Q2 2024 The Simply Good Foods Co Earnings Call

Okay.

[music].

None: Greetings and welcome to the simply good Foods company fiscal second quarter 2024 conference call. At this time, all participants are in a listen only mode.

Operator: Greetings, and welcome to the Simply Good Foods Company fiscal second quarter 2024 conference call. At this time, all participants are in a listen only mode.

Operator: The 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. Please note this conference is being recorded. I will now turn the conference over to Mark Pogharian, Vice President of Investor Relations. Thank you. You may begin. Thank you, operator.

None: <unk> and answer session will follow the formal presentation.

None: If you require operator assistance during the conference. Please press Star Zero on your telephone keypad. Please note. This conference is being recorded I will now turn the conference over to Mark Magarian, Vice President of Investor Relations. Thank you you may begin.

Mark Pogharian: Thank you operator, good morning, I'm pleased to welcome you to the simply good Foods company earnings call for the fiscal second quarter ended February 24, 2020 for Geoff Tanner, President and CEO and Shawn marrow CFO will provide you with an overview of results, which will that'd be followed by a Q&A session. The company issued an earnings release this morning.

Mark Pogharian: Good morning. I'm pleased to welcome you to the Simply Good Foods Company earnings call for the fiscal second quarter ended February 24, 2024. Geoff Tanner, President and CEO, and Shaun Mara, CFO, will provide an overview of the results, which will then be followed by a Q&A session. The company issued an earnings release this morning at approximately 7am Eastern Time. A copy of the release and accompanying presentation are available in the investor section of the company's website at www.tosimplygoodfoodscompany.com.

Mark Pogharian: At approximately seven a M. Eastern time, a copy of the release and accompanying presentation are available under the investors section of the company's website 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.

Mark Pogharian: This call is being webcast, and an archive of today's remarks will also be available. During the course of today's call, management will make forward-looking statements that are subject to various risks and uncertainties that may cause actual results to differ materially. The company undertakes no obligation to update these statements based on subsequent events.

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

Mark Pogharian: A detailed listing of such risks and uncertainties can be found in today's press release and in 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 from GAAP to 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 reconciliation of the non-GAAP financial measures to the most comparable measures prepared in accordance with GAAP. And I'll turn the call over to Geoff Tanner, President and CEO.

Mark Pogharian: Note that on today's call, we will refer to certain non-GAAP financial measures that we believe will provide useful information for investors.

Mark Pogharian: The company's asset light strong cash flow business model, we evaluate our performance on an adjusted basis as it relates to EBITDA and diluted EPS. We have included a detailed reconciliation from GAAP to adjusted items in today's press release. We believe these adjusted measures are a key indicator of the underlying performance of the business. The presentation of this information it is.

Mark Pogharian: Not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Please refer to today's press release for a reconciliation of the non-GAAP financial measures to the most comparable measures prepared in accordance with GAAP and now I'll turn the call over to Jeff Tanner, President and CEO. Thank you Mark good morning.

Geoff E. Tanner: Thank you, Mark. Good morning.

Geoff E. Tanner: Thank you for joining us. Today, I'll recap Simply Good Food's financial results and the performance of our brand. Then, Shaun will discuss our financial results in more detail before we wrap it up with a discussion of our fiscal 2024 outlook and your questions. Simply Good Food's second quarter results were led by continued Quest growth, as well as strong gross margin improvement. Net sales increased 5.3% driven by volume and due to the timing of shipments last quarter outpacing retail takeaway of about 3%. Although retail takeaway in measured channels was less than our expectations, eCommerce POS growth for both Quest and Atkins continued to be solid. Quest Retail Takeaway was on track with our plans, driven by strong Salty Snacks growth, while Atkins performance was off versus our estimates. Atkins had solid plans in place, but was ultimately disadvantaged on two fronts during the quarter. First, it lacked a one-time merchandising and promotional benefit that it had in the 2023 New Year's New Year season due to the out-of-stock challenges of a category participant.

Geoff E. Tanner: Thank you for joining us.

Geoff E. Tanner: Today, I'll recap simply good foods financial results and the performance of our brands then Sean will discuss the financial results in more detail before we wrap it up with a discussion of our fiscal 'twenty 'twenty four outlook and your question simply good Foods' second quarter results were led by continued quest.

Geoff E. Tanner: Ross as well as strong gross margin improvement.

Sales increased five 3% driven by volume and due to the timing of shipments last quarter outpaced retail takeaway of about 3%.

Geoff E. Tanner: Retail takeaway in measured channels was less than our expectation.

Geoff E. Tanner: E Commerce P O S sprouts for both quest and Atkins continued to be solid.

Geoff E. Tanner: Quest retail takeaway was on track with our plans driven by strong salty snacks growth, while Atkins performance was off versus our estimate.

Geoff E. Tanner: Atkins had solid plans in place that was ultimately disadvantaged on two fronts during the quarter.

Geoff E. Tanner: First it lapsed, a one time merchandising and promotional benefit but it had in the 'twenty to 'twenty. Three you. Yeah, you use season due to the out of stock challenges of a category participant.

Geoff E. Tanner: And second, in the 2024 New Year's New Year season, this category participant had adequate supply to service based business. It then layered in extensive merchandising programs and promotions during the season, which greatly reduced the overall in-store share of voice for the Atkins brand and others. In March, as we exited the New Year's New Year season and moved past the difficult lap, Atkins trends improved. More on that in a bit.

And second in the 'twenty 'twenty four new year, New you see them. This category participant had adequate supply to serve as its base business.

Geoff E. Tanner: And then lay out an extensive merchandising programs and promotions during the season, which greatly reduces the overall in store share of voice.

Geoff E. Tanner: <unk> brands and others.

Geoff E. Tanner: In March as we exited the new year, you'll see that and moved past the difficult lap Atkins trends improved more on that in a bit.

We were very pleased with the Q2 gross margin of 37, 4%.

Geoff E. Tanner: We were very pleased with the Q2 growth margin of 37.4%. The 280 basis point increase versus the year-ago period was primarily due to lower ingredient and packaging costs. Higher gross profit enabled investments in our business and an increase in Q2 adjusted EBITDA of 13.6% to $57.8 million. However, due to the softer than anticipated Q2 Atkins Consumption Trends, we have updated our full year fiscal 2024 outlook.

Geoff E. Tanner: 280 basis point increase versus the year ago period was primarily due to lower ingredient and packaging costs.

Higher gross profit enabled investments in our business and an increase in Q2 adjusted EBITDA of 13, 6%.

Geoff E. Tanner: $57 8 million.

Geoff E. Tanner: However, due to the softer than anticipated Q2, Atkins Consumptions training, we have updated our full year fiscal 2020 for outlook.

Geoff E. Tanner: We expect net sales to increase around the midpoint of the company's long-term algorithm of 4-6%, including the benefit of a 53rd week. We previously expected net sales to increase at the high end of the long-term algorithm. We continue to expect solid gross margin expansion. An adjusted EBITDA is now anticipated to increase 6% to 8% driven by solid growth margin expansion.

Geoff E. Tanner: We expect net sales to increase around the midpoint of the company's long term algorithm of 46%.

Geoff E. Tanner: Including the benefit of the 50 <unk> week.

Geoff E. Tanner: We previously expected net sales to increase at the high end of the long term algorithm.

Geoff E. Tanner: We continue to expect solid gross margin expansion and.

Geoff E. Tanner: Adjusted EBITDA is now anticipated to increase 6% to 8% driven by solid gross margin expansion.

None: Let me now turn to quest.

Geoff E. Tanner: In Q2, Retail Takeaway measured channels increased 13.1%. Growth was solid across the key product forms and retail channels, driven by an increase in both household penetration and buy rate. In Q2, we estimate total unmeasured channel retail takeaway increased about 10% as e-commerce strength was partially offset by softness and specialty channels. Quest Q2 eCommerce POS remained solid and increased about 14%. For perspective, total unmeasured channels in Q2 were nearly 24% of total Quest retail sales.

None: In Q2 retail takeaway in measured channels increased 13, 1%.

None: Growth was solid across the key product forms and retail channels driven by an increase in both household penetration and buy rate.

None: In Q2, we estimate total unmeasured channel retail takeaway increased about 10% is E. Commerce strength was partially offset by softness in specialty channels.

None: Quest Q2 E Commerce P O S remained solid and increased about 14%.

None: For perspective title Unmeasured channels in Q2 were nearly 24% of total quest rates outside of <unk>.

Geoff E. Tanner: Quest Bar and Snacks retail takeaway and measured channels increased 6% and 21% respectively. We're particularly pleased with our Salty Snacks POS growth of about 40%, which is a standout in the category and now represents about 25% of Quest retail sales. Additionally, we continue to see new Quest consumers coming into the brand via chips and then trying our other products such as bars, cookies, or confections. The success of Quest Chips continues to be a proof point of the brand's ability to extend beyond its core and disrupt other large snacking categories, where we can offer high protein, low sugar, and great tasting options for consumers. Over the remainder of the year, we continue to expect low double-digit POS growth and continued household penetration and buy-rate gains driven by innovation, distribution, and a new marketing campaign. In March, we announced the launch of a new advertising campaign entitled, It's Basically Cheating.

None: Quest bars, and snacks retail takeaway in measured channels increased 6% and 21% respectively.

None: We're particularly pleased with our salty snacks P. O S growth of about 40%, which is a standout in the category and now represents about 25% of quest retail styles.

None: Additionally, we continue to stay in your quest consume it coming into the brand by a chip and then trying our other products such as bass cookies or confections.

None: The success of Quest chip continues to be a proof point of the brand's ability to extend beyond its core and disrupt other large snacking categories.

None: We can offer high protein low sugar and great tasting options for consumers.

None: Over the remainder of the year, we continue to expect low double digit P. O S Cross and continued household penetration and by rate gains driven by innovation distribution and the new marketing campaign.

None: In March we announced the launch of our new advertising campaign entitled It's basically cheating.

Geoff E. Tanner: The campaign features Academy Award and Emmy-nominated writer, actor, and comedian Kumail Nanjiani, who playfully and satirically delivers the core campaign idea that Quest products are so good tasting and better for you that it basically feels like cheating. Quest has been one of the most innovative brands in the category and is supported by a best-in-class R&D team. The multi-year pipeline is strong, and we expect innovation to be a lever of growth for a long time. In March, we launched Strawberry Frosted Cookies and one of my favorite products, Iced Coffee. This 10 gram protein-packed, 10 ounce drink has minimal sugar, only 90 calories, and 200 milligrams of caffeine.

