 million.

Jeff Dan: With that, I'll now turn the call over to Jeff Dan. Thank you, Mark. Good morning. Thank you for joining us. Today, I will recap simply good foods financial results and the performance of our brand. Then, Sean will discuss our financial results in more detail before we wrap it up with a discussion about fiscal 2024 outlook and take your question. At the end of the year, the strong Q4 net sales growth was about 17%.

Finally, net interest income and interest expense increased $1 million $6 $4 million due to higher variable interest rates related to the term loan and as expected our Q4 tax rate was about 25%.

As a result, net income was $36 $6 million versus $3 $1 million last year.

Turning now to full year results gross profit was $453 $4 million, an increase of one 8% versus a year ago period.

Jeff Dan: As expected, net sales outpaced retail take away due to the retail customer drawdown last year. Growth margin was slightly greater than our expectation, primarily due to lower supply chain costs. For the year, fiscal 2023 organic net sales increased nearly 7%. This performance reflects our diversified portfolio across brands, retail channels, customers, and product forms. We believe we exited the year to trade inventory at normal levels because margin improves during the year and expects to build on this momentum in fiscal 2024.

Adjusted EBITDA increased $11 $6 million to around $45 $6 million due to higher gross profit and SG&A leverage.

Selling and marketing expenses declined one 8% to $119 $5 million.

G&A expenses were $111 $6 million, including stock based compensation executive transition cost and term loan transaction fees. Excluding these cros G&A declined $800000 to $91 $3 million.

Net income was $133 $6 million versus $108 $6 million in the year ago period.

Jeff Dan: In my nearly seven months ten years of the company, I'm even more convinced of the long-term growth outlook of the nutritional snacking category in our business. Category growth in Q4 and the year was 15%, and 17%, effectively. With low household penetration of about 50%, which is legacy U.S, snacks at 90% plus, couples with the 20 tailwinds of snacking and health and wellness, we believe the category will continue to maintain its multi-year growth trajectory and outperform U.S, package versus next.

Note that the year ago period includes $31 million related to the remeasurement of our private warrant liabilities.

Turning to EPS fourth quarter reported EPS was <unk> 36 cents per share diluted compared to <unk> 30 per share diluted for the comparable period of 2022.

Adjusted diluted EPS was <unk> 45 cents versus 36 cents in the prior year ago period.

Full year reported EPS was $1 32, and adjusted diluted EPS was $1 63.

Jeff Dan: As the preeminent category leader and category advisor for the majority of our customers, we will continue to invest in our brand and partner with retailers to accelerate category growth. I think other times this category will be twice as current size. I don't know the exact sequence or pacing, but the opportunity is there. Charitable Simply Good Food combined measures and unmeasured channel U.S. 3.6, I could like broken Q4 and the year was about 11%, 13%, effectively. In fiscal 2023, GRS for question outcomes increased 24% and 1%. Atkins retail take away, slowed in the second half of the year and was off about 3%.

Notably calculate adjusted diluted EPS as adjusted EBITDA.

Interest income interest expense and income taxes.

If you refer to today's press release for an explanation and reconciliation of non-GAAP financial measures.

Moving to the balance sheet and cash flow fourth quarter and full year cash provided by operating activities was $61 million and $171 million respectively.

As of August 26, 2023, the company, our cashless $87 $7 million.

In fiscal 2023, the company repaid $121.5 million of its term loan and at the end of the year. The outstanding principal balance was $285 million.

Capital expenditures in 2023 were $11 $6 million.

Jeff Dan: Atkins performance is currently below our expectations and well below its full potential, which is why our comprehensive revitalization plan has been deployed to stabilize the brand and return it to growth, more on this in a bit. As we look to fiscal 2024, we're excited about the prospects for our category and our business, for making investments in brand building and growth initiatives, as well as investments to enhance capabilities that accelerate GRS. In fiscal 2024, net sales growth will be driven by volume as we've left the pricing actions of the prior year.

Fiscal 2020 for Capex is expected to be in the $8 million to $10 million range.

In fiscal 2020 for granted net interest expense to be around $18 million to $20 million, including noncash amortization expense related to the deferred financing fees now.

Now to wrap up a challenging macroeconomic environment the nutrition snacking category growth continues to be strong.

We expect the ingredients and packaging costs to be lower in fiscal 2024 compared to last year and result in solid gross margin expansion.

Jeff Dan: Specifically, we expect net sales to increase at the high end of our 46% long-term algorithm, including the benefit of a 53th week. Growth margin expansion should be followed, supporting the aforementioned investments, and an increase of adjusted EBITDA slightly higher than the net sales growth rate. In addition, our cottage business model results in strong cash flow generation, and provides us with the financial flexibility that the Sue Value and Huckton Act positions pay down debt for opportunistically buy back our shares.

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

As such while early in fiscal 2024, we are on track to deliver solid net sales and adjusted EBITDA growth.

Specifically, we anticipate the following for the full fiscal year 2024.

Net sales growth driven by volume to be at the high end of our company's long term algorithm of four 6%, including the benefit of the 53rd week.

Adjusted EBITDA is anticipated to increase slightly greater than the net sales growth.

Jeff Dan: We're confident in the strength of our business, and I've identified portfolio across brand products and channels. The investments that we've made, and we'll continue to make, in the business, will enable us to deliver on our net sales and earnings objectives. The next slide provides you with a full-year perspective of retail take away in the IRI, the U.L.P.C, store universe, and in the combined measures and unmeasured channels. Similar to the last few quarters in years, total unmeasured channel growth, driven by e-commerce, would add as if the total company PLS.

And adjusted diluted EPS will increase greater than adjusted EBITDA growth.

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

Thank you at this time, we'll be conducting a question and answer session. 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.

In order to allow for as many questions as possible. We ask that you each keep to one question. Thank you.

Our first question comes from the line of John Baumgartner with Mizuho Securities. Please proceed with your question.

Jeff Dan: Let me now turn the quote performance. We reach our take away with strong and consistent during the year. Hugh Ford, and a four-year retail takeaway growth in measured and unmerited channels with some of about 24%. What I like is how balanced the growth profile continues to be on the brand. Balance the cross-product forms and retail channels, balance the cross-key drivers, namely distribution, based velocity, and innovation, and balance the cross-house health penetration and buy rate.

Good morning, Thanks for the question.

Hey, good morning, gentlemen.

Good morning.

I wanted to ask about the skeptics associated with the Atkins brand.

How many of them are buying other brands in the category relative to how many would be incremental and of the folks buying other brands do you have a sense as to whether they're buying other weight management brands or more high protein active nutrition bad I'm trying to think through this understand how much of this pool of skeptics as you pursue them requires winning more of a mark.

Jeff Dan: More consumers buying more products and more stores. In my experience, when you rely on one or two drivers, they can tap out. The balanced growth profile on Quest, however, points to a long and sustained runway for growth. In Q4, IRI Milosus Feastor PLS grows with 26% driven by volume, a 22%age point contribution, reflecting solid distribution gains and new product performance during the year, and products that was about a four percentage point benefit.

Share gain and dislodging consumers relative to how much would be contingent on growing the category and how that impacts your engagement.

Yeah no. Thanks for the question.

Hope you like the the new advertising.

When we were looking at actions. So we took a step back and you know what what we really heard loud and clear through the research is that actions is one of the best positioned brands out there focused on weight management.

Jeff Dan: Measure channel Q4 PLS grows with 1000 smags were similar, up about 25%. Gains were driven by distribution, based velocity, and new product success. Solitude snacks for particularly strong with PLS grows is about 40%. Proving the ability of Quest to expand beyond the core and create new incremental segments in the category. In Q4, we estimate total unmerited channel retail takeaway increased about 15%. E-commerce growth is approximately 18%, with partially upsets by softness and specialty channels.

What we heard loud and clear is that 80% of consumers want to lose or maintain weight and Atkins is seen as the trusted leader and in low cost low or no sugar solution. So we see nothing but tremendous potential for those brands, but as we and as we talked on the script.

Ted remarks.

We did hear that there is a group of consumers who are.

They're a little confused about what Atkins is.

Or don't fully understand the benefits that you can eat product this delicious.

Jeff Dan: In fiscal 2024, we projected Quest will have another strong year driven by volume growth, for making investments in the brand that will continue to result in near and long-term growth across retail channels and forms. A particular focus will be investments in marketing. Despite the size of the business, household penetration is only 15%. During the year, we will debut a new marketing campaign and a higher reach-based media plan, that we believe will drive greater awareness and household penetration.