None: The campaign features Academy Award, an Emmy nominated writer actor and comedian Canal now Gianni.

None: <unk>, that's a terribly so live as a core campaign idea that quest products are so good tasting and better for you, but it basically feels like cheating.

None: Quest has been one of the most innovative brands in the category and is supported by a best in class R&D team.

None: The multiyear pipeline is strong and we expect innovation to be a lever of growth for a long time.

None: In March we launched Strawberry frosted cookies, and one of my favorites Iced coffee.

None: This 10 Gram protein packed pan out strength as minimal sugar, only 90 calories and 200 milligrams of caffeine.

Geoff E. Tanner: Today, I'm also excited to announce a new Bakeshop platform for the fall of 2024. As we've seen with chips, this is an opportunity to disrupt a large snacking category, sweet baked goods, with high protein, low sugar and great tasting muffins and brownies. Like Quest Chips, we believe this new platform will bring new consumers to the active nutrition category and expand buy rates through another usage occasion. Based on conversations with key retail customers, we expect very strong support for the launch, which will also be underpinned by a comprehensive marketing plan as part of the It's Basically Cheating campaign. Turning to Atkins, Q2 retail takeaway in the IRI Mulud plus C-Store universe and the combined measured and unmeasured channels were off 11% and 8%, respectively. However, strong e-commerce growth continued, driven by Amazon, whose POS growth was 13%.

None: Today I'm also excited to announce a new bike shop platform for the fall of 2024.

None: As we have seen much chip. This is an opportunity to disrupt a large snacking category sweet baked goods with high protein low sugar and great tasting muffins and brownie.

None: Like Quest chips, we believe this new platform will bring new consumers to the active nutrition category and expand pyrite through another usage occasion.

None: Based on conversations with key retail customers, we expect very strong support for the launch.

None: We'll also have the underpinned by a comprehensive marketing plan as part of the it's basically cheating campaign.

None: Jonathan Atkin's Q2 retail takeaway in the IRI <unk> plus same store units.

None: And they combined to measured and unmeasured channels was off 11% and 8% respectively.

None: Strong E Commerce growth continues driven by Amazon is P. O S Cross was 13%.

Geoff E. Tanner: In Q1, e-commerce was nearly 17% of total Atkins retail sales, up from 11% only three years ago. eCommerce retail sales are over $2 million per week, driven by a mix of new consumers and some heavy users that are migrating to this channel from brick and mortar. Atkins Performance and Brick and Mortar Channels were softer than expected. This was primarily due to greater than anticipated in-store competitive merchandising and programming that also impacted several other brands.

None: In Q1 E Commerce was nearly 17% of total Atkins retail sale from.

None: From 11% only three years ago.

None: E Commerce retail sales are over $2 million two weeks driven by a mix of new consumers and some heavy users that are migrating to this channel some brick and mortar.

None: Atkins performance in brick and mortar channels with softer than expected.

None: This was primarily due to greater than anticipated install competitive merchandising and programming that also impacted several other brands.

Geoff E. Tanner: As I noted earlier, last year, Atkins received incremental one-time merchandising and promotional support due to the supply challenges of a category participant, which is why the 2024 New Year UU was a challenging headwind. However, as you'll note in the chart in the middle of the slide, as we exited the new year, new season, retail takeaway trends improved. Over the remainder of the year, we expect a more normal level of competitive in-store merchandising and programming. We also have a strong advertising plan in place and are excited about the quality of the new products we will soon bring to market. Therefore, we anticipate full year fiscal year 2024 combined measured and unmeasured channel POS to be off around 7% versus our previous estimate of 3 to 4%.

None: As I noted earlier last year Atkins received incremental one time merchandising and promotional support due to the supply challenges of a category participant.

None: Is why the 'twenty 'twenty four new year, new year was a challenging headwind.

None: However, as you'll note in the chart in the Middle of this slide as we exited the new Yeah, you season retail takeaway trends have improved.

None: Over the remainder of the year, we expect a more normalized level of competitive in store merchandising and programming.

None: We also have a strong advertising plan in place and are excited about the quality of the new products, we will bring to market.

None: Therefore, we anticipate full year fiscal year 'twenty 'twenty, four combined measured and Unmeasured channel P O S b off around 7%.

None: This is our previous estimate of 3% to 4%.

None: We continue to have tremendous faith in the long term potential of the brand, especially given the increased cultural relevance and conversation about weight wellness.

Geoff E. Tanner: We continue to have tremendous faith in the long-term potential of the brand, especially given the increased cultural relevance and conversation about weight wellness. We continue to make progress against the five-point revitalization plan we've talked about on previous calls. However, as you may recall, it's going to take time before all the elements of the plan are collectively in the marketplace.

None: We continue to make progress against the five point revitalization plan, we've talked about on previous calls however.

None: However, as you may recall, it's going to take time before all the elements of the plan.

None: Collectively in the marketplace.

None: I'm, particularly pleased with the progress, we're making and accelerating innovation, which is a critical driver of business performance.

Geoff E. Tanner: I'm particularly pleased with the progress we're making in accelerating innovation, which is a critical driver of business performance. As previously stated, our lack of quality innovation has been a headwind to Atkins' performance. So getting this back on track has been a focus area for us. The significant improvements we've made should enable us to have 15 new product launches in calendar year 2024 across all product forms. At the bottom of this slide, I'd like to point out Atkins Strong, a high-protein shake developed specifically for consumers on a weight loss drug or for shoppers just seeking higher levels of protein. For consumers experiencing rapid weight loss, either through medication, surgery, or dieting, high protein levels are important to help maintain muscle mass.

None: As previously stated.

None: Lack of quality innovation has been a headwind to Atkins performance.

None: Getting this back on track, it's been a focus area for us.

None: The significant improvements we've made should enable us to have 15, new product launches in calendar year 'twenty 'twenty four across all product forms.

None: At the bottom of the slide I'd like to point out Atkins strong.

None: High protein shake developed specifically for consumers on a weight loss drug off the sharpest, just seeking higher levels of protein.

None: The consumer has experienced rapid weight loss.

None: Three medications surgery of dieting high power chain levels are important to help maintain muscle mass.

Geoff E. Tanner: Akron Strong Protein Shakes deliver 30 grams of protein with 1 gram of sugar and have also been formulated with 7 grams of prebiotic fiber to support gut health. This beneficial level of fiber is lacking in many RTD shakes in the market today and is a highly relevant nutrient for many folks on this new medication. Finally, research continues to suggest that the Atkins approach can be an effective off-ramp for those who choose to transition off the medication, and we're working to optimize our communications to ensure the brand is seen as a way to maintain weight loss benefits after taking the drug.

None: I kind of strong protein shakes deliver 30 grams of protein with one gram of sugar and they've also been formulated with seven grams, a prebiotic fiber to support Scott House.

None: This beneficial level of fiber is lacking in many RTD shakes in the market today and is a highly relevant nutrient for many folks on the new medications.

None: Finally research continues to suggest that the Atkins approach can be an effective off ramp.

None: We chose to transition off the medication and were working to optimize out communications to ensure their brand is seen as a way to maintain weight loss benefits after taking the drugs.

None: To summarize.

Geoff E. Tanner: To summarize, Simply Good Foods is uniquely positioned as a U.S. leader in nutritional snacks. The nutritional snacking category is more relevant today than at any other time as the conversation about health and wellness continues to increase. Furthermore, our category continues to be a standout versus many other center of store categories. As such, we're leveraging our role as category advisor at most retailers and continuing to work with our customers to develop and support initiatives in the aisle to further accelerate category growth with a particular focus on gaining more space. Consumers trust our brands to help them achieve their wellness goals, and we are accelerating our innovation and marketing plans to provide consumers with products to help them on their wellness journey. We will continue to execute our strategic priorities, focusing on doing the right thing for our customers and consumers, which will enable us to deliver on our long-term growth objectives that ultimately drive increased shareholder value. Now I will turn the call over to Shaun, who will provide you with some greater financial details. Thank you, Geoff.

None: Good foods is uniquely positioned in the U S. Later nutritional snacking.

None: Attritional snacking category is more relevant today than at any other time, it's a conversation of health and wellness continues to increase.

Furthermore, our category continues to be a standout versus many other sandra of store categories.

None: As such we're leveraging our role as category adviser at most retailers and continue to work with our customers to develop and support initiatives in the aisle to further accelerate category growth with a particular focus on gaining more space.

None: Consumers Trust, our brands to help them achieve their wellness goals and.

None: And we are accelerating our innovation and marketing plans to provide consumers with products to help them in their wellness journey.

None: We will continue to execute our strategic priorities focusing on doing the right thing for our customers and consumers that will enable us to deliver on our long term growth objectives that ultimately drive increase shareholder value.

None: Now I will turn the call over to Sean will provide you with some greater financial detail.

Sean: Thank you Jeff good morning, everyone.

Shaun P. Mara: Good morning, everyone. Total Simply Good Food second quarter net sales of $312.2 million increased $15.6 million, or 5.3% versus the year-ago period and was driven by Quest volume growth. North America and international net sales increased 5.1% and 12.3%, respectively. As Geoff stated earlier, as expected, net sales growth was greater than retail takeaway of about 3%, primarily due to the timing of shipments last quarter. Recall, in Q1, POS growth of about 8% outpaced the net sales increase of nearly 3%. Moving on to other P&L items for the quarter, gross profit was $116.9 million, an increase of $14.1 million from the year-ago period, resulting in a gross margin of 37.4%. The 280 basis point increase versus the year-ago period was primarily due to lower ingredient and packaging costs.

Sean: To simply good foods second quarter net sales of $312 $2 million increased $15 $6 million were five 3% versus the year ago period, and was driven by quest volume growth North America and international net sales increased five 1% and 12, 3% respectively.

As Jeff stated earlier as expected net sales growth was greater than our retail takeaway of about 3% primarily due to the timing of shipments last quarter recall in Q1, Pos growth of about 8% outpaced the net sales increase of nearly 3%.

Sean: Moving on to other P&L items for the quarter gross profit was $116 $9 million, an increase of $14 $1 million from the year ago period.

<unk> and gross margin of 37, 4%.

Sean: The 280 basis point increase versus the year ago period was primarily due to lower ingredient and packaging costs.

Sean: Adjusted EBITDA was $57 $8 million, an increase of $6 $9 million from the year ago period.

Shaun P. Mara: Adjusted EBITDA was $57.8 million, an increase of $6.9 million from the year-ago period. Selling and marketing expenses were $34.6 million versus $29.9 million, an increase of 15.7%, largely due to higher marketing investments and growth initiatives. Gap G&A expenses were $29.9 million, an increase of $4 million versus last year, primarily due to higher employee-related costs, stock-based compensation, and corporate expenses. Excluding stock-based compensation, G&A increased $2.5 million to $25.4 million. Finally, net interest income and interest expense was $4.7 million, a decline of $3.6 million versus Q2 last year. The decline was due to lower debt balances versus the year-ago period.

Sean: Selling and marketing expenses were $34 $6 million versus $29 $9 million, an increase of 15, 7% largely due to higher marketing investments and growth initiatives.

Sean: GAAP G&A expenses were $29 $9 million, an increase of $4 million versus last year, primarily due to higher employee related costs stock based compensation and corporate expenses.

Sean: Excluding stock based compensation G&A increased $2.5 billion to $25 $4 million.

Sean: Finally, net interest income and interest expense were $4 7 million a decline of $3 6 million versus Q2 last year. The decline was due to lower debt balances versus the year ago period.

Shaun P. Mara: Our Q2 tax rate was about 24% versus 25% in the year-ago period. As a result, net income was $33.1 million versus $25.6 million last year. Moving on to year-to-date results.

Sean: Our Q2 tax rate was about 24% versus 25% in the year ago period.

Sean: As a result, net income was $33 $1 million versus $25 $6 million last year.

Sean: Moving onto year to date results net sales were $629 million, increasing about 4% versus last year. This is slightly below year to date retail takeaway in the combined measured and unmeasured channels, which is growing approximately five 5%.

Shaun P. Mara: Net sales were $620.9 million, increasing about 4% versus last year. However, this is slightly below year-to-date retail takeaway in the combined measured and unmeasured channels, which is growing approximately five and a half percent. The difference is principally due to some incremental trade investment made in the first half of fiscal 24. That said, we expect POS growth and net sales growth to be largely in line for the full year. Gross profit was $232 million, resulting in a gross margin of 37.4%, a 160 basis point increase versus the year-ago period. We have good visibility into supply chain costs over the remainder of the year and anticipate gross margin will continue to improve and could approach 39% in the second half of the year.

Sean: The difference is principally due to some incremental trade investment made in the first half of fiscal 'twenty four.

Sean: That said, we expect Pos growth and net sales growth to be largely in line for the full year.

Sean: Gross profit was $232 million, resulting in a gross margin of 37, 4%, a 160 basis point increase versus the year ago period.

Sean: We have good visibility into supply chain costs over the remainder of the year and anticipate gross margin will continue to improve and could approach 39% in the second half of the year.

Sean: Adjusted EBITDA was $119 $8 million, an increase of seven 3% from the year ago period.

Sean: Net interest income and interest expense was $9 $6 million, a decline of $5 $7 million versus last year.

Sean: The year to date tax rate was 24, 1% versus 22, 7% last year, we continue to anticipate the full year effective tax rate to be around 25%.

Shaun P. Mara: Adjusted EBITDA was $119.8 million, an increase of 7.3% from the year-ago period. Adjusted interest income and interest expense was $9.6 million, a decline of $5.7 million versus last year. The year-to-date tax rate was 24.1% versus 22.7% last year. We continue to anticipate the full-year effective tax rate to be around 25%.

Sean: As a result, net income was $68 $7 million versus $61.5 million last year.

Sean: The next slide provides you with a reconciliation of reported and adjusted diluted EPS.

Quarter reported EPS was <unk> 33 per share diluted compared to 25 cents per share diluted for the comparable period of 2023.

Sean: Adjusted diluted EPS was <unk> 40, compared to 32 in the year ago period.

Sean: Note that we calculate adjusted diluted EPS as adjusted EBITDA less interest income interest expense and income taxes.

Shaun P. Mara: As a result, net income was $68.7 million versus $61.5 million last year. The next slide provides you with a reconciliation of reported and adjusted diluted EPS. Second quarter reported EPS was 33 cents per share diluted compared to 25 cents per share diluted for the comparable period of 2023. Adjusted diluted EPS was $0.40 compared to $0.32 in the year-ago period. Note that we calculate adjusted diluted EPS as adjusted EBITDA, less interest income, interest expense, and income tax.

Sean: Please refer to today's press release for an explanation and reconciliation of non-GAAP financial measures.

Sean: Moving to the balance sheet and cash flow as of February 24, 2024, the company had cash of $135 $9 million.

Sean: Year to date cash flow from operations was about $94 million, an increase of 76% or $46 million, principally due to adjusted EBITDA growth and improvements in working capital.

Sean: During the quarter the company repaid $35 million of its term loan debt and at the end of the second quarter. The outstanding principal balance was $240 million.

Sean: Capital expenditures in Q2 and year to date period were $300000 and $1 $1 million respectively.

Sean: In fiscal 2024, we continue to expect capex to be in the $8 million to $10 million range.

Shaun P. Mara: Please refer to today's press release for an explanation and reconciliation of non-GAAP financial measures. Moving to the balance sheet and cash flow. As of February 24, 2024, the company had cash of $135.9 million. Year-to-day cash flow from operations was about $94 million, an increase of 76%, or $40.6 million, principally due to adjusted EBITDA growth and improvements in working capital. During the quarter, the company repaid $35 million of its term loan debt, and at the end of the second quarter, the outstanding principal balance was $240 million. Capital expenditures in Q2 and the year-to-date period were $300,000 and $1.1 million, respectively. In fiscal 2024, we continue to expect CapEx to be in the $8 to $10 million range. In fiscal 2024, we anticipate net interest expense to be around $17 to $19 million, including non-cash amortization expense related to the deferred finances.

Sean: In fiscal 2024, we anticipate net interest expense to be around $17 million to $19 million, including noncash amortization expense related to the deferred financing fees.

None: Now to wrap up as Jeff stated earlier due to the softer than anticipated consumption trends in Q2, we updated our full year outlook we.

None: We continue to expect that ingredient and packaging costs will be lower in fiscal 2024 compared to last year and drive solid gross margin expansion. This.

None: This provides us with the flexibility to invest in marketing initiatives that we expect will drive near and long term growth and generate solid earnings growth. Therefore for full year fiscal 2024, we anticipate net sales growth driven by volume to increase around the midpoint of the company's long term algorithm of four 6%, including the benefit of the 50 <unk> week.

None: And adjusted EBITDA is now anticipated to increase 6% to 8% versus last year.

None: We appreciate everybody's interest in our company and we're now available to take your questions.

None: Thank you we will now 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 would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset.

None: We're pressing the star one.

One moment, please while we poll for your questions.

None: Our first question is come from the line of Matt Smith with Stifel. Please proceed with your questions.

Matthew Edward Smith: Hi, Good morning, Jeff and John.

Shaun P. Mara: Now to wrap up, as Geoff stated earlier, due to the soft move and anticipated consumption trends in Q2, we updated our full-year outlook. We continue to expect that ingredient and packaging costs will be lower in fiscal 2024 compared to last year and drive solid gross margin expansion. This provides us with the flexibility to invest in marketing initiatives that we expect will drive near and long-term growth and generate solid earnings growth. Therefore, for full-year fiscal 2024, we anticipate net sales growth, driven by volume, to increase around the midpoint of the company's long-term algorithm of 4% to 6%, including the benefit of the 53rd week. An adjusted EBITDA is now anticipated to increase 6% to 8% versus last year. We appreciate everybody's interest in our company, and we're now available to take your questions.

Matthew Edward Smith: Good morning morning.

The overall active nutrition category growth slowed in the first calendar quarter of the year. That's during the key diet season, you talked about the competitive dynamic impacting question Atkins, but from a high level was the performance of the overall category in line with your expectations and are you seeing.

Matthew Edward Smith: Any signs of a pickup in growth in the categories, we move past March.

None: Yeah now that the category continues to show strong growth.

None: Certainly has slowed versus the past couple of years.

None: If you look backwards you say.

A bump coming out of Covid, and then you've had a lot of inflation driven growth.

Now back to around 67%.

None: Which is where the category was.

None: Pray coverage and.

None: Additionally, it continues to be a standout category versus most of the center store alright, whereas you know the volumes.

None: Flat.

None: And that that reflects some underlying drivers.

Operator: Thank you. We will now be conducting a question and answer session. If you would 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 would 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.

None: Health and wellness trends nagging convenience.

None: It's got a lot of household penetration that we've talked about before and it it over.

None: <unk> with younger consumers.

None: We will continue to be excited where the category.

None: It's performing it's right, where we expected to be and retailers say that too. It's why we're working with them on.

None: How to how to even further accelerate that growth.

Thank you, Jeff and as a follow up to the lowered revenue guidance includes a 7% reduction in P. U S for Atkins for the year does that outlook consider improving dollar consumption from here or are you looking at dollar consumption for the Atkins brand and believing you can hold that level.

Operator: One moment, please, while we poll for your question. Our first questions come from the line of Matt Smith with Stiefel. Please proceed with your question. Hi, good morning, Geoff and Shaun.

Geoff E. Tanner: Morning.

Geoff E. Tanner: The overall active nutrition category...

None: And then you benefit from easier comparisons in the second half of the year from a Pos perspective.

Operator: Please see the complete disclaimer at https://sites.google.com

Geoff E. Tanner: Yeah, Yeah, that's what it is.

Geoff E. Tanner: Diet Season.

None: Honestly were disappointed.

Geoff E. Tanner: We talked about the competitive dynamic impacting Quest and Atkins, but from a high level, it was the performance...

None: Atkins performed.

None: In January February.

None: I'll, just say, we walked into some tough competitive merchandising.

Operator: Page PAGE of NUMPAGES www.verbalink.com Page PAGE of NUMPAGES

None: Tom.

Tom: Yeah, we still remain confident in the long term vitality of the business.