And lose or maintain weight and that's when we started zeroing in on this idea that there are some skeptics out there which to us represents nothing but upside.

To the business because as you know once we convert consumers.

They become loyal very quickly and they buy rate as it is.

Particularly high compared to most.

Consumer products.

That was the goal with this new advertising.

Is to firstly communique Atkins is not a weight management plan, it's not a regimented weight loss program.

Jeff Dan: Additionally, with partner and closely with retailers, if you Quest is the leader and pioneer of the nutritional snacking category, they're excited about the investment to make it in the brand, as well as the innovation pipeline of shared with them. This should continue to drive distribution gains related to end-your-shelf weekdays.

We have a range of delicious products that can help consumers.

Maintain or lose weight and as I step back on the business you have a fresh set of eyes.

I'd say nothing but upside.

We can start to convert.

What might be very light consume minutes on non consumers and start moving them down the funnel into loyal consumers with high buy right. So that was the Genesis for how we arrived at that marketing strategy.

Jeff Dan: Before getting into detail of the Act and Pre-Visualization Plan, let me provide you with a quick overview of Q4 performance. Q4 results take away, and the combined measures and unmerited channels with off 4%. Clearly, we're not happy with the performance of the business, which we believe is well-short of its full potential. As has been in the case over year, if it uses the product, leveraging the convenience of e-commerce. As a result, Amazon has been added to Act and Pre-Visualization Plan.

We also found is that through a new campaign.

All star strongly residue resonates with loyal consumers.

It's a little tip of the hat to them soon you Heine, yeah. So with this new campaign, but we found its way were talking and we were resonating thoughts without loyal consumers and with potential new consumers that we've that we're going to move through the funnel.

Jeff Dan: Q4 results take away in the channel, increased 12%, the solid buys and shakes performance that were up 11%, and 16% respectively, and the IRI Meal at Coast Seasville Universe, Q4 Retail Take-Lay was off 5.6%, although ready to drink shake performance, as well as PLS at our largest mass retail customer, the positive.

Okay, and then just to follow up when we think about the marketing initiatives for fiscal 'twenty four it sounds like you've got a fair amount of non price initiatives that are that are heading into the market you have a sense maybe its too early but do you have a sense at this point when you look across the competitive spectrum in the category do you have a sense of that.

Your competitors are sort of also in market following in a similar way where they're leaning more on non price promotion more marks more advertising in store display as opposed to just deep price cuts in terms of funneling back upstream deflation in the market.

Jeff Dan: We stabilize the brand and get it through its full potential to develop the comprehensive revitalization plan, and I'll share this with you in the coming slides. Over the past several months, we've conducted consumer research on the Actions brand to inform revitalization efforts, to look strongly reaffirmed our beliefs of the high potential of the brand. What we heard is that the 80% of consumers are looking to maintain all their weight, and the Actions is distinctly and uniquely positioned as the most trusted leader in low-cob low shoulder solution.

Jeff Dan: In addition, when consumers try our products, they're pleased and delighted. The research suggests there's clearly significant potential for the brand. Similar to some of the things we've developed over the last year, I look also identified some opportunity to address specifically strengthening innovation, addressing execution on methods at some retail customers, and enhancing and modernizing the brand experience and perception. Starting with innovation, we clearly drop the ball on innovation, particularly snapped by an indulged confection.

Yeah, I think what separates sounds like let's say from almost the majority of our competitive and how committed we ought to brand building and in particular marketing.

Yeah, we're spending right now about 9%.

And we know that at that level of spend we have a very strong share of voice.

As we think about Atkins and we've just talked about that marketing campaign, we're investing.

Slightly above year ago on Atkins.

And but the particular heavier focus over the first quarter.

And as we've talked about based on our testing results.

I'll leave the creative will perform more strongly and we're focused on additional rates, taking our rates from <unk>.

69% to 86%.

And then.

In the back half of the year, we're gonna be making a significant investment in Christ advertising, which really hasn't had a lot of focus.

Jeff Dan: Innovation, variety, and new news is a critical driver of the business, especially in the bar segment. We fell short, and that resulted in distribution losses. Second, we had some execution on this step, but a few key customers that resulted in sub-artimal assortment and price points. Third, we heard that some potential consumers don't understand the benefits of the products or are skeptical. The Actions are delicious and easy way, the maintain will lose weight.

To date that we will be bringing out a new campaign reach based media campaign behind that so.

We are the market leaders, we fundamentally believe in brand building and we believe that separates our company and our brands from our competitors.

Thanks, Jeff.

Okay.

Jeff Dan: Let's move to the next slide and tell you what we're doing to address these issues, which I really view as opportunities. To address our innovation gap, we have quickly accelerated to new items to market, to bring variety and new news to the brand. And the second half of the fiscal 2024, we expect that we'll have even more meaningful innovation.

Thank you. Our next question comes from the line of Jason English with Goldman Sachs. Please proceed with your question.

Hey, good morning folks thanks for slipping me in.

Coupled a couple of questions first some tactical questions you highlighted some new club product for Atkins in them.

Is is this is this design for your existing customers or is any of this an opportunity to penetrate new customers and then on quest you referenced partnering with retailers, who view questions of pioneer nutritious snacking category.

Jeff Dan: Importantly, we've enhanced our efforts to build a robust multi-year pipeline. We're also working on product upgrades to deliver a better taste experience. Consumers like the products that we've identified an opportunity to deliver a superior taste experience. In some cases, this may also reduce costs and provide greater shelf life.

Pardon me retail it seems like it's par for the course, so it sounds like this is probably not like the fact youre calling out suggests this may be something over and above normal partnership can you can you expound give us a little more detail and color on that initiative. Thank you.

Yeah happy to Jason.

Jeff Dan: To address gaps to key customers, our plan includes optimizing assortment and getting to the right price points. An example of this is our recent transition from variety packs to straight price in the club channel and hitting a key price point in that channel. Additionally, we're doubling down at customers where we have strong momentum. For example, Amazon has been added to Actions and measures channel PLS, and we will continue to invest with them and other winning customers to accelerate growth.

As it relates to the Atkins clubs a program.

We have moved from offering variety pack to a strike pack.

And what we've learned from out arent researches business significant opportunity. If we can hit a specific price point, which we have we.

We believe that FX will resonate both with existing consumers.

As well as bringing new consumers so that that's the goal there.

Jeff Dan: And to improve brand deception, a comprehensive advertising and marketing plan is underway to enhance Actions overall appeal and relevance, with the goal of continuing to bring new users to this, as we indicated last quarter, we believe the GLP class of weight loss drugs will be a tailwind for our business. As a strong proponent of weight wellness, we're excited to continue to have another option to help with what can be a difficult struggle.

With relation to with respect to your second question on <unk>, Yes, you're right.

Yes.

This category and I've talked about it before.

I describe it as a teenager.

Head to the majority of center store categories.

You've got the twin tailwind for snacking in health and wellness.

It over indexes with millennials and Gen Z.

And the reason I refer to as a teenager, 50% household penetration versus 90% somebody center store categories and a real as you know a bright spot.

Jeff Dan: We recently conducted our own proprietary research of consumers on the drug. The research shows our products are a terrific compliment for consumers who when they're on the drug, want smaller and more nutritious options. Furthermore, our research suggests the majority of GLP users want to eventually come off the drugs. What we found is that our products are a perfect off-ramp when they do as the way to hold on to the physical and emotional benefits of the weight loss.

And at the same store.

And retailers see that.

I believe the category could double over the next five to seven years don't know exactly when but that's the potential.

Retailers see that I've met with all of them.

Many multiple times since joining the company.

Jeff Dan: Importantly, being mindful of privacy rules, we are working with several external partners to build a sizable, addressable audience of consumers who are either interested in or on the drugs, but when we will deliver targeted communication, grant messaging, and office about how our products can be used as a perfect companion in or off-ramp. We expect to be in the market with this campaign later in the fiscal year.

We're also a category adviser to the majority of our customers. So one of the things I've.

Focused on in my first six months.

It's developing multi year partnerships with retailers.

To provide and build additional space and additional focus on this category.

So I'm moving from perhaps more of a transactional approach to category leadership to longer term more strategic approach where were building plans together.

Jeff Dan: Lastly, we're working on a packaging research project that will modernize the brand and make it easier to shop. The goal of the revitalization plan is to first stabilize market place performance and then deliver the brand to its full potential.

To double down on this category, how do we add more space how do we bring.

How do we have additional merchandising opportunities et cetera, et cetera, obviously e-commerce the omnis is it.