Geoff E. Tanner: Uh, yeah, no, the category continues to show strong growth. Uh, it certainly has, although slowed versus the past couple of years. If you look backwards, you see a bump coming out of COVID, and then you've had a lot of inflation-driven growth.

Tom: And as we look forward, we certainly the same trends in private or have come out of January.

Tom: February and and certainly for the balance of the year, we do have easier comps.

None: And that's why we expect the business to return more to that mid single digit decline.

Geoff E. Tanner: We're now back to around 6% or 7%, which is where the category was pre-COVID. Additionally, it continues to be a standout category versus most of the center store, where, as you know, volumes are flat. And that reflects some underlying drivers, health and wellness trends, and snacking convenience. It's got low household penetration, which we talked about before, and it over-indexes with younger consumers. We continue to be excited about the category, it's performing, it's right where we expect it to be, and retailers see that too. That's why we're working with them on how to even further accelerate that growth.

None: No matter if you look at it by for Q3 and Q4 than Q3 is relatively in line with what we saw in Q2 are slightly better in Q4, because we get some easier lapses you said overall, so we're not expecting drastic changes in the trajectory in the next X period of time.

None: Thank you I'll leave it there.

None: Thanks.

None: Thank you. Our next question is come from the line of Alexia Howard with Bernstein. Please proceed with your questions.

Alexia Jane Burland Howard: Good morning, everyone.

Alexia Jane Burland Howard: Morning.

Alexia Jane Burland Howard: Just a couple of quick questions here, you've got innovation stepping up and it feels is that we've been through a few cycles of innovation over the last few years, some of which probably walk some of which has what metrics do you use to make sure innovation is successful and sustainable.

Geoff E. Tanner: Thank you, Jeff. And as a follow-up, the lower revenue guidance includes a 7% reduction in POS for Atkins for the year. Does that outlook consider improving dollar consumption?

Operator: Page PAGE of NUMPAGES www.verbalink.com Page PAGE of NUMPAGES

Alexia Jane Burland Howard: <unk> in the marketplace.

Alexia Jane Burland Howard:

Alexia Jane Burland Howard: And how do you feel like that over time to make sure that you're calling things that I'll kind of walk in and obviously supporting things at all.

Geoff E. Tanner: and you know that you can hold that level, and then you benefit from easier comparisons in the second half of the year from a POS perspective.

None: Yeah, I mean, let's say I have a point to the innovation on quest, which has been I think a stand out and a major error.

Geoff E. Tanner: Yeah, that's what it is. Obviously, we're disappointed with how Atkins performed in January and February. Obviously, we walked into some tough competitive merchandising competition. Comps. We still remain confident in the long-term vitality of the business, and as we look forward, we certainly have seen trends improve that have come out of January and February, and certainly for the balance of the year, we do have easier comps, and that's why we expect the business to...

None: Driver of garage tenor and very successful.

None: You know if you look at chips you know for example.

None: With 40% growth in that business.

None: And it continues to be highly incremental.

None: We are excited about the bank shop platform that we have coming up on quest. So I'd say a database on quest has been incredibly successful and certainly retailers view it that way and continue to reward us with more space.

None: If you look at Atkins and I've been quite transparent about this on previous calls.

None: We were very disappointed with the quality and level of innovation on Atkins over the past couple of years, which has contributed to the slowdown in the brand.

Shaun P. Mara: And Matt, if you look at it for Q3 and Q4, then Q3 is...

Shaun P. Mara: Q2, slightly better in Q4, because we get some easier laps, as you said, overall. So we're not expecting drastic changes in the trajectory in the next X period of time. Thank you. I'll leave it there.

It's why we have jumpstarted innovation on Atkins.

None: That was certainly one of my priorities coming into the role.

None: And I think the quality of the innovation, we're bringing to market on Atkins over the next year.

None: We'll cut starting in the fall and thereafter is much stronger.

Operator: Thank you. Our next questions come from the line of Alexia Howard with Bernstein. Please proceed with your question. Good morning, everyone. Okay, just a couple of quick questions here.

None: What we've tried to pushes innovation, that's more incremental to the business more platform focused.

But but we do know that on Atkins.

None: What we're trying to do is hold onto it.

Geoff E. Tanner: You've got innovation stepping up, and it feels as though we've been through a few cycles of innovation over the last few years, some of which haven't worked, some of which have. What metrics do you use to make sure innovation is successful and sustainable in the marketplace? And how do you track that over time to make sure that you're culling things that aren't going to work and obviously supporting things that are?

None:

None: The shelf space and replace underperforming items with that with the innovation. So the jobs are different on innovation for both businesses right now on Atkins, it's replacing underperforming items with better items on quest. It is about innovation that is incremental to the business and incremental to the category.

None: Let's just touch.

None: Touch on Europe process question, I think a little bit there when we kind of launch any new innovation. We go through a process internally what the metrics, we kind of look at as we go out there. Our HCV build then turns per week, and then related to that kind of repeat purchase. So those are the metrics, we kind of model out before we launch anything.

Geoff E. Tanner: Yeah, I mean, Alexia, I'd probably point to the innovation on Quest, which has been, I think, a standout and a major driver of growth and has been very successful. You know, if you look at chips, for example, we're seeing 40% growth in that business, and it continues to be highly incremental.

None: And then we evaluate that performance if you want to call it that over the first six months or so of the launch to see how successful it would be.

Really appreciate the detail from both of you I'll pass it on thank you.

Geoff E. Tanner: We were excited about the Bake Shop platform that we have coming up on Quest. So I'd say the innovation on Quest has been incredibly successful, and certainly retailers view it that way and continue to reward us with more space. If you look at Atkins, and I've been quite transparent about this on previous calls, we were very disappointed with the quality and level of innovation at Atkins over the past couple of years, which has contributed to the slowdown in the brand. It's why we have jump-started innovation on Atkins; it was certainly one of my priorities coming into the role, and I think the quality of the innovation we're bringing to market on Atkins over the next... We'll start in the fall, and thereafter, it's much stronger.

None: Thank you.

None: Thank you our next questions come from the line of Steve powers with Deutsche Bank. Please proceed with your questions.

Stephen Robert R. Powers: Hey, Thanks, guys, sorry, I was on mute there.

Stephen Robert R. Powers: Hey, first question on <unk> and weight management category dynamics in general you talked about.

Stephen Robert R. Powers: The expectation that the competitive.

Stephen Robert R. Powers: Environment, because its competitive dynamics would normalize as we go through the calendar year, I guess, a little bit more perspective on.

Stephen Robert R. Powers: Where your confidence comes from in that and.

None: Yes, we'll take it from there.

None: Yeah no.

None: The reality is that <unk>.

None: This time last year and as we've talked about in the prepared remarks, one of our major competitors had supply challenges and that was particularly acute.

Geoff E. Tanner: What we've tried to push is innovation that's more incremental to the business, more platform focused. But we do know that on Atkins, what we're trying to do is hold on to shelf space and replace underperforming items with innovation. So the jobs are different in terms of innovation for both businesses. Right now, at Atkins, it's replacing underperforming items with better items. On Quest, it is about innovation that is incremental to the business and to the category.

None: The January and February period, and as a result, Atkins benefited significantly, particularly in a few customers from outside merchandising and promotional support.

None: Which we obviously didn't get this year, so that was going to be a difficult lap and that competitor is now back and able to service the business. So it was an inevitable difficult new year, new you season.

None: But we will lap that and as we've come out of January February trends have improved.

None: And I'd say by around the summer, which should be largely lapped.

Shaun P. Mara: And Alexia, just to touch on your process question, I think a little bit there when we kind of launch any new innovation, we go through a process internally; the metrics we kind of look at as we go out there are ACV build, then turns per week, and then related to that kind of repeat purchase. So those are the metrics we kind of model out before we launch anything. And then we evaluate that performance, if you want to call it that, over the first six months or so after launch to see how successful it would be.

None: That effect should be largely lap, which is why our comps should get easier.

None: Okay, Yeah, Okay. It makes sense.

None: And then pivoting over to quest.

None: You highlighted just the ready to drink coffee.

None: Nation.

None: Which is interesting to me I guess as you think about the pipeline of requests.

None: And from an innovation perspective, what.

None: What do you.

None: How big of a role do you think that with you.

None: <unk> will play versus.

None: No further endeavors and food and beverages are envisioned as kind of a material driver of the franchise going forward.

Shaun P. Mara: I really appreciate the detail from both of you. I'll pass it on. Thank you. Thank you. Thank you. Our next questions come from the line of Steve Powers with Deutsche Bank. Please proceed with your question. Hey, thanks, guys. Sorry, I was on mute there. Hey, first question on Atkins and weight management category dynamics in general. You talked about the expectation that, you know, the competitive environment and competitive dynamics would normalize as we go through the calendar year. I guess a little bit more perspective on where your confidence comes from in that, and yeah, we'll take it from there.

None: Think about prioritizing future consumption occasions versus the media consumption occasions, and you see the complexities.

None: Reaching different channels, especially on the immediate consumption side.

None: Yeah, I mean, the thing that.

None: Has driven the success of quest innovation.

None: Is the brands are flipping the coin flipping the macros on large snacking categories.

None: Flipping the macro is high.

None: High Sugar high cap there.

None: High protein and low sugar.

None: Which is what we've done with.

Geoff E. Tanner: Yeah. The reality is that this time last year, as we talked about in the prepared remarks, one of our major competitors had supply challenges, and that was particularly acute over the January and February periods. And as a result, Atkins benefited significantly, particularly in a few customers, from outsized merchandising and promotional support, which we obviously didn't get this year. So that was going to be a difficult lap. And that competitor is now back and able to service the business. So it was an inevitable, difficult new year, and new season. But we will overcome that. And as we've come out of January, February trends have improved. And I'd say by around the summer, we should be largely lapped. That effect should be largely gone, which is why our comps should get easier.

None: Our ice coffee launch and I'm excited to see how that performs it's certainly early days and.

None: We will monitor it closely and if we continue to do well, we will continue to double down there. The a question on beverage.

None: Despite rest assured we're looking at it.

None: It's obviously, it's a large category and if we can find a way to go in and disrupt that category.

None: In a way similar to how we plan to disrupt sweet baked goods, we would certainly look at that.

None: <unk>.