Jeff Dan: To execute this plan with excellence and a sense of urgency with establishing new leadership team instruction, we have a very strong experience team and I've confident in them and our collective ability to reshape the strategy and growth trajectory of the brand. I'll not spend a lot of time here, but on the slide, you'll see some of the accelerated innovation currently making its way into the market place, and the refinement and optimized pack types in the club and e-commerce channels. We have categorized it at most retailers and will continue to work with them to ensure our products is optimally positioned on the shelf.

Focus there.

And within that <unk>.

<unk> plays a critical role and as you know our retailer request as it is the innovation pioneer in the category. So you're right to highlight it Jason It is a stepped up next level approach to category management that one that will underpin what we believe will be a doubling of this category over the next five.

Yes.

That's helpful to add a little bit on that too if you take a step back in the last year were up 25% and consumption for quest right. So I mean, that's a huge growth in retailers, obviously see that don't want to go with the winter here, So theyre looking to partner with us because they see the growth potential of the brand.

Jeff Dan: I want to close the update on the revitalization plan with some additional perspective on the new advertising and marketing campaign. The campaign addresses feedback that some potential need buyers are unaware or skeptical of the brand benefits and how delicious the product tastes. And titled, the Who New Campaign, it gets voice to the skeptic as well as our core and distant consumers, reinforcing that you can eat and enjoy these delicious products and maintain or lose weight.

Right on and congrats on the success by the way and I did a poor job of asking my first question. So let me come back and ask it more directly are you taking these new Atkins products to Costco.

[laughter].

Well as you know we were not and Cosco.

We see it as an opportunity.

It would represent a significant increase in the business, which would be incremental but of course, we have to find a proposition that works for us and for cost Guy, but you can probably bet that we're having ongoing conversations with them.

Jeff Dan: Rob Love remains our brand ambassador and embodiment of the brand benefits. Joining him in the playful dialogue and converting a skeptic into an actions consumer is renowned comedian and known skeptics on the facts. It's created three spots that will rotate over the coming months. Each ad is focused on a different aspect of the business, which is positioned nicely for the upcoming new year, new year season. Consumer testing shows the spots draw greater appeal among life and non-uses, but also resonate strongly with existing.

Okay helpful. Thank you.

Thanks, Jason.

Okay.

Thank you. Our next question comes from the line of Pamela Kaufman with Morgan Stanley . Please proceed with your question.

Hi, good morning.

Good morning Panna.

Can you talk about how you are thinking about the cadence of top line growth throughout fiscal 'twenty, four and maybe elaborate on how you are thinking about the growth outlook by brand.

Jeff Dan: And we're taking a slightly different approach to where consumers will see our advertising, which will improve our reach. Noted recently, we debuted our new ads on October 12th during Thursday night football and October 22nd during Sunday night football. We'll continue to see our ads during the year across cable streaming and digital channels.

And just what are you expecting from the contribution from the 50 <unk> week.

Okay a lot in there so.

Got back and lets talk about the year first then I'll talk about the quarters, a little bit. So on a 52 week basis, we expect total NPL sales to increase in the midpoint of our long term net sales growth to four 6% right. That's all volume we have no price in there for next year within that we expect quest to be growing at least low debt.

Jeff Dan: We know what we need to do to change the trajectory of the brand performance. We're beginning to deploy the plan and it will continue to build during the year and into fiscal 2025. I look forward to keeping you up to date with that progress.

Digits for the year with some slight declines in Atkins, where I start seeing the benefits of the Atkins revitalization plan, we expect Pos to improve during the year with the consumption in the second half of the year better than the first half.

Jeff Dan: In summary, I'm pleased with our overall fiscal 2023 results. We compete in an attractive category but as well positions against the mega trends of healthy smacking. We're going to focus on convenient products across multiple forms, with a high-impressing and low-end housing sugar. In fiscal 2024, driven by quick market placement management, our plan is to deliver the solid net sales growth driven by volume. As such, we're excited about our plans, our business and the opportunities ahead.

And I think that just speaks to the overall strength of the business as well as the underlying health of the category.

So as it relates to the 53rd week and we simply added a point of growth here as we had in our plan we talked about last time as we finalize that plan. What we basically did was take the average of the last three years for the first week of September to forecast the extra week that a little bit more than a point of growth you can't just take one divided.

By 52 to estimate this because we have a fall resets will be shipped in August we don't replenish that until mid September . So it's pretty early getting into the 50, <unk> week, but well we should play out about a point of benefit there could be more or less depending on timing of shipments. So that kind of focuses on the year on the split of the by the brands as it relates to the.

Jeff Dan: Lastly, I want to thank our amazing employees. They work tirelessly every day to provide nutritious, delicious and convenient food options for consumers. Our team believes food should work for people, not against them. And that passionate about helping consumers live a healthy life down. I'm very grateful for that passionate commitment.

Slow during the year.

Retail takeaway should be somewhat similar by quarter say, hi to Mitch say mid to high single digits overall and as it relates to net sales is largely going to follow that consumption little bit of a flip from Q1 to Q2. So let me explain that in Q1 'twenty for the net sales comp versus last year is a little bit.

Sean: Now, I'll turn the call over to Sean for providing you with some greater financial details. Thank you, Jeff.

Sean: Good morning, everyone. I will begin with an overview of our net sales. Total simply good food toward quarter net sales of 320.4 million dollars increased 16.9 percent versus the year ago period. Looking at the Q4 drivers of growth, net price fertilization was about 3.5 percentage points and volume was about 13.4 percent. As just stated earlier, net sales growth outpaced retail takeaway. At the bottom of this slide, we accept to reconcile Q4 POS of 11 percent, the Q4 North American net sales growth of 17 percent.

Tough for a couple of reasons one wait a specific program last year called the healthy UN capped request at a very large mass retailer that we are not repeating this year, secondly, Atkins RTD bonus packs, which are a big part of our new year, New you are going to ship in Q2 of this year. They shipped in Q1 last year and.

As Jeff alluded to already we are increasing trade spend in fiscal 'twenty four on Atkins, particularly in Q1. So we say stay active really in the eyes of the retailer. So Q1 sales is only going to increase in the low single digits on the flip side, we expect that impact to reverse in Q2 Q2 last year had flat growth. Therefore Q2.

Sean: Biggest driver is in the prior year period due to the retail customer inventory grow all down last year. As we've discussed throughout the year in fiscal 2022, retailers increased their inventory levels to address supply chain challenges and depleted the inventory in Q4 fiscal 2022, which is atypical. This year, we returned to a more normalized path, where retailers built a weaker two of the inventory in the first half of the year, and depleted the majority of it in Q3, with minimal changing Q4.

This year, we expect net sales growth to be at the higher end of our algorithm a 46%. So at the end of Q1 consumption in sales should largely be in line just a flip between Q1 and Q2.

Thank you that's very helpful.

I also just wanted to dig into a bit more on how you plan to capitalize on the growth in G. L. P. One well.

Sean: Full year net sales of 1.24 billion dollars increased 6.3 percent versus the year ago period. As we exited fiscal year of 2021 and 2022, inventory at retail moved around due to supply chain issues. However, as we exit 2023, we believe we ended the year with more normal retail inventory levels. Therefore, in fiscal 2024, we anticipate for full year net sales and retail takeaway growth will be largely in line. Moving on to other P&L items for Q4, First Profit was $120.5 million, an increase of $18.6 million from the year ago period, resulting in gross margin of 37.6%.

Well what were the findings of this study that you conducted and how are you thinking about the role that each Atkins and quest can play in targeting this consumer.

Yeah, well we believe.

Based on our research, which I'll talk about that.

They see how people interact alright, a significant tailwind for both businesses.

Over the past three months, we conducted a lot of proprietary research with consumers.

On the drugs to understand the impact that we're having.

What we saw is yes, there's a reduced appetite, but especially focused on less healthy products and what we found is that consumers on the drugs were eating and seeking smaller healthy meals and snacks.

Sean: The 50 basis point increase versus the year ago period was primarily due to lower ingredient impact in costs. Geoff Adibita was $67.3 million, an increase of $16.3 million from the year ago period, selling and marketing expenses were $30.8 million versus $25.9 million, an increase of 14.8% largely due to the timing of spend within the year. Gap G&A expenses were $29.5 million, an increase of $2.4 million versus last year, primarily due to executive transition costs, excluding these costs as well as stock base compensation, G&A declined $9,000 to $23.2 million.

Especially high pricing products.

Because they still need to get nutrition they need.