None: And even drawing of a broad a simple where we say it is off the chain of dates to give quest consume minutes, the same quality and taste that they desire of large snacking categories.

We're looking at it.

None: Okay. Thank you. Thank you very very much.

None: Thank you. Our next question is come from the line of Pamela Kaufman with Morgan Stanley. Please proceed with your questions.

Geoff E. Tanner: Okay, yeah, okay, makes sense. And then pivoting over to Quest, you know, you highlighted the ready-to-drink coffee innovation, which is interesting to me. I guess as you think about the pipeline for Quest,

Pamela Kaufman: Hi, good morning.

Pamela Kaufman: Okay.

Pamela Kaufman: How are you thinking about your revenue progression over the back half of the year and what gives you confidence that you can deliver on the updated revenue guidance I guess, where do you see potential for upside or downside to your new outlook.

Geoff E. Tanner: Yeah, I mean, the thing that has driven the success of Quest Innovation is the brand flipping, we call it flipping the macros, on large snacking categories. So, flipping the macros from high sugar, high carb to high protein and low sugar, which is what we did with our iced coffee launch, and I'm excited to see how that performs. It's certainly early days, and we'll monitor it closely, and if we continue to do well, we'll continue to double down there. The question on beverages, I'm not so sure we're looking at it. It's obviously a large category, and if we can find a way to go in and disrupt that category in a way similar to how we plan to disrupt sweet baked goods, we would certainly look at that, and even We're looking at it now.

Pamela Kaufman: Yeah, I'll start and maybe turn over to Sean I would say the upside as we are moving into easier what we believe will be easier comps on Atkins.

Sean: And we do remain confident in the revitalization plan the new advertising.

Sean: We're confident in the new innovation, that's launching albeit towards the end of our fiscal <unk>.

Sean: And when we walk into easier comps, but it could be some upside there.

Sean: And on quest.

Sean: The momentum that we've seen just looking at March a mid double digit is very encouraging.

Sean: We've just launched a new advertising.

Sean: The launch in the beginning of March.

Sean: So that gives us a lot of confidence and then.

Sean: <unk> two is bringing some pretty exciting innovation to market. So there could be some upside there, but I'll turn it over to Sean.

Sean: I think if you take a look at the brands I mean, our quest, we're assuming from a consumption standpoint low double digits.

Sean: As Jeff said through March so only four weeks in we're at 13% a little bit higher than that so feel like we're trending a little above where we thought we will see what happens so feel pretty good with that we also have the advertising we've turned on which I think is going to help overall from a consumer awareness and household penetration standpoint, so I feel very comfortable with where we are with <unk>.

Geoff E. Tanner: Okay, thank you. Thank you very, very much. Thank you. Our next question comes from the line of Pamela Kaufman with Morgan Stanley. Please proceed with your question. Hi, good morning. How are you thinking about your revenue progression over the back half of the year and what gives you confidence that you can deliver on the updated revenue guidance? Where do you see potential for upside or downside to your new outlook?

Sean: Quest on Atkins I think we've put ourselves in a position where we have a I'll say realistic target to chase in the second half of the year as I mentioned, our Atkins is basically consistent with the decline we saw in Q2 for Q3 slightly better.

Geoff E. Tanner: I'll start and turn it over to Shaun. I'd say the upside is we are moving into what we believe will be easier comps on Atkins. And we do remain confident in the revitalization plan, the new advertising, we're confident in the new innovation that's launching, albeit towards the end of our fiscal year. And we're ready to walk into easier comps, so there could be some upside there. And on Quest, the momentum that we've seen just looking at March, you know, mid-double digit is very encouraging. We've just launched new advertising that launches at the beginning of March, so that gives us a lot of confidence. Quest 2 is bringing some pretty exciting innovation to the market, so there could be some upside there. I'll turn it over to Shaun.

Sean: As in Q4 I'm sorry.

Sean: And then as it relates to the first month of the quarter were trending down about 6% as I think you saw in the slides, which is better than what we thought from a standpoint of the quarter. So again early one month in but feel like.

Sean: We're tracking ahead of where we thought we were going to be.

None: Okay. That's helpful. And then can you talk about any adjustment that youre, making to your strategy given our performance and competitive dynamics you saw during the second quarter, you mentioned that you're accelerating some innovation like protein shakes can you expand on any other changes in your innovation timing.

Shaun P. Mara: Yeah, I mean, I think if you take a look at the brands, I mean, Quest, we're assuming from a consumption standpoint, low double digits, and as Geoff said, through March, so only four weeks in, we're at 13%, a little bit higher than that. So I feel like we're trending a little above what we thought. We'll see what happens. So I feel pretty good about that.

None: Or changing advertising or promotional plan for the year.

None: Yeah.

None: Yes, <unk> had a high level, we're not really changing our strategy.

None: The impact that we saw on Atkins in January February.

None: It was a onetime difficult lap as we talked about in the prepared remarks.

None: But we remain confident in the future vitality of the brand we remain confident in the revitalization plan, we've talked about the innovation, we're bringing to market.

Shaun P. Mara: We also have the advertising we turned on, which I think is going to help overall from a consumer awareness and household penetration standpoint. As I mentioned, Atkins is basically consistent with the decline we saw in Q2 for Q3, slightly better, and as it relates to Q4, I'm sorry, and then as it relates to the first month of the quarter, we're trending down about 6%, as I think you saw on the slides, which is better than what we thought from a standpoint of the quarter. So again, early, one month in, but I feel like we're tracking ahead of what we thought we were going to be.

None: The new packaging graphic work that's underway the product upgrade work that's underway and your advertising.

None: And we're certainly going to stay the course there.

None: Make adjustments if we nature.

None: Certainly wouldn't overreact too.

None: In merchandising and difficult merchandising lap in January February.

None: Thank you I'll pass it on.

None: Thank you.

None: Thank you our next questions come from the line of Jim Solera with Stephens. Please proceed with your questions.

James Ronald Salera: Hey, guys. Good morning, Thanks for taking my question.

James Ronald Salera: Uh huh.

I wanted to drill down a little bit on the Atkins strong offering exciting to see you guys expand the RTD shake offering obviously, it's been a really hot category.

Geoff E. Tanner: Okay, that's helpful. And then can you talk about any adjustments that you're making to your strategy this year given the performance and competitive dynamics you saw during the second quarter? You mentioned that you're accelerating some innovation, like protein shakes. Can you expand on any other changes in your innovation timing or changes to advertising or promotional plans for the year?

James Ronald Salera: At the same time, it's also a category that is pretty well known capacity constraints.

None: If you could offer any color on our co manufacturing partners. How much capacity you guys think you'll have when that product comes to market and if we should expect it to be you know, maybe just didn't club or just in mass or kind of how the channel rollout will be as you expand that at 30 Gram offering.

Geoff E. Tanner: Yeah, I may say at a high level, we're not really changing our strategy. The impact that we felt on Atkins in January and February was a one-time difficult lap, as we talked about in the prepared remarks, but we remain confident in the future vitality of the brand. We remain confident in the revitalization plan we've talked about, the innovation we're bringing to market, and the new packaging graphic work that's underway. The Product Upgrade work that's underway, the new advertising, and we're certainly going to stay the course there. We'll make adjustments if we need to, but certainly wouldn't overreact to a merchandising, difficult merchandising lap in January and February.

None: We're also really excited about this launch.

None: Yeah. It was designed as we've as we've seen these weight loss drugs.

Image and adoption increase and we learned that consumers on those drugs.

Ah seeking higher levels of protein to maintain muscle mass one that lives in weight and we've also heard that when they're on the drugs. Many experience got health issues. So we developed this product.

None: The primary.

None: Consumer work with those on a weight loss drugs, but we know that there's consumers out there who are taking higher levels of protein.

Operator: Thank you. I'll pass it on. Thank you. Thank you. Our next questions come from the line of Jim Salera with Stevens. Please proceed with your question. Hi, guys. Good morning.

None: So we're excited to bring that to market, we're going to put a lot of support behind it.

None: Retailers have thin.

None: Candidly very impressed with how quickly we moved to develop a product for consumers on these drugs to your question on capacity.

Geoff E. Tanner: Thanks for taking our question. I wanted to drill down a little bit on the Atkins Strong offering. It's exciting to see you guys expand the RTD Shake offering. Obviously, it's been a really hot category. At the same time, it's also a category that has pretty well-known capacity constraints. So could you offer any color on co-manufacturing partners, how much capacity you guys think you'll have when that product comes to market, and if we should expect it to be maybe just in club or just in mass, or how the channel rollout will be as you expand that 30%?

None: Yeah, we feel right now we're in a good spot.

None: Not a limited launch we will launch it nationally.

None: We've had extremely strong support.

None: Yeah, I think on the capacity side, just to take a step back well I go back about a year year and a half ago. We had some capacity constraints are basically gone.

None: <unk> another co man onboard in terms of additional capacity. So we have expanded the capacity that we have for arch decent general overall, and we're actually I think we have enough to support both that business as well as the continuing business. We have overall, so we feel like we're in pretty good shape there.

Geoff E. Tanner: as you expand that 30 gram offering. Yeah, we're also really excited about this launch. You know, it was designed as we've seen these weight loss drugs emerge and adoption increase, and we've learned that consumers on those drugs are seeking higher levels of protein to maintain muscle mass when they're losing weight. And we've also heard that when they're on the drugs, many experience gut health issues. So we developed this product for the primary consumer, those on a weight loss drug, but we know that there are consumers out there who are seeking higher levels of protein. So we're excited to bring that to market, and we're going to put a lot of support behind it. Retailers have been very impressed with how quickly we moved to develop a product for consumers on these drugs.

None: Okay, Great and then maybe if I could ask a broader question just on the consumer.

None: We've heard from other companies, there's kind of a bifurcation of.

None: The higher income consumers still powering forward and lower income consumer maybe feeling a little bit more pressured.

None: Since your products tend to skew towards the middle to higher income consumer.

None: Do you have what's your confidence level as the year progresses.

None: That the higher income consumer will continue to be resilient relative to the overall kind of economic uncertainty.

Geoff E. Tanner: To your question on capacity, we feel we're in it, we're in a good spot. It is not a limited launch. We will launch it nationally.

None: Yeah, I mean, we we continue to say the category perform the <unk>.

None: Categories performed year after year after year.

Shaun P. Mara: I think on the capacity side, just to take a step back, when I went back about a year, a year and a half ago, we had some capacity constraints, and basically got another co-man on board in terms of additional capacity. So we have expanded the capacity that we have for RCDs in general, and overall, and we're actually, I think we have enough to support both that business as well as the continuing business we have overall. So we feel like we're in pretty good shape there.

None: And I think in part it is for the reason that you cite is that we do over index with higher income consumers.

None: So I think we're a little more insulated I would point to the relative lack of private label in the category.

None: I'd point to the relative lack of heavily heavy promotional activity in the category.

None:

Geoff E. Tanner: Okay, great. And then maybe I could ask a broader question just about the consumer. We've heard from other companies that there's kind of a bifurcation of the higher income consumers still powering forward, and lower income consumers, maybe feeling a little bit more pressure. Since your products tend to skew towards the middle to higher income consumers, what's your confidence level as the year progresses that the higher income consumer will continue to be resilient relative to the overall kind of economic uncertainty?

And I think it shows the <unk>.

None: Underlying consumer demand, which to your point I think is reflective that we over index with with higher income or educated consumers.

None: Great I appreciate the color guys and I'll hop back in the queue.

None: Thank you. Thank you. Thank you our next questions come from the line of John Baumgartner with Mizuho. Please proceed with your questions.

John Joseph Baumgartner: Good morning, Thanks for the question.

John Joseph Baumgartner: Good morning, John.

John Joseph Baumgartner: Maybe first off Jack you mentioned, the heightened category competition around new year, New you I think you called out one specific competitor, but I'm curious can you expand a bit on competition more broadly are you seeing competition based solely on pass through of lower input costs and that moderates throughout the year as those tailwind also moderate or is it all.

Geoff E. Tanner: Yeah, we continue to see the category perform. The category performs year after year after year. And I think, in part, it is for the reason that you cite, that we do over-index with higher-income consumers. So I think we're a little more insulated. I would point to the relative lack of private label in the category. Similarly, I would point to the relative lack of heavy promotional activity in the category. Higher income or educated consumers.

John Joseph Baumgartner: So any heightened activity from new innovation, hitting the shelves or larger intensity also feature and display activity.

John Joseph Baumgartner: Yes.

None: Take a step back and say.

None: The level of activity in this category I think is what you would expect right.

Operator: Great. Appreciate the call, guys. I'll hop back in the queue. Thank you. Thank you. Our next questions come from the line of John Baumgartner with Mizuho. Please proceed with your question. Good morning. Thank you for the question.

None: Innovation.

None: Can play a role and you've certainly seen what we've been able to do with quest chips, which was essentially to create a category or segment that didn't exist.

None: The heightened level of competitive activity that we've talked about in the prepared mind.

Geoff E. Tanner: Morning John. Morning John.

Geoff E. Tanner: Maybe first off, Jeff, you mentioned the heightened category competition around New Year, New You. I think you call that one specific competitor, but I'm curious, can you expand a bit on competition more broadly? Are you seeing competition based, you know, solely on pass-through with a lower input cost, and that moderates throughout the year as those tailwinds also moderate? Or is there also any heightened activity from new innovation hitting the shelves or a larger intensity also impacting future display activity?

None: It really does relate to the <unk>.

None: Out of stock challenges on shakes.

None: And.

None: The interest rate with constraints had been constrained for a couple of years and.

None: Obviously with that being turned back on you've seen demand being able to be supplied.

None: But I wouldn't contra I wouldn't say that this is a new level of competitive activity I think it was an inevitable lap.

Geoff E. Tanner: Yeah, I mean, I would probably take a step back and say the level of activity in this category, I think, is, you know, what you would expect, right? Innovation can play a role. And you've certainly seen what we've been able to do with Quest Chips, which was essentially to create a category or a segment that didn't exist. The heightened level of competitive activity that we've talked about in the Prepared Marks really does relate to some out-of-stock challenges on Shakespeare, and the industry was constrained, had been constrained for a couple of years, and Obviously, with that being turned back But I wouldn't say that this is a new level of competitive activity. I think it was an inevitable race and one that we were always going to be on the wrong side of, and in the new year period. But now, with Supply back, you know, I'd say we're going to return to normal.

None: And one that we were always going to have to be on the wrong side of them.

None: And in the new year, New you period, but now with the.

None: Supply back you know I'd say, we're going to return to normal levels.

None: I think John if you take a step back and look at last year with you know one of the key competitors in this marketplace for our T d's, having less availability or capacity the.

None: Shelf space. They had was less so that when they got that back and they've actually added not so much innovation, but if you want to call it.

None: You know pack size configuration, so four packs APAC for 12 packs as well as maybe more.

None: Devoted to that a competitor for display so you're really seeing I think two years of growth in one quarter versus what we usually.

None: We usually see out there so we stepped up our our merchandising activity in programming. It just the share of voice was less than what it was comparatively to everybody else does that help.

Yes, definitely and I guess sticking with that theme I guess last quarter. It sounded like your initial perceptions on new market coming out of autumn, whereas it was pretty encouraging in the early days I guess you know building on your on your point there Sean I mean do you get the sense that the ROI on that marketing does it does it require further increases in spending from here just sort of maintained.

Shaun P. Mara: Yeah, I think, Jon, if you take a step back and look at last year, with, you know, one of the key competitors in this marketplace for RTDs having less availability or capacity. The shelf space they had was less, so now they got that back, and they've actually added not so much innovation, but if you want to call it, you know, pack size configuration, so four packs to eight packs to 12 packs, as well as maybe more space devoted to that competitor for display. So, you're really seeing, I think, two years of growth in one quarter versus what we usually see out there. So, we stepped up our merchandising activity and programming. It's just that her share of voice was less than what it was compared to everybody else. Does that help?

None: Share of voice, how do we think about that and then for the Atkins brand milestones going forward I guess, how impactful are you expecting the autumn shelf resets to be in terms of Jumpstarting sales. So those should those auto resets really gave us a material catalyst or did the point.

None: Yes.

The type of thing.

None: And we're really pleased with the new advertising.

Debuted in October we saw that business responds suddenly, it's probably too early to draw a hard line on that.

Geoff E. Tanner: Yes, definitely. And I guess, sticking with that theme, I guess last quarter, it sounded like your initial perceptions of new marketing coming out of autumn were pretty encouraging in the early days. I guess building on your point there, Shaun, do you get the sense that the ROI in that marketing, does it require further increases in spending from here to sort of maintain, share a voice? How do we think about that? And then for the Atkins brand milestones going forward, I guess how impactful are you expecting the autumn shelf resets to be in terms of jump-starting sales? Should those autumn resets really be viewed as a material catalyst or a pivot point?

None: But just given the magnitude of the merchandising lap that I talked about in the prepared remarks, it's very difficult if not impossible to judge the effectiveness of that advertising in January and February.

None: Perfect perhaps of that will come out of the media and new year period and trends on the business have improved.

None: As I said, the ads tested very well they tested well with both current and potential new buyers, but with that being said, we will continue to monitor performance over the coming months.

None: Got to make changes in the advertising we well.

None: To your question on distribution.

Geoff E. Tanner: The advertising, we're really pleased with the new advertising. It debuted in October. We saw the business respond. Certainly, it's probably too early to draw a hard line on that. But just given the magnitude of the merchandising lap that I talked about in the prepared remarks, it's very difficult, if not impossible, to judge the effectiveness of that advertising in January and February. As proof, perhaps, of that, we've come out of the New Year, New Year period, and trends on the business have improved. As I said, the ads tested very well. They tested well with both current buyers and potential new buyers.

None: Recall, where category advisers to the majority of our key retailers and as such we have a lot of dialogue with them about the category and brand dynamics.

None: We recently wrapped up a road show visiting all of those customers talking about the brands and in particular Atkins.

None: And I E an emphasis.

None: All of those conversations with the new compensation and renewed cultural relevance I would say of of weight because of these whitelaw strives and welcome.

None: While consumers on those jobs are looking for and how they want an off ramp.

None: The retailers get it they appreciate our transparency, they're supportive of the revitalization plan.

Geoff E. Tanner: But with that being said, we'll continue to monitor performance over the coming months, and if we've got to make changes in the advertising, we will. To your question on distribution,

None: And you know what we're currently in conversations with them about.

None: Modulus and they will play out over the coming two to four months.

Geoff E. Tanner: You know, I recall we're category advisors to the majority of our key retailers, and as such, we have a lot of dialogue with them about the category and brand dynamics at www.simplygoodfood.com, what consumers on those drives are looking for, and how they want an off-ramp. The retailers understand that. They appreciate our transparency, and they're supportive of the revitalization plan. And, you know, we're currently in conversations with them about the modulars, and they will play out over the coming two to four months.

None: Yeah, John just one more color here I think as you think about the rest of the year. The guidance. We gave on EBITDA one thing should be clear on that I hope overall, the gross margin should meaningfully improve in the next couple of quarters are approaching 39%, both Q3 and Q4, a little better in Q4 than Q3.

None: With that we're continuing to invest in the brand. So we did not reduce marketing spend to get to that number that wasn't what we did we basically took the benefit that we had for gross margin in Q2, and what we're seeing in Q3 and Q4 that allowed us to continue to invest and you're going to see meaningful increases, particularly on cost with new advertise.

Shaun P. Mara: Yeah, Jon, just one more color here. I think as you think about the rest of the year and the guidance we gave on EBITDA, one thing should be clear on that, I hope, overall, the gross margin should meaningfully improve in the next couple of quarters, approaching 39% in both Q3 and Q4, a little better in Q4 than in Q3. With that, we're continuing to invest in the brand, so we did not reduce marketing spend to get to that number. That wasn't what we did. We basically took the benefit that we had for gross margin in Q2 and what we're seeing in Q3 and Q4 that allowed us to continue to invest. And you're going to see meaningful increases, particularly on Quest, with new advertising in Q3 and Q4.

None: And in Q3 and Q4.

None: Okay. Thanks, Sean Thank you Tom.

None: Thank you.

None: Thank you our next questions come from the line of Carmel Gasper, a wallet with Jefferies. Please proceed with your questions.

Carmel Gasper: Maybe if you could follow up on the comment on AD spend.