Through our research what we found for both exits and Crestwood opportunities.

So these brands to be an excellent companion when consumers around the products.

And our research found that by far the majority of consumers, taking the drugs don't plan to stay on it.

Yeah.

They still want to hold onto the gains and what we found in our research is that products are an excellent off ramp as well.

So.

We see that as a significant long term opportunity, we're clearly still in the early innings of these drugs.

Sean: Finally, net interest income and interest expense increased $1 million to $6.4 million due to higher variable interest rates related to the term one, and as expected, our Q4 tax rate was about 25%. As a result, net income was $36.6 million versus $30.1 million last year. During now full-year results, gross profit was $453.4 million and increase of 1.8% versus the year ago period. Adjacent, either I increased $11.6 million to $245.6 million due to higher gross profit and SGNA leverage.

And they are in their adoption.

We wanted to get a jumpstart on it.

It works with several external partners to build a sizable addressable audience of consumers who are either interested in or on the charts and we plan to deliver them targeted communication brand messaging office et cetera.

About how our products can be a perfect companion when you're on the drug and a friend.

And we're still in the early innings of that and the campaign that we will bring to market will deploy in the next quarter.

But we see this as a long term potential as advocates of Av.

Sean: Selling and marketing expenses declined $1.8% to $19.5 million. G&A expenses were $11.6 million, including stock base compensation, executive transition costs, and term loan transaction fees, excluding these costs, G&A declined $8,000 to $91.3 million. Net income was $133.6 million versus $108.6 million in the year ago period. Note that the year ago period includes $30.1 million related to remeasurement of the private loan liabilities. Turning to EPS, fourth quarter reported EPS was $36 per share diluted compared to $30 per share diluted for the possible period of 2022.

Weight wellness, we think its terrific that.

Consumers have an another tool in their arsenal.

And it's just going to bring additional focus to write less particularly on actions, which is which is where the brand place.

Thank you, maybe if I could just sneak in one more on you.

Q.

Oh, sorry, Okay I'll go back in the queue.

Yeah.

Okay.

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

Hi, good morning.

To ask you a number of years ago. The Atkins brand you talked about high royalty rates and the annual buy rates for existing consumers really being a tailwind to the brand. How do you think about the development of the overall category and the prevalence of new brands and the impact that would have on Atkins as we stand here today.

Sean: Adjacent diluted EPS was $45 for $36 and a prior year ago period. Full year report EPS was $1.32 and adjusted diluted EPS for $1.63. Note that we calculated adjusted diluted EPS as adjusted EBITDA, less interest income, interest expense, and income taxes. Please refer to today's press release for an explanation and reconciliation of non-gap financial measures. Moving to the balance sheet and cash flow, fourth quarter and full year cash provided by operating activities was $61 million and $171 million respectively.

Do those metrics naturally move move lower over time, but the growth potential in the size of the category are larger today and therefore it.

It may not be a negative to the brand or do you expect to get back to those high loyalty and repeat rates.

Uh huh.

As I said in the remarks.

Since coming on to the business.

Dive very deep on Atkins.

Sean: As of August 26, 2023, the company had cashed us $87.7 million. In fiscal 2023, the company repaid $121.5 million of its term loan and at the end of the year, the outstanding principal balance was $285 million, of $20,000. Capital expenditures in 2023 were $11.6 million. Physical 2024, Capback is expected to be in the $8.10 million range. In physical 2024, we anticipate net interest expense to be around $18 to $20 million, including non-catch, amortization expense related to the deferred financing fees.

A lot of research with consumers.

The analytics on the business.

And at that.

And that reset estimate just reaffirm that.

Opportunity that business has it is so uniquely positioned at.

Again, an opportunity that is significant as I said, 80% of consumers want to lose or maintain weight and Atkins is seen as a trusted leader in low carb low sugar solutions.

The long term potential of this business is significant.

What I talked about was we had some execution missteps.

Sean: Now to wrap up, in a challenging macroeconomic environment, the nutrition snacking category growth continues to be strong. We expect ingredients and factoring costs to be lower in physical 2024 compared to last year and result in solid growth margin expansion. This provides us with a flexibility to invest in capabilities and marketing initiatives that will drive near and long-term growth. As such, while early, in physical 2024, we are on track to look for solid net sales and adjusted EBITDA growth.

That has impacted some of those metrics Bahrain for example.

When you're not bringing in really great innovation, when you've got an execution a misstep at a large club customer that's going to show up in those numbers.

But fundamentally when we fix those and those fixes are in market.

And when we continue to support the business with marketing.

Just on talking to core users as well as some of the skeptics. We believe these metrics will start to turn around.

And then you have to the last question. The additional interest in weight management that has just gone to drive additional interest in those brands.

Sean: Specifically, we anticipate the following for the full physical year 2024. Net sales growth, driven by volume, to be at the high end of our company's long-term algorithm of 4-6%, including the benefit of the 53rd week. Adjust the EBITDA and anticipate it to increase slightly greater than the net sales growth and adjust the deluded EPS 1-3 greater than adjusted EBITDA growth.

The slight decline was saying that some of those metrics right now.

You've got to look at those and say.

A big driver of the impact we're seeing is a commercial missteps with fixing it committed to the long term growth of this business.

Which is why we're doubling down increasing marketing, bringing new innovation to market working on packaging.

Sean: We appreciate everyone's interest in our company and we're now available to take your questions. Thank you.

And those metrics very confident we'll start to turn very quickly in the right direction and just a quick add on there Matt if you take a step back the Atkins consumer it's been a very loyal consumer over the years, we've seen that through the modeling that we've done we've mentioned before we've seen a slight decrease in buy rate over the last X period of time principally because.

Operator: At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 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. In order to allow for as many questions as possible, we essay you each keep to one question.

Operator: Thank you.

Those are the probably the pricing aspect of that thing, but the buy rate on retained users continues to be very strong. So we'll see that get better as Jeff said with all the things we're doing the market, but I think it can be used to be a strength of the brand.

John Baumgartner: Our first question comes from the line of John Baumgartner with Mizuhu Securities. Please proceed with your question. Good morning. Thanks for the question. Good morning, John. Good morning.

Thank you, Jeff and John that was very helpful. I can leave it there in person.

Thank you Kim.

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

Jeff Dan: Yes, I wanted to ask about the skeptics associated with the Atkins brands. How many of them are buying other brands in the category relative to how many would be incremental? And of the folks buying other brands, do you have a sense as to whether they're buying other weight management brands or more high protein active nutrition brands? I'm trying to think through this and understand how much of this pool of skeptics as you pursue them requires winning more of a market share game and dislodging consumers relative to how much we can change on growing the category and how that impacts your engagement.

Hi, guys. Good morning, Thanks for taking my question.

Jim I wanted to ask you gave some good detail on appreciate on kind of the Atkins revitalization when youre, having these conversations with your retail partners are there certain metrics that they want to see whether it's from the existing Atkins on shelf presence.

Or maybe in terms of like new product innovation for you guys to win the distribution back any color you could offer on that would be helpful.

Jeff Dan: Yeah, now thanks for the question. I hope you like the new advertising. When we were looking at actions, so we took a step back and what we really heard loud and clear through the research is that Atkins is one of the best position brands out there focused on weight management. What we heard loud and clear is that 80% of consumers want to lose or maintain weight and Atkins is seen as the trusted leader and low-car low-sugar solution.

Yeah sure I'm just trying to just your last 0.1st I chat distribution is extremely strong right now.

So that that hasn't been an issue for us.

I have been on the road I've met with every retailer.

Many multiple times since joining the company and I've had conversations about Atkins.

And I've been candid about some of that commercial missteps, which I think that I'd appreciate it.

But those conversations have.

Every time.

Gone to the importance of this weight management category and how we are the clear leader in that category and they want us to win.

Jeff Dan: So we see nothing but tremendous potential for this brand. But as we talked on the scripted remarks, we did hear that there's a group of consumers who are either a little confused about what Act can do or don't fully understand the benefits that you can eat products this delicious and lose or maintain weight. And that's when we started zeroing in on this idea that there are some skeptics out there, which to us represent nothing but upside to the business because as you know, once we convert consumers, they become loyal very quickly and their buy rate is particularly high compared to most consumer products.

They they are extremely aware as I've talked about of that size that the 80% want to lose weight maintain weight.

And this is an important job for consumers that we need to and they seem to support.

And they are committed to to Atkins long term health.

They also when you talk to them to them and saw that incrementally and that's what Atkins brand to the category, particularly with its high by right.

So in those conversations I've laid out.

Our six point plan to revitalize the brand.

They're excited about it.

They're giving us the time, they are giving up to support.

And.

They know they look at this category in relation to the rest of the store they see what it is how it's performing today and they see potential talked about doubling it over the next five to seven years and they know the Atkins is a critical component.

Jeff Dan: That was the goal with this new advertising is to firstly communicate, Act is not a weight management plan, it's not a regimented weight loss program, we have a range of delicious products that can help consumers maintain or lose weight. And as I step back on the business, you know, fresh set of eyes, I see nothing but upside. If we can start to convert what might be very light consumers or non-consumers and start moving them down the funnel into loyal consumers with high buy rate.

That plan, so very very positive conversations with retirement.

Okay, Great that's helpful.

If I could sneak a follow up in for Shaun.

High quality problem the house, but as.

As we look forward you guys don't really have any need to pay down debt.

Yeah.

Don't have any.

Capex really expenditures as we're modeling the cash builds I mean should we think of like share repo as a use of some of the excess cash you guys build should we just expect cash to build on the balance sheet does that get put back into maybe the R&D pipeline with some advertising just any way we can think about that moving.

Jeff Dan: So that was the genesis for how we arrived at that marketing strategy. What we also found is that who knew campaign also strongly resonates with loyal consumers because it's a little tip of the hat for them, who knew high news. So with this new campaign, what we found is we were talking and we were resonating thoughts with our loyal consumers and what potential new consumers that we're going to move through the funnel.

Okay.

Yes, I mean, we.

First of all I'll take a step back we love our model, we love the cash it throws off you guys know that as you look at our results overall this year will be a continuing that that overall right now we're happy to be lower than one times levered.

Jeff Dan: Okay, and then just to follow up, when we think about the marketing initiatives for fiscal 24, it sounds like you've got a fair amount of non-price initiatives that are heading into the market. You've a sense, maybe it's too early, but you've a sense at this point when you look across the competitive spectrum in the category, do you have a sense that, you know, your competitors are sort of also in market following a similar way where you know, they're leaning more on non-price promotion, more markets and more advertising, more in store display as opposed to just deep price cuts in terms of following back the upstream deflation in the market?

Especially when you think about the fact, we were over 445 times by four years ago with quest.

Acquisition. So we have a small group that meets pretty regularly to discuss capital allocation, we evaluate that debt paydown share buyback and M&A opportunities as they come up we'll continue to do that in fiscal 'twenty four but those are certainly the areas that we're looking for from a standpoint of use of cash.

Okay.

Okay great.

Thanks, guys I'll pass along.

Thank you.

Jeff Dan: I think what separates simply good foods from almost the majority of our competitors is how committed we are to brand building and in particular marketing. You know, we're spending right now about 95 minutes now, and we know that at that level it's been, we have a very strong share of voice. As we think about actions, and we just talked about that marketing campaign, we're investing slightly above year ago on actions and with a particular heavy up focus over the first quarter.

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

Good morning, John .

Hi, good morning.

I have a question on quest the consumption.

Obviously remains.

Quite strong there running up mid mid twenties.

I'm wondering if you could talk a little bit about.

The composition of that growth that you're seeing in the composition going forward. So you referenced the household penetration rate being relatively modest I think at 15%.

When we think about that kind of mid twenty's consumption. How much of that is household penetration gain how much is is by rate among existing users and can you talk a little bit more about your plan to maintain strong consumption in fiscal 'twenty four and the quest brand. Thanks.

Jeff Dan: And as we talked about based on our testing results, we believe the creators will perform more strongly and will focus on additional reach, taking our reach from 69% to 86%, and in the back half of the year, we're going to be making a significant investment in quick advertising, which really hasn't had a lot of focus today, so we'll be bringing out a new campaign, a reach based media campaign behind that. So, we are the market leaders, we fundamentally believe in brand building, and we believe that separates our company and our brand from our competitors. Thanks Jeff. Thank you.

Yeah absolutely.

But when we acquired quest it was primarily a bad business I think our bias or about 80% of the business.

Stay buys there just a little bit of a 50%.

And that is because in the last few years with a successfully launch new products and formats that are really propel the business.

For example in fiscal 'twenty, four we anticipate our salty snack platform to be able to turn a millionaire.

25% of the credit portfolio, but to your to your question Importantly, this innovation has proven to be.

Highly incremental to the brand and very importantly to the category for example, 30% of new users to the brand have come from chips.

Jason English: Our next question comes from the line of Jason English with Goldman Sachs. Please proceed with your question. Hey, good morning folks. Thanks for slotting him. A couple questions. First, some tactical questions. You highlighted some new club product frackens. Is this design for your existing customers, or is any of this an opportunity to penetrate new customers? And then on Quest, you reference partnering with retailers, who view Quest as a pioneer of Nutrition Sacky Gallery.

But critically why we've been growing <unk> business has grown 22% year to date.

So quest is proven and it's one of the few brands that can successfully extended across multiple product forms and I'll go a step further.

Our consumers are demanding it and our retailers are asking for it and that's the opportunity.

You know I've spent a lot of time with quest consumers over the last six months so quest.

Jason English: Partner retailers seems like it's par for the course. It sounds like this is probably not, like the fact you're calling it out suggests this may be something over and above normal partnership. Can you expound? Give us a little more detail and color on that initiative. Thank you.

Quest is a lifestyle brand sort of brilliant hack of sorts.

It's not just a product brand and that's why they are demanding us to bring out additional formats.

Jeff Dan: Yeah, happy to Jason. As it relates to the Actance Club program, we have moved from offering a variety pack to a straight pack, and what we've learned from our own research is there's a significant opportunity if we can hit a specific price point, which we have. We believe that effort will resonate both with existing consumers as well as bring in new consumers. So that's the goal there. With relation to, with the second question on Quest, yeah, you're right.

We're focused on.

What I would suggest is if you know if you think about our large and perhaps growing carbohydrates dance snack, where we can flip the macros.

You can probably bet, where we're looking at it.

We're saying again that innovation to be highly incremental brings in new users, but very importantly retailers see it too it's bringing in new category users.

And that's why we're getting the support our retailers and then I guess lastly, you've talked about where we're going with the brand.

Yes, we'll continue to push out on innovation, so distribution white space I think that Jason made a reference to that but the next era of pulling out questcor is marketing.

Jeff Dan: This category, and I've talked about it before, I described it as a teenager compared to the majority of senior store categories. You've got the twin tailwinds of snacking on health and wellness. It overindexes with millennials and Gen Z. In the reason I refer to it as a teenager, 50% health on penetration versus 90% for most senior store categories. And a real, as you know, a bright spot in the center store. And retail, let's see that.

Talk to that that the awareness is relatively low as most brands, there's an opportunity to drive additional awareness and household penetration behind a focused.

World Class marketing campaign that will be rolling out.

In the new year. So those are the three drivers of quest.

But I would just underscore this isn't incremental brand driving incremental consumers.

They can take a step back if you look at the 23 growth we've had tremendous growth I mean, obviously, we benefited just like everyone else from price as we go through that which we're not going to have this year. We're really excited about the opportunity to continue that grow that brand in the mid teens with all the growth being volume overall so.

Jeff Dan: I believe the category could double over the next five to seven years. I don't know exactly when, but that's the potential. Retailers see that. I've met with all of them many multiple times since joining the company. We're also category advisor to the majority of our customers. So one of the things I've focused on in my first six months is developing multi-year partnerships with retailers to provide and build additional space and additional focus on this category.

When we did the acquisition way back when one of the opportunities. There we saw with distribution. We saw that build this year, we're going to continue to see that going forward, but I think the strikes that brand has been recognized by retailers and there is really a growth engine for them as they look at that category overall.

Thanks, so much I'll leave it at that.

Thank you.

Thank you. Our next question comes from the line of Rob Dickerson with Jefferies. Please proceed with your question.

Jeff Dan: So moving from perhaps more of a transactional approach to category leadership to a longer term, more strategic approach, where we're building plans together, to double down on this category. How do we have more space? How do we bring, how do we have additional merchandising opportunities, etc., etc., obviously e-commerce, the omnis, the big focus there. And within that, innovation plays a critical role. And as you know, I retail as a few questions, it's the innovation pioneer in the category.

Great. Thanks, so much.

I just wanted to ask a I guess, a little bit about magnitude of kind of the new marketing campaign right I mean, if we go back.

Kind of the.

Historically was simply kind of is it.