Carmel Gasper: Could you, maybe just talk a little bit more about what's the right percentage of sales for us and particularly in the context of there's.

Carmel Gasper: There's so many new innovations this year does it need to be at some higher level for a temporary period of time, and then and then sort of taper off.

Carmel Gasper: Or is this where you're going linked to what you mentioned before.

Carmel Gasper: Some of that GM benefit that you're about to feel.

Operator: Thanks, Shaun. Thanks, Geoff.

Carmel Gasper: So yeah, we would historically target spending 9% to 10% on.

Operator: Thank you. Thank you.

Shaun P. Mara: Thank you. Our next questions come from the line of Kaumil Gajrawala with Jeffreys. Please proceed with your question. I mean, if you could follow up on the comment on ad spend, can you maybe just talk a little bit more about what's the right percentage of sales for ad spend, particularly in the context of there being so many new innovations this year? Does it need to be at some higher level for a temporary period of time and then, then sort of taper off? Or is where you're going linked to what you mentioned before, some of that GM benefit that you're about to feel?

Carmel Gasper: On marketing.

Carmel Gasper: What I will say is that is.

Carmel Gasper: A high level of spend.

Carmel Gasper: And in the food beverage category in general and certainly.

Carmel Gasper: Very high level of spend within our category and that's the role that we play.

Carmel Gasper: As category leaders.

Carmel Gasper: As to your question on how to support.

Carmel Gasper: Our innovation as well as the core business.

Carmel Gasper: What you'll see in boats campaigns.

Carmel Gasper: Is that they have been developed to enable us to do that so I don't know if you've seen the new ads on quest.

Geoff E. Tanner: So, you know, we would historically target spending nine to ten percent on marketing. What I will say is that is... A high level of spend in the food and beverage category in general and certainly, a very high level of presence within our category, and that's the role that we play as category leaders. As to your question on how to support...

Carmel Gasper: But there've been constructed to enable us to support the multitude of different products on the brand.

While also driving the overall brand.

Carmel Gasper: Awareness and.

Carmel Gasper: Delivering you know the positioning of the brand so well, we don't like having to myself a choice between support the core business or innovation, what I like to do is have advertising that you can.

Geoff E. Tanner: Innovation, as well as the core business. What you'll see in both campaigns is that they have been developed to enable us to do that. So I don't know if you've seen the new ads on Quest, but they've been constructed to enable us to support the multitude of different products on the brand, while also driving the overall brand awareness and at www. SimplyGoodFood.com. Innovation into that ad, and it still works.

Carmel Gasper: In play.

Carmel Gasper: Innovation into that AD and it still works.

Carmel Gasper: Data points for you just as you take a step back and look at this I mean, I think our model has been since the beginning in terms of the P&L profile try to get to gross margins of around 40% to try to get to advertising or marketing spend in the 9%, 10% range and EBITDA margins around 20, and I think we're getting back to that after some ish.

We had the last couple of years for some commodity inflation.

Carmel Gasper: As it relates to the total marketing spend you probably saw in the results were up about 100 plus basis points for the quarter and the first half of the year that will continue in the second half of the year. So you'll see marketing spend closer to nine ish percent for the rest of the year.

Shaun P. Mara: A couple of data points for you, just as you take a step back and look at this. I mean, I think our model has been from the beginning in terms of the P&L profile, try to get to gross margins around 40%, try to get to advertising or marketing spend in the 9% and 10% range, and EBITDA margins around 20%. And I think we're getting back to that after some issues we had in the last couple of years due to some commodity inflation. As it relates to total marketing spend, as you probably saw in the results, we're up 100-plus basis points for the quarter on the first half of the year. That will continue in the second half of the year, so you'll see marketing spend closer to 9-ish percent for the rest of the year.

Carmel Gasper: It's useful thank you and just a quick follow up boring question 50, <unk> week any.

Carmel Gasper: Any context on contribution and do we just take it out of next year.

None: Oh, yeah, absolutely taken out next year, yes.

None: Let me answer that one first.

None: And then in particular, a week I mean, I think historically, we've said, it's a little bit more of a point of growth.

None: You just can't take 52 or wonder about if it's do it I'd say here is that how much worth because with the way our fall resets work. We generally speaking ship those sort of early August mid August. So we don't get the replenishment of that probably until mid September. So it's just a little more than one point of growth overall, we don't have the specifics of that at this point in time.

None: Better clarity on that I hope in Q3.

None: Yeah. Thank you.

None: Thank you. Our next question is come from the line of Brian Holland with D. A Davidson. Please proceed with your questions.

Operator: It's useful, thank you. And just a quick follow-up boring question, 53rd week: any context on contribution, and do we just take it out of next year?

Brian Holland: Yeah. Thanks, good morning.

Brian Holland: Got it.

Brian Holland: Go back to the competitive dynamic component, because we're seeing a pretty clear divergence between bars and shakes. The entire bars category has been softer of late and then within say theres sort of a bifurcation between you know the weight management and some of the other heavier protein product.

Shaun P. Mara: I mean, I think, you know, historically, we've said it's a little bit more of a point of growth. You just can't take 52 or 1 divided by 52 and say, "Here's how much it's worth."

Shaun P. Mara: Because with the way our fall resets work, we generally speak ship those sort of early August, mid-August. So we don't get the replenishment of that probably until mid-September. So it's just a little bit more than one point of growth overall. We don't have the specifics of that at this point in time. We'll have better clarity on that, I hope, in Q3.

So maybe maybe a two part question here one.

Brian Holland: I guess I'm, a little bit surprised to hear the attribution for the weakness.

Brian Holland: Whereas when it's coming from the I guess the growth is coming from shakes that you're talking about that's where the supply is improving so the impact it's having on bars and everything else. So maybe a little bit more color around just understanding why you think that is particularly impacting atkins cause I guess.

Operator: Thank you. Our next questions come from the line of Brian Holland with DA Davidson. Please proceed with your question. Yeah, thanks. Good morning.

Geoff E. Tanner: I wanted to go back to the competitive dynamic component, because we're seeing a pretty clear divergence between bars and shakes. The entire bar category has been softer of late. And then within shakes, there's sort of a bifurcation between, you know, weight management and some of the other heavier protein products. So maybe there's a two-part question here. One, I guess I'm a little bit surprised to hear the attribution for the weakness when it's coming from the, I guess the growth is coming from the shakes that you're talking about. That's where the supply is improving. So the impact it's having on bars and everything else. So maybe a little bit more color around just understanding why you think that is particularly impacting Atkins because I guess I'm, I'm surprised that we would see that level of shopping across shopping between those brands.

Brian Holland: I'm surprised that we would see that level of shopping cross shopping between those brands and then the second one is not necessarily a new dynamic we knew that supply was coming.

Brian Holland: It's something that had been communicated something that's been ongoing so maybe so I guess.

Brian Holland: To the extent that it is hitting your business at a level of a magnitude greater than expected.

Was the impact of that supply coming back online just greater than what you bought and the consumer response to it greater than you thought because.

Brian Holland: Because it doesn't seem like something that we didn't know was coming.

Yes.

None: Yeah, and I'll just address your first question, which is the observation on baas.

None: <unk> I guess, the first thing I would comment as well.

Geoff E. Tanner: And then the second one is not necessarily a new dynamic. We knew that supply was coming. It's something that has been communicated, something that's been ongoing. So maybe, so I guess. You know, to the extent that it's hitting your business at a level or at a magnitude greater than expected, so the impact of that supply coming back online is just greater than you thought and the consumer response to it is greater than you thought. Because it doesn't seem like something that we didn't know was coming.

None: While baas growth had slowed.

None: Quest is.

None: Proven to be an exception.

None: To that quest bars are up mid single digits.

None: And we're very pleased with that level of growth, but certainly you have seen shapes.

None: [noise] outstrips.

None: Ah by growth and honestly as we've talked about that not really a supply I was not surprised because supply was constrained for two years.

None: I think as Sean said in response to an earlier question.

None: We're staying with shape essentially two years of crossing one.

And and that dynamic has played out January February and will until we're finished with that lap which is more towards the summer.

Geoff E. Tanner: Yeah, no, that's fair. I'll address your first question, which is the observation about bars. I guess the first thing I would comment on is while bars' growth has slowed, Quest has proven to be an exception to that. Quest bars are up mid-single digits, and we're very pleased with that level of growth. But certainly, you have seen growth, outstrips, bar growth, and honestly, as we've talked about, that's not really a supply issue, not a surprise because supply was constrained for two years, so I think, as Shaun said in response to an earlier question, what you're seeing was shaped essentially two years of growth in one. And that dynamic has played out in January, February, and will continue until we finish with that lap, which is more towards the summer.

None:

None: And then to your question on I think your question was should you have knowing more.

None: More than we did about a dynamic that we were going to walk into in January and February and I'd say the answer is yes.

None: And looking forward going forward.

None: You should expect us to.

None: Perhaps be more of a challenge to competitive dynamics and to think about merchandising as a share of voice.

None: Versus just looking at our own plan. So you should expect.

None: That change moving forward.

None: I appreciate all the color and then just.

None: Back to Atkins.

None: You know it does.

Kerry your messaging has been fairly consistent for the PA since you talked about the revitalization plan and you know the potential opportunity over time, you know with with the G. L. P. One complement.

Geoff E. Tanner: So, and then to your question on whether you should have known more than we did about the dynamic that we were going to walk into in January and February, and I'd say the answer is yes. And looking forward, you should expect us to... perhaps be more attuned to competitive dynamics and to think about merchandising as a share of voice versus just looking at our own plans. So you should expect that change moving forward.

None: Just curious if you've picked up anything anecdotal to increase your conviction of that and because I do think that seems to be a point of contention with investors, who you know I hear a lot of inbound you know kind of inquiries about they feel like this is that this would be a headwind to the business.

Geoff E. Tanner: Appreciate all the color. And then just go back to Atkins. You know, just curious, your messaging has been fairly consistent for the past, you know, since you talked about the revitalization plan and, you know, the potential opportunity over time, you know, with the GLP-1 complement. You know, just curious if you've picked up anything anecdotal to increase your conviction to that end, because I do think that seems to be a point of contention with investors who, you know, I hear a lot So, clearly, the innovation seems to be, you know, the 30 grams of protein that seems to be resolving some of this, but just curious what you've picked up anecdotally that gives you increased confidence that Atkins, indeed, will be a complement and GLP-1 will be a tailwind for that business.