<unk> had this back to your part of the platform was to kind of broaden the higher relative rate of marketing kind of brand push very low capex model a solid top line growth.

Jeff Dan: So you're right to highlight it, Jason. It is a step up next level, both approach to category management, that one that will underpin what we believe will be a doubling of this category over the next five to seven years. That's helpful. A little bit on that too, if take a step back in the last year, we're up 25% in consumption for quest, right? So I mean, that's a huge growth. And retailers obviously see that and want to go with the winner here. So they're looking to partner with us because they see the growth potential of the brand. Right on, and congrats on that success, by the way.

If we go back even to the physical 17 18 years Sylvia.

Selling and marketing expenses were almost at 14%.

Twenty-three we were sub 10%.

And then I also understand you know over time as you can kind of recapture some of this gross margin.

I would assume that the level of that marketing spend are stepping up your speaking to new campaign, we have a new brand ambassador.

Just trying to get a sense of maybe firstly, if we think about fiscal 'twenty four.

Jason English: And I did a poor job of asking my first question, so only come back and ask it more directly. Are you taking these new actions products to Costco? Well, as you know, we're not in Costco. We see it as an opportunity. It would represent a significant increase in the business, which would be incremental. But of course, we have to find a proposition that works for us. And for Costco, but you can probably bet that we're having ongoing conversations with them. Okay, helpful. Thank you. Thanks, Jason. Thank you.

How much should we be thinking sell your marketing would actually be up year over year or as a percentage of sales and then maybe just any incremental color on kind of what you know.

Material gross margin expansion kind of implies in fiscal 'twenty four that's it thanks so much.

Yeah. So.

What you are asking there just basically how much we stepping up marketing in fiscal 'twenty four if you take a step back to your point, we had always try to our our model. If you will was.

About 10% marketing spend we're probably closer to 8% of that in 'twenty three we want to be closer to nine to north of that in 24. So we're going to see meaningful increases in marketing we plan for mid teen growth in marketing for fiscal 'twenty four versus where we are today. So that's the that's the plan.

Pamela Kaufman: Our next question comes in line of Pamela Kaufman with Morgan Stanley. Please proceed with your question. Hi, good morning. Good morning, David. Can you talk about how you're thinking about the cadence of top line growth throughout fiscal 24 and maybe elaborate on how you're thinking about the growth outlook side brand? And just what are you expecting from the contribution from the 53rd week? Okay, a lot in there.

We have and as Jeff said, it's on both brands will probably see more of that for Atkins in the first half of the year and then as we have the new advertising for quest will see that pop in the second half of the year. So I don't if I answered your question or not but that was I think yes, yes. That's good enough and then just on gross margin.

Sean: So let me take a step back and let's talk about the year first, and I'll talk about the quarters a little bit. So on a 52 week basis, weeks past total SMPL sales increase in the midpoint of our long-term net sales growth to 46%. Right? That's all buying. We have no price in there for next year. Within that, we expect quests to be growing at least low double digits for the year with some slight declines and actions.

Hello.

So your magnitude of expansion potential in 'twenty four.

For gross margin yes.

Well first of all we're pretty confident in delivering the gross margin meaningfully in fiscal 'twenty four for the full year, we think gross margin of 38% very attainable.

By commodity decreases across most of our key ingredients a couple of caveats. There first that's based on how the world is today.

Sean: Before I start seeing the benefits of the active revitalization plan, we expect POS to improve during the year with the consumption in the second half of the year better than the first half. And I think that just speaks to the overall spring through the business as well as the underlying health and the category. So as it relates to the 53rd week, we simply added a point of growth here as we had in our plan, we talked about last time.

Obviously, we're not 100% coverage. So if it's something rattles the market is subject to change youll see a little bit that was Coco right now.

Second we're not going to drop all the favorability of the bottom line, we talked about that already we're reinvesting a big piece of that back into the business marketing will be growing in the mid teens, both brands and we are reinvesting some favorability back on a trade for Atkins.

Sean: As we finalize that plan, what we basically did was take the average of the last three years for the first week in September to forecast the extra week. That's a little bit more than a point of growth. You can't just take one divided by 52 to estimate this because we have a fall recess to be shipped in August, we don't replenish that until mid September. So it's pretty early getting into the 53rd week, but what we should plan on about a point of benefit there if we more or less depending on timing of shipment.

Early in the first half of the year as we want to make sure. We stay active in the eyes of retailers and consumers until the revitalization plan kind of bears out. So I don't think gives you a flavor of what we're looking for.

Alright Super Thank you.

Sure.

Thank you. Our next question comes from the line of Matt Mcginley with Needham <unk> Company. Please proceed with your question.

Sean: So that kind of focuses on the year and the split of the by the brands as it relates to the flow during the year. Retail take away should be somewhat similar by quarter, say hide and mid to high single digits overall. And as it relates to net sales, it's largely going to follow that consumption little bit of a flip from Q1 to Q2. So let me explain that in Q1, 24, the net sales comp versus last year's a little bit tough for a couple reasons.

Great. Thank you I had a follow up on that gross margin can you help frame your expectations on the cadence of gross margin improvement. This year do you expect those gains to be more front half weighted or back half weighted.

You may dimension around higher levels of marketing I guess can you kind of tease out like what how much higher levels of promotion do you expect.

And how much of that will be offset by the gains from our input deflation in this year.

So in terms of sequential for gross margin I think youre going to see more growth in the second half of the year than the first half of the year.

Sean: One, wait a specific program last year called the Healthy UN Cap for Quest at a very large mass retailer that we are not repeating this year. Secondly, Actions RTD bonus packs, which are a big part of our new year and new you are going to ship in Q2 this year, they shipped in Q1 last year. And as Jeff alluded to already, we are increasing trade spend in fiscal 24 on Actions, particularly in Q1s, we say stay active really in the eyes of the retailer.

Just take a step back if you look at it historically Q2 is we have lower gross margin with higher trade spend in the quarter support new year, New you are.

Additionally, we put a little more of a trade spend in Q1 of this year to really jumpstart the business as I mentioned, so youre going to see gross margin improve in Q1 versus Q1 last year should be about the same as Q4.

Sean: So Q1 sales going on increase in the low single digits on the flip side, we expect that impact reversing Q2. Q2 last year had flat growth, therefore Q2 this year we expect net sales growth to be at the higher end of our algorithm 4 to 6%. So at the end of Q1 consumption and sales should largely be in line just a flip between Q1 and Q2.

So Q1 will be about the same as Q4 in terms of gross margin and then you see pretty significant gross margin expansion in Q3 and Q4. This year. So a lot of that is I'd say back half loaded.

Pamela Kaufman: Thank you. That's very helpful.

As it relates to trade we're up we're not drastically up in spend overall, we're just really trying to make sure that we support the brand in the marketplace as we get through the revitalization, so a little bit of an increase there and effectively what we did was we typically do promotional plans with our retailers in September and in January .

Jeff Dan: I also just wanted to dig into a bit more on how you plan to capitalize on the growth in GLP1 drugs. What were the findings of the study that you conducted and how are you thinking about the role that each actions and quest can play in targeting this consumer? Yeah, when we believe it based on our research, which I'll talk about, that the GLP1 drugs are a significant tailwind for both businesses.

To support the resets as well as the new year, New you. We've added some more spending in October and in February of this year to support the brand to look more and get better growth on those on those timeframe. So I hope I answered your question or not but that's directionally, where do we did.

I appreciate it thank you very much.

Sure.

Thank you ladies and gentlemen, our final question. This morning comes from the line of Stephen Powers with Deutsche Bank. Please proceed with your question.

Jeff Dan: Over the past three months, we conducted a lot of proprietary research with consumers on the drugs to understand the impact they were having. What we saw is the answers are reduced appetite, but it's especially focused on less healthy products. And what we found is that consumers on the drugs were eating and seeking smaller healthy meals and snacks, especially high protein products, because they still need to get nutrition they need. So through our research, what we found, for both actions and quest with opportunities, for these brands to be an excellent companion when consumers are on the products, and our research found that by size, the majority of consumers taking the drugs don't plan to stay on it.

Hey, Thanks for fitting me in here.

I guess just listening to the Atkins conversation throughout the call.

I think it's I think it comes across as you've got a pretty a pretty clear.

<unk> view of what the deficiencies.

We have been in a pretty clear vision of what needs to be done I guess the question I'm left with is there anything you know Jeff as you've gone through the review of that brand that you are there open questions that you still have the things that you you still don't know that you'd like to know to have just even a higher degree of confidence on the overall revitalization.