None: Because of the overlap of the consumer and maybe that they may be changing their routine away from an asking just using the D. L. P. One so clearly the innovation seems to be you know the 30 grams of protein.

None: That seems to be resolving some of this but just curious what you picked up anecdotal that gives you increased confidence.

None: That I can be D will be a complement and DLP one will be a tailwind for that business.

None: Yes, I would start by saying we are in the early innings of J L. P. One.

None: And we're still learning, where we're doing our own studies, we're talking to consumers we're talking to customers.

None: Wait I belief that J L. P. One.

None: These represent a tailwind for Atkins and a tailwind for the category.

None: We know that when consumers are on these drugs as I as I answered earlier, they have a need for higher price same products.

None: And they have got health issues, which is why we accelerated the launch of Atkins strong to market and we're excited about that launch of that platform and retail that's given us a lot of credit for moving quickly and and coming to market with something that specifically addresses that Nate I would say that I'm equally S.

Geoff E. Tanner: Yeah, I would start by saying we are in the early innings of GLP-1, and we're still learning. We're doing our own studies, we're talking to consumers, we're talking to customers.

Geoff E. Tanner: We do believe that GLP-1 does represent a tailwind for Atkins and a tailwind for the category. We know that when consumers are on these drugs, as I answered earlier, they have a need for them, and they have gut health issues, which is why we accelerated the launch of Atkins Strong to market, and we're excited about the launch of that platform, and retailers have given us a lot of credit for moving quickly and coming to market with something that specifically addresses that need. I would say that I am equally, if not more, excited about Atkins as an off-ramp, as that off-ramp, as that sustainable way to keep that weight off. So I continue to believe that these GLP-1 drugs are a tailwind.

None: Not more excited about.

None: Atkins asset off ramp is an off ramp.

None: For consumers, who want to get off the trucks.

None: It's a battle going on with insurers as you know our own research suggests that most people once they've hit their whitelaw skull. Once you get off those drugs. They know there's a good chance they'll put the white back on and they are desperate to find some sustainable.

None: Program or sustainable way of eating to keep that weight off and I think that's where atkins can shine.

None: And moving forward you should expect us to more clearly position the brand as that off ramp as that sustainable way to keep that weight off. So I continue to believe that these G. L. P. One drugs are a tailwind, but I would reiterate we are still in the early innings.

Geoff E. Tanner: I got it. Forgive me if I just take a really long time.

None: Got it.

It gives me.

None: Really quick one if you stated this earlier I apologize.

Operator: I got it. Forgive me if I use it.

Operator: I apologize. Was Quest in line with expectations in the quarter?

None: With quest in line with expectations in the quarter.

Shaun P. Mara: Yes. Okay, great, thank you. Thank you. Our last questions will come from the line of Jon Andersen with William Blair. Please proceed with your questions. Oh, thank you very much for squeezing me in.

None: Yes.

None: Okay, great. Thank you.

None: Thank you our last question will come from the line of Jon Andersen with William Blair. Please proceed with your questions.

Jon Robert Andersen: Oh, Thank you very much for squeezing me in.

Geoff E. Tanner: I have a question about household penetration. You talked about the category of active nutrition being relatively low relative to other center historic categories. Where are you today with Quest?

Jon Robert Andersen: Question about household penetration you talked about that.

Jon Robert Andersen: The category.

Of active nutrition being relatively low relative to other center of store categories, where are you today with quest and whereas Atkins with respect to household penetration and then.

Geoff E. Tanner: And where is Atkins with respect to household penetration? And then, as you look forward, what's the goal or opportunity around each of the brands? So as you're innovating, as you're marketing, are you looking to drive household penetration and buy rate across both brands? Is there a greater opportunity within one of those areas? Thinking that that may, that opportunity may differ by brand, but a little color around that would be helpful.

Jon Robert Andersen: As you look forward.

Jon Robert Andersen: What's the goal or opportunity.

Jon Robert Andersen: And each of the brands so as you're innovating as your marketing.

Jon Robert Andersen: Are you looking to drive household penetration and buy rate.

Jon Robert Andersen: Across both brands is there a greater opportunity within.

Jon Robert Andersen: One of those areas.

Jon Robert Andersen: Thinking that that may add opportunity may differ by brand, but a little color around that would be helpful. Thanks.

Geoff E. Tanner: Yeah, I'll start with the categories, household penetration, if the categories are in the mid-50s. And that compares with the high 80s, and low 90s with most center store categories, which is why we continue to see a long-term runway. And if you look at where the category over-indexes, it is with younger consumers, millennials, and Gen Zs. So we continue to believe that penetration of the category is only going to increase, and certainly retailers see that, which is why they're excited to work with us on initiatives to accelerate category penetration. As you look at the respective brands,

None: Yes, I'll start with the category.

None: Penetration of the category and mid fifties.

None: And that compares with high Eighty's low nineties with them all the same to school category, which is why we continue to see a long term runway.

None: And if you look at.

None: We're the category over indexes.

None: It is with younger consumers as millennials and Gen. <unk>. So we continue to believe that penetration of the category is only going to increase and certainly retailers say that which is why they're excited to work with us.

None: Initiatives to accelerate category penetration.

None: As you look at the respective brands.

None:

Geoff E. Tanner: Quest has around 16 or 17% household penetration, but as we've talked about, for a brand of its size, awareness is significantly below most of its competitors, which is why we're excited about new advertising. As you click one level lower with Quest, we believe there's an opportunity to drive increased, and in particular, the new innovation platform is helping to drive buy rates, right? Because we're offering consumers additional snacking occasions, and that just increases the buy rate. So, I think if you look on Quest...

None: Quest is around 16, or 17% household penetration, but as we've talked about for our brands.

None: Of its size.

None: When it is significantly below most of it is competitive.

None: Which is why we're excited about.

None: Given your advertising.

None: And then as you click one level lower with quest, we believe there's an opportunity to drive increased household penetration and buy rate.

None: And in particular, the new innovation platforms.

None: Helping to drive by rates right, because we're offering consumers additional snacking occasions.

None: And that just increases by rate.

None: I think as you.

None: Look on quest Theres, an opportunity to drive household penetration up.

Geoff E. Tanner: There's an opportunity to drive household penetration up, as we focus on increasing awareness. Advertising is the big driver there. Is there an opportunity to drive fire rates up?

None: As we focus on increasing awareness.

None: Advertising is the big driver there.

None: Is there an opportunity to drive Fireeye app.

Geoff E. Tanner: And in particular, I would point to the new innovation platform, New Bakeshop Platform, which is offering a completely new usage occasion, right, disrupting. Sweet Baked Goods. On Atkins, the awareness levels are quite high, and so that is less of an opportunity for that brand. The opportunity for Atkins, I think, is to continue to ensure that consumers see the brand as a sustainable way to maintain weight. And I continue to believe innovation, better innovation than we have launched in the past, is an opportunity with that brand.

None: And in particular, I would point to the new innovation platform.

None: <unk> and the new bike shop platform.

None: Which is offering a completely new usage occasions, not disrupting that.

None: Sweet baked goods on Atkins Ah the awareness levels are quite high.

None: And so that is less of an opportunity on that brand the opportunity on Atkins I think is to continue to ensure that consumers see the brand.

None: Is it as a sustainable way to maintain weight.

None: And I continue to believe innovation better innovation and we have launched in the past is an opportunity with that brand.

Geoff E. Tanner: And just real quick on penetration, just a reference point for you, we're at almost 17 points for Quest right now for household penetration. If you go back a couple of years, we were actually a little bit below 14, right? So I think we've made a tremendous part of our growth to that BAFRA, and it's been distribution, but also household penetration and awareness, and I think we see that for the future as we look at Quest as well as an opportunity.

None: Just real quick on the penetration just as a reference point for you worked almost 17 points.

None: For quest right now or household penetration. If you go back a couple of years, we're actually a little bit more 14, right. So I think we've made tremendous part of our growth to that that brand has been distribution, but also household penetration and awareness and I think we see that for future look of quest as well as an opportunity.

None: One housekeeping so choose the balance sheets in good shape your leverage ratio I think is below half a churn at this point.

Shaun P. Mara: One housekeeping item. So the balance sheet's in good shape. Your leverage ratio, I think, is below half a turn at this point. You've paid down more debt in a quarter. What is the, you know, how are you prioritizing the use of excess free cash flow going forward in the business? Thanks.

None: You've paid down more debt.

None: The quarter.

None: What is the.

None: How are you prioritizing use of excess free cash flow going forward in the business. Thanks.

Shaun P. Mara: Yeah, we had a great quarter, obviously, for cash generation and cash from operations, but we continue to see that as a competitive advantage for us, and we'll continue to see that in the second half of the year. We spent a fair amount of time evaluating the best return on cash for our shareholders, debt paydown, share repurchases, and potential M&A opportunities. We'll continue to evaluate that for the second half of the year and do what we think is best for a return to our shareholders.

None: Yes, we had a great quarter, obviously for cash generation and cash from operations, we continue to see that.

None: Competitive advantage for us and we'll continue to see that in the second half of the year. We spent a fair amount of time evaluating the best return of cash for our shareholders debt Paydown share repurchases potential M&A opportunities will continue to evaluate that for the second half of the year and do we think is best for return to our shareholders.

None: Okay.

None: Thank you we have reached the end of our question and answer session I would now like to turn the floor back over to Jeff Tanner for closing remarks.

Geoff E. Tanner: Thank you.

Geoff E. Tanner: Thank you. We have reached the end of our question and answer session. I would now like to turn the floor back over to Geoff Tanner for closing remarks.

Geoff E. Tanner: Yeah, that's what I think.

Geoff E. Tanner: Everyone for their participation on today's call and we look forward to updating you on our third quarter results in late June to have a great day.

Geoff E. Tanner: Thank you. This does conclude today's teleconference. We appreciate your participation you may disconnect at this time enjoy the rest of your day.

Geoff E. Tanner: I just want to thank everyone for their participation on today's call, and we look forward to updating you on our third quarter results in late June. So, have a great day.

Yeah.

Geoff E. Tanner: Hum.

[music].

Operator: Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect at this time. Enjoy the rest of your day.