That's a fair question.

I mean.

Now I have a lot of confidence.

And the plan that was developed which is based on what was very comprehensive research on the on the business talking to consumers advanced analytics et cetera.

Jeff Dan: So they still want to hold on to the game, and what we found in our research is that products are an excellent off-ramp as well. So we see this as a significant long-term opportunity, we're clearly still in the early innings of these drugs and their adoption, but we wanted to get a jump start on it. We've worked with several external partners to build a sizable, addressable audience of consumers who are either interested in or on the drugs.

So there's a tremendous amount of confidence we have in the plan.

Jeff Dan: And we plan to deliver them targeted communication, brand messaging, offers et cetera, again about how our product can be a perfect companion when you're on the drug and an off-ramp. Again, we're still in the early innings of this, and the campaign that we will bring to market will deploy in the next quarter, but we see this as a long-term potential. And as advocates of weight wellness, we think it's terrific that consumers have another tool in their arsenal, and it's just going to bring additional focus to weight loss, particularly on actions, which is where the brand plays.

We know that the opportunities in front of US are I'd say in the near term accelerate bar innovation to market, but ensure we build a multiyear pipeline.

Identified opportunities to upgrade the product and hopefully deliver superior shelf life.

Pamela Kaufman: Thank you.

We're focused in on specific customers talked a lot about the club channel, which is an opportunity that fixes already shipping to market.

About doubling down on e-commerce.

And then a little more long term how do we.

Modernize the brand how do we enhance the brand experience you've seen US go out initially with new advertising supported by expanded rate lift.

Got a packaging refresh coming which I'm sure you understand takes a little longer.

The series of initiatives, we have will come to market sequentially over the next 12 to 18 months and then we also have the weight management job.

It's a reset strongest shows this is a tailwind for the business, but that's in the early innings.

Pamela Kaufman: Maybe if I could just sneak in one more. You're going to step out. Sorry. Okay. I'll go back in the queue. Thank you.

So as we think about <unk>, we have a our goal is to stabilize the brand and then by the back half of the of that Fetsko, you'll start to see improvement and underpinning. It all I put a new leadership team in place to drive enhanced accountability and execution. So I have a tremendous amount of confidence and then it's all wrapped up in the opportunity.

Matt Smith: Our next question comes in line of Matt Smith with Steve. Please proceed with your question. Hi, good morning. Jeff, if I could ask you a number of years ago, the Adkins brand, you talked about high loyalty rates and the annual buy rates for existing consumers, really being a tailwind to the brand. How do you think about the development of the overall category and the prevalence of new brands? And the impact that would have on Adkins, as we stand here today, do those metrics naturally move lower over time, but the growth potential on the size of the category are larger today, and therefore it may not be a negative to the brand, or do you expect to get back to those high loyalty and repeat rates.

This brand is so sharply positions again I need that it's only growing.

And it's our job to ensure we can deliver its full potential stuff a lot of confidence.

Great. Thank you so much I know, we've got an hour so I'll leave it there. Thank you.

Yeah, that's what I think everyone fair that participating on today's call.

We look forward to updating you on our first quarter results in January .

Everybody has a good day thank.

Thank you thank.

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

Matt Smith: Yeah, as I said in the remarks, since coming onto the business, I've dived very deep on actions, a lot of research with consumers, a lot of analytics on the business, and it, that research to me just reaffirmed the opportunity this business has. It is so uniquely positioned against an opportunity that is significant. As I said, 80% of consumers want to lose a maintain weight and actions are seen as a trusted leader in low cost and low sugar solutions.

Matt Smith: So the long-term potential of this business is significant. What I talked about was we had some executional missteps that has impacted some of those metrics by rate, for example, when you're not bringing really great innovation, when you've got an executional misstep with a large club customer, that's going to show up in those numbers. But fundamentally, when we fix those, and those fixes are in market, and when we continue to support the business with marketing focused on talking to core users, as well as some of the skeptics, we believe these metrics will start to turn around.

Matt Smith: And then you have, for the last question, the additional interest in weight management. It is just going to drive additional interest in this brand. So the slight decline we're seeing in some of those metrics right now, you've got to look at those and say a big driver's impact we're seeing was a commercial misstep. We're fixing it, we're committed to the long-term growth of this business, which is why we're doubling down, increasing marketing, bringing new innovation to market, working on packaging.

Matt Smith: And those metrics very confident, we'll start to turn very quickly in the right direction. It's just a quick add on there, Matt. If you take a step back, the Actions consumer has been a very loyal consumer over the years. We've seen that through the modeling that we've done. We've mentioned before we've seen a slight decrease in buy rate over the last period of time, principally because of the pricing aspect of that thing.

Matt Smith: But the buy rate on retained users continues to be very strong. So we'll see that get better as Jeff said with all the things we're doing in the market, but I think it continues to be a strength of the brand. Thank you, Jeff, and Sean. It was very helpful. I can leave it there and pass it on. Thank you.

Jim Solera: Our next question comes from the line of Jim Solera with Steven Zink. Please proceed with your question. Hi, guys. Thanks for taking our question. I wanted to ask, you gave some good detail and appreciate on kind of the Actions revitalization. When you're having these conversations with your retail partners, are there certain metrics that they want to see, whether it's from the existing Actions on shelf presence or maybe in terms of like new product innovation for you guys to win the distribution back?

Jim Solera: Any color you could offer on that would be helpful. Yeah, sure. I mean, it's one of your last points as your distribution is extremely strong right now. So that hasn't been an issue for us. I have been on the road. I've met with every retailer many multiple times since joining the company and I've had conversations about Actions and I've been candid about some of our commercial mistakes, which I think I've appreciated.

Jim Solera: But those conversations have... Every time gone to the importance of this white management category and how we are the clear leader in that category and they want us to win. They are extremely aware, as I've talked about, of the size, the 80% want to lose weight, maintain weight and this is an important job for consumers that we need to support. And they are committed to Akin's long-term health. They also, when you talk to them, to them it's all about incrementality and that's what Akin's brings to the category, particularly with its high by rate.

Jim Solera: So in those conversations, I've laid out our six point plan to revitalize the brand, they're excited about it, they're giving us the time, they're giving us the support. And they know, they look at this category in relation to the rest of the store. They see what is power performing today and they see potential, talked about doubling it over the next five to seven years, and they know the Akin's is a critical component of that plan.

Jim Solera: So very, very positive conversations with retail. Okay, great, that's helpful.

Sean: And if I can sneak a follow-up in for Sean, high quality problem to house, but as we look forward, you guys don't really have any need to pay down debt. You don't have any, you know, capex really expenditures. As we're modeling the cash build, I mean, should we think of like share repo as a use of some of the excess cash you guys build? Should we just expect cash to build on the balance sheet?

Sean: Does that get put back into maybe the R&D pipeline or some advertising? Just anyway, we can think about that moving forward. Yeah, I mean, we have, first of all, a step back. We love our model. We love the cash throws off. You guys know that as you look at our results overall. This year will be continuing that that overall. And right now, we're happy to be lower than one time. Especially when you think about the fact we were over four, four and a half times, about four years ago, with Quest acquisition.

Sean: So we have a small group that meets pretty regularly to discuss capital allocation. We evaluate that pay down share buy back and, you know, M&A opportunities as they come up. We'll continue to do that in fiscal 24, but those are certainly the areas that were looking for from the standpoint of use of the cash. Okay, great. Thank you.

John Anderson: Our next question comes in line of John Anderson with William Blair. Please proceed with your question. Good morning, John. Good morning. I have a question on Quest. The consumption obviously remains quite strong there running up mid mid 20s. I wonder if you could talk a little bit about the composition of that growth that you're seeing and the composition going forward. So you referenced the household penetration rate being relatively modest. I think at 15%.

John Anderson: When we think about that kind of mid 20s consumption, how much of that is is household penetration gain? How much is is by rate among existing users? And can you talk a little bit more about your plan to maintain from consumption in fiscal 24 on the quest brand?

Jeff Dan: Yeah, it's lovely. But when we acquired a quest, it was primarily a bar business, I think bars were about 80% of the business. Today bars are just a little bit of a 50% and that is because in a lot of years, we've successfully launched new products and formats that have really propelled the business. For example, in February 24, we anticipate a salty snack platform to be able to turn it into a net sale, 25% of the quest portfolio.

Jeff Dan: But to your question, importantly, this innovation has proven to be highly incremental to the brand and very importantly to the category. For example, 30% of new users to the brand have come from chips. But critically, while we've been growing chips, the bar business has grown 22% here today. So quest has proven, it's one of the few brands that can successfully extend across multiple products. And I'll go a step further, our consumers are demanding it and our retailers are asking for it and that's the opportunity.

Jeff Dan: You know, it's been a lot of time with quest consumers over the last six months. So the quest is a lifestyle brand, it's sort of a brilliant hack and sort of not just a product brand and it's why they're demanding us to bring out additional formats that were focused on. So what I would suggest is if you think about a large and perhaps growing carbon hydrate and snack where we can flip the macros, you can probably bet we're looking at it.

Jeff Dan: We've seen, again, that innovation to be highly incremental, brings in new users, but very importantly, retailers see it too. It's bringing in new category users. And that's why we're getting the supporter retailers. And then, I guess, lastly, you talked about, you know, where are we going with the brand? Yes, we'll continue to push out on innovation. It's still distribution, white space, I think Jason made a reference to that. But the next era we're pulling out in the quest is marketing.

Jeff Dan: It's talked about that the awareness is relatively low, this is most brand, there's an opportunity to drive additional awareness and then household penetration behind a focused and well-crossed marketing campaign that we'll be rolling out in the new year. So those are the three drivers of quest, but I'll just underscore this is an incremental brand driving incremental consumers. Yeah, I mean, I think they step back and you look at the 23 growth we've had tremendous growth.

Jeff Dan: I mean, obviously we've benefited like everyone else from price as we go through that, which we're not going to have this year. We're really excited about the opportunity to continue to that grow that brand in the mid teens with all the growth being mulling them overall. So when we did the acquisition way back when one of the opportunities there we saw with distribution, we saw that build this year. We're going to continue to see that going forward, but I think the strength that brand has been recognized by retailers and there's really a growth engine for them as I look at that category overall.

John Anderson: Thanks so much, I'll leave it there.

John Anderson: Thank you.

Rob Dickerson: Our next question comes in line. A Rob Dickerson with Jeffries. Please proceed with the call, question. Great, thanks so much. I just wanted to ask, I guess a little bit about magnitude of the new marketing campaign, right? I mean, if we go back, historically with simply as it had de-spacked and the part of the platform was to kind of run kind of a higher relative rate of marketing, kind of brand push, right?

Rob Dickerson: Low CapEx model, Salatopoint growth. You know, if we go back even to the physical 17, 18 years, you know, cellular marketing expenses were almost at 14 percent. You know, in 23, we were sub 10 percent. And then I also understand, you know, over time as you can kind of recapture some of this gross margin, I would assume that, you know, the level of that marketing spent stepping up, you're speaking to a new campaign, we have a new brand ambassador.

Rob Dickerson: So I'm just trying to get a sense of, you know, maybe firstly, if we think about fiscal 24, you know, like how much should we be thinking, selling a marketing would actually be up year by year or as a percentage of sales. And then maybe just any incremental color on kind of what, you know, material gross margin expansion kind of implies in fiscal 24.

Sean: That's it. Thanks so much. Yeah, so I think we're asking there just basically how much we stepping up marketing in fiscal 24 means to take a step back. We, at your point, we had always tried our model, if you will, was, you know, get about 10 percent marketing spend. We're probably closer to 8 percent of that in that 23. We want to be closer to nine to look north of that in 24.

Sean: So we're going to see meaningful increases in marketing. We plan for mid-teen growth in marketing for fiscal 24 versus where we are today. So that's the, that's the plan we have. And as Jeff said, it's on both brands. We'll probably see more of that for Atkins in the first half of the year. And then as we have a new advertising request, we'll see that pop in the second half of the year.

Sean: So I don't think I answered a question or not, but that was, but I think yes. Yeah, that's good enough. And then just on gross margin, I don't know, but thinking of magnitude of expansion potential in 24. For gross margin? Yes. Well, first of all, we're pretty confident in delivering the gross margin meaningfully in fiscal 24. For the full year, we think gross margin of 38 percent is very attainable driven by commodity decreases across most of our key ingredients.

Sean: A couple of caveats there. First, that's based on how the world is today. Obviously, we're not 100 percent covered. So if something rattles the market, it's something to change. You see a little bit that was co-told right now. Second, we're not going to drop all the fairbilly to bottom line. We talked about that already. We're reinvesting a big piece of that back into the business marketing. We'll be growing in the mid-teens.

Sean: Both friends and we're reinvesting some favoritability back into trade for Atkins, particularly in the first half of the year, as we want to make sure we stay active in the eyes of retailers and consumers until the revitalization plan kind of fares out. So I don't think Thank you.

Ryan McGinley: Our next question comes from Ryan of Matt McGinley with Needham and Company. Please proceed with your question. Great, thank you. I have a follow up on that gross margin. Can you help frame your expectations on that cadence of gross margin improvement this year? Do you expect those games to be more front half-weighted or back half-weighted? And you need to mention around higher levels of marketing. I guess can you kind of tease out like what, how much higher level of promotion do you expect and how much of that would be offset by the gains from input deflation in this year?

Ryan McGinley: So in terms of sequential for gross margin, I think you're going to see more growth in the second half of the year than the first half of the year. You know, just to take a step back, you look at it historically, Q2 is we have lower gross margin with higher trade spend in the quarter sport, New Year, New Year, New Year. Additionally, we put a little more of a trade spend in Q1 of this year to really jumpstart the business as I mentioned.

Ryan McGinley: So you're going to see gross margin improving Q1 versus Q1 last year should be about the same as Q4. So with the Q1, it will be about the same as Q4 in terms of gross margin. And then you see pretty significant gross margin expansion in Q3 and Q4 this year. So a lot of that, as I say, back half loaded. As it relates to trade, we're up. I mean, we're not drastically up and spend overall.

Ryan McGinley: We're just really trying to make sure that we support the brand in the marketplace as we get through the revitalization. So a little bit of an increase there. And effectively what we did was we typically do promotional plans with our retailers in September and in January to support the resets as well as the New Year, New Year, New Year. We've added some more spending in October and in February this year to support the brand a little bit more and get better growth on those on those timeframes.

Sean: So I don't know if I answered your question or not, but that's the direction we're doing. We did. Appreciate it. Thank you very much. Sure. Thank you.

Stephen Powers: Ladies and gentlemen, our final question this morning comes from the line of Stephen Powers with Draca Bank. Please proceed with your question. Hey, thanks for fitting me in here. I guess, you know, just listening to the Atkins conversation throughout the call. I think it's, I think it, it comes across as you've got a pretty, a pretty clear view of what the deficiencies have, you know, have been and a pretty clear vision of what needs to be done.

Stephen Powers: I guess the question I'm left with is there anything, you know, Jeff, as you've gone through the review of that brand that you, are there open questions that you still have? The things that you still don't know that you, you'd like to know to have just even a higher degree of confidence on the overall revitalization?

Jeff Dan: That's a fair question. I mean, no, I have a lot of confidence in the plan that we've developed, which is based on what was very comprehensive research on the business, talking to consumers, advanced analytics, etc. So there's a tremendous amount of confidence we have on the plan. We know that the opportunities in front of us are to, in the near term, accelerate bar innovation to market. But in sure, we build a multi-year pipeline.

Jeff Dan: We've identified opportunities to upgrade the product and hopefully deliver superior shelf life. We've focused in on specific customers. We've talked a lot about the club channel, which is an opportunity. That fix is already shipping to market. We've talked about doubling down on e-commerce. And then a little more long term, how do we modernize the brand? How do we enhance the brand experience? You've seen us go out initially with new advertising supported by expanded reach.

Jeff Dan: We've got a packaging refresh coming, which I'm sure you understand takes a little longer. The series of initiatives we have will come to market sequentially over the next 12 to 18 months. And then we also have this the white management drug, which recently strongly shows this is a tailwind for the business. But that's in the early ending. So as we think about Akins, we have a goal to stabilize the brand. And then buy the back half of this of our first goal, you'll start to see improvement.

Jeff Dan: And then underpinning it all, I put a new leadership team in place to drive enhanced accountability and execution. So I have a tremendous amount of confidence. And then it's all wrapped up in the opportunity. This brand is so sharply positioned against a need that it's only growing. And it's our job to ensure we can deliver its full potential. That's a lot of confidence.

Stephen Powers: Great. Thank you so much.

Jeff Dan: I know we've gone an hour, so I'll leave it there. Thank you. Yeah, I just want to thank everyone for the petition on today's call. We look forward to updating on our first quarter results in January. So everybody has a good day. Thank you.

